CP Ships’ stock price collapses after disclosing accounting errors

CP Ships’ stock price collapses after disclosing accounting errors    The stock of CP Ships on the New York Stock Exchange fell 22 percent Monday to $12.85 after the Canadian-registered container shipping group admitted it has overstated its profits in 2002, 2003 and in the first quarter of this year by a total of more than $35 million.
   The stock price reached a 52-week low yesterday in New York as 2.6 million shares exchanged hands on the NYSE.
   CP Ships' stock was also down 22 percent to C$17.07 Monday on the Toronto Stock Exchange, where more than five million shares in the company changed hands.
   CP Ships said the implementation of a new SAP accounting system in January “has revealed some deficiencies in former systems and related business and accounting processes.” The deficiencies resulted in insufficient accruals for certain costs and also a number of balances from Dec. 31, 2003 that need to be written off.
   The shipping group said it would restate its financial results. The main effect will be on 2003, with last year’s net income due to be revised downwards by an estimated $22 million and $27 million. This will be in addition to the $8 million restatement of 2003 net income announced May 11.
   The correction of the accounting errors will cut the 2003 net income from $82 million announced on Feb. 5 to between $47 million and $52 million.
   “To a lesser extent, 2002 will be affected with an estimated downward revision of net income of about $7 million,” CP Ships said. Net income for 2002 had been reported at $52 million.
   Furthermore, first quarter 2004 net income will be revised downward by about $6 million from the $8 million originally reported.
   Although the accounting changes have no effect on cash, they appear to have stunned equity analysts.
   “You wouldn’t expect a change in your accounting system to cause a big drop in your earnings, typically, unless your accounting was completely wrong before,” an analyst told Reuters.
   However, CP Ships, headed by new chief executive officer Frank Halliwell, insisted that net income for the year 2004 will be higher than the uncorrected 2003 net income of $82 million.
   CP Ships said it is taking corrective action about the accounting problems and that its management is conducting a thorough review of the financial statements involving internal audit and the external auditors PricewaterhouseCoopers. The company plans to complete the review in time to report second quarter 2004 results and restated prior periods next week.
   Last week, CP Ships said it would postpone publishing its second quarter financial results, originally scheduled for Aug. 9, until Aug. 16.
   Pending completion of the review and publication of revised financial statements, investors should not rely on previously reported financial statements and related PricewaterhouseCoopers reports for the years 2003 and 2002, nor on financial statements for the first of quarter 2004, CP Ships said.
   CP Ships’ stock is traded on the Toronto and New York stock exchanges. The group is the parent company of ANZDL, Canada Maritime, Cast, Contship Containerlines, Italia Line, Lykes Lines and TMM Lines.