Worldcom's Latest Disclosure Could Lead To High-Level Changes

The Mississippi-based telecom said late Thursday it had uncovered $3.3 billion more in bogus accounting, adding to the $3.85 billion it disclosed in June.

WorldCom, which filed for Chapter 11 bankruptcy protection July 21, has also seen its former chief financial officer and controller charged with hiding billions in expenses and lying to investors and regulators.

Changes already made at the company include the addition of a new CFO, a restructuring officer and two new directors.

Still, New York bankruptcy attorney Chester Salomon said he wouldn't be surprised if someone linked to the case _ perhaps a creditor or bondholder _ asks the bankruptcy court to appoint an independent trustee to assume management of the company.

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"It's possible that someone who's very unhappy about the existing board _ even though the management team has changed somewhat _ to say, 'There's gross mismanagement here in not knowing what these numbers are,"' said Salomon, a partner in the firm Salomon Green and Ostrow.

"We're not talking about a few missing paper clips," he said. "We're talking about billions of dollars."

Drake Johnstone, an analyst with Davenport and in Richmond, Va., said Thursday's disclosure likely provides more momentum for creditors who would like to see WorldCom chief executive John Sidgmore step aside.

Sidgmore became CEO in April after the board ousted founder Bernie Ebbers in the wake of sinking stock prices and a wide-ranging investigation by the Securities and Exchange Commission.

When the company filed for bankruptcy protection, it listed $107 billion in total assets and $41 billion in debts. It was the biggest bankruptcy filing in U.S. history.

Despite that, Sidgmore has continually touted WorldCom's prospects for survival and even suggested an emergence from Chapter 11 in less than a year.

His detractors have pointed to the fact that Sidgmore was vice chairman of WorldCom's board at a time when the company engaged in the accounting shell game to make itself appear more profitable.

"It doesn't look too good to have someone heading the company who was on the board of directors when all these shenanigans went on," Johnstone said.

Sidgmore has given no indication he plans to surrender his position.

WorldCom, the parent of MCI, the country's second-biggest long distance company, also said Thursday that it may write off $50.6 billion in goodwill and other intangible assets when it does restate its finances to adjust for the accounting problems. If it does, it would be one of the biggest such write-offs in U.S. corporate history.

Goodwill is an accounting term that essentially refers to the difference between what a company paid for an investment, such as an acquisition, and what that investment is actually worth today.

WorldCom reported June 25 that it found $3.85 billion in accounting irregularities for 2001 and the first half of 2002. The latest discovery was made as the company reviewed its books for 1999 and 2000, with most of it tallied in 2000.

As a result, WorldCom said it would restate its financial statements for all of 2000, 2001 and the first quarter of 2002.

WorldCom spokesman Brad Burns said the figures announced Thursday have already been reported to the Securities and Exchange Commission and that the additional findings won't affect the company's ability to keep operating.

Burns said investors and creditors should be aware that additional amounts of improperly reported pretax income and earnings before interest, taxes, depreciation and amortization could be discovered and announced.

Johnstone said that before WorldCom and its auditors finish scouring the company's financial reports, he expects a major disclosure concerning overbilling, perhaps as much as $2 billion.

He has said he has spoken to WorldCom clients who claim to have been overbilled. He said he also learned from San Diego-based ProfitLine , a firm that audits telecom services bills for clients, that telecommunications companies on average overbill 10 percent annually, boosting revenue.

"I still think that's something that has yet to be fully uncovered," he said.

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