Return to Transcripts main page

CNN Live Today

WorldCom Teeters on Edge of Bankruptcy

Aired June 26, 2002 - 10:44   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.
LEON HARRIS, CNN ANCHOR: Let's return to the developing story of WorldCom this morning. The nation's second largest long distance carrier now finding itself teetering on the verge of bankruptcy, an accounting scandal adding up to billions of dollars may well doom this company, and it is now wreaking havoc on the stock market.

Let's take a closer look right now. We are joined by CNN Financial News Reporter Allan Chernoff, who has been looking at this story. Good morning, Allan. How bad is it looking so far?

ALLAN CHERNOFF, CNNFN CORRESPONDENT: Pretty bad, Leon. In fact, of course, investors have been giving a spanking to the shares of WorldCom, yesterday closing below $1, and that was all before the company revealed this accounting scandal. Let's quickly fill you in on it.

The company admitting that what it did was take normal operating expenses, which are normally just subtracted from revenues right away, and treated those as long-term capital investments, which are not subtracted right away from revenues to give profits. So, all of this to the tune of nearly $4 billion.

Its profit for last year and for the first quarter of this year going to be wiped out completely, into a loss. The company is saying it is now going to lay off 17,000 workers, has fired the chief financial officer, Mr. Sullivan, Scott Sullivan, and accepting the resignation of the comptroller of the company, David Myers.

Now, today also the Securities and Exchange Commission putting out a statement assuring the public that it is investigating the disclosures from WorldCom, and that is exceptional to have the SEC put out a statement like that. And guess who the accountant was for WorldCom? None other than Arthur Andersen. Arthur Andersen today putting the blame on management at WorldCom. So, Leon, a huge scandal erupting here. By the way, the shares of WorldCom today -- not trading just yet. The Nasdaq has halted them -- back to you.

HARRIS: All right. Real quickly, Allan, pretty much does this spell the end for both Andersen and for WorldCom?

CHERNOFF: Well, Andersen, we already know, is headed towards its end. Since it did -- it did -- in court was found guilty of obstruction of justice, it did say that it would stop auditing public firms by the end of August. So it's going out of business in terms of auditing public companies. WorldCom is planning to continue doing business, but it has got a huge debt, and that is the reason that a lot of people on Wall Street are talking about the real possibility of bankruptcy today.

HARRIS: All right. Allan Chernoff in New York. All right, thanks, buddy. Appreciate it.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com