Quarterly Revenue Tops $2 Billion
Quarterly EBITDA Margins Exceed 30 Percent
EPS of $0.15 for Quarter and $0.40 for Year
JACKSON, MS
(February 19, 1998) _ WorldCom, Inc. (WorldCom) today reported
fourth quarter revenues of $2.00 billion, a 62 percent increase over
fourth quarter 1996 revenues of $1.23 billion. Strong internal growth
across all Communications Services, combined with the benefits of the
MFS Communications Company (MFS) merger completed December 31, 1996,
contributed to the impressive year-over-year gains. On a reported
basis, long distance traffic for the fourth quarter increased 49
percent over the previous year. On a pro forma basis -- which is
indicative of internal growth -- core Communications Services
revenues increased 30 percent on industry leading volume growth of 32
percent.
Reported earnings for the fourth quarter 1997 -- after taking into
account the increased non-cash amortization of goodwill related to
the MFS merger -- was $136.3 million or $0.15 earnings per common
share compared with a pro forma loss before non-recurring charges of
$47.9 million or $0.05 loss per share for the fourth quarter 1996.
Reported earnings for the fourth quarter 1996, which do not include
the purchase accounting impact of the MFS merger, was $119.7 million
or $0.29 per share.
Operating income for the fourth quarter 1997 was $379.0 million --
an increase of 262 percent compared with $104.6 million on a pro
forma basis for the fourth quarter of 1996. The improvement in
operating income is underscored by the EBITDA margin of 30.8 percent
in the fourth quarter 1997 compared with 19.9 percent on a pro forma
basis for the same period in 1996. This margin improvement is due
primarily to the achievement of MFS merger synergies and a more
profitable mix of revenues.
FULL YEAR HIGHLIGHTS
For the full year ended December 31, 1997, WorldCom reported
revenues of $7.35 billion, up 64 percent from reported revenues of
$4.49 billion for 1996. Net income for 1997 was $357.2 million, or
$0.40 per share, compared with reported net income before
non-recurring charges of $414.9 million, or $1.01 per share for
1996.
On a pro forma comparative basis, diluted earnings per common
share of $0.40 compare with a pro forma loss per share of $0.31,
before non-recurring charges, for 1996. The year over year
improvement is due, in part, to the realization of cost synergies
related to the merger with MFS -- as evidenced by the EBITDA margin
improvement to 28 percent for full year 1997 compared with 20 percent
for 1996.
Full year operating income for 1997 was $1.10 billion, compared
with $0.90 billion on a reported basis for 1996 before non-recurring
charges, and $0.31 billion on a pro forma basis, before non-recurring
charges, for 1996. The improvement in operating income is due
primarily to the realization of synergies as well as a greater mix of
higher margin revenues.
MANAGEMENT'S COMMENTS ON THE FOURTH QUARTER
"While the MCI merger announcement drew a lot of attention
during the quarter," said Bernard J. Ebbers, President and CEO
of WorldCom, "it is very clear from our financial performance
that our employees remained focused on delivering results.
"Our core management and employee strength -- which has
predominantly come from successful mergers over the years --
continues to drive industry leading performance.
"With quarterly revenues now topping $2 billion and quarterly
traffic volume topping 10 billion minutes, WorldCom once again lead
the industry with:
- Over 30 percent volume growth
- Over 30 percent EBITDA margins and
- Over 30 percent revenue growth.
"It is this kind of consistent financial performance that
gives our shareholders and customers confidence in our ability to
execute our strategy."
COMMUNICATIONS SERVICES - PRO FORMA COMPARISON
WorldCom's fourth quarter highlights include the following
year-over-year internal growth in core revenues and the recasted
impact of the 1997 third quarter sale of the operator services and
broadcast divisions on total revenues.
| Fourth Quarter | Full Year | ||||||
Revenues ($ MILLIONS) | Actual 1997 | Pro Forma 1996 | Change | Actual 1997 | Pro Forma 1996 | Change | |
Domestic switched | $1,064.0 | $ 912.6 | 17% | $3,992.1 | $3,323.3 | 20% | |
Domestic private line | 444.4 | 328.1 | 35% | 1,575.1 | 1,167.0 | 35% | |
International | 237.8 | 152.9 | 56% | 818.5 | 469.2 | 74% | |
Internet | 181.9 | 90.5 | 101% | 566.0 | 253.2 | 124% | |
Core revenues | $1,928.1 | $1,484.1 | 30% | $6,951.7 | $5,212.7 | 33% | |
Other | 74.7 | 118.0 | ( 37%) | 399.7 | 422.5 | ( 5%) | |
Total revenues | $2,002.8 | $1,602.1 | 25% | $7,351.4 | $5,635.2 | 31% | |
Businesses sold: | |||||||
Operator Services | ( - ) | (26.8) | (100%) | (69.5) | (111.6) | ( 38%) | |
Broadcast Operations | ( 0.1) | (15.3) | ( 99%) | (40.4) | ( 63.4) | ( 36%) | |
Recasted revenues | $2,002.7 | $1,560.0 | 28% | $7,241.5 | $5,460.2 | 33% |
For both the fourth quarter and full year, the trends in core
Communications Services revenues are consistent, with continuing
sequential acceleration in the fourth quarter. The drivers of the
above-30 percent revenue growth are domestic private line,
international and Internet growth combined with the continued strong
year-over-year volume growth of 36 percent in switched voice
services. Eliminating the impact of non-core businesses sold in the
third quarter 1997, total pro forma revenues grew 28 percent for the
fourth quarter and 33 percent for the year.
CORE REVENUES
Domestic switched services revenue increased 17 percent for the
quarter and 20 percent for the year. This increase was primarily due
to strong volume gains in both the retail and wholesale segments.
WorldCom's narrowing gap between revenue and volume growth
continues to be driven by strong wholesale revenues, international
settlement reduction pass throughs, access charge pass throughs, and
product mix.
Domestic private line experienced another consistently strong
quarter with revenues increasing by 35 percent for the quarter and
full year. The particularly strong revenue growth for private line
and frame relay continues to be driven by tremendous commercial end
user demand for high speed data and by Internet related growth. Over
75 percent of the private line revenues are driven by the Commercial
Sales organization.
International revenues -- those revenues originating outside of
the U.S. -- were $238 million, and $819 million, for the quarter and
full year, respectively -- up 56 percent and 74 percent compared with
corresponding periods for 1996. This strong performance is due to
continuing strong traffic growth in the United Kingdom and a growing
presence in Continental Europe for both switched services and,
increasingly, high speed data services. Significant effort was taken
in the quarter to prepare for the opening of national markets in
European countries which should provide additional growth and
improved margins in 1998.
Internet revenues for the fourth quarter and full year more than
doubled to $182 million and $566 million, respectively. The
provisioning constraints experienced in mid-1997 were significantly
overcome in the latter part of the third quarter, and the strong
demand for both dedicated and dial-up access contributed to the
resumption of strong sequential gains.
OTHER REVENUES
Other revenues for the fourth quarter of 1997 were $75 million.
Other revenues include MFS Network Technologies and system sales.
Operator services and broadcast operations were sold in the third
quarter 1997.
On a recast basis, excluding the results of the operator services
and broadcast operations divisions in both periods, other revenues
were flat for the fourth quarter and up 17 percent for the full year,
to $75 million and $290 million, respectively.
PRO FORMA COMPARATIVES
In order to compare year-over-year internal growth, the following
table reflects pro forma amounts for 1996, before non-recurring
charges:
| Fourth Quarter | Full Year | ||||||
($ in millions except EPS and % of revenue) | Actual 1997 | Pro Forma 1996 | Change | Actual 1997 | Pro Forma 1996 | Change | |
Revenues | $2,002.8 | $1,602.1 | 25% | $7,351.4 | $5,635.2 | 31% | |
EBITDA % of Revenue | $ 617.5 30.8% | $ 319.0 19.9% | 94% | $2,019.3 27.5% | $1,147.8 20.4% | 76% | |
Operating Income % of Revenue | $ 379.0 18.9% | $ 104.6 6.5% | 262% | $1,098.6 14.9 % | $ 309.5 5.5 % | 255% | |
EPS | $ 0.15 | $( 0.05) | -- | $ 0.40 | $( 0.31) | -- | |
Cash EPS | $ 0.38 | $ 0.18 | 111% | $ 1.18 | $ 0.43 | 174% |
(1) Adding back MFS purchase accounting amortization ($0.10) and
cash utilization of MFS tax loss carryforwards ($0.13) for fourth
quarter, 1997.
As a percent of revenue, EBITDA margin for the fourth quarter of
1997 was 31 percent and operating income 19 percent compared with 20
percent and 7 percent, respectively, for the prior year. The
improvement in operating income is due to the realization of MFS
merger synergies, an improving mix of higher margin revenues, and the
operating leverage related to the fixed quarterly level of
amortization expense.
BROOKS FIBER FINANCIAL PERFORMANCE
On January 29, 1998 WorldCom completed the previously announced
merger with Brooks Fiber Properties, Inc. (Brooks Fiber). The merger
transaction will be accounted for under the pooling of interests
method of accounting beginning with the first quarter of 1998.
On a stand alone basis, Brooks Fiber continued its impressive
financial and operational performance in the fourth quarter. Brooks
Fiber stand alone fourth quarter revenue was $44.6 million, an
increase of 156 percent, compared with $17.4 million for the same
period last year. For the full year 1997, Brooks Fiber revenue was
$128.8 million, an increase of 183 percent, compared with $45.6
million for 1996. EBITDA continued to show sequential improvement
with a fourth quarter 1997 loss of $4.7 million -- a $1.6 million
improvement over the third quarter.
With capital expenditures of over $130 million in the fourth
quarter, Brooks Fiber continued its aggressive network expansion,
more than doubling key network statistics such as buildings
connected, route miles and voice grade equivalents over the past
year.
Entering 1998, Brooks Fiber has 35 local switches, is collocated
in 168 LEC central offices, is operational in 39 markets, and has
installed over 111,000 local lines, providing a tremendous base for
1998 revenue growth.
CNS/ANS TRANSACTION
On January 31, 1998, WorldCom completed the previously announced
merger with CompuServe Corporation (CompuServe). The merger
transaction will be accounted for under the purchase method of
accounting.
WorldCom also acquired ANS Communications from America Online
(AOL) in exchange for AOL receiving CompuServe's Interactive
Services Division and $175 million in cash. WorldCom retained the
CompuServe Network Services (CNS) division and secured a five year
contract with AOL, under which WorldCom will become AOL's largest
network service provider.
In connection with the CNS/ANS transaction, WorldCom has completed
an independent research and development (R&D) appraisal of
certain in-process R&D projects purchased in connection with the
merger. The result of the appraisal is the assignment of $429 million
of intangible goodwill to in-process R&D which will be expensed
in the first quarter of 1998. Subsequent to the R&D expense, the
preliminary allocation of purchase price creates total goodwill of
approximately $780 million which will be amortized over ten years,
and is tax deductible.
For the fourth quarter 1997, pro forma CNS and ANS revenues
combined would have been approximately $231 million, up approximately
54 percent over the prior year. EBITDA margin for the fourth quarter
1997 was approximately 17 percent.
MCI TRANSACTION
On November 10, 1997, WorldCom announced a definitive merger
agreement with MCI Communications Corporation (MCI). The combined
company, to be known as MCI WorldCom, will be the first company since
the breakup of AT&T to bundle local and long distance services
carried over an international end-to-end fiber network owned or
controlled by a single company.
Under the terms of the agreement, each share of MCI common stock
will be exchanged for $51 worth of WorldCom common stock, with the
exception of BT, which will receive $51 in cash for each share of
MCI. Shareholders of both WorldCom and MCI will vote on the merger at
separate meetings to be held on March 11, 1998. The merger is
expected to be completed in mid-1998, subject to typical conditions
including approval of shareholders of each of the companies and
approval of various federal, state and international regulatory
authorities.
OUTLOOK
Commenting on the outlook for WorldCom, Ebbers said: "1997
was a particularly satisfying year for all of WorldCom's
operations. Almost two years ago, with the passing of the
Telecommunications Act, we recognized the need to own local
facilities. While this may have been against conventional thinking at
the time, today we are cited as the model for the industry."
"Going forward, we will continue to invest in the most
exciting growth opportunities such as local, international, Internet
and data services. These growth areas already exceed 50 percent of
WorldCom's total revenues and are growing at more than five times
the market rate of growth in traditional switched voice services. The
merger with MCI, which we anticipate closing in mid-1998, will give
us more scale to compete most effectively in these new markets. We
are looking forward to an exciting year in 1998. We are well on our
way to building a different kind of communications company."
Except for the historical information contained herein, the
matters discussed in this news release are forward looking statements
that involve risk and uncertainties as detailed from time to time in
various regulatory filings. Actual results may vary significantly
from these statements.
WorldCom is a global telecommunications company. Operating in more
than 50 countries, the company is a premier provider of
facilities-based and fully integrated local, long distance,
international and Internet services. WorldCom's subsidiary, UUNET
Technologies, Inc., is an international provider of Internet services
with over 1,000 Points of Presence (POPs) throughout the United
States and in Canada, Europe and the Asia-Pacific region.
WorldCom's World Wide Web address is http://www.wcom.com. The
common and depositary shares of WorldCom trade on the Nasdaq National
Market (U.S.) under the symbol WCOM and WCOMP, respectively. On
November 10, 1997, WorldCom announced a definitive agreement with MCI
Communications Corporation to form a new company called MCI WorldCom.
The company expects the merger to close in mid-1998.
