WorldCom Inc. is committed to transparency and to rehabilitating itself, John Sidgmore, the company’s president and chief executive officer, said Tuesday, one week after the announcement that the telecommunications giant would have to restate its earnings for 2001 and the first quarter of 2002 after discovering accounting issues that totalled nearly US$4 billion.
“These have been very, very difficult times,” Sidgmore said at a press conference at the National Press Club in Washington, D.C. “There has been an understandable outpouring of outrage and anger.”
Sidgmore pledged that WorldCom, based in Clinton, Mississippi, would “release everything we know when we know it” over the course of its investigation into the matter.
Also Tuesday, WorldCom requested a hearing before the Nasdaq Listing Qualifications Panel to respond to a notice from Nasdaq that the company has not complied with some requirements necessary for continued listing. WorldCom’s stock will continue to be listed at least until the panel issues a written determination after the hearing, according to a WorldCom statement.
On June 25, WorldCom announced that due to the inappropriate booking of some capital accounts as expenses, it would have to restate its earnings for 2001 and the first quarter of 2002. At the same time, the company also announced the firing of Chief Financial Officer Scott Sullivan and the resignation of Senior Vice President and Controller David Myers.
WorldCom has since been the subject of a handful of lawsuits from the government and from shareholders, as well as the recipient of hard words from both U.S. Securities and Exchange Commission (SEC) chairman Harvey Pitt and U.S. President George W. Bush.
At the time of the announcement, WorldCom’s auditor for much of the period in question, Arthur Andersen LLP, issued a statement saying that “the WorldCom CFO (Sullivan) did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment.”
On Tuesday, Sidgmore also addressed Sullivan’s role in the scandal, saying that Sullivan had mentioned in meetings earlier in June that the company might have to take write-offs in its quarterly financial report.
Sullivan, who Sidgmore called “extremely talented,” had a large amount of power consolidated in him at WorldCom, Sidgmore said.
“If you asked almost any analyst on Wall Street … I think Scott Sullivan’s name would come up in almost any case as one of the two or three best CFOs in America,” Sidgmore said Tuesday.
Because of this “I think over time the board and Bernie (Ebbers, WorldCom’s former CEO) got very comfortable with (him having a lot of power),” he said.
While spending a lot of time discussing Sullivan at the press conference, Sidgmore also addressed the roles, if any, played in the situation by Arthur Andersen and Ebbers.
“They swear up and down they didn’t know anything about this,” he said, referring to Andersen. “We, internally, are a little concerned they didn’t know.”
Sidgmore said that the company “(has) no idea” how much Ebbers knew about the accounting issues, though he did say that “the deeds we uncovered (last week) were part of the past administration.”
Ebbers resigned as CEO of WorldCom on April 30, amid the company’s $30 billion debt, an SEC probe and the recent announcement that the company would lay off 17,000 employees. [See “UPDATE2 – WorldCom President, CEO Ebbers resigns,” April 30] Earlier in the year, WorldCom had lent Ebbers $366 million to cover losses on the company’s stock.
Sidgmore said that he believed that Ebbers had enough money to repay the loans.
Sidgmore also reaffirmed that the company is also looking into accounting issues around some reserve accounts in 1999 and 2000. That investigation was first disclosed in a filing to the SEC made Monday.
SEC Commissioner Pitt was less than pleased with the filing, calling it “wholly inadequate and incomplete.” Sidgmore said that he spoke with Pitt and his staff today and that WorldCom would clarify the filing.
As to the 1999 and 2000 issues, they are being investigated by WorldCom’s new auditor, KPMG LLP, as well as by the firm’s own internal audit team and by the independent investigator looking into the whole matter, former SEC officer William McLucas, Sidgmore said.
“We are not convinced that the issues that were highlighted for ’99 and ’00 are problems,” he said.
Though WorldCom has over $2 billion in the bank, according to Sidgmore, troubles still loom for the company.
“I’m not going to stand up here and tell you there’s no way we’re going to end up in bankruptcy,” he said, adding that is a route the company is trying to avoid taking.
“America itself has a major stake in our survival” because WorldCom provides large portions of the country’s Internet and telecommunication service, he said.
“WorldCom needs the help and the patience and the understanding our of customers …. and the American people,” Sidgmore said.
WorldCom is online at http://www.worldcom.com