This is not what you’d call a manager’s special.

With the help of forensic accountants from PricewaterhouseCoopers, international food retailer Royal Ahold NV confirmed that profits at the company’s U.S. Foodservice subsidiary were overstated by $880 million over a three-year period.

The internal probe was launched on February 24 after the parent company announced the accounting problems at the U.S. affiliate.

Reportedly two U.S. Foodservice procurement executives, Mark Kaiser and Tim Lee, were implicated by the internal investigation. Kaiser and Lee were suspended in February after company executives became suspicious that the two had improperly booked supplier rebates. This according to a report from Dow Jones Newswires.

Some analysts reportedly were stunned that the PwC investigation did not implicate any other Ahold executives. The company’s CEO, Cees van der Hoeven, and CFO, Michael Meurs, both resigned in February when news of the bookkeeping scandal first broke.

Ahold management originally indicated it thought the company’s earnings had been inflated by about $550 million. Now that number is closer to $900 million. And the food retailer is expected to adjust its balance sheet by nearly $1 billion to account for the understated liabilities. Just last week, Ahold auditor Deloitte & Touche resumed work on the Dutch company’s financial statements.

The PwC investigation had halted progress on the 2002 earnings statements, which was a major concern for Ahold management. Apparently bank loans needed to pay off maturing debt obligations hinged on meeting a June 30 filing deadline. Royal Ahold management is confident the deadline will be met, according to Dow Jones.

The Securities and Exchange Commission, as well as Dutch regulators, are also investigating the problems at U.S. Foodservice and the parent’s accounting practices. Ahold owns American grocery chains Stop & Shop and Bruno’s.

Leaks at the SEC

Things were a little different at the SEC this week. Instead of delving into corporate accounting scandals and reeling in wayward executives, regulators were busy plugging internal leaks.

Published reports confirmed that in an internal E-mail, SEC chairman William Donaldson warned the agency’s 3,100 employees not to leak information about investigations. The new chairman also reportedly suggested that he might limit the number of SEC staffers who are granted behind-the-scenes access to sensitive information.

Reportedly the scolding by Donaldson came on the heels of news reports that the SEC was considering charging former Wall Street analyst Holly Becker and her husband, Michael Zimmerman, with insider trading. According to Reuters, SEC attorneys have investigated whether Zimmerman used unpublished research written by Becker’s former firm, Lehman Brothers—research that she allegedly passed on to him—to buy stock.

Reuters reported that in the E-mail, Donaldson wrote: “The kind of leaks we have seen over the past few weeks are fundamentally unfair to the people and companies being investigated, but not yet charged.” He went on to assert that leaks damage the SEC’s effort to conduct effective investigations.

The SEC has a longstanding policy of not commenting on current investigations. Donaldson’s spokeswoman, Anne Womack, told Reuters that an announcement of a probe does not necessarily mean someone has done something wrong.

Insurance CFOs Predict M&A Comeback

CFOs of life insurance companies say that merger and acquisition (M&A) activity in their sector is about to pick up. That’s a surprise, given that the industry has been hamstrung of late by lack of capital and unrealistic expectations from buyers and sellers.

So the question remains, then, if this sector’s finance chiefs see an M&A comeback, will finance executives from other industries be as confident? We don’t have the answer to that question yet. But the actuarial and consulting firm Tillinghast-Towers Perrin provides some insight into why insurance CFOs are so convinced deals are about to be made.

“The aversion to transactions over the past few years has led to pent up demand from buyers looking for growth opportunities,” says John Nigh, principal and M&A practice leader at Tillinghast. Nigh surmises that the clock is ticking for companies that are looking to attract higher selling prices—ostensibly to strengthen their balance sheets. “With more realistic price expectations, we anticipate that more transactions will be occurring.”

Furthermore, life insurance CFOs are becoming more creative about acquisitions. For instance, instead of walking away from deals, they are exploring alternatives, such as using reinsurance to offset the risk, adds Nigh.

According to Tillinghast’s insurance CFO survey, the majority of respondents believe that during the next 12 months it is “highly likely” or “possible” that their company will acquire a block of business (71 percent) or a company (49 percent).

That’s a sizable jump from the actual activity conducted in the past year. Indeed, only 54 percent of the CFOs claimed they had acquired, or seriously considered acquiring, a block of businesses in the past 12 months. Thirty-seven percent acquired or considered snatching up an entire company during that period.

More than 75 percent of respondents expect to expand their presence in North America and Asia. But the CFOs were mixed about expansion plans for Europe, and downright negative about their plans for Latin America.

So what will drive the coming M&A boom in the insurance sector? A whopping 82 percent of respondents said profit growth was the number-one reason for buying or selling businesses or companies. Expanding or enhancing distribution capabilities came in next, snaring 52 percent of the votes.

The survey also delved into deals gone bad. The most frequently cited deal killer was a “disconnect” between buyers and sellers regarding valuation (52 percent). The number-two snag: capital issues and cash constraints, which were cited by 46 percent of those polled.

As for divestitures, three out of four of the CFOs in the survey said that walking away from a noncore business was their top objective in a sell-off. The biggest impediments to selling? No surprise here: the respondents cited general economic conditions and an overall lack of buyers.

SEC Probes Kinder Morgan

The SEC has launched an informal investigation into acquisition-accounting practices at Kinder Morgan and its master limited partnership, Kinder Morgan Energy Partners (KM Energy). The probe focuses on KM Energy’s purchase of Tejas Gas LLC and how the company booked the goodwill associated with that deal.

Houston-based KM Energy bought Tejas Gas on January 31, 2002, from a Royal Dutch/Shell joint venture for $728 million in cash and $158 million in assumed debt. At the time, about $56 million was allocated to current assets, $674 million to property plant and equipment, and $155 million to goodwill.

Chairman and CEO Richard Kinder contends that the SEC “has not asserted that Kinder Morgan has acted improperly or illegally” (see SEC spokeswoman Anne Womack’s comments above). In addition, he says that even if the SEC requires an accounting adjustment, it would not hurt shareholders.

In the case of an adjustment, explains Kinder, the SEC would likely require the company to convert goodwill to assets, and then depreciate the assets.

Ultimately that change only affects net income, not the cash payouts due partners, according to Kinder.

Some analysts agreed with Kinder’s assessment of the situation. During a conference call with Kinder, several analysts thought the SEC was wasting its time probing an accounting treatment that barely affected shareholders, reports The Street.com. Other analysts say the investigation is just the tip of the iceberg, however.

Reportedly Prudential analyst Carol Coale suspects that the Tejas Gas case could be the start of a broader probe into the entire master limited partnership industry. A master limited partnership, such as KM Energy, combines the tax benefits of a limited partnership with the liquidity of publicly traded shares.

“Given the seeming immateriality of the goodwill expense to [KM Energy’s] income statement, it leads us to think that this investigation has potential to extend in scope and materiality,” wrote Coale. If regulators begin to challenge goodwill accounting and energy-related acquisitions, Coale believes the allure of master limited partnerships will fade.

From the Enron Files: Believe It or Not

Enron-related issues never seem to lack interesting twists. Here are two new unusual tidbits from the SEC.

For the fourth time, a federal judge has postponed the sentencing of David Duncan, the Arthur Andersen auditor who confessed to ordering the destruction of Enron-related documents. Duncan’s May 16 sentencing was pushed to November 21 at the request of—get this—prosecutors. Apparently federal officials say Duncan isn’t finished cooperating with the government yet, reports the Associated Press.

Then there is the case of Richard M. Ryan, president and CEO of Standard Power & Light. The SEC is taking formal action against the Oakbrook, Illinois, businessman for claiming that his company wanted to buy Enron Corp.

On November 30, 2001, Ryan filed a notice with the SEC and issued a press release noting that Standard Power & Light, a company with no annual revenues or substantial assets, planned to purchase the majority of Enron shares. The acquisitions would have cost between $750 million and $1 billion.

The SEC maintains that Ryan tried to convince investors that he had firm commitments from Enron management to buy the energy company.

As is often the case, Ryan—without admitting or denying guilt—agreed to an order that forbids him to ever get mixed up in insider trading again.

Short Takes

* If employees forfeit stock-option grants, companies can reverse the stock-option expense that is carried on their books, says the Financial Accounting Standards Board. This rule clarification runs counter to the International Accounting Standards Board standard, which does not allow the reverse. FASB is expected to issue a full proposal on stock-option treatment by the end of the year, with final rules expected by March 2004.

* Ousted HealthSouth CEO Richard Scrushy was granted access to all of his assets as he defends himself against accounting fraud charges. Scrushy was seeking $30 million to pay attorney and forensic accountant fees.

According to the Wall Street Journal, the judge asserted that the SEC, which initially sought to freeze the assets, relied too heavily on information culled from the Department of Justice’s criminal investigation against Scrushy. Therefore, the judge in the case concluded the SEC did not build a solid enough case to freeze the assets. The SEC was hoping to immobilize the assets to ensure that there was enough money left to pay potential penalties in the $2.5 billion HealthSouth fraud case. Scrushy maintains his innocence.

* Andrx Corp. agreed to pay $100,000 to settle allegations of improper accounting. SEC regulators told Bloomberg News. that Scott Lodin, the Andrx general counsel, and Timothy Nolan, the former president and COO of Cybear, the drugmaker’s Internet unit, also agreed to settle the SEC case.

* Haber Inc. named Peter D’Angelo as the company’s new CFO. D’Angelo, 64, retired from Raytheon Corp. as the defense contractor’s CFO after a 37-year career with the company. Haber is a Bayonne, New Jersey-based technology company specializing in metallurgy and analytical instrumentation. D’Angelo is a major shareholder in Haber, holding 7.7 percent of the company’s common stock.

* Allied Mortgage & Financial Corp. appointed Isidoro Riguero CFO and head of the company’s commercial loan division. Before joining the Hollywood, Florida, company, Riguero was a vice president at Deutsche Bank AG in Miami. Before that, he was CFO at Dantzler Lumber and Export Co.

* Kevin Kelly was named CFO at The SoftAd Group in Dearborn, Michigan. Previously Kelly held several financial-management positions at Ford Motor Co. before becoming CFO of Nexiq Technologies Inc. and RapportNET.