- The Washington Times - Tuesday, January 21, 2003

Here is a look at more of Tuesday's top business stories:

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Accounting restatements 'hit record in 2002'

NEW YORK, Jan. 21 (UPI) — There were a record number of financial restatements last year, which wiped out billions of dollars in previously reported revenue.

According to the Wall Street Journal, last year's restatements rose 22 percent to 330 cases. It cites figures from Huron Consulting, a Chicago firm that specializes in forensic accounting, restructuring and other financial-advisory services.

Not only were there more cases, but restatements by big companies (with annual revenue exceeding $1 billion) were more numerous. The number of such large companies that restated results almost doubled, to 74 in 2002 from 39 in 2001, says the Journal.

Smaller companies — those with annual revenue of less than $100 million — represented less than half of the restatements in 2002, while in 2001 they represented the majority.

Two factors were behind the restatements. One was the downfall of Arthur Andersen, whose clients had to find new auditors — who in turn might have gone over the books all that much more carefully. The other was the enactment of the Sarbanes-Oxley Act, which includes a requirement that chief executives swear to the accuracy of companies' financial restatements.

"While it is difficult to determine cause and effect," the paper says, "there was a notable increase in restatements after President George W. Bush signed the bill into law on July 30. From then to year-end, 185 companies restated results, up from 145 in the first seven months of the year," the study found.

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FedEx to shift some U.S. routes from ground to air

MEMPHIS, Jan. 21 (UPI) — FedEx Express is about to get the first of eight smaller planes for use in its domestic network, on routes that trucks can't cover efficiently.

The Memphis-based freight company will accept the planes, French-made ATR 42-320 twin-turboprops, starting next week, reports the Memphis Commercial-Appeal. They'll then be converted from passenger to cargo configurations.

They were acquired from Continental Airlines last year and will cover routes spanning 250 miles to 600 miles. The planes will replace FedEx's aging Fokker F27s, which are also turboprops, in its fleet of about 649 aircraft, the newspaper says.

FedEx has 32 F-27s but hasn't announced a retirement schedule for them.

Of the 652 ATRs built, nearly 30 are operated in dedicated cargo operations worldwide.

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IBM plans new artificial intelligence drive

SAN FRANCISCO, Jan. 21 (UPI) — IBM is planning to unveil new technologies that it believes will improve the way computers access and use data, by unifying the different schools of thought surrounding artificial intelligence.

Technology Web site C/NET reports that several initiatives will be revealed by the firm in coming months. They're grouped under the Unstructured Information Management Architecture, a data-retrieval architecture that IBM is developing. UIMA will expand and enhance the retrieval techniques that underlie databases, an IBM official told the site.

"Once incorporated into systems, UIMA could allow cars to obtain and display real-time data on traffic conditions and on average auto speeds on freeways, or it could let factories regulate their own fuel consumption and optimally schedule activities," said C/NET. By combining the various techniques behind AI, error rates will fall.

The results of current, major UIMA experiments will be disclosed to analysts around March, with public disclosures to follow, sources at IBM told the site.

"The era of functional artificial intelligence may be dawning," said C/NET. "For one thing, the processing power and data-storage capabilities required for thinking machines are now coming into existence." Researchers have refined concepts behind AI software, and "the explosive growth of the Internet has created a need for machines that can function relatively autonomously.

"In the future, both businesses and individuals simply will own far more computers than they can manage — spitting out more data than people will be able to mentally absorb on their own," the site said. "Artificial intelligence … will function like a filter. Sensors will gather data from the outside world and send it to a computer, which in turn will issue the appropriate actions, alerting its human owners only when necessary."

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Fiat considers split as earnings disappoint

MILAN, Italy, Jan. 21 (UPI) — Fiat, the struggling Italian carmaker, says it might split into two or more companies and look at ways to refinance its ailing auto business.

The British Broadcasting Corp. says the announcement came "as Fiat dented investor confidence once again with earnings below expectations." The heavily indebted firm "is in the middle of a controversial restructuring, involving thousands of jobs cuts, in a bid to stem losses at its Fiat Auto division."

After the stock market closed on Monday, Fiat admitted that this division, which makes the Lancia, Alfa Romeo and Fiat brands, had last about $200 million in the fourth quarter.

"This was nowhere near the break-even level hoped for earlier in 2002, although it was a substantially smaller loss than that recorded earlier in the year," said the BBC.

But it took Fiat's total 2002 loss to about $1.4 billion, more than twice the 2001 figure.

The Agnelli family, which owns 30 percent of the carmaker, said earlier this month that Fiat would continue with its restructuring plan, which includes closing factories and laying off more than 8,000 staff.

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Enron tax transactions inflated profits: report

WASHINGTON, Jan. 21 (UPI) — For much of the past year, investigations of Enron Corp.'s collapse have dug into a web of partnership deals that allowed its executives to inflate earnings, hide debt and, in some cases, profit personally.

Now, says the Washington Post, its "controversial and equally covert tax transactions are moving into the spotlight." The Post quotes unidentified people involved in the tax inquiry as saying that a court-appointed bankruptcy examiner has been investigating Enron tax deals as part of his broader inquiry into Enron's financial dealings.

"Enron records show that those undisclosed tax deals added more than $1 billion in 'paper' profits to Enron's financial statements between 1996 and the company's bankruptcy filing in December 2001, helping it boost its stock price."

The Post adds that examiner Neal Batson and his lawyers are seeking to recover for the creditors any assets that Enron improperly transferred to outside partnerships. "If he can show that tax or accounting rules were broken, he could claim assets involved in the deals or possibly sue the prominent banks and law firms that helped the Houston energy trader structure the complex transactions."

A report is due to be filed Tuesday with the U.S. Bankruptcy Court but won't be made public until at least Feb. 14.

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Johnson & Johnson acquisitions 'paying off'

PHILADELPHIA, Jan. 21 (UPI) — When Johnson & Johnson reports results for 2002 on Tuesday, it will probably include a significant contribution from biotechnology unit Centocor — something that was once doubted.

When J&J; paid $4.9 billion for Centocor in 1999, "some Wall Street analysts were skeptical, saying the big drug company had overpaid for the Malvern, Pa. biotechnology firm," says the Philadelphia Inquirer. "But three years later, nobody doubts that the investment was a good deal for the pharmaceutical and health-care-products giant, with 198 operating companies in 54 countries, and for Centocor, which is flourishing."

The newspaper says that sales of the "crown jewel" of Centocor, the rheumatoid-arthritis and Crohn's-disease medicine Remicade, have jumped 500 percent, from $200 million in 1999 to an estimated $1.2 billion.

"Centocor's success also reflects Johnson & Johnson's acquisition strategy. Instead of slashing costs, Johnson & Johnson pumps money in, and provides the muscle of its distribution network and marketing expertise," the paper says. One analyst tells the newspaper that J&J; has bought about 100 companies in the past five years and has nurtured them into revenue producers.

About 70 companies are to report results on Tuesday, including 3M, Ford, Motorola and Citigroup.

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In R&D; spending, some companies buck trend

ARLINGTON, Va., Jan. 21 (UPI) — Most companies are slashing their research and development budgets to survive the economic slump.

But not all of them. According to USA Today, a few technology and drug companies "are going on the offensive to become the winners in the next recovery." The paper, which analyzed corporate data, says drugmakers Pfizer and Millennium Pharmaceuticals and computer-chip maker Broadcom are among the minority plowing more money into R&D; during the latest reported four quarters vs. the same period a year earlier.

Hiking R&D; makes companies look less profitable in the short term, but it can pay off with a leadership position during a recovery.

"It's a sound bet that R&D; spenders will be leaders coming out of a recession. Half the companies in the Dow Jones industrial average were formed during a recession, including Microsoft," USA Today says. "Historically, every $1 investment in R&D; has caused a company's value to rise $2 to $3," Bronwyn Hall, an economics professor at University of California at Berkeley, told the paper.

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