Ch 2 WorldCom

Question 1

What went wrong at WorldCom?

Answer 1

It was all about money (and power and ego)

Question 2

What went right at WorldCom?

Answer 2

Committed to doing the right thing

Question 3

What was learned in the aftermath of WorldCom?

Answer 3

Successful organizations depend upon ethical leadership, values, reinforcement, and ultimately culture

Question 4

In a nutshell, what were WorldCom’s five phases of growth and transformation?

Answer 4

1) Emergence of LDDS
2) LDDS to WorldCom
3) Expansion into Local Markets and Internet Service
4) Consolidation of Leadership in Local and Long Distance Telecommunications Services
5) The Downturn for Telecom and World Com (“The Perfect Storm”)

Question 5

What does LDDS stand for?

Answer 5

Long Distance Discount Services

Question 6

In what year did a group of investors form a small telecommunciations reseller called LDDS, which was licensed to provide long distance service in Mississippi?

Answer 6

1983

Question 7

In 1984, LDDS’ annual revenues totaled roughly how much?

Answer 7

$1 million

Question 8

In 1985, who was elected CEO of LDDS?

Answer 8

Bernie Ebbers

Question 9

True or False.

In 1989, LDDS merged with Advantage Companies, Inc. becoming a bigger private company.

Answer 9

False (became public company)

Question 10

From 1984 to 1989, LDDS revenues jumped from how much to how much?

Answer 10

$1 million to $116 million

Question 11

How did LDDS become WorldCom?

Answer 11

• 1992, LDDS merged with ATC
• 1995, LDDS acquires WilTel Network
• April 1995, LDDS changes name to WorldCom, reflecting global presence

Question 12

After LDDS became WorldCom, what did annual revenues jump to ? What did debts total?

Answer 12

$3.9 billion rev; $3.4 billion debt

Question 13

True or false.

In 1996, WorldCom acquired MFS to expand into local and internet services. Its annual revenues equalled its debts at $4.8 billion.

Answer 13

True

Question 14

After what merger did WorldCom establish itself as a leader in local and long distance?

Answer 14

• Merger with MCI
• Annual revenues @ $17.6B
• Debt @ $21.2B

Question 15

True or false.

Although the specific number varies depending on the source, WorldCom acquired over 60 companies from 1983-2001.

Answer 15

True

Question 16

In what year did WorldCom’s stock reach an all-time high?

Answer 16

1999 @ $96.76 per share

Question 17

With whom did WorldCom fail to merge with because the government feared it would put too much market power in the hands of a single company?

Answer 17

Sprint

Question 18

True or false.

In 1983, LDDS had revenues of less than $1 million. In 2001, WorldCom had annual revenues of $35 billion.

Answer 18

True

Question 19

Fill in the blanks.

In two decades, LDDS evolved from a ____ phone company to a _____ communications company through a series of more than ____ acquisitions.

Answer 19

• local
• global
• 60

Question 20

What were the market conditions of the perfect storm in 2000?

Answer 20

• tech boom ends

- recognition of overcapacity in telecom markets and prices for telecom services drop

Question 21

In the face of a falling stock price in 2000, why did the BOD approve loans to Ebbers totaling over $75 million?

Answer 21

In order to prevent Ebbers from selling stock to pay outstanding debts
(Ebbers had pledged WorldCom stock as collateral for business and personal loans)

Question 22

On April 30, 2002, who resigned as President, CEO and Director of WorldCom?

Answer 22

Bernie Ebbers

Question 23

On May 14, 2002, who did WorldCom terminate as its independent auditor?

Answer 23

AA (retains KPMG as its independent auditor)

Question 24

Who dominated the course of WorldCom’s growth, as well as the decisions of the BOD?

Answer 24

Bernie Ebbers

Question 25

WorldCom put extraordinary pressure on itself to do what?

Answer 25

Meet analyst expectations (and created an environment in which meeting analyst expectations became more important than accurate financial reporting)

Question 26

How was WorldCom’s fraud discovered?

Answer 26

It was uncovered by WorldCom’s Internal Audit Department

Question 27

In general terms, WorldCom overstated its reported net income by doing what?

Answer 27

Capitalizing line costs

Question 28

On July 21, 2002, WorldCom and substantially all of its US subsidiaries filed voluntary petitions for bankruptcy under Ch. 11 of the US Code, enabling WorldCom to do what four things?

Answer 28

1) Create the greatest possible value for creditors
2) Preserve jobs for employees
3) Continue to deliver top-quality service
4) Regain financial health and focus

Question 29

How much was WorldCom’s bankruptcy filing?

Answer 29

$103 billion

Question 30

WorldCom committed to doing the right thing by doing what?

Answer 30

• Turning itself in

Question 31

How did the tone at the top change at WorldCom?

Answer 31

• From: “Codes of conduct are a colossal waste of time”

- To: “Do the right thing b/c it’s the right thing to do”