WorldCom Considering Reorganization

AP ^ | 7/9/02 | JOHN PORRETTO

[Liz]

JACKSON, Miss. (AP) - WorldCom Inc. says it will know within three weeks whether it will pursue what would be the largest corporate bankruptcy filing in U.S. history.

The Clinton-based long-distance and data services company is on the verge of bankruptcy after disclosing it disguised $3.9 billion of expenses as capital expenditures in a bid to appear more profitable.

WorldCom executives clashed with former auditors Arthur Andersen LLP Monday during Congressional hearings over who's to blame for the improprieties, which prompted President Bush ( news - web sites) to propose tougher penalties for company officials who lie on financial statements.

As the WorldCom case unfolds, the company continues to negotiate with lenders for $5 billion in critical funding — as it was doing before news of the accounting scandal broke June 25.

The company said Tuesday it also was awaiting word from banks on interim financing that could avert a bankruptcy filing — at least for now.

Another option is a debt-for-equity swap with bondholders as part of a prepackaged Chapter 11 filing. A company spokeswoman said chief executive John Sidgmore has been contacted by certain bondholders, but no formal discussions have started.

"We're fighting for our life," Sidgmore testified Monday before a House panel investigating the debacle, which is under investigation by the Securities and Exchange Commission and the Justice Department.

WorldCom has laid off 17,000 of its 80,000 workers, and Sidgmore has said additional layoffs are possible. The company, which has $30 billion in debt, also is looking to sell parts of the business to raise cash.

Telecom analyst Pat Comack of Guzman & Co. in Miami said WorldCom's next move — bankruptcy or not — places bondholders and lenders in a tenuous situation.

Comack said any new bank loans almost certainly would be secured with collateral, placing those lenders at the top of the creditor's list should a bankruptcy filing eventually occur.

On the other hand, he said, a debt-for-equity arrangement would give bondholders — who hold $26 billion in bonds — greater leverage and a better chance of recovering their investment.

Without debt, Comack said, a leaner WorldCom could emerge from bankruptcy and possibly survive on its own or become a takeover target.

With more than $100 billion in assets reported at the end of March, a WorldCom bankruptcy would be twice as large as Enron's slide into Chapter 11 last fall and four times as big as Global Crossing's in January.

The company's shares have plunged from more than $64 in June 1999 to 21 cents Monday.

[Liz]

.........ping.................

[Aggie Mama]

I don't understand your title.

[kcvl]

bttt

[Lysander]

shares...21 cents Monday.

Thats up 300%--- A day trader can do well with penny stocks!

[marshmallow]

What the dickens is this headline trying to say?

[BamaBlue]

As a former Big 8, 7, 6, 5, 4 accountant (10 years in tax) I find in interesting that Worldcom would blame its outside accountants. Today, in my present job, I was asked to sign a Management Representation Letter, which says in part that no member of executive management knows of or is involved in fraud related to the financial statements under review. This is a standard in todays accounting practices. Yes, it's CYA, but it's a damning statment against Worldcom and all other companies that have committed fraud. It's the inside people not the outside accountants. Anything can be hidden for a certain amount of time.

[Liz]

If you didn't get it from reading the story, I can help you with that. If WC went bust, it'd be 2X larger than Enron, 4X larger then Global X. Comprendez?

[Liz]

I was asked to sign a Management Representation Letter, which says in part that no member of executive management knows of or is involved in fraud related to the financial statements under review. This is a standard in todays accounting practices. Yes, it's CYA, but it's a damning statment against Worldcom and all other companies that have committed fraud. It's the inside people not the outside accountants. Anything can be hidden for a certain amount of time.

Enron hid stuff offshore thru the machinations of its shady CFO Fastow. But in any case, SOP is for CEO's to sign off on the financial details. Apparently, these characters did so whether the details were true or not.

[Liz]

....shares........21 cents Monday.

Thats up 300%--- A day trader can do well with penny stocks!

LOL. Good one.

[Liz]

See my post #8. Or reread the article.

[BamaBlue]

Agree - My point is, and only is, that management has the responsibility for the financial statements, not the outside accountants. I do believe Andersen has some blame but not to the degree that management has. Again, anyone can hide the truth for a period of time. Eventually it will be found out.

[marshmallow]

I do understand now. Someone has edited the title.

[McGavin999]

What you're missing with the Enron thing is that they paid AA $25 million for audits, paid AA $27 million for financial consulting, most of the Enron financial department was comprised of former AA employees (including the CFO). In that particular case, I think AA was more than just a little complicite.

[BamaBlue]

I don't disagree with you. The money in public accounting has gotten out of hand. Regretfully auditing has become a commodity and the accounting firms have had to go to other means to make money. Therefore the lowest common denominator in accounting is the audit. The tax and consulting areas of public accounting are where the money is to be made. Nonetheless, I stand by my statement that the management of the company is responsible for the financial statements of that company.

[HiTech RedNeck]

It's a small WorldCom after all,
It's a small WorldCom after all,
It's a small WorldCom after all,
It's a small small WorldCom

[Young Werther]

I was temping at a dot.com related company and was performing cash reconciliation for their upcoming IPO. The controller position was open and when I expressed an interest I was told that the job required a CPA.

What I found was a total lack of plain old Bookkeeing 101. Example, collect checks from customer, deposit in bank and then "forget" to record it in the General Journal!!! They were factoring their receivables at an 8% rate while they had $250,000 in the bank that they didn't know about. Bank recons. None done for over 18 months!!!

I've seen it all. Poor ol' me. Just a dumb old MBA with lots of "accounting" experience but no CPA so no recognition. Oh I do know and understand GAAP but that ain't worth a damn if you want to cook the books!

[Ernest_at_the_Beach]

Liz didn't do the title, the news service did. Reorganization in Business circles is Bankruptcy!

[clikker]

Hmmm... I'm confused here. They want to give the bondholders and creditors worthless stock? Is that supposed to be their plan?

Perhaps they should just file a Chapter 7 bankruptcy, and liquidate the whole thing. Have a garage sale -- just sell it all off to whoever wants it. Seems like that might be the quickest and cleanest way to handle this mess...

[Skip Ripley]

The pop on WCOME was the ride from .06 to .27. Anyone left in now is a sucker because you can bet they'll file a prepackaged chapter 11 that wipes out the common and preferred shares.

Global Crossing and Williams Communications did this number already