WorldCom Inc. took a major step Friday toward emerging from bankruptcy, filing restated financial results in which it acknowledged overstating pretax profits by a remarkable $74.4 billion during two years.
Most of that comes from recognizing that various assets were worth nearly $60 billion less than previously calculated.
Although immense, those sorts of writedowns are legitimate accounting transactions that occur frequently across corporate America.
But WorldCom’s restatement for 2000 and 2001 also includes at least $10.6 billion of wiped-out profits that the firm attributed to accounting “errors” as well as “improper” and “inappropriate” accounting.
“The numbers are stunning. It’s amazing what those guys did way back when,” said Thomas Mullen, a WorldCom bondholder and general partner at hedge fund TWM Capital.
In court documents, the total amount of overstated profits as a result of the nation’s largest accounting scandal have been put at roughly $11 billion dating to 1999.
Without admitting or denying guilt, WorldCom agreed last year to pay $750 million in cash and stock to settle federal regulators’ charges that it engaged in improper accounting to overstate profits.
For the long-distance giant, which is changing its name to MCI, the restatement is a key step to putting its past behind it.
“This filing culminates the largest and most complex financial restatement ever undertaken,” WorldCom Chief Financial Officer Bob Blakely said in a statement. “It is one of the last remaining milestones on our path to emerge from Chapter 11 protection.”
Spokeswoman Brittany Hoff said the company’s final major hurdle is filing its 10-K annual report for 2003, which is eagerly anticipated by Wall Street to shed light on current performance.
Hoff said it likely will be filed close to WorldCom’s emergence from bankruptcy, which is anticipated to happen next month.
Although Wall Street quickly dismissed Friday’s report as covering ancient history, it is historical nonetheless. The $74.4 billion is by far the largest restatement in U.S. history.
In fact, just under $5.5 billion in combined pretax profits were wiped out by three of the other largest restatements ever–at Rite Aid Corp., Waste Management Inc. and Xerox Corp.
In filing its restatement, WorldCom also released audited 2002 results for the first time, posting a net loss of $9.2 billion on revenue of $32.2 billion.
Revenue was down more than 14 percent from the restated 2001 level, but the net loss shrank from $15.6 billion.
WorldCom also disclosed that it paid auditor KPMG, which replaced Andersen in May 2002, more than $143 million to audit 2002 and the restated 2000 and 2001 results.
In contrast, it said Andersen was paid $4.4 million to audit original 2001 results.
Blakely said the amount of the restatements was “substantial,” but stressed “they do not have any impact on our current substantial liquidity position.”
WorldCom, he said, had roughly $6 billion in cash at the end of the year, though Hoff said it has yet to pay the $500 million cash portion of the settlement with the Securities and Exchange Commission.
Separately on Friday, Oklahoma Atty. Gen. Drew Edmondson settled his criminal fraud case against WorldCom in exchange for its cooperation in prosecutions of former executives.
Oklahoma has charges pending against six former company officials, including former Chief Executive Bernard Ebbers, who also has pleaded not guilty to federal fraud charges.
As part of the settlement with Oklahoma, the company also agreed to add 1,600 jobs in the state over 10 years, with an average annual salary of $35,000 a year, Edmondson said.
