New Financial Reporting Requirements Test Firms

It's all in the numbers, as always, when it comes to ranking the Washington area's top companies for this annual Post 200 report. But this year, area companies -- and their frazzled, if well-paid, accountants -- have had a remarkably hard time saying just what their financial numbers are.

Companies' numbers are caught up in scandal (mortgage giant Fannie Mae), or they are still being hashed out (technology consulting firm BearingPoint Inc.), or they have arrived only after painful restatements (including uranium reprocessor USEC Inc. and business software maker WebMethods Inc.).

Among the reasons are the heightened scrutiny of corporate books that followed the scandals at companies such as Enron Corp. and WorldCom Inc. and the Sarbanes-Oxley Act that was enacted in reaction. The law requires top corporate executives to vouch for their internal financial systems.

The phenomenon is playing out nationwide, but there are some especially striking examples in the Washington area, starting with Fannie Mae. The federally chartered company that backs mortgages lost its customary spot atop The Post 200 (first place in revenue among the top 125 public companies based in the region) because it cannot yet offer an accounting of its 2004 performance. It is embroiled in criminal and civil investigations of the accounting blowup that led to the ouster of its top executives and is expected to lop billions of dollars off of its earnings going back to 2001.

Fittingly, its spot as the area's top public company has been taken this year by Freddie Mac, its counterpart in mortgage lending, which was missing from last year's list while it untangled its own accounting mess.

As many companies struggled with the Sarbanes-Oxley requirements, others benefited from selling software or expertise to deal with it. For example, FTI Consulting Inc. attracted attention after the Annapolis company's forensic accounting experts were hired by Freddie Mac to scour its books.

Not that accounting trouble is the only story told by the rankings in The Post 200. Again this year, the No. 2 public company based in the area is defense giant Lockheed Martin Corp. Its continuing strength reflects the booming business in government contracting, especially in defense and homeland security, that has powered much of the area's economic growth.

The No. 3 company, MCI Inc. -- scene of the biggest accounting fraud ever when it was called WorldCom Inc. -- returns to the Top 200 list after a trip through bankruptcy court and a loss of $4 billion last year. The telecommunications company also represents another trend: the dealmaking that gained momentum in the past year. By the time next year's Post 200 list is compiled, MCI is expected to have an out-of-town owner. At press time for this report, Verizon Communications Inc. and Qwest Communications International Inc. remained locked in a contest to buy the Ashburn-based company. Wireless provider Nextel Communications Inc., ranked fourth in revenue among local public companies but first in profit, at $3 billion last year, plans to keep its corporate headquarters in Reston. It also plans to have a new, hyphenated name, Sprint-Nextel, upon completion of its planned $35 billion merger with Sprint Corp.

It was also a year of mergers and acquisitions in the government contracting sector. Argon Engineering Associates Inc. and Sensytech Inc. merged to form Argon ST Inc. Information technology company American Management Systems was split, with CACI International Inc. of Arlington buying its defense and intelligence group and Canadian-owned CGI Group Inc. taking its civilian operations. Other companies also departed the Post 200 list because they were sold to out-of-town owners -- DigitalNet Holdings, Group 1 Software and Vastera. And United Defense Industries Inc., the maker of combat vehicles such as the Bradley Fighting Vehicle and missile launchers, agreed in March to be purchased by European defense contractor BAE Systems PLC for about $4.2 billion. (For more on the spurt of deals and the dealmakers who financed them, see The Post 200 coverage in today's Washington Business section.)

Five companies that went public over the past year made the roster of the top 125 local public companies, one more IPO than on last year's list. The newcomers were PRA International (testing new drugs), InPhonic Inc. (selling cell phones online), Fieldstone Investment Corp. (mortgage lending), Blackboard Inc. (online information-sharing for schools) and Comstock Homebuilding Cos. (building in the Washington area and Raleigh, N.C.).

Real estate remained one of the area's hottest sectors, reflected in the 25 percent increase in profit reported last year by NVR Inc. of McLean, the region's largest home builder. Similarly, the comeback of the tourism industry was reflected in a 19 percent increase in profit for Marriott International Inc. of Bethesda, the world's largest hotel company.

As always, there were exceptions even in the most buoyant sectors. For example, Williams Industries Inc. of Manassas had a losing year despite booming business because of the soaring cost of the steel it must provide under previously negotiated contracts to build roads and bridges such as the new Woodrow Wilson Bridge.

Collectively, the local public companies surveyed for The Post 200 reported revenue in 2004 of $254.7 billion -- up from $230.7 billion in 2003 and $213.1 billion in 2002.

The separate Financial Institutions category, which includes the 20 largest banks based in the District, Maryland and Virginia, also reflected a year of growth and change. Mercantile Bankshares Corp. of Baltimore remained at the top of the list, with $14.4 billion in assets. But Riggs National Corp., damaged by a scandal over its international banking operations, has agreed to be sold and will be part of a Pittsburgh bank within weeks. Other locally based banks had a much better year. Provident Bankshares Corp. of Baltimore bought Southern Financial Bancorp Inc. of Warrenton, helping boost Provident's assets to $6.6 billion from $5.2 billion the year before. The smaller Cardinal Financial Corp. of McLean grew even more rapidly, to $1.21 billion in assets from $636 million a year earlier.

-- Larry Liebert