In Cash Crunch, Mills May Seek Bankruptcy Filing
Wednesday, January 10, 2007
Mills Corp., the struggling shopping mall developer, said yesterday that possible misconduct by management contributed to widespread accounting errors, and the company warned that it may be forced to seek bankruptcy protection if it cannot reach agreement with its lenders.
Mills, of Chevy Chase, said in a filing with the Securities and Exchange Commission that the errors total $347 million to $352 million. The document said it remains unknown what effect the accounting corrections would have on the company's financial statements for 2005 and earlier. A company spokesman declined to elaborate yesterday.
Mills has not released an earnings report since the third quarter of 2005, and last year, its chief executive Laurence C. Siegel retired. It plans to restate its financial results from 2001 to 2004 and for the first three quarters of 2005. The company is under investigation by the SEC, which declined to comment on the case.
Mills issued a statement late yesterday, saying it has "taken several important remedial steps" in the past year that include "a near-complete change of executive management personnel."
Mills stock closed yesterday at $14.82 per share, down $4.12, or 21.8 percent.
Mills owns about 40 large-scale shopping malls, including the discount retail complexes of Potomac Mills in Virginia and Arundel Mills in Maryland. Siegel was credited with pushing the concept of regional mega-malls in the 1990s as places that would be shopping destinations. He eventually embarked on what was to be Mills' most ambitious undertaking, a giant shopping project called Xanadu in northern New Jersey, which was to have an indoor ski slope and a Ferris wheel.
The company, however, has since given up its lead role in the Xanadu project and in its filing yesterday said the company's rapid growth contributed to its accounting errors.
Mills's "overall culture and 'tone at the top' were heavily focused on meeting external and internal financial expectations," Mills said in a report summarizing the results of a long-running investigation by the audit committee of its board of directors. The report found that "possible misconduct" played a role in its accounting troubles, including at least one instance in which management overrode a decision by the company's accounting department.
The report did not name the people involved in the suspected misconduct. The company said, however, that the audit committee found no reason to question the integrity and conduct of current executives.
Some of the larger accounting mistakes appear to have been unintentional, resulting from incompetence or poor internal controls, the report said. But the evidence showed that a "relatively small" number of errors were not reached "in good faith," the report said.
In one episode, Mills booked a sale as having occurred in April 2002, though the terms of the sale were not negotiated until late 2002 and the deal was not completed until the spring of 2003, the report said. Correcting that problem would add $10.8 million of expenses for 2002.
In another episode, early in 2004, management overrode a decision by the corporate accounting department to put more than $500,000 in reserve. Putting money in reserve can decrease profit.