Posted on: Monday, February 18, 2002

'Enronitis' spreads to other firms

Associated Press

NEW YORK — The big Enron Corp. headlines this past week came from Washington, D.C., where former chairman Kenneth Lay invoked his Fifth Amendment right against self-incrimination and company executive Sherron Watkins testified about telling Lay last summer that the energy trader was on the verge of collapse.

But across the country, publicly traded companies ranging from those that make doughnuts or electronic circuits to those that provide telephone service were struggling to counter perceptions that they have Enron-like problems.

And experts believe the stream of disclosures some are calling "Enronitis" will continue for some time, possibly reaching a peak in March, when companies start issuing their annual reports.

In Winston-Salem, N.C., Krispy Kreme Doughnuts said it would change its method of financing construction for an Illinois dough-mixing plant, responding to a Forbes magazine article that described a synthetic lease for the plant as an "off-balance-sheet trick."

In Denver, Qwest Communications International Inc. announced it would hold a weekly conference call for investors to rebut "rumors and innuendo" about the company after it acknowledged it had been shut out of the corporate bond market amid worries about its accounting practices.

And in Exeter, N.H., Tyco International Inc. executives — who first came up with the idea of the weekly conference call update — gave investors an update about the conglomerate's plans to break itself apart.

Making good on a promise to be upfront about its accounting practices, the company also disclosed more details about $3 billion in acquisitions last year.

The public relations moves are having mixed results. Although Krispy Kreme's stock recovered this past week, shares of Tyco and Qwest dropped. The problem, experts said, is likely to continue for companies that have balance sheets that are difficult for analysts and investors to understand.

"These companies are being painted dramatically and perhaps some unfairly with the Enron brush," said Richard Cripps, chief market strategist for Legg Mason in Baltimore. "But that's the risk of business, and that's why you run a sound balance sheet with honest numbers."