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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: SOROS who wrote (88898)	7/1/2002 11:06:26 AM
From: Softechie	Read Replies (2) \| Respond to of 99280

US giants 'inflating their profits by billions' By Jason Nissé 30 June 2002 Internal links Bush vows to jail crooked execs Vice-President's oil firm facing SEC probe into accounts Hewitt to transform 'the ugly face of big business' European arm sells itself down the river US giants 'inflating their profits by billions' Sick beds full to bursting as Enronitis sweeps the States McKinsey probed its advisers' work for Enron Jason Nissé: Don't shoot the auditor Mark Tinker: No techs please, we're British Hamish McRae: We need some retail therapy Some of America's best-known and most respected companies are overstating their earnings by billions of dollars, according to credit rating giant Standard and Poor's. A report just released by the agency accuses the likes of Dupont, IBM, General Electric, Microsoft and Cisco of consistently inflating their profits. The study is potential dynamite in the wake of the recent accounting scandals. Last week WorldCom admitted to overstating its profits by $3.8bn (£2.5bn), Xerox adjusted its figures by more than $6bn and General Motors was forced to deny that it had accounting problems after rumours forced a suspension of its shares. Tomorrow, WorldCom's directors will be forced to swear to the accuracy of the phone group's figures and analysts expect it to file for Chapter 11 bankruptcy within days. The S&P study restates the declared profits of many of the largest companies in the US, stripping them down to what it calls "core earnings". It finds that corporations have been boosting their numbers by including income from their pension funds, adding back charges made when buying companies and not allowing for the cost of share option plans. When these changes are taken into account, some of the big profits declared by US giants virtually disappear. For example, the $4.33bn of earnings declared by chemical group Dupont in 2001 fall to a loss of $49m under S&P's calculation – a difference of $4.38bn. IBM's 2001 profits are down $2.87bn, Microsoft's $2.26bn lower, and the $1.01bn loss made by internet giant Cisco soars to $2.52bn. General Electric, the largest corporation in the world, is found to be a consistent offender. In 2001 it overstated its earnings by $2.23 bn, in 2000 by $1.93bn, in 1999 by $1.43bn, and in 1998 by $1.01bn. Among smaller but well-known names, the inflation of profits is also prevalent. The Gap, Apple and Yahoo! are all cited as companies where "core earnings" are a fraction of those reported to the markets. "A number of high-profile recent bankruptcies have renewed investors' concerns about the reliability of corporate reporting," says David M Blitzer, S&Ps chief investment strategist. S&P, and its rivals Moody's and Fitch, are seen as independent arbiters of corporate earnings. Investors are increasingly turning to them for impartial advice because of concerns about the independence of investment banking research in the wake of the prosecution of Merrill Lynch by the New York district attorney, and of auditors following the Enron and Andersen scandal. The US financial regulator, the Securities and Exchange Commission, has come under fire for allowing the Enron and WorldCom scandals to blow up. Harvey Pitt, its chairman, reacted last week by demanding that the largest US Companies swear to the authenticity of the financial figures that they produce. Mr Pitt has been criticised for being too close to Wall Street but has responded by arguing that the regulatory structure needs a shake-up and that the watchdogs, particularly the ones dealing with accountancy, are woefully under-resourced.