SANFORD, N.C. -- The Securities & Exchange Commission (SEC) has stepped up its investigation into an 18-month-old restatement of earnings by The Pantry.
In July 2005, the Sanford, N.C.-based company announced that it would restate earnings for the period from fiscal 2000 to fiscal 2005 arising from sale-leaseback accounting for various transactions. Two months later, the SEC requested voluntary cooperation from the 1,493-store chain as it looked into the sale-leaseback accounting, the decision to restate financial statements and other lease [image-nocss] accounting matters.
The Pantry had heard little about the matter from the SEC since July 2006, until last month, when the SEC informed the company that it had issued a formal order of private investigation to look into the matter.
The formal order basically provides the SEC internally subpoena power. So I guess they felt they needed to do that, Dan Kelly, The Pantry's vice president and CFO, told CSP Daily News.
Kelly said no documents had been subpoenaed thus far and added that the filing of the formal order does not mean wrongdoing is expected.
It's not terribly unusual that the SEC will conduct an investigation in connection with the restatement, he said. I don't think it implies anything other than they haven't completed their investigation and they continue to investigate it. As you look at lease accounting, it's a highly technical area of accounting.
Kelly could not guess when the investigation might be completed or what the outcome might be. He added, We continue to cooperate with the SEC in the investigation.
In its original announcement of the restatement, released July 28, 2005, the company stated, "This change is the result of the determination by the company ... that such transactions must be accounted for as financing transactions rather than sale-leaseback transactions. ... The restatement re-characterizes the transactions as financing transactions, with the assets and related financing obligation carried on the balance sheet."
As a result, approximately $177 million in additional debt was recorded by the company, with a similar increase in assets.
"The increase in debt will put [the company] in default because of provisions that limit the company's ability to incur additional indebtedness," the statement added.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.