07-16-2002, 01:06 PM
I found this from CFO.com. Hey, if poker geeks can have their own websites, so can finance weenies. /images/smile.gif
"Still, Harken's accounting treatment for its sale of a company called Aloha Petroleum clearly did not cleave to generally accepted principals of accounting. Harken sold its 80 percent a stake in Aloha to Intercontinental Mining & Resources Ltd. (IMR) in June 1989. After the sale, Harken booked a one-time gain of roughly $8 million, reducing its total loss for the year to $3.3 million. (Bush sold his Harken common in May 1990, when the stock was trading at $4 per share.)" {note that the stock sale took place considerably after the restatement, not before - Ron}
"But shortly after releasing its earnings statement, the SEC required Harken management to restate the company's results for 1989 because the accounting for the sale of the Aloha stake violated federal guidelines. As a result, Harken lowered its previously stated results, this time reporting a $12.6 million loss -- almost four times the initial number.
"Why the difference? Because the gain on the Aloha transaction should not have been recorded all at once, but rather over the course of several years.
"Indeed, SEC documents show that Harken actually loaned IMR $11 million to finance the purchase of Aloha Petroleum. Since the buyer was highly leveraged (making repayment of the loan uncertain), SEC guidelines spelled out in Staff Accounting Bulletin 81 stipulate that the deal be accounted for under the "cost-recovery" method. Under the cost-recovery method, proceeds from a sale to a highly indebted company should only be booked as income when loan principal is repaid.
"According to public records filed with the SEC, Harken was to receive no more than $3 million in principal payments no earlier than March 31, 1991, with the balance not due until two years after that. SAB 81 was issued on April 4, 1989 -- about three months before the Aloha transaction." (end of clip from CFO.com)
So, here's our answer to the question of why the SEC made Harken restate its earnings. This rule is very similar to the installment sale rules for reporting gains on federal tax returns.
What we do not know is if this "violation" of the new rule (in 1989) was willful or accidental.
Ron
"Still, Harken's accounting treatment for its sale of a company called Aloha Petroleum clearly did not cleave to generally accepted principals of accounting. Harken sold its 80 percent a stake in Aloha to Intercontinental Mining & Resources Ltd. (IMR) in June 1989. After the sale, Harken booked a one-time gain of roughly $8 million, reducing its total loss for the year to $3.3 million. (Bush sold his Harken common in May 1990, when the stock was trading at $4 per share.)" {note that the stock sale took place considerably after the restatement, not before - Ron}
"But shortly after releasing its earnings statement, the SEC required Harken management to restate the company's results for 1989 because the accounting for the sale of the Aloha stake violated federal guidelines. As a result, Harken lowered its previously stated results, this time reporting a $12.6 million loss -- almost four times the initial number.
"Why the difference? Because the gain on the Aloha transaction should not have been recorded all at once, but rather over the course of several years.
"Indeed, SEC documents show that Harken actually loaned IMR $11 million to finance the purchase of Aloha Petroleum. Since the buyer was highly leveraged (making repayment of the loan uncertain), SEC guidelines spelled out in Staff Accounting Bulletin 81 stipulate that the deal be accounted for under the "cost-recovery" method. Under the cost-recovery method, proceeds from a sale to a highly indebted company should only be booked as income when loan principal is repaid.
"According to public records filed with the SEC, Harken was to receive no more than $3 million in principal payments no earlier than March 31, 1991, with the balance not due until two years after that. SAB 81 was issued on April 4, 1989 -- about three months before the Aloha transaction." (end of clip from CFO.com)
So, here's our answer to the question of why the SEC made Harken restate its earnings. This rule is very similar to the installment sale rules for reporting gains on federal tax returns.
What we do not know is if this "violation" of the new rule (in 1989) was willful or accidental.
Ron