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Technology Stocks : LHSP: Lernout En Hauspie -- Ignore unavailable to you. Want to Upgrade?

To: cdtejuan who wrote (2285)	8/10/2000 3:26:42 PM
From: A.L. Reagan	Read Replies (1) \| Respond to of 2467

A possible solution would be a six-month audit. An even less expensive solution is a review letter addressing Korea revenue recognition and related collectibility of receivables. Although this is obviously a "hot potato" issue, CPA firms do these types of special purpose reviews all the time - but usually in the context of where a third party, such as a lender, co-venturer, or landlord is contractually reliant on sales data. The limited review is a whole lot cheaper, and less disruptive, than a partial year audit. I am anxious about collectibility issues, and the 6/30 balance sheet when issued with the 10-Q will not provide any answers. A/R DSO's will be way up. The Herbie Greenie crowd will cite this as evidence that the Korean sales "ain't all that". After the stock gets hit, then the company and its Cowen supporter will come along a day or two later and attribute the DSO increase to the apples and oranges comparison of only partial Dictaphone/Dragon sales (partial both due to timing of acquisition and change in revenue recognition). Then Herbie will counter that if it's more conservative D&D revenue recognition, that would show up also as lowered A/R. I have in general a problem with L&H's "we made D&D's revenue recognition" more conservative argument. In purchase accounting, one would make this adjustment as of the purchase date with a cumulative adjustment to the acquired balance sheet that effectively debits goodwill and credits A/R. (Actually you first DR. Retained earnings which then gets adjusted to goodwill.) So from day one the acquired operations would be recording revenue on the new basis and there would not be a catch-up lag. Again, that's because the change in accounting would be cumulative, not prospective. So either L&H doesn't understand how to play the purchase accounting game (a Cisco would never have this problem), or the "our revenue recognition for D&D is now more conservative" explanation is bogus. My guess is that sales for both D & D were impacted as a result of their aquisitions pending as well as the tactical shifts (now being played out) in the sales organizations and product offerings. L&H would have been better off just saying so, rather than muddying the water with an accounting explanation that to me, does not hold water. Lastly, the Cowen guy may be right as rain, but totally lacks credibility since Cowen was the investment banker to L&H for both Dictaphone and Dragon. Ergo, expect the fear, uncertainty and doubt to rumble on a bit (a fine witch's brew of Korean plus acquisition accounting) after the 10-Q is filed. I can almost write Greenberg's next column for him.