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WorldCom shares crumble after hiatus

The company resumes trading, and its shares promptly fall to the floor. Meanwhile, WorldCom says it is reviewing its 1999 and 2000 finances.

WorldCom said Monday in a sworn statement to federal regulators that it is reviewing its financial statements for 1999 and 2000.

Meanwhile, WorldCom said it has received notice that it defaulted with some of its creditors. Lenders for its $2.65 billion and $1.6 billion senior unsecured credit facilities may begin asking for immediate payment, the company said.

The news, the latest in an accounting scandal that has shaken the technology and telecom sectors, comes as shares of beleaguered company began trading for the first time in three trading sessions.

In late trading, WorldCom shares fell 92.4 percent, or 77 cents. WorldCom closed last Tuesday at 83 cents hours before the company revealed it had improperly accounted for nearly $4 billion in expenses, making its results for the last five quarters look much better than they actually were.

MCI, WorldCom's long-distance unit, remained halted pending more information about its dividend payment, according to the Nasdaq Stock Exchange. MCI shares closed at $1.68 on Tuesday.

WorldCom was given the green light to trade after the Securities and Exchange Commission received sworn statements from company executives, but trading may not last long. WorldCom's shares may be delisted from the Nasdaq July 5 unless the company requests a hearing, the company said.

Analysts predict that WorldCom is likely to file for bankruptcy. Aside from defaulting with creditors, WorldCom said it has received a termination notice for a $1.5 billion program that secures accounts receivables. The company plans to use collections on the accounts to pay the $1.2 billion outstanding.

In the statement released by the SEC, WorldCom said, "questions have been raised regarding certain material reversals of reserve accounts" during 1999 and 2000.

"No conclusion has been reached regarding these entries," said the company. "If, after review, the company believes additional actions are required, it will make an announcement promptly."

WorldCom added that its audit committee is reviewing past financial results with auditor KPMG. The company also gave a time line of events leading up to last week's accounting disclosure and the ouster of Chief Financial Officer Scott Sullivan.

In a statement, CEO John Sidgmore said WorldCom is "absolutely committed to operating in accordance with the highest ethical standards."

Analysts said it's likely that WorldCom's accounting problems are just beginning. For all of 2001 and the first quarter of 2002, WorldCom disclosed that it counted expenses as capital expenditures, thereby boosting its EBITDA (earnings before interest, taxes, depreciation and amortization).

"We probably have only seen the tip of the iceberg when it comes to accounting problems," said Paul R. Brazina, an accounting professor at La Salle University in Philadelphia.

The Clinton, Miss.-based company faces charges of fraud for accounting irregularities that allowed it to hide more than $3.8 billion in operating expenses over the past five quarters. It is also likely to face shareholder lawsuits, analysts said.

WorldCom's accounting worries have spread to other telecom rivals that include Qwest Communications International and technology companies that practice aggressive accounting.

"It's not just WorldCom," said Fred Hickey, editor of High-Tech Strategist, an investment newsletter. "Businesses were doing all kinds of things to justify valuations."

Indeed, the telecommunications company said in the statement to the SEC that its June 24 investigation into its accounting problems "has been limited" and noted that it will take 8 to 12 weeks to complete.