Livent, the Canadian production company currently under the gun over the handling of its finances, said Aug. 10 that its new management team, headed by Roy Furman, has discovered "serious irregularities in the company's financial records" involving a failure to record expenses and the "improper recognition" of revenue.
As a result of the findings, Livent co-founder and former chief Garth Drabinsky has been suspended, as has co-founder and former president Myron Gottlieb. Their fates hang on the results of a comprehensive review of the numbers to be undertaken by the accounting firm KPMG/Peat Marwick.
In its press release, the company said a restating of Livent's financial results for 1996, 1997, and the first quarter of 1998 was "virtually certain." Livent also plans to request an extension from Canadian securities regulators for filing its second quarter `98 findings.
"The board and I are obviously disturbed and upset about what we have uncovered," said Furman. "As shocked as we all are by this discovery, we believe Livent remains a viable company financially and is operationally and creatively very strong," Furman said. Furman and former superagent Mike Ovitz took over the company on June 12.
In response, Drabinsky and Gottlieb released a statement saying "The company has provided few details, and no practical opportunity for us to address or respond to them.... New management was provided ample opportunity, prior to closure of the transaction, to raise any accounting concerns." Indeed, the same KPMG/Peat Marwick was brought in by Ovitz and Furman earlier this year to inspect Livent's books. "The new management team conducted with due diligence," said a Livent spokesman who asked not to be identified. "Yes, they were looked at." Sources close to the investigation, however, say a prior financial appraisal of Livent does not preclude the possibility of financial irregularities purposefully hidden from the buyers. Livent officials refused to speculate whether the investigation meant the end of Drabinsky's tenure at the company he created. Drabinsky's precarious situation eerily resembles his dramatic rise and fall at Cineplex Odeon, another company he formed. After building up the movie theatre giant over the course of a decade, the Canadian impresario was fired in 1989 by MCA; he had brought MCA aboard in 1986 when Cineplex was on the verge of bankruptcy.
A Yahoo/Reuters report (Aug. 10) on the suspension noted that even before the Drabinsky news, Livent was rated "double B minus" by S&P (credit) Rating Services. On Friday, Aug. 7, the stock closed at 6 3/4 on the NY Stock Exchange; trading was halted on the Toronto Stock Exchange today pending further financial information from the organization, according to Reuters. The stock on the NYSF was routinely in the 7-9 range, though it rose past 12 in the days following Ragtime's successful Broadway opening.
Ironically, the news comes just days after the New 42nd Street announced that Livent had beaten several other candidates in bidding on 42nd Street's Times Square Theatre, which would have given them a second venue on the block to along with the Ford Center. (For more information, please see the Playbill On-Line story, "Livent Beats Wrestling To Lease 42nd Street's Times Square Theatre".)
New 42nd Street President Cora Cahan told Playbill On-Line (Aug. 10), "We've had only the best of experiences with Livent. They've always paid their bills right on time, sometimes ahead of time. I have no reason to believe [this news] will affect the decision about the building, but at this point I haven't spoken to anyone at Livent." Asked if she had any inkling Livent's economics weren't what they seemed, Cahan said, "I had no reason to expect anything irregular based on our experiences with [Drabinsky], none at all." Livent officials declined to say how long the accounting investigation would take.
Ovitz's sudden entrance into legitimate theatre was announced in April. Under the agreement, he bought 2.5 million shares of Livent, or 12 percent, for $20 million. Ovitz brought along with him a hand-picked management team, including Furman and new president David Maisel. Livent founder Garth Drabinsky, who had run both the financial and creative sides of the theatrical concern, stepped aside to become vice chairman and chief creative director for live theatre.
Ovitz and Furman had their work cut out for them. The Canadian theatrical production company's lost $20 million during 1998's first quarter. That represents two thirds of the $30 million the company lost in all of 1997. The company plans to request an extension from Canadian securities regulators for filing its second quarter results.
Responding to the first quarter losses, Livent announced it would now focus on "productions with potentially higher margins." That translates into the axing of one of the two North American touring companies of Show Boat. The musical in question will close during 1998, and the company will write off roughly $16 million in expenses related to the show. Livent does not know at this point which of the touring productions will be closed. No one from Livent's new leadership team was immediately available for comment.
Other salient figures from the first quarter findings included a 19 percent jump in operating expenses to $45 million, and an increase in preproduction costs from $9 million to nearly $17 million. Upcoming Livent productions include Fosse: A Celebration in Song and Dance, due to open in Toronto in July; and the Jason Robert Brown-Alfred Uhry musical Parade, to open at Lincoln Center in November with Harold Prince directing.