Rite Aid: KPMG Quit on Unreliability
HARRISBURG, Pa. (AP) _ Accounting giant KPMG resigned as auditor for Rite Aid Corp. because it was ``unable to continue to rely on management’s representations″ about the company’s finances, Rite Aid said Thursday.
The nation’s No. 3 drugstore chain also disclosed that the Securities and Exchange Commission has formally launched an investigation into recent events that have thrown Rite Aid into financial turmoil.
Rite Aid released its statement after the close of business, and SEC officials were not available to comment.
The New Jersey-based KPMG, which had been Rite Aid’s auditor since it went public in 1968, told Rite Aid verbally Nov. 11 that it intended to resign because it was no longer able to trust the information it received from management, Rite Aid said in a filing with the SEC.
In a letter that same day, KPMG said its May 28 auditors’ report on Rite Aid ``should no longer be relied upon″ in light of Rite Aid’s stated intention to restate its earnings for the past three fiscal years, according to the SEC filing. The restatement is expected to reduce the company’s earnings by about $500 million.
KPMG said it told Rite Aid officials in June that it was no longer willing to rely on the representations of Rite Aid’s chief financial officer, according to the filing. Rite Aid officials deny that such a statement was ever made, but the executive was replaced the following month and additional employees were hired to improve the company’s accounting and reporting operations, the document said.
KPMG spokesman John Fiddler said his company would respond to Rite Aid’s filing in a separate filing with the SEC, but declined to comment further.
Leonard Green, the newly appointed chairman of the Camp Hill-based Rite Aid, said the company understands concerns raised by KPMG’s resignation and the SEC probe, and that it is working to improve its performance, financial controls and discipline.
``We have been working diligently on this front and will intensify our efforts going forward,″ he said.
Rite Aid said that it decided last week to switch auditing firms as part of a planned restatement of its earnings for the past three years that was expected to result in a $500 million reduction.
KPMG, the third-largest of the Big Five accounting firms, had been asked to reconduct an audit of the company’s books, but declined and subsequently resigned around the same time.
On Oct. 18, faced with unrelenting financial problems caused by heavy debt stemming from its recent acquisitions, Rite Aid announced a series of steps to buy time from creditors and infuse the company with cash. It also announced the resignation of Martin L. Grass as its chairman and chief executive officer and its intention to restate its earnings for the past three years.
Rite Aid alarmed some analysts last week when it canceled a scheduled conference call with investors and warned that it could no longer provide reliable profit forecasts.
Green has said major problems facing the company are its inability to secure long-term financing for last year’s $1.5 billion purchase of PCS Health Systems Inc., the nation’s top pharmacy-benefits manager; an ``overly aggressive″ store expansion and refurbishment program; and a marketing strategy that has stressed image-building rather than promotions to increase customer traffic in its nearly 4,000 stores.
Rite Aid is trying to sell all or part of PCS, as well as many of its larger stores on the West Coast.
Rite Aid shares traded at $6.87 1/2, down 12 1/2 cents, at 5:15 p.m. on the New York Stock Exchange on Thursday.