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WorldCom's Bad Math May Date Back To 1999

Jul 16, 2002 | USA Today WorldCom's accounting woes may go back to 1999 and were inspired by desires to keep profit margins up, lawmakers charged Monday.

Also Monday, WorldCom moved closer to a debtor-in-possession funding pact worth $2 billion to $3 billion that will give it money to operate under a possible bankruptcy reorganization, people familiar with the situation said. WorldCom is negotiating the deal with lead bank lenders Citigroup, J.P. Morgan Chase and GE Capital.

While WorldCom looks to its future, lawmakers are digging through its past. In e-mails dating to mid-2000, WorldCom's former CFO, Scott Sullivan, and ex-controller David Myers discussed with colleagues the accounting for excess network capacity as long-term investments rather than immediate expenses, say documents released by the House Energy and Commerce Committee.

WorldCom used such accounting methods to hide $3.9 billion in costs in 2001 and early 2002.

By early 2001, Myers and Sullivan were pressuring others to do something about declining profit margins. In an e-mail dated March 5, 2001, Myers refers to a recent dinner in which Sullivan and executive Tom Bosley discussed the need to ''do whatever necessary to get Telco/Margins back in line.'' Ex-CEO Bernie Ebbers and COO Ron Beaumont were at the dinner.

WorldCom spokesman Brad Burns declined comment on the documents, saying: ''We're providing documentation to all investigative bodies as we uncover it.''

Rep. Billy Tauzin, R-La., says the committee will continue interviewing whistle-blowers in hopes of learning more. He says the panel may hold a hearing or report its findings to the Justice Department, which is also probing WorldCom.

Excerpts:

* An e-mail from WorldCom accounting executive Buford Yates in July 2000 confirmed the lack of accounting justifications for how WorldCom eventually treated the costs. That e-mail did not go to Sullivan but did go to Myers. ''The bottom line is, people inside this company were trying to tell its leaders you can't do what you want to do, and these leaders were telling them they had to,'' Tauzin says.

WorldCom's Tony Minert, in a 2000 e-mail, floated the idea of capitalizing excess network capacity to Myers and others.

* Myers last month told auditors that capitalizing the line costs in the inappropriate matter was first done in the second quarter of 2001. While he said he was uncomfortable with the deeds, he added it was hard to stop them in subsequent quarters.

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