Report: Yet Another Restatement Coming from WorldCom

It’s looking likely that WorldCom will restate the restating of its restatement.

Or at least that’s the word from no less an authority than former Attorney General Richard Thornburgh. In a 118-page report filed with the U.S. bankruptcy court, Thornburgh indicated he expects the former telecom giant to add to the $7.68 billion in revisions the company has already made.

“We believe our investigation will reveal that there were improper and unsupported adjustments that go beyond the more than $7 billion in adjustments already restated,” wrote Thornburgh, according to wire service reports.

Reuters said the third restatement could lower WorldCom’s revenues by another $3 billion.

The bankrupt telecom giant, of course, has already admitted in two separate stages that it hid a total of $7.68 billion worth of expenses during the past few months. That tally already distinguishes WorldCom as the largest fraud in U.S. corporate history.

The report also apparently plays up the influence of former WorldCom chief executive Bernard Ebbers, noting that he “appears to have dominated” the course of the telecommunications company’s growth, its agenda, and decisions by the company’s board of directors, according to Bloomberg’s account. “While Ebbers received more than $77 million in cash and benefits from the company, shareholders lost in excess of $140 billion in value.”

Thornburgh, the special examiner charged to oversee WorldCom and report to the court, stressed that “a picture is clearly emerging of a company that had a number of troubling and serious issues” related to the “culture, internal controls, management, integrity, disclosures and financial statements of the company.”

The document goes on to state: “Our investigation strongly suggests that WorldCom personnel responded to changing business conditions and earnings pressure by taking extraordinary and illegal steps to mask the discrepancy between the financial reality at the company and Wall Street’s expectations.”

The report apparently criticizes WorldCom’s compensation committee for having “brief” meetings at which members, led by chairman Stiles Kellett Jr., deferred to Ebbers’s recommendations. “It appears that the compensation committee did not critique or challenge compensation decisions presented by Mr. Ebbers,” the report states, according to Bloomberg.

The 118-page bankruptcy court filing also fingers Kellett, asserting that he “engaged in conduct that, at a minimum, gave the appearance he was indebted to Mr. Ebbers.” Kellett has already resigned from WorldCom’s board, agreeing to pay the company $119,000 to resolve a dispute over his use of a company jet.

This summer, WorldCom fired chief financial officer Scott Sullivan. Sullivan has also been indicted in federal court on fraud and conspiracy charges.

In addition, four former finance executives have pleaded guilty to participating in the scheme and have agreed to help the government’s investigation. They are Betty Vinson, Troy Normand, Buford Yates Jr., and David Myers.

Monday’s report, which reviewed more than a million WorldCom documents, details dozens of controversial issues, including $408 million in loans made to Ebbers, WorldCom’s insatiable acquisition spree, arcane accounting transactions, and the lack of vigorous audits by the company’s outside accountants, Reuters noted.

Vivendi Feels the Regulators’ Reach

Regulators and federal prosecutors are not restricting their investigations to U.S.-based companies.

At least two agencies—the U.S. Attorney’s Office and the Securities and Exchange Commission—are investigating Vivendi Universal, the French media giant.

The probes come one week after prosecutors in France launched their own investigation of the Paris-based company’s accounting.

The SEC, which has been conducting an informal inquiry, will be “coordinating its activities” with the U.S. Attorney’s office, according to Vivendi. The company’s management said it intends to cooperate fully with the investigations.

According to Bloomberg, French prosecutors will examine whether Vivendi published “false accounts to hide the true nature of its financial situation” in 2000 and 2001 during the tenure of former chairman Jean-Marie Messier. The wire service added that investigative magistrates will also check out whether Vivendi gave misleading forecasts for 2001 and 2002.

Vivendi’s new management named PricewaterhouseCoopers LLP to investigate potential financial wrongdoing. The work “has not revealed any malfunction of a nature to bring the sincerity of the written financial information provided by Vivendi into question,” the company’s management reportedly stated in September.

Size Doesn’t Matter

WorldCom. Vivendi. Lucent. Cigna.

These large, high-profile companies have dominated the business headlines of late—and all because of their bookkeeping. Such marquee corporates don’t hold a monopoly on these sorts of fiascoes, however.

In the past few days, a number of lesser-known companies have also become embroiled in accounting controversies.

Take Gemstar-TV Guide International Inc. On Thursday, the company’s management said it might restate results for three years after replacing KPMG LLP with Ernst & Young as its independent auditor. (Editor’s note: Use CFO PeerMetrix to check Gemstar’s DOEHIC compared with its peers.)

The company, which has two divisions catering to the interactive TV business, indicated the decision comes following a meeting with the Office of the Chief Accountant (OCA) of the SEC.

Gemstar had sought guidance from the OCA to help resolve a disagreement with KPMG relating to a planned restatement of the company’s 2001 and 2002 financial statements. That adjustment was necessary to correct the treatment of a transaction initially accounted for as a nonmonetary transaction.

“The OCA recommended that the company should proceed with the restatement because the company has made the decision to restate,” Gemstar management noted in a press release, adding the appointment of E&Y will help expedite the process.

As CFO.com reported in October, Gemstar is being investigated by the SEC for possible securities laws violations.

In August, the company reported it would restate 2001 results to reflect the reversal of about $20 million in revenues from its interactive television guide business.

But following consultations with E&Y, Gemstar’s management said last week it expects to restate its results from July 1999 through March 2002. That revision stems from a license agreement with Scientific-Atlanta. The license had expired in 1999, but, through March 31, 2002, Gemstar said it accrued about $113 million of license fees after expiration of this agreement.

Gemstar added the company may be required to make additional restatements.

In another restatement, on Friday, Protection One Inc., which provides security services to homes and businesses, said it will restate its first- and second-quarter results. The revision is necessary to correct an error stemming from a previously calculated goodwill impairment related to FAS 142.

As a result, Protection One will take about a $106 million charge.

In May 2002, the company appointed Deloitte & Touche LLP to replace Arthur Andersen as its independent auditor.

In a related matter, the company said the 2001 and 2000 financial statements previously audited by Andersen are required to be reaudited under applicable auditing standards due to certain business developments and Andersen’s ceasing of its operation.

So Who Was Wells, Anyway?

Another company has received a Wells notice from the SEC.

Late last week, Del Global Technologies Corp. said in a regulatory filing that two of its outside directors—David Michael, chairman of the company’s audit committee, and Roger Winston, chairman of Del’s board of directors—received notice that the commission is considering filing a civil proceeding against the company. The SEC has been looking into Del’s previously reported accounting issues.

Those issues arose prior to the arrival of Del’s current management team, the company indicated.

The two directors have an opportunity to respond to the Wells notices before the commission decides to file suit. Generally the SEC does not send a Wells notice unless it intends to file suit against a company.

Prior to October 30, Del had reached an agreement in principle with the SEC to settle claims regarding an investigation begun on December 11, 2000. That investigation examined the events surrounding the restatement of previously issued financial statements filed by the company’s former management team. The restatement covered the fiscal years 1997 through the third quarter of fiscal 2000.

Del, which currently trades on the pink sheets, indicated that the proposed settlement will include a financial penalty and an injunction against future violations of the antifraud, periodic reporting, books and records, and internal accounting control provisions of the federal securities laws.

The proposed settlement is subject to, among other things, approval by the SEC and the courts. Del makes medical imaging and diagnostic systems.

Short Takes

Moody’s Investors Service knocked down the ratings a few notches for telecom-equipment companies Lucent Technologies Inc. and Nortel Networks Corp., whose earnings and liquidity are vaporizing.

Moody’s cut Lucent’s senior unsecured and senior implied ratings two notches to Caa1 from B2, and Nortel’s senior secured and senior implied ratings three notches to B3 from Ba3. “They are probably the two closest aligned of any companies in telecom equipment space in terms of customer base, market concentration and the products they offer,” said Bob Ray, a senior vice president and analyst at Moody’s, in a wire service report. “They look more like each other than they look like anybody else. Therefore, both are suffering from the same maladies in the telecom-equipment industry.”

Unilever Capital Corp. issued $1 billion in 30-year global bonds, led by Salomon Smith Barney and J.P. Morgan. The paper was priced to yield 5.975 percent, or 92 basis points above comparable Treasuries.

On Monday, Aon Corp., whose share price is now less than half its 52-week high, raised $550 million through the sale of common stock. The company plans to use the money to cut short-term debt.

Microsemi Corp., which supplies power management, RF/Microwave, transient suppression, and power conditioning semiconductor devices, will permit employees to reprice 1.9 million stock options, according to a regulatory filing. The offer is for employees with stock options that carry an exercise price of $14. Shares of Microsemi have recently been trading around half that price.