Go to Jeff Salisbury LWGate Home Page.From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] "M"
Date: Mon, 8 Jul 2002 22:48:20 -0400
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Correct, but apparently the perception in the industry was that revenues =
were more important than earnings, because the larger your sales, the =
better a deal you were likely to swing from providers and vendors and =
clients. Thus a 10% inflation of revenues made you look bigger than =
reality, and suggest Medco, in this case, would extract better pricing, =
be able to pass some of that savings along to its clients (employers), =
thus further increasing business while eventually helping profits and =
profit margins.=20
Merck's justification for this was that they believed they were =
responsible if they misstated the patient's co-payment requirement (e.g. =
told a pharmacy to collect $5 when it should have been $10), but =
apparently this was not a true liability nor one ever paid by Medco.
I really found it interesting that a big 4 accounting firm would sign =
off on one company's financial treatment of this issue, then sign off on =
another company handling it totally differently.
- ----- Original Message -----=20
From: Rocky Sanghvi=20
To: canslim@lists.xmission.com=20
Sent: Monday, July 08, 2002 9:37 AM
Subject: RE: [CANSLIM] "M"
Infact Merck understated their Gross Margins by doing this. =20
- -----Original Message-----
From: owner-canslim@lists.xmission.com =
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Katherine Malm
Sent: Monday, July 08, 2002 9:42 AM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] "M"
Tom, your message had me scratching my head. Didn't make sense that =
Merck would post monies not due to them as revenue.
Ah...but now it makes more sense...here's the explanation offered at =
Briefing.com (highlighting is mine):
06:53 ET MRK Merck booked $12.4 bln in revenue never collected =
- -- WSJ (48.86)=20
The Wall Street Journal, citing an SEC filing, reports that company =
recorded $12.4 bln in revenue from its Medco pharmacy-benefits unit over =
the past 3 years that the subsidiary never collected. According to the =
article, Medco included as part of its revenue the co-payments collected =
by pharmacies from patients, even though it doesn't receive those funds. =
Between 1999 and 2001, co-payments comprised nearly 10% of Merck's =
overall reported revenue. Merck first disclosed the accounting treatment =
in an April SEC filing for Medco's IPO, but didn't disclose the amount =
of revenue involved until a filing on Friday. Merck says the accounting =
treatment has no effect on its net income because it subtracts the same =
amount as expense.=20
Accounting rules would allow this kind of treatment (even though it's a =
bit silly to show the monies at all unless the co-payments run through =
their hands at some point). Just goes to show why growth in earnings =
*AND* revenues are equally important when doing a fundamental review.
Katherine
----- Original Message -----=20
From: Tom Worley=20
To: canslim@lists.xmission.com=20
Sent: Monday, July 08, 2002 6:23 AM
Subject: Re: [CANSLIM] "M"
One further thought on Merck's treatment of patient co-payments, which
resulted in the Friday filing with the SEC disclosing that nearly 10% =
of its
reported revenue since 1999 was never collected.
Their auditor, Price Waterhouse Cooper, signed off on this methodology =
even
though Express Scripts, the third largest pharmacy provider, does not
include patient co-payments. Who is the auditor for Express? Price
Waterhouse Cooper. And the largest provider, Advance PCS, also does =
not
include patient co-payments, while the fourth largest, Caremark RX, =
does
include these payments.
One might ask how one of the big 4 auditing firms can find treatment =
of
patient co-payment to be one way and consistent with GAAP, yet treat =
it
differently at another firm.
----- Original Message -----
From: "Tom Worley" <stkguru@bellsouth.net>
To: "CANSLIM" <canslim@lists.xmission.com>
Sent: Monday, July 08, 2002 7:05 AM
Subject: [CANSLIM] "M"
Well, why should today be any different? Instead of terrorist attack =
fears,
we have renewed accounting fears, this time with Merck apparently
overstating revenues by a trivial $12 billion with their pharmacy =
benefits
unit. What's $12 billion among friends anyway? Only enough to turn =
Asia
around from a nice 1% or better gain across the board into red ink for
almost every exchange. Japan, which had been up nearly 200 points and
breaking 11,000 once again, ended closing down 56 points. And Europe =
is down
across the board, while USA futures suggest a 1 to 1.5% drop on the =
open.
In Mexico, former officials of the govt owned PEMEX and some =
businessmen are
being investigated for paying $134 million for a petrochemical plant =
that
was never built. Some of those officials were also under investigation
earlier this year for company contributions of $100 million to the =
campaign
of presidential candidate Francisco Labastida.
Some things just don't seem to be changing, or getting better.
Tom Worley
stkguru@bellsouth.net
AIM: TexWorley
-
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<DIV><FONT face=3DArial>Correct, but apparently the perception in the =
industry was=20
that revenues were more important than earnings, because the larger your =
sales,=20
the better a deal you were likely to swing from providers and vendors =
and=20
clients. Thus a 10% inflation of revenues made you look bigger than =
reality, and=20
suggest Medco, in this case, would extract better pricing, be able to =
pass some=20
of that savings along to its clients (employers), thus further =
increasing=20
business while eventually helping profits and profit margins. =
</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>Merck's justification for this was that they =
believed they=20
were responsible if they misstated the patient's co-payment requirement =
(e.g.=20
told a pharmacy to collect $5 when it should have been $10), but =
apparently this=20
was not a true liability nor one ever paid by Medco.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>I really found it interesting that a big 4 =
accounting firm=20
would sign off on one company's financial treatment of this issue, then =
sign off=20
on another company handling it totally differently.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3Drs@mylodestar.com href=3D"mailto:rs@mylodestar.com">Rocky =
Sanghvi</A> </DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV><B>Sent:</B> Monday, July 08, 2002 9:37 AM</DIV>
<DIV><B>Subject:</B> RE: [CANSLIM] "M"</DIV></DIV>
<DIV><BR></DIV>
<DIV><SPAN class=3D126123513-08072002><FONT face=3DArial color=3D#0000ff =
size=3D2>Infact=20
Merck understated their Gross Margins by doing this. =20
</FONT></SPAN></DIV>
<DIV><SPAN class=3D126123513-08072002><FONT face=3DArial color=3D#0000ff =
size=3D2></FONT></SPAN> </DIV>
<DIV class=3DOutlookMessageHeader dir=3Dltr align=3Dleft><FONT =
face=3DTahoma=20
size=3D2>-----Original Message-----<BR><B>From:</B> <A=20
href=3D"mailto:owner-canslim@lists.xmission.com">owner-canslim@lists.xmis=
sion.com</A>=20
[mailto:owner-canslim@lists.xmission.com]<B>On Behalf Of </B>Katherine=20
Malm<BR><B>Sent:</B> Monday, July 08, 2002 9:42 AM<BR><B>To:</B> <A=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
<BR><B>Subject:</B>=20
Re: [CANSLIM] "M"<BR><BR></FONT></DIV>
<DIV>Tom, your message had me scratching my head. Didn't make sense that =
Merck=20
would post monies not due to them as revenue.</DIV>
<DIV> </DIV>
<DIV>Ah...but now it makes more sense...here's the explanation offered =
at=20
Briefing.com (highlighting is mine):</DIV>
<DIV> </DIV>
<DIV>
<TABLE cellSpacing=3D0 cellPadding=3D0 width=3D"100%" border=3D0>
<TBODY>
<TR>
<TD class=3Ddate2 vAlign=3Dtop noWrap>06:53 ET </TD>
<TD><A=20
=
href=3D"http://www.briefing.com/scripts/sub/stocks/HeadlinesSearch.asp?Ti=
ckerSymbol=3DMRK">MRK</A> <B>Merck=20
booked $12.4 bln in revenue never collected -- WSJ</B> =
(48.86)</TD></TR>
<TR>
<TD></TD>
<TD vAlign=3Dtop>The Wall Street Journal, citing an SEC filing, =
reports that=20
company recorded $12.4 bln in revenue from its Medco =
pharmacy-benefits=20
unit over the past 3 years that the subsidiary never collected. =
According=20
to the article, Medco included as part of its revenue the =
co-payments=20
collected by pharmacies from patients, even though it doesn't =
receive=20
those funds. Between 1999 and 2001, co-payments comprised nearly =
10% of=20
Merck's overall reported revenue. Merck first disclosed the =
accounting=20
treatment in an April SEC filing for Medco's IPO, but didn't =
disclose the=20
amount of revenue involved until a filing on Friday. <FONT=20
color=3D#0000ff><STRONG><EM>Merck says the accounting treatment =
has no=20
effect on its net income because it subtracts the same amount as=20
expense.</EM></STRONG></FONT></TD></TR></TBODY></TABLE></DIV>
<DIV> </DIV>
<DIV>Accounting rules would allow this kind of treatment (even though =
it's a bit=20
silly to show the monies at all unless the co-payments run through their =
hands=20
at some point). Just goes to show why growth in earnings *AND* revenues =
are=20
equally important when doing a fundamental review.</DIV>
<DIV> </DIV>
<DIV>Katherine</DIV>
<BLOCKQUOTE=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style=3D"FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dstkguru@bellsouth.net =
href=3D"mailto:stkguru@bellsouth.net">Tom=20
Worley</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A =
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Monday, July 08, 2002 =
6:23 AM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] =
"M"</DIV>
<DIV><BR></DIV>One further thought on Merck's treatment of patient=20
co-payments, which<BR>resulted in the Friday filing with the SEC =
disclosing=20
that nearly 10% of its<BR>reported revenue since 1999 was never=20
collected.<BR><BR>Their auditor, Price Waterhouse Cooper, signed off =
on this=20
methodology even<BR>though Express Scripts, the third largest pharmacy =
provider, does not<BR>include patient co-payments. Who is the auditor =
for=20
Express? Price<BR>Waterhouse Cooper. And the largest provider, Advance =
PCS,=20
also does not<BR>include patient co-payments, while the fourth =
largest,=20
Caremark RX, does<BR>include these payments.<BR><BR>One might ask how =
one of=20
the big 4 auditing firms can find treatment of<BR>patient co-payment =
to be one=20
way and consistent with GAAP, yet treat it<BR>differently at another=20
firm.<BR><BR>----- Original Message -----<BR>From: "Tom Worley" <<A =
=
href=3D"mailto:stkguru@bellsouth.net">stkguru@bellsouth.net</A>><BR>To=
:=20
"CANSLIM" <<A=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
><BR>Sent:=20
Monday, July 08, 2002 7:05 AM<BR>Subject: [CANSLIM] =
"M"<BR><BR><BR>Well, why=20
should today be any different? Instead of terrorist attack =
fears,<BR>we have=20
renewed accounting fears, this time with Merck =
apparently<BR>overstating=20
revenues by a trivial $12 billion with their pharmacy =
benefits<BR>unit. What's=20
$12 billion among friends anyway? Only enough to turn Asia<BR>around =
from a=20
nice 1% or better gain across the board into red ink for<BR>almost =
every=20
exchange. Japan, which had been up nearly 200 points and<BR>breaking =
11,000=20
once again, ended closing down 56 points. And Europe is down<BR>across =
the=20
board, while USA futures suggest a 1 to 1.5% drop on the =
open.<BR><BR>In=20
Mexico, former officials of the govt owned PEMEX and some businessmen=20
are<BR>being investigated for paying $134 million for a petrochemical =
plant=20
that<BR>was never built. Some of those officials were also under=20
investigation<BR>earlier this year for company contributions of $100 =
million=20
to the campaign<BR>of presidential candidate Francisco =
Labastida.<BR><BR>Some=20
things just don't seem to be changing, or getting better.<BR><BR>Tom=20
Worley<BR><A=20
=
href=3D"mailto:stkguru@bellsouth.net">stkguru@bellsouth.net</A><BR>AIM:=20
TexWorley<BR><BR><BR><BR>-<BR>-To subscribe/unsubscribe, email "<A=20
=
href=3D"mailto:majordomo@xmission.com">majordomo@xmission.com</A>"<BR>-In=
the=20
email body, write "subscribe canslim" or<BR>-"unsubscribe =
canslim". Do=20
not use quotes in your email.<BR><BR><BR><BR><BR>-<BR>-To=20
subscribe/unsubscribe, email "<A=20
=
href=3D"mailto:majordomo@xmission.com">majordomo@xmission.com</A>"<BR>-In=
the=20
email body, write "subscribe canslim" or<BR>-"unsubscribe =
canslim". Do=20
not use quotes in your email.</BLOCKQUOTE></BODY></HTML>
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