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CNN LIVE EVENT/SPECIAL

WorldCom CEO John Sidgmore Holds Press Conference

Aired July 2, 2002 - 15:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BRAD BURNS, SENIOR VICE PRESIDENT, CORPORATE COMMUNICATIONS, WORLDCOM: Hi, everyone. Thanks for joining us today.

My name is Brad Burns. I'm the senior vice president of corporate communications for WorldCom.

Today we've got John Sidgmore, WorldCom's president and chief executive officer, who will be here to provide comments to you.

We will take questions. John will take questions after he makes his comments. We have set up microphones on either side here, and we ask that you use them for your questions. I understand that might not be thoroughly desirable, but we are sharing this press conference through a conference call as well to reporters across the world. And out of respect for them, we would ask that you share your questions via the microphone.

There is a hard copy of John's remarks for you available after the press conference.

And with that, I will introduce you to John Sidgmore, WorldCom's president and chief executive officer.

JOHN SIDGMORE, PRESIDENT AND CEO, WORLDCOM: Hi, everybody, and good afternoon. Thanks for coming out here today.

I'm going to make a brief opening statement, and then I'll be happy to take questions probably for 30 minutes or 35 minutes after that.

Well, I can only say that these have been very, very difficult times this last week or so for our company -- actually, it's been longer than that. And I'll say one thing right now: I hope you guys had a better week than I have in the last week.

Let me just say that in the days that followed WorldCom's announcement last week that we misstated our earnings for the last five quarters, there's been an understandable outpouring of outrage and anger expressed pretty much from every quarter of American society, and I want to underscore that WorldCom's new management team and our more than 60,000 employees are equally shocked by these events.

Now, while the collective rage currently is focused on WorldCom, I want to remind everybody that it was this company that audited our auditors. It was this company that turned itself in. It was this management team that took matters to the SEC. And it is this management team that will take this company forward and restore public confidence, and that's an awful lot of what I want to talk about today.

About two months ago, I agreed to take over as CEO of WorldCom after the termination of Bernie Ebbers. Even then we faced significant challenges on the financial side, which we can talk through in whatever level of detail today. But I'll tell you one thing: I never imagined at that point what we really had in store for us.

And while the deeds we uncovered were part of the past administration, I want to apologize here today on behalf of everyone at WorldCom.

I am responsible for what we do now and for what we do in the future. And what we're going to do is fully investigate any past transgression and move forward in a completely open and honest manner.

President Bush has also demanded this and demanded this of all corporate executives and demanded that corporate executives operate in a responsible manner. We completely agree with the president on this. And I am committed to operating WorldCom with the highest possible standards of ethics and integrity.

You should know also that we are cooperating with all of the various investigations -- and let me tell you, there are quite a few of them right now -- to bring those responsible to justice.

This morning I had an extensive and, I would say, highly productive discussion with Harvey Pitt, the commissioner of the SEC, and his staff regarding their concerns about our response to the order of information, many of which -- many of those comments were highlighted yesterday in various news forums.

In our filing, we provided a complete chronology of events as we know them. But there remain many open questions and quite a bit of speculation as to exactly what occurred and when. All I can tell you is that we will release everything that we know when we know it.

We won't know the answers to all these questions until the conclusion of these investigations. However, we did agree this morning with the commissioner that we will clarify our filing and we will continue to cooperate closely and work better with his staff or closer with his staff going forward.

For our part, we've already announced this, but we have initiated a through, independent investigation lead by William McLucas, former chief of the enforcement division of the SEC. He will be investigating both our past and current management teams. He will investigate our board regarding any individual involvement and to remove any stigma from those who had no involvement.

If we're going to be a model for corporate behavior going forward, we must be absolutely transparent, and we're committed to that.

We also support Congress's efforts to prevent situations like this from occurring anywhere in the future. And every employee -- you have to remember, every employee and customer and investor in WorldCom has a personal stake in this company's survival. That is millions of people.

But it goes far beyond that. America itself, we think, has a major stake in our survival. We play a vital role in America's telecommunications infrastructure. We shouldn't forget that WorldCom is a strong, innovative company with tremendous assets when you get below the surface of some of these investigations. We have annual revenues of over $30 billion. We have more than 20 million customers. Our MCI phone service handles 70 million calls thereabouts every weekend alone. Tens of thousands of businesses depend on our services to support their mission-critical networking applications.

In addition, WorldCom is the largest -- by far the largest Internet carrier in the world, and by many estimates we carry over half of the Internet's total traffic, including potentially 70 percent of e-mails sent within the United States, and 50 percent of all e- mails in the world. Our operations provide Internet services to over 100 countries on six continents. We also serve some of the largest agencies of the federal government including the Defense Department, the State Department, and the General Services Administration.

We think WorldCom is a very key component of our nation's economy, and communications infrastructure. And even after our recent layoffs, we still have over 60,000 employees, and millions of investors. Both commercial and national security interests rely on WorldCom's operations continuing without disruption. Dozens of telecom providers and suppliers likely depend on WorldCom's business.

Furthermore, and this is an important point, WorldCom ensures competition in the rapidly consolidating telecommunications industry. We ensure that both consumers and businesses have more than one or two options when it comes to selecting a full-service provider. WorldCom, we think, is one of our last hopes for America to realize the intended benefits of the Telecommunications Act of 1996.

Now, since discovering these accounting irregularities, I have been fighting very hard to keep the company operating at full speed despite the issues that now surround us. Although we have a significant cash position, cash on hand right now, we are in close communications with our lenders to secure replacement lines of credit and other financing. We are also streamlining the business, as we've announced before, by selling our non-core assets and taking other steps to raise capitol and to trim expenses, allowing us to focus on our core business and our core customers' needs.

At the end of the day, we think the best way to rebuild shareholder value, serve our customers and save jobs, and serve our national interests, is to have a profitable, valuable, but ethical business.

Today, we are here to tell you that WorldCom needs the help and understanding and patience of our customers, of our suppliers, our lenders and of the American people. We will be straight about our problems as we discover them, I can promise you that. And we will take the necessary steps to aggressively solve them. We will work very hard to regain your trust and to rebuild the value of this company, and we will return your faith in us with renewed value, and the best telecommunications services available anywhere in the world.

I really feel confident that we can work together to build the future. We are committed here to providing great service for our customers, not just today, but also tomorrow. I am personally deeply committed to this company, as is the rest of the senior management team.

And now I would be happy to take your questions.

QUESTION: Mr. Sidgmore, could you give us a financial update, since you've basically said the firm is essentially too big to fail?

QUESTION: You said you have a significant cash position. How significant? Are you any closer to getting actual money from your lenders? And everybody seems to think you're headed for bankruptcy. Can you tell us today why you're not?

SIDGMORE: Let's start with the first one. It was like an eight- part question.

First of all, we do have a significant cash position right now. This is not a situation like many others where people are going to imminently run out of money, at least we don't think so. We have over $2 billion in the bank today.

We are working with banks even as we speak here, talking about various proposals to restructure our financing. And, you know, we are somewhat optimistic that we will get a proposal, if not two proposals, in hand this week to accomplish that.

That doesn't meant that those proposals will be acceptable or that they'll eventually work out, but we do think that we are going to get some proposals this week.

Now, in terms of bankruptcy, I am not going to stand up here and tell you that there's no way we're going to wind up in bankruptcy of some form, at some point. But right now we are working very, very hard with the banks and others to try and find ways to accomplish our goals without going into bankruptcy.

QUESTION: Can you give us an update on your wireless business? You've said you were going to sell the resale -- get out of the resale business for mobile, but what about your fixed assets and the SkyTel paging company?

SIDGMORE: OK. We are looking at all of our wireless assets for sale. We are in conversation with several different parties on all those businesses that you mention.

In terms of the wireless resale business, we really believe that we will be out of that business by the fourth quarter, one way or the other. We do have some people that are interested in acquiring it.

But, again, the main purpose for selling the wireless resale business was not to raise capital, although we may raise some capital as a side effect. The real reason to get out of the business is, it's a business that loses about $750 million a year on a $1 billion in revenue. It's just flat out a terrible business. And so just ending the business brings us an additional $750 million of profit in cash flow.

QUESTION: When did you first become aware of the accounting irregularities at your company?

QUESTION: Was it June 20th as you suggested in the statement to the SEC, or was it some earlier period? And number two, I wanted to find out if any of your large customers besides the federal government have indicated that they're reviewing whether to continue doing business with WorldCom.

SIDGMORE: Well, let me do the customer one first, and we can get you a lot more color on this if you'd like. But we have not had a significant customer cancel yet, despite all the histrionics over the last few months.

We do have some customers that have informed us that they are very nervous and are demanding reviews, and that sort of thing, and would like to talk to myself and Ron Beaumont, our chief operating officer, about how to allay some of those fears.

So there are people that are nervous, no question about it, including some government agencies, but no one has canceled to date.

In terms of the time line, when we knew that there was a problem, really, for sure, was on the 20th of June. Now we did not know at that time how severe the problem was and we did not know at that time that the problem was really going to wind up being a restatement of earnings. All we knew was that the accountants were nervous, very nervous about these transactions.

And the 20th, I would just give you the full color, there was a breakfast meeting in the morning that I had with Judy Areen (ph), who is a member of our audit committee and a board member, where she mentioned to me that there, it was this potential accounting problem, that she did not want to explain it to me, and I wasn't sure she understood it anyway, she told me that Max Bob (ph) at the head of the audit committee would be calling me that afternoon.

Well, Max called me at around 10 o'clock in the morning, I believe, and told me that he thought that we had a major, major problem of massive scale. He wasn't positive, but that the auditors were reviewing it and he wanted me to come to the audit committee meeting that night to review it with the auditors.

Several people came to that meeting, including Scott Sullivan, and we heard their view of the situation and Scott Sullivan responded with his view of the situation. And it was concluded at the end of that session that the auditors were not sure that it was a problem; that they wanted to hear Scott's explanation in great detail. And gave them, I gave Scott until Monday night to come up with his explanation in, sort of, full orchestration, which turned out to be a white paper.

So then on Monday, which was the 24th -- we had a board of director call just to inform everybody on the 21st, but the next major event was the 24th at an audit committee meeting where we heard from Scott again, we reviewed the concepts in his white paper, KPMG and Arthur Andersen, who were the auditors that were there at the time, both went through their theory of the case, which basically was that there was no way that they were going to support that theory.

And even though, you know, conceptionally, there may have been some good points in there, it just was not in accordance with GAAP, and their view was we had, you know -- that their audited statements were not going to stand.

So we agreed we would have a board meeting the next day. We did have a board meeting the next day, and at that board meeting we decided to restate the earnings and to terminate Mr. Sullivan and accept the resignation of David Myers.

So that's, kind of, the full history.

There were some discussions, not specific discussions about this item, but there were some discussions on the 13th where Scott Sullivan had mentioned that there might be something he had to write off this quarter, but we do that every quarter, and this was not played out to be a big deal. It was just, sort of, a simple matter and it certainly wasn't of the magnitude that it wound up being.

So Ron Beaumont and I were aware on that day that Scott had some things to write off, and we just took that in the context of normal course and our disappointment was we weren't going to get all the cost savings that we'd hoped to get.

So that's really everything I know at this time about that.

QUESTION: Can you tell me what specific steps you're taking to prevent your agents and your resellers from taking WorldCom customers to other carriers?

SIDGMORE: Well, you know, in a lot of cases you can't do that with or without a, you know, financial distressed situation or, you know, scandal like this.

But I can tell you this: We are working very, very hard with our customers. Our most important effort right now is working with our customers and our employees to restore their confidence.

And I don't know how many calls we've made all told, but I can tell you Ron and I have been making 10 or 20 a day each over the last week and we're going to continue to do that. So we're working directly with the customers and we're working with the resellers to make sure that we're trying to do everything we can to get their confidence back. QUESTION: In your filing with the SEC yesterday, there was mention of a memo -- an internal memo written by Mr. Sullivan that gave some information about -- also chronological information, I think -- some other information about what happened before you were made aware of the problem.

QUESTION: Why wasn't that included in the filing?

And my second question is, in your conversation with Mr. Pitt this morning, Chairman Pitt, did you set up a time line for the release of new information? Is there a deadline there? And also when will your internal review be completed and when will you give us information from that?

SIDGMORE: OK. First of all, the first part -- could you repeat the first part of your question again?

QUESTION: Yes. There was mention in the filing with the SEC yesterday of an internal memo by Scott Sullivan...

SIDGMORE: I think what you're referring to is the white paper that I mentioned before. And the white paper basically was a justification document to support Scott's theory of the case as to why those line costs could have potentially been capitalized.

The conversation with Harvey Pitt did not lead to an agreement on a time line or anything. We agreed we would work with his staff on this to basically clarify some remarks and we may provide some additional information. But I can tell you this, there won't be -- very unlikely in my mind, there going to be any revelations in this. It will be a more -- perhaps a more detailed assessment of the facts that were given out.

And in terms of the internal investigation, it is an independent investigation, so it's going to go as long as Bill McLucas thinks it needs to go to get to the bottom. Our intention is to get to the bottom of this whole thing and anything else that is in WorldCom's financial records or any records that he thinks should come out. And I can't guess, but I think it's going to take -- my guess is it's going to be at least a few months.

QUESTION: Have you gotten any sense of a deadline from your lenders on when they will call in their loans?

And the second question is, since you talked about national security matters, have you had any discussions with the government about your services? Have they shown any concern -- any government officials shown concern to you about that aspect, and whether you'll be able to continue your services that they depend on?

SIDGMORE: We have had some communications with various government agencies and security agencies -- you know, Homeland Security among others -- requesting information and trying to make sure that we were going to stay in service, and in other words there wouldn't be blip. Because, again, our network does run a number of critical government applications. But I think at the end of the day, I think the chances of us having a major blip in our service level, or in our service provisioning at this point in time are low under any of the scenarios we've been playing out.

The call in of the loans -- OK, I think this may be misunderstood. We did get letters -- sort of, formality letters that were expected from the banks on termination possibility on our bank loan. So far it has been -- there have been no events of acceleration, there have been no threats of acceleration. And so far, like I said, the banks are all in negotiations with us right now, to see if we can't find a way to renew these loans.

QUESTION: I actually wanted to follow-up on two previous questions. One, on the Sullivan white paper, is that something you plan on making public to us to explain why he saw these things as he did? And secondly on the issue of...

SIDGMORE: Yes. I mean, our guess is this will probably come out in the public forum when McLucas produces his document. But it's probably not going to be released anytime in the next few weeks, let's say.

QUESTION: And also, if I could follow up, on your own personal knowledge, the timetable says that Cynthia Cooper first discovered this in May. You were saying that you didn't find out until mid-June. Can you explain a little bit that did not go up to your level for that month?

And also, there's been some commentary about, you know, the size of the restatement, about where this money's going should have been known to senior people at the company for sometime, because it was such a large amount of money. Can you talk a little bit about why that is not something you would have known prior to when it was discovered by Cynthia Cooper?

SIDGMORE: Yes. You know, it's actually -- you know, you can look at this multiple ways.

First of all, I can't comment on why we didn't move faster on the communication up the channel. I can say that it was not until -- in my opinion, it was not until the 20th when it became fairly clear to everybody that it was really a problem.

You have to remember that a lot of accounting issues are highly subjective -- reserve accounts. A lot of these things are highly subjective in nature. And even KPMG, who had this information for some period of time, did not conclude it was a problem until the 20th. And then, you know, they immediately raised it, and I think, you know, we moved as fast as humanly possible.

But the second question is maybe more interesting, which is why was this not caught before? Well, you know, first of all, WorldCom is a far-flung operation, and, you know, the financial organizations and the operating units worked together to try and come up with these numbers. But no single operating unit knows what's going on in the rest of the organization, and it all came together at Scott Sullivan's level, to be honest with you. And so, you know, it was not clear, for example, to Ron Beaumont, who spends most of the capital that we allocate, that there were -- the capital was being moved somewhere else.

So I guess all I can say is that, you know, it was obvious to certain people. It's obvious now that maybe there should have been, you know, stronger reviews of some of that.

But at the end of the day, I want to say, our system really worked internally. You have to remember, we had an audit from one of the major audit firms in the United States that said our accounts were correct. So if it was so simple to find, I guess you might question why they didn't find it. But we had an audit that was legitimately done, as best we could tell, and it didn't show up.

But again, I want to re-emphasize, I believe, although it may have been late, our internal process worked. What the auditors -- what the outside auditors didn't catch, we eventually caught and reported ourselves, as fast as humanly possible. So, you know -- again, I think we moved as quickly as we could given the situation.

QUESTION: WorldCom had several billion dollars worth of contracts with federal agencies and GSA is considering whether or not to debar WorldCom from doing business with federal agencies.

SIDGMORE: That's right.

QUESTION: Two questions: If you are debarred, what can you do to help the agencies through that? Is there anything WorldCom can do? And secondly, should other telecom companies who have had other problems with SEC filings or are under investigation, should they also be investigated for debarment?

SIDGMORE: Well, I don't want to be calling for investigations on other telephone companies today. I'd get destroyed at the next analyst meeting.

But I think, first of all, the order we've received and seen so far relates to new contracts, not existing business.

And second of all, what can we do? We can prove -- go out and prove to them that we are a viable vendor, and that we're an ethical vendor. And that's incumbent on us. That is really our challenge on both fronts with everybody in America over the next couple of months.

QUESTION: There been published reports that at a May 23rd board meeting, Scott Sullivan briefed the board on his accounting? What actually happened at that board meeting?

SIDGMORE: You know, I'm going to -- in the spirit of being open and honest, I'm going to tell you what I remember about -- we just talked about this today -- we heard about this rumor today. We looked at it, we looked at Scott's presentation on the 23rd and there was none of that in there. Where there was a mention of that was on the June 14th board meeting, and I think that's where the confusion is -- and again, I don't take this as word of God. We're going to go back and continue to check that. This is a rumor that we heard this morning and we're taking a look at it. But as far as I know, my belief is, that that was on the June 14th meeting.

QUESTION: What is your understanding of the extent to which Arthur Andersen and Bernard Ebbers know about the accounting irregularities, and as well as the rest of the board? And also, separately, does -- what is Bernard Ebbers' ability to pay back the $400 million loan?

SIDGMORE: OK. First of all, on Arthur Andersen, they swear up and down that they didn't know anything about this. And, you know, we internally are a little bit concerned that they didn't know anything about it, because, you know, if it was going to be obvious to anyone, it should have been obvious to them, which just tells you how difficult it may have been to find these transactions.

As far as Bernie knowing -- and this is probably the most popular question we get multiple times per day -- we really have no idea, absolutely no idea at this time.

As far as we know, we know that Scott Sullivan and we know David Meyers (ph) were involved in it. And I believe they may have ordered a clerk to make these entries. But as far as we know, we don't anything about Bernie. We don't know whether he was involved, we don't know whether he wasn't involved, and that's the truth.

And whether he can pay back his loans or not, I think, you know, at this point is unknown. All I can tell you is that, when the loans were given, they were way over-collateralized. In other words, there was plenty of ability to pay at that time between his hard assets or his real estate assets, really, and the value of his stock, which has changed a lot since then.

So can he pay now? I don't know. I believe he thinks that he can. His assets are not tremendously liquid. I mean, he's got soy bean farms and timber farms and large ranches and things that there are not, you know, immediate markets for.

But ultimately, the last appraisal we had said that he had more than enough to pay the loans back.

QUESTION: You've talked so far about the effects of the scandal on big business contracts that you have. What about the effect on MCI? Is it having a significant effect on your ability to woo the small homeowner, in terms of -- to MCI?

Second of all, is it having any effect on your ability in terms of marketing, your ability to go out and talk to those homeowners on your advertising contract?

And finally, are you going to do anything specifically to communicate to the American public either about this or to include this whole incident in your advertising, or to reflect it in your advertising?

SIDGMORE: OK. I guess I'm not 100 percent sure what the focus is on the advertising. But I can say this: We haven't had any serious change to our marketing on the MCI customer base, and nothing really dramatically has changed.

In terms of what we're doing to communicate to the American people, you know, we're going to start today doing an awful lot more interfacing with the public through press conferences like this, through interviews and so forth.

We really have not been very visible, at least compared to some of our friends in the government on this issue, in the last week, because we wanted to make sure that we got our arms around what the situation was before we went out. But I think you'll see us be much more active in the next couple of weeks.

QUESTION: Do you still have the money to go ahead and do your normal advertising and marketing?

SIDGMORE: Yes. We have not stopped any of that. Where we have seen some impact as a result of this is from some vendors who are asking for better payment terms, meaning they want their money in advance and so forth. And we're working through that as we speak.

QUESTION: Two questions. First on the bank loan, $5 billion -- is that still enough given your recent disclosures? Where are you with that, and is there any particular deadline for getting that loan?

And the second part, Digex, the agreement is to fund it, you know, through the end of this year. Are you planning to fund it beyond that point?

SIDGMORE: Well, I don't see any change to the Digex situation as a result of this. We believe that if we get the extra billion of new money, which makes up the critical piece of the $5 billion package, that again, all things being equal, unless some new problem occurs, we can make it through a long period of time with that cash and the cash we have on hand now.

The thing that could be sticky would be if suddenly we had a massive change to our accounts payable or our accounts receivable program, meaning that vendors really tried to squeeze us to get payments up front or our customers stopped paying us as quickly as they do today.

So that's the only caveat. But I do believe at the end of the day we could get there.

QUESTION: You mentioned that you were cooperating with all of the investigations. Have you or anybody in the company talked to anyone in the Justice Department or the FBI or have you been asked to give any documents to them?

SIDGMORE: I'm not 100 percent sure that I can answer that in good faith, but I can say that we have been in contacts with various law enforcement agencies, we have complied with everything they asked for, we have given them everything they've asked for, and we've worked very hard to make it clear that we want to work with them to get to the bottom of this. I mean, our whole posture is, we want the bad guys exposed, we want the bad guys punished, and we want to move on with our lives at WorldCom.

This is a new management team. We don't want the focus to be on the old management team. We want to investigate them, we want to find the guys that did wrong here, and move along. So we're 100 percent in sync with the law enforcement agencies on that.

QUESTION: Senator Grassley sent a letter to you and to Harvey Pitt today suggesting that for the quarters that there were the accounting irregularities, that if there were executives who received more than $100,000 in bonuses, that they return them. How would you react to that?

SIDGMORE: Well, I haven't even seen the letter, to be honest with you. I don't know if we've received it. Well, anyway, I don't even know that we've received that letter, so it's hard to respond to it.

I think we have agreed with the SEC that we would not do any significant -- I guess they're called extraordinary payments to executives from here on in until we get through this situation, and we've agreed to that. And the definition basically of extraordinary payments was $100,000.

So we agree with it going forward. I have not seen what they're asking for, so I can't really respond to that one.

QUESTION: There are rumors around that some agencies of the government are concerned about your continued ownership of UUNET, of having UUNET in the hands of a financially troubled company, and that there's some pressure for an accelerated sale of those assets to another carrier. Can you comment on that?

SIDGMORE: Well, we've heard this theory. I mean there's some people in, let's just say, the securities segment of the U.S. government and particularly in the homeland security group, that are very concerned about cyber-security and that sort of thing, and I think they are just very nervous at this point that something will happen because, like I said, UUNET runs probably more than 50 percent of the Internet infrastructure in the United States.

I don't think there's any real serious move afoot here. I can tell you right now, I just had a discussion about this and many other things an hour ago with Chairman Powell from the FCC, and we went through all this.

I don't think anyone sees a movement afoot, although questions have been asked by, sort of, mid-level people. No one has suggested that the asset be sold. They're just trying to make sure that it be protected.

And I want to just, if I can, make one more comment which I didn't make before. It's interesting to me on that topic of how critical UUNET, and actually the MCI/Worldcom network in total, that both former Chairman Reed Hunt and the present chairman, Powell, have expressed their extreme support for the continuity of WorldCom and the continuity of networks -- of our network services.

So there's a lot of concern about this, and I actually think at the end of the day this is going to wind up being supportive of WorldCom, not destructive.

QUESTION: I wonder if you could characterize for us, both in terms of tone and frequency, your communications with employees over their 401(k) programs, and in particular your desire that they increase or hold on to the WorldCom portion of that -- of those programs.

SIDGMORE: Well, we have not had much direct communication on this topic. We've had a lot of communication on the company's position generally.

Obviously, at six cents a share there's a lot of concern about the people that have 401(k) programs that are, sort of, WorldCom stock dominant. But we have not had a lot of communications on that until we figure out better what the financial position will be.

QUESTION: More interested in the last six months, last year, what was the tone of the communication that you had with employees then?

SIDGMORE: We don't require them to have WorldCom stock. I don't know what communications there were off the top of my head, so I don't want to get into that. But I do know we don't require them to do it, like many companies do.

QUESTION: But were they encouraged to buy?

SIDGMORE: I don't believe so. I don't believe so.

QUESTION: I had another question concerning the employee exposure to the stock price dip. Do you have any sense of how much, what proportion of the 401(k) of the employee retirement funds were, in fact, invested in company stock?

SIDGMORE: I actually don't.

STAFF: I think it was less than 3 percent.

SIDGMORE: Less than 3 percent.

QUESTION: Did you get any concrete commitments from Chairman Powell to assist the company? Did he talk about dealings with the Bells and with access fees, that kind of thing, that are ongoing expenses and to, perhaps jawbone the problem with those companies?

SIDGMORE: I want to be very careful about this answer. We expressed our concerns, and some of those concerns are, sort of, incorporated in your questions. And we discussed that. Chairman Powell made no commitments of any king, other than he allowed me to make the statement I just made, because he is supportive. He's very concerned about the situation. And I think, generally speaking, he would be supportive.

But he made no commitments whatsoever. And we'll probably have regular communications with him. In fact, we committed to that over the next couple of weeks.

QUESTION: You've been going through your books back to 1999. Can you talk a little bit about the accounting problems you might have found there?

We have not found -- well, let me just characterize it this way. We are convinced that there are problems in 2001 and 2002, which we've already announced, OK? We are not convinced that the issues that were highlighted for '99 and '00 are problems. And that's why we have asked KPMG to go back, first of all look at the transactions quickly. We've also asked Bill McLucas to take a look at that. And we have our internal audit team also looking at those transactions.

SIDGMORE: And, you know, obviously we've asked KPMG to do a full audit, not just on these transactions, of those years, so that we would have three years that would absolutely be clean.

How long that will take is unknown, but the nature of the issues in '99 and '00 were really a small number of transactions that were related in all cases, I believe, to reserve accounts. Reserve accounts are one of these accounting mysteries that are, I think, highly subjective.

And so, for example, if you think you have a bad debt of $1 billion, you might put a reserve on the books of $1 billion. If it turns out after six months that you really didn't find that bad debt was $1 billion you would reduce that reserve by $500 million and take that $500 million into the P&L statement. That's very typical. It happens all the time.

These transactions just looked odd, because they were fairly large and they weren't necessarily recognized by some of the people that saw them. And these were actually brought to our attention by some people in accounting to look at.

And so that's what we're doing now. KPMG is on the case, as is, you know, our external investigator and the audit committee. So we're doing everything we can to look at it. But we don't really know anything about it yet, and it could turn out to be zero. But we just don't know.

QUESTION: Was your use of $1 billion just hypothetical?

SIDGMORE: Yes. I should have said $1,000.

(LAUGHTER)

QUESTION: Couple of questions. First of all, when is the first debt payment due that could be problematic for your company?

SIDGMORE: The first one that could be problematic would be in -- it's either January or February. I think it's January. QUESTION: And what is that payment for?

SIDGMORE: It's interest on the bonds.

QUESTION: Right. The amount of the payment, though?

SIDGMORE: About $2 billion.

QUESTION: $2 billion.

And second of all, what can you -- what can we expect in the process of negotiating with creditors, in terms of any more possible cost-cutting or layoffs? Is it the possibility that we'll see significant amount more?

SIDGMORE: We want to run this business -- on an operating basis -- forget about the debt and the bonds and, you know, the bank deals and revolving credit and all that -- we want to run this business to be operating cash-flow positive and then free cash-flow positive ultimately. And so, we're committed to doing whatever it takes to make that happen.

We have just cut about $1 billion out of our capital expense budget.

SIDGMORE: We have removed roughly 17,000 head count, not all employees, because we took out a lot of contractors. We closed down a business that was losing $750 million a year. And so, as those -- we don't get the impact of that immediately. We get the impact of that over time because we pay severance, and because we are not going to get the wireless business out the door immediately. But ultimately, on a run rate basis, we think that will be a significant help.

Now, if in a year from now, the telecommunications industry takes another dive of some sort, I mean, we will make adjustments to make sure that we're profitable on an ongoing basis, regardless of what that entails.

QUESTION: So the answer is, there still could be more layoffs, depending on market conditions and...

SIDGMORE: Yes. And I would be as bold to say as I think that is true in every telephone company in the United States and Europe.

QUESTION: Could you estimate it all, or is it too hard at this point?

SIDGMORE: No, it is too -- we don't know that there's a problem yet.

QUESTION: I have two basic questions. You've mentioned the wireless assets that you are selling, but you've also said that you're looking at selling other assets. Can you give us an idea of what assets you're thinking about selling, and how much you would like to get for those? SIDGMORE: Well, I am not going to tell you the price because we are in the middle of negotiating this, and I don't want to give out my negotiating position.

But I can tell you that we are looking at our assets in South America. We are looking at some of our assets in Japan. We will always have a presence for global accounts in Japan, but it's not 100 percent clear to us that we need to be significant -- a significant intra-Japanese provider.

We are looking at some of our other wireless businesses as somebody mentioned before, our MMD assets and potentially even SkyTel. And then -- and it's more significant than you might think. We are looking at a bunch of real estate which, in any case, we should sell, regardless of our financial position because we really don't need it.

QUESTION: And one final question: You mentioned bankruptcy, and I know that's something that's been on the mind of a lot of investors, and you said you can't stand up there and say that you would never file for bankruptcy. But how real a possibility is it? I mean, how far down the road could that become a possibility? Are we talking weeks, months, years?

SIDGMORE: Well, that's again a subjective call, because you know there are several ways that that could happen. I mean, if the banks just decide at the end of the day that they do not want to fund WorldCom at all, and they accelerate the notes, then I would say -- and which I think is a very unlikely scenario. We've been told it's very unlikely. But if that happened we would probably do this faster rather than sooner (sic), and so let's say a matter of weeks or months.

SIDGMORE: The other scenario is we get funded, but we don't get funded to the extent we need, and, you know, we try and make it through for a year and then eventually we would have to go.

So I'm being brutally open and honest with you, you know. This is not our preferred path. And I think fundamentally the real issue hinges on what the banks do right now.

And you have to remember, the reason why the company appear a little bit more -- with more leeway than some others do is that we know that in a bankruptcy proceeding the banks do far worse than they would do without us in bankruptcy. So that's why. And actually the banks have become a little bit more positive toward us in the last couple weeks.

QUESTION: I was wondering if you all had retained bankruptcy counsel, a law firm here in Washington, to prepare a Chapter 11 petition.

SIDGMORE: We have not hired anyone to prepare a Chapter 11 petition. We have hired a law firm to take us through the various paths that we could go whether or not we ever wound up in bankruptcy, and that would include basically restructuring the financial position, refinancing the company, and then ultimately to get us prepared over some period of probable months to be ready to file if we had to -- if that disaster position occurred.

QUESTION: In a similar vein, given that the company controls a huge chunk of the backbone of the Internet, do you have any contingency plans in place in the event of a Chapter 11? How would the Internet pipeline be managed if that were to happen?

SIDGMORE: Well, I don't think -- I honestly don't think, under any of the scenarios that we mentioned -- and this is my opinion, OK -- under any of the scenarios that we mentioned, I don't think there's much chance, if any, of any blip in the service.

And I can tell you this, strangely enough, we would be much more attractive as a company to lend money to if we were in bankruptcy than where we are now. And so I don't really see a significant -- any significant chance of the UUNET network going dark under any circumstance. I really just don't.

QUESTION: I wanted to go back to customer service, a question with respect to that, of where you see the status of that.

QUESTION: And do you see -- or can you say with confidence today that customers will not or will wake up one day with or without service?

SIDGMORE: You know, I'm hesitant to say anything with confidence on any topic anymore. But I am as confident as I can be that customers are not going to wake up and not have service. I really just don't believe that's possible.

We've had some customer service problems in the last year, but I can tell you that the bulk of the customer service problems we've had have been in the wireless resale business, interestingly enough. And it turns out that, I mean, that is a very difficult business to be in unless you have enough scale to build it around.

QUESTION: Two things: As you mentioned, noted, you're a far- flung company. That being the case, why weren't there more checks and balances? How is it that Scott Sullivan acquired or obtained that much power? And why wasn't anyone paying more attention, particularly the board? How did people not notice that he had accumulated so much power, there needed to be more oversight?

Second, again on that point about being far-flung, you also seem to be sending a message to people in this town that, "Yes, we are too big to fail; we're important in all these areas." Is that a subtext here, part of your message?

SIDGMORE: I'll take that one first. I think, you know, one of the things that we're trying to accomplish with the restructuring here and with the sale of some of these assets that are really non-core to us is to simplify the business.

The business has gotten -- I mean, it has gotten very complex over the last five years, you know, whatever it is, 75 acquisitions. You know, pulling all the systems together, pulling all the cultures together, it's a very, very complex operation. And when you get to a certain scale, to operate small businesses independently gets very, very difficult.

So if we can sell these non-core assets, not only do we hopefully raise a little money and increase our profitability, but we will refocus the company back to its core mission and potentially have a much better and much easier business to run.

On the question about how did the board, or how did the prior CEO allow Scott Sullivan to gain that much power, I can tell you this. If you asked almost any analyst on Wall Street, whether it's a bond analyst or a stock analyst, I think Scott Sullivan's name would come up almost in eight out of 10 cases as one of the two or three best CFOs in America; in our industry for sure. He was a tremendously capable person, and I think the company had tremendous faith in Scott's ability to, you know, to run the finance organization, whether it was in terms of raising capital or putting a P&L together or being able to describe what we were doing to people on Wall Street and even to customers.

So, I mean, Scott was an extraordinary person and tremendously, tremendously talented, and therefore I think over time the board and Bernie got used to that and had tremendous confidence in him.

And I'll tell you, if somebody had asked me a month ago whether this could possibly happen, honest to God, I would have said zero probability, not one percent, zero probability; we had that much confidence in Scott.

OK everybody, I want to thank you for coming and we are probably going to do this more than once in the next few months, and so just appreciate you paying attention to us and thanks for putting our stories out. Appreciate it.

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