Kmart May Restate 2001 Earnings
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DETROIT (AP) _ Kmart Corp. is reviewing its accounting methods, the company said Wednesday, which could result in a change to its already reported 2001 quarterly earnings.
Kmart asked for an extension to file its annual report with the Securities and Exchange Commission, saying its new management needs more time to examine its accounting. Kmart was to have filed the 10K on Tuesday.
In January, Kmart said it had received an anonymous letter claiming to be from employees about unspecified accounting matters. The letter was received shortly before the Troy, Mich.-based retailer’s Jan. 22 Chapter 11 filing.
The letter was addressed to the SEC, Kmart’s auditors PricewaterhouseCoopers and Kmart’s board of directors. The company said it and the SEC were investigating.
Kmart said the delay in filing the annual report will give executives time to finish their review and possibly make changes.
Analysts expressed concern that the delay was because of an investigation.
``That’s troubling, to say the least,″ said Eric Beder of Ladenburg, Thalmann & Co. Inc. ``I think it says there might have been worse problems″ prior to the bankruptcy.
``In today’s distrusting environment, I think it’s a critical wound to their credibility,″ said Marty Zohn, partner in the law firm of Proskauer Rose LLP.
There has been heightened sensitivity about accounting issues in the wake of the collapse of energy trader Enron Corp. amid questionable accounting practices.
Kmart said its review relates to vendor allowances and rebates and general liability reserves. Further details of the investigation and Kmart’s accounting methods will be included in the 10K, to be filed May 15, spokesman Jack Ferry said.
Kmart may restate its first three quarterly reports for 2001 as a result of the review. It hasn’t yet filed earnings for the fourth quarter and fiscal year.
Zohn said the prospect of changed financial statements ``adds more suspicion and anxiety at a time when the company doesn’t need that.″
Analyst Mike Porter with Morningstar said it’s possible that when Kmart digs a little deeper, it could find that a problem goes back a few years.
``If Kmart does find something improper or something that’s not accounted for properly, they might say `OK, here’s a few other things you might want to know,‴ Porter said. ``It could get messy.″
Zohn said it also depends on what Kmart changes about its past statements. Analysts and experts have said Kmart’s biggest problem wasn’t financial but structural, as it struggles to find a niche and compete with Wal-Mart Stores Inc. and Target Corp. in the discount market.
``If they restate their earnings significantly, that will really disappoint those who were expecting a viable, profitable enterprise once certain structural problems were resolved,″ Zohn said.
Kmart also said that its operating results for the year ended Jan. 30 are expected to include a loss ``significantly higher″ than the $244 million loss reported for the previous fiscal year. Those results will be included in the 10K. Ferry said further details weren’t available.
Kmart filed for bankruptcy following disappointing holiday sales and a stock dive. Since then, Kmart has hired several new executives, including a chief executive, president and chief financial officer.
In Wednesday trading on the New York Stock Exchange, Kmart shares were down 19 cents to $1.25.
On the Net:
Kmart Corp., http://www.kmartcorp.com