For a company that was having a hard time warming Wall Street to its acquisition strategy, McKesson HBOC's announcement last week that it had overstated revenues and earnings was enough to send its stock price reeling and to unleash shareholder lawsuits.
The San Francisco-based company said an audit turned up $26.2 million in software sales that should not have been recorded by its healthcare information management division, formerly HBO & Co., in the fourth quarter ended March 31. The audit also reversed $16 million in sales in the previous three quarters of the fiscal year.
Those sales were not yet final and should not have been recorded for the quarter, the company said, adding that the audit is ongoing and could identify more improperly recorded sales.
The evidence of premature sales recognition was strongest in the first three months of 1999, a period in which other healthcare software companies also suffered disappointing results because of delays in getting deals closed (April 5, p. 52).
But McKesson HBOC was under greater than usual pressure to demonstrate its steady profitability. Investors have been ambivalent about company promises that its combination of healthcare information services and supply distribution will create synergies and new business opportunities.
The stock price of McKesson HBOC had fallen about 25% since the January merger of McKesson Corp. and HBO & Co., and the news last week caused the stock to lose half its value in trading on April 28. Within hours, a New York law firm said it was retained by shareholders to pursue a class-action suit.