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SEC Says Kmart Overstated Its Earnings

Dec 2, 2004 | AP

Securities regulators, who have been investigating Kmart Corp.'s decline into bankruptcy, said Thursday in a related case that the company overstated earnings and improperly booked millions of dollars of payments from vendors.

The allegations by the Securities and Exchange Commission came in an order of a settlement with Thomas L. Taylor, a former sales executive of Kmart vendor Frito-Lay, a unit of PepsiCo Inc. Taylor neither admitted nor denied the SEC's allegations that he violated securities laws but agreed to refrain from future such infractions.

Federal prosecutors last year dropped their fraud case against two former Kmart executives in the middle of their trial on charges they conspired to inflate the retailing giant's earnings. The company has not been charged by civil or criminal authorities.

In its order regarding Taylor, the SEC said he played a role in Kmart improperly recognizing millions of dollars worth of vendor "allowances" prior to the company's bankruptcy in January 2002. The vendors paid Kmart the fees for promotional and marketing activities, according to the SEC.

The order also says that Kmart overstated its earnings in the fourth quarter of its fiscal year ending Jan. 31, 2001.

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