Europe's Enron
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PAGE 70
Adjectives and adverbs
PAGE 72
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The bottom Ii ng'
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.,.,
Keynotes
Huge losses experienced by investors and employees
due to mismanagement and irregularities in
financiat reporting have ted to a demand for stricter
corporate governance. Independent auditors such as
the SEC (Securities and Exchange Commission) in the
US have been checking balance sheets, which show
the overall performance of companies and income
statements (AmE) or profit and loss accounts (BrE)
which show the difference between total income and
outgoings for a given period.
The Profit and Loss Account (P&L)
Study the incomplete P&L below. Complete the document with the
t
following headings. Use a dictionary to help you.
Research and development costs Cost of materials Gross profit
Interest receivable Turnover Dividend
Money in
Money out
Money in minus
cost of making
goods
Other money out
Gross
profit minus
other money out
Money left when
shareholders have
been paid
tir**nin:5,'i
68
I
Unit
8
ffi
Now listen to a presentation of the actual results and complete
the missing figures for gaps a-h.
-l
ffi
tisten again and answer the following questions.
I
2
3
Why was gross profit higher than expected?
Where did the company decide to have parts made?
Which budgets went over the forecast limitsi
What is expected to happen to the marketing budget in future?
How much will shareholders receive per share?
What prediction does the speaker make about retained profitz
,{.
5
6
::i::.',,:i,ririi If you were a potential shareholder would you feel confident in
investing in this companlP Why?/Why not?
Creative accounting
Companies sometimes make the figures in financial documents
more attractive than they really are. They can do this by:
ffi
a inventing revenues from companies that don't exist
b not including debts of subsidiaries and acquisitions
e hiding debts on the books of subsidiaries
{* overstating current profits by including possible future earnings
Listen to two investors talk about what happened to them when
they invested in two media companies. Which of the above methods
were used to drive up share prices in each case?
i*.:li
I
fisten again and complete the graphs.
ru.ur..n
Stock price Euros @), 7998-2002
60
t
50
40
30
20
10
0
I
Com.TV
Stock price Euros @), 1999-2003
740
L20
100
80
60
20
0
,\
$1-'ril,'lrtill,:1 Can
you think of any other famous financial scandals?
Unit 8159
I
rl:,:,:::,,:'t.:
COfpOfatg govgfnanCg
neaa the text about corporate govemance. What accounting
irregularities are mentioned? Who"was responsible?
::li;.!i
G[ossary
overwhelming too large to deal with
absolves removes responsibi[ity
Corporate governance
Europe's Enron
The Ahold financial scandal should shock Europe into accounting and corporate governance reform, just as the Enron
scandal did in the USA
f t may seem an
exaggeration
to
executive and finance director after
find-
ldescribe the scandal drTerwhelming ing that it had overstated its profits .by
Royal Ahold as "Europe's Enron" bui more than _463m ($500m). Its market
in many ways it ls rrue enough. value plunged by 63 per cent that day, to
Certainlyl the world's third-biggest
fo"od 33bn. In late 2001, it exceeded 30bn.
"Carrefour,
Ahold is now under investigation by variretailer,"after Wal-Mart and
presents none of the financial risks of ous authorities, including the Securities and
inron, which was both deeply in debt Exchange Commission (SEC) in the USA
Argentina and several other units. This
has led some obseruers to say that this is
less a European problem thanyetanother US accounting failure.-Such a claim
absolves Ahold's bosses of responsibility
for their acquisitions and
dishonesty
and_ ignores the, persistent,- firm-wide
tendency to test the limits of acceptable
and the world's largest elecfriiity giant. Rather like Kenneth Lay at Enron, and accountin$.
That apart, the similarities betwlei the ' Dennis Kozlowski qt Tyco, another scan- Most firms that buy in bulk includformei Texan powerhouse and the dal-hit US firm, Ahold's nowdeparting ing such admired retailers as Wal-Mart
Dutch retailer are striking, from the very boss, Cees van der Hoeven, won a huge and Tesco - $et discounts from supplibad corporate governa"nce, aggressivb reputation fiom_turning_a dull company ers if they meet sales targets. The issue is
earnings managJment and aci6unting into a_ _growth machine. Investors how those rebates are accounted for. The
"irregularities" io auditors whose rolE applauded_ long _after they should have accepted practice.is to^wait until the tarstarted _asking !a1d _question_s. When gets.are met. Failing firms, such as nowmusibe called into question.
Now, at least, Europeans should stop eventually they did ask them, his anger bankrupt Kmart, food distributor
believing that corporaie wrong-doing is and pride became quickly apparent and Fleming, and now Ahold appear to have
booked these rebate payments before
a US pr-oblem thai cannot ociur in-the he refused to answer.
The 463m overstatement is due pri they were earned.
old continent. Instead, they should fix
What of Ahold's auditor? Although the
their own corporate governance and marily to Ahold's US Foodservice. unit,
which supplies food to schools, hospi- problems were uncovered, it should have
accounting proble-s.
On 24'February zOO3 Ahold tals and restaurants, although there are done so much earlier, says Lynl Turner, a
announced the resignition of its chief also issues over its Disco subsidiary in former chief accountant at the SEC I
ry
701unit
8
!{
{
b-
ffi nead the text again and answer the following questions.
I What are the similarities between Enron and Aholdz
2 What should European companies do?
3 Why did the shareholders admire Cees van der Hoeven?
a Which of Ahold's acquisitions is mentioned in the text?
s What did Europeans believe about corporate wrong-doing in the past?
6 How did Foodservice overstate its sales?
Do you think CEOs who falsifii accounts are criminals and should
go to jail or is it an acceptable risk to falsift accounts if it helps to
safeguard the company's future and jobs?
:
1l;r:;.rl::.:1.;:-',i Choose
I
fill
the best word to
each gap
i:
retailers
sentences below.
to get rid of surplus stock.
c dealers
d wholesalers
Sales are a good way for
a
in the
sellers
in fact seriously
claimed to be making a profit.
n at a loss
b in debt
even though they
The company was
3
4
Some companies
a
in the black
d
broken
their earnings to drive up share prices.
h overflow c overstate d
oversee
The Financial Services Authority was set up in the UK to deal with
A
5
overdo
c
ISSUCS
such as fraud and insider trading.
ideas
c reasons
b
ct
purposes
When the CEO should have been cost cutting, he was spending huge
that turned out to be unprofitable.
sums on
rJ lncreases
b investors c growth
acquisitions
d
6
7
When you buy in bulk you can obtain
a discounts h
sales
c
or rebates.
d
decreases
Shareholders lost money when the company declared itself
a redundant b sold out
c broken down d bankrupt
When they heard about our financial difficulties our
asked to be paid in advance.
i,i SefVlCe
deliveries suppliers
b
9
a-
interest
They didn't lie
a
conceal
-
they simply tried to
b prevent
c
c
d
orders
the truth.
reduce
d warn
Adjectives and adverbs
Look at the following uses of adjectives.
-J
''
before nouns
*
There was a dratnanc JaLL tn proftts Last year.
after stative verbs such as be, become, seem, ilppem,look, etc.
The stmil,nrities between ,\Ltold and,
fuvon are striking.
Look at the following uses of adverbs.
-
after verbs
*
on the news.
before an adjective or adverb
... his anger and pride becarne quxckly eppnrent ...
Shares JeLL sharplr4
-t Use the following expressions to describe the performance of the
Enron share price 199l-2001.
fluctuated
rose
mildly
steadily
The amazing
a sharp increase reached a peak
dropped slightly a dramatic and sudden fall
disintegrating firm
The Enron share price (US$),1991-2001
100
90
80
7Q
60
50
40
30
20
10
0
7992
7994
19q3
1995
1998
1999
,'::,i:rJournalists use dramatic verbs that describe the direction, speed
and degree of change. What information do these verbs give?
direction
ptunge
dip
soar
plummet
s[ide
skyrocket
jump
nosedive
decline
72
r
Unit
8
v
v
speed
very
fasb
faet
large/sma[[ degree
very large
small
L
{ar**i
s;kii.Ie
.
Referring to visuals
Visua[ aids such as graphs, bar charts, pie charts and ftow charts are an important
and effectjve way of structuring and communicating presentations that include a
lot of statistics. The fotlowing phrases are useful for drawing the [isteners'
attention to particutar detaits.
As
you can see, ...
You'LI
This
I ir:i;-"r'
,
notice that, ...
port of the graph cleorly shows ...
... led to the ... you see here ...
... is obvious on this part of the graph here.
Thf s
slide shows the ...
ffi
fook at the graph showing the performance of the WorldCom
share pice 1992-2002 and match the changes with the time periods.
Then listen and check your answers-
:
WorldCom
Share price (US$), 1992-2002
70
60
50
40
30
I
2
3
4
5
reached a record high
nosedived to an all-time low
continued to skyrocket
started a spectacular ascension
there was a downturn
e
b
r:
d
e
1992-95
1995-98
1998-99
1999
1999-02
20
10
0
NO$n€N€6OsN
o6000066000
ooooo660000
-tsidddddNNN
Work in pairs. Srudent A turn to page 139. Student B look at the
bar chan showing the American sales of the Italian food giant
Parmalat, which went bankrupt in 2oo3 with debts of €l4bn.
Describe the chan to your partner. Then listen to your partner and
complete the European sales 1996-2003.
ffiX
I
Parmalat operating results
Turnover (€mi[[ions), 1996-2003
I
I
North and Central America
Europe
1500
L250
ii*l*xr*
i:i.
r,,r*rlq Formal
and informat presentations
Some cultures expect presentations to be formal and technical. Others find
this dull and ineffective and prefer a more entertaining style of
presentation. What are they like in your country? How might these attitudes
affect the dress, style and use of visual aids in presentations in different
countries?
Unit
8
r
73
merlager, brand mnrlagement,
br and -str et
ching,
br
cr o ss -br andmg,
database n[Cl an organised set of information
stored in a computer: We're unrentLg updattng
aLL ow cvrstomer ftles in the database.
and rLalne,
own br and,
preniwnbrand
consumer nlC] a person who buys products
s1,Lr\)eu
togo n [C] a sign or symbol used as a trademark to
represent a company or a brand: The Nike
's'woosh' is an mstayttly recognbable Logo.
knowledge worker
marketing mix n [U] the four different
components of marketing: 1 place n [C] the
distribution and delivery of goods to market
price n [C] the amount of money for which
something can be sold.
-
[] to reduce the number of employees
in an organisation: hnopean cornpanies are
continlllng to dowysae thetr marwJactl,Lrxng
operetioTts. - downsize v [T] Synonyms lay offv [T]
knowledge workn [U]work that involves
developing or using knowledge: The profttabllity
oJmostbwmess todny depends more on
knowLedge work than on matulal work. downsize v
and/or services: Nokia is committed to provtdrng
corrslnners with the uformation they need. consume v [Tl - consumption m [U] CoLtocatjons
cottslLmer $o o ds, coylslnner research, cor$lnner
2
price v [T] ColLocations
cost price, cwt prtce,
fixed price, Lkt prtce, retatl
prrce , purchase pnce, recontmended prtce,
wholesale price, price-Ltst, price-tag, price war 3
product n [C] normally a manufactured item but
also refers to everything that surrounds the
product: the brand, the packaging, the product's
features and performance characteristics. 4
promotion n [C] activities that help sell a product
premium nlCla price that is higher than the
standard price, usually due to higher quality:
Or$aricaLly frownfoods are sold at tupremwm.
Co [[ocatio ns prenium rate
promotion nlCla method of communicating and
publicising a product: America Onltne pl,ans to
Lawtch a promotion on T'Lunsdary thtut wtLL Let its
memb er s d ownl. o a d. fuLL -Je aun e films. - p ro m o t e
v [Tl- promotional adl Collocations seasozlal
promotion, promotionnL camp atgn, promotional
price
point of sale abbreviation POS n [C] the place
where a consumer can buy a product or service:
New electroric systems can apprwe credit for
cl,tstomers at tLLe point of saLe.
0utsourcing
back office n [C] the departments of a financial
company where routine admistrative tasks are
done without direct contact with customers:
zr [C]
offshoring n [U] transferring work to an outside
supplier based in another country: Offshortng is
only suttabl,e for tasks that haw been clearly
defined and co;vtbe managed at a dutance. offshore adj - offshore n [U] Synonyms outsource v
IT]
outsource v [T] transferring work to an outside
supplier: We are plarmmg to outsolrrce aLL oJ ow
IT operations to en Indio,tt supplier. - outsourcing
zr [U] Synonyms subcontract v [T]
overhead nlCl a cost that does not vary with
output (e.$. rent, salaries): The presxne on
corporate mmLgement to reduce werheads is
increasmg. Synonyms fixed cost n [C]
pilot project n [C] a trial project to test
performance: The pilot project wiLL start
operating m June.
productivity n [U]The relationship between the
output ofgoods and the resources needed to
produce them: Productwity has contmued to
frow stronfly.
saving n [C] money and materials saved by
economical working: New corutruction
techiiques resulted in a savmg of zs per cent oJ
operatLon and matntenance costs. - savings
[plural] Synonym economy n [U] CoLlocations cost
satmg,make sa$ngs
service provider nlCl a company that provides
services for users especially in computer
networks: There are sueral. issaes to coytsider
when seLectmg a senice prwider.
shortage nlCl a lack or scarcity of something:
SiliconVaLLey is Jacmg a shortage of skilled
progrtuvrLmers.
ffictent management oJ theback ffice can
reduce costs.
business process nlC)any activity that is essential
for a firm to conduct its business: Orgwnisations
that have cotvtpl.ete control oyer theLr btumess
processes are the most product'ive. Collocatjons
bt'r,siness p r o c es s r e - engine er ing
l50I
@l
Finance
balance sheet n [C] a statement showing the
wealth of a business or organisation at a
particular date. The balance sheet has two parts
Glossary
-<
{
showing assets and liabilities: hil,dtngs and
macWunery are assets that should be Ltsted on the
bnlance sheet.5ynonyms statement of financial
position n[Cl ArnE
bankrupt ad1 unable to pay your debts: The
compftnxJ ts almost bankrupt and wtLL need to
seulre a Loavt to stnvwe. - bankrupt y n [Cl bankruptcy n [U] Synonyms insolvent adJ AlnE
bottom line n [C] the last line on a financial
document which shows the final result (total
profit once all costs have been deducted):FaLLmg
saLes nre goin{ to have a ne{atwe unpact on the
bottomLme.
expense 1. nlcl money spent: Wehave
signtftcantLy reduced our expe'nses orer the Last
fne years. - expenditure n [C] Synonyms spending
nlul2 n [C] money spent by an employee that
can be claimed back: I put the restmffiant bill. on
exp ens es.
{-
o
lto
ca
ti
on
s exp ens e ac c o1Lnt, exp ens es
form, clabn exp ens es
financial statement n [C] a document showing the
state of the finances of an organisation or
cL
atm
business: FinanciaL statements must be completed
by the end of Au{ust.
forecast nlCl an estimate of a future situation:
Accordmg to forecasts, prices wiLL rtse more
sLowlg next Uear. - forecast v [T] Synonyms
projection n [C]
income statement nlclNnE a financial statement
showing revenue, expenditure and profit from
operations during a given period: En:ron's income
stfltement did not accurately reflect its losses.
Synonynrs profit and loss accountnlClBrE
statement of earnings n[C],\tnE
mismanagement n [U] poor quality management:
Lack of cashflow k often due to mkmanagement.
- mismanage v [T]
profit and loss account n[ClBrE a financial
statement showing revenue, expenditure and
profit from operations during a given period:
Ahold's proftt a;nd Loss nccollnt dtd not show aLL
its losses. Synonyms income statement nlclhnE
statement of earnings nlcl1r,nE
regulator nlCla government agency responsible for
overseeing a profession or an activity: Stock market
regulators are m charge oJ protectut{ uwestors. regulation n [C] Synonyms controller nlCl
Securities Exchange Commission abbreviation SEC
n lhe US agency responsible for stock market
regulation: The SEC is uurently uvvesngating ten
cases ofJraud.
,-
@
Recruitment
accountable ad1 responsible for the effects of your
actions: Manegers nre &ccountabl,eJor the
p erJormance of thetr empLoqees. Syn o nym s
responsibile f+ forl adl
applicant nlCla person who is applying for a
position: ALL applicants are asked" to provde a
Letter of reference. - apply [+ for] v []
application n [C]
Synonyms candidate n
[C]
assign v [T] give someone a particular task to do:
Empl"oyees dre assLgned duties that correspond to
their skilLs and tra,m''rntg. - assignment zr [C]
cover tetter nlC]a letter written to an employer
in response to a job advertisement: Candidntes
should send a coter Letter with a copy of their
CV,
curriculum vitae abbreviation CV n [C] a
document that gives details of a person's
experience and qualifications: Her (f,l is fawlq
ttypicaL Jor a bwmess gr a.duat e. 5y n o nym s resum6
nlclhnE
deadtine n [C] the date by which something has to
be completed: The d,eadLtnefor appltcanons has
been extended wttll the 25 Mag. Co[ocationslfrx a
deadlme, meet e deadline, wiss a dendlme, set a
deadlrne
empower v [T] give someone the power or ability
to do something: Staff are ernpowered to shape
thetr career detelopment. - empowerment n [U]
hire v [T] employ someone: Businesses are hiring
as job frowthbooms. - hire n [C] Synonyms recruit
v [T] employ"r, [T] Coitocations htrtng and firing,
hirmg mcLneger
payrol[ r'r [U] 1 a list of the employees in an
organisation 2 the administration of employee
pay: Sal"aries are calculated according to the
vrumber oJ daqs that emploqees are on the
p ayroLl. Co L|.o cati o n s p ayroLl manngement,
cut/reduce the payroll
qualification n [C] an examination passed at
school or university: Candidates must hnve
qualtftcatioyrs ivr accotnrttng. - qualify v [l] qualified ad1
resum6 nlClArnE a document that gives details of
a candidate's experience and qualifications:
Preparmg a lood reswnd shouLd be the starting
potntJor aLL job seekers. Syncnyms Curriculum
Yitae BrE
Glossary
I
151
W
three major new products also exceeded the
budget and we did in fact need $D3m. But we are
very pleased with projected sales figures for the
Decision page 66
Well, in this case there are a number of issues that
have to be looked at. First, there is the question of
business performance itself. Is it really going to be
worthwhile for this company to take part of its
business ofthore? There's not much doubt there -
it
will be cheaper at least in the short-term. But there
is a downside and that could produce some
surprises for any company. The image of the
company may well suffer as a result of a decision
to offshore, and the potential impact of that is
difficult to measure. We've already seen that sort of
thing happening and some companies have even
had to bring back work that they had outsourced.
This, of course, could be made worse by union
industrial action. Other problems down the
line? Well, when you offshore a critical part of your
business, you really have to have a fall-back strategy
if something goes disastrously wrong. This could be
what we call 'multi-shoring', where you have an
alternative service provider in another country you
can switch to if things go wrong. That way, if there
is a major appreciation in wages or foreign
currency, a dispute with your local provider or any
sort of instability, you're not in danger. So you
know, I think that if I were being asked to choose a
destination for an outsourcing operation, I would
advise the company to think very carefully about
'multi-shoring'- that way they can minimise the
risks and transfer operations to another destination
if something
goes wrong.
W
Listening 1 pase
68
We are very happy to announce that we achieved
our sales forecasts of $zoOm last year. What's more,
the cheaper costs of outsourcing to Indonesia for
many of our parts was even more cost-effective
, -
than we'd hoped - reducing our manufacturing
expenses by $fOm - down to $70m. Outsourcing in
Indonesia also generated significant savings of
$10m in salaries. Therefore, gross profit is up at
$s+om. This is a trend we hope will continue into
the next quarter and many more to come.
on the other hand, trading or operating profit fell
slightly - but there are clear reasons for this and
we are confident that the next quarter will show a
considerable upturn. Once again, research and
development costs were higher than expected - up
from $5Om to $zsm. We have now stabilised that
budget and don't expect any increases over the
next quarters.
The marketing costs of our global campaigns for
products in question and marketing costs will fall
drastically over the next quarters, where we will
see a very healthy return on that investment.
However, the immediate impact is a slight dip in
trading profit to $SOzm.
We are, however, paying the dividend we
promised to shareholders of $9sm - which works
out at 50 cents a share. This leaves us with a
retained profit of 9422m. This figure will increase
considerably over the next quarters.
re
..:t
i.: 1.
. - r' :
Listenins 2 pese
6e
:.,: : :::
I bought shares in NavTech in 1998 at €50 a share.
At that time, nobody knew that they had invented,
(you know), just made up tvvo thirds of their
revenue based on a non-existent company in Hong
Kong! In 1999 they went up to €60 and I was quite
huppy with my investment. The share price stayed
the same until the scandal broke in 2001 and by
2OO2, my shares were worth €5 each! Imagine 97 per cent of their declared earnings came from
the imaginary company that their auditor never
checked!
'ra
: i ,tll .,:: i:l -.
L,:,I
i
Even though the shares I bought in 1999 were
terribly expensive, €115 each, I had total
confidence that Com.W would just get better and
better. Little did I know that they were in fact
losing millions every day on expensive lossmaking acquisitions. I saw the share price fall to
€80 in 2000, €50 in 2001, €40 in 2002. I kept
waiting for the price to go back up again before
selling, but by 2003 they were still only worth €+5,
so I decided to cut my losses and sell anyway.
W
Listening 3 page
73
From1992 to 1995 there was a downturn in prices
and they fell from $36 to $28. From 1995 to 1998
the value of shares started its spectacular
ascension to $48 and continued to skyrocket till it
reached a record high of$er in 1999, and then,
nosedived to an all time low of $z in 2002.
ffi
Decision page 74
Well, of course, there are various options here but
every option would obviously consider cutting the
Audioscripts
I
159