MONTVALE, N.J. -- A&P isn't going to pay for its past accounting sins; the accounting sins are going to pay A&P.
In an apologetic conference call last week following a twice-delayed restatement of its earnings, the company's top executives explained how they were able to take accounting errors from several preceding years and make them add up to reduced losses and increased profits, with some left over to boost the next few years' earnings reports.
Analysts were awaiting news of the company's first-quarter earnings, which A&P said it would delay releasing until July 29 because it had devoted all its resources toward the review.
The restatement, which the company first announced on May 24, involved several accounting issues, including vendor allowances, income from rent subleases and reserves taken for self-insurance. Because the company during the past several years recorded income from vendor allowances before it was actually earned, it was able to dig into those past earnings statements, delete the unearned income, and add it on in later years when the company did actually earn it.
Meredith Adler, analyst, Lehman Bros., New York, said she believed that A&P had clung to old, faulty accounting for too long.
"I don't think they meant to deceive by doing things that way," she told SN. "I would say it kind of falls under the heading of sloppiness or rigidity."
In its revised filing with the Securities and Exchange Commission, A&P reported charges totaling $11.3 million and gains totaling $49.7 million for fiscal years 1999, 2000 and 2001. In addition, the company revised its earnings for the years prior to 1999, finding a total of $75 million that had been prematurely reported as income. Some $37 million of that has yet to be reported, but is expected to be recognized for the next three to five years.
The charges for the past three fiscal years included $9.5 million for improperly recognized vendor allowances, $800,000 for the overstatement of perishable inventory in one region and $1 million for changes in the timing of sublet income related to certain closed stores.
The gains included $28.2 million for changes in the accounting policy related to vendor allowance contracts and $21.5 million for changes in the accounting method for self-insurance reserves.
Also, A&P said sales for the first quarter, which ended June 15, totaled $3.31 billion, down 2.3% from $3.39 billion a year ago. Comparable-store sales in the first quarter were up 0.2%.
"Clearly, we've seen a slowdown in consumer spending in the first quarter, and the economy is uncertain going forward," said Elizabeth Culligan, president and chief operating officer.