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New Vendor Accounting Woes at Kmart

NEW YORK — Bankrupt Kmart has discovered additional problems with its recording of vendor allowances in 2000 and 2001, but concluded that the items are not material and that no restating of financial statements will be required.<br><br>Al Koch,...

NEW YORK — Bankrupt Kmart has discovered additional problems with its recording of vendor allowances in 2000 and 2001, but concluded that the items are not material and that no restating of financial statements will be required.

Al Koch, Kmart’s chief financial officer, made that disclosure in a conference call earlier this week in connection with information provided in the company’s second-quarter filing with the Securities and Exchange Commission.

Koch also said the SEC has told the company that its investigation is centering on how the company recorded “vendor allowances in previous periods in 2001 and perhaps earlier years.” He added that the Troy, Mich.-based discounter is “cooperating fully with those investigations” and that he expected that the firm would be providing additional information to the appropriate authorities.

As reported, the SEC matter is one of three ongoing investigations into Kmart. The two others are by the U.S. Attorney’s Office in Detroit, in conjunction with the Federal Bureau of Investigation, and by the House Energy and Commerce Committee.

Separately, individuals claiming to be Kmart employees, in an anonymous letter, have asked the SEC to move more quickly on its investigation of Kmart, according to a published report. A letter was also sent to Rep. Billy Tauzin (R., La.) chairman of the House Energy committee. A Kmart spokesman declined comment on the specifics of the letters. A source at the retailer, however, told WWD the two letters were “distinctly separate.” The letters were dated earlier this month.

On Monday, the retailer posted a $377 million loss for the second quarter ended July 31 on sales of $7.52 billion.

Julian Day, president and chief operating officer, said during the conference call, “It goes without saying that we are not satisfied with this level of performance.”

Day also noted that while the company had $830 million in cash availability and $1.45 billion available under its debtor-in-possession facility, those levels will “decline over the next few months as we build inventory for the holiday season.”

He noted that the recently launched Joe Boxer line “dramatically exceeded our volume plan,” and that the company “recently reaffirmed that we are indeed a promotional retailer. Our customers have been trained to some extent to expect a high-low pricing approach from us.”

Day added that the retailer has empowered its store managers and their management teams to “order what they need” to improve in-stock conditions in the stores for its customers.

“We are in a better level of in-stock than we were probably a year ago,” Day pointed out. However, one area needing improvement, he acknowledged, has been the under-performance of comparable-store sales in the food category, which Kmart relies on to drive traffic into the stores. Comps reportedly have declined in the double-digit range.

On Aug. 9, the company named Richard L. [Dick] King as general merchandise manager, food and consumables, to oversee that category’s merchandising functions. He reports directly to Day.