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Lou Dobbs Moneyline
Interview with Andersen CEO Joseph Berardino
Aired January 17, 2002 - 18:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: Tonight on LOU DOBBS MONEYLINE, accounting firm Andersen is in the center of the Enron scandal. Tonight, Andersen CEO Joseph Berardino is our exclusive guest.
The SEC today called for accounting reform. Former SEC chairman Richard Breeden calls this Enron crisis a final wake-up call for the accounting and securities industries. Breeden will be here, as will General Electric CEO Jeffrey Immelt on the day his firm reports another record year of earnings.
And investors sent stock prices higher. The Dow Jones Industrial Average gaining more than 100 points.
This is LOU DOBBS MONEYLINE for Thursday, January 17. Here now, Lou Dobbs.
LOU DOBBS, CNN ANCHOR: Good evening everyone. Literally within the last minutes CNN has learned that Enron has fired Andersen as its audit and accounting firm. That word coming from Enron's legal representative Bob Bennett.
We have also learned tonight that Enron will meet with its employees next week. This will be the first such meeting since the company declared bankruptcy on December 2. All Enron employees will be invited to the meeting. Enron's chief operating and financial officers will also be in attendance. Chairman Ken Lay will not.
There are other developments tonight as well. Andersen, Enron's auditor, confirmed that it did know of Enron's problems as early as February of last year. And the Securities and Exchange Commission wants a new regulatory watchdog to monitor the accounting industry. Tim O'Brien has that report from Washington.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): In a rare news conference, SEC chairman Harvey Pitt proposed a watchdog agency that resembles the state bar associations that regulate the conduct of lawyers, with the power to disbar those WHO Misbehave.
HARVEY PITT, CHMN., SEC: The body should be empowered to perform investigations, bring disciplinary proceedings, publicize results, restrict individuals and firms who have failed to meet ethical or competency standards from auditing public companies. O'BRIEN: Pitt said disciplinary proceedings would be expeditious, and subject to SEC oversight. Meanwhile, investigators of the House Energy and Commerce Committee, continue to sift through thousands of documents provided by Enron and Arthur Andersen.
An E-mail from last February has now surfaced indicating Andersen decided to retain Enron as a client only after a significant discussion of what it called Enron's earnings and the fact that it was intelligent gambling.
Committee staffers are in Houston Thursday and Friday interviewing former and present Enron officials. It is not clear if Chairman Kenneth Lay will be among them. The political side of the conflict is also heating up. With Henry Waxman, the ranking Democrat on the House government reform committee, issuing a report claiming that at least 17 policies in the president's energy plan were advocated by Enron or benefit Enron.
Nonsense, says the White House.
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The allegation by Congressman Waxman that anything was put in that plan for political purposes is of itself a partisan waste of taxpayer money.
O'BRIEN: Fleischer said the White House will not explain to Congress or the media details of the meetings it has had with Enron officials. There have been at least six, absent a showing of some wrongdoing. And, said Fleisher, there has been no such showing.
(END VIDEOTAPE)
To many perhaps most this scandal is and may always be more about business than about politics. Unless, of course, you live in Washington, where business, and just about everything else, is politics -- Lou.
DOBBS: Tim, indeed, thank you very much. Tim O'Brien.
A new revolution in the Enron scandal. Not only did the company hide millions of dollars in debt and off-balance sheet transactions, it also managed to avoid paying taxes in four of the past five years. Allan Chernoff reports.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): The analysis of Enron financials, from citizens for tax justice, looked at the five years between 1996 and 2000, a period when Enron's pre-tax income was more than $1.7 billion. Only in 1997, the study says, did the company pay income tax. Enron's total refund during the five years: $381 million.
ROBERT MCINTYRE, CITIZENS FOR TAX JUSTICE: On average big companies in America pay about a fifth of their profits in federal income taxes. When you find one like that, you say wait a minute, what is going on here? How come this company is paying less than zero? And you look into it and you say, gee, they really shouldn't be allowed to do that.
CHERNOFF: The large print in Enron's annual report indicated the company did pay taxes. It's after factoring in financials contained in footnotes that the analysis reveals Enron's tax refunds.
Many companies use tax havens. But Enron was extremely aggressive, creating 881 subsidiaries in havens like the Cayman Islands to reduce its tax bill. Former IRS commissioner Donald Alexander.
DONALD ALEXANDER, FMR. IRS COMMISSIONER: Sure it's fishy. Why do they have so many of them? I don't understand that. I can understand a corporation with major international activities, and they had those, having a number of subsidiaries in tax-favored countries, as well as high-tax countries.
But I can't understand why you'd have almost 700 in the Caymans unless you were up to something.
CHERNOFF: Enron also cut its tax bill dramatically through deductions for stock options, that were lavishly granted to executives like CEO Ken Lay and former president Jeff Skilling, a perfectly legal deduction that most public companies employ.
(END VIDEOTAPE)
MONEYLINE called Enron repeatedly for comment. The company did not return the calls. No comment from Andersen on the tax questions. But minutes ago the accounting firm released a statement saying it was not until former Enron employee Sherron Watkins notified the firm, meaning Andersen, that we became aware that individuals within Enron believe that there may have been accounting improprieties, referring to a February Andersen memo that spoke of the accounting firm's partners discussing Enron's aggressive finances, Andersen says the fact that many issues were discussed is consistent with our practice rigorously examining all known and potential issues that need to be considered in deciding whether to audit a particular client -- Lou.
DOBBS: Almost 900 subsidiaries in offshore tax havens?
CHERNOFF: That appears to be unprecedented.
DOBBS: Well, if it's not, we sure need to find out where the rest are. Thanks, Allan.
Enron is not alone when it comes to avoiding taxes, of course. More than half of the "Fortune" 250 companies in the country found ways reduce their income tax in the three years from 1996 to 1998.
According to the institute on taxation and economic policy, 133 of them, the company's largest corporations pay just 8.5 percent tax during the period. Compare that to the majority of Americans who pay double that amount, more than 16 percent.
Scandals of the magnitude of the Enron collapse are not unheard of of course, but what is interesting is that in the end, it is very rare that anyone goes to jail. Peter Viles has the story.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): The accounting scandal at Enron is the latest in a litany that includes waste management, Cendant, and Sunbeam. Merrill Davidoff sued Sunbeam and its auditor, Arthur Andersen.
MERRILL DAVIDOFF, BEAGER & MONTAGUE: We have a wave of aggressive accounting and a wave of stepping over the line in corporate America. I do think it has to be brought to a stop. It is reaching epidemic proportions. VILES: The accounting industry's greatest misses: CUS inflated earnings by $500 million before the Cendant merger. Two CUC executives face criminal charges. Cendant paid 2.8 billion to settle shareholder losses. Its auditor, Ernst & Young, paid 335 million to settle similar suits.
At HBO & CO, the health care concern, revenues were overstated by 270 million. Two former executives face criminal charges. The auditor at the time, Arthur Andersen. Shareholder lawsuits are still pending. But those cases are the exception. Criminal charges are rare.
JAMES COX, DUKE UNIVERSITY SCHOOL OF LAW: The government resources are very limited in some situations. And they're interested in settling the case, getting something out of the process, perhaps a large fine.
VILES: At Sunbeam, where earnings were overstated by 101 million in the Al Dunlap era, no criminal charges were ever filed. Sunbeam fell into bankruptcy, its auditor, again Arthur Andersen, settled shareholder lawsuits for 110 million. Dunlap settled a separate suit for 15 million.
At Waste Management earnings were overstated by 1.4 billion in the mid '90s. Again no criminal charges, again Arthur Andersen was the auditor. It joined in a $220 million settlement with shareholders and paid 7 million more to settle civil charges brought by the SEC.
(END VIDEOTAPE)
In that Waste Management case, the SEC singled out Arthur Andersen for strong criticism, saying that it had "failed to stand up to company management, and betrayed its ultimate allegiance to shareholders." -- Lou.
DOBBS: Pete, thank you very much. Peter Viles.
The Enron disaster should serve as a final wake up call to the securities industry and the accounting industry. In the view of Richard Breeden, who is the former head of the Securities and Exchange Commission, and he joins us now.
Mr. Breeden, good to have you here.
RICHARD BREEDEN, FMR. SEC CHAIRMAN: Nice to be here, Lou.
DOBBS: We heard Harvey Pitt, the SEC chairman today make a recommendation for reform of the accounting industry. What do you think of his proposals?
BREEDEN: I haven't had a chance to review them in any depth. I think it's good that Harvey is joining the discussion. The commission has important role to play in any discussion of a system that obviously has some very deep-seeded problems.
At least as I understand it, if we're trying to move discipline away from the SEC, divest it into some form of an analogue to a state bar association, I think that may be moving in the wrong direction.
DOBBS: That's precisely what he is, indeed, recommending, and really taking no greater role for the SEC itself in policing this. And relying instead on beefing up, if you will, industry boards.
BREEDEN: I think we've had 50 years of trying to have self- regulation of the accounting industry. Meanwhile, we've had steady consolidation of the firms into larger and larger entities. The big five probably do $60 billion or $70 billion in revenues now, and the SEC might have 100 accountants to try and oversee that.
And I think we've long starved the SEC of the resources to do the kind of enforcement job it needs to do.
DOBBS: Well, the enforcement job that it needed to do in the case of Enron, obviously to whatever degree one wants to argue it, it was not done.
The fact is that we have Ken Lay, the head of a bankrupt firm, now in the midst of -- our count -- eight congressional investigations, three federal investigations. He's still the head of the firm; do you think it's appropriate that he be there?
BREEDEN: No I don't. We have a provision in the bankruptcy code that calls for the appointment of an independent trustee or an examiner or responsible person. There's a couple different statutory categories.
But I would think that the employees whose 401(k)s are worthless, and the other investors whose shares are worth less than $1 deserve someone other than Ken Lay looking at how to make the best out of what -- the ashes of Enron.
DOBBS: In looking at the issues of corporate governance here, and examining the board, which has changed over the course of the past year, this board was anything but an independent board. Should they, in point of fact, still be in the position that they're in?
BREEDEN: Well, if you went down the path of an independent trustee, which I think is something that is justified in this case; it's an unusual procedure, but -- and I think there should be changes in the board as well. We've redefined the term "supine" and "spineless," perhaps, in looking at the performance of this board, at least as much as we can tell from the outside.
And I think the public is entitled, investors are entitled, and the employees are entitled at this stage to know that we're going to clean house and be sure that we get to the bottom of the facts, and all the records are protected, and we find out the full story.
DOBBS: The full story is going to take some work to figure out here. But the fact is that Enron is the biggest corporate bankruptcy in history. What is, in your best judgment, the likelihood that investors and employees, with their money on their 401(k)s, will ever get any money as a result of the proceedings?
BREEDEN: I think it's too hard -- it's too early to say that. And I just don't know enough. I know -- the last six years I've been trustee of a company that -- multibillion-dollar leasing fraud -- it was a Ponzi scheme. And we recovered, ultimately, about 70 percent of the total losses for creditors.
So it can be done. There presumably are businesses there that can be restructured and value that can be recreated.
The question of the magnitude of that value, and how much creditors can get back is a really critical issue, that while we should be doing what we're doing on the -- looking at the accounting system, someone has to remember the existing shareholders, and try and get the best we can.
DOBBS: At the bottom line, this is the failure of a business.
BREEDEN: It is the failure of a business. And with all the attention on Andersen, we shouldn't forget that ultimately this is a large company; there are a lot of assets there; and there's a lot of value that hopefully can still be restored.
DOBBS: Richard Breeden, thank you very much for being with us.
BREEDEN: See you, Lou.
DOBBS: Still ahead: Enron's accounting firm Andersen is at the center of the Enron collapse. Enron's chief executive officer, Joseph Berardino, will join us here in just a few minutes, in an exclusive interview.
Enron's employees lost much of their retirement money with the company's collapse. Tonight, we'll have a special report on the dangers of owning your own company's stock in your 401(k).
And General Electric has reported another record year of earnings. CEO Jeffrey Immelt will be here to tell us what he sees in GE's new year.
And stock prices end the day higher; better-than expected earnings news from several of corporate America's biggest names. We'll have a full report for you on all the day's activity on Wall Street next.
(COMMERCIAL BREAK)
DOBBS: What we're about to report to you may upset you; it may upset your employer as well. Financial planners, of course, have long discouraged the practice of putting your retirement dollars into your company's stock. Not everyone pays attention to that warning. The theory is, should the company falter, you could lose your job, your savings, and your retirement. Many employees, however, don't heed that warning against what is, after all, double or sometimes triple jeopardy.
Brooks Jackson has the story.
(BEGIN VIDEOTAPE)
BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Meet Frank Cisternino of Shreveport, Louisiana. If you thought Enron employees had a sad story about their retirement plan, listen to what happened at Lucent Technologies.
FRANK CISTERNINO, FORMER LUCENT EMPLOYEE: The highest my 401(k) value was approximately a million-three, a million-four. And right now we're at about a $100,000.
JACKSON: Cisternino had 100 percent of his retirement money in Lucent stock, and look what happened.
Like Enron's stock, Lucent's soared in the late '90s, then suddenly crashed, and kept on sliding.
Could this happen elsewhere? You bet. Lots of big companies allow, even encourage their employees to concentrate retirement money in their own stock. Tax laws encourage it.
But investment advisers say the practice is worse than ill- advised.
RIC EDELMAN, EDELMAN FINANCIAL SERVICES: It's incredibly dumb. It's, without question, one of the worst things that a U.S. worker or employee can do.
JACKSON: Even Ronald's retirement could be at risk: 74 percent of McDonald employees' retirement-plan assets are invested in McDonald's stock, according to the authoritative newsletter "DC Plan Investing."
Where is Mickey's retirement money? The Walt Disney Company has 45 percent of retirement-plan assets in Disney stock.
And the highest of all, the makers of Crest toothpaste, Proctor & Gamble: 95 percent of employees' retirement funds in P&G stock.
Critics say it's bad enough to be too heavily into any one stock, but doubly risky if it's your own company.
MARK IWRY, RETIREMENT PLAN ATTORNEY: If the company goes under, you are at risk of not only losing your job, but losing your retirement savings at the same time.
JACKSON: Just what happened at Enron.
(on camera): For some, not diversifying has worked out OK, so far. Proctor & Gamble stock has gone up 49 percent in the past five years, exactly the same as the Standard & Poor's 500-stock index.
And look at Pfizer: Its retirement fund is 86 percent invested in Pfizer stock, and that stock has nearly tripled since five years ago.
But others have done poorly, even disastrously. Owens Corning has lost 95 percent of its value since five years ago. And at last report, that retirement plan was still 44 percent invested in its own sickly stock.
(voice-over): McDonald's is up, but only 19 percent in five years, severely underperforming the market. And Disney stock is actually down 3 percent from five years ago.
(END VIDEOTAPE)
JACKSON: So the bitter lesson Enron employees learned the hard way still needs learning at literally dozens of the biggest American companies -- Lou.
DOBBS: Brooks, thank you very much. Brooks Jackson from Washington.
Well, let's turn to some happier news. Stocks today rebounded on Wall Street following yesterday's sharp selloff. Upbeat earnings reports lifted the market today. As stock prices rose, treasuries fell after a decline in weekly jobless claims, diminishing hopes of another interest rate cut by the Fed, at least among some.
The Dow today gained 137 points. The Nasdaq surged 41 points. The S&P 500 up nearly 11. Let's go now to our correspondents following the markets. Christine Romans at the Big Board, Greg Clarkin at the Nasdaq marketsite -- Christine.
CHRISTINE ROMANS, CNN CORRESPONDENT: And, Lou, after the bell, IBM out with its report, coming out and beating the Street's expectations on its bottom line by one penny. But it's the sales number that looks like it's a bit shy. IBM shares down $5 after hours. During the session though, it was up more than two-and-a-half dollars on expectations it would beat earnings. It did, but again, watch that sales number and what it means by tomorrow.
Compaq, meanwhile, setting the positive tone early after it nudged up forecast for the first quarter, called for a recovery in tech spending in the second half of '02. Sears, Lou, to the highest price in two-and-a-half years on its earnings report.
But it wasn't all rosy news for some of these companies. Ford coming out with a loss for the year, Lou, of almost $5.5 billion. That's the 12th largest loss in the last 15 years. Ford already has a position on that top 20 list as well. So Ford shares moving down to a four-year low -- Lou.
DOBBS: Christine, thank you. Let's go over to Greg Clarkin at the Nasdaq marketsite -- Greg.
GREG CLARKIN, CNN CORRESPONDENT: And, Lou, one of the things people are going to be trading off tomorrow is the Microsoft news after the close of trading today. The company coming out with earnings, another earnings report from Microsoft with a very big special charge. If you factor in eight cents a share earnings, a legal expense charge, the company came out with 41 cents a share in earnings. You exclude that, they came out with 49 cents a share; 43 was expected. After hours trading, the stock selling off a bit after jumping almost two bucks on the day.
Apple Computer rose after posting inline earnings, and also saying that this quarter is shaping better than a lot of folks anticipated. Yahoo! topped earnings expectations. The stock rose nicely. And Intel, after losing about 2.8 percent yesterday, rebounded today. It was up about 2.4 percent. So it gains back almost all of it -- Lou, back to you.
DOBBS: Greg, thank you very much -- Greg Clarkin.
Coming up next, the government uncovers videotapes of suspected terrorists in Afghanistan and they're now looking for your help. We have that story for you.
Also, a solid quarter, a positive outlook for 2002. We'll be talking with General Electric's chief executive officer, Jeffrey Immelt next about how he expects the company to succeed.
And an exclusive interview with the CEO and chairman of Arthur Andersen, Joseph Berardino. We'll get to the bottom line on Andersen's role in the recent collapse of Enron, next.
(COMMERCIAL BREAK)
DOBBS: The Securities and Exchange Commission today called for a new oversight group to monitor the practices of the accounting industry. The SEC chairman, Harvey Pitt, cited the Enron collapse and its auditor, Andersen.
Mr. Pitt said, "Andersen failed to stand up to management to prevent the issuance of materially misstated financial statements. Instead, Andersen allowed the company to establish and then continue for many years a series of improper accounting practices."
Joining us now is Joseph Berardino. He is the CEO of Andersen. First of all, thank you for being here under what, by any light, are extraordinary circumstances for you and your firm.
JOSEPH BERARDINO, CEO, ANDERSEN: Thank you, Lou.
DOBBS: Let's turn immediately, if we may, to some of the revelations that are coming out. Your firm today confirming that there was a retention meeting in February in which a number of things were discussed, including off-balance sheet debt and the structures of those debts, the size of the fees, the potential conflicts of interests. Were you at that meeting?
BERARDINO: Lou, no, I wasn't. But I will tell you that that is a meeting we have on virtually every client in our firm every year. We review among the team and the management, usually at the office, the challenges that client presents us, the expectations they have, the quality, competence of the people we assign to the account, and we make a positive retention decision every year as to whether we want to continue that relationship. So this meeting was, if you will, an every year occurrence and we go over all the events, including these transactions that you allude to.
DOBBS: Obviously, you have fired the principal partner, David Duncan, who has been now testifying in Washington. And in this e-mail to Mr. Duncan, it is written that a significant discussion was also held regarding Enron's MTM earnings and the fact that it was, quote/unquote, "intelligent gambling". Intelligent gambling does not sound like the kind of expression one would expect to hear from the mouths of a firm, and particularly, the size of Enron's auditors?
BERARDINO: Lou, this is a very unusual company. Those are not words we typically use. Clearly, what this company was doing was trying to expand its trading capability beyond its traditional base of energy. Risks that many companies do take and which a lot of people knew about in the case of Enron. And we've all seen what happens when some of those investments don't work out.
DOBBS: Unfortunately. As a result of that meeting, which was documented, obviously, were you aware of the meeting, or at least the results of that meeting?
BERARDINO: No, I wasn't, Lou.
DOBBS: One would ask, why not, with a firm that's one of your very largest, if not largest, audit clients?
BERARDINO: Well, Lou, we have got a process that goes through our organization where, as I said earlier, we review the risks of each client and our ability to serve them the way they deserved to be served. And the way our procedures work is if there's any disagreement within the organization that can't be resolved, it will come to my desk and I will make a decision. In this case, all those involved understood the risks, understood the issues and decided we would go forward.
DOBBS: The meeting in August, the Sherron Watkins meeting in which she talked with representatives of the firm and the engagement partner, in point of fact, notified of all of the complications, many of which were raised in that February meeting, as you know. That meeting followed in the heels, in May, of Andersen's settling the Sunbeam lawsuit, a shareholder suit, $110 million with structures from the SEC. In June, the largest penalty ever paid by one of the big five firms and an injunction for fraud of $7 million in the waste management. Why was there not, in Andersen, an extraordinary sensitivity and conscientiousness about propriety here? BERARDINO: Well, Lou, if you look at the timeline, August -- it wasn't too long ago, was it -- and this so-called whistle blower note was shared with us, as I understand it. And we immediately went to the company, asked them if they knew about it. They said yes, they did.
And our responsibilities are to make sure that there's an investigation by management and a response back to us. As I understand it, that investigation did take place. It's been reported widely. And, frankly, it's been an incomplete conversation because shortly after that investigation, frankly, we all were overcome by events relating to that third quarter. And we never did close the loop on those conversations.
DOBBS: You didn't close the loop. Tonight, we received word just as we went on the air, that Enron had fired Andersen as its auditor and accounting firm. What's your reaction?
BERARDINO: Well, Lou, technically -- and I hate to be technical, but I think it is an important point -- when a company goes in bankruptcy, all its relationships are severed, and then the company needs to decide what it wants to do going forward and what its needs may be. And, obviously, Enron has not rehired us and we'll do whatever it needs to do to proceed in its bankruptcy.
DOBBS: And as we look at the waste management fine in June as you point out, it is a broad timeframe but following May, June and August and the need for heightened sensitivity, there is also an anti- fraud injunction against Andersen as a result of that. Does this increase the vulnerability, should there be findings against the firm by the SEC and other agencies, create a higher level of vulnerability for you in the Enron deal?
BERARDINO: Lou, this Enron crisis is on a scale that we have never seen, and God help us, we never see again and what it does is, I think it puts us all on heightened alert as to some of the fundamental issues that we need to address in our profession, and frankly that I need to address in my firm.
You may know that yesterday I issued a letter to the public.
DOBBS: Right.
BERARDINO: Where I indicated we are prepared to take some actions, and today you've seen some response by the accounting profession in consultation with the SEC. I think in a crisis, this gives us all an opportunity to revisit some of the fundamental ways of doing business, some of the fundamental ways of putting our responsibilities to the public.
And I will tell you in a very unusual way, this gives us all an opportunity, with all the incredible scrutiny this is getting, for us to assess our entire financial reporting process. And I will tell you,
I'm getting one signal after another that we will take a lead within our profession and more importantly, I need to do some things at my firm and you're going to see the real Andersen come forward, which is to be brutally honest about ways we can do our job better. And my partners and my 85,000 fellow employees are totally motivated to do that.
DOBBS: Mr. Berardino, we would like to go through what some of those things are and hear more about that, and also discuss something about tax law, if you could be so good as to stay with us as we take a momentary break.
BERARDINO: OK.
DOBBS: Joe Berardino, CEO of Andersen. We will continue our conversation in just a moment, and we will also be joined later by General Electric CEO Jeffrey Immelt. Stay with us.
(COMMERCIAL BREAK)
DOBBS: We're back with the CEO of Andersen, Joseph Berardino. Let's turn to the shocking reports, frankly I think for most of us, that Enron despite earning almost $2 billion over the course of five years, paid taxes in one year. How could that possibly be?
BERARDINO: Lou, you often report and others report on the debates we constantly have in our U.S. Government about tax law and tax legislation. There are abilities to do things offshore, well known, not illegal. Many companies do it. Frankly, I don't have any detailed knowledge of what Enron did in those statistics, so I can't be more specific and it would be irresponsible for me to be any more complete in my response.
DOBBS: Is it fair to assume that Andersen's accountants prepared and audited those tax returns for the company over that course of time, almost 900 offshore tax haven subsidiaries in the Cayman Islands, the (inaudible) and the Kaykos (ph), Bermuda, extraordinary, would you not say?
BERARDINO: Well, Lou, you know we don't keep the books.
DOBBS: I understand.
BERARDINO: And we don't take the tax positions. What we do in connection with our audit is the company does report its tax expense for the year under accounting principles, and also the amount of cash it's paying out.
DOBBS: Right.
BERARDINO: So this information in a way is available, and obviously it's gotten heightened attention in the current context.
DOBBS: Right. So much attention was available in a way. Harvey Pitt, the SEC Chairman, today looking to create a new way into which to monitor the accounting profession, in many ways diminishing the role of the SEC in the views of some. Do you think it is time for a Federal watchdog agency over your profession, clean up the transparency, make accountability as well as accounting absolutely strict?
BERARDINO: Lou, frankly I'm not sure this has been reported as completely as it could be. Frankly, the SEC has not backtracked at all. What has happened is a lot of these self-disciplined and standard setting has been done within the profession in a self- regulatory way, will continue with oversight by the SEC.
But I think the important thing that some people have missed is that this will be overseen by boards that will be made up of a majority or more of members or executives that come from outside the accounting profession.
And the balance you have to keep taking is the best knowledge that's in the profession, but on the other hand, we recognize the public's appetite and need to be sure that we're undergoing the most rigorous review of our disciplinary and standard setting. So I think this is a step forward.
DOBBS: Indeed it may be a step forward. Whether it's the correct one, I guess we're going to find out, eight Congressional committees investigating three Federal agencies. Also, over $200 billion in market cap and investment has been lost in the last six years as a result of restatements of earnings by corporations.
Investors have lost one heck of a lot of money over the course of that time. Fines have been levied. It seems to many people, and certainly many of those on Capitol Hill, that this is the time to get very serious about transparency, accountability, and that frankly, the industry, the accounting industry and profession has not distinguished itself through its own oversight.
BERARDINO: Lou, as I mentioned earlier we are - this Enron crisis has really caused all of us to step back and reexamine everything, and I wrote (inaudible) some time ago in the Wall Street Journal right after this, calling it a wakeup call.
We welcome those reviews. We welcome the best ideas, and it would be a shame if we let this crisis pass without making every aspect of our financial reporting process better.
You've seen the accounting profession through the SEC come forward today with some ideas. It will enjoy a great debate with some people from outside the profession, scrutinizing it. I'm sure people on Capitol Hill will weigh in.
This is what strong countries, strong professions, strong firms do in a crisis. You'd prefer it didn't exist, but you have to take advantage of it by challenging everything. So -
DOBBS: Strong firms.
BERARDINO: -- we welcome that debate.
DOBBS: Strong firms, a lot of reports that Andersen is losing partners and very talented people, and that your very survival is the issue here. Give us your best judgment. BERARDINO: Lou, we will do what great companies have done and that is, learn from this experience by being most difficult, most brutally honest with ourselves. I spent the last four or five days traveling all over the U.S., meeting with our partners, meeting with our people, and meeting with our clients.
And whenever I walk into a client's office, they'll say you know, we went through a crisis in 1985 or whatever the year would be, and we've learned from it and our people are very, very confident we will move forward.
DOBBS: Mr. Berardino, thank you very much. Joseph Berardino the CEO of Andersen, and as I said we appreciate you being here under the most difficult of circumstances.
BERARDINO: Well, thank you Lou.
DOBBS: Coming up next, another record year at General Electric. The man in charge is next, CEO Jeffrey Immelt.
(COMMERCIAL BREAK)
DOBBS: Well despite a weak economy, General Electric reported an increase in fourth quarter earnings, GE's net income jumping nearly 10 percent, nearly $4 billion, boosted by record demand for its power systems.
Jeffrey Immelt, successor to the legendary Jack Welch, optimistic about the future. Immelt was handed the world's most valuable company in an especially challenging business environment, and joins us now.
Jeff, first of all congratulations.
JEFFREY IMMELT, CEO, GENERAL ELECTRIC: Thanks, Lou. Good to see you.
DOBBS: Good to see you, and good to see those kinds of results in a recession, and also your forecast that you can maintain this pace. How are you going to do that?
IMMELT: You know, Lou, GE just has a great business model and it's built to perform in every environment. We've got a great set of diversified number one businesses.
We've got great initiatives like digitization, and six sigma, and services that are still gaining momentum, and a great balance sheet that allows us to make acquisitions in tough markets like this to continue to grow. So we think that business model performs in this environment, probably better than any other.
DOBBS: Where are you going to garner most of your growth going forward, Jeff?
IMMELT: I think if you look at the short term, Lou, the power systems business is going to have another strong year in 02. (Inaudible) business will grow in excess of 20 percent. GE Capital's earnings will be up 15 to 20 percent. And so, those businesses continue to perform well in this environment.
And then as the economy rebounds, we have a great set of short cycle businesses like NBC and plastics and our appliance and lighting businesses that will power right up during the recovery. So, we've got a great diversified portfolio that works in this environment and throughout the recovery.
DOBBS: A diversified portfolio, a tremendous range of assets, and GE Capital keeps turning more than 40 percent of your earnings. Are you going to be able to sustain that?
IMMELT: Absolutely. Yes no, Lou, we really see double digit earnings in the future in the environment we see today, and I think 2002, we're counting on a very tough economy in 02, and we think in that tough economy, which we're not counting on getting any better, we'll grow earnings 17 percent this year.
DOBBS: And against that backdrop, your stock price still languishing. First, what are you going to do about it?
IMMELT: Perform. Lou, I think stock prices follow company's performance, and as we continue to drive these kind of performances year after year and quarter after quarter, the stock price is going to be just fine.
But the company's about performance. It's what we do and that's what's going to take the stock price up.
DOBBS: Jeff Immelt, congratulations on a terrific performance. Thank you very much.
IMMELT: Well thanks, Lou. Good talking to you.
DOBBS: Thank you. Well in other news outside corporate America tonight, the Bush Administration condemns the vicious terrorist attack at a bar mitzvah in northern Israel today. That attack killed six people, 30 others were injured.
A State Department spokesman says the U.S. reiterates its support for Israel in the fight against terrorism. Israeli police say a man entered a ballroom, began shooting with an automatic weapon, throwing grenades. The attacker was killed. A militant Palestinian group says the attack was in response to the assassination of its high-ranking (inaudible) leader Monday.
In the War against Terrorism, three U.S. marines today injured when something exploded while they were burning trash at their base camp in Kandahar. Central Command says their injuries are not life threatening. For more on this, as well as the search for al Qaeda and Taliban fighters, Ben Wedeman in Kandahar. Ben.
BEN WEDEMAN, CNN CORRESPONDENT: Yes, Lou, those three marines as you said injured while throwing trash into a trash pit not far from where we are. That happened yesterday. Apparently they were not life threatening injuries and they will be flown out to a medical facility at some point in the coming hours. Meanwhile, yesterday the most senior U.S. official came to Afghanistan, Colin Powell, the U.S. Secretary of State, the highest official in the United States Government to visit Afghanistan since 1976. He held talks with the head of the Afghan transitional government, Hamid Karzai, and pledged that the United States would stand behind Afghanistan as it tries to reconstruct this battered country.
That commitment very much welcomed. Many Afghans in fact resent the United States for essentially abandoning the Afghan people after their struggle against the Soviet occupation during the 1980s.
Meanwhile, reports that U.S. Special Forces have fanned out throughout the southern part of the country, looking for those al Qaeda members. There is one individual currently on this base, being described as a guest, as a former supporter, financial supporter of the Taliban movement. It is believed he may have information about the whereabouts of Osama bin Laden, but here they're not giving anymore information than that. Lou.
DOBBS: Ben, thank you very much. Ben Wedeman from Kandahar. And, we have learned this evening that Mr. Karzai will be in Washington on the 28th, Hamid Karzai, to meet with the President on the 28th of this month.
Joining us now to talk about these latest developments in the War against Terrorism, CNN Military Analyst David Grange, Paul Bremer who is the President and CEO of Marsh Crisis Consulting, former head of the National Commission on Terrorism, both our guests tonight, part of the group that put together the just-released Heritage Foundation Report to the President on Homeland Defense. Thank you both for being here.
PAUL BREMER, PRESIDENT AND CEO, MARSH CRISIS CONSULTING: Thank you.
DOBBS: First, General, what do we need to do overseas to assure homeland security?
BRIGADIER GENERAL DAVID GRANGE, CNN MILITARY ANALYST: I think the essence of what we need to do overseas is maintain the initiative. We're on the offensive. We got to take the fight to the terrorists. The more we can preempt overseas with strikes, with negotiations, with information warfare, the least threat will be to the United States of American.
DOBBS: And, Ambassador, what do you think of the biggest lessons in terms of fighting terrorism following September 11th?
BREMER: I think it's clear that there's no support for having really good intelligence about terrorists. We had a real intelligence problem. We had a major attack on American soil. We had people living here for years that we didn't pick up. We got to do better on the intelligence, and then of course when you respond, you got to vigorous using all the force that's available to us, military, covert action, economic and political. DOBBS: Is it your judgment that that is precisely what's transpiring now under President Bush?
BREMER: It is. I think the administration so far has done a magnificent job of conducting this War against Terrorism, but we're only at the beginning. It's got a long way to go. As the General pointed out, we're going to have to continue to be tough.
DOBBS: General, can the U.S. military, is the military prepared to carry out this mission, because this is really a significant set of altered circumstances?
GRANGE: The military is prepared through training and just the quality of the force. But I believe that the military is undermanned for the long haul. If we're going to use the National Guard and the Reserves in the United States of America for certain tasks, or to back up the active forces, if we're going to continue around the globe against the fight against terrorism, as well as stay prepared to fight regional wars, then we're short on people and we're short on some equipment.
DOBBS: How do we solve that problem?
BREMER: Well the Heritage Foundation Report, which you referred to before, made the recommendation that the National Guard, in effect, be assigned the job of Homeland Security, which logically is where it should be, and that is going to mean we're going to have to beef up our active duty forces. We can't be sending the National Guard all over the world to Bosnia and Kosovo, if indeed their primary mission is here.
DOBBS: A primary mission. Is it appropriate that that be their primary mission? Should there be a significant force increase or the creation of a different sort of military force that is both domestic and international?
GRANGE: I believe that the National Guard has proven itself since the Constitution was established, and I don't think we should change that. We just need to give them the resources to accomplish their mission.
DOBBS: Ambassador, you talked about intelligence. Ever since the Church Commission going back to the mid-'70s, the CIA has been seriously under-resourced, to put it in Washington terms. Do you think there is an appetite now to get very serious and sponsor seriously intelligence work?
BREMER: I do. I think the problem is even more serious than under-resourced. It has the National Commission, which I shared, reported the problem is that the CIA has developed a risk averse culture, somewhat the same in the FBI. And you can't have an effective clandestine service unless it's willing to take risks. That's what it's there for.
If you don't want to take risks, you can just turn it all over the State Department and do it overtly. CIA's got to be willing to take risks, and we're going to have to get better procedures in the CIA, a lot more people. One of the good news out of the things out of September 11th is that the number of people requesting to be employed by the CIA has quadrupled or quintupled since then.
There are a lot of young people in the country now who want to find a way to serve the State Department and the military forces and at the CIA, and that's good news.
DOBBS: Tomorrow, a new stage in heightened airline security goes into effect. How effective do you think it is and how real?
BREMER: Our security in this country at the airports is still well below that of most major European countries, and it will be even after tomorrow. We're on the right track. Congress has set out some good goals, but it's going to take longer than a year to get there.
DOBBS: General.
GRANGE: It's not only airlines. I think we also have to look at all the critical infrastructure, the way we've consolidated our power grids, our telecommunications, our different manufacturing plants. There are some vulnerabilities, and it's not run around scared, but we have to take some action to defend us because they are great targets if you're the enemy.
DOBBS: General Grange, Ambassador Bremer, thank you both for being here.
GRANGE: Thank you.
BREMER: Thank you.
DOBBS: Coming up next, Kmart loses a member of top management. Enron's chairman wants to sell his Aspen properties. We'll have those stories for you next.
(COMMERCIAL BREAK)
ANNOUNCER: Tomorrow on Lou Dobbs MONEYLINE, trying times on the street are taking a toll on traders, a whirlwind here behind them and new challenges ahead. Is it a prescription for post-traumatic stress syndrome? Tomorrow on Lou Dobbs MONEYLINE.
DOBBS: Also tomorrow, we'll have quarterly earnings reports from Sun Microsystems, Nortel Networks, among others. Reports on the economy, including the University of Michigan Consumer Sentiment Report, International Trade as well.
And tomorrow morning in New York, a bankruptcy court judge will rule on the sale of Enron's wholesale trading business. Tomorrow also, the deadline for airlines to screen all baggage for explosives, as well as match luggage to passengers as required by the Aviation and Transportation Security Act.
"WOLF BLITZER REPORTS" begins in just a few minutes. Let's go to Wolf in Washington. Wolf. WOLF BLITZER, WOLF BLITZER REPORTS: Thank you very much, Lou. The Attorney General John Ashcroft wants your help in tracking down five suspected al Qaeda terrorists. We'll have details.
Also, we'll go live to our Bob Franken at the U.S. Naval Base in Guantanamo Bay, Cuba, and our Christiane Amanpour, she's in Mogadishu, Somalia. And our War Room panel on what's next in the War against Terror. It's all ahead at the top of the hour. Lou.
DOBBS: Wolf, thank you. In tonight's corporate news, a management shakeup at Kmart amid widening bankruptcy speculation, Kmart naming James Adamson chairman, replacing Charles Conway, who remains as Chief Executive Officer. Kmart also saying its President and COO, Mark Swartz, has left the company.
Ebay raising fees on its popular web auction service, only the third time Ebay has done so. The move comes two days after Ebay posted an impressive 64 percent jump in revenue. Analysts say the new fees could boost the company's revenue by at least 10 percent.
And finally tonight, Enron's Chairman Kenneth Lay, looking to sell some of his Colorado properties. Lay has put three of his four Aspen properties on the market, about $15 million worth, the two houses and one undeveloped lot up for sale on November 12th. That's before Enron filed for bankruptcy, but after it posted a $1 billion third quarter loss.
That is MONEYLINE for this evening. We thank you for being with us. Good night from New York. "WOLF BLITZER REPORTS" begins right now.
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