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Sullivan’s Travails

More on the firing of WorldCom CFO Scott Sullivan. Plus, 3Com promotes treasurer as CFO departs, and low-flying Peregrine hires high-flying finance...
Lisa YoonJune 26, 2002

>> WorldCom Inc. CFO Scott Sullivan got turn-off notice after massive accounting irregularities of $3. 8 billion came to light… Second-largest U.S. long-distance carrier—formerly LDDS—fired Sullivan and accepted resignation of controller David Myers after internal audit revealed that expenses had been booked as capital expenditures, inflating cash flow and profits… Of senior managers, Sullivan was closest to former CEO Bernie Ebbers, who resigned under pressure seven weeks ago…

Sullivan widely considered the financial strategist who engineered WorldCom’s spectacular growth… During 1990s, through series of acquisitions such as MCI, company grew from smallish regional telecom to global behemoth—second only to AT&T… Andersen, WorldCom’s auditor at the time of accounting discrepancies, maintains its accountants did nothing wrong… Instead, accountancy said in statement that Sullivan kept information about the accounting treatment from Andersen…

WorldCom said it would restate earnings for last five quarters… Also cutting 17,000 jobs starting Friday… At $3.8 billion, restatement will dwarf Rite Aid Corp.’s 2000 restatement of $1.6 billion, which until now was biggest ever… Meanwhile, how a company can hide $4 billion in costs is question on minds of analysts, investors, and Securities and Exchange Commission, which ordered WorldCom to give detailed report—under oath—on its disclosure of accounting irregularities…

CEO John Sidgmore said management “shocked” to learn about the bad bookkeeping… In prepared statement, he insisted company would get back on track: “The company remains viable and committed to a long-term future… I have made a commitment to driving fundamental change at WorldCom, and this matter will not deter the new management team from fulfilling our plans.” Wishful thinking? Some analysts see company on path to bankruptcy… As one told Associated Press, “For a company with $30 billion in debt, that has a sector deteriorating from competition…it’s not looking good.”

(For more on the WorldCom restatement, see Today in Finance.)

>> Bad news at WorldCom means more bad news for 3Com Corp., which has already suffered at hands of telecom slump… Financial responsibilities will now be shouldered by new SVP of finance and planning and CFO Mark A. Slaven, who was promoted to succeed Mike Rescoe… Rescoe stepping down for personal reasons and will stay on in advisory role, company said…

Promotion of Slaven comes as no great surprise… He joined 3Com as part of company’s 1997 acquisition of U.S. Robotics, and has moved up steadily since… Having been VP of finance for U.S. Robotics’s manufacturing division, he became VP of finance for 3Com’s supply-chain operations after merger… Since then, was promoted to treasurer and, most recently, to VP of treasury, tax, trade, and investor relations… Before joining U.S. Robotics, Slaven was CFO of the personal printer division at Lexmark International Inc….

“Mark has a keen understanding of 3Com’s strategy and operations, and has been a key player on our financial management team,” says CEO Bruce Claflin. “In his most recent assignment as treasurer, he has played a leadership role…by building 3Com’s strong balance sheet, managing the best cash-to-cash cycle in the industry, and successfully refinancing 3Com’s debt.”

Slaven’s knowledge of company and conservative ways with cash may help 3Com get through drop in spending by telecoms… In latest earnings report—which included repeated use of the word “difficult” by Claflin—company reported Q4 loss of $23.8 million, or 7 cents per share, compared with a loss of $517.7 million, or $1.52 per share, a year earlier… Narrower losses not much of a silver lining, though: revenues fell 28 percent, to $399 million…

>> Software maker Peregrine Systems named Ken Sexton CFO… Sexton was previously CFO at E-business technology maker Merant… He also served as corporate controller of biotech Life Technologies Inc….

Sexton not joining Peregrine at best of times… He replaces San Diego Padres CFO Fred Gerson, who was serving as interim CFO after Matt Glass, along with former CEO Steve Gardner, resigned amid accounting questions… On May 6, Peregrine announced it might restate three years of financials, lowering numbers by up to $100 million. The news got attention of SEC, which is now investigating company’s accounting practices… Last week, company said it would slash about 1,000 jobs, almost halving its workforce…

In the same announcement, San Diego—based Peregrine also said it hired PricewaterhouseCoopers as its accountants, its third accounting firm this year… Company had replaced Arthur Andersen with KPMG earlier, but fired KPMG in May as accounting issues became news…