Avoiding ‘Enronitis’

Associated Press

NEW YORK — Across the country, publicly traded companies ranging from those that make doughnuts or electronic circuits to those that provide telephone service are struggling to counter perceptions that they have problems similar to Enron’s.

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. While 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."

More disclosures that hurt company stock are likely in the weeks to come, but "if it were a ball game, I would say we’re about in the seventh inning," said Richard Dickson, a technical analyst at Hilliard Lyons in Louisville, Ky.

He doesn’t expect any of the disclosures to be so controversial that they drive other corporations to seek bankruptcy protection.

"With Enron, I think you had extreme examples of everything," Dickson said. "Do other companies do this kind of stuff? Yeah. Do they do it to the extent Enron did? No."

One way many companies may choose to reveal information about the way they do business is through the annual reports many are now preparing for distribution to shareholders. This year, the betting is that the reports will be much fatter and filled with dry footnotes about accounting practices.

Chief executives "are going to their auditors and saying, ‘I don’t care what we were doing before, we have to be fully disclosed,’ " Cripps said. "If not, they’ll get punished."