Saturday, June 4, 2005
Saks Inc. disclosed today that its audit committee has expanded an internal investigation into accounting problems to look into whether vendors were improperly charged for inventory markdowns, which would have bolstered the company's revenues and income. On May 10, the company dismissed three executives over accounting problems regarding vendor allowances (see earlier post here), and the new "supplemental" investigation looks at other issues related to how Saks used its contracts with vendors to pad its books. A company press release (here) states:
The Audit Committee's supplemental internal inquiry will review (i) the timing of the recording of both inventory markdowns and vendor markdown allowances at Saks Fifth Avenue Enterprises ("SFAE"), (ii) whether there have been any overcollections of vendor markdown allowances in any of the merchandising divisions of SFAE that were not the subject of the Audit Committee's prior internal investigation, and (iii) whether the Company has improperly charged any of its merchandise vendors any fees for failure to comply with the Company's logistics, transportation, or billing policies (these types of fees often are referred to in the retail industry as "chargebacks"). This supplemental inquiry is being undertaken in connection with the previously disclosed restatement of the Company's financial statements from fiscal 1999 through the third quarter of fiscal 2004 and the preparation of the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2005 (the "2004 Form 10-K").
With respect to the timing of inventory markdowns and vendor markdown allowances, the Company currently believes that some inventory markdowns and some vendor markdown allowances may have been incorrectly recorded at SFAE in one or more fiscal quarters prior to 2005. The Company's results of operations for the first quarter of fiscal 2005 released on May 17, 2005 reflected an approximately $1.2 million reduction to net income based upon management's preliminary determination that SFAE had incorrectly accelerated into the first quarter of 2005 the recognition of $2 million of vendor markdown allowances.
The company has disclosed that the SEC and U.S. Attorney for the Southern District of New York are investigating it and individuals involved in the accounting problems, and look for the scope of those inquiries to expand. The bargain bin may start filling up with more discarded executives soon. (ph)