Earnings per share $0.42, excluding $0.02 gain items; Fourth Quarter Cash Earnings per share up 108 percent to $0.54; Full Year Cash Earnings $5.1 Billion, or $1.75 per share
CLINTON, MS (February 10, 2000) - MCI WORLDCOM, Inc. (NASDAQ:WCOM)
today reported fourth quarter earnings before goodwill amortization
("cash earnings") of $1.6 billion, or $0.54 per common share.
Reported net income, after goodwill amortization, was $1.3 billion, or
$0.44 per common share. Reported net income, excluding net gain items
of $112 million before tax, $64 million after tax or $.02 per share,
was $1.2 billion, or $0.42 per common share.
On a full year basis, cash earnings were $5.1 billion or $1.75 per
common share. Reported net income, after goodwill amortization, was
$3.9 billion, or $1.35 per common share. Reported net income, excluding
net gain items of $87 million after tax, or $0.03 per share, was $3.9
billion, or $1.32 per common share.
Solid double-digit revenue gains and improving communications
services economics continue to drive MCI WorldCom's profitability.
Rapidly declining access costs -- due to regulatory restructuring of
artificially high prices and customer demands for
"all-distance" services -- and MCI WorldCom's focused
capital spending in the fastest growing areas of communications
services are contributing to the improving economics.
MCI WorldCom now receives 40 percent of communications services
revenues and more than 80 percent of its incremental communications
services revenues from high growth areas such as data, Internet and
international services -- a mix of revenues unmatched in the industry.
Gains in data services -- as measured by an 87 percent increase in
Voice Grade Equivalents (VGEs), which capture the volume of local data
circuits -- are being fueled by the expansion in buildings connected
and capacity increases for those connections.
Dial-up Internet usage, as measured by connect hours, increased 73
percent year-over-year to 1.2 billion hours. Dedicated Internet
connection unit growth increased 93 percent and the number of
multimegabit connections within this growth was up 88 percent
year-over-year. Internet and data services consume much larger units of
incremental bandwidth and yield higher gross margins due to network
efficiencies and avoided access charges from incumbent local exchange
carriers (ILECs).
Voice traffic grew 15 percent year-over-year in the quarter. Voice
traffic continues to contribute to improving profitability as it
rapidly becomes a smaller portion of total network traffic. Scale and
merger synergies also contribute to improving cost structures, enabling
MCI WorldCom to substantially reduce the price of voice services while
improving profitability.
The Company completed its merger with SkyTel Communications, Inc.
(SkyTel) on October 1, 1999 and accounted for the transaction on a
pooling-of-interests basis, and thebasis. The financial tables reflect
this combination unless otherwise noted. However, for ease of
comparison in this press release, revenues will be presented with and
without the benefit of Embratel and SkyTel.
Revenues for the fourth quarter, excluding Embratel and SkyTel, were
$8.8 billion, up 15 percent from $7.6 billion, (adjusted for the SHL
sale), in the fourth quarter of 1998. Including Embratel and SkyTel,
fourth quarter 1999 revenues were $9.6 billion.
During April 1999, the Company divested the SHL business.
Accordingly, total revenues in 1999 include four months of SHL results
versus a full year in the 1998 pro forma period.
Revenues for 1999, excluding Embratel and SkyTel, were $33.9 billion
-- including $33.3 billion of communications services revenues --
compared with $16.5 billion for 1998. Pro forma revenues for 1998,
excluding Embratel and SkyTel, were $30.4 billion -- including $28.7
billion of communications services revenues. Communications services
revenues, excluding Embratel and SkyTel, were up 16 percent, compared
with pro forma revenues for 1998. Including Embratel and SkyTel, the
Company reported revenues of $37.1 billion for 1999.
Operating income for the fourth quarter of 1999, including Embratel
and SkyTel, doubled to $2.4 billion compared with $1.2 billion for the
fourth quarter of 1998. Improving revenue mix combined with one of the
best cost structures in the industry has driven the operating income,
as a percent of revenue, up 11 percentage points to 25 percent --
superior to many competitors' simple EBITDA margins.
Operating income for 1999, excluding Embratel, mergers and other
items was $7.5 billion, or 21.9 percent of revenues, as compared with
$3.6 billion or 11.6 percent of revenues for the 1998 pro forma
period.
MANAGEMENT'S COMMENTS ON THE FOURTH QUARTER AND FULL YEAR
"Our achievements in the quarter and full year 1999 were
outstanding given the dramatic changes impacting communications
services," said Bernard J. Ebbers, president and CEO of MCI
WorldCom. "Our investments in data, Internet and international
have been particularly timely and have positioned the Company to post
industry leading incremental revenue gains, in spite of expected
pressures on voice revenues -- related to the long anticipated
reduction or elimination of access payments to the ILECs. As these
payments are reduced, billions of dollars of cost savings are being
passed through to customers with virtually no anticipated impact to the
Company's profitability. On an annualized basis, data, Internet and
international services represent $14 billion of revenues growing at 36
percent year-over-year. Our proven ability to deliver this type of
revenue growth, along with industry leading earnings growth is our mark
of distinction.
"Along with the strong financials, 1999 will be remembered for
several deliberate strategic moves in fixed wireless and messaging,
including the MMDS properties and SkyTel, respectively, as well as the
Metricom investment. These investments, combined with the pending
Sprint merger, will greatly enhance the Company's strength as we
compete in the new millennium."
COMMUNICATIONS SERVICES - PRO FORMA COMPARISON
MCI WorldCom's fourth quarter communications services revenues
in the chart below, excluding Embratel, assume the MCI merger occurred
as of the beginning of the earliest period presented. The SkyTel
revenues are separately identified under "Messaging".
FOURTH QUARTER FULL YEAR
($ In Millions)
Actual | Actual | Actual | Pro Forma | ||||
Revenues | 1999 | 1998 | Change | 1999 | 1998 | Change | |
Voice | $5,212 | $4,997 | 4% | $20,603 | $19,480 | 6% | |
Data | 2,039 | 1,616 | 26% | 7,470 | 5,827 | 28% | |
Internet | 1,017 | 658 | 55% | 3,535 | 2,246 | 57% | |
International | 492 | 328 | 50% | 1,733 | 1,130 | 53% | |
Communications services | $8,760 | $7,599 | 15% | $33,341 | $28,683 | 16% | |
Messaging | $ 130 | $ 120 | 8% | $ 494 | $ 443 | 12% |
Of the total industry leading $1.2 billion of incremental
communications services revenues for the fourth quarter -- more than 80
percent, or $946 million, came from data, Internet, and international
services. These fast growing communications services now represent 41
percent of communications services revenues, or an annualized revenue
stream of $14.2 billion, up 36 percent from $10.4 billion, on a pro
forma annualized basis, a year ago. Excluding international services
from these fast growing revenues, data and Internet revenues represent
an annualized revenue stream of $12.2 billion, or approximately 35
percent of communications services revenues.
Domestic Voice
revenues increased 4 percent for the quarter and 6 percent for the
year. The Company added $0.2 billion and $1.1 billion of incremental
voice revenues for the fourth quarter and full year, respectively, on
the strength of volume gains of 11 percent for the quarter and 10
percent for the year. The "gap" between the volume gains and
revenue growth essentially had no impact to Company profitability, as
prices were reduced in response to anticipated reductions in access
charges by the ILECs.
Voice revenues for the year, net of access costs, increased 15.6
percent from $12.5 billion in 1998 to $14.5 billion. Wholesale becoming
a smaller component of the revenue mix contributed to revenues, net of
access costs, growing faster than traffic.
Domestic Data
revenues increased 26 percent for the quarter and 28 percent for the
year. The Company added $0.4 billion and $1.6 billion of incremental
data revenues for the fourth quarter and full year, respectively. These
gains in data services -- as measured by an 87 percent increase in
VGE's -- are being fueled by the expansion in buildings connected
and capacity increases for connections to those buildings. For frame
relay and ATM connections, not only is the Company experiencing strong
growth in the number of ports in use, but also port speed, which
captures the growing demand for higher bandwidth.
Internet
revenues for the fourth quarter topped $1.0 billion for the first time
-- an increase of 55 percent over the fourth quarter of 1998. For the
full year, Internet revenues were up 57 percent to $3.5 billion. The
Company added $0.4 billion and $1.3 billion of incremental Internet
revenues for the fourth quarter and full year, respectively. Internet
revenues now represent almost 12 percent of communications services
revenues. The Company continues to increase the capacity and expand the
reach of its global Internet network in response to the increasing
transport requirements of its customers. The dial access network is up
more than 80 percent to 1.7 million modems, compared with the same
period in the prior year.
International
revenues -- those revenues originating outside of the U.S. -- were up
50 percent to $492 million for the quarter, an annualized run rate of
$2.0 billion. The Company added $0.2 billion and $0.6 billion of
incremental international revenues for the fourth quarter and 1999,
respectively.
During the quarter, the Company continued to extend the reach of its
end-to-end networks boosting the Company's international building
count to approximately 10,000 buildings -- all over high capacity
circuits.
Messaging revenues
coming from Sky-Tel were up 8 percent for the quarter and 12 percent
for the year. SkyTel delivered its strongest fourth quarter 2-way
messaging net customer adds in the company's history.
OTHER REVENUES
Other revenues for 1999 were $0.5 billion, compared with $1.7
billion for the pro forma 1998 period. SHL was divested in April
1999.
PRO FORMA COMPARATIVES
In order to compare year-over-year internal growth, the following
table reflects pro forma amounts, excluding other gains and merger
costs, as if the MCI merger occurred as of the beginning of the
earliest period presented, and excludes Embratel and SkyTel:
FOURTH QUARTER YEAR-TO-DATE
($ In Millions) | Actual 1999 | Actual 1998 | Change | Actual 1999 | Pro Forma 1998 | Change | |
Core Revenues | $8,760 | $7,599 | 15% | $33,341 | $28,683 | 16% | |
Gross Margins | $5,203 | $4,259 | 22% | $19,365 | $15,836 | 22% | |
% of Revenues | 59.4% | 53.2% | 57.2% | 52.1% | |||
EBITDA | $3,252 | $2,071 | 57% | $11,326 | $ 7,445 | 52% | |
% of Revenue | 37.1% | 25.9% | 33.5% | 24.5% | |||
Operating Income | $2,297 | $1,121 | 105% | $ 7,503 | $ 3,543 | 112% | |
% of Revenue | 26.2% | 14.0% | 22.2% | 11.6% | |||
Net Income | $1,227 | $ 428 | 187% | $ 3,865 | $ 1,243 | 211% | |
% of Revenue | 14.0% | 5.3% | 11.4% | 4.1% |
As a percent of revenues, EBITDA margin for the fourth quarter of
1999 was 37.1 percent and operating income was 26.2 percent, compared
with 25.9 percent and 14.0 percent, respectively, for the prior year
period. For 1999, EBITDA margin was 33.5 percent and operating income
was 22.2 percent, compared with 24.5 percent and 11.6 percent,
respectively, for the comparable pro forma period in 1998. The
improvement in operating income is due to the realization of merger
synergies, a focus on -- and improving mix of -- higher margin
revenues. Gross margin dollars continued to expand, growing faster than
revenue growth, up 22 percent for the quarter -- underscoring the
quality of the earnings improvement.
NON-OPERATING INCOME (EXPENSE)
Fourth quarter other income and expense includes $218 million of
interest expense and miscellaneous income of $189 million.
Miscellaneous income includes pretax gain items of: $161 million of
capital gains on securities sold; offset by $34 million of early bond
call payments on SkyTel high-yield debt; further offset by other
expenses related to MMDS investments.
SKYTEL MERGER
On October 1, 1999, MCI WorldCom closed the merger with SkyTel.
Under the terms of the agreement, holders of SkyTel common stock
received 0.3849 shares of MCI WorldCom common stock for each share of
SkyTel common stock (as adjusted for MCI WorldCom's stock
split).
SkyTel results have been consolidated with MCI WorldCom on a
pooling-of-interests basis beginning with the fourth quarter of
1999.
SPRINT MERGER
On October 5, 1999, MCI WorldCom and Sprint announced a definitive
merger agreement creating the pre-eminent global communications company
for the 21
st
century. The combined company, to be called WorldCom, will provide a
full range of services to residential and business customers on its
owned, end-to-end, state-of-the-art network infrastructure. WorldCom
will be a leader in the fastest growing areas of global communications
services, offering innovative broadband, "all-distance"
services to businesses and homes, and nationwide digital wireless voice
and data services.
The merger is subject to the approvals of MCI WorldCom and Sprint
shareholders as well as approvals from the Federal Communications
Commission, the Justice Department, various state government bodies and
foreign antitrust authorities. The companies anticipate that the merger
will close in the second half of 2000.
EDS OUTSOURCING AGREEMENTS
On October 25, 1999, MCI WorldCom and EDS announced the finalization
of dual outsourcing agreements. The two agreements implement key
aspects of the strategic business relationship the companies announced
last February.
OUTLOOK
Commenting on the outlook for MCI WorldCom, Ebbers said, "Our
accomplishments in 1999 are impressive. In addition to leading our
sector in incremental revenue gains and expanding profitability on
those revenues, we substantially strengthened our business through
acquisitions and divestitures.
"The investments in 1999 will provide future revenue growth and
wireless data capabilities that will become increasingly more important
as the Internet goes mobile. The early successes we have achieved in
Internet and data services, coupled with the corresponding capital
investments have positioned us to lead the industry in the transition
to an "all-distance" advanced communications services
platform. With more than $12 billion of annualized revenues and
approximately $3 billion of incremental revenues coming from data and
Internet today, we have confidence in our ability to lead the industry
in this transition, and a track record of accomplishing it
profitably."
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this news
release may be deemed to include forward-looking statements that
involve risk and uncertainty, including financial, regulatory
environment and trend projections. Although the Company believes that
its expectations are based on reasonable assumptions, it can give no
assurance that its expectations will be achieved. The important factors
that could cause actual results to differ materially from those in the
forward-looking statements herein (the "Cautionary
Statements") include, without limitation, uncertainties associated
with the success of acquisitions and the integration thereof, risks of
international business, the impact of technological change on the
Company's business and dependence on availability of transmission
facilities, regulation risks including the impact of the
Telecommunications Act of 1996, contingent liabilities, the impact of
competitive services and pricing, risks associated with year 2000
uncertainties and Euro conversion efforts, as well as other risks
referenced from time to time in the Company's filings with the
Securities and
Exchange Commission. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by the Cautionary Statements.
The Company does not undertake any obligation to release publicly any
revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
MCI WorldCom (NASDAQ: WCOM) is a global leader in
"all-distance" communications services with operations in
more than 65 countries. Revenues in 1999 were $37 billion, with more
than $15 billion from high-growth data, Internet and international
services. MCI WorldCom and Sprint have announced a merger agreement,
which the companies expect to close in the second half of 2000 after
regulatory and shareholder approvals. For more information go to
http://www.wcom.com.
MCI WorldCom will conduct a conference call to discuss its financial
results today, Thursday, February 10, at 9:00 AM (Central Time). The
call will be available to all investors on the Internet at
http://www.wcom.com/investor_relations/.
