WorldCom says suspension could cost $250M
By Dana Cimilluca
Bloomberg News Service
ASHBURN, Va. — WorldCom Inc., which filed the largest U.S. bankruptcy, said its earnings may be reduced by $250 million through 2005 by the federal government's plan to bar the company from new phone-and-data contracts.
The forecast amounts to an 8.9 percent cut in expected profit and assumes WorldCom will be excluded from U.S. work until July 1, 2004. Assuming the company is only excluded until Nov. 1, the reduction in earnings would be $38 million, WorldCom said in a U.S. Securities and Exchange Commission filing.
WorldCom, sent into bankruptcy by an $11 billion accounting fraud, last month was suspended from winning new federal orders for a period that could last three years. The U.S. government is Ashburn, Va.-based WorldCom's biggest customer, generating about $1 billion in annual sales, or 6.3 percent of total revenue.
WorldCom has said it would lose $1.02 billion in sales through 2005 in the event it's banned from winning or renewing contracts until July 1. The company, the second-biggest U.S. long-distance phone provider, is changing its name to MCI.
The General Services Administration, which awards government contracts, faced increasing pressure to suspend WorldCom after allegations emerged last month that the company had illegally evaded access charges owed to local-phone network operators such as Verizon Communications Inc., analysts say.
The U.S. Justice Department and Federal Communications Commission are investigating the allegations, made by WorldCom's competitors and a former employee of the company.
WorldCom said in today's filing that it has found no wrongdoing after a preliminary review of the claims.
The GSA cited a lack of sufficient internal controls and ethics at WorldCom when it announced the suspension July 31. WorldCom has until the end of this month to appeal. After that, the GSA will decide whether to bar WorldCom from winning U.S. contracts for as many as three years. The agency hasn't said when it will make the decision.
