Archive for the 'Business Stories' Category

In May of 2008, my son Danny and I went to the Colorado Avalanche game.  Adam Foote was back and we wanted to see him in an Avs uniform again.

Adam Foote played for the team from 1995 through 2004, and was a key defender on the team when they twice won the Stanley Cup.  Seeing Adam back in a Colorado uniform brought back a fond memory.


Years ago, Adam made a lasting impression on my son Danny. Though Danny met Adam only briefly, I suspect that Adam made a meaningful contribution to Danny’s character. Oh, by the way, Danny is a darn good hockey player and Adam Foote remains his all-time favorite player.

The 51st National League All-Star Game took place on February 4, 2001 at the Pepsi Center in Colorado. The skills competition took place the day before. I brought my son and we had a great time. Anaheim Mighty Ducks’ Paul Kariya won his third straight puck control relay event and Boston Bruins’ Ray Bourgue came in first in the shooting accuracy competition.  My friend Marty and his son Christopher joined us at the event. Though Colorado’s #52 wasn’t in the game, my then 6-year-old son wore his Adam Foote jersey.


Afterwards, we went to the Denver Chop House for dinner. About an hour later, a buzz went through the place that several sports players were hanging out in the bar area. Larry Walker was among them. So was Adam Foote.

I am not the type of guy to bother people in the public eye. However, my buddy Marty is. So Marty took Danny up to Adam Foote to see about getting an autograph.   As my son walked up, Adam smiled ear-to-ear. Adam was already an NHL veteran and was very popular in Colorado. Nonetheless, you would have thought it was the first time he noticed anyone other than himself wearing an Adam Foote jersey.

“You’ve got my jersey on. How cool. I have to bring you to my wife.” He brought Danny over to his wife and they talked for a short while. He then signed Danny’s jersey–and we cherish it to this day.

What happened next was what made the day so memorable.  An hour or so passed and it was time to go. The restaurant was crowded, especially around the bar where the athletes were hanging out. Marty, his son, Danny and I were leaving. As we walked out of the main door, I turned around. No Danny. Marty, Christopher and I looked at each other and, perhaps overreacting a bit, I rushed back in. I looked around frantically and then spotted him in the very crowded bar area.

Again, he was only six years old, so he was hard for anyone to notice him.

I caught him just as he pushed against Larry Walker’s leg, nudging the Colorado Rockies all star out of his way. He stood in the circle of Walker and 3 or 4 others, including Colorado’s #52. He looked up at Foote and waved goodbye. Though I couldn’t hear Foote, he let out a good belly laugh as he caught Danny moving Walker aside. He picked up Danny and wished him well.

Danny, now 16, is a solid defenseman in competitive hockey.  He is always the one that goes out of the way to tap the shin guard of his goalie, just like he saw Adam Foote do oh so many times.  Thank you Adam Foote. You made a difference in two peoples’ lives that day.

The year was 1997. Worldcom finalized its acquisition of MFS Communications four months earlier. Within days of the closing, most of the MFS executive team parted ways. I was one of the most senior ex-MFS’ers.  I knew more about MFS’ day-to-day business than perhaps anyone who remained.

Worldcom discovered a problem. The context is arcane, so bear with me.

Long distance telephone companies pay local telephone companies to originate and terminate phone calls. The rate to do this has been very high due to historical reasons tied to the breakup of AT&T.  These high access rates were the mechanism for using long distrance revenue to subsidize local phone companies so that phone service would be available to most Americans.    In 1997, access rates were set at approximately 2.5 cents a minute, and this expense category was Worldcom’s biggest expense. If they could cut this in half, their stock would soar. And they had a plan to do just that–acquire MFS.

MFS was leading the charge on bringing competition to local phone service. As part of how local competition worked, local phone companies exchanged phone calls with one another. If MFS’s customer needed to call Verizon’s customer, MFS would need to hand off a call to Verizon and Verizon, in turn, would deliver it to the customer. The reverse of this was also true, as Verizon’s customers would need to call MFS’ as well. Although the technology of exchanging local calls was identical to exchanging long distance call, the price was far lower–about 0.5 cents a minute instead of 2.5 cents a minute.

Worldcom’s plan was to buy MFS and route its long distance traffic through MFS’ local trunks, saving more than 50% of the fees it was paying the local telephone companies to terminate calls.  If successful, Worldcom would save several million dollars a month.

After Worldcom completed its acquisition, it discovered a flaw in its plan. It was illegal. Regulatory law didn’t allow (and still doesn’t) paying local rates for terminating intercity calls. This was news to Worldcom and not good news. A big part of their “synergy” was no longer available to them.  Oh well. I guess the due diligence was a bit rushed.

But they had another plan. From an accounting perspective, perhaps they could take a write-off based on purchase price accounting. The logic (or illogic for non-CPAs) was that this “savings” would have been available to Worldcom for the transaction but they’d simply couldn’t realized the savings immediately.   So they decided they’d write off a big acquisition expense and buried among other big acquisition expenses.  Who’d know?   By doing so, they would reflect savings on their P&L statement immediately.  The cash to pay the access charges would not be saved, but this would be an accounting reconciliation with the cost of the acquisition.   It would never hit their P&L.  EBITDA would look better, and they’d meet their synergy goals.

To implement this revised plan, Worldcom needed a subject matter expert to work with Arther Anderson to provide context for the write-off. Scott Sullivan asked me to do this. I explained the problem was not technical, it was law.   Scott viewed this as a technicality.  He further explained that Worldcom was the only account assigned to the Anderson partner also lived in Worldcom’s hometown of Jackson, Mississippi.

“Don’t worry about it,” Scott tied to assure me.   “It is not a big deal. They just need some color.”

I thought about it. After a sleepless night or too, I decided to tell Scott no.

“No problem,” was Scott’s reaction “We will get someone else to do it.  To the best of my knowledge, they took this write-off.  Thankfully, I resigned a couple of months thereafter to be part of the team that launched Level 3 Communications.