SEC PROBES NASH FINCH

Mark Hamstra

MINNEAPOLIS -- Nash Finch's accounting practices came under greater scrutiny last week as the Securities and Exchange Commission stepped up its investigation into the wholesaler's recording of vendor allowances. In addition, Nash Finch's outside accountants resigned after six months with the company.

Observers said the moves could jeopardize Nash Finch's listing on the Nasdaq stock exchange, which set deadlines of March 19 and March 28 for the company to file its third-quarter and annual financial reports, respectively. The report for the third quarter, which ended Oct. 5, 2002, was due Nov. 19.

Nash Finch, a wholesaler and retailer with $4 billion in annual revenues, could not be reached for comment. The company previously said it delayed the third-quarter filing to conduct its own investigation into its accounting practices for vendor allowances.

In a filing with the SEC last week, the company said Deloitte & Touche resigned as the company's certifying accountants on Jan. 28 because the firm was not convinced that Nash Finch's accounting for vendor allowances was appropriate. Deloitte became Nash Finch's accountants in July 2002 after Nash Finch dismissed Ernst & Young.

A spokeswoman for Deloitte declined to comment, referring SN to a letter accompanying Nash Finch's filing verifying that the company has resigned.

Nash Finch in November said the SEC had launched an informal investigation into the accounting methods it uses to record vendor allowances -- specifically its treatment of "count-recount" charges for the company's warehouse inventory that would have reduced the cost of goods sold on its income statement.

Last year, both A&P and Kmart had to restate their earnings because they improperly accounted for vendor allowances, which are rebates that the retailers can earn from manufacturers for meeting certain sales targets. Retailers sometimes record these rebates as reductions in the cost of goods sold before the rebates are actually earned, which has the effect of artificially inflating profits in the near term.

In February 2001, Nash Finch settled a lawsuit by John A. Haedicke, the former chief financial officer, who alleged that he was unjustly fired for failing to use improper accounting methods to inflate the company's profits. Haedicke could not be reached for comment.

Meanwhile, Nash Finch is the subject of several shareholder lawsuits seeking class-action status. The company's stock tumbled more than 70% during the last half of 2002. It lost another 51%, closing at $4.30 on Wednesday, the day after it made the announcement about the formal SEC investigation.

An SEC spokesman said the commission does not confirm or deny the existence of investigations into individual companies. He did say, however, that the number of formal investigations is expected to increase this year following a rise in the volume of inquiries by individual SEC investigators last year.