WorldCom writes down good will, other assets in effort to aid future

$79.8 billion in charges, second only to AOL, surprises some analysts

March 14, 2003|By NEW YORK TIMES NEWS SERVICE

WorldCom Inc., the long-distance carrier that is mired in the nation's largest bankruptcy filing, said yesterday that it was writing down $79.8 billion of its good will and other assets.

The move is an acknowledgment that many areas of the company's vast telecommunications network are essentially worthless.

The company said in a statement that all existing good will, valued at $45 billion, would be written down. WorldCom also said it would reduce the value of $44.8 billion of equipment and other intangible assets to about $10 billion.

WorldCom had previously signaled that it was considering the write-downs, but the immensity of the values involved surprised some analysts. WorldCom's write-downs are second only to those of AOL Time Warner Inc., which recently wrote down nearly $100 billion of assets.

Because WorldCom's network is so extensive and still so widely used, its write-downs could influence similar decisions at other large carriers.

"This raises the specter of other write-downs by competing companies like AT&T and Sprint," said Patrick Comack, an analyst at Guzman & Co. in Miami. "It's basically another example of the telecom mirage, with network assets in reality worth a fraction of their past value."

The write-down is an important step in WorldCom's effort to emerge from bankruptcy because it allows the company to reduce its depreciation and amortization expenses to $143 million, from about $480 million in December. It has little effect on its business and no impact on its cash position.

"They're taking the big bath now with the hope that this will positively affect future profitability," said Richard Klugman, an analyst at Jefferies & Co. in New York.

Still, the reduction in depreciation costs did not prevent WorldCom from posting a loss of $47 million for December on sales of $2.2 billion. A month earlier, WorldCom had a net loss of $194 million on the same amount of revenue.

"It's a scary situation," Comack said. "They're still losing money even without paying interest and after the write-downs."

WorldCom said yesterday that it ended December with $2.5 billion in cash, an increase of about $200 million from the previous month. Its financial results for the month did not include operations at Embratel, its large Brazilian affiliate, which recently secured a respite from creditors on dollar-denominated debt obligations.

"Revenue is stable, and our cash balances continue to grow," said Bradford Burns, a WorldCom spokesman. "We feel like things are headed in the right direction."

WorldCom, the nation's second-largest long-distance carrier after AT&T and one of the largest transmitters of Internet data, completed the preliminary review of its good will and assets as KPMG is reviewing its financial statements from 2000 to 2002.

WorldCom filed for bankruptcy protection last year after a scandal involving $9 billion in accounting irregularities. The company said yesterday that it also had reported the write-downs to the Securities and Exchange Commission, which is investigating its accounting practices.

Some investors are expecting similar write-downs at other telecommunications companies. One other large company, Qwest Communications International, said in October that it was writing down the reported value of its assets by $34.8 billion, reflecting the difficulty of maintaining high valuations of network investments made in recent years.

Much of the fiber optic equipment installed by carriers has plummeted in value since the late 1990s after the rapid expansion of competing networks resulted in a vast oversupply of communications capacity.

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