Kmart moves to investigate accounting rumor
By David Runk
Associated Press Writer
DETROIT Bankrupt retailer Kmart Corp. said Friday it has begun an internal investigation after receiving an anonymous letter claiming to be from employees that raised questions about its accounting.
Kmart Corp, which recently filed for bankruptcy, said yesterday it would look into allegations of accounting problems, surprising observers with its quick reaction.
The disclosure comes amid heightened sensitivity about accounting issues in the wake of the collapse of energy trader Enron Corp. amid questionable accounting practices.
"This is something that if they go through and they don't find anything it will really reassure people," said Jeff Stinson, an analyst with Midwest Research. "Right now, after declaring Chapter 11 bankruptcy, it's going to take a lot of time to rebuild confidence."
Kmart said the letter, which it received just over a week ago, was addressed to its auditors PricewaterhouseCoopers, its board of directors and the SEC.
"The letter has been referred to the audit committee of the board of directors, which promptly engaged outside counsel and accounting consultants to conduct an independent investigation," the company said in a news release.
An SEC spokesman said Friday that the agency had no immediate comment on the matter.
PricewaterhouseCoopers spokesman David Nestor confirmed that the company also received a copy of the letter. He said the auditor was cooperating with Kmart and its outside counsel in the investigation.
Troy-based Kmart filed for Chapter 11 after its stock price and credit rating were battered following Kmart's release of lower-than-expected holiday sales and fourth-quarter earnings.
Last week, Kmart's board fired the company's president, Mark Schwartz, and hired turnaround specialist James Adamson as chairman replacing Chuck Conaway, who remains as chief executive.
In announcing the bankruptcy filing, Kmart said it will evaluate store performance and lease terms by the end of the first quarter of 2002, and will close unprofitable or underperforming stores. Kmart also said it would reduce staff.
In late-afternoon trading Friday on the New York Stock Exchange, Kmart shares fell 8 cents, or 8.6 percent, to close at 85 cents.