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    SEC Opens The Pantry, Looking For Clues

    Formal investigation is underway concerning the company's 2005 restatement.

    SANFORD, N.C. -- The Securities and Exchange Commission (SEC) launched a formal investigation into The Pantry's July 28, 2005 restatement, questioning the company's accounting on a sale-leaseback transaction that dated back to 1999, according to reports on Foodnoted.org.

    That restatement triggered an informal investigation that was mentioned in the company's 2005 10-K, a fiscal report. Since then, the investigation became formal, and comment letters between the company and the SEC have been exchanged. The most recent development is a letter to The Pantry, dated July 25, 2006, stating that the SEC has "no further comments at this time," the report stated.

    The company's 10-K filing for fiscal 2006 mentions the investigation:

    "On July, 28, 2005, we announced that we would restate earnings for the period from fiscal 2000 to fiscal 2005 arising from sale-leaseback accounting for certain transactions. In connection with our decision to restate, we filed a Form 8-K on July 28, 2005. The SEC issued a comment letter to us in connection with the Form 8-K, and we responded to the comments."

    The statement continues, noting that in September 2005, the SEC requested that the company "voluntarily provide certain information to SEC Staff in connection with our sale-leaseback accounting and our decision to restate our financial statements with respect to it." That request was part of an informal investigation described as a "fact-finding inquiry," the company stated.

    On the restatement, the company said, "If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm business and the trading price of our stock."

    The company announced on July 28, 2005 that it intended to restate parts of its prior period financial statements to correct accounting for transactions it described as sale-leaseback transactions. The restatement renamed 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 expected to be recorded as of June 30, 2005, with a similar increase in assets.

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