SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): December 2, 1999
WICKES INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22468
36-3554758
(State or other (Commission File No.)
(IRS Employer
jurisdiction of
Identification
incorporation)
Number)
706 North Deerpath Drive, Vernon Hills, Illinois 60061
(Address of principal executive offices)
(Zip Code)
(847) 367-3400
(Registrant's telephone number, including area code)
<PAGE> 2
Item 4. Changes in Registrant's Certifying Accountant.
(a) Previous independent accountants
(i) On December 2, 1999, the Company appointed Deloitte & Touche LLP
("Deloitte") as the Company's independent accountants and dismissed
PricewaterhouseCoopers LLP (PwC). Deloitte will audit the Company's
consolidated financial statements for the year ended December 25,
1999. The Company's Audit Committee and Board of Directors particip-
ated in and approved the decision to change independent accountants.
(ii) The reports of PWC on the Company's consolidated financial state-
ments for the years ended December 27, 1997 and December 26, 1998
contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting
principle. However, as a result of the matter described below, the
report on the 1998 consolidated financial statements did refer to the
restatement of those consolidated financial statements to change the
accounting for a barter transaction.
(iii) Except for the matter described in paragraph (a)(iv) below, in
connection with its audits for the years ended December 27, 1997 and
December 26, 1998 and through December 2, 1999, there have been no
disagreements with PwC on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or pro-
cedure, which disagreements if not resolved to the satisfaction of
PwC would have caused them to make reference thereto in their report
on the consolidated financial statements for such years.
(iv) Subsequent to the 2nd quarter of 1999, PwC informed the Company
that it believed that the accounting for a barter transaction origin-
ally entered into the 3rd quarter of 1998 was not in accordance with
GAAP. The barter transaction was considered by PwC in connection with
the issuance of their 1998 report.
The Company was initially concerned with the change in accounting
proposed by PwC and as a result engaged Deloitte to issue a
report on the application of GAAP to the specified transaction. That
report is attached as an exhibit to this Form 8-K and describes in
detail the underlying accounting issue. The Company authorized PwC
to respond fully to any inquiries of Deloitte with respect to this
matter prior to the issuance of Deloitte's report related to the
barter transaction. The Company's management and the Audit
Committee of the Company's Board of Directors discussed the revised
accounting treatment for this transaction with PwC and reviewed
Deloitte's written report, which expressed the same conclusion as
that reached by PwC, and after appropriate deliberations concluded
that restatement of previously issued financial statements was
appropriate. The Company proceeded to file an amended 1998 Annual
Report on Form 10-K and amended Quarterly Reports for the 3rd quarter
of 1998 and the first and second quarters of 1999 for the periods
affected by the barter transcation. The amended 1998 Form 10-K
contains PwC's report on consolidated financial statements, which
refers to the restatement.
2
<PAGE> 3
(v) The Company has requested that PwC furnish it with a letter
addressed to the SEC stating whether or not it agrees with the above
statements. A copy of such letter, dated December 6, 1999, is filed
as Exhibit 16.1 to this Form 8-K.
(b) New independent accountants
The Company engaged Deloitte as its new independent accountants
on December 2, 1999. During the two most recent fiscal years and
through December 2, 1999, except as described in paragraph
(a)(iv) above, the Company has not consulted with Deloitte
regarding either (1) the application of accounting principles to
a specified transaction, either completed or proposed; or the
type of audit opinion that might be rendered on the Company's
consolidated financial statements, and either a written report
was provided to the Company or oral advice was provided that
Deloitte concluded was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or
financial reporting issue; or (2) any matter that was either the
subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to
Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304(a)(1)(v) of Regulation S-K.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
See Exhibit Index located on the page immediately following the
signature page.
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<PAGE> 4
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 hereunto duly authorized.
WICKES INC.
Date: December 6, 1999 By: /s/ John M. Lawrence
---------------------
John M. Lawrence
Controller, Assistant
Vice President
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<PAGE> 5
Exhibit Index
Exhibit No. Description
16.1 Letter dated December 6, 1999 from PricewaterhouseCoopers
LLP to the Securities and Exchange Commission.
99.1 Letter dated September 7, 1999 from Deloitte & Touche LLP to the
Audit Committee of the Board of Directors of Wickes Inc.
5
Exhibit 16.1
December 6, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by Wickes Inc. (Commission File
Number 0-22468) (copy attached), which we understand will be
filed with the Commission, pursuant to Item 4 of Form 8-K, as
part of the Company's Form 8-K report dated December 2, 1999. We
agree with the statements concerning our Firm in such Form 8-K.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
Exhibit 99.1
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601-6779
INDEPENDENT ACCOUNTANTS' REPORT
Audit Committee of the Board of Directors
Wickes Inc.
Introduction
- - ------------
We have been engaged to report on the appropriate application of
generally accepted accounting principles to the specific
transaction described below. This report is being issued to the
Audit Committee of Wickes Inc. ("Wickes" or the "Company") for
assistance in evaluating accounting principles for the described
specific transaction. Our engagement has been conducted in
accordance with standards established by the American Institute
of Certified Public Accountants.
Description of the Transaction
- - ------------------------------
The facts, circumstances, and assumptions relevant to the
specific transaction as provided to us by the management of
Wickes are as follows:
" The Company had inventory with an original cost basis of
approximately $1.6 million which was to be discontinued.
" Management of the Company had recorded an adjustment of
approximately $400,000 to reduce the carrying value of the
inventory to their estimate of the lower of cost or market value.
" The Company entered into negotiations with a barter company,
Active International ("Active"). The Company agreed to transfer
the inventory to Active in exchange for barter credits with a
denominated value of $1.6 million.
" Prior to the final agreement being signed, Active requested
that the Company act as Active's agent to liquidate the
inventory. Active further requested that Wickes guarantee
proceeds of $400,000 to Active from the liquidation. The amount
was negotiated to $350,000, and Wickes agreed. The agreement
states that Wickes "covenants to arrange for the resale of the
merchandise, at no additional cost to Active, on behalf of Active
and for the account of Active, and to cause the cash proceeds
from the resale of the merchandise to be remitted directly to
Active." Additionally, the agreement states that Wickes
"unconditionally guarantees" that Active receive proceeds in an
amount no less than $350,000. Any additional proceeds from the
liquidation of the merchandise inured to Wickes.
" The agreement states that the Company "sells and transfers
title" to the merchandise to Active. The agreement also states
that "despite the prior transfer of title herein pursuant to this
bill of sale, risk of loss, as well as insurance, warehousing,
handling and assembly costs relating to the merchandise shall
remain the responsibility of Wickes until the merchandise is
delivered pursuant to this agreement."
" The $350,000 was to be paid, in cash, in two installments.
The first installment of $175,000 was to be paid on or before
November 11, 1998. The second installment is due when Wickes has
used or committed to use $800,000 of the barter credits.
" Wickes liquidated the merchandise for approximately
$485,000. The liquidation was done in the slow season for the
Company and at much greater than normal discounts.
Appropriate Accounting Principles
- - ---------------------------------
Accounting Principles Board Opinion No. 29, Accounting for
--------------
Nonmonetary Transactions ("APB No. 29") refers to exchanges that
- - ------------------------
involve little or no monetary assets or liabilities as
nonmonetary transactions. The accounting for the exchange of
nonmonetary assets for barter credits is addressed in EITF Issue
93-11, Accounting for Barter Transactions Involving Barter
---------------------------------------------------
Credits. EITF 93-11 states that an exchange of a nonmonetary
- - -------
asset for barter credits should be accounted for in accordance
with APB No. 29
APB No. 29 defines an "exchange" as follows:
A reciprocal transfer between an enterprise and another entity
--------------------------------------------------------------
that results in the enterprise's acquiring assets or services
-------------------------------------------------------------
or satisfying liabilities by surrendering other assets or
---------------------------------------------------------
services or incurring other obligations.
----------------------------------------
The Company contends that it exchanged the inventory for the
barter credits and then separately agreed to serve as Active's
agent to sell the merchandise. However, based on the language in
the agreement and the Company's description of the transaction,
it does not appear that the inventory was "exchanged" for the
barter credits. The terms of the agreement calling for the
"unconditional guarantee" of $350,000 in proceeds with any
additional proceeds inuring to Wickes, and risk of loss remaining
with Wickes, seem to indicate that Wickes retained the risks and
rewards of ownership of the inventory and that the inventory was
not actually exchanged for the barter credits. Rather, based on
the terms of the agreement, it appears that the Company
effectively purchased the barter credits for $350,000. It is
only the transfer of the cash that satisfies the company's
obligations under the agreement.
Accordingly, we believe that the transaction should be accounted
for as a monetary transaction. In an exchange of monetary assets
for nonmonetary assets, the amount of monetary assets or
liabilities exchanged generally provides an objective basis for
measuring the cost of nonmonetary assets or services received by
an enterprise as well as for measuring gain or loss on
nonmonetary assets transferred from an enterprise. In this case,
because the Company exchanged $350,000 for the barter credits,
the barter credits should be recorded at a value of $350,000.
The sale of the inventory should be recorded at the amount
ultimately received in cash (i.e., $485,000) from the sales to
customers, and an additional loss of approximately $715,000 would
need to be recorded on the inventory.
Concluding Comments
- - -------------------
The ultimate responsibility for the decision on the appropriate
application of generally accepted accounting principles for an
actual transaction rests with the preparers of financial
statements, who should consult with their continuing accountants.
Our judgment on the appropriate application of generally accepted
accounting principles for the specific transaction described is
based solely on the facts, circumstances, and assumptions
provided to us as described above; should the facts,
circumstances, or assumptions differ from those described, our
conclusions might change. This report should not be used by, or
circulated, quoted or distributed to anyone who is not a member
of management or of the board of directors of the Company.
/s/ Deloitte & Touche LLP
September 7, 1999
