AT &T says it underestimated expenses by $125 million - East Valley Tribune: Business

AT &T says it underestimated expenses by $125 million

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Posted: Wednesday, October 22, 2003 10:26 am | Updated: 1:45 pm, Thu Oct 6, 2011.

NEW YORK - AT &T Corp. overstated profits by $125 million in 2001 and 2002 as employees covered up a mistake in estimating fees owed to other phone companies who connect AT &T customer calls, the company revealed Tuesday.

The disclosure came as AT &T reported that thirdquarter profits nearly doubled compared with a weak showing a year ago, but that revenue fell 8.1 percent as Bell rivals and cell phones added to their growing share of the long-distance business.

AT &T was quick to distinguish the improper accounting from the multi-billion dollar deceptions at WorldCom and other telecommunications companies, saying a review by outside counsel found that the costs were initially underestimated by accident, but that two employees had then hidden the error to protect themselves.

‘‘The investigation determined it was not done for personal gain. There was no intent around earnings management,’’ Thomas Horton, AT &T’s chief financial officer, said in a conference call after the report.

‘‘It seems to have been an error, and some employees worked their way around the controls to avoid their detection.’’

Two employees, ‘‘one lowerlevel and one mid-level management,’’ and two supervisors have been fired as a result.

Profits for the just-ended quarter totaled $418 million, or 53 cents a share.

In the same period in 2002, AT &T earned $207 million, or 26 cents per share, which included a $318 million loss from operations that are no longer part of the company.

The results included a pretax charge of $125 million for the under-reported operating costs.

After taxes, those expenses would have reduced 2001’s net profit by $32 million, or 4 cents per share, and 2002’s net profit by $45 million, or 6 cents per share.

The latest quarterly results also include a charge of $27 million to reflect a change in accounting standards and $13 million from businesses that are being discontinued.

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