WorldCom finds more problems

WorldCom Inc, the bankrupt telephone company accused of fraud for hiding expenses, said it found an additional US$3.3 billion in misreported financial results since 1999, bringing the total to US$7.18 billion.

WorldCom also may have to write off as much as US$50.6 billion to reflect the declining value of assets when it restates results since 2000, the company said in a statement. The misreported earnings before interest, taxes, depreciation and amortization are on top of an earlier US$3.85 billion that the Clinton, Mississippi-based company improperly recorded since last year.

The alleged wrongdoing that contributed to the largest US bankruptcy was more pervasive than previously reported and may involve former CEO Bernard Ebbers, lawyers said. Former WorldCom executives Scott Sullivan and David Myers were charged last week with fraud.

"The level of fraud and accounting manipulation begs the question how much latitude management should actually be granted when preparing books," said John Litschke, an analyst at Loomis Sayles & Co in San Francisco, which manages US$600 million in global equities.

Most of the US$3.3 billion in misstated results were related to accounting for reserves, WorldCom spokesman Brad Burns said.

Reserves are set up to fund possible future liabilities and may be reversed when management believes they're no longer needed. That can help boost profit.

"We knew the problem was a lot bigger than WorldCom first admitted," Ken Johnson, a spokesman for the House Energy and Commerce Committee, said before the company released its statement. "The extent of the fraud is staggering" and it's likely Ebbers was complicit, he said. The committee is conducting an investigation of WorldCom's accounting.

WorldCom said on July 1 that it was investigating "certain material reversals of reserve accounts" for 1999 and 2000. The company had US$685 million in pretax expenses in 2000 to cover itself for customer bankruptcies, litigation and "contractual settlements," Securities and Exchange Commission filings show.

The company said yesterday that it was reducing earnings before interest, taxes, depreciation and amortization by US$217 million in 1999, US$2.86 billion in 2000, US$161 million for last year and US$88 million in the first quarter of this year. The company sought Chapter 11 protection from creditors last month.

WorldCom may uncover additional improperly reported earnings before interest, taxes, depreciation and amortization and pretax profit, according to the statement.

"We will be forthright and open about any subsequent findings," Burns said. CEO John Sidgmore wasn't available to comment, he said.

One investor said the new findings came as little surprise.

"Investors have already given up on WorldCom," said Yasuo Taniguchi, who manages ?51 billion (US$420 million) at Daiwa Asset Management Co in Tokyo.