-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Z9+UyFHvSomWebaRgxgF4qdXSB2KR8g7pIm4g42QGjE+9GcqtmKkWbnPhPQBi+m+ ZCFU2S68kElkkeJXc8QYFQ== 0000912057-94-002039.txt : 19940617 0000912057-94-002039.hdr.sgml : 19940617 ACCESSION NUMBER: 0000912057-94-002039 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940615 ITEM INFORMATION: Changes in registrant's certifying accountant FILED AS OF DATE: 19940614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDB COMMUNICATIONS GROUP INC CENTRAL INDEX KEY: 0000799319 STANDARD INDUSTRIAL CLASSIFICATION: 4899 IRS NUMBER: 930933098 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14972 FILM NUMBER: 94534089 BUSINESS ADDRESS: STREET 1: 10525 W WASHINGTON BLVD CITY: CULVER CITY STATE: CA ZIP: 90232 BUSINESS PHONE: 2138709000 8-K/A 1 FORM 8-K/A - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K/A (AMENDMENT NO. 1) ---------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): MAY 23, 1994 ------------------------ IDB COMMUNICATIONS GROUP, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 0-14972 93-0933098 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File No.) Identification No.)
------------------------ 10525 WEST WASHINGTON BOULEVARD, CULVER CITY, CALIFORNIA 90232-1922 (Address of Principal Executive Offices) (Zip Code)
------------------------ (213) 870-9000 (Registrant's Telephone Number, Including Area Code) - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- ITEM 5. OTHER EVENTS. On June 13, 1994, Deloitte & Touche ("Deloitte") provided IDB Communications Group, Inc. (the "Registrant") with Deloitte's response to the Registrant's Current Report on Form 8-K (the "Form 8-K") filed with the Securities and Exchange Commission (the "SEC") on May 31, 1994. In Deloitte's response filed as Exhibit 16.1 hereto (the "Deloitte letter"), Deloitte confirmed that the unresolved items of concern to Deloitte were limited to the first quarter of 1994 and cited no irregularities relating to the Registrant's financial statements. The Deloitte letter does not recommend restatement of any financial statements relating to prior periods. Deloitte did not limit or withdraw any report issued with respect to the Registrant's financial statements audited by Deloitte for any of the ten fiscal years ended December 31, 1993 or any consent provided by Deloitte with respect to any of the six registration statements filed with the SEC by the Registrant in 1993 or the registration statement filed with the SEC by the Registrant in the first quarter of 1994. The Deloitte letter does not question the fundamentals or intrinsic value of the Registrant's business. Deloitte acknowledged in its response that Deloitte submitted its resignation to the Registrant at a time when Deloitte's disputes with the Registrant were unresolved and subject to continuing discussion between Deloitte and the Registrant. As noted in the Form 8-K, the Registrant was prepared to delay filing of its Form 10-Q in an effort to satisfy Deloitte, but was unable to advise Deloitte of its willingness to delay the filing before Deloitte submitted its resignation to the Registrant. On the morning of Monday, May 23, 1994, prior to Deloitte's resignation, several members of management of the Registrant attempted to contact Deloitte to reaffirm management's commitment to continue to work with Deloitte until it was satisfied. However, the first contact the Registrant's management had with Deloitte on May 23, 1994 was when Deloitte called the Registrant to tender its resignation. The Registrant subsequently filed its Form 10-Q later that day. [See paragraph (B) of the Deloitte letter.] Deloitte acknowledged that the Registrant was not informed of the existence of any "disagreement" (within the meaning of Item 304 of Regulation S-K) regarding the first quarter of 1994 until after Deloitte had resigned. In addition, with respect to the first quarter of 1992, Deloitte acknowledged that the Registrant was not informed of the existence of any "reportable event" (within the meaning of Item 304) until May 23, 1994, after Deloitte had resigned. Deloitte's letter does not discuss, refer to or otherwise call into question any accounting period other than the first quarter of 1994 and the first quarter of 1992. [See paragraph (A) of the Deloitte letter.] Deloitte had expressed concerns, in connection with the Registrant's first quarter 1992 financial results, regarding the accuracy of the Registrant's internally generated financial statements. [See paragraph (C)(3) of the Deloitte letter.] Deloitte, however, never stated prior to its resignation that such concerns constituted a "reportable event" (as defined in Item 304), and subsequently issued an unqualified audit report with respect to the 1992 fiscal year, which report has never been modified, supplemented or rescinded. Deloitte's letter agrees that its concerns regarding the first quarter of 1992 "were ultimately resolved to Deloitte's satisfaction." While Deloitte in its letter indicates that it "disagrees" with certain of the statements contained in the Form 8-K, particularly those statements describing the substance of disputes between the Registrant's management and Deloitte [see paragraph (C) of the Deloitte letter], the Deloitte letter recasts such statements, providing greater detail in certain instances, without directly contradicting the text of the Form 8-K. The Registrant agrees that Deloitte advised it on May 13, 1994 (the business day prior to the prescribed due date for the Form 10-Q), that Deloitte would resign if the Registrant filed its Form 10-Q in its then current version. [See paragraph (C)(1) of the Deloitte letter.] In fact, on that date, Deloitte presented the Registrant's management with three alternatives: (1) file the Form 10-Q in its then current form, (2) file the Form 10-Q as modified to conform to Deloitte's suggestions, or (3) delay the filing. The third alternative, which had been strongly recommended by Deloitte, was accepted by the 2 Registrant's management and agreed to that same day by the Audit Committee of the Registrant's Board of Directors. A Form 12b-25 was filed on May 16, 1994 to delay the prescribed due date of the Form 10-Q until May 23, 1994. Deloitte's letter states that Deloitte "disagreed with the recording of revenue" related to a certain transaction "because the information and documentation presented to Deloitte did not support the recording of the sale as of March 31, 1994." [See paragraph (C)(1) of the Deloitte letter.] Deloitte's letter does not question the substance of the transaction, but merely its timing (i.e., whether the transaction should properly be recorded in or subsequent to the first quarter of 1994). The Registrant's management offered Deloitte the opportunity to directly confirm the transaction in a writing to be signed by the other party to the transaction. Deloitte, however, declined to seek the confirmation and the Registrant is unaware of any attempt by Deloitte to confirm the transaction. Deloitte's letter states that Deloitte needed additional support for the Registrant's proposed $2.9 million increase in its provision for doubtful accounts. [See paragraph (C)(1) of the Deloitte letter.] Subsequent to the Registrant's press release of its financial results for the first quarter of 1994 on April 26, 1994, management became aware of the bankruptcy filing of a major customer of the Registrant. Such customer was then indebted to the Registrant in an amount in excess of $3 million. The bankruptcy filing of such customer constituted a Type 1 Subsequent Event that should be accounted for and reflected on the Registrant's balance sheet as of March 31, 1994. Deloitte did not request any supporting documents relating to the bankruptcy of such customer prior to its resignation. Deloitte's letter states that, at the time of Deloitte's resignation, it informed management and the Registrant's Audit Committee that it was "no longer willing to rely on management's representations." [See paragraph (C)(4) of the Deloitte letter.] Deloitte's letter, however, does not offer any reasons for such statement. Prior to its resignation, Deloitte made no attempt to express its concerns independently to either the outside board members of the Audit Committee or other members of the Registrant's management (notably, the Registrant's chief executive officer or its general counsel). In sum, Deloitte's response confirmed that the Registrant's financial statements do not contain any irregularities. Deloitte does not even suggest any limitation or withdrawal of reports issued and consents previously provided by it. Deloitte resigned while certain issues relating to the first quarter of 1994 remained unresolved and subject to further discussion. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Businesses Acquired. None. (b) Pro Forma Financial Information. None. (c) Exhibits.
EXHIBIT NO. DESCRIPTION - - ---------- ------------------------------------------------------------------ 16.1 Letter re Change in Certifying Accountant 99.1 Press Release dated June 14, 1994
3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Culver City, State of California, on June 13, 1994. IDB COMMUNICATIONS GROUP, INC. By: /s/ Edward R. Cheramy -------------------------------------- Edward R. Cheramy President 4 EX-16.1 2 EXHIBIT 16.1 EXHIBIT 16.1 Securities and Exchange Commission Mail Stop 9-5 Washington, DC 20549 Dear Sirs/Madams: We have read Item 4 of Form 8-K of IDB Communications Group, Inc. (the "Registrant") as filed with the Securities and Exchange Commission on May 31, 1994 (the "Form 8-K"), and have the following comments: (A) We agree with the statements made in paragraphs 1 and 2; sentence 4 of paragraph 4; and sentence 1 of paragraph 5. We agree with the statements made in sentence 8 of paragraph 4 and sentence 5 of paragraph 5, if read in the context of specific discussions held between the Registrant and Deloitte & Touche ("Deloitte") regarding the requirements of Item 304 of Regulation S-K. However, prior to the time of its resignation, Deloitte, on numerous occasions, had discussed with the Registrant the unresolved and disputed items related to the first quarter of 1994 and the weaknesses in internal controls and procedures relating to the Registrant's interim reporting identified in the first quarters of 1994 and 1992, as discussed further in (C)(3) below. We agree with sentence 1 of paragraph 8, however, it should be noted that such meetings were held telephonically and, in addition to the one member of management on the Audit Committee, included other members of management of the Registrant. We agree with paragraph 9, however, it should be noted that authorization to respond to inquiries of the Registrant's prospective successor accountants was provided in a letter dated June 6, 1994. (B) We have no basis to agree or disagree with the statements made in paragraph 3; sentence 6 of paragraph 4; and sentence 2 of paragraph 8, but would make the following observations: With respect to the Registrant's statements in paragraph 3 and in sentence 2 of paragraph 8, at the time of Deloitte's resignation on May 23, 1994, Deloitte disagreed with certain items that the Registrant was proposing to include in its results of operations for the quarter ended March 31, 1994, which were to be reported in the Registrant's report on Form 10-Q for that quarter, and there were other items included in the Registrant's proposed report on Form 10-Q for that quarter that Deloitte believed were not adequately supported by documentation presented to Deloitte through that date. Additionally, with respect to the Registrant's assertion in sentence 6 of paragraph 4, on May 20, 1994 management of the Registrant informed Deloitte that it intended to file its quarterly report on Form 10-Q reporting the same income before income taxes as the Registrant had previously reported in its press release, notwithstanding the disagreements and unresolved issues raised by Deloitte. At no time subsequent to May 20, 1994 through the date of Deloitte's resignation on May 23, 1994 did management of the Registrant inform Deloitte that it was prepared to further delay filing its report on Form 10-Q for the quarter ended March 31, 1994. (C) We disagree with the statements made in sentences 1, 2, 3, 5, and 7 of paragraph 4; sentences 2, 3, and 4 of paragraph 5; paragraph 6; and paragraph 7, and believe the statements made in the indicated sentences within the referenced paragraphs should be modified as follows: (1) With respect to sentences 1, 2, 3, and 5 of paragraph 4, on April 25, 1994, prior to the Registrant's press release of its financial results for the quarter ended March 31, 1994, and in connection with Deloitte's performance of the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in SAS No. 71, INTERIM FINANCIAL INFORMATION, on the Registrant's unaudited condensed consolidated financial statements for the three months ended March 31, 1994, Deloitte informed the Registrant that Deloitte disagreed, based on the information and documentation provided to Deloitte by the Registrant to that date, with recognizing as income before income taxes approximately $10.5 million of recorded items that constituted a material portion of the $15.1 million of income before income taxes that the Registrant intended to report in its press release. Deloitte requested that the Registrant not make its press release, but the Registrant's management, with the concurrence of the Audit Committee (as Deloitte was advised at the time), nevertheless released its earnings for the quarter ended March 31, 1994. Subsequent to the press release, the Registrant presented Deloitte with additional information and documentation relating to the $10.5 million of income before income taxes that Deloitte had disagreed with, and based on this additional information and documentation, $1.9 million of the $10.5 million was resolved to Deloitte's satisfaction. Of the $8.6 million remaining unresolved, the Registrant agreed that $4.5 million was recorded in error and, in its place, presented Deloitte with various new and previously unrecorded items aggregating approximately $4.5 million of income before income taxes. Deloitte reviewed additional information and documentation presented by the Registrant in support of this $4.5 million and was satisfied as to $3.1 million of the items. This left, at May 13, 1994, items aggregating $5.5 million of income before income taxes unresolved. Of this amount, Deloitte disagreed with items aggregating approximately $4.1 million recognized by the Registrant as income before income taxes. The remaining $1.4 million was unresolved pending additional information and documentation to be provided by the Registrant. On May 13, 1994, Deloitte advised the Registrant that the $5.5 million constituted a material portion of the $15.1 million of income before income taxes and, if the Registrant filed its quarterly report on Form 10-Q including the $5.5 million, Deloitte would resign. On May 18, 1994, the Registrant agreed that the items aggregating approximately $4.1 million of income before income taxes that Deloitte had disagreed with on May 13, 1994, would not be included in the Registrant's reported income before income taxes, and that the remaining $1.4 million was yet unresolved. During the next two days, the Registrant presented Deloitte with yet additional new and previously unrecorded items aggregating $4.5 million of income before income taxes. On May 20, 1994, after reviewing additional information and documentation presented by the Registrant, Deloitte informed the Registrant that it was satisfied as to approximately $0.5 million of the newly identified $4.5 million. The remaining $4.0 million, the components of which were the subject of discussions between the Registrant and Deloitte, consisted of three items: (i) approximately $5.0 million of revenue relating to the sale of underlying lease rights to certain satellite transponder capacity ("sale of transponder capacity"); (ii) approximately $1.9 million reduction in cost of sales relating to certain "purchase accounting adjustments" recorded in connection with earlier business acquisitions; and (iii) approximately $2.9 million increase in the Registrant's provision for doubtful accounts. Deloitte informed the Registrant that: (a) it disagreed with the recording of revenue in connection with the "sale of transponder capacity," because the information and documentation presented to Deloitte did not support the recording of the sale as of March 31, 1994; (b) it was awaiting further information and documentation from the Registrant to support the "purchase accounting adjustments"; and (c) it needed additional support from the Registrant for the Registrant's proposed $2.9 million increase in its provision for doubtful accounts, because in all previous discussions regarding the Registrants' first quarter results, management of the Registrant had represented to Deloitte that the provision for doubtful accounts was adequate. (2) With respect to sentence 7 of paragraph 4, we believe the word "abruptly" is inappropriate considering the events described herein. (3) With respect to sentences 2, 3, and 4 of paragraph 5, Deloitte was engaged to perform a review of the Registrant's unaudited condensed consolidated financial statements for the quarter ended March 31, 1992, after the Registrant had filed such statements on Form 10-Q. In connection with this review, Deloitte expressed concerns regarding the accuracy of the Registrant's reported results of operations for such quarter, which were ultimately resolved 2 to Deloitte's satisfaction. However, because of weaknesses in internal controls and procedures relating to the Registrant's interim financial reporting identified in performing this review, Deloitte insisted on performing timely quarterly reviews for subsequent interim periods and suggested that, prospectively, the Registrant's management meet with the outside directors on the Registrant's Audit Committee prior to the release of the Registrant's quarterly results. Deloitte did, in fact, perform timely quarterly reviews for each subsequent quarter. In an oral communication to the Audit Committee at the conclusion of the audit of the Registrant's financial statements for the year ended December 31, 1992, Deloitte noted that the condition of the Registrant's underlying accounting records had improved "dramatically". However, in the meeting held with the Registrant's Audit Committee on May 23, 1994, the day of Deloitte's resignation, Deloitte advised the Registrant that its internal controls and procedures relating to the Registrant's interim financial reporting that had improved in the latter part of 1992 and in 1993 had again deteriorated in the first quarter of 1994. (4) With respect to paragraph 6, as a result of the events surrounding the release and reporting of the Registrant's financial results for the first quarter of 1994, on May 23, 1994 Deloitte concluded, and so advised the Registrant's management and its Audit Committee, that there had been a serious breakdown in the process of identifying, analyzing and recording the Registrant's business transactions which prohibited the satisfactory completion of a quarterly review, recognizing the limitations of such an engagement. Deloitte also informed the Registrant's management and its Audit committee that it was no longer willing to rely on management's representations regarding its interim financial statements. (5) With respect to paragraph 7, management of the Registrant, with the concurrence of the Audit Committee, requested that Deloitte not issue formal written reports relating to internal controls and procedures or other comments arising from its audit of the Registrant's annual financial statements or its review of the Registrant's quarterly financial statements, but instead report orally on these matters at Audit Committee meetings. Such discussions did occur at Audit Committee meetings. In addition, Deloitte communicated the substance of the matters which constituted the disagreements and reportable events discussed herein to the Registrant's management on April 25, 1994, May 13, 1994, May 20, 1994, and May 23, 1994 and to the Registrant's Audit Committee on May 13, 1994 and May 23, 1994. Deloitte & Touche Los Angeles, California June 13, 1994 3 EX-99.1 3 EXHIBIT 99.1 EXHIBIT 99.1 Contact: Peter Hartz Sr. VP Sales & Marketing IDB Communications Group, Inc. (213) 240-3721 Michael Sitrick Michael Kolbenschlag Sitrick Krantz & Co. (310) 788-2850 DELOITTE SAYS IT RESIGNED AS IDB'S AUDITORS OVER FIRST QUARTER 1994 ACCOUNTING ISSUES TOTALING $.04 PER SHARE; PREVIOUS AUDITS REAFFIRMED LOS ANGELES, CA -- JUNE 14, 1994 -- In a letter to the Securities and Exchange Commission yesterday, Deloitte & Touche stated that it resigned as IDB Communications Group, Inc.'s auditors over the recording of items in the company's 1994 first quarter which in aggregate totaled $5.4 million in pre-tax income or $.04 per share. In its letter, Deloitte cited no irregularities in IDB's financial statements and expressed no limitation or withdrawal of its previous reports. Deloitte's letter, in its entirety, was included in a Form 8-K filed by IDB today with the SEC. Jeffrey P. Sudikoff, chairman and chief executive officer of IDB stated, "I am astonished that after eight and one-half years, Deloitte & Touche would resign as our auditors over what their letter confirms were accounting issues, limited to the first quarter, without so much as a phone call to me." In its letter, Deloitte stated: "(a) it disagreed with the recording of revenue in connection with the 'sale of transponder capacity,' because the information and documentation represented to Deloitte did not support the recording of the sale as of March 31, 1994; (b) it was awaiting further information and documentation from (IDB) to support the 'purchase accounting adjustments'; (c) it needed additional support from (IDB) for (IDB's) proposed $2.9 million increase in its provision for doubtful accounts, because in all previous discussions regarding (IDB's) first quarter results, management of (IDB) had represented to Deloitte that the provision for doubtful accounts was adequate." Deloitte stated that while it expressed concerns regarding the accuracy of IDB's reported results of operations for the first quarter of 1992, these concerns "were ultimately resolved to Deloitte's satisfaction." In its letter, Deloitte said that it agreed with the statement in IDB's Form 8-K, filed May 31, 1994, that "the financial statements of (IDB) for each of the two fiscal years in the period ended December 31, 1993 did not contain any adverse opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles." The letter went on, "In an oral communication to the Audit Committee at the conclusion of the audit of (IDB's) financial statements for the year ended December 31, 1992, Deloitte noted that the condition of (IDB's) underlying accounting records had improved 'dramatically.' However, in the meeting held with (IDB's) Audit Committee on May 23, 1994, the day of Deloitte's resignation, Deloitte advised (IDB) that its interim financial reporting that had improved in the latter part of 1992 and in 1993 had again deteriorated in the first quarter of 1994." Mr. Sudikoff said that while he disputed Deloitte's statement relative to the deterioration of IDB's financial controls, the company has taken steps to address any such concerns. "On June 9, we announced that the outside members of our audit committee have been given the responsibility for the retention of our new auditors. They will also, with the help of outside consultants, review our accounting systems and controls. Both of these processes are underway. Even 1 though we believe that Deloitte's letter validates our view that the market over-reacted to our auditor's resignation, we are taking seriously the credibility issues raised by the recent decline in the value of our stock," he said. "No one has ever questioned the potential or underlying value of our company," Mr. Sudikoff said. "Now that this cloud of uncertainty has been removed, we can once again concentrate all of our energies on growing our business." IDB Communications Group, Inc. is a global telecommunications company that operates a domestic and international communications network providing its customers with international private line and long distance telephone services, radio and television transmission services, facsimile and data connections, mobile satellite communications capabilities and the design and integration of satellite networks worldwide. ### 2 -----END PRIVACY-ENHANCED MESSAGE-----