MCI WORLDCOM REPORTS THIRD QUARTER 1998 RESULTS
Pro Forma Results Capture Scale of Combined Company
Communications Services Revenues Increased 19 Percent
Led by Data, Internet and International
JACKSON, Miss., Oct. 29 /PRNewswire/ -- MCI WorldCom, Inc. (Nasdaq: WCOM) today reported third quarter revenues of $3.8 billion, a 97 percent increase over third quarter 1997 reported revenues of $1.9 billion. Strong internal growth combined with the benefits of both the MCI transaction completed September 14, 1998, and the CNS/ANS transactions included for the full third quarter 1998, drove the year-over-year doubling of reported revenue. Also included with the MCI results are the 16 days of Embratel Participacoes S.A.,(Embratel) revenues of $174 million which are now being consolidated.
On a pro forma basis, assuming the business combinations with CNS, ANS and MCI occurred as of the beginning of the year for both periods -- which is indicative of internal growth -- total revenues, excluding Embratel, were $7.7 billion, up 16 percent, as compared with $6.6 billion for the third quarter 1997. Communications Services revenues, which comprises voice, data, international and Internet, increased 19 percent on a pro forma basis. Traffic, on a pro forma basis, increased 18 percent year-over-year.
Embratel revenues for the entire third quarter 1998 were $932 million bringing total consolidated company pro forma revenues to $8.6 billion. "Our 19 percent year-over-year communications services revenue growth is up substantially from the 12 percent pro forma growth that the combined company was experiencing in the third quarter of 1997 -- at the time we first announced the MCI transaction," said Bernard J. Ebbers, president and chief executive officer of MCI WorldCom. "The acceleration in our year-over-year pro forma revenue growth is in spite of a competitive voice market and underscores the value of our investments in the fastest growing segments of the market. This is positively impacting our performance, as well as the success of our combined sales force in boosting traditional revenues."
Reported net income, excluding the pre-tax MCI merger-related charges of $3.3 billion for the third quarter 1998 was $268 million or $0.21 per common share, compared with net income of $69 million or $0.07 per common share in the third quarter of 1997. Reported net income, excluding the merger related charges for year-to-date 1998, was $644 million or $0.58 per common share. After merger related charges, the net loss for the third quarter and year-to-date was $2.9 billion and $3.2 billion, respectively.
MERGER RELATED CHARGES
Pre-tax merger related charges of $3.3 billion were taken in the third quarter. This includes the previously announced $3.1 billion of in-process research and development. Additionally, the company recorded a $184 million pre-tax charge relating to MCI merger activity, including the cost to integrate local businesses, exit unfavorable contracts, write down of unrealizable assets and employee severance and other costs. A portion of these non-recurring charges, related to unfavorable contracts and facilities of $37 million and $21 million, were taken against line costs and SG&A, respectively.
THIRD QUARTER AND YEAR-TO-DATE PRO FORMA REVENUES
For internal revenue growth comparison purposes, the following pro forma illustration includes CNS, ANS and MCI from the beginning of the earliest period presented. These tables do not include Embratel or the InternetMCI revenues. The impact of businesses sold during the year, have been taken out of prior year figures to give an indication of revenues growth on a more comparative basis. These adjustments have been reflected in the "Recasted Revenues" line.
THIRD QUARTER YEAR-TO-DATE ($ MILLIONS)
Pro Forma
3rd Qtr Yr to Date
Revenues 1998 1997 Change 1998 1997 Change
Voice $ 4,907 $ 4,462 10% $14,483 $13,291 9%
Data 1,520 1,147 33% 4,211 3,295 28%
Internet 589 343 72% 1,588 917 73%
Int'l 302 195 55% 802 515 56%
Commun. $ 7,318 $ 6,147 19% $21,084 $18,018 17%
IT 356 477 (25%) 1,323 1,486 (11%)
Total $ 7,674 $ 6,624 16% $22,407 $19,504 15%
Business Sold:
MFS Network
Technologies -- ($ 83) -- ($ 64) ($ 191) --
Operator
Services -- ($ 17) -- -- ($ 69) --
Broadcast
Operations -- ($ 12) -- -- ($ 40) --
Recasted
Revenues $ 7,674 $ 6,512 18% $22,343 $19,204 16%
COMMUNICATIONS SERVICES
MCI WorldCom reported pro forma third quarter communications services revenues, excluding Embratel, of $7.3 billion, and year-to-date communications services revenues of $21.1 billion, an increase of approximately 19 percent and 17 percent, respectively as compared with comparable periods in 1997.
Pro forma results for the prior periods have been adjusted to reflect elimination of intercompany revenues and a classification change for inbound international settlements which are now being treated as an offset to cost of sales, instead of revenues. Previously, both MCI and WorldCom classified foreign PTT settlements on a gross basis with the outbound settlement reflected as line cost expense and the inbound settlement reflected as revenue. This change better reflects the way in which the business is operated because the company actually settles in cash through a formal net settlement process that is inherent int the operating agreements with foreign carriers.
Voice revenues, representing 64 percent of total revenues, grew 10 percent to $4.9 billion for the third quarter. MCI WorldCom boosted its industry leading voice traffic growth to 15 percent year-over-year. On a year-to-date basis, voice revenue was $14.5 billion, up 9 percent as compared with $13.3 billion for the comparable period in 1997. Year-to-date traffic increased 17 percent.
Growth in voice traffic is particularly evident in the business markets where MCI WorldCom's ability to provide competitive prices and services over a high quality network is driving strong growth from commercial sales. On the consumer side, the company continues to market a range of integrated services, promote transaction brands and leverage partner marketing programs to improve customer retention.
Local voice revenues grew 87 percent in the third quarter 1998, year-over-year.
Data revenues increased 33 percent to $1.5 billion for the third quarter 1998. Year-to-date data revenues of $4.2 billion were up 28 percent as compared with the first nine months of 1997. Virtual data services, including frame relay and ATM services, are growing more than 70 percent and helping to drive overall revenue growth.
Data network requirements are becoming more strategic and far 4eaching, meaning customers are looking for ubiquity and reliability from network providers.
Rapidly growing demand for high-speed data access as well as data transport is driving local data revenue growth of more than 40 percent. This growth, correlating to the jump in local building connections and a 79 percent increase in voice grade equivalents, is indicative of the customer's need for remote locations to have similar bandwidth capacity as their primary locations. Local data revenues now represent 13 percent of total data revenues.
Internet revenues increased 72 percent and 73 percent to $589 million and $1.6 billion for the three months and nine months ended September 30, 1998, respectively. Revenues from MCI's Internet business have been excluded in all periods because of the divestiture.
The strength of UUNET and MCI WorldCom Advanced Networks (formerly ANS/CNS) operations is clearly reinforced as the company posted strong revenue gains in both the dial wholesale business as well as dedicated circuits.
International revenues after adjusting for the reclassification of international settlements in all periods as a cost offset, was up 55 percent to $302 million for the third quarter and up 56 percent to $802 million for the first nine months, as compared with the same periods in 1997, respectively.
Significant percentage gains in International revenues are being achieved in continental Europe. In addition, the U.K. continues to fuel strong revenue gains as the company further penetrates the market. The pan-European network became operational during the quarter and plans were announced to build national networks in the U.K., France and Germany.
INFORMATION TECHNOLOGY AND OTHER
IT Services and other consists primarily of the operations of MCI Systemhouse and includes equipment deployment, consulting and systems integration and outsourcing services. These revenues decreased 25 percent and 11 percent to $356 million and $1.3 billion for the three months and nine months ended September 30, 1998 respectively, over comparable periods in 1997. The year-over-year decline, for both periods, reflects the impact of eliminating certain lines of operation, as well as Canadian currency translation effects. After adjusting for these factors, revenue from recurring operations on a constant dollar basis grew approximately 12 percent year-over-year for the third quarter.
GLOBAL INVESTMENTS
On July 29, 1998 MCI acquired, for approximately $2.3 billion, a 52 percent voting interest and 19 percent economic interest in Embratel Participacoes S.A. (Embratel), Brazil's only facilities-based national communications provider. The purchase price will be paid in installments of which U.S. $916 million was paid July 29, 1998, with the remainder to be paid in local currency prior to July 29, 2000. Embratel results have been consolidated with MCI WorldCom from September 14, 1998, the date of the MCI merger closing. On a standalone basis, Embratel financials on a statutory and pro forma basis, are as follows:
Statutory Pro Forma
Financial ($ in millions) 16 days ended 3 months ended
September 30 % September 30 %
Revenues $174 100% $932 100%
EBITDA $ 43 25% $245 26%
Operating Income $ 12 7% $ 80 9%
Net Income $ 2 -- $ 5 --
Avantel, MCI WorldCom's Mexican joint venture company, has close to 10 percent of the addressable long distance market. The company continues to expand its base in the business market, winning a number of key new corporate and government contracts and growing its share of higher-margin services such as data and Internet services. Avantel continues to work closely with Mexican regulatory bodies to reduce interconnection charges and discriminatory practices that are hindering true competition in the Mexican telecommunications market. For the third quarter, equity losses in Avantel were approximately $18 million.
ASSET SALES
Under the terms of an August 7, 1998 agreement with BT, MCI WorldCom sold to BT its interest in Concert CS for $1.013 billion on September 14, 1998.
Also on September 14, MCI WorldCom sold its Internet business to Cable and Wireless for $1.75 billion. Gains from the sales of MCI's Internet operations and the stake in Concert are treated as a reduction of goodwill in accordance with purchase accounting.
OUTLOOK
Commenting on the outlook, Ebbers added: "After culminating almost a year's effort to complete our merger, MCI WorldCom's outlook is particularly bright. Energy is now being harnessed much more productively around our customers needs, rather than the merger approval process. "Our shareholders should sense this renewed vigor in our product announcements, our financial performance and the general air of excitement as we attract new customers. "The almost four full quarters of approval process were put to good use in planning the integration of our operations by a team experienced in integrating merged companies. We have now hit the ground running with new products, and we will soon be in full stride as one company." |
