Posted on: Friday, March 14, 2003
WorldCom writes down $79.8 billion in assets
By Dana Cimilluca
Bloomberg News Service
CLINTON, Miss. — WorldCom Inc. said it will write down $79.8 billion in assets, the most ever for a U.S. company, after waning demand reduced the value of its telecom networks.
WorldCom, which filed the largest U.S. bankruptcy last year, will write off all $45 billion of good will left over from acquisitions. It will reduce property, equipment and other assets by $34.8 billion to $10 billion, it said in a statement.
The size of the writedown — more than twice the market value of General Motors Corp. and Ford Motor Co. combined — reflects the plunge in telecommunications assets with the collapse of the technology-stock bubble in the past three years. WorldCom said last year it reported $9 billion in fictitious profits between 1999 and the first quarter of 2002.
The writedown "reflects the failed business vision of the company, and the continued overcapacity and weakness in the whole telecom sector," said Rick Tilton of Greenacre Asset Advisors LLC, which advises creditors of bankrupt companies.
AOL Time Warner Inc., the world's biggest media company, wrote down the value of assets twice last year, first by $54.2 billion, then by $45.5 billion, for a total of $99.7 billion. Good will, the difference between an asset's purchase price and fair value, is carried on balance sheets as an intangible asset.
WorldCom had said it might write down assets, including all good will. Former Chief Executive Bernard Ebbers built the company into the No. 2 U.S. long-distance carrier through more than 60 acquisitions. He resigned under pressure from falling sales and stock prices in April, three months before the bankruptcy filing.
The new CEO, Michael Capellas is seeking to clean up the balance sheet and guide WorldCom out of Chapter 11 by the third quarter.
The Clinton, Miss.-based company, which reports results monthly to a U.S. Bankruptcy Court, also said on its Internet site it had a net loss from continuing operations of $584 million in December, after a net loss of $194 million on that basis in November.
WorldCom said its net loss from continuing operations, before reorganization items, was $47 million in December. It had operating income from continuing operations of $43 million, according to the statement, compared with a loss on that basis of $163 million in November. December sales were $2.2 billion, the same as in the preceding month.
The company increased its cash by $200 million in December, ending the month with $2.5 billion. The results don't include WorldCom's Embratel Participacoes SA Brazilian unit.
All reported results are subject to a final audit, WorldCom said. It won't release a balance sheet or cash flow statement until it completes a final evaluation.
WorldCom's bonds traded at 25 cents on the dollar before the announcement, up from 23 cents yesterday, traders said.
A criminal case is pending against former WorldCom Chief Financial Officer Scott Sullivan, who has pleaded not guilty to securities-fraud charges related to the accounting misstatements.
Four other former WorldCom executives pleaded guilty to criminal charges and are cooperating with prosecutors.
The company disclosed in June that $3.85 billion in line costs were treated as capitalized expenses in 2001 and the first quarter of 2002, masking losses. It has since said accounting errors could exceed $9 billion.
A report on the company's past accounting, prepared for WorldCom's board by William McLucas of law firm Wilmer Cutler & Pickering, may show, through a voice-mail, that Ebbers knew about the accounting fraud, a person who has seen the document said yesterday.
Ebbers has denied any wrongdoing and hasn't been charged with a crime.
