VideoKmart Finds Accounting Error
Kmart Corp., the largest U.S. retailer to ever file for bankruptcy, said it would restate its earnings by nearly $100 million. The restatement comes after an internal review of the company's accounting practices.
Kmart management said none of the bookkeeping adjustments, which go back as far as three years, will have an impact on the company's liquidity or increase obligations requiring a future use of cash.
"In accordance with our continuing commitment to enhance our accounting practices and procedures, we have decided to restate our financial statements to ensure that the most accurate and transparent information is available to readers of our financial statements," said James B. Adamson, chairman and CEO, in a statement.
As a result of the restatement, Kmart will decrease its net loss for the 26 weeks ended July 30, 2002, by less than $100 million. The company will decrease earnings for the prior three years by a similar sum.
Management at Kmart indicated the adjustments stem from several accounting treatments, including an understatement of historical accruals for certain leases with varying recent payments and a related understatement of historical rent expense. The company also said it was making adjustments for certain costs formerly capitalized into inventory, as well as the premature recording of vendor allowance transactions.
In addition, Kmart management said it uncovered a software programming error in the retailer's accounts-payable system. That error led to some paid invoices not being appropriately treated in the company's financial statements. In fact, CFO Albert Koch told Bloomberg that the software glitch accounted for more than half of the restatement.
SEC Suspends Three Former WorldCom Finance Execs
Three former WorldCom finance executives who have already pleaded guilty to committing fraud are facing further sanctions.
The SEC suspended former controller David F. Myers, former director of general accounting Buford Yates Jr., and former accountant Betty L. Vinson from appearing or practicing before the commission as accountants. The sanctions stem from their roles in the telecom company's $9 billion fraud, which resulted in the largest bankruptcy in history.
The commission's complaints, which are still pending, allege that at the direction of WorldCom senior management, Myers, Yates, Vinson, and others caused WorldCom to materially overstate its earnings for at least seven successive quarters.
The SEC said Myers and Yates are further prohibited from acting as officers or directors of any public company.
Myers, Yates, and Vinson consented to the suspensions without admitting or denying the suspension orders' findings, according to the SEC.
The commission added that monetary liabilities will be determined in the future.
SEC Settles with Former CFO, Others
The SEC also settled charges with the former CFO and three other former officers and directors of Regal Communications Corp. for engaging in what the commission described as a "massive financial fraud."
The four ex-Regal board members include Bruce B. Edmondson, CFO and board and audit-committee member; Gerald Levinson, board and audit-committee member; Elliot S. Fisher, board and audit-committee member as well as in-house legal counsel and corporate secretary; and Arthur L. Toll, CEO, chairman of the board, and majority shareholder.
The SEC accused the four of making materially false and misleading statements and omitting material information concerning Regal's financial condition and other facts in many financial reports and registration statements.
In addition, the SEC claims Regal used the false reports and registration statements in connection with a $35 million debenture offering and the acquisition of three companies.
Toll and Edmondson were barred from serving as officers or directors of a public company.
Toll, Edmondson, and Fisher also agreed to disgorge their illegally earned gains, mostly obtained through illicit sales of Regal stock. They include nearly $1.3 million from Edmondson, nearly $812,000 from Toll, and $131,000 from Fisher.
According to the SEC's complaint, Edmondson caused Regal's accounting staff to record fictitious business revenues and receivables into Regal's general ledger. Edmondson and Toll apparently supported these fictitious items with bogus sales documents and bank records, it added.
"To lend credibility to the false information and to deceive Regal's independent auditors, Edmondson and Toll paid off many of the false receivables with Regal's own money, including funds that they obtained through concealed sales of Regal stock and warrants," the commission asserted.
The SEC claims the two circulated more than $23 million from Regal's checking accounts into the accounts of companies privately owned by them. They then caused those private companies to funnel a substantial portion of the money back to Regal in amounts equal to the amounts of the fictitious revenues and receivables, according to the commission.
Little Pay to Stay
Bad news for employees but good news for budget planners: raises are not expected to amount to much in 2003, according to at least two surveys released on Monday.
More than half of 130 large U.S. companies (average revenue of $1 billion) surveyed by Deloitte & Touche plan to shell out pay increases of 3.5 percent in 2003, the third straight year of modest raises.
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