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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
(AMENDMENT NO. 3)
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
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IDB COMMUNICATIONS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
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0-14972 93-0933098
(Commission File No.) (I.R.S. Employer Identification No.)
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10525 WEST WASHINGTON BOULEVARD, 90232-1922
CULVER CITY, CALIFORNIA (Zip Code)
(Address of Principal Executive Offices)
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(213) 870-9000
(Registrant's Telephone Number, Including Area Code)
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ITEM 4.__CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On May 23, 1994, the Registrant was informed by its independent auditors,
Deloitte & Touche LLP ("Deloitte"), of Deloitte's resignation, effective as of
that date.6
The reports of Deloitte on the financial statements of the Registrant for
each of the two fiscal years in the period ended December 31, 1993 did not
contain any adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles.
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
review of 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 two members of the Audit Committee present, released its
earnings for the quarter ended March 31, 1994 as scheduled after the close of
business on April 25.
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
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 underlying
lease rights to certain satellite transponder capacity (the "BT transaction");
(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)
Deloitte disagreed with the recording of revenue in connection with the BT
transaction, because the information and documentation presented to Deloitte did
not support the recording of a sale as of March 31, 1994; (b) Deloitte was
awaiting further information and documentation from Registrant to support the
"purchase accounting adjustments"; and (c) Deloitte needed additional support
from the Registrant for the Registrant's proposed $2.9 million increase in its
provision for doubtful accounts, because in previous discussions regarding the
Registrant's first quarter results management of the Registrant had represented
to Deloitte that the provision for doubtful accounts was adequate.
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On May 16, 1994 (the prescribed filing date for the Form 10-Q), the
Registrant filed a Notification
of Late Filing on Form 12b-25. On May 23, 1994, Deloitte resigned, and the
Registrant subsequently filed its Form 10-Q later that day. Subsequent to its
resignation, Deloitte orally informed the Registrant that the failure to resolve
the issues described above prior to Deloitte's resignation constituted a
"disagreement" or "disagreements" required to be reported pursuant to Item 304
of Regulation S-K.
Deloitte had previously expressed concern to the Registrant, in connection
with the Registrant's first quarter 1992 financial results, over the accuracy of
the Registrant's internally generated financial statements and the process
surrounding the earnings release for that quarter. 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 concerns were ultimately resolved 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 the 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. Notwithstanding the satisfactory resolution of the
concerns raised by Deloitte in connection with the Registrant's first quarter
1992 financial statements, Deloitte subsequent to its resignation orally
informed the Registrant that its concern with respect to the financial results
for the first quarter of 1992 may have constituted a "reportable event" within
the meaning of Item 304 of Regulation S-K. Prior to the time of its resignation,
Deloitte 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 a result of 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 orally, that there had been a serious breakdown in the Registrant's
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 orally informed
the Registrant's management and its Audit Committee that Deloitte was no longer
willing to rely on management's representations regarding its interim financial
statements.
Management of the Registrant, with the concurrence of the Audit Committee,
had previously 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 orally 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. These Audit Committee meetings with representatives of Deloitte were held
telephonically and included other members of management.
2
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By letter dated June 6, 1994, the Registrant authorized Deloitte to respond
fully to the inquiries of the Registrant's successor accountant.
ITEM 5. OTHER EVENTS.
Information under this heading in the Registrants Form 8-K/A (Amendment No.
1) and Form 8-K/A (Amendment No. 2) filed on June 14 and August 19, 1994,
respectively, is hereby withdrawn.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
None.
(b) PRO FORMA FINANCIAL INFORMATION.
None.
(c) EXHIBITS.
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EXHIBIT NO. DESCRIPTION
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16.1 Letter re Change in Certifying Accountant
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3
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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 of the
undersigned, thereunto duly authorized, in the City of Culver City, State of
California, on November 21, 1994.
IDB COMMUNICATIONS GROUP, INC.
By /s/ RUDY WANN
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RUDY WANN
VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER
4
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EXHIBIT 16.1
[DELOITTE & TOUCHE LLP LETTERHEAD]
November 21, 1994
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments in Item 4 of Form 8-K/A (Amendment
No.3) of IDB Communications Group, Inc. dated May 23, 1994 (filed on November
21, 1994).
Yours truly,
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
