It's a mad, mad, mad, mad WorldCom (Nasdaq: WCOM). Or maybe we should just be mad, mad, mad at WorldCom. The number two U.S. long-distance phone company unveiled a whopper of an accounting scandal last night and today its market value declined to about $245 million from $2.45 billion on Tuesday. In 1999, WorldCom was a $248 billion company. It staggers the mind.
Bill Mann (TMF Otter) looked at WorldCom in the Rule Maker Portfolio in late April, wondering aloud if the company had any potential as a value play. His conclusion? There were likely worse things to come for the beleaguered telecom. Indeed.
After being thrown into a tizzy earlier in the day, investors regrouped and the major market indexes and the FOOL 50 came back to about the breakeven point.
Also today, the Federal Open Market Committee decided to leave interest rates unchanged at four-decade lows.
In today's Motley Fool Take:
The stock market has been turbulent today, and much of the blame is being levied on WorldCom (Nasdaq: WCOM), America's second-largest long-distance company and one of the world's largest telecommunications enterprises.
The company disclosed last night that its cash flow for the last five quarters had been inflated by more than $3.8 billion. The discovery essentially wipes out all of its profits during that period. This may turn out to be the biggest case of accounting fraud ever. The IRREGULARITIES (lowercase letters don't suffice in this case) were uncovered via an internal audit and only compound the already-ailing company's troubles. WorldCom, which bought MCI in 1998, is already being investigated by the Securities and Exchange Commission, is weighed down by $30 billion in debt, and has experienced a stock plunge of more than 95% this year. Ouch.
The company has fired its CFO, Scott Sullivan, has accepted the resignation of controller David Myers, and will restate earnings for the last five quarters. It recently announced a layoff of roughly a fifth of its 80,000-some employees, but more layoffs may be in the offing. Indeed, its ultimate survival is now in doubt. This may be the beginning (or the middle) of an Enron-like meltdown.
In a related story today, auditors would not approve bankrupt telecom and WorldCom peer KPNQwest's (Amsterdam: KPIQ.AS) annual results.
Discussion Board of the Day: WorldCom
On the Fool's WorldCom Discussion Board, some longtime critics of the company are trying not to say "I told you so" as board denizens discuss what may be next for the beleaguered business. Join in! Only on Fool.com.
On the Falling Dollar and You
One of the most significant, though not necessarily headline-grabbing, stories in the world of finances today is the incredible shrinking dollar. Over the past month, the dollar has fallen approximately 10% when compared to the other major currencies. But is that good or bad for Americans? The answer: It depends. Here are some of the consequences of a weakening dollar.
- Imports are more expensive. Since it costs more greenbacks to buy something from another country, foreign goods become pricier.
- American goods are cheaper to foreign consumers. Since the currency in other countries gets more bang per each American buck, foreigners are more inclined to buy American goods. This can be a boost to U.S. companies that do a large chunk of business overseas.
- If foreign investors expect the dollar to keep falling, they may take their money elsewhere. To buy U.S. investments, they first have to convert their money into U.S. dollars. Imagine a European (you can see him now, sitting at a sidewalk café, smoking a cigarette, scoffing at American culture while drinking a Coke) who wants to buy a stock traded on an American exchange. He'd first have to convert his euros to dollars, then buy the stock. So, he's essentially buying two investments -- first the dollar, then the stock. But if the dollar drops 6% against the euro, he's that much in the hole, regardless of what the stock does. This phenomenon has persuaded foreign investors to pull their money out of the U.S. markets, contributing to the market's current woes. (On the other hand, American investors might find foreign investments more attractive.)
As you can see, when it comes to currencies, there's always another side of the coin. Just look at tourism. A strong dollar made it expensive for foreigners to come here, but it made traveling abroad a bargain for Americans. As the dollar weakens, more tourists will visit America, while we Yanks can no longer stay in European castles for just $100 a night.
What countries do want from their currency is stability, which the dollar did not provide today. After the announcement of WorldCom's (Nasdaq: WCOM) fraudulent practices, the euro rose two cents compared to the dollar, which is a monstrous move in the foreign exchange markets. This is a sign that investors are losing more and more confidence in the prospects of the U.S. economy.
To learn more about currencies and economies (what fun!), read the Federal Reserve's online booklet, Strong Dollar, Weak Dollar. For a plainspoken and entertaining explanation of economics, consider Jacob DeRooy's Economic Literacy.
"Eighty percent of success is showing up." -- Woody Allen
Where's Edible? West Virginia
With Rick "TMF Edible" Munarriz and his family almost done with their summer road trip, they were driving through West Virginia today. Between the mountainous splendor and the raging waters, there is still room to get down to business in West Virginia.
While United Bankshares (Nasdaq: UBSI) might be the state's only public company with a billion-dollar market cap, other financial services specialists like Wheeling's WesBanco (Nasdaq: WSBC) and Charleston's City Holding (Nasdaq: CHCO) have banked on West Virginia.
While most casino companies stack their chips in Nevada, when MTR Gaming (Nasdaq: MNTG) wins, the house that wins is in Chester.
The Edibles won't be spending as much time in West Virginia as they would like. Driving through Wheeling, perhaps stopping by Oglebay later, tomorrow brings a new state and one less day of their summer sojourn.
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Citing "softer-than-expected customer demand," Priceline.com (Nasdaq: PCLN) lowered revenue targets this morning, and said earnings would come in at the low range of expectations, or about $0.03 per share. The stock was sent reeling for a 25% loss.
General Mills (NYSE: GIS) edged higher today after the cereal maker reported its fourth-quarter earnings results. Quarterly revenue rose 76% year-over-year to $2.32 billion from $1.32 billion, but net income fell to $57 million from $146 million due to a one-time charge related to its October acquisition of Pillsbury. The company reaffirmed its previously lowered fiscal 2003 earnings guidance of $2.60 per share.
Former Tyco (NYSE: TYC) CEO Dennis Kozlowski now has something to add to his tax evasion charges: tampering with evidence. The Manhattan district attorney's office says Kozlowski allegedly removed a bill from a stack of documents that was to be sent to prosecutors.
The investigation of Martha Stewart is widening to include possible obstruction of justice charges. Stewart is facing possible insider-trading charges after she sold ImClone (Nasdaq: IMCL) stock one day before the company revealed its experimental cancer drug, Erbitux, was rejected. Shares of Martha Stewart Living Omnimedia (NYSE: MSO) fell 20% to an all-time low.
Adelphia Communications has filed for Chapter 11 bankruptcy. The company has been sliding since it disclosed off-the-books borrowing by the founding Rigas family and improperly inflated cash flow and revenue figures for 2000 and 2001.
Isn't it sickening how much of the news is devoted to scandals?
And Finally...
Today on Fool.com: Matt Richey puts Johnson & Johnson through the Rule Maker paces.... Guest columnist Whitney Tilson highlights another type of stock to avoid.... In Fool's School, Selena Maranjian explains when good economic news is bad news for the stock market.... Is the plan for Amtrak off-track?
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Bob Bobala, Robert Brokamp, Jeff Fischer, Jeff Hwang, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim
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