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CNN Live Today

WorldCom, Xerox in Different Situations

Aired June 28, 2002 - 11:01   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.
CATHERINE CALLAWAY, CNN ANCHOR: Up first this hour, pink slips resulting from the effort to hide red ink at telecom giant WorldCom. Today, the company begins laying off about one fifth of its work force after revelations that it hid almost $4 billion in expenses.

CNN's Sean Callebs joining us now live at the WorldCom headquarters in Clinton, Mississippi. Yes, we did say "B," as in billions. $4 billion -- unbelievable, Sean.

SEAN CALLEBS, CNN CORRESPONDENT: Close to $4 billion, and what workers here are concerned about is the "T" in thousands. As you mentioned, thousands of employees expected to lose their job today. WorldCom has been very tight lipped about how they are going to spread this out in their offices across the country.

We did speak with the mayor of Clinton, where the headquarters for the company are located. She said she believes that only about 100 or so employees here are expected to lose their jobs. There are about 1,500 employees over all here at the headquarters in Clinton. But without question, this is indeed a day of mourning for the state of Mississippi.

Having this intercom giant has been an economic boon for the state, but also a big source of pride. But now, many people here are wondering if, indeed, the misdeeds of the company could be its undoing.

(BEGIN VIDEOTAPE)

(voice-over): With corporate headquarters tucked away in a bedroom community, Jackson, Mississippi city leaders celebrated WorldCom's rise, but now say they feel heartbreak and disappointment for thousands of workers who are losing their jobs and thousands of investors losing money.

UNIDENTIFIED MALE: People who have had faith in this company and who have seen this company really as a rising star and as a means of economic security for them, and that now appears to be at serious risk.

CALLEBS: WorldCom's stock price plunged from a high of $64 a share a couple of years ago to the point now where it won't even buy a gum ball. It was 9 cents a share when the Nasdaq halted trading earlier in the week. Layoffs, masking $3.8 billion in losses, the business writer for "The Clarion-Ledger" says many in Mississippi say they feel a sense of betrayal.

UNIDENTIFIED MALE: It was a real point of pride. A lot of people were able to -- when people insulted Mississippi and said Mississippi is backwards and doesn't have anything here, they were able to say, well, we have WorldCom.

CALLEBS: Mississippi is especially proud of former WorldCom CEO Bernie Ebbers, a Canadian transplant who went to college here. It was his wheeling and dealing that turned WorldCom into a Fortune 500 company, the backbone of the Internet and a long distance service giant. Even though regulators are concerned now that it was propped up by a house of cards, some business leaders in this state still support Ebbers.

UNIDENTIFIED MALE: And he has not, to my knowledge, responded to any of these items or things that have been asked, and until he responds to that, my opinion of him is still very high.

(END VIDEOTAPE)

CALLEBS: Now, months ago, a floundering stock price forced the board to oust Ebbers. Now, right now, WorldCom employees looking back on the Enron scandal and trying to compare that to folks at Enron. If you remember, the top executives there were able to unload a great deal of the stock, and, in the process, become very wealthy. Well, that differs much from what is going on here. Ebbers is leaving WorldCom not wealthy. He owes about $400 million in loans to this company -- Catherine.

CALLAWAY: You know, Sean, this is such a huge day for so many people in some other major cities like Washington, D.C. and Atlanta where there are thousands -- some 4,000 in Atlanta alone WorldCom employees. This affects a number of cities, doesn't it?

CALLEBS: Oh, without question. Arlington, Virginia, just outside of D.C., Dallas area, as well as in between Colorado Springs and Denver, we are told those are the areas that could expect to get big hits today, and let's remember, this is indeed a global company, so the economic hit could just have this continuing effect, and it's the last thing the U.S. economy needs right now.

CALLAWAY: Yes. Scary day ahead for those employees. Thank you, Sean. Sean Callebs in Clinton, Mississippi.

Well, another corporation has been forced to give an account of its bookkeeping. Xerox says it will restate its revenues by as much as $2 billion because of an accounting problem. The news sent the stock price tumbling.

And CNN's Bruce Francis joining us now live from New York with the latest -- Bruce.

BRUCE FRANCIS, CNN CORRESPONDENT: Catherine, Xerox is going to great pains this morning to try to distance itself from just the kind of accounting scandal that we heard from Sean, just a moment ago. Xerox, back in April, settled with the Securities and Exchange Commission, agreeing with the commission that it had to change the way that it accounted for certain things. These involved sale of equipment leases to customers. There is a very specific way you have to book the revenue from those leases over time. The SEC says -- and Xerox agreed, that they didn't do it properly. Xerox did pay, at that time, a $10 million fine and said they were going to go back over the books, look at them very carefully with a new auditor, I might add, and then come back to investors and say OK, this is what we did for the past five years. So bottom line, years '97, '98, and '99, now they are saying -- Xerox is saying, they were worse than what we told you back then. Of course, Xerox stock prices doing much better, and those better results did help to improve the price of the stock during that period.

Now, though, even those three years are looking worse, according to this new filing, years 2000, 2001 are looking better because they get to recognize the same amount of revenue later. Sounds kind of complicated, but this is just the kind of thing that American corporations pay accountants to help them do just right. It doesn't look like that happened in this situation.

The bottom line, Xerox investors, although they aren't selling shares today, this isn't the kind of bloodbath that we saw from WorldCom and doesn't look like it's the kind of deceptive practices -- although the SEC did say that they misled investors earlier on in their charge against Xerox -- Catherine.

CALLAWAY: Yes. We should be thankful, but it's not over yet.

FRANCIS: Indeed it is not.

CALLAWAY: CNN's Bruce Francis. Thank you, Bruce.

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