26-06-2002 14:09									#1
	WorldCom Finds $3.8 Billion Error, Fires CFO Suffering from ads?

quote: WorldCom Finds $3.8 Billion Error, Fires CFO SAN FRANCISCO (Reuters) - WorldCom Inc., the No. 2 U.S. long-distance carrier, on Tuesday said it had fired its chief financial officer after uncovering improper accounting of almost $4 billion in expenses, in the latest financial scandal to rock Corporate America. WorldCom also said it would cut 17,000 jobs, or more than 20 percent of its work force, starting on Friday, a cost-cutting move expected to save $900 million on an annual basis. The Clinton, Mississippi-based company said that accounting irregularities involving expenses misrecorded as capital expenditures had inflated its cash flow and that otherwise it would have reported a net loss for 2001 and the first quarter of 2002. The accounting irregularities, which did not conform to Generally Accepted Accounting Principles, included transfers between internal accounts of $3.06 billion in 2001 and $797 million in the first quarter of 2002. Accounting firm Andersen, whose role as the auditor of Enron helped lead to the energy trader's collapse, had audited WorldCom's financial statements for 2001. Shares of WorldCom had plunged in after hours trading on Tuesday following a report by CNBC that the company had uncovered accounting irregularities. The stock fell to 20 cents a share on the Island system from a close of 83 cents on Nasdaq. The previous closing low was 87 cents, while the stock had traded as high as $16.06 in the past 52 weeks. WorldCom also said it had fired Chief Financial Officer Scott Sullivan and accepted the resignation of David Myers as senior vice president and controller. "Our senior management team is shocked by these discoveries," said John Sidgmore, WorldCom CEO for less than two months. "I want to assure our customers and employees that the company remains viable and committed to a long-term future. Our services are in no way affected by this matter," he said in a statement. WorldCom said it had notified the Securities and Exchange Commission ( news - web sites) and had asked auditor KPMG to undertake a comprehensive review of its financial statements for 2001

	26-06-2002 14:13									#2
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I saw it was 3.9 billion...

Just look at where that took the greenback vs. Euro

	26-06-2002 14:26									#3
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Worldcom provides almost as much entertainment value as Enron. Well, should be about the only value it provides....

DT at 8.63 euros. Might be worth a little gambling....

	26-06-2002 14:27									#4
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Btw, "error" is a nice euphemism for "goddamn screamin' fraud".

	26-06-2002 15:48									#5
	Support Apolyton, buy Civilization: The Boardgame

.9920

	26-06-2002 15:56									#6
	Suffering from ads?

Copycat thread

	26-06-2002 15:57									#7
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.9926

Looks like we'll get exactly the panic reversal that will **** up things the most.

	26-06-2002 16:02									#8
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quote: Originally posted by Urban Ranger Copycat thread

Of which thread?

	26-06-2002 16:03									#9
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quote: Originally posted by Roland .9926 Looks like we'll get exactly the panic reversal that will **** up things the most.

So it's "hard landing" after all

Crash and burn baby, crash and burn.

	26-06-2002 16:05									#10
	Support Apolyton, buy GURPS/ Alpha Centauri

Hard landing for the dollar. US economy is for now hanging in a limbo between imploding stock market and industry trouble, and the kicking housing bubble with the consumer side.

But hey, uncle Alan will save us today. Say that he will, please.....

	26-06-2002 16:07									#11
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quote: Originally posted by Saras Of which thread?

This

	26-06-2002 16:46									#12
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Does the news report have a technical error? They claim that the accounting manipulation inflated the cash flow. That doesn't make sense. EPS should be affected but not cash flow. Cash flow would reflect the expenditure wether it is capitalized or not.

	26-06-2002 17:04									#13
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I think I read it inflated EBITDA by that 3.8 or 3.9 billion $. Anyway I assume the whole thing has to be a bit more complex. It can't be so simple to hide 4 billion $ just by slapping a new label on it....

	26-06-2002 17:09									#14
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When you're a huge, evil, greedy corporation, what's another 4 billion, hidden from the prying eyes of the government?

	26-06-2002 17:14									#15
	Avatar Enlargement: We've got the solution

Watching the dollar/euro rate is more exciting than Brasil - Turkey IMHO.

Seriously, it's not a pretty sight, and GE and Fannie & Freddie haven't even cracked yet.

	26-06-2002 17:18									#16
	Increase the size of your Attachments

The sad thing is the people who lose their retirement funds over these jerks. Meanwhile they regroup and start another mega corporation while the faithful employees have to grovel before the courts to get back a few dimes on the dollar. Greed is destroying this nation.

	26-06-2002 17:21									#17
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quote: Originally posted by Lincoln The sad thing is the people who lose their retirement funds over these jerks. Meanwhile they regroup and start another mega corporation while the faithful employees have to grovel before the courts to get back a few dimes on the dollar. Greed is destroying this nation.

YUP!!!!!!!!!!!!!!

Unfortunately, the Elephant and the Ass are both doing their part to keep the rich, rich!

	26-06-2002 17:57									#18
	Help yourself to an AD-FREE life

The sad thing I used to work for them in England and I paid into there pension I wonder whats going to happen to it
The said thing is when I was there it was obviouse something was very worng. They never seemed to be able to do anything they set out to. E.G. setting up a 3G mobile network, buying Sprint and so on.
I my department we used to call worldcom the Titanic

	26-06-2002 18:06									#19
	Enter the AD-FREE zone

The idea now seems to be to make money.

	26-06-2002 18:43									#20
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1) Mississippi will show corporate America how to run a scandal.

2) Wonder what effect this will have on the local economy?

3) I bet the Jackson City Council is patting themselves on the back for chasing the company out of town awhile back now.

	26-06-2002 18:48									#21
	Avatar Enlargement: We've got the solution

I just read the WSJ story on this.

Roland, actually I *think* that is what they did. (Slapped on a false label.) FYI the cable industry is very prone to these questionable capitalizations. Even when they are allowed by GAAP, they may be questionable in terms of true economics.

I think WC claimed that operating expenses were a capitol expense. This would make EBITDA (and EBIT and EPS)* go up falsely. The "cash flow from operations" which is not real cash flow would also show an improper value. The calculated (real) cash flow would not be affected since CAPEX and OPEX are subtracted in either case. Such calculated cash flows are normal parts of a (good) valuation model.

Obviously, there is still the issue of investors wanting to know which bucket an expense is in. CAPEX and OPEX have different implications in terms of the company outlook. But "real" cash flow during the time period would not be affected.**

*EPS is an accounting construct. This (OPEX/CAPEX issue) is a classic example of the problems with fixating on EPS. There is a classic WSJ editorial from the 70's, "Cash is King", which discussed why it's bad to fixate on EPS.

** There is a real cash effect in terms of the taxes. Capitalizing the expense is worse from a tax point of view. But since that is the case, the restatement will not raise tax costs.

	26-06-2002 18:49									#22
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Dow is down 180 in the first half hour. This does not look like a good day...

	26-06-2002 19:07									#23
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"Roland, actually I *think* that is what they did. (Slapped on a false label.)"

Yeah but there must have been a bit more to it. Capitalizing 4 billion $ of expenses in, if I understand correctly, a short timespan and not before that - wouldn't that take a bit more cooking ?

"This would make EBITDA (and EBIT and EPS) go up falsely."

Which was what I read today morning, close to 4 billion $ on EBITDA and/or earnings.

"The calculated (real) cash flow would not be affected since CAPEX and OPEX are subtracted in either case."

Your "real" cashflow = free cashflow, or are they different ?

	26-06-2002 19:16									#24
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Basically yes.

"Free cash flow" is actually an accounting construct (useful one) that does not list debt service payements as an expense. By using a WACC (discount rate that includes debt service) one can seperate financing from operational issues. But that is a subtlety not related to this issue. You could use a free cash flow or an equity based cash flow and my points would stand.

I'm just sensative to people using the term "cash flow" indiscriminately. "Cash flow from operations" is not really cash flow.

	26-06-2002 19:21									#25
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Journalists. Cash flow = EBITDA = earnings = pro forma eranings = Ebbers' ass on a plate.

	26-06-2002 19:30									#26
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LOL--yes! Where is fooker, so I can abuse him? Silly business journalists.

This is why I cringe when watching CNBC or the like. They could do a lot of good, but instead they often muddy the water. I often get the impression that they don't really know their basic finance. WSJ is usually a cut above what gets on the wire services or on TV. Especially if you read the entire story (not just the lead para) you can get a decent sense of what is going on.

	26-06-2002 19:36									#27
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CNBC is cheerleaders on parade. Little balance, little substance.

But the worst thing I've seen on CNBC was an extra interview with Jack Welch talking bollocks abundantly.

	26-06-2002 19:37									#28
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Was an interesting op ed piece in the Journal arguing for lowering the barriers to hostile take-overs.* I'm always in favor of this. But the author had the interesting claim that lower barriers to takeovers would limit the types of ENRON etc, scams. I'm not sure if he quite pulled off that argument but since I like a more fluid market for company control, I enjoyed the piece.

* The (somewhat misinformed) public reaction to "raiders" from the 1980's led to the creation of state laws which have severely limited raider operations.

	26-06-2002 19:40									#29
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Not really that hard to do. Worldcom says, with a straight face, that GAAP tells us to capitalize this switching equipment, which GAAP says has a life of 10 years. Reality is that the equipment will be technically obsolete in two years, so it shoud either be expensed or have a 50% depreciation rate. Anderson says that Worldcom never told them about this. But thats exactly the kind of thing an auditor is supposed to check. A friend who works for a telecom told me this morning that this is one of the first things auditors check when they do high-tech companies. Anderson did not even come close to their auditing job. Anybody know if Anderson was earning big bucks in strategy consulting with Worldcom, hence a conflict a la Enron?

	26-06-2002 19:41									#30
	Avatar Enlargement: We've got the solution

quote: Originally posted by Roland CNBC is cheerleaders on parade. Little balance, little substance. But the worst thing I've seen on CNBC was an extra interview with Jack Welch talking bollocks abundantly.

What upset you? Do you think Jack is a complete fake? What was the specific issue?