The Nasdaq stock exchange announced Monday morning it had halted trading in Homestore.com, (Nasdaq: HOMS) until "additional information requested" from the company had been received.
"Trading," said Nasdaq, "will remain halted until Homestore.com has fully satisfied Nasdaq's request for additional information."
Homestore -- already troubled with huge losses, lay-offs, a dispute with AOL, and declining share values -- announced late Friday afternoon that it "will restate certain of its financial statements" for one or more accounting periods.
Homestore, which owns or operates major sites including Realtor.com and Homebuilder.com, saw shares finish Friday at $3.60, up 34 cents for the day -- however, the markets closed before the audit announcement was distributed. Homestore shares traded at $15.99 on September 10th and as high as $37.25 during the past 52 weeks.
Pro Forma Versus GAAP Accounting
Like most new economy firms, Homestore shows financial results in two ways: With "pro forma" numbers that exclude certain costs and with numbers based on "generally accepted accounting principals," or "GAAP" accounting.
The use of pro forma numbers by public companies in general and without refenerce to any specific firm has raised concerns with the Securities and Exchange Commission.
Pro forma financial information, says the SEC, "can serve useful purposes. Public companies may quite appropriately wish to focus investors' attention on critical components of quarterly or annual financial results in order to provide a meaningful comparison to results for the same period of prior years or to emphasize the results of core operations."
And, says the SEC, "there is no prohibition preventing public companies from publishing interpretations of their results, or publishing summaries of GAAP financial statements."
However, in December the SEC also issued an Investor Alert regarding the use of pro-forma figures.
The federal securities laws require most publicly held companies to file with the SEC financial statements prepared under a set of accounting conventions called "Generally Accepted Accounting Principles," or "GAAP," that are accurate, truthful and complete. When a company prepares its financial statements using GAAP, investors can more consistently track the company's financial results from year to year and compare its performance with other companies.
In contrast, "pro forma" financial results aren't prepared using GAAP, and they may not convey a true and accurate picture of a company's financial well-being. They often highlight only positive information. And because "pro forma" information doesn't have to follow established accounting rules, it can be very difficult to compare a company's "pro forma" financial information to prior periods or to other companies.
By The Numbers With Homestore
Homestore has consistently issued both pro forma and GAAP accounting information to the public -- and the numbers have often differed substantially.
For instance, for the third quarter of 2001 the company announced a pro forma net loss of $6.9 million and revenues of $116.1 million. On a GAAP basis, Homestore's net loss was $106.6 million -- a GAAP loss more than 15 times greater than the pro forma result.
As another example, in April the company reported a first-quarter pro forma net income of $4 million and a GAAP loss of $67.1 million.
Homestore's accounting has been questioned in the past.
In May, Merrill Lynch analyst Henry Blodgett gave the company a "buy" rating, said Homestore had properly disclosed how it determined pro forma numbers, and agreed that the firm's use of stock to buy goods and services was a "legitimate, defensible, and even shrewd decision for a young company with a strong currency, in that it conserves cash."
However, Blodgett disagreed with how the company's pro forma numbers had been calculated.
Homestore often buys goods and services by providing stock rather than paying cash. These costs, said Blodgett, should be seen as "operating expenses" rather than "non cash, stock-based" charges. If you counted stock payments his way, said Blodgett, the company would have far larger pro forma losses.
Blodgett estimated that by his accounting Homestore would have had additional pro forma costs in the year 2000 of $46.761 million. For the year 2000, the company said its pro forma net loss was $8.9 million.
WESTLAKE VILLAGE Calif. Dec. 21 /PRNewswire/ -- Homestore.com Inc. (Nasdaq: HOMS) announced today that the Audit Committee of its Board of Directors is conducting an inquiry of certain of the company's accounting practices. The Audit Committee has retained independent counsel and independent accountants to assist it in connection with the inquiry. While it is not yet possible to predict the results of the inquiry based on the inquiry to date the company has determined that it will restate certain of its financial statements. The extent of the restatement and the periods it will cover has not yet been determined. The Audit Committee and the company are firmly committed to completing a thorough expeditious inquiry of these matters in an independent objective manner.
The Audit Committee has informed the Staff of the Securities and Exchange Commission of the existence of the inquiry.
The company continues to be focused on and committed to serving its customers. It is not expected that the inquiry will have a material adverse effect on serving our customers.
SOURCE Homestore.com Inc.
12/21/2001 17:30 EST
(Note: The full announcement can be found by pressing here.)