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CNN Live Today

WorldCom to Restate Even More Earnings

Aired August 09, 2002 - 12:06   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FREDRICKA WHITFIELD, CNN ANCHOR: Now more salt in the wounds at WorldCom. As we mentioned, the bankrupt telecom says the multi- billion dollar accounting problems it brought to light in June were not the whole story, not by a long shot. And as new audits of past years continue, the company says still more irregularities might be discovered.
CNN's Bruce Francis joins us now to run out the latest numbers, and so far WorldCom, their stocks -- a share at least just in the pennies. I think 12 cents is what I last saw.

BRUCE FRANCIS, CNN SENIOR TECHNOLOGY CORRESPONDENT: Yes, I saw them quoted down to about 10 cents this morning, Fredricka. Of course, the hurt just goes on for WorldCom investors. Of course, a lot of those shares now in the hands of speculators who are trying to get in and see if they can make a penny or two here or there.

But what is WorldCom saying today? $3.3 billion over a period of three years was improperly stated to investors and to authorities. They are going to have to restate the 2000 results, and they say that as they go through it, as they look over their books, more may be coming, and that is the troubling aspect of this. This brings the total amount of revenue that they have to restate to more $7 billion. Now what got WorldCom in trouble here?

What they did is and this is -- and this is something that every company does -- is they set aside reserves for bad things, like customers not paying them, or having to pay off a lawsuit.

Well, when those things don't happen just the way they think, they get to reverse those reserves. That is legal. What is illegal, and what WorldCom may have done here is over aggressively taken those reserves and tried to even out earnings over time so that their performance, the financial performance of the company looked better to investors and helped keep the stock price up.

WorldCom stock was rising steadily in 1999, and peaked at over $60 a share. It was falling pretty steadily, though, in 2000.

Now, just a week ago, we saw the arrest of two top WorldCom officials. One of them was Scott Sullivan, he was the CFO of WorldCom, and the other, David Myers, who is the comptroller. Now, Mr. Sullivan, he sold during 1999 and 2000, according to Thompson Financial and Lancer Analytics about $34 million worth of WorldCom stock. That stock, had he sold it today, would have been worth about $86 -- rather, $80,000 at today's prices, so quite a big change there. Earlier, we were speaking to Ira Sorkin. He is a former SEC administrator here in New York, and he says that now prosecutors have a much stronger case.

(BEGIN VIDEO CLIP)

IRA SORKIN, FORMER SEC OFFICIAL: This broadens the scope of the government's investigation. It is not plausible that one or two people were involved in these alleged financial machinations. It is clear that there had to be people who were aware of this, there had to be people that followed direction, that followed orders, that did whatever that needed to be done to make the books look better.

(END VIDEO CLIP)

FRANCIS: Of course, everyone is wondering whether that includes former WorldCom CEO Bernie Ebbers. Ebbers took this company from a small long distance company founded back in the early '90s up into a huge telecommunications giant. Now Ebbers, everyone wonders whether he signed off on these practices. His attorney, quoted on the wire services this morning says, we'll find no shred of evidence connecting Mr. Ebbers to anything illegal. Investors certainly want some convincing answers to that -- Fredricka.

WHITFIELD: Now Bruce, I imagine at some point what money WorldCom has, they are going to be running out soon, so they would have to try and borrow some money, get some loans in order to stay in business. Isn't the likelihood pretty slim, given that they are a bankrupt company?

FRANCIS: I think that is the great point here, because WorldCom in bankruptcy. Once you are in bankruptcy, you can arrange for special financing because it puts -- and banks are more willing to lend to you, because it puts them at the head of the pack if you lend to a distressed company. Of close, there is a big hearing coming on that up -- a little bit more than three weeks from now. This is new news, and a much bigger restatement than a lot of creditors had expected. No clear reaction from them yet this morning on this restatement, but it does put the financing and the amount of risk that any bank might be willing to take here definitely in question, so that is something that WorldCom customers are going to have to consider -- back to you.

WHITFIELD: All right. Thanks very much. Bruce Francis. Appreciate it.

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