June 26, 2002, 9:09 AM — Telecommunications and Internet service provider WorldCom Inc. announced Tuesday it will restate its financial results for 2001 and the first quarter of 2002 as a result of accounting irregularities and has terminated its chief financial officer (CFO), Scott Sullivan. It will also continue with its previously announced plans to reduce its workforce by 17,000, beginning Friday.
The announcements came on the heels of a series of setbacks for the Clinton, Mississippi, company, and helped send its stock (WCOM) down nearly 76 percent Tuesday on The Island ECN Inc. after-hours market. On Tuesday evening, the stock was trading at US$0.20.
The Nasdaq stock market suspended the trading of WorldCom shares Wednesday, pending the company's providing requested information to the market, according to a press release issued by the Nasdaq.
Certain transfers from line cost expenses to capital accounts during 2001 and the first quarter of 2002 were not made in accordance with U.S. generally accepted accounting principles (GAAP), according to WorldCom's statement. The transfers totaled $3.05 billion in 2001 and $797 million in the first quarter of 2002.
Without the transfers, WorldCom's earnings before interest, taxes, depreciation and amortization (EBITDA), would be reduced to $6.34 billion, and for the first quarter of 2002 would be cut to $1.37 billion. The company would have reported net losses for both periods, it said.
Also Tuesday, WorldCom said it had accepted the resignation of David Myers as senior vice president and controller.
In late April, WorldCom President and Chief Executive Office Bernard Ebbers resigned in the face of mounting debts, a U.S. Securities and Exchange Commission (SEC) investigation and layoffs. WorldCom will begin a round of previously announced layoffs on Friday, which will see the company shed as many as 17,000 jobs, saving the company an estimated $900 million per year.
The company has notified the SEC and asked its recently hired external auditor, KPMG LLP, to undertake a comprehensive audit of the financial statements from those periods, according to the statement. The company expects to provide a restatement of its results as soon as possible.
"The WorldCom disclosures confirm that accounting improprieties of unprecedented magnitude have been committed in the public markets," the SEC said in a statement released Wednesday.
The SEC said it is investigating WorldCom's statements and disclosures and that it is ordering the company to file a detailed report on this matter. The body also called for reform in financial market regulation.
Previously, WorldCom used Arthur Andersen LLP as its external auditor. Arthur Andersen issued a statement late Tuesday laying the blame on Sullivan and disclaiming any knowledge of the transfers.