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Gold miner, energy company will offer revised versions of financial statements; for Newmont, second rejiggering in six months. Also: SEC expanding probes at AOL, Bristol-Myers, and Vivendi. Plus: Why did Deloitte nix spin-off of its consulting business?
Stephen Taub, CFO.com | US
March 31, 2003
Newmont Mining Corp. and Halliburton are the two latest companies to restate their results.
Management at Newmont, the world's largest gold-mine operator, announced the company would restate its quarterly numbers for 2001 and 2002 as a result of a reaudit by PricewaterhouseCoopers. The company has been under investigation by the Securities and Exchange Commission.
In October Newmont said it would restate its figures from the third quarter of 1999 through the second quarter of 2002 to correct an accounting treatment for a prepaid forward gold-sales contract and a forward gold-purchase contract that the company entered into in July 1999.
At the time, the mining company's management said the correction followed a review of its accounting policies conducted by what was then its new independent public accountant, PwC, in preparation for its upcoming annual audit.
Now Newmont admits it needed to make further corrections to those previously reported financial statements.
In addition to the previously announced restatements, the company said it is changing its deferred stripping calculations at its Batu Hijau operation to exclude in-pit, nonreserve material, and is changing its inventory accounting policy to include depreciation in inventory.
As a result of the restatements, Newmont will increase shareholders' equity by $19.7 million for December 31, 2001.
Management at Halliburton, which for awhile seemed to be in the running to play a major role in any rebuilding of Iraq, said the company will restate its earnings downward by $14 million for the fourth quarter of 2002.
The energy and construction company reported that, after releasing a press release announcing its December quarter's results, Halliburton recorded an additional $3 million expense (net of tax) to continuing operations. The company also recorded an $11 million expense, net of tax, to discontinued operations.
The $3 million adjustment to continuing operations relates to the results of a majority-owned consolidated foreign joint venture, the company noted.
The $11 million adjustment to discontinued operations relates to a reduction in estimated insurance recoveries for asbestos and silica claims. That rejiggering was the result of a recent announcement regarding the financial viability of an insurance carrier that was voluntarily placed in rehabilitation, added Halliburton.
Two Delay Annual Reports
Meanwhile, two companies indicated they will delay the issuance of their annual reports due to restatements.
Shoe seller Footstar Inc. reported that it expects to file its 2002 annual report about a month late so it can complete the restatements stemming from its already announced investigation into accounting discrepancies.
In November Footstar said it launched an internal investigation of certain accounting practices. The company also indicated it retained outside legal and forensic accounting experts after management discovered it understated Footstar's accounts payables by up to $35 million.
Fleming Cos. said it would delay the filing of its annual report by 15 days because it may need to restate certain financial statements and related disclosures previously filed with the SEC. An ongoing assessment of these issues and a related audit and compliance committee investigation haven't yet been completed, the company's management noted.
The food distributor's management also said it is currently trying to line up sufficient alternative financing. If that fails, the company's 2002 financial statements will likely include a going concern uncertainty.
SEC Probing AOL Accounting Again
AOL Time Warner has new accounting problems.
Management at the media giant said the SEC has recommended that the company adjust its accounting for two advertising deals. Those deals, between America Online and Bertelsmann A.G. back in 2001, were worth $400 million.
In addition, the company indicated that further restatements may be necessary.
AOL has already disclosed that the SEC and the Department of Justice are investigating the company's accounting and disclosure practices stemming from transactions made by the America Online unit.
In October AOL management said the company would restate revenues downward by $190 million for the eight quarters ended June 30, 2002. The restatement stemmed from advertising and commerce transactions at America Online.
Two months earlier, AOL management admitted it may have overstated $49 million in advertising and E-commerce revenues at the AOL unit.
The latest accounting controversy stems from discussions over AOL's acquisition of Bertelsmann's share in AOL Europe, the European Internet joint venture. AOL wound up shelling out $6.75 billion in cash for Bertelsmann's 49.5 percent stake.
The SEC staff has indicated to AOL that it believes at least some portion of the revenue recognized by the company for advertising should have been treated as a reduction in the purchase price paid by the company to Bertelsmann—rather than as advertising revenue.
AOL said in the filing it subsequently provided the SEC with a written explanation of the basis for its accounting for the transactions. "To date, both the company and its auditors continue to believe that these transactions have been accounted for correctly," it added in the filing.
The company said it is still in discussions with the SEC staff regarding the matter.
AOL added that the SEC is continuing to investigate a range of other transactions principally involving the America Online unit.
The company said it intends to continue to cooperate with both the SEC and the DoJ investigations to resolve the matters.
"It is not yet possible to predict the outcome of these investigations, but it is possible that further restatement of the company's financial statements may be necessary," added the company's management.
SEC Expands Two Other Probes
The SEC is also expanding its investigations into two other major companies: Vivendi Universal and Bristol-Myers Squibb Co.
On Friday Vivendi noted in a regulatory filing that the SEC has asked for more information relating to the commission's probe of the European giant's accounting practices.
Vivendi is currently being investigated by the SEC and the U.S. Attorney. On July 29, the SEC advised Vivendi that it had begun an informal inquiry into the company. On November 19, the commission advised the company that its informal inquiry had been turned into a formal investigation.
The SEC and the U.S. Attorney are apparently examining Vivendi's accounting treatment of certain transactions after October 2000, as well as the accuracy of Vivendi's financial statements and various public statements.
The SEC has issued two subpoenas seeking the production of certain documents by Vivendi.
On November 26, the U.S. Attorney served Vivendi with a grand jury subpoena.
"Vivendi Universal is actively cooperating with both investigations, and has produced documents to both the SEC and the Office of the US Attorney for the Southern District of New York," the company stated in its regulatory filing.
Also on Friday, Bristol-Myers Squibb reported that the SEC has expanded its investigation into the drugmaker to include certain accounting issues.
Earlier this month, Bristol-Myers said it overstated sales by about $2.5 billion during a three-year period as a result of deals with two large U.S. drug wholesalers. Changing the accounting treatment of those deals will force Bristol-Myers to restate earnings downward by $900 million.
Last April the SEC initiated an informal inquiry into the wholesaler inventory issues. Four months later, the company indicated that the commission's probe had turned into a formal investigation.
In December that investigation was expanded to include certain accounting issues, including issues related to the establishment of reserves and accounting for certain asset and other sales.
In October 2002, the U.S. Attorney's Office for the District of New Jersey announced an investigation into the wholesaler inventory issues, which has since expanded to cover the same subject matter as the SEC investigation.
"All material adjustments necessary to correct the previously issued financial statements have been recorded as part of the restatement, and the company does not expect any further restatement," Bristol-Myers management said in Friday's regulatory filing.
Deloitte Calls Off Spin-off
Deloitte Touche Tohmatsu is not spinning off its consulting business after all.
On Friday the Big Four accounting firm said it ended discussions to separate Deloitte Consulting through a management buyout.
It cited the tight credit market and the uncertain economy.
Deloitte Consulting had worked out an agreement with the Deloitte Touche Tohmatsu member firms on organizational and financial terms of the separation.
While Deloitte management noted the firm enjoys a strong capital structure, it conceded that financial terms of the proposed transaction might have weakened this position—and were unacceptable to both groups of partners.
"We gave this our very best efforts, but concluded, with advice from our outside legal and financial advisors, that it is just not prudent to complete this transaction in this environment," said James E. Copeland Jr., CEO of Deloitte Touche Tohmatsu, in a statement. "We began this process at a time of more robust consulting, capital and credit markets—all of which have deteriorated in the past 14 months, due to economic uncertainty exacerbated by the war in Iraq."