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Back on the Island of Weird SAB 108 adjustments…

Another positive adjustment to beginning 2006 retained earnings is disclosed in Triarc’s 10-K. It also contains one of the better descriptions of how the firm assessed the ongoing errors before SAB 108 and waived the adjustments: it’s an actual statement that they’d assessed a particular error using the rollover method, enabling them to pass on it.

Triarc had three elements in its SAB 108 adjustment - rather befitting for a firm named "TRI-arc,” eh?

In summary:

• A deferred gain on the sale of “certain non-strategic businesses, four of which did not qualify for accounting as discontinued operations” was closed out to retained earnings in the adjustment. The gain had been deferred on the sale because of “(1) uncertainties associated with realization of non-cash proceeds, (2) contingent liabilities resulting from selling assets and liabilities of the entity or associated with litigation or (3) possible losses or asset write-downs that might result related to additional businesses anticipated to be sold.” By 2002, those mysteries were solved and the company should have eliminated the gain by then. Better late than never…

• Triarc insurance proceeds in 1993 for damages to its then-corporate office building. Because of contingencies tied to litigation with the landlord, the gain was deferred. Once again, those contingencies were cleared by 2002 and the gain should have been recognized by then.

• Finally, the company had over-accrued for medical program self-insurance. Those overaccruals should have been cleared by 2002.

In total, the accumulated adjustments tacked on $5.2 million to the opening retained earnings of $395 million. These SAB 108 adjustments are starting to feel like the corporate equivalent of finding loose change under the living room sofa cushions: they accumulate for years, they’re nice to find, but they don’t change one’s wealth very much. While the loose change can be attributed to seating ergonomics, however, the SAB 108 adjustments seem to attributable to just plain lack of attention to detail.

TRY 1-yr chart

Source: Triarc’s Triple 108 Adjustment