WorldCom re-examines the books

Upon uncovering ‘improper accounting’ for almost $4 billion in expenses, WorldCom has terminated Scott Sullivan as CFO and accepted the resignation of David Myers as senior VP.

As a result of an internal audit of the company’s capital expenditure accounting, WorldCom has determined that certain transfers from line cost expenses to capital accounts were not made in accordance with generally accepted accounting principles (GAAP). As a result, WorldCom intends to restate its financial statements for 2001 and the first quarter of 2002.

The amount of these transfers was $3.055 billion for 2001 and $797 million for first quarter 2002. Without these transfers, the company’s reported Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) would be reduced to $6.339 billion for 2001 and $1.368 billion for first quarter 2002, and the company would have reported a net loss for 2001 and for the first quarter of 2002.

The company promptly notified its recently engaged external auditors, KPMG LLP, and has asked KPMG to undertake a comprehensive audit of the company’s financial statements for 2001 and 2002.

The company also notified Andersen LLP, which had audited the company’s financial statements for 2001 and reviewed such statements for first quarter 2002, promptly upon discovering these transfers.

On June 24, 2002, Andersen advised WorldCom that in light of the inappropriate transfers of line costs, Andersen’s audit report on the company’s financial statements for 2001 and Andersen’s review of the company’s financial statements for the first quarter of 2002 could not be relied upon.

The company will issue unaudited financial statements for 2001 and for the first quarter of 2002 as soon as practicable. When an audit is completed, the company will provide new audited financial statements for all required periods. Also, WorldCom is reviewing its financial guidance.

The company has terminated Scott Sullivan as chief financial officer and secretary. The company has accepted the resignation of David Myers as senior vice president and controller.

WorldCom has notified the Securities and Exchange Commission (SEC) of these events. The Audit Committee of the Board of Directors has retained William R. McLucas, of the law firm of Wilmer, Cutler & Pickering, former Chief of the Enforcement Division of the SEC, to conduct an independent investigation of the matter. This evening, WorldCom also notified its lead bank lenders of these events.

The expected restatement of operating results for 2001 and 2002 is not expected to have an impact on the Company’s cash position and will not affect WorldCom’s customers or services. WorldCom has no debt maturing during the next two quarters.

‘Our senior management team is shocked by these discoveries,’ said John Sidgmore, appointed WorldCom CEO on April 29, 2002. ‘We are committed to operating WorldCom in accordance with the highest ethical standards.’

On the web