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Gemstar Will Restate Results

It replaces auditor KPMG after dispute over accounting of licensing fees.

November 01, 2002|Jeff Leeds | Times Staff Writer

Gemstar-TV Guide International Inc. on Wednesday disclosed that it had fired auditing firm KPMG and now expects to restate more than two years' worth of financial results.

Pasadena-based Gemstar, run largely by its biggest shareholder, News Corp., said it fired the accounting firm after a dispute about Gemstar's plan to re-classify a transaction it had initially deemed "non-monetary."

Gemstar, the leading provider of electronic TV-program guides, said it hired auditing firm Ernst & Young to "expedite" a review of its financial results. Gemstar said its restatement will change how the company accounts for $113 million in licensing fees that the firm now is unlikely to collect after losing a patent dispute involving Scientific-Atlanta Inc.

Gemstar had a licensing deal with Scientific-Atlanta that expired in 1999. After it ended, Gemstar accused the manufacturer of TV set-top boxes of violating its patents. Gemstar expected to continue collecting licensing fees and accounted for the money as revenue on its books. But Gemstar then lost the patent dispute.

The company said it decided to revisit its handling of that revenue after consulting with Ernst & Young. Gemstar said it anticipates the restatement would affect financial results from July 1999 through March 2002.

In addition, Gemstar said it would "re-classify" $2.7 million in advertising revenue that had arisen from transactions between sectors of the company.

Gemstar said it decided to replace KPMG after a consultation with the Securities and Exchange Commission to resolve the accounting disagreement. KPMG said it was "not surprised" by the move but planned to detail its disagreement in an SEC filing.

Gemstar was a Wall Street highflier just two years ago, but its value has plummeted, suffering from questionable accounting practices and court rulings that undermined its patents.

Rupert Murdoch's News Corp. has been forced to take write-downs of about $6 billion since March to deal with Gemstar's decline. News Corp. recently seized control of the firm, forcing out Gemstar founder Henry Yuen.

Shares of Gemstar remained unchanged Wednesday, at $3.61 on Nasdaq.

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