TOP STORIES--AUG. 4-9
WorldCom Discloses More Flawed Numbers
Battered telecom giant WorldCom Inc. disclosed that its auditors have uncovered an additional $3.3 billion in faulty accounting dating to 1999.
The disclosure, two months after the company said it had improperly accounted for nearly $4 billion in expenses, is expected to turn up the heat under former Chief Executive Bernard J. Ebbers.
The revelation could trigger additional regulatory action. Congress passed corporate reform laws after WorldCom’s initial disclosure of improper accounting.
Clinton, Miss.-based WorldCom, the parent company of MCI, is the focus of several federal investigations of accounting irregularities that covered up the telecom firm’s mounting losses amid an industrywide meltdown.
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Brazil, Uruguay to Get Billions in Bailouts
Brazil obtained a $30-billion emergency loan package from the International Monetary Fund, the largest bailout in IMF history, easing concerns that Latin America’s troubles will deteriorate further.
The aid was accompanied by the announcement of $1.5 billion in bailout funding for Uruguay and a pledge by Treasury Secretary Paul H. O’Neill to help Argentina. That signaled to investors that the Bush administration, in a change of policy, will come to the aid of troubled Latin American economies.
The news helped ease concerns about defaults in Latin America and boosted the stocks of big U.S. banks, including Citigroup Inc., J.P. Morgan Chase & Co. and FleetBoston Financial Corp.
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FCC Says New TVs Must Be Digital by ’07
Federal regulators accelerated the nation’s conversion to digital television when it gave manufacturers a 2007 deadline to equip most new sets with tuners that will offer viewers better pictures and enhanced sound.
The Federal Communication Commission’s vote is expected to raise the price of new TVs, possibly by as much as $200, even for those consumers who don’t want digital TV. Although the move was hailed as a victory for television broadcasters and other Hollywood interests who hope to captivate audiences with digitized images, it was immediately denounced by consumer advocates and many in the electronics industry who vowed to fight the order in court.
Congress has set a 2006 target date to convert analog television, the current standard, to digital, which will allow for high-definition pictures, clearer sound, more channels and interactivity.
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Microsoft Settles Net Privacy Claim
Microsoft Corp. agreed to a landmark 20-year settlement with the Federal Trade Commission, resolving a sweeping claim that the software giant falsely promised 200 million consumers that their personal information was secure and private when stored in its Passport online identity service.
Microsoft agreed to improve Passport’s security, test the new measures’ effectiveness, fix any breaches and submit to regular audits by an independent firm. Any misleading statements could bring fines or other punishment to the Redmond, Wash.-based company.
Passport stores information about the identity of computer users and sometimes their credit card numbers and e-mail addresses, so consumers don’t have to reenter the data as they move from one site to another.
Eisner Under More Fire as Disney Stock Falls
Questions about Michael Eisner’s performance as Walt Disney Co.’s chief executive grew sharper as the media giant’s stock fell to an eight-year low of $13.90.
What makes the latest round of discontent different from numerous occurrences over the last five years when Eisner has felt heat at Disney is that key directors are increasingly impatient with its lagging financial performance and stock price.
Sources close to the company’s board say two directors, Roy E. Disney and Stanley P. Gold, are pressuring Eisner to lift the company’s plunging stock price, deal more aggressively with turning around key divisions such as the ABC television network and even to clarify his succession plans. Disney and Gold declined to comment.
But Disney director Ray Watson said the board as a whole supports Eisner, who has headed the company for 18 years.
At week’s end, Disney stock closed at $14.65 on the New York Stock Exchange.
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AOL Turns to Outsider to Revitalize Online Unit
AOL Time Warner Inc. named Jon Miller head of its struggling America Online division, turning to an outsider to stabilize and reinvigorate its most troubled unit.
Miller, formerly president of the information and services group of USA Interactive Inc., will be appointed chairman and chief executive of the division, which has been without a leader since the abrupt resignation last month of Robert W. Pittman amid a plummeting stock price.
America Online’s credibility battle on Wall Street and within the AOL Time Warner family means Miller will be stepping into one of the most challenging and high-profile jobs in the media. But people who know the 45-year-old executive say his understated, collaborative style and experience across both the entertainment and Internet sectors will reshape the insular AOL.
Meanwhile, the media company was sued in a California court by the California State Teachers’ Retirement System, which alleged that the company participated in an accounting sham with troubled real estate Web site Homestore Inc.
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Cisco Earnings Beat Wall Street Expectations
Computer networking giant Cisco Systems Inc. beat Wall Street expectations with strong quarterly profit. But the results don’t necessarily mean the tech sector has glimpsed the light at the end of the tunnel.
San Jose-based Cisco said net income for its fiscal fourth quarter ballooned to $772 million, or 10 cents a share, up dramatically from $7 million, or less than a penny, in the same period last year. Net sales for the three months ended July 27 reached $4.8 billion, a 12% increase.
Excluding charges related to payroll tax on stock options exercised by employees, acquisitions and other nonrecurring items, Cisco’s earnings were $1 billion, or 14 cents a share, up from $163 million, or 2 cents, a year earlier. On that basis, the company beat analysts’ average estimate by 2 cents.
Chief Executive John Chambers said Cisco’s sales would pick up after the economy as a whole rebounds, though he declined to make predictions about how soon that might happen.
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Former ImClone CEO Faces New Charges
A federal grand jury in New York indicted the founder and former chief executive of ImClone Systems Inc., Samuel Waksal, on charges of bank fraud and obstruction of justice, the latest in a series of crackdowns on suspected corporate wrongdoers.
The 13-count indictment expands the case against Waksal, who in June was charged with perjury and securities fraud, and brings more unwanted attention to Waksal friend Martha Stewart, who also has been caught up in the scandal.
The additional charges also stiffen Waksal’s potential penalty; if convicted on the bank fraud charge alone, Waksal could face up to 30 years in prison.
Prosecutors had sought to negotiate a plea deal with Waksal before a Friday deadline to indict him. A deal probably would have required him to reveal, in exchange for leniency, whether he provided insider trading tips to family and friends, including Stewart.
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Some Airlines Trim Business Fares
Several major airlines--including AMR Corp.’s American, Northwest Airlines Corp., Delta Air Lines Inc. and Continental Airlines Inc.--have cut many of their most expensive, unrestricted business fares 15% to 20%, a move Northwest said was the first reduction in the fares in perhaps a decade.
The cheaper prices are welcome news for business travelers, who have been howling for years about the high cost of last-minute seats. With the economy weak and companies slashing travel budgets, business travelers are opting to buy cheaper fares with advance reservations, or not fly at all.
That’s a huge reason the big airlines continue to suffer massive losses; the industry lost more than $1.4 billion in this year’s second quarter. Because they typically pay more than leisure travelers who book well in advance, business customers generate most of an airline’s revenue.
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FCC Proposes Record Fine in Junk-Fax Case
The Federal Communications Commission proposed a record $5.38-million fine against a California company that allegedly inundated businesses and consumers with millions of pages of unsolicited faxes.
The action against Fax.com Inc. of Aliso Viejo was meant to send a message to those who violate the federal Telephone Consumer Protection Act and burden junk-fax recipients with the cost of paper, ink and other items associated with receiving unsolicited faxes.
The FCC also issued citations to more than 100 businesses that used Fax.com services, saying they could be liable for financial penalties if they continue to send unsolicited faxes.
The company plans to appeal.
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For a preview of this week’s business and economic news, please see Monday’s Business section.
