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MCI Cleanup Wipes Out $74B in Past Profits

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  • MCI Cleanup Wipes Out $74B in Past Profits


    McLEAN, Va. - The cleanup of WorldCom's tainted books reveals pre-tax losses of $74.4 billion not previously reflected in the company's financial reports for 2000 and 2001, MCI said Friday in a long-awaited report that wipes away a vast accounting fraud and reflects the plunging value of telecommunications assets.

    The financial restatement is likely the biggest in corporate history. But as an adjustment on paper only, it has no direct impact on the renamed telephone company's operations or bid to emerge from bankruptcy.

    The adjustments, issued in MCI's annual report, also includes the company's first report of its full-year results for 2002: a net loss of $9.2 billion on revenue of $32.2 billion.

    The adjustments for the two prior years would mean that WorldCom actually suffered a a net loss of $48.9 billion in 2000 and a net loss of $15.6 billion in 2001. The company had reported profits for both those years.

    The restatement helps clear a major hurdle in MCI's bid to emerge from bankruptcy protection. The company, which filed for bankruptcy as the scandal broke in July 2002, plans to exit Chapter 11 by the end of April.

    Although the revisions technically apply only to the years 2000 and 2001, MCI said it basically rebuilt its books from scratch, going all the way back to 1993, to develop a proper accounting.

    "This filing culminates the largest and most complex financial restatement ever undertaken," said chief financial officer Bob Blakely. "It is one of the last remaining milestones on our path to emerge from Chapter 11 protection."

    The filing attributes $8.8 billion of the $74.4 billion restatement to the financial irregularities and questionable accounting practices that have led to criminal investigations and charges against former senior executives at the company, including former Chief Executive Bernard Ebbers.

    Some estimates of the accounting fraud had reached as high as $11 billion. Company spokesman Peter Lucht said the $11 billion estimates had never been confirmed by the company.

    Most of the restatement — nearly $60 billion — stems from a write-down in the value of assets and other adjustments associated with the general struggles of the telecommunications industry.

    Another $5.8 billion is the result of inflated estimates of the assets of numerous companies bought by WorldCom during its binge of acquisitions in the 1990s.

    MCI's writedown was even bigger than the $54 billion writedown by AOL Time Warner in April 2002 to reflect to the declining value of America Online assets. That restatement resulted in the company reporting the largest quarterly loss ever by a U.S. company.

    Blakely said the financial restatements do not affect the company's liquidity, and that it has about $6 billion in cash as of the end of 2003.

  • #2
    Great post, Gonzo.

    I like this the best:

    Some estimates of the accounting fraud had reached as high as $11 billion.
    Peanuts compared to the sword of Damocles hanging over the US economy with Fannie Mae, Freddie Mac, and pension guarantees.

    Think the S&L crisis was expensive. Gentlement, start your wallets.......

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    • #3
      Gonz,

      The shareholders were wiped out some time ago.
      And, frankly, it has never occured to me that "winning" a debate is important, or that I should be hurt when someone like Airshark or kah, among others (for whom winning a pseudo debate or declaring intellectual superiority over invisible others is obviously very important) ridicule me.

      -The Artist formerly known as King in KC

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      • #4
        I could buy all of WorldCom today for my RIAA class action settlement check.
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