WorldCom faces bankruptcy
Telecom reels after CFO fired, misstatement
By Shawn Langlois, CBS.MarketWatch.com
Last Update: 9:46 AM ET June 26, 2002
SAN FRANCISCO (CBS.MW) -- WorldCom faced bankruptcy after announcing one of the largest corporate frauds in U.S. history late Tuesday, firing its chief financial officer, and saying it plans to cut 17,000 jobs.
Though WorldCom (WCOM: news, chart, profile) shares remained halted on the Nasdaq, the admission's effect on the telecom sector and the broader market was punishing. Shares closed at 83 cents on Tuesday, ahead of the news. After a further decline in pre-market trading action, trading stopped after WorldCom stock traded as low as 9 cents. See Telecom Stocks.
In January, the shares were trading at about $15 and during the bull market of the late 1990s peaked above $60.
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WorldCom said it will restate its financial results for all of 2001 and the first quarter of 2002 to take almost $3.8 billion in cash flow off its books, wiping out all profit during those times.
The second-largest U.S. long distance telephone provider also dismissed CFO Scott Sullivan while David Myers, senior vice president and controller, was allowed to resign. It said it will cut 17,000 jobs, beginning Friday, to save $900 million annually.
"Our senior management team is shocked by these discoveries," said CEO John Sidgmore in a press release. "I want to assure our customers and employees that the company remains viable and committed to a long-term future."
The company boosted its cash flow and profits over that five-quarter time period by wrongly booking billions of dollars in line cost expenses as capital expenditures.
These bookings include $3.06 billion in 2001 and $797 million in the first quarter of 2002.
In an environment already undermined by accounting scandals and earnings woes, the news could hit the broader markets hard on Wednesday. Japan's Nikkei 225 Index opened down more than 2 percent in early Asian trading, with telecom and technology stocks hit the hardest.
Worldcom's fall is the latest debacle to shake corporate America and Wall Street, both of which are reeling under a plunge in investor confidence amid scandals such as the Enron (ENRNQ: news, chart, profile) meltdown, the Global Crossing (GBXLQ: news, chart, profile) collapse, and the analyst research investigation.
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California- Berkeley's Haas School of Business. "As these things come out, it just continues to build up."
WorldCom was by far the most active issue on the Island ECN after the close. See the After Hours report. It followed another bad day on Wall Street, where stocks swooned to a harsh finish with the Nasdaq closing down 36 points at 1,424 and the Dow falling 155 points to 9,127. See Market Snapshot.
Worldcom said Andersen, the accountant that it fired last month when it switched to KPMG, notified it yesterday that its audits for the last five quarters could not be relied upon because of the "inappropriate transfer of line costs."
Andersen said in a statement late Tuesday that Sullivan withheld the information from it during the audits, and that all of its work for the company complied with accounting standards set by the Securities and Exchange Commission.
"The CFO did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment," Andersen said in the statement.
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Telecom reels after CFO fired, misstatement
By Shawn Langlois, CBS.MarketWatch.com
Last Update: 9:46 AM ET June 26, 2002
SAN FRANCISCO (CBS.MW) -- WorldCom faced bankruptcy after announcing one of the largest corporate frauds in U.S. history late Tuesday, firing its chief financial officer, and saying it plans to cut 17,000 jobs.
Though WorldCom (WCOM: news, chart, profile) shares remained halted on the Nasdaq, the admission's effect on the telecom sector and the broader market was punishing. Shares closed at 83 cents on Tuesday, ahead of the news. After a further decline in pre-market trading action, trading stopped after WorldCom stock traded as low as 9 cents. See Telecom Stocks.
In January, the shares were trading at about $15 and during the bull market of the late 1990s peaked above $60.
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INFORMATION FOR WCOM:
Create an alert for WCOM
Add WCOM to my portfolio
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NEWS FOR WCOM
WorldCom shatters sector
WorldCom faces bankruptcy, shares halted
Avon, Biopure, Fred's, and more
More news for WCOM
Quote & NewsChartsFinancialsAnalystsOptionsSEC Filings
TRACK THESE TOPICS
My Portfolio Alerts
Company: Worldcom Inc Ga New Add
Create
Company: Enron Corp. Add
Create
Company: Global Crossing Ltd Add
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WorldCom said it will restate its financial results for all of 2001 and the first quarter of 2002 to take almost $3.8 billion in cash flow off its books, wiping out all profit during those times.
The second-largest U.S. long distance telephone provider also dismissed CFO Scott Sullivan while David Myers, senior vice president and controller, was allowed to resign. It said it will cut 17,000 jobs, beginning Friday, to save $900 million annually.
"Our senior management team is shocked by these discoveries," said CEO John Sidgmore in a press release. "I want to assure our customers and employees that the company remains viable and committed to a long-term future."
The company boosted its cash flow and profits over that five-quarter time period by wrongly booking billions of dollars in line cost expenses as capital expenditures.
These bookings include $3.06 billion in 2001 and $797 million in the first quarter of 2002.
In an environment already undermined by accounting scandals and earnings woes, the news could hit the broader markets hard on Wednesday. Japan's Nikkei 225 Index opened down more than 2 percent in early Asian trading, with telecom and technology stocks hit the hardest.
Worldcom's fall is the latest debacle to shake corporate America and Wall Street, both of which are reeling under a plunge in investor confidence amid scandals such as the Enron (ENRNQ: news, chart, profile) meltdown, the Global Crossing (GBXLQ: news, chart, profile) collapse, and the analyst research investigation.
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California- Berkeley's Haas School of Business. "As these things come out, it just continues to build up."
WorldCom was by far the most active issue on the Island ECN after the close. See the After Hours report. It followed another bad day on Wall Street, where stocks swooned to a harsh finish with the Nasdaq closing down 36 points at 1,424 and the Dow falling 155 points to 9,127. See Market Snapshot.
Worldcom said Andersen, the accountant that it fired last month when it switched to KPMG, notified it yesterday that its audits for the last five quarters could not be relied upon because of the "inappropriate transfer of line costs."
Andersen said in a statement late Tuesday that Sullivan withheld the information from it during the audits, and that all of its work for the company complied with accounting standards set by the Securities and Exchange Commission.
"The CFO did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment," Andersen said in the statement.
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