Asensio & Co. Announces Investment Opinion on WorldCom.Business Editors NOTE TO EDITORS: The following is an investment opinion issued by Asensio & Co. Asensio & Co.: WorldCom Admits to Inappropriately Inflating Reported Earnings by Over 800%. WorldCom, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : WCOM WCOM MCI/Worldcom (stock symbol) WCOM Windows Component Object Model WCOM Wireless Communication ) (Price: $0.83) admitted that it had inappropriately understated its operating expenses by $3.8 billion in the last 15 months. This effectively eliminates WorldCom's entire reported earnings before interest and taxes In financial and business accounting, earnings before interest and taxes (EBIT) is a measure of a firm's profitability that excludes interest and income tax expenses.[1] EBIT = Operating Revenue – Operating Expenses + Non-operating Income during the period. WorldCom's admission came only after retaining a new auditor to replace Andersen LLP LLP - Lower Layer Protocol and after recently claiming that it had sufficient cash flow to service its debts. WorldCom does not have the ability to service its debts. WorldCom presented its so-called "shocking discoveries" in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become format. In fact, the materiality of the earnings overstatement is hidden by this format. For the subject 15 month period EBIT EBIT See: Earnings Before Interest and Taxes EBIT See earnings before interest and taxes (EBIT). had been reported as over $4.3 billion. This EBIT was reduced to just a mere $0.5 billion. As a result, the expense understatement accounted for practically all of WorldCom's reported earnings before interest and taxes. WorldCom made no admission concerning its highly questionable accounts receivable or the possible restatement of its reported results in earlier periods, which were audited by Andersen and have not been restated. These prior years may also contain similar earnings overstatements. WorldCom claims "this matter" will not affect its services. We believe it is a baseless and untrue statement. Reported earnings as a percentage of sales was approximately 10%. Restated earnings as a percentage of sales is approximately 1%. This indicates that WorldCom has insufficient operating margins to economically maintain its current services at current prices, even without accounting for capital expenditures and interest costs. We believe AT&T (NYSE NYSE See: New York Stock Exchange : T) (Price: $9.99) will be among the competitors that will benefit from the elimination of WorldCom's unsustainable pricing pressure. Asensio & Company, Inc. is actively engaged in short selling and publishes research on securities it believes are overvalued Overvalued A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a . A complete documented history of Asensio's published work with short-selling transactions, and the firm's definition of gross overvaluation o·ver·val·ue tr.v. o·ver·val·ued, o·ver·val·u·ing, o·ver·val·ues To assign too high a value to: overvalued the painting. , is available on the Internet at www.asensio.com. John Wiley & Sons, Inc. has published a book about Asensio & Company's short selling titled "Sold Short: Uncovering Deception in the Markets." The book can be ordered on the Internet at www.asensio.com. Asensio Brokerage Services, Inc. is a broker-dealer registered with the SEC and is a member of the NASD NASD See: National Association of Securities Dealers NASD See National Association of Securities Dealers (NASD). . The firm predominantly advises private institutional clients. Short selling involves a risk not associated with the purchase of stock including, but not only limited to, unlimited loss and stock borrowing risks. Additional information is available upon request. Copyright 2002 by Asensio & Company, Inc. All rights reserved. This report should not be construed as an offer to sell or solicitation of an offer to buy any securities. Opinions expressed are subject to change without notice. This report has been prepared from original sources and data which we believe to be reliable but accuracy is not guaranteed. This research report was prepared by Asensio & Company, Inc. whose stockholders, officers and employees may from time to time acquire, hold or sell a position in the securities mentioned herein. Symbols: US; WCOM US; T |
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