WorldCom Posts Loss but Reassures Investors

WorldCom Inc. Thursday posted a 64 percent drop in fourth-quarter profits, but the telephone and data services provider dismissed market rumors of accounting problems and impending bankruptcy, driving its stock up for the first time in a week.

The Clinton, Mississippi, company also cut its 2002 growth outlook, but the reduced forecasts were not as dire as some investors had feared.

"It was better than the apocalypse that most people were expecting," said Bill Turner, equity researcher for Bank One Investment Advisors. "Theout other than they didn't announce that there was fraud and they were going out of business."

Last year WorldCom Inc. restructured and created two tracking stocks. WorldCom Group tracks the company's main data, corporate telephone and international businesses, while MCI Group shares follow the residential long-distance telephone operations and dial-up Internet operation.

In afternoon Nasdaq trade, WorldCom Group stock was up 16 percent, its first increase since Jan. 31. The stock has fallen about 33 percent in the past week.

Shares of MCI Group fell nearly 15 percent after the No. 2 U.S. long-distance company posted a fourth-quarter loss due to a 16 percent drop in revenues.

On a consolidated basis, WorldCom Inc.'s net income fell 64 percent to $258 million from $725 million a year earlier. Revenues dropped 11.5 percent to $8.5 billion.

WorldCom Inc. and rivals AT&T Corp. and Sprint Corp. have suffered as business and residential customers have cut spending in the weak economy. That has added to the industry's ongoing woes of pricing pressures, excess network capacity, and competition from the Baby Bells and wireless telephones.


WorldCom Group has been plagued by rumors that rating agencies would downgrade its debt, that its chief executive would dump his stock to pay off debts, and that it may file for bankruptcy like rivals Global Crossing Ltd. and McLeodUSA Inc.

"WorldCom has been perceived to be in the same moral cesspool as some other companies, and really they just have a troubled business," said Henry Asher, president of New York-based money manager North Star Group. "It's a declining business, but not declining much more than people have said."

Asher said the recent drop in WorldCom Group shares has been "a kind of dramatic overreaction."

In a conference call with analysts and reporters, WorldCom Chief Executive Bernie Ebbers dismissed the possibility of a bankruptcy filing and said the company has $10 billion in cash and unused bank lines of credit.

"Bankruptcy or a credit default is not a concern ...," Ebbers said. "The veracity of the rumors circulating about WorldCom over the last week has truly been unbelievable. To question WorldCom's viability is utter nonsense."

Ebbers said he would not sell his stake in the company to repay loans. He said he owes the company $198.7 million for payments it made to guarantee his obligations on margin loans.

Ebbers said his assets are "more than sufficient to cover" his debt to the company, and there are "no foreseeable circumstances that will require my shares in the company to be sold."


Shares of MCI Group dropped $1.37 to $7.69 as the telephone unit posted posted a fourth-quarter loss of $89 million, or 75 cents a share, reversing a year-earlier profit of $125 million, or $1.09 a share.

Fourth-quarter revenues dropped 16 percent to $3.2 billion. Sales to consumers fell 9 percent and wholesale revenues dropped 19 percent.

WorldCom Inc. said it expects MCI's revenues to drop by mid-teen percentage rates in the first half of 2002 and low double-digit rates in the second half of the year.

"MCIT just had abysmal numbers," Bank One's Turner said. "The lingering question now will be how costs are allocated between the two companies. The costs were in line at WorldCom but out of control at MCIT."


Fourth-quarter profits for WorldCom Group fell to $384 million, or 13 cents a share, from $585 million, or 20 cents a share, a year earlier. These results, which exclude one-time items and its investment in Brazilian telephone company Embratel, exceeded analysts' estimates of 12 cents to 17 cents a share.

Shares of WorldCom Group were up $1.06 at $7.75.

WorldCom Group revenues rose 7 percent from a year earlier to $5.3 billion. Telephone revenues fell 8 percent, while data sales rose 11 percent and international revenues rose 23 percent, WorldCom Chief Financial Officer Scott Sullivan said in a conference call.

"Data revenues continue to grow, but at a slower pace due to a larger number of disconnects in the emerging markets division, business (technology) spending contractions, and customer network roaming efforts," Sullivan said.

For 2002, WorldCom Inc. said WorldCom Group's revenues will grow at a mid single-digit percentage rate, down from its previous forecast of high single-digit to low double-digit growth.

"Even though their growth has slowed quite a bit, their growth is still above the other carriers," said Davenport & Co. analyst Drake Johnstone. In the fourth quarter, revenues fell 9.5 percent at AT&T and 8.7 percent at Sprint's main telephone unit, while revenues at local telephone company Verizon Communications rose less than 1 percent.

Profits for WorldCom Group should be in the range of 75 cents a share to 80 cents a share for the full year, the company said. That falls below current Wall Street expectations of 95 cents a share, according to research firm Thomson Financial/First Call.