Watch CBSN Live

MCI Continues Cleaning Up The Mess

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.

At the same time, Oklahoma Attorney General Drew Edmondson announced Friday the state has agreed to settle its criminal fraud case against MCI.

Under terms of the agreement, MCI would create 1,600 new jobs in Oklahoma over the next 10 years and has pledged to assist the state in its prosecution of former executives of the company formerly known as WorldCom, he said.

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 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."

"Since WorldCom's collapse a new company has emerged from the rubble. It was never our intention to put the company out of business and MCI has taken significant steps to clean its own house," Oklahoma's Edmondson said.

"MCI has purged itself of bad actors, appointed new executives and an entirely new board of directors. It has developed an extensive training program on business ethics and accounting rules and appointed an outside auditor."

MCI had faced a March 29 preliminary hearing in district court on charges contained in an indictment issued last year.

Edmondson has announced he will refile securities charges against ex-WorldCom chief executive Bernard Ebbers, who was hit with federal charges earlier this month that he directed an $11 billion accounting fraud, the biggest in U.S. corporate history. Ebbers' lawyer entered a plea of innocent on his behalf.

Oklahoma state prosecutors said the scandal led to heavy losses by Oklahomans, including $64 million lost by state pension funds.

The filing in the company's financial report 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 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.

View CBS News In