MCI announced on Friday that it will reduce pre-tax income by $74.4 billion for 2001 and 2002. According to the company’s annual report, this major restatement will enable it to take one giant step closer toward an exit from bankruptcy.
“This filing culminates the largest and most complex financial restatement ever undertaken,” said Bob Blakely, MCI executive vice president and chief financial officer, in a statement. “It is one of the last remaining milestones on our path to emerge from Chapter 11 protection.” The company plans that emergence for April, according to wire-service reports.
“While these restatement adjustments are substantial, they do not have any impact on our current substantial liquidity position,” added Blakely. The company has about $6 billion in cash as of the end of 2003, he said, according to the Associated Press.
MCI’s restatement resulted in adjustments to revenues, expenses, and earnings as well as write-downs of assets and adjustments to liabilities. The company said the restatement process included revalidation and correction of accounting records, review of the accounting for all major acquisitions dating back to 1993, reassessing the propriety and appropriateness of the application of accounting principles, and a re-audit of the financial statements.
The largest category of restatement adjustments, according to MCI, is impairment charges resulting from write-offs of goodwill and write-downs in the carrying value of other intangible assets and property, plant, and equipment in 2000 and 2001. The impairment charges for 2000 and 2001 total $59.8 billion.
Other significant adjustments are related to the company’s review of major acquisitions go back to 1993. As part of this review, MCI said that it re-performed fair-value allocations and purchase-price calculations.
The company added that restatement adjustments to correct errors in the application of purchase accounting for the acquisitions totaled $5.8 billion during 2000 and 2001.
The remaining $8.8 billion in restatement adjustments include $4.8 billion of charges to pre-tax income to correct access costs that had been reduced either by the improper capitalization of the expenditures as additions to property, plant and equipment or by inappropriate reductions to accrual balances.
KPMG audited the financial numbers and Deloitte & Touche participated in the process, according to the company.