EDLP (every day low price) and EDLC (every day low cost) are the most familiar acronyms at Walmart, but FCPA (Foreign Corrupt Practices Act) is giving them a run for their money these days.
The FCPA investigation stemming from allegations of corruptions in Mexico first raised in an April 21 article in The New York Times was addressed head on by Walmart chairman Rob Walton and CEO Mike Duke during the shareholders’ meeting Friday morning. Both men gave their assurances that the company was sparing no expense and leaving no stone unturned to get to the truth. That matter also surfaced in the afternoon when executives were asked about the FCPA investigation during a question and answer session with financial analysts. By Friday evening, Walmart also had addressed the issue in several locations within its form 10-Q quarterly report filed with the Securities and Exchange Commission. However, disclosures in the document seemed contradictory to statements made earlier in the day about the investigation not being a time-consuming management distraction and were unclear as to the impact on the business.
In a note identified as “contingencies” following the condensed consolidated financial statements section of the report, the company recounted how it and the board’s audit committee have engaged outside counsel from a number of law firms and other advisors who are assisting in ongoing investigations. The company is also conducting a voluntary global review of its policies, practices and internal controls for FCPA compliance, according to the filing.
In addition, there was reference to investigative activity by the U.S. Department of Justice, the SEC, federal and local governments in Mexico as well as shareholder litigation. The filing indicated that Walmart was unable to accurately predict the outcome or impact of government investigations, shareholder lawsuits or its own internal investigation and review. In addition, the company said it expects to incur costs in responding to requests for information or subpoenas seeking documents, testimony and other information in connection with the government investigations, in defending the shareholder lawsuits, and in conducting its internal investigation and review, and it cannot predict at this time the ultimate amount of all such costs.
“These matters may require the involvement of certain members of the company’s senior management that could impinge on the time they have available to devote to other matters relating to the business,” according to the filing. “The company may also see ongoing media and governmental interest in these matters that could impact the perception among certain audiences of its role as a corporate citizen.”
As for the financial impact of the governmental investigations, shareholder lawsuits and international investigations, the company said, “Although (it) does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the company can provide no assurance that these matters will not be material to its business in the future.”
Conversely, in a later section of the filing under the heading of “legal proceedings,” the company commented on the potential impact of the current litigation related to FCPA.
“While management cannot predict the outcome of these matters, management does not believe the outcome will have a material effect on the Company’s financial condition or results of operations,” according to the filing.
Which begs the question, if the outcome can not be predicted how can investors be assured the matters’ will be immaterial to company finances?