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NEC stock faces Nasdaq delisting
By Colleen Taylor, Contributing Editor -- Electronic News, 9/21/2007
Beset with lingering accounting-related woes, NEC Corp. is facing the possibility of seeing its stock delisted from the U.S. stock market.
The Japan-based electronics company today announced that it was not able to complete a U.S. GAAP-required analysis relating to software, maintenance and service revenues that is primarily governed by a U.S . GAAP standard called SOP 97-2. This analysis had been necessary to complete the audit of NEC's consolidated financial statements for the fiscal year ended March 31, 2006.
However, in the past year NEC has discovered that not all of its employees have been abiding with legal regulations in the company's business transactions. In May, NEC disclosed that five fraudulent transactions had been carried out by company employees in the period between fiscal 1999 and fiscal 2005.
According to the adjustment notice, 10 NEC employees instructed contractors to pad or create fictitious orders to their subcontractors, such as orders for software, maintenance and installation. This resulted in the fraudulent outflow of NEC's money through these contractors. The sum of the fraudulent transaction was found to be approximately $18.12 million. The 10 employees received approximately $4.1 million (500 million yen) in kickbacks from the subcontractors, and used it for their own personal purposes, such as on entertainment expenses.
The fraud has had a very real and long-lasting effect on NEC's standing with the regulatory authorities. In a statement made today, NEC said it will not be able to file its Form 20-F annual report for the year ended March 31, 2006 with the U.S. Securities and Exchange Commission (SEC).
In addition, NEC said that its U.S. GAAP consolidated financial statements previously filed with or submitted to the SEC for all financial periods for fiscal years ended on and after March 31, 2000 should "no longer be relied upon." And, even worse for the company, those currently unreliable statements are not easy for NEC to remedy. Because of the complexities involved in determining the adjustments required to restate its U.S GAAP results, NEC said it has concluded that a restatement of those financial forms "is not practicable."
The current problems have been a long time coming for NEC. Several times in the past year, the company had requested and received an extension of Nasdaq's required date for filing its delayed Form 20-F until September 25, 2007. NEC said it understands that Nasdaq may suspend the trading of NEC's American Depositary Receipts (ADR) and may remove the company's ADRs from trading on Nasdaq.
Outstanding ADRs currently account for approximately 2.9 percent of NEC's total issued shares. NEC's consolidated financial statements under Japan GAAP are current and not affected by this announcement. NEC maintained that it remains in compliance with the disclosure rules of the Tokyo Stock Exchange and the Securities and Exchange Law of Japan.
