Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (2489)	9/19/2002 10:18:16 AM
From: Glenn Petersen	Read Replies (2) \| Respond to of 3602

WorldCom to disclose more flaws Firm finds additional $2 billion in accounting errors By Susan Pulliam and Jared Sandberg THE WALL STREET JOURNAL msnbc.com Sept. 19 — WorldCom Inc. is preparing a further revision of its financial results that could add about $2 billion to the $7 billion in accounting problems it has already disclosed, people close to the situation said. WORLDCOM OFFICIALS ARE expected to present the company’s new findings to the Securities and Exchange Commission on Friday. The existing restatement from improper accounting was disclosed earlier this summer. While the exact breakdown isn’t yet known, some of the revision may partly relate to write-downs of assets; an unspecified amount is expected also to stem from improper accounting related to consolidation of foreign subsidiaries. People close to the situation cautioned that the $2 billion figure may be preliminary in a “fluid” situation as WorldCom representatives conduct a forensic review of the company’s books. The company is expected to take a massive $50 billion write-off related to goodwill, and it isn’t clear whether a portion of the additional restatement might be part of that announcement. The expected addition to the restated numbers, however, marks the second time WorldCom has added large amounts to the earnings revision that drove the world’s second-largest long-distance company into bankruptcy in July. After the company’s announcement of the $3.8 billion in fraudulent accounting in June, it added more than $3 billion in restatements in August. The expected additional restatements underscore the magnitude of what was already the largest accounting fraud ever and raise questions about whether WorldCom can actually emerge from bankruptcy intact. The disclosures this summer led to the indictments of former Chief Financial Officer Scott Sullivan and former Director of General Accounting Buford Yates. Both men pleaded not guilty. Another executive, company Controller David Myers, was charged and may be working out a deal to cooperate with federal prosecutors, people knowledgeable about the situation said. The SEC also has filed civil charges of accounting fraud against WorldCom. The additional restatement comes as WorldCom representatives are working to restructure the company after it was forced to file for bankruptcy protection, citing the largest accounting fraud in corporate history. The new restatement relates in part to the company’s accounting for the results of a foreign subsidiary, and questions about whether it improperly deconsolidated the subsidiary after it became unprofitable, people close to the situation said. WorldCom has said it expects to record further write-offs of assets previously reported, including the likelihood that it may determine all existing goodwill and other intangible assets, currently recorded as $50.6 billion, should be written off when restated 2000, 2001 and 2002 financials are released. The company also will re-evaluate the carrying value of existing property, plants and equipment as to possible impairment of historic values previously reported. It isn’t clear which subsidiaries’ results are at issue in the restatement. But one transaction involved WorldCom’s decision to incorporate the results of Brazilian telecommunications carrier Embratel Participacoes SA into its financial results after it bought MCI in 1998. MCI had acquired a 51.8% voting interest in Embratel shortly before the merger and WorldCom continued to consolidate the Embratel results until 2001, when it restructured its investment, according to an annual report the company filed with the SEC. At that time, the company said U.S. accounting rules no longer allowed the consolidation of Embratel’s results. Embratel had contributed to WorldCom’s stellar growth in the late 1990s and some analysts noted that its removal from WorldCom’s financials came as it was becoming a drain on WorldCom, giving the impression that WorldCom had included the results when they made the company look good, and then distanced itself when Embratel became a disadvantage. WorldCom’s decision to consolidate Embratel’s results didn’t raise many questions at the time, but as early as 2000, Brad Rexroad, an analyst at the Center for Financial Research and Analysis, a watchdog firm in Maryland, said the consolidation was one of several items that concerned him in WorldCom’s financial reporting. He questioned why WorldCom chose to include the results, even though its financial stake was only 19%. He noted that WorldCom’s majority voting interest made it permissible for WorldCom to include the results, but said companies normally didn’t do so when their economic stake was less than 20%. In the second quarter of 2000, Embratel contributed $877 million, or 8.6%, of WorldCom’s revenue, Mr. Rexroad’s report said. A person familiar with Embratel at WorldCom said the accounting treatment of the subsidiary’s results may require a change but wasn’t fraudulent. — Shawn Young contributed to this article. Copyright © 2002 Dow Jones & Company, Inc. All Rights Reserved.