Online: John Sidgmore, WorldCom CEO
Washingtonpost.com Live Online
Discussion with John Sidgmore, President and CEO of WorldCom Inc.
Thursday, July 11, 2002; 1 p.m. EDT
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| John Sidgmore (Washington Techway) |
WorldCom CEO John Sidgmore has committed to take questions from the public for the first time since the company’s $3.8 billion accounting scandal broke late last month. Sidgmore fielded questions for one hour in a Live Online discussion on Thursday, July 11.
Sidgmore’s appearance will fulfill his pledge to reschedule a Live Online that he postponed on June 21, shortly before WorldCom’s accounting problems became public.
Washington Techway contributing writer Keith Epstein, who profiled Sidgmore for a cover story in the latest edition of Washington Techway magazine, moderated the discussion.
An Edited Transcript Follows:
Editor’s Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Keith Epstein: Welcome. Thanks for joining us. I’m Keith Epstein, contributing writer to Washington Techway. Even before going on today, we were absolutely flooded with questions — more than 500 of them. As you can imagine, John, many were from distressed shareholders and your own anxious employees. What have you been hearing from them, and what have you told them about their seemingly failed investments and threatened livelihoods?
John Sidgmore: Obviously there are a number of groups that are concerned about our status. We are also concerned about their status. At this point and time we are trying to steer the best course for all of our constituents, including employees, customers and investors.
New York, NY: Where were you Mr. Sidgmore when all this was happening? From what I remember, after Ebbers acquired MFS you were slated to run WorldCom with him. Unless you were hiding in the closet for the last six years you would have been intimately involved in the operations of Worldcom. So how did you not know?
In addition I saw you in a brief clip explaining that your CFO Sullivan, your Controller Myers and one ‘clerical person’ engaged in the ‘cooking.’ Is it possible for only three people to collude in the amount of $4 BILLION on the books of a multi-billion dollar multinational corporation?
John Sidgmore: I was Chief Operations Officer during 1997 and 1998. Since that time I have had decreasing involvement in the operations of the company and played primarily a strategy role in mergers and acquisitions since that time. Over the last two years my role has been almost exclusively speaking at Internet conferences on behalf of WorldCom.
Cary, N.C.: At this point, are you currently leaning toward a debt-to-equity swap or leaning more toward the bank loans? What would be in the best interest for the future of WorldCom and would their be anything left for the shareholder if a debt to equity swap was inevitable.
Keith Epstein: Also, John, you’ve made references recently to potential “non-traditional” sources of financing? Can you be any more precise, or at least categorize what you’re talking about?
John Sidgmore: We are looking at all available options for financing and have been for the past two months – when I became CEO. We are cautiously optimistic that we will be able to obtain the financing required to ensure that the company can continue to provide service to all of our customers long into the future.
Cary, N.C.: How deep will the next round of layoffs go?
John Sidgmore: We have no plans at this time for additional layoffs. Circumstances in this industry have proven to be very difficult to predict for all telecom providers, so we cannot make any promises. I want to also point out that the recent layoffs that were previously announced were unrelated to the financial restatement and were forced due to market conditions and market demand.
Huntington Beach, Calif.: The consensus among the investment community is that the debt load has to be drastically reduced by paying down with free cash flow, asset sales, and so on. It appears that the most meaningful way to do this would be through a debt-for-equity swap. This has been mentioned as a possibility in a prepackaged bankruptcy. Could a debt-for-equity exchange be done without filing for bankruptcy? If there was a bankruptcy filing, where would this leave the common shareholder? Would it be possible for a debt-to-equity exchange where bond holders received 80-90% of the equity and existing shareholders received 10-20% of the equity be a possibility? I am both a shareholder and bond holder of WorldCom and feel that this would be more favorable to everyone than just bondholders receiving all equity.
John Sidgmore: We are looking at all options at this time and cannot get into all of the details of our negotiations and strategy. However, there is no doubt that we need to reduce our debt long term to achieve a healthy financial position. There are many ways to accomplish this.
Keith Epstein: John, I think what New York was trying to get at earlier concerned less the positions you held and more the state of your awareness of what was going on at WorldCom through the time you served as COO and later as vice chairman. How much did you know, what did you suspect, how much of this came as a surprise?
John Sidgmore: My positions at WorldCom were reflective of my involvement in operations. Obviously, the board reviewed highlights of the financial condition and key ratios – at each board meeting. There was nothing to suggest that this problem was looming, and I was totally taken by surprised and outraged.
London: When you took over as CEO you instigated a 60-day strategy review which should now be coming to conclusion. Your aim was to publish this information and confirm what parts of Worldcom were seen as core business and therefore strategic — and what was not considered core.
In light of your comments of entering in Chapter 11, it is increasingly important as a customer to be informed about what is and what is not core to WorldCom. Therefore, when will the results of your review be available?
John Sidgmore: We have laid out our strategic plan for the business and have announced which pieces of the business we don’t feel are core assets for the future. These include our wireless resale business, certain other wireless technologies, Latin American assets and some real estate. We believe that our large corporate customers will unaffected by our strategy.
Charles Town, W.V.: Mr. Sidgemore, if UUNET is sold, won’t that be the end of WorldCom as a telecom giant? Is UUNET on the table or is it completely off limits?
John Sidgmore: UUNET is not under consideration for sale.
Knoxville, Tenn.: Is the company making any effort to identify persons still with the company who designed, executed and protected the deceptions? If not, why not? If yes, what action will you direct the company to take regarding those individuals? What instructions have you given concerning cooperation with investigative efforts from inside or outside the company?
Do you think CEOs and their accomplices should be able to helicopter off the titanic while thousands drown? What will you do to prevent this deception in the future?
Do you think executives and boards should be allowed to engage in undisclosed extraction of wealth from employees and stockholders and continue to live in ease and luxury with impunity? Where is the linkage of their fate to the fate of those working under them, and those who financed them?
John Sidgmore: At management’s direction, our audit committee hired the former head of enforcement for the Securities and Exchange Commission to fully investigate the situation. In addition, we are cooperating with several other investigations that have been undertaken by other government agencies. Our position is that we want all the facts to come out, we want to make sure all that were responsible are punished and we want the other 60,000 employees within the company to move on with their lives with WorldCom.
Keith Epstein: It seems, from what you and others have said, that the multibillion dollar misstatement came as much of a surprise internally as to the public and to investors. Perhaps you can explain to outsiders how it is possible that such a problem could arise without many significant players, including members of the board, having sufficient awareness of the brewing storm?
John Sidgmore: The company attempts to protect itself in a number of ways. First, the board of directors typically reviews highlights of the financial information quarterly in order to attempt to detect if any major changes have occurred in the health of the business. Secondly, the board has an audit committee to specifically audit the financial statements. Finally, the board has outside auditors who review all of the details our our accounting operations and accounting statements each quarter. We would have EXPECTED that this problem would have come up from the detailed review of the financial statements — by the auditor.
Lady Lake, Fla.: Mr. Epstein, do your job and be a real journalist. Ask Mr. sidgmore what will happen to the common shareholder. Rather would ask, Cronkite would ask, Murrow would ask, “60 Minutes” would darn sure ask. Be a journalist and ask Mr sidgmore.
Keith Epstein: OK John, what will happen to the common shareholder?
John Sidgmore: We are still working through negotiations of various types and therefore we cannot predict at this time what will happen to our common shareholders. We are still reviewing all of our options. The main goal is to keep our company intact and to provide service to our customers.
Ashburn, Va.: As an employee of WorldCom, I’d like your honest assessment. Can this mess be turned around? Is it time to look for another job?
John Sidgmore: We remain committed to keeping this great company fully operational and as I said before we have no plans at this time for additional layoffs. There are no guarantees what the future can bring, but we understand how critical our employees are to providing great service to our customer base.
Arlington Va.: At yesterday’s congressional hearing, the Arthur Andersen auditor said that his company was forced to rely on numbers that your company provided. How then can you blame the auditors for dropping the ball?
John Sidgmore: Mr. Melvin Dick is that you???
Falls Church, Va.: Do you blame Arthur Andersen and other auditors for failing to catch the problems?
John Sidgmore: Typically, a company hires an outside auditor to make sure that the company’s financial management team produces accurate financial statements – they are the primary check and balance in this system.
San Francisco, Calif.: You never did answer the question from New York. How is it possible that only three people would try and hide $4 Billion, and the bigger question is why would they? No one believes that they would act alone without Ebbers knowledge, your knowledge, and some of the board’s. Please stop being a politician and answer the question. How and why would these guys act alone? (From a WorldCom employee)
John Sidgmore: We would love to know all the answers right now, but we simply don’t and won’t until the investigations are completed. We are as eager as you are to get to the bottom of this.
Fairfax, Va.: Mr. Sidgmore, I am actually a customer of UUNET. You had responded to an earlier question regarding UUNET’s fate, and you had stated that UUNET is not under consideration for sale. Can you be more specific in terms of whether you are considering closing down smaller UUNET data centers around the nation? Are you looking at consolidating your web hosting business in fewer data centers? If so, it would affect me, your customer, tremendously. Please comment. Thank you.
John Sidgmore: We are not prepared to predict the details surrounding our future strategy at this time. UUNET is central to our future and is certainly one of our greatest strengths as a company. You should NOT be concerned about any impact to your service level or quality.
Colorado Springs, Colo.: As an employee who has worked several late nights and weekends so that my department’s bottom line was the best it could be, I am very upset with the ‘cooking of the books.’ We have a great customer base, talented and hardworking core of employees. How do you see WorldCom improving its image and how long do you think it will take?
John Sidgmore: We have to first assure our customers and employees that our future is secure. Then we have to make it clear to the world that we are an honest, ethical organization that is deeply committed to providing innovative products and excellent services. We cannot allow the world to think negatively about WorldCom because of the actions of a few.
Newark, Del.: Please ask Mr. Sidgmore this. Bill Gates could approach Warren Buffett to buy it all. Gates would own the Internet. Gates could unilaterally rename the telecom soap opera, All My Fibers. What about Gates or Buffett to the rescue?
John Sidgmore: We continue to look at all options including traditional sources of financing and various strategic partners. We have reviewed many, many sources of capital over the last couple of months, including non-traditional sources.
Keith Epstein: So, John, are you saying a Gates or a Buffett is a possibility?
John Sidgmore: No.
Cleveland, Ohio: ‘We cannot allow the world to think negatively about WorldCom because of the actions of a few.’ Wouldn’t a bankruptcy filing accomplish just that?
John Sidgmore: We do acknowledge that there is the possibility of a Chapter proceeding if all of our other options run out. In many cases, Chapter proceedings are beneficial to a great majority of the stakeholders associated with the business. It provides continuation of service and future for the business that is sometimes not otherwise possible. However, let me reiterate, this is not our desired path.
Boston: Is Digex up for sale and how much per share if it sold?
John Sidgmore: Digex is not up for sale at this time.
We would like to thank everyone for their time today and appreciate your continued interest in our company.
Regards – John Sidgmore
Keith Epstein: Thanks, John, for your time.
And thanks to everybody else. We received more than 1,410 questions — obviously far too many to deal with in an hour. But I will send them all on to him.
If you want to get in touch with me, please email me via editor@technews.com.
Thanks!
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