The Corner of Restate and Main

Bristol-Myers, Tyco, Newmont Mining will restate; there's plenty more where that's coming from. Also: Election day in October? SEC to select PCAOB head today.


Just when it looked like the parade of corporate restatements might be slowing down, a number of high-profile companies have announced they are reving their financial results.

As reported on Wednesday, AOL Time Warner said it will restate revenues downward by $190 million for the eight quarters ended June 30, 2002. The revenue-lowering stems from advertising and commerce transactions at its America Online division.

On Thursday, Bristol-Myers Squibb and Tyco International also reported they will restate their results.

With most companies just getting around to reporting their September quarterly results — and with top corporate executives now required certify those results — investors could be facing a restatement epidemic.

The restatement by Bristol-Myers is by far the biggest revision announced in the past couple of days.

The drug company said it will restate more than $2 billion in sales due to the company’s accounting for its wholesaler inventory in its U.S. pharmaceuticals unit.

Bristol-Myers management said it will restate sales and earnings upward for 2002 and downward for prior periods that were affected, primarily in 2000 and 2001.

The drug company also indicated it will reallocate diluted earnings per share by about 61 cents over the three-year period. Apparently, the moves are being taken on the advice of the company’s accountant, PricewaterhouseCoopers LLP.

Management at Bristol-Myers stressed that the figures are preliminary estimates and are subject to change.

“Restating will help put the inventory issue behind us as soon as possible and allow us to move forward,” said Peter R. Dolan, chairman and chief executive officer.

On Aug. 14, the company reported that the SEC was informally investigating the company’s accounting treatment of its sales incentives to wholesalers in 2000 and 2001. At the time, management indicated that the investigation could lead the pharmaceuticals giant to restate earnings for those two years.

A few weeks later, Bristol-Myers acknowledged that the SEC’s investigation into its inventory accounting was upgraded into a formal investigation.

Meanwhile, Tyco International Ltd., which has had plenty of bad news over the past few months, yesterday restated its earnings for the first nine months of the current fiscal year.

The restatement was initially presented in an almost oblique manner in footnotes to financial tables accompanying a lengthy press release announcing quarterly results.

When the company was pressed by reporters and investors on a conference call later in the day, company management conceded that $135 million worth of pretax income already booked at its ADT security unit will be restated. The revenue will be recognized in future quarters, according to Reuters.

The wire service said that David FitzPatrick, Tyco’s new chief financial officer, acknowledged that the income (related to ADT dealer fees) had been recognized upfront instead of recorded over the life of contracts. Typically, those contracts run for 10 years.

The aggressive accounting treatment took place under Tyco’s former management, headed by former chairman, L. Dennis Kozlowski and former CFO Mark Swartz. Both those man currently face fraud and theft charges.

FitzPatrick reportedly said the restatement reflects the “best judgment” of management, in consultation with its outside auditor, PricewaterhouseCoopers.

Meanwhile, David Boies, a lawyer hired by Tyco to oversee an internal company investigation, said he expected the conglomerate to make additional accounting restatements. Boies added, however, that those future restatements would not meaningfully diminish current earnings, according to Reuters.

“It is likely some disclosures will be made in addition to what (Tyco’s CFO) discussed with you this morning,” Boies reportedly said.

He added that the forensic accounting investigation of Tyco’s books is only 60 percent complete.

In other matters related to Tyco:

  • The company’s management said it recorded a $663 million charge related to the impairment of goodwill and intangibles.
  • Tyco management indicated that its employee pension plans were underfunded by $1.7 billion in fiscal 2002.
  • The reported that PwC, Tyco’s auditor, apparently knew about loans from the conglomerate to its former corporate counsel. The cited court documents filed earlier this week.

Former Tyco attorney Mark Belnick was indicted last month for allegedly falsifying business records. Belnick is being sued by both Tyco and the SEC for allegedly taking $14 million in undisclosed, interest-free relocation loans.

Miner Restatements

Meanwhile, management at Newmont Mining Corp. announced on Wednesday that the company will restate its financials from the third quarter of 1999 through the second quarter of 2002. The reason for the revisions? To correct the accounting treatment for a prepaid forward gold sales contract and a forward gold purchase contract that the company entered into in July 1999.

The mining company’s management said the correction follows a review of its accounting policies conducted by its new independent public accountant, PwC, in preparation for its upcoming annual audit.

Newmont management was quick to point out, however, that the transactions were fully described in the notes to its financial statements contained in the company’s quarterly reports for each of the periods in question.

PwC was appointed in May 2002 as Newmont’s independent public accountants, replacing Arthur Andersen.

“As a result of the review, Newmont, in consultation with PricewaterhouseCoopers, concluded that the prepaid forward sales contract did not meet the technical criteria to be accounted for in the manner reflected in Newmont’s historical financial statements,” company management stated in a press release. “Newmont, therefore, has determined to account for these transactions as a financing.”

Newmont estimates that the restatement will result in a $6.5 million reduction in earnings over the three-year period.

Management added that PwC is re-auditing Newmont’s financial statements for the three years ended December 31, 2001. The re-audit will be finished prior to the filing deadline for Newmont’s quarterly report for the third quarter of 2002.

In other restatement news:

Hanover Compressor Co., a provider of outsourced natural gas compression services, said it will restate 1999 financial results to more properly reflect four transactions totaling $5.1 million of revenues and $2 million of net income.

“Senior management is satisfied it has conducted a thorough review of prior transactions and, consequently, will certify and file with the Securities and Exchange Commission within 30 days amended financial results for 1999, 2000 and 2001 to reflect the restatements,” said John Jackson, Hanover chief financial officer. Jackson said information concerning its internal investigation will be provided to the SEC.

This is the third time Hanover has restated its financial results, according to reports.

“We’re going to do this and move on,” Jackson told Reuters. “I certainly believe it’s the end.”

Zila Inc. said it will restate its financial results for the three fiscal years ending in 2002.

The restatements will increase the medical products company’s pretax loss for fiscal 2002 and fiscal 2001 by about $70,000 and $130,000, respectively, and will increase Zila’s pretax income for fiscal 2000 by about $690,000.

In addition, Zila’s shareholders’ equity will be reduced by approximately $1.9 million.

All of the restatements involve the timing of recognition of revenues and expenses.

Zila also noted that the SEC is reviewing its impairment analysis related to approximately $5.4 million of purchased technology rights pertaining to certain Tolonium Chloride technology and assets. The company expects to resolve this issue with the SEC before it files its annual report, which could result in an additional restatement or adjustment.

Douglas D. Burkett, who was elected CEO and president of Zila in June and elected chairman of the board last month, said: “Zila is committed to conservative accounting, full, clear disclosure of all relevant information and integrity in everything we do.”

SEC to Name Head of Accounting Board Today

Election day comes early this year. In October.

Today, the Securities and Exchange Commission is expected to conduct a public vote on who will head the newly created Public Company Accounting Oversight Board (PCAOB).

The two leading candidates: former FBI Director William Webster and former TIAA-CREF Chairman John Biggs, according to published reports.

Both men have their critics.

Webster is 78 years-old, and has little or no accounting or finance background. Of course, judging by the work of previous accounting oversight boards, it’s not entirely clear whether an accounting background is a big plus when it comes to overseeing the industry.

Biggs, on the other hand, is heavily supported by Democrats. Many Republicans oppose his selection because they believe he is an accounting hawk.

Bloomberg said Friday’s meeting was called by SEC Commissioner Harvey Goldschmid, who wants the selection of the accounting board’s five members to take place in an open session.

Congress has required the board to be filled by Monday.

“Voting in an open meeting will help Biggs,” Douglas Carmichael, director of Baruch College’s Center for Integrity in Financial Reporting, told the wire service. “Commissioners will be held more accountable by the public, and it will be tougher to vote against an investor advocate like Biggs and for someone like Webster who lacks a strong accounting background.”

Give This CFO a Gold Watch

Chief financial officer James G. Stewart is retiring from Cigna.

Stewart is a bit of a throwback. He’s a career Cigna employee, having spent the last 36 years with the insurer. In fact, he’s served as the company’s CFO for nearly two decades — never venturing out to take over as CEO at a smaller company. Stewart will officially leave the insurer in December.

Michael W. Bell was named to succeed Stewart. Bell has served in financial, actuarial and operational roles of increasing responsibility during his 18 years with the company.

Stewart was elected executive vice president and CFO of Cigna in 1983. He joined Connecticut General Life Insurance in 1966. Connecticut General combined with Insurance Company of North America to form CIGNA in 1982.

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