QandA: WorldCom CEO Defends Company

Q: Can you give us a financial update? How significant is your cash position, and are you getting closer to getting actual money from your lenders?

Sidgmore: We do have a significant cash position right now. This is not a situation like many others where people are going to imminently run out of money; at least we don't think so. We have over $2 billion in the bank today. We are working with banks as we speak here talking about various proposals to restructure our financing. We are somewhat optimistic that we will get a proposal, if not two proposals, in hand this week to accomplish that. That doesn't mean that those proposals will be acceptable or that they'll eventually work out.

Q: What is your understanding to the extent that Arthur Andersen and Bernard Ebbers knew about the accounting irregularities as well as the rest of the board?

Sidgmore: Arthur Andersen swears up and down that they didn't know anything about this. We internally are a little bit concerned that they didn't know anything about it because if it was going to be obvious to anyone, it would have been obvious to them. As far as Bernie knowing, we really have absolutely no idea at this time. We know that Scott Sullivan and Dave Myers were involved in it, and I believe they may have ordered a clerk to make these entries.

Q: Everyone seems to think you're headed for bankruptcy. Can you tell us why you're not?

Sidgmore: I am not going to stand up here and tell you there's no way we're going to end up in bankruptcy in some form at some point. Right now we are working very hard with the banks and others to try and find ways to accomplish our goals without going into bankruptcy.

Q: How real a possibility is bankruptcy? How far down the road could that become a possibility-- weeks, months, years?

Sidgmore: That's a subjective call. If the banks just decide at the end of the day that they do not want to fund WorldCom at all and they accelerate the notes, which I would say is a very unlikely scenario, we would probably [file for bankruptcy faster rather than sooner. Let's say a matter of weeks or months. The other scenario is we get funded, but we don't get funded to the extent we need and we try to make it through for a year and then eventually we would have to go. I'm being brutally open and honest with you. This is not our preferred path. Fundamentally, the real issue hinges on what the banks do. You have to remember that in a bankruptcy proceeding the banks do far worse than they would do without us in bankruptcy. The banks have become a little bit more positive to us in the last couple of weeks.

Q: Have you retained bankruptcy counsel, a law firm to prepare a Chapter 11 petition?

Sidgmore: We have not hired anyone to prepare a Chapter 11 petition. We have hired a law firm to take us through the various paths we could go whether or not we ever wound up in bankruptcy. That would include restructuring the financial position, refinancing the company and ultimately getting us prepared over some period of months to be ready to file if we had to.

Q: Given that the company controls a huge chunk of the backbone of the Internet, do you have any contingency plans in place in the event of a Chapter 11?

Sidgmore: I honestly don't think, under any of the scenarios that we mentioned, that there would be any blip in the service. Strangely enough, we would be a much more attractive company to lend money to if we were in bankruptcy than where we are now. I don't see any significant chance of the Uunet network going dark under any circumstances.

Q: Have you gotten any sense of a deadline from your lenders on when they will call in their loans?

Sidgmore: We did get formality letters that were expected from the banks on termination possibilities on our banks loans. So far there have been no events of acceleration. There have been no threats of acceleration. The banks are all in negotiations with us right now to see if we can't find a way to renew these loans.

Q: Is the bank loan of $5 billion still enough given your recent disclosures, and is there a deadline for getting that loan?

Sidgmore: We believe that if we get the extra billion of new money which makes up a critical piece of the $5 billion package that again, all things being equal, unless some new problem occurs we can make it through a long period of time with that cash and the cash we have on hand now. The thing that could be sticky would be if suddenly we had a massive change to our accounts payable or accounts receivable program, meaning that vendors really try to squeeze us to get payments up front or our customers stop paying us as quickly as they do today.

Q: When is the first debt payment due that could be problematic to your company?

Sidgmore: The first one that could be problematic would be in January. The amount of that is $2 billion.

Q: Is there a possibility of more cost-cutting measures such as layoffs?

Sidgmore: We want to run this business to be operating cash flow positive and then free cash flow positive ultimately. So we're committed to doing whatever it takes to make that happen. We just cut about $1 billion out of our capital expense budget. We removed roughly 17,000 in head count and closed down a [wireless business that was losing $750 million a year. We don't get that impact immediately, but ultimately we think that will be a significant help. If in a year from now the telecommunications industry takes another dive, we will make adjustments to make sure that we're profitable on an ongoing basis. So yes, [more layoffs are possible, and I would be as bold to say that that is true in every telephone company in the United Sates and Europe.

Q: Have any or your large customers, besides the federal government, indicated they're reviewing whether to continue doing business with WorldCom?

Sidgmore: We have not had a significant customer cancel yet despite all the histrionics over the last few months. We do have some customers that have informed us that they are very nervous and are demanding reviews and would like to talk to Ron Beaumont [COO and myself about how to allay some of those fears.

Q: What specific steps are you taking to prevent your agents and your resellers from taking WorldCom customers to other carriers?

Sidgmore: In a lot of cases, you can't do that with or without a financial distress situation or a scandal like this. We are working directly with the customers and the resellers to make sure that we're trying to do everything we can to get their confidence back. Our most important effort is working with our customers and our employees to restore their confidence. I don't know how many calls we've made all told, but I can tell you Ron and I have been making 10 or 20 a day, each.

Q: Have you had any discussions with the government about your services? Have they shown any concern to you about whether you will be able to continue your services?

Sidgmore: We have had some communications with various government agencies and security agencies, Homeland Security among others, requesting information and trying to make sure that we're going to stay in services. In other words, that there wasn't going to be a blip. Our network does run a number of critical government applications, but I think at the end of the day that the chances of us having a major blip in our service provisioning at this time are low under any of the scenarios we've been looking at.

Q: WorldCom has several billion dollars worth of contracts with federal agencies, and GSA is considering whether or not to debar WorldCom from doing business with federal agencies. If you are debarred, what can you do to help those agencies through that?

Sidgmore: The order we've received [from the GSA relates to new contracts, not existing business. What we can do is prove [to existing government clients that we're a viable vendor, and that we're an ethical vendor and that's incumbent on us. That is really our challenge on both fronts with everybody in America over the next couple of months.

Q: There are some rumors that some government agencies are concerned about your continued ownership of Uunet and having Uunet in the hands of a financially troubled company and that there's some pressure of an accelerated sale of those assets to another carrier.

Sidgmore: There are some people in the security segment of the U.S. government, and particularly in the Homeland Security group, that are very concerned about cybersecurity. I think they are very nervous at this point that something will happen because, like I said, Uunet runs something like 50 percent of the Internet infrastructure in the United States. I don't think there's any real serious move afoot [to sell Uunet. No one has suggested that the asset be sold. They're just trying to make sure that it be protected. There's a lot of concern about this, but I think this is going to end up being supportive of WorldCom's [assets.

Q: A problem was first discovered in May. You didn't find out until mid-June. Can you explain why it did not go up to your level for that month, and there has been commentary that where this money was going should have been known to senior people for some time because it was such a large amount of money.

Sidgmore: WorldCom is a far-flung operation. The financial organization and the operating units work together to try to come up with these numbers, but no single operating unit knows what's going on in the rest of the organization and it all came together at Scott Sullivan's level, to be honest with you. It's obvious now that maybe there should have been stronger reviews of that. You have to remember we had an audit from one of the major audit firms that said our accounts were correct. So if it were so simple to find, I guess you might question why they didn't find it. I believe our internal process worked. What the outside auditors didn't catch we eventually did and reported as quickly as possible.

Q: If your company is such a far-flung organization, why weren't there more checks and balances. How could Scott Sullivan accumulate so much power?

Sidgmore: How did the prior CEO allow Scott Sullivan to gain that much power? I can tell you this, if you asked almost any analyst on Wall Street, I think Scott Sullivan's name would come up almost in eight out of 10 cases as one of the two or three best CFOs in America and in our industry for sure. He was a tremendously capable person and I think that the company had tremendous faith in Scott's ability to run the finance organization, whether it was in terms of raising capital or describing to people on Wall Street or customers what we were doing. Scott was an extraordinary person and tremendously talented. So I think over time the board and Bernie [Ebbers got used to that and had tremendous confidence in him. If somebody had asked me a month ago whether this could possibly happen, honest to God I would have said zero probability. We had that much confidence in Scott.

Q: In your conversation with Mr. Harvey Pitt [SEC chairman, did you set up a timeline for release of new information?

Sidgmore: The conversation with Harvey Pitt did not lead to an agreement on a timeline or anything. We agreed that we'd work with his staff on this to basically clarify some remarks. We may provide some additional information. It's very unlikely in my mind that there's going to be any revelation in this. It will be a more detailed assessment of the facts that were given out.

Q: How long is the internal investigation going to go on?

Sidgmore: It is an independent investigation, so it is going to go as long as Will McLucas [of the law firm of Wilmer, Cutler and Pickering, and former chief of the Enforcement Division of the SEC thinks it need to go to get to the bottom. Our intention is to get to the bottom of this whole thing and anything else that is in WorldCom's financial records, or any records. My guess is it's going to take at least a few months.

Q: Have you or anybody in the company talked to anyone in the Justice Department or FBI or have you been asked to give any documents to them?

Sidgmore: We have been in contact with various law enforcement agencies. We have complied with everything they've asked for. Our whole posture is we want the bad guys exposed, we want the bad guys punished and we want to move on with our lives. This is a new management team. We don't want the focus to be on the old management team. We want to investigate them and find the guys who did wrong here and move along.