WorldCom Inc Chief Executive John Sidgmore made a case for the second-biggest US long-distance carrier's survival, saying he's talking with banks to avoid bankruptcy after the company hid US$3.85 billion in costs.
Sidgmore, who pledged to release everything WorldCom learns about accounting problems, also said he spoke with US Securities and Exchange Commission Chairman Harvey Pitt. The company will "clarify" an explanation of events leading to last week's disclosure of hidden losses. The SEC called that report incomplete.
At a Washington news conference, Sidgmore said the company has a "significant cash position" and is talking with banks to borrow more and avoid a Chapter 11 filing. It is "unlikely" banks won't give new funding, he said. The CEO said he can't rule out bankruptcy "at some point." A US$2 billion bond interest payment early next year could be "problematic," he said.
PHOTO: AFP
Asked about possible layoffs in addition to the 17,000 employees the company has let go from its work force of 80,000, Sidgmore told reporters: "We want to run this business to be operating cash-flow positive. ... And so, we're committed to doing whatever it takes to make that happen.''
"It's going to be very challenging, if not impossible, for them to come back," said Charles Ullerich, who manages US$450 million of junk bonds at ABN Amro Asset Management Inc and has been selling WorldCom bonds in recent months. "Sidgmore can say anything he wants, and even if he walked on water, it would be difficult for people to invest in his story." With US$2.27 billion in cash and equivalents and US$30.2 billion in debt as of March, WorldCom may have to file for bankruptcy, analysts have said.
The SEC has accused the Clinton, Mississippi-based company of fraud for concealing some costs as capital expenses and fabricating profits over the past five quarters. WorldCom said yesterday it is extending an accounting investigation as far back as 1999 and may be forced to repay a US$2.65 billion loan after defaulting on bank agreements.
Sidgmore said he had "no idea" if former CEO Bernard Ebbers knew of the misreported costs. Sidgmore took over the company when Ebbers was ousted in April. The events were "deeds of the past administration," he said. Sidgmore had been a vice chairman of WorldCom since 1996.
Sidgmore also said he couldn't be sure that Ebbers will be able to pay back US$408 million in loans the former CEO owes WorldCom.
Ebbers' assets include farms and "aren't terribly liquid," Sidgmore said. "At last appraisal he had more than enough" to pay the company back, Sidgmore said.
WorldCom shares rose US$0.04 to US$0.10. The stock has plunged from a high of US$62 in June 1999.
Sidgmore said he's "concerned" that former auditor Arthur Andersen LLP didn't catch the misreported expenses.
"They swear up and down they didn't know anything about this," he said. "You might question why they didn't find it." Sidgmore "was clearly trying to distance himself from what happened," said Jeff Osborne, a telecommunications analyst who helps manage US$30 billion in assets at Munder Capital Management.
Some vendors are asking for money in advance, Sidgmore said at the press conference.
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