A 10-month investigation of accounting problems at
led to the ouster of the company's chief executive Monday and a sprawling restatement that will carve about $30 million out of the company's earnings going back to 1997.
Footstar, based in West Nyack, N.Y., said Mickey Robinson was leaving the company after the probe found "significant weaknesses in the company's internal controls and procedures" and "instances of insufficient attention and resources directed by the company to accounting issues."
He'll be replaced as CEO on an interim basis by Neele E. Stearns, the former chairman of Footstar's audit committee. The company is searching for a permanent replacement.
Footstar also issued new guidance for this year and next, predicting a loss of $1.50 to $1.60 a share in 2003 before a profitable 2004. The company expects to lose 75 cents to 85 cents a share in the first quarter of 2003 and lose 35 cents to 45 cents a share in the second quarter. Because of the accounting problems, no analyst estimates for those periods exist.
Footstar said last November that it discovered discrepancies in its accounts-payable bookkeeping. Following the investigation, the company said Monday it believes there were errors in three areas: the monthly reconciliation of accounts payable to the general ledger, the recording of payments under an electronic transfer system adopted in 2000, and mistakes integrating the accounts payable system of an acquired company in 2000. The reconciliation problem caused a $35.8 million overstatement of pretax operating profit over 5 1/2 years, while the integration errors are expected to add $10.3 million to costs of sales.
In the wake of the probe, the company created a new position, senior vice president of financial reporting, which it hopes to fill soon. Footstar also said it continues to have access to a $325 million senior secured credit line and recently received an additional $20 million commitment from the credit facility's term lender.
Footstar's shares closed Friday at $10.42 and weren't trading any volume in the Instinet premarket.