- The Washington Times - Wednesday, July 3, 2002

WorldCom Inc. Chief Executive John Sidgmore yesterday said avoiding bankruptcy is important for national security because the company's networks carry sensitive communications and half of the world's Internet traffic.
His warning at a news conference here came amid signs that the government may be greasing the company's skid toward bankruptcy by threatening to cut off future federal contracts and implicating the entire firm in an accounting fraud much as it did with Arthur Andersen this year.
"WorldCom is a very key component of our nation's telecommunications and security infrastructure," said Mr. Sidgmore, noting that the sprawling telecommunications giant provides critical services to the Pentagon, State Department, homeland security agency and Nasdaq Stock Market.
"Homeland security is very concerned about cyber-security," he said, and other agencies are among many clients that are "nervous" and have inquired about the possibility of a WorldCom bankruptcy, which he said he cannot rule out "at some point."
Any bankruptcy filing by WorldCom, plagued by $30 billion in debts from an acquisition binge in recent years, would surpass Enron's as the largest in corporate history.
But Mr. Sidgmore said he assured federal clients, as well as business and consumer customers, that "the chances of our having a major blip in our service level are low."
The company's UUNET facilities the so-called "backbone of the Internet" based in Reston will not "go dark under any circumstances," he said.
Secretary of Defense Donald H. Rumsfeld yesterday dismissed concerns that WorldCom's troubles could pose a risk to the military, noting that the Pentagon's sensitive communications have never been disrupted. WorldCom carries about a third of defense communications around the world.
"Certainly, no one likes to see a private-sector entity fail," Mr. Rumsfeld said at a press briefing. "Will it adversely affect the Department of Defense? My best experience and knowledge tells me it will not."
WorldCom in April won a $450 million, 10-year contract to build a secure defense-research network, beating out Global Crossing Ltd., a bankrupt telecommunications firm that also is under investigation for accounting fraud.
The General Services Administration yesterday threatened to suspend any future business deals with WorldCom in light of the Securities and Exchange Commission's charge that the company committed securities fraud. But its review does not imperil existing contracts, which bring in about $2 billion a year for the company, officials said.
SEC Chairman Harvey Pitt restated on Monday night his intention to crack down on the company, declaring that WorldCom's sworn statement to the SEC explaining how it came to inappropriately hide $1.2 billion in losses was "wholly inadequate and incomplete."
Mr. Sidgmore in his National Press Club briefing said he had a "highly productive" meeting with Mr. Pitt yesterday at which he promised to provide more information and "clarification" of the sworn statement, which implicates two top finance officers in the accounting scam.
"We want the bad guys exposed and punished so we can move on with our lives," he said. Mr. Sidgmore joined the company after its founder and former chief executive, Bernie Ebbers, resigned in April. Mr. Sidgmore forced out the company's comptroller and its chief financial officer, Scott Sullivan, last week.
Mr. Sidgmore suggested that Mr. Ebbers should have been aware of the accounting practices under his watch, but he may have relied on Mr. Sullivan because of his once-stellar reputation.
Mr. Sidgmore implied that the government has much at stake in keeping the company alive, despite threatening rhetoric from President Bush and Mr. Pitt that echoes the strong statements they made against the Andersen accounting firm.
Andersen lost most of its clients this year as a result of a federal indictment for its role in the Enron scandal. Last month, it was convicted of obstructing the SEC's investigation of Enron, and it has agreed to stop auditing public companies.
Mr. Sidgmore said that if WorldCom goes out of business, consumers will have only "one or two choices" for long-distance service, alluding to the company's competitors, AT&T; and Sprint.
The most immediate threat to WorldCom's solvency, he said, is its need for more loans from bank creditors who have become wary and are demanding collateral to back their existing loans to the strapped firm.
J.P. Morgan Chase & Co., Citibank Corp. and other major creditors this week declared the company in technical default on $4.25 billion of loans as a result of its admission that it inappropriately portrayed $3.8 billion of operating expenses as capital costs in its financial statements.
Mr. Sidgmore said the company has more than $2 billion in cash and has been seeking about $5 billion in additional loans from the banks. While the banks have not yet agreed, they have no intention of pushing the company into bankruptcy, because they realize that would make them worse off, he said.
"All things being equal, unless some new problem occurs, we can make it through with that cash," he said, although the situation could get "sticky" if WorldCom loses major business or government customers.
"Despite all the histrionics," he said, the company has yet to lose a major customer.
WorldCom is trying to restructure and become profitable again by selling assets such as real estate and the SkyTel division and by unloading unprofitable businesses such as its wireless-resale division, which loses $750 million a year, Mr. Sidgmore said.
Layoffs beyond the 17,000 already announced are possible, he said.


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