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Corel posts loss, restates results

Corel announces a disappointing fourth-quarter loss as it moves to restate the first three quarters of the year.

Corel (COSFF) today announced a disappointing fourth-quarter loss as it moved to restate the first three quarters of the year.

Corel, which is changing its accounting practice to a more conservative method that will give greater visibility to sales of its two core products, Corel Draw and WordPerfect, will incur a revenue reduction of $33 million for the three quarters combined, as well as a higher loss of $20.7 million for the nine-month period.

The software company, which anticipated a $95 million fourth-quarter loss when it issued a preliminary warning in December, got a smaller write-off than anticipated for the quarter as it moved the write-offs to the previous three quarters. Corel has encountered a string of losses, and posted a fourth-quarter net loss of $67 million, or $1 a share, for the period ending November 30, 1997, compared with profits of $6.54 million, or 9 cents a share, a year earlier.

Analysts, having revised their numbers downward after the company issued its December warning, expected Corel to post a loss of 25 cents a share, according to First Call.

The company's revenues, meanwhile, dropped dramatically, to $43.6 million for the quarter, down from $125.4 million a year ago.

"Corel's strategy seems a bit confused and not well-explained," said Pierre Boucher, an analyst with HSBC James Capel Canada. "Their prospects don't get me excited at all."

Under the terms of the restatement, Corel amortized the costs and revenues associated with its acquired Java technologies in the first, second, and third quarters. That move was made so as to account for costs and revenues in the quarters during which they occurred.

Corel is staking its future on new Java-based products and network computer products.

"The bottom line is, in the end, [the new accounting method] gives you a better view of what was actually sold in those quarters," said Michel DeLavergne, an analyst with Dlouhy Investments in Montreal. "It also gives better comparable quarters in the future and shows that the problem was not just...a one-quarter thing."

Corel CFO Michael O'Reilly said the company's restated quarters do not affect the company's financial performance for 1997.

DeLavergne noted that the slowdown in sales of Corel's core products, Draw and WordPerfect, was slower than expected prior to the restatement. "Expectations for WordPerfect will be lower in the future. I think they'll have a challenge to maintain revenues going forward," he added. "I don't have much growth expectation. If there is any growth, it will have to come from their new products that aren't due until the second half of the year."

Sales of Corel's productivity software netted $4.7 million in the fourth quarter, down from $44.5 million a year ago and $36.3 million in the previous quarter. O'Reilly noted, however, that the fourth quarter was hit with an unusually high number of merchandise returns and pointed out that software upgrades can create sales spikes that make quarter comparisons difficult.

Graphics software sales reached $38.6 million in the fourth quarter, compared with $76.3 million a year ago and 12 million in the previous quarter. Multimedia software revenues were $324,000 for the most recent quarter, down from $4.3 million last year and $297,000 during the third quarter.

Corel posted a net loss of $231.8 million, or $3.34 a share, for the year, compared with a loss of $2.75 million, or 4 cents a share, a year earlier. Revenues were $260.6 million for the year, down from $334.24 million the previous year.

"This culminates 1997, which has been a difficult year of transition for Corel," the company's chief executive, Michael Cowpland, said in a conference call. "We refocused our efforts more tightly on our core developments and also the upcoming Web-top development."

Corel CFO Michael O'Reilly said that, as the company moves toward a just-in-time delivery strategy--designed to lower inventory by shedding non-core products--it has been able to generate cash and maintain its development team of 900 employees.

He added that Corel's cash on hand has increased by more than $8 million during the fourth quarter, to $30.6 million, and said the company will not require any additional financing in 1998.