Wednesday, August 10, 2005
In its most recent 10-Q (here), buried somewhere around page 66 under "Legal Proceedings," Eastman Kodak Co. makes the following disclosure:
During March 2005, the Company was contacted by members of the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) concerning the announced restatement of the Company’s Financial Statements for the full year and quarters of 2003 and the first three unaudited quarters of 2004. The staff of the SEC has been conducting an informal inquiry into the substance of that restatement. The Company has fully cooperated with this inquiry, and the staff has indicated that the inquiry should not be construed as an indication by the SEC or its staff that any violations of law have occurred.
Kodak announced the restatement, which knocked off approximately $93 million in 2004 earnings, in March 2005, and it acknowledged internal control problems. A restatement is sure to grab the SEC's attention in the current environment, particularly when it covers more than one year. The company did not disclose the informal investigation earlier this quarter when it discussed its earnings. An informal inquiry means that the Commission staff does not (yet) have subpoena power, and obtains information voluntarily from the company and its auditors. If there is any indication of extensive accounting problems, or the need to use compulsory process to obtain information, then the SEC will bump the case up to a formal investigation, which empowers the staff to issue subpoenas to obtain documents and testimony. (ph)