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ADAC to restate results
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December 29, 1998: 10:50 a.m. ET
Medical imager stock tumbles on admission of accounting problems
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NEW YORK (CNNfn) - ADAC Laboratories shares were sharply lower Tuesday after the medical imaging company announced plans to restate its results for fiscal years 1996, 1997 and 1998.
ADAC (ADAC) shares were down 7-1/4, or 27 percent, to 19-7/8 in early Tuesday trading.
The Milpitas, Calif.-based specialist in nuclear medicine and radiation therapy planning systems joined a growing list of companies to recently rejigger their earnings statements in the face of stepped-up regulatory scrutiny over reporting methods.
ADAC said its own adjustments would have "a material adverse impact" on fiscal 1996 and 1997 financial results, and could also affect revenue in individual quarters in 1996.
The company also said it intends to adjust the timing of certain revenue over the three-year period of the restatements. As a result of the adjustments, the company said, revenue will move forward into adjacent future periods.
ADAC's revenue was $323.4 million in fiscal 1998, $282.3 million in fiscal 1997, and $240.8 million in fiscal 1998.
Net income for 1998 may be affected as well. ADAC reported net income of $29 million, or $1.42 per diluted share in fiscal 1998, excluding one-time charges; $22.5 million, $1.16 a share in fiscal 1997, without charges; and $16.6 million, or 90 cents a share, in fiscal 1996.
The company said it was restating the three-year results due to concern about accounting policies and practices that arose after the issuance of its fiscal 1998 earnings report in November.
After that report, the company said it undertook a review with the auditor PricewaterhouseCoopers, "particularly with respect to the accounting treatment of various one-time charges taken by the company, as well as the appropriateness of certain expenses and revenue recognition practices that the company had followed in recent years."
Despite the restatements, ADAC asserted it "remains confident in its long-term growth prospects."
The stock hit underscored the perils of releasing financial statements that are perceived on Wall Street as anything but squeaky clean.
In recent weeks and months, the Securities and Exchange Commission has zeroed in on the accounting practices of Wall Street powerhouses such as Livent Inc. (LVNTF), Sunbeam Corp. (SOC) and W.R. Grace & Co. (GRA) as part of an intensifying campaign to ensure that companies' earnings reports accurately reflect the state of their balance sheets.
Because stock prices often hinge on Wall Street's expectations of a company's performance, and a shortfall can spell disaster, the temptation to tweak earnings can be especially high, analysts said.
In November, Broadway show producer Livent filed for Chapter 11 bankruptcy protection, restated nine quarters of earnings and fired its co-founders, Garth Drabinsky and Myron Gottlieb, after company auditors discovered "serious" accounting irregularities stemming from millions of dollars in fake revenues.
The company also filed a $225 million lawsuit against Drabinsky, prompting a swift countersuit. In its bankruptcy filing, Livent warned it is bracing for an SEC lawsuit, perhaps in January, accusing the company of turning a blind eye to massive insider accounting fraud.
In other recent earnings imbroglios, the SEC accused W.R. Grace & Co., a Boca Raton, Fla.-based chemical maker, of bookkeeping irregularities between 1991 and 1995; W.R. Grace has denied the allegations and plans to fight the charges.
The SEC is also probing accounting practices at Sunbeam Corp. under its former chairman and chief executive, Al Dunlap. Sunbeam, a Delray Beach, Fla.-based appliance maker, recently restated its financial results for 1996, 1997 and the first quarter of 1998.
The SEC probe followed an in-house audit at Sunbeam. The SEC is trying to determine whether Sunbeam's bookkeepers resorted to accounting gimmicks to make 1997 earnings appear more robust than they actually were.
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