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Cable/Video

WorldCom's at $7.1 Billion and Counting

Lost: $3.8 billion -- no wait, make that $7.1 billion.

WorldCom Inc. (OTC: WCOEQ) announced late last night that during its internal investigation of its accounting for the last three years it found an additional $3.3 billion that had been wrongly accounted for. And yes, that’s in addition to the $3.8 billion we already knew about (see WorldCom Misplaces Another $3.3B).

Following WorldCom’s revelation in June that it had misstated $3.8 billion, the company was forced into the largest bankruptcy in history, two executives were fired and later indicted, and the rest of the already hard-hit, scandal-ridden telecom sector spun further out of control (see WorldCom Goes Boom, WorldCom Files for Bankruptcy, and Ex-WorldCom Execs Charged With Fraud). Although yesterday’s revelation almost doubles the sum of WorldCom’s bogus accounting, observers barely batted an eye.

"I don’t think it’s unexpected at all,” says Philip Jacobson, a general partner at Network Conceptions LLC.

While WorldCom’s June report related to booking operating expenses as capital expenses, thus artificially boosting earnings, the company is being tight-lipped about how the additional accounting irregularities were misstated. A source inside the company, however, says that, while a small portion of the additional $3.3 billion was also opex listed as capex, the majority of the new sum involved the manipulation of WorldCom’s reserve accounts. Reserves are funds the company sets aside to cover upcoming events, like lawsuits and taxes. Apparently, a large sum of money was taken out of the reserves, and then booked as revenues for the company.

And, while the June numbers were found on WorldCom’s books for 2001 and the first quarter of 2002, the additional $3.3 billion was found while the company’s new auditor, KPMG, was pouring over accounting for 1999 and 2000. Most of the discrepancies were found in 2000. As a result, WorldCom says that it will have to restate earnings for all of 2000, 2001, and the first quarter of 2002. The company also warns that the investigation hasn’t been completed yet and that it might turn up further discrepancies.

Many observers say they think new revelations are likely. “I think it’s not over yet,” says Bart Schachter of Blueprint Ventures. “And I don’t think it’s over in many companies. From an investor's standpoint, there’s just a freeze out there.”

As if having invented more than $7 billion in earnings weren’t enough, WorldCom also said in yesterday’s release that it expects to have to write off $50.6 billion in goodwill and intangible assets, mainly left over from the company’s 60-company merger and acquisition spree. If the company does write off all of the goodwill, it will be one of the largest writeoffs in corporate history.

The writedown was only to be expected, Jacobsen says. “Any company with goodwill on their books that did acquisitions between 1998 and 2000 will be writing down,” he says. “Certainly, what they paid then isn’t what those companies are worth today.” When WorldCom filed for bankruptcy on July 21, it listed $107 billion in assets and $41 billion in debts. If the company were to be split up and sold off at this time, however, Jacobsen says he expects the company would turn out to be worth less than $15 billion.

WorldCom said yesterday that the findings had already been reported to the Securities and Exchange Commission (SEC). Amidst growing concerns, the company continues to insist that its services won’t be affected by its problems.

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com
switchrus 12/4/2012 | 9:58:40 PM
re: WorldCom's at $7.1 Billion and Counting If you assume that World Com is dead, or at least not going to ever recover, who will pick up the pieces at fire sale prices?

Suppose this is more a question of whoGÇÖs left in the industry that is sitting on cash and low debt to pick up MCI and other desirable pieces. I doubt there will be much regulatory crud in the way of someone healthy picking up MCI.
StartUpGuy1 12/4/2012 | 9:58:38 PM
re: WorldCom's at $7.1 Billion and Counting I wonder if the IRS is going to refund the hundreds of millions of dollars in taxes that WorldCom paid on those phantom earnings so that creditors can get something out of this....
BobbyMax 12/4/2012 | 9:58:36 PM
re: WorldCom's at $7.1 Billion and Counting I am projecting that there are over 10,000 companies that have participated inthe evil act of accounting misdeeds and take advabtage of the shareholders. What is more surprising to tens of million of Americans is that the Government has instituted a wide inspections of all publicly traded companies, Investment Bankers, and brokerage houses.

There is a big ring of corrupt companies that have loooted trillions of dollars, but the government has failed to act and is not interested in presrving the interests of common people. There are thosands of policemen arreasting kids for stealing candies, but there is no one to arrest the crroks.

It is surprsing that only two persons from WorldCom has been arrested. The goverment is creating Homeland Economic Security. The government does not realize that looting of shareholders money have caused a wide scale economic disparity. It will get worst as further rvelations are made public, but this would happen if the government acts fairly and tries to preserve the economic interests of all American people.
jgh 12/4/2012 | 9:58:34 PM
re: WorldCom's at $7.1 Billion and Counting Where did you come up with that number. For your information there are approximately 7,000 publicly traded companies on the NYSE, NASDAQ and AMEX exchanges. So you are saying that everyone of them cooked the books and another 3,000 privately held companies are doing the same thing. You better keep an eye on the bagel store in the mall who is "cooking" the bagels, I mean books.
You must be a Democratic consultant, is this James Carville?
willywilson 12/4/2012 | 9:58:31 PM
re: WorldCom's at $7.1 Billion and Counting 1. The government does not realize that looting of shareholders money have caused a wide scale economic disparity.

2. It will get worst as further rvelations are made public, but this would happen if the government acts fairly and tries to preserve the economic interests of all American people.

------

1. Oh yes it does, and it doesn't care.

2. Since when has the government ever acted fairly?
FA 12/4/2012 | 9:58:03 PM
re: WorldCom's at $7.1 Billion and Counting Not anytime soon, I suspect. A friend of mine who was a lead auditor for a large petroleum company told me back in 2000 that the corporation was JUST receiving their tax refunds from 1986!

Do we honestly think the IRS can pay for 14 years of corporate refunds due? WorldCom wasn't so bad...
OldBwl 12/4/2012 | 9:58:02 PM
re: WorldCom's at $7.1 Billion and Counting Worldcom's Bernie Ebbers has decided to play Fools Defense. Quote from Bernie's lawyer on Friday "Accounting decisions are arcane. They're mysterious for people who are not trained in the science."

The other Worldcom mystery which is starting to clarify is why John Sidgmore came back. Sidgmore's wife told him he could end up in jail if he took the Worldcom CEO job. What did she know we do not ? Why did he take the job ? It must be that Sidgmore by being inside thinks he can send the hounds in the wrong direction. Over the week-end Sidgmore has been trying to avoid looking any further back in the accounts than 1999. So the really bad stuff is buried back beyond 1999 and Sidgmore probably knows exactly where.
Blrfl 12/4/2012 | 9:57:22 PM
re: WorldCom's at $7.1 Billion and Counting OldBwl writes:

"Sidgmore's wife told him he could end up in jail if he took the Worldcom CEO job. What did she know that we do not?"

The odds of John being thrown in the clink aren't really any different whether he's doing the CEO job or sitting at home watching Oprah. The government is out to nail some people to the wall over this, and I can't help but think that if they had some dirt on John, we'd have heard about it by now. The fact that he didn't just turn his back and walk away says he has less involvement in the accounting mess than people are accusing him of having.

"Why did he take the job?"

Your guess is as good as mine. The market is flooded with out-of-work corporate officers, maybe he doesn't want to be one of them. Maybe he feels some loyalty to the people he left behind at UUNET when WorldCom made him give up the CEO post there and wants to help pull that part of the company out of the quicksand. Maybe trying to get the company back on its feet is his way of thumbing his nose at Bernie and Scott for shoving him aside into a largely ceremonial position after the Nextel deal fell through.

"It must be that Sidgmore by being inside thinks he can send the hounds in the wrong direction."

On what do you base that conclusion?

"Over the week-end Sidgmore has been trying to avoid looking any further back in the accounts than 1999. So the really bad stuff is buried back beyond 1999 and Sidgmore probably knows exactly where."

I'm putting my money on the most egregious "bad stuff" having happened more recently, since the easy tricks would have already been used up and showing a believable profit was becoming more difficult. My gut says it started in 1997 when they did the MCI deal, but I don't have facts to back that up.

Two other reasons they may not be looking at anything before 1999 are the statute of limitations (if there is one on this type of thing) and the fact that coming out of bankruptcy will require three years of squeaky clean books, which when the time comes will be 2000, 2001 and 2002.
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