Ralphs' flawed numbers prompt Kroger to restate earnings for past 3 years

Western grocery chain was acquired in 1999

earnings cut 2 cents a share

March 06, 2001|By BLOOMBERG NEWS

CINCINNATI - Kroger Co., the largest U.S. supermarket company, said yesterday that it will restate earnings for the past three years because of accounting irregularities at a chain the company acquired in 1999.

Kroger audited Ralphs Grocery after it learned in September of accounting entries made to smooth out swings in earnings. The restatement will have the net effect of reducing earnings by 2 cents a share over three years, the company said.

The executives who oversaw these practices are no longer with the company, said spokesman Gary Rhodes. Kroger named Steve McMillan as the unit's new chief financial officer. The restatement could trigger an investigation by the U.S. Securities and Exchange Commission, which has been cracking down on the practice of managing reported earnings, an attorney said.

"Whenever a company publicly announces accounting irregularities it can expect the SEC's antenna to reach for the sky," said Michael Young, a lawyer at Willkie Farr & Gallagher in New York. "It would be undertaken by the division of enforcement rather than the division of corporate finance."

Shares of Cincinnati-based Kroger fell 62 cents to $23.70.

Kroger also said that in the next two years it will buy back as much as $1 billion in stock, about 5 percent of its estimated 815.5 million shares outstanding, based on Friday's closing price of $24.32. The program is in addition to the $750 million in stock Kroger said it would buy in April, Rhodes said.

The restatement will raise fiscal 1998 profit from operations by 2 cents a share to 91 cents; reduce fiscal 1999 profit by 2 cents to $1.11; and cut earnings in the first and second quarters of last year by 1 cent to 32 cents and 27 cents, respectively.

The Ralphs division operates 450 stores in the West. Kroger has 2,354 supermarkets and department stores, 789 convenience stores, 389 jewelry stores, 77 supermarket fuel centers and 42 processing plants.

The accounting practices began more than a year before Fred Meyer bought Ralphs in 1998, said Kroger, which bought Fred Meyer the following year.

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