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SEC probes Rite Aid
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November 18, 1999: 7:35 p.m. ET
Investigation started after auditors walk on third largest drug store chain
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NE YORK (CNNfn) - The Securities and Exchange Commission is investigating Rite Aid Corp. following the resignation of the troubled drug store chain's auditors, the company said Thursday.
Rite Aid, the third largest drugstore chain, said it had filed a Form 8-K with the SEC regarding the resignation of its New York-based auditors, KPMG.
KPMG resigned as the company's auditors because, Rite Aid said, "they were unable to continue to rely on management's representations."
Camp Hill, Pa.-based Rite Aid, which has annual revenues of nearly $13 billion and 3,800 stores in 30 states and Washington, D.C, said it intends to cooperate with investigation.
"We know that our change in auditors and the investigation by the SEC have raised concerns," said Leonard Green, the recently-elected chairman, in a statement. "We understand those concerns and we certainly know that this company not only has to substantially improve its performance but also needs to enhance its financial controls and discipline."
On Oct. 18, Martin Grass resigned as chairman of the board and chief executive officer. Rite Aid also announced that it would have to restate its fiscal results for the last three years - lowering them by an approximate total of $500 million. Officials at the time blamed accounting practices related to some stores it had closed.
On Nov. 11, KPMG sent Rite Aid a letter saying that as a result of the company's planned fiscal restatements, it could no longer be associated with Rite Aid's financial statements.
Disagreements
In the Form 8-K filing, Rite Aid said KPMG had three disagreements with the company regarding the financial statements for the fiscal year ended Feb. 27, 1997.
KPMG disagreed with the view that certain amounts could be reflected as income based upon estimates of recoveries from vendors. The firm also disagreed with accounting for certain deferred costs, and it disagreed with Rite Aid's accounting for certain expenses charged against is acquisition accruals.
Rite Aid also said in the filing that it had adjusted its financial statements to record its estimates of the appropriate amounts of those items.
Green said the company will bring in "a high-caliber, permanent senior management team." He said Rite Aid expects to find a permanent chief executive officer by the end of the year.
"I want to emphasize that Rite Aid is one of the top three drugstore chains in the U.S. and is fundamentally a very solid company," Green said.
Shares of Rite Aid (RAD) closed down 1/8 Thursday to 6-7/8. 
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Rite Aid
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