SEC asks Wal-Mart for more clarity

by The City Wire staff ([email protected]) 80 views 

Wal-Mart Stores Inc. recently agreed to provide added detail in future filings with the Securities and Exchange Commission pertaining to its ongoing legal proceedings and cyber security threats.

Federal regulators raised questions with retail giant following its regular filings after the quarter ending April 30. Wal-Mart’s correspondence with the SEC occurred between June 8 and July 9 and was made public on the government’s website Monday (Aug. 6).

The letters reference the "legal proceedings" section of Wal-Mart's quarterly filing, an area under close scrutiny by investors since the alleged bribery scheme in Mexico was revealed in April by the New York Times..

On June 8, the SEC wrote to Wal-Mart Chief Financial Officer Charles Holley regarding the quarterly filing.

The SEC asked Wal-Mart to provide more transparency and added detail regarding the impact of mounting legal proceedings from the Mexican bribery charges and the various investor lawsuits than followed. The SEC told Wal-Mart to state the possible loss estimates or give reasons justifying why not.

Andrew Mew, accounting branch chief of the SEC's division of corporation finance, wrote in the letter, "If you cannot estimate the possible loss or range of possible losses, please consider providing additional disclosure that could allow a reader to evaluate the potential magnitude of the claim."

In a June 22 response, Wal-Mart noted it would change the disclosure to read as follows: "Management does not believe any possible loss or the range of any possible loss that may be incurred in connection with this matter will be material to the company's financial condition or results of operations."

Wal-Mart agreed to update disclosures related to the Foreign Corrupt Practices Act violation should any material development occur. Analysts agree fines related the Mexican bribery probe could be steep, but that possibly hasn’t dampened investor enthusiasm for the company.

Shares of Wal-Mart stock continue to trade at all-time highs. Shares of Wal-Mart closed Monday at $74.28, down 27 cents. The share price has gained more 30% since news of the scandal was revealed April 21.

On Monday, Stifel Nicolaus upgraded its rating on this company from hold to buy and changed its price target to $83.

Another issue raised by the SEC was additional information regarding security breaches from cyber attacks. Regulators asked the retailer to expand its risk factor statement in the future to disclose such information.

In its response Wal-Mart admitted its information systems are under regular attack by computer hackers each year. The company said none of those attempts resulted in hackers gleaning access to consumer, business or vendor data files.

Wa-Mart agreed to state more clearly that it "may be vulnerable" by modifying its risk factor disclosure to include details about the security of its information and disclosure of future attempts by hackers.

The SEC confirmed in a July 9 letter to Wal-Mart that this review was complete, which prompted the public release of the correspondence between the two parties.