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WorldCom: We'll survive
CEO Sidgmore apologizes, vows cooperation and says the company will recover.
July 3, 2002: 5:01 AM EDT

NEW YORK (CNN/Money) - WorldCom CEO John Sidgmore vowed Tuesday to keep the struggling telecommunications company alive, a week after its $3.8 billion accounting scandal hit the markets. In the meantime, the company is struggling with possible bankruptcy and apparently pondering a $5 billion offer for its MCI business.

Sidgmore, who would not rule out a bankruptcy filing, apologized to investors deceived by WorldCom, which artificially inflated profits by hiding billions in expenses -- while also pinning the blame for the fiasco on former CEO Bernie Ebbers and former Chief Financial Officer Scott Sullivan.

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"There's been an understandable outpouring of outrage and anger expressed pretty much from every quarter of American society, and I want to underscore that WorldCom's new management team and our more that 60,000 employees are equally shocked by these events," Sidgmore said at a conference at the National Press Club in Washington.

"While these deeds were part of the past administration, I want to apologize on behalf of everyone at WorldCom," he added. "I am responsible for what we do now and for what we do in the future."

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WorldCom CEO John Sidgmore addresses the accounting scandal and apologizes to investors.

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Late last Tuesday, WorldCom announced that an internal audit had discovered the company had overstated cash flow for 2001 and the first three months of 2002 by disguising operating expenses as capital expenditures. On Monday, the company said the accounting problems could go as far back as 1999.

Sidgmore's comments Tuesday had a positive effect on shares of WorldCom (WCOME: Research, Estimates) stock, which are barely clinging to value. After plunging 90 percent on Monday, they rose 4 cents to close at 10 cents Tuesday. WorldCom said it had appealed the Nasdaq's decision to de-list its shares, and the scheduled Friday de-listing will be delayed to give WorldCom a chance to plead its case to the exchange.

Facing the music, debt

Facing the media for the first time since the scandal broke, Sidgmore vowed to cooperate with the many investigations into the company's books and said the company will recover from the accounting problems that have shaken investor confidence and helped push the Nasdaq composite index to a five-year low.

"America itself has a major stake in our survival," he said, pointing out that 70 percent of all e-mail traffic is carried over WorldCom's networks, its MCI unit handles 70 million calls every weekend and "tens of thousands" of businesses use its services.

But that's not likely enough to reassure WorldCom's bankers and customers, especially in light of the recent spectacular bankruptcies of Enron and Global Crossing.

WorldCom warned Monday that it is in default on some of its loans. Though Sidgmore said the company had $2 billion in cash on hand, enough to function in the short term, it could have trouble making a $2 billion debt payment due in January.

Industry analysts have said WorldCom could be forced to file for protection from creditors under bankruptcy laws as it struggles to make payments on its $30 billion in debt. Last week, WorldCom started cutting 17,000 jobs, or about 20 percent of its work force, to save money.

Sidgmore would not rule out more job cuts -- or a bankruptcy filing.

"I am not going to stand up here and tell you there's no way we're going to wind up in bankruptcy of some form at some point," he said, "but right now we are working very, very hard with the banks and others to try and find ways to accomplish our goals without going into bankruptcy."

Sidgmore said the company had lost no "significant" customers, but acknowledged that some of his customers, including several U.S. government agencies, were "very nervous." The government is considering suspending WorldCom's right to win any new government business.

In order to raise cash and simplify its business, Sidgmore said WorldCom was negotiating to sell several of its assets and non-core businesses around the world.

Newark, N.J.-based IDT Corp. (IDT: Research, Estimates) offered Tuesday to buy WorldCom's MCI , MFS and Brooks Fiber businesses for $5 billion in cash and stock, a source at IDT told CNNfn. The bid for MCI will be $2 billion, while the bid for MFS -- which provides local phone services to corporations -- and Brooks Fiber will be $3 billion.

IDT, which might include other telecom and financial partners in its bid, said it wanted to preserve the integrity of the nation's economy and ensure MCI customers keep their service.

Under scrutiny on several fronts

In the press conference Tuesday, even as he tried to address WorldCom's future, Sidgmore faced plenty of questions about the past.

Harvey Pitt, the Securities and Exchange Commission chief, Monday called WorldCom's recent explanation of its $3.8 billion accounting discrepancy "wholly inadequate and incomplete."

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Sidgmore said he held "productive talks" Tuesday morning with Pitt, whose agency has filed fraud charges against WorldCom.

Meanwhile, New York State Comptroller H. Carl McCall filed a motion Tuesday in federal court alleging that WorldCom's misleading accounting inflated its stock price.

McCall, who runs New York's $112 billion pension fund, says fund investors lost more than $300 million because of the tumble in WorldCom shares, which fetched more than $60 in 1999. The comptroller, a Democrat, is running for governor.

The House of Representatives Financial Services Committee is also investigating the company's books and wants to take testimony from Sidgmore, Ebbers, former CFO Sullivan and several others involved.

Ebbers resigned from the company this spring, dogged by questions about company loans to him. The company fired Sullivan on the same day it dropped its bombshell about its accounting.

According to a Reuters report Tuesday, the House committee said four former WorldCom insiders had agreed to testify next Monday: WorldCom vice president for internal audit Cynthia Cooper; audit committee chairman Max Bobbitt; Melvin Dick, once a senior partner at WorldCom's former auditor Andersen; and former WorldCom controller David Myers.

In the press conference Tuesday, Sidgmore walked reporters through a chronology of his discovery of the improper accounting, saying he first learned from an internal audit committee on June 20 that there was a problem, though he didn't know the scope of it.

Later that day, however, the audit committee told him the problem was "of a massive scale," and the committee asked Sullivan for his take on the situation. On Monday, June 24, Sidgmore said, Sullivan presented a "white paper" summarizing the situation, but the audit committee rejected his version of events. The next day, Sidgmore said, the committee decided to restate earnings and fire Sullivan.

Reporters also questioned Sidgmore about employee 401(k) exposure to WorldCom stock.

Unlike Enron, WorldCom did not push employees to own company shares in retirement accounts, he said.  Top of page