VideoIt's starting to play out like a scene from Groundhog Day.
Today management at WorldCom is reportedly preparing to tell regulators it found another couple of billion dollars in accounting mistakes. The Wall Street Journal put the new discovery at $2 billion, while Reuters indicates it's closer to $3 billion.
In case you're keeping a running score, the latest announcement would put the telecom giant's accounting error somewhere around $10 billion.
WorldCom's management first admitted that its financial statements were inaccurate back on June 26. The telco's management reported that two of the company's internal auditors had uncovered a $3.8 billion error in the way WorldCom treated some of its capital expenses ("A Really Big Phone Bill"). Then, last month, WorldCom management said it had discovered another $3.83 billion in accounting errors.
At the time of the second announcement ("WorldCom: Missed It By That Much"), the telco's management warned that there might be more "discoveries" as its investigation continued. The company also indicated it would take a $50 billion charge for goodwill and other charges to write down the value of its property and equipment.
The latest restatement partly relates to the company's accounting for the results of a foreign subsidiary. Apparently WorldCom's finance department improperly deconsolidated the subsidiary after it became unprofitable, according to the Journal, citing people close to the situation.
The company also will reevaluate the carrying value of existing property, plants, and equipment as to possible impairment of historic values previously reported, said the paper.
In June, the Securities and Exchange Commission filed civil fraud charges against WorldCom.
Last month, a New York grand jury indicted two former WorldCom finance execs—former chief financial officer Scott Sullivan and former director of general accounting Buford Yates. Former controller David Myers is reportedly negotiating a plea bargain with government prosecutors.
In April, former WorldCom founder and CEO Bernie Ebbers resigned.
Sick Feeling: SEC Investigating HealthSouth
Now it's HealthSouth's turn.
Yesterday, the embattled hospital management company indicated that it is being investigated by the SEC.
The company's stock price plunged 28 percent, to a 10-year low, on the news. Meanwhile Standard & Poor's cut its credit rating on HealthSouth's $3.3 billion in debt to junk status.
HealthSouth has been under fire since late August when it warned its earnings before interest, taxes, depreciation, and amortization would be lower than previously projected by approximately $175 million. The reason for the grated expectations? Changes in the way the government reimburses rehabilitation procedures under Medicare.
"Because of the uncertainties surrounding the full impact of these developments at this time, this initial assessment may prove incorrect, and the company is accordingly discontinuing earnings guidance for the remainder of 2002 and 2003 at this time," noted HealthSouth management at the time.
The stock price of HealthSouth fell by about half on that day as well.
Since the company's August warning, HealthSouth's market capitalization has shrunk by 75 percent
Of note: in June—just months before these problems came to light—HealthSouth chairman Richard Scrushy sold about $2.5 million in company stock. That was one month after he netted about $54 million from exercising and selling stock options.
Scrushy claims he conducted those transactions because he had to repay a $25 million loan from HealthSouth that was due in 2006. And on Thursday, he reiterated that he had no knowledge of the Medicare changes before he sold the stock.
A number of class-action suits that have been filed in recent weeks, however, claim knew of HealthSouth's problems with its billing practices before the sale.
HealthSouth management yesterday said it contacted the SEC earlier in the week and volunteered to provide the commission with information to help it investigate recent events. "The company has since received notice of an investigation by the SEC," it noted, "and is cooperating fully with the investigation."
Meanwhile, busy SEC investigators are also planning to probe Switchboard Inc., stemming from its July restatements of financials, according to the company's amended annual report filed Thursday with the commission.
The company said it intends to cooperate with the investigation.
In July, Switchboard management said it will reduce the company's 2001 revenue by $2.7 million, reduce 2001 sales and marketing expenses by $1.5 million, and reduce the 2001 special charges by $1.2 million. This all stems from the sale of banner advertising to a customer that subsequently failed to pay up.
Kozlowski Avoids Jail
Talk about a comeuppance.
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