Magazine

Table: Troubles Are Mounting


WorldCom (WCOM) has fallen on hard times because of high debt, collapsing long-distance telecom prices, and slowing demand. Its stock has dropped 76% this year, to $3.41. Here are the problems and the company's turnaround plans:

GROWTH

Problem: Competition is driving down data-service fees, dropping WorldCom Group's revenue growth from 19% in 2000 to nothing in 2002. If WorldCom eliminates the tracking stock for MCI and combines its results with MCI, revenues could fall 5% this year.

Response: Focus on new products like Web hosting. The company also is expanding internationally, where revenue growth is more than 20%. And it has put new limits on customer discounts.

PROFITABILITY

Problem: Fat profits are gone. After net income rose 18.1% in 2000, it fell 21.8% in 2001 and is expected to drop 30.1% this year. If the results are combined with those of MCI, earnings could decline 40% in 2002.

Response: Slash capital spending to about $4.5 billion in 2002, half the level of 2001. WorldCom also is expected to close its wireless resale business and cut 3,700 jobs.

DEBT

Problem: WorldCom has $30 billion in debt. It must pay $172 million in interest and maturities in 2002, rising to $1.7 billion in 2003 and $2.6 billion in 2004. Investors fret about the company's ability to repay.

Response: Execs say they have plenty of cash to cover the debt. WorldCom burned through $871 million in 2001 but is expected to generate $564 million in cash in 2002, Merrill Lynch says.

SEC INQUIRY

Problem: The Securities & Exchange Commission has requested info on many issues, including how WorldCom accounted for goodwill from its 60 acquisitions and the $366 million the company loaned Ebbers.

Response: The company says it is cooperating fully. CFO Scott Sullivan notes the company has been reviewed repeatedly by the SEC in recent years and satisfactorily answered all questions.

BELL COMPETITION

Problem: By next year, the Bells will have nationwide access to WorldCom's long-distance voice and data market. The Bells have taken 30% of the consumer market where they now offer long distance. They aim to do as well in the business market.

Response: WorldCom, which has its own local networks, is going after the Bells. On Apr. 15, it started offering unlimited local and long-distance for $50 a month to consumers in 32 states.

WEAK BENCH

Problem: WorldCom has had trouble holding on to talent at the companies it acquired. It has lost nearly a dozen marketing whizzes, including former MCI President Tim Price and former Chairman Bert Roberts Jr.

Response: After the MCI deal closed two years ago, the company offered key execs bonuses to stay through mid-2002. As that deadline approaches, it has yet to announce a new plan to bolster management.

Data: Lehman Brothers Inc., Credit Suisse First Boston


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