VideoYesterday, Bristol-Myers Squibb Co. announced it overstated sales by about $2.5 billion over a three-year period. The inflated revenues were a result of deals with two large U.S. drug wholesalers. The rejiggering will force Bristol-Myers to restate earnings downward by $900 million.
The company's management said the restatement also reflects the correction of accounting policies to conform to generally accepted accounting principles (GAAP) and certain other adjustments to correct errors made in the application of GAAP, including certain revisions of "inappropriate accounting."
The pharmaceutical giant said it reduced net sales by more than $1.4 billion for 2001, $678 million for 2000, and $376 million for 1999. The company increased sales for the six months ended June 30, 2002 by $653 million.
It also reduced net earnings from continuing operations by $376 million, $206 million and $331 million in the years ended 2001, 2000 and 1999, while net earnings from continuing operations were increased by $201 million in the six months ended June 30, 2002.
Bristol-Myers said it experienced a substantial buildup of wholesaler inventories in its U.S. pharmaceuticals business over several years, mostly due to sales incentives offered to its wholesalers. These incentives were generally offered towards the end of a quarter to convince wholesalers to purchase enough products to help Bristol-Myers meet its quarterly sales projections, the company's management conceded.
Management also noted that in April 2002, it disclosed this substantial buildup, and undertook a plan to work down these wholesaler inventory levels. As CFO.com reported at the time, the pharmaceuticals giant also announced that CFO Frederick Schiff, a 20-year veteran at the company, was leaving his post.
In June, the drug company named Andrew Bonfield its new CFO. Bonfield joined Bristol-Myers from oil company BG Group, but he spent the bulk of career at British drugmaker SmithKline Beecham.
Three months after Bonfield's arrival, Bristol-Myers indicated it would need to restate its sales and earnings to correct errors in timing of revenue recognition for certain sales to certain wholesalers. That decision was apparently triggered by advice from Bristol-Myers' independent auditors, PricewaterhouseCoopers LLP.
Since then, the company's management said it undertook an analysis of the drug-maker's transactions and incentive practices. The result? Bristol-Myer's determined that certain incentivized transactions with certain wholesalers should be accounted for under the consignment model, rather than recognizing revenue for such transactions upon shipment.
The company also decided to conform historical accounting policies to GAAP and correct errors it believed were not material to its financial statements. In addition, Bristol-Myers restaffed its controller staff after the company's accounting problems came to light.
Gemstar Also Restates
Gemstar-TV Guide International, Inc. said on Monday it plans to further restate its results as a result of a previously disclosed review of its accounting policies.
The company said revenues will be reduced by $110.9 million, income before income taxes and extraordinary items will be reduced by $36.3 million, and EBITDA will be reduced by $45.2 million for fiscal periods dating back to 2000.
The company had warned in an SEC filing back in November 14, 2002, that it would restate its financials after hiring a new independent accounting firm to audit its statements.
On January 23, the company announced that as a result of the review by the independent accounting firm, it intended to restate its financial statements. The restatements would reflect that $8.2 million in previously reported revenues in the Interactive Platform Sector will not be recognized, $26.8 million in previously reported licensing revenues will be reclassified, and $47 million in previously reported revenues will be recognized over the remaining terms of the licensing agreement.
Report: US FoodServices CFO Knew
Move over, Enron, WorldCom and Adelphia.
Suddenly, the biggest accounting scandal these days is taking place on the other side of the Atlantic.
It seems that veteran Ahold executive Ernie Smith left the company just three months after being named chief financial officer of US Foodservice. The reason for Smith's sudden departure? Allegedly, Smith was uncomfortable with the division's accounting standards, according to one published report that cited a former executive.
The accounting practices at US Foodservice, which Ahold acquired in 2000, led the supermarket giant last month to announce that it overstated earnings by $500 million.
Cees van der Hoeven, Ahold chief executive officer, and Michael Meurs, chief financial officer, resigned after the revelation. (To find out what Meurs said about the company's acquisition strategy in a CFO interview conducted in 2001, read "What Meurs Told CFO.")
Interestingly, the ft.com Monday reported that according to a letter written late last week by Jim Miller, US Foodservice's chief executive, to a group of large customers, the resignations were unrelated to troubles at US Foodservice. "Their resignations had nothing to do with our company...[they were] the result of events that occurred outside the United States," Miller reportedly said.
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