Oracle Corp has found a big hole in its accounts that puts it in breach of some of its bank covenants, and says it is unable to report full third quarter figures beyond saying that it made a net profit of $12.1m on sales of $269m and that earnings per share for the period, to February 28, were 9 cents. Oracle says that its focus on collecting monies owed during the third quarter revealed that a significant amount of accounts receivable may be uncollectible and that further examination uncovered processing errors such as inadvertent duplicate billings and unlogged customer returns which it believes materially affect previously reported financial results, so it is going to have to restate them once again. It has increased the reserve for uncollectible accounts by about $42m from the second quarter of the current fiscal, and has charged about $7m against third quarter profits. It intends to lose the rest of the $35m in the figures for previous quarters, leading to a comprehensive restatement of prior periods; meantime the previously issued financial statements and the related auditors’ report should not be relied upon – which raises yet again the question: what were the auditors doing while all this was going on? Turning to the American Institute of Certified Public Accountants’ Statement of Position on Software Revenue Recognition, Oracle says that while it is unlikely that it will be required to implement the provisions of the statement prior to fiscal 1993, it has decided to adopt the basic points of the proposal with regard to recognition of support revenues, and recognition of revenues upon shipment. In the first, Oracle will now spread revenues for support and software update rights ratably over the support period rather than taking some of it on contract signing. This cut third quarter turnover by about $3m, and will restate another $53m of reported revenues this way. The proposed Statement of Position requires shipment prior to recognition of revenues for software licensing fees where, Oracle says, in certain instances, it currently recognises revenues upon contract signing when a financially sound customer has entered into a binding commitment to license software products, even though shipment of products has not occurred. The company is considering changing this from the fourth quarter of this fiscal. The adjustment to the reserve for uncollectible accounts receivable and the change in accounting for support revenues puts the company in breach of loan covenants and it is now having to seek a waiver. It says its cash position improved drammatically during the third quarter, moving from negative cash flow in the first two quarters of fiscal 1991 to positive cash flow of $24m in the third quarter.
