VideoIt seems as though the current epidemic of corporate restatements began after Enron management admitted it was going to have to rejigger that company's numbers.
But a new report seems to indicate that this trend toward restating revenues has been building quietly for several years now.
According to a recent report by Huron Consulting Group, there were actually 270 restatements in 2001. In 1999, there were 216 restatements. In 1997, 117 companies issued restatements. Altogether, there were 993 restatements over the five-year period.
Bear in mind that over the past two years, the number of public companies dropped by 6.5 percent. This means that the average overall rate of public restatements has risen from 11 per 1,000 public companies in 1997 to 27 per 1,000 companies in 2001.
A Huron spokesman says no numbers are yet available for 2002.
What were the most common reasons for the restatements during the five-year period ending 2001?
Leading the list: revenue recognition, representing about 20 percent of the restatements. That was followed by reserves/accruals/contingencies (12.6 percent), which includes accounts receivable and inventory reserves, restructuring reserves, accruals and other loss contingencies.
Acquisition accounting (9.9 percent) was the third most common reason for restatements. This includes purchase accounting versus pooling issues, purchase price allocation issues, and amortization periods assigned to goodwill and intangibles.
Interestingly, the most common reason for restatements in 2001 was equity, which includes stock option accounting, EPS accounting and accounting for warrants and other equity instruments.
Despite the recent raft of blockbuster restatement announcements from large companies like WorldCom and Enron, Huron found that 51 percent of all restatements during the past five years were by companies with annual revenues less than $100 million. In fact, fully 77 percent of all restatements over the five year period came from companies with less than $500 million.
The manufacturing industry accounted for the largest number of restatements over the past five years, accounting for 25 percent of all filings. It was followed by the software industry, with 16 percent of the total filed during the study period.
The fewest restatements were filed in an industry segment that includes agriculture, forestry, fishing, mining and construction companies.
Good or Bad, Lawyers Make Out
If corporate restatements are up, so too are shareholder lawsuits leveled at corporate restaters.
Or at least, that's the finding of a new study conducted by the Stanford Law School Securities Class Action Clearinghouse, a class-action database. According to the Stanford group, shareholders sued 130 companies for securities fraud in the first half of 2002. If that pace keeps up, the number of shareholder lawsuits this year will outstrip the number of suits last year by 53 percent faster (in 2001, shareholders filed 170 suits.)
Among the companies sued so far? No surprise. WorldCom Inc., which filed for bankruptcy Sunday evening, Tyco International Ltd. and Adelphia Communications.
Ironically, the 1995 Private Securities Litigation Reform Act was supposed to make it easier for companies to dismiss suits before trial -- and make it more difficult for shareholders to prove liability if they do get to trial.
But that's not how it's working out this year.
Here are the number of federal securities fraud class action filed since 1995. Note that the list doesn't include the more than 300 class actions that allege underwriters improperly distributed shares in IPOs, which are being treated as a one-time event by the Securities Class Action Clearinghouse.
1995: 188
1996: 109
1997: 175
1998: 234
1999: 204
2000: 213
2001: 170
2002: 130 (six months)
Solly on Top
Here's further proof that the commercial banks are leveraging their lending relationships to boost their investment banking business.
Citigroup Inc.'s Salomon Smith Barney has leaped over Goldman, Sachs & Co. and Morgan Stanley to become the top equity and convertible securities underwriter during the first six months of this year, according to Bloomberg.
This is an amazing accomplishment, considering that until just a few years ago Salomon was known primarily for its bond business.
The wire service's study found that 28 of the 42 companies that chose Salomon to sell additional shares or convertibles used a different firm last year.
Five years ago, the newly combined Salomon and Smith Barney operations ranked sixth in stock and convertible underwriting.
Last year, it ranked third globally and fifth in the U.S.
Altogether, during the first six months, Salomon underwrote $31 billion of securities, compared with Goldman's $27.6 billion and Merrill's $25.6 billion.
Meanwhile, Salomon's underwritings have performed better than its rivals. The shares of U.S. companies that is has hawked are down 3.6 percent, on average, from their issue prices. That's compared with a 10 percent decline for Goldman's offerings and 9.8 percent for Morgan Stanley's underwritings.
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