WORLDCOM DELIVERS REQUESTED EXPLANATION TO SEC
WorldCom, as required by SEC, filed sworn statement with agency Mon. that listed events leading to last week’s announcement it would restate financial results for 2001 and first quarter 2002. Filing appeared to blame ex-CFO Scott Sullivan and, potentially, former auditor Arthur Andersen. Carrier fired Sullivan after internal audit revealed he had categorized $3.8 billion in routine line charge expenses as capital expenditures. CEO John Sidgmore wasn’t informed of “questionable transfers” until June 20, filing said. Andersen spokesmen told WorldCom audit team it hadn’t known of transfers, “but declined to respond to questions regarding how Andersen’s audit activities could have failed to discover the transfers,” filing said. “Today’s filing is consistent with our pledge to be forthright and open, and to cooperate fully with both internal and external investigations,” Sidgmore said, and company is “absolutely committed” to operating with “highest ethical standards.”
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Sidgmore, who became CEO 2 months ago, faces uphill battle to keep carrier out of bankruptcy. “To have any chance of leading WorldCom out of this mess, Sidgmore needs to show he had no knowledge of the accounting practices and make the information about who knew what, and when, public information,” said analyst Kate Gerwig of Current Analysis. She said she believed he had at least chance of convincing SEC and Congress that current management was trustworthy: “He was not involved in the past 2 years with running the company and wasn’t particularly close to [former CEO] Bernie Ebbers.” If anyone can rebuild confidence in WorldCom, it’s Sidgmore, she said, “but the news he will have to deliver will likely be bad.”
WorldCom released plenty of bad news Mon., including questions about reserve funds transfers in 1999-2001. Companies typically are allowed reserve accounts for expected liabilities such as lawsuit settlements but aren’t allowed to transfer funds to improve quarterly results. WorldCom said it was reviewing company records with assistance of current auditor KPMG. “In particular, questions have been raised regarding certain material reversals of reserve accounts during 2000 and 1999,” filing said: “No conclusion has been reached regarding these entries. If, after review, the company believes additional actions are required, it will make an announcement promptly.” Separately WorldCom’s lenders for senior unsecured credit facilities of $2.65 billion and $1.6 billion told company that it had defaulted, WorldCom said, adding that move had been expected. Lenders that hold 51% of loans for the $2.65 billion facility could require immediate repayment, it said. WorldCom also said it had received notice terminating $1.5 billion financing that’s secured by accounts receivable. Company said it would use collections on the receivables to pay $1.2 billion outstanding.
WorldCom shares resumed trading Mon. on Nasdaq after 3- day halt. Share price immediately dropped more than 90% to as low as 6 cents. Volume of 1.5 billion shares broke previous Nasdaq record, when 670.5 million WorldCom shares were traded May 14, prompted by Standard & Poor’s decision to remove carrier from S&P 500 stock index. WorldCom’s long distance tracking stock, MCI Group, also resumed trading. Carrier received notice from Nasdaq that its shares would be removed from trading starting Fri. Delisting could be put on hold if carrier requested hearing to object, WorldCom said. WorldCom shares closed Mon. at 6 cents, down 77 cents (92.8%); MCI Group closed at 24 cents, down $1.44 (85.7%).