TOP STORIES--AUG. 25-30
2 Ex-Execs of WorldCom
Facing Fraud Charges
Two former top executives of WorldCom Inc. were indicted on securities fraud and other charges.
The move is seen as a key step as the government works to build a case against former WorldCom Chief Executive Bernard J. Ebbers, legal experts said. Ebbers’ lawyers contend that he had no knowledge of the accounting scheme under which profit allegedly was inflated by billions of dollars.
Federal prosecutors accused Scott D. Sullivan, the 40-year-old former chief financial officer of WorldCom, and Buford Yates Jr., the company’s former director of general accounting, of directing a two-year scheme to conceal $3.9 billion in company expenses and boost profit.
The indictment also names two other WorldCom accounting executives, Betty Vinson and Troy Normand, as unindicted co-conspirators. But court documents filed Wednesday indicate that Vinson and Normand--along with former Controller David Myers--are prepared to plead guilty and cooperate with the government.
If fraud is proved, it would be the largest accounting scandal in U.S. history. WorldCom, the once highflying telecommunications giant that carries nearly half of the country’s Internet traffic, owns MCI, the nation’s second-largest long-distance carrier.
Separately, a congressional committee investigating Citigroup Inc.’s allocations of sought-after initial public offerings said it wants to know how much money WorldCom executives and directors made from their awards.
The House Financial Services Committee plans to serve the world’s largest financial services company with a second subpoena in a month to seek information on transactions involving Ebbers, Sullivan and others.
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Gotcha Seeks Chapter 11
Amid Legal Dispute
Gotcha International, a pioneering Southern California surf wear company that was once a dominant player in the market, has filed for reorganization under the U.S. Bankruptcy Code amid a bitter legal battle with a business partner.
The Irvine-based company was forced to file for Chapter 11 protection because of a dispute with Ederal Sport Inc.
Ederal, which began manufacturing Gotcha brand clothing under license three years ago, sued Gotcha last fall, claiming Gotcha misrepresented its sales when the licensing deal was struck.
Gotcha disputed the allegation and filed a countersuit against Ederal, citing failure to pay royalties and other problems. The issue is still in court, but the dispute made it harder for Gotcha to sell products and deprived it of royalties, Gotcha President Donald Grier said.
Gotcha rose to prominence in the 1970s, along with Quiksilver Inc. of Huntington Beach, now the world’s largest surf wear maker. The companies followed a path trod by pioneer brands Hang 10 and Ocean Pacific.
Sun, Novellus Outlook
a Blow to Tech Sector
Hopes for a technology rebound dimmed with lackluster sales forecasts from Sun Microsystems Inc. and Novellus Systems Inc.
In addition, UBS Warburg cut its 2002 and 2003 projections for the global semiconductor and chip-equipment industries, saying sluggish demand for personal computers and telecommunications equipment could drive down revenue.
UBS expects 2002 chip revenue to fall as much as 2% or rise as much as 2%.
It previously predicted sales would be unchanged or grow as much as 5%. It changed its forecast for chip-equipment revenue to a drop of 20% to 25% from a decline of 15% to 20%.
Santa Clara, Calif.-based Sun, which makes servers that run corporate networks and Web sites, said first-quarter sales would be little changed from $2.86 billion a year ago, at the low end of forecasts made in July.
Novellus said it would break even in the third quarter on sales of $230 million, compared with an earlier forecast of a profit of 2 cents a share on sales of $250 million.
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Target Pulls Clothing on Neo-Nazi Allegation
Target Corp. pulled clothing bearing “88” and “Eight Eight” from its shelves after complaints that the numbers are code for “Heil Hitler” among neo-Nazis.
The Minneapolis-based discounter issued a statement apologizing “for any discomfort” that may have been caused by the baseball caps with the numerals “88” and shorts bearing images of skulls and the words “Eight Eight.”
“Target is a family-oriented store and company, and it is not our intent to carry any merchandise that promotes hate,” the statement said. “Target does not and will not tolerate discrimination in any form.”
Groups upset about the clothing say they want to know how such designs ended up on Target apparel bearing one of the retailer’s private labels, Utility.
Target officials did not return calls seeking comment. One analyst who follows the company said that the design approval process often is slapdash and that it’s highly unlikely Target officials had any clue about the Nazi symbolism.
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Sony Finally Throwing Betamax on Scrapheap
Sony Corp. has given up on Betamax.
The Japanese electronics giant said it would stop making the last two models of the Betamax videocassette recorder by year’s end. The company made fewer than 3,000 of the VCRs last year and sold them only in Japan.
Although the Betamax format was technically superior, it was quickly overrun by the rival VHS format, which had captured more than 75% of the consumer market by the early 1980s. The Betamax brand name has since come to symbolize the limited power of good engineering in consumer electronics--the best technology doesn’t always win.
The announcement was merely a formality for consumers in the United States. Betamax VCRs disappeared from U.S. store shelves at least a decade ago, as did most Betamax tapes.
Still, an underground community of “Betaphiles” lives on, buying and refurbishing used machines, scrounging for parts and ordering tapes of movies made before George Clooney’s first hit.
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Combined HP Posts Loss of $2.03 Billion
Hewlett-Packard Co. reported a $2.03-billion loss for its fiscal third quarter in its first combined results since buying Compaq Computer Corp. in the largest technology merger in history, as sales fell in most of its product lines.
HP’s loss amounted to 67 cents a share in the three months ended July 31. HP said the combined companies would have reported a year-earlier loss of $116 million, or 4 cents a share.
Excluding $2.4 billion in merger costs, investment losses, litigation expenses and other write-downs, pro forma per-share profit came to 14 cents for the recent quarter, matching analysts’ predictions.
“We’ve kept our eye on the ball,” Chief Executive Carly Fiorina told investors and analysts. “We did well.”
Revenue fell to $16.5 billion from $18.6 billion at the two companies a year earlier. The latest revenue was shy of Wall Street’s $16.7-billion consensus estimate.
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SEC Tightens Deadlines for Company Disclosures
The Securities and Exchange Commission voted to shorten the amount of time companies have to report earnings and to require stock trades by corporate insiders to be disclosed within two days. The moves, aimed at shoring up investor confidence in a year racked by financial scandals, were applauded by industry representatives and shareholder activists.
The changes, approved unanimously by the five-member SEC, come on two fronts:
First, detailed quarterly and annual financial statements will have to be filed more quickly with the SEC. That will reduce the risk that companies will issue rosy news releases about their earnings only to reveal problems important to investors months later in their official SEC filings.
Second, the rules will require company insiders--high-ranking executives, directors and major shareholders--to report the details of their stock trades more quickly.
Industry groups, which had objected to the SEC’s plan to shorten the filing period for financial reports, were mollified by the agency’s decision to phase in new deadlines over a three-year period.
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Few Firms Plan to Air Commercials on 9/11
Nextel Communications Inc. said it will once again underwrite CBS’ broadcast of “9/11” on Sept. 11, following President Bush’s planned televised address to the nation. Nextel was the exclusive underwriter in March when CBS first aired the documentary about New York firefighters, which drew 52 million viewers, one of this year’s largest TV audiences.
Nextel joins Boeing Co., which has agreed to underwrite NBC’s live broadcast of the “Concert for America,” from the John F. Kennedy Center for the Performing Arts in Washington.
Boeing, Nextel and Procter & Gamble Co. are among a small group of advertisers that plan to be on the air Sept. 11. ABC, CBS and NBC said some frims have expressed interest in advertising on that day, but most have declined rather than risk offending anyone.
The decisions underscore the challenge advertisers and networks face as they decide how to respectfully recognize the one-year anniversary of the terrorist attacks.
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California Senate
Widens Music Probe
The state Senate has widened its probe of music industry accounting practices and is checking into whether major record firms defrauded artists out of royalties through undisclosed licensing deals with record clubs and video channels.
The Senate Rules Committee has issued subpoenas seeking documents from artists’ lawyers and managers to substantiate the allegations, which first came to light at a hearing in July called by Sen. Martha Escutia (D-Whittier) and Sen. Kevin Murray (D-Culver City) to examine the industry’s accounting practices.
Artist representatives accuse the world’s five largest music companies of collecting millions of dollars annually from licensing deals with record clubs and video channels that are never shared with artists. Attorneys also alleged that companies use fraudulent accounting formulas to bilk artists out of earnings on music sold overseas. The companies dispute the allegations.
For a preview of this week’s business and economic news, please see Monday’s Business section.
