As reported in the Company's February 10, 2005 press release, the Company currently expects to report a material weakness in internal controls (as defined under Sarbanes-Oxley Section 404 requirements) over financial reporting when it files its Annual Report on Form 10-K for the year ended December 31, 2004. The material weakness relates to inadequate documentation supporting the Company's revenue recognition procedures in certain of its operating divisions.
As a result, the Company has performed, and its auditors are currently performing, additional testing of invoices where finished products were delivered to the Company's "customer-owned" inventory yards. The Company's testing indicated that while title and risk of loss had transferred to the customer, in certain instances the supporting documentation did not meet all of the requirements (as prescribed under SEC guidelines) to recognize revenue prior to being picked up by the customer. Therefore, the revenue and profits from these transactions are required to be deferred until the period in which the customer takes physical possession. In many instances, revenue recognition may occur after the customer has paid for the goods or subsequently resold them to a third party. Based on its testing to date, the Company believes that its preliminary estimates of 2004 income from continuing operations reported in its February 10, 2005 press release will be reduced from $0.53 to $0.51 per diluted share when it files its Annual Report on Form 10-K. The Company has also reviewed the impact on its quarterly results of operations during 2004, and as a result of such work to date, believes that the quarterly results of operations will be restated as follows from previously reported amounts: first quarter 2004: from $0.08 to $0.07 per diluted share; second quarter 2004: no change; third quarter 2004: from $0.15 to $0.14 per diluted share; and fourth quarter 2004: no change. Substantially all of the deferred revenue has been collected from the customer evidencing the underlying commercial intent of these transactions.
Due to the additional procedures surrounding these changes, the Company will not be able to finalize its audited financial statements and related footnotes by the prescribed filing date of March 16, 2005, and therefore the above earnings estimates should still be considered preliminary.
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