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WorldCom Restructures Brazilian Investment, Updates Guidance

WorldCom Thursday said it would no longer consolidate the financial results of Embrapar, parent of Embratel Paticipacoes SA -- one of Brazil's leading nationwide communications providers with footholds in the data and Internet markets -- a company in which it holds a 19 percent stake. It also used the move as a platform for lowering its 2001 guidance.

"Embratel continues to play an important role in WorldCom group's international growth strategy by extending our ability to offer global customers services throughout the world," said Bernard J. Ebbers, president and chief executive officer of WorldCom. "But continuing to consolidate Embrapar's financial results, even though we only have a 19 percent economic interest, was causing undue confusion in the market. Our strategic mission is unchanged. WorldCom is focused on serving the expanding digital communications requirements of enterprise customers, and all of our assets will be aligned in that direction. Any detractions from that mission are going to be addressed."

WorldCom said it will also restructure its investment in Embratel Participacoes by establishing an endowment for Institute Embratel 21, a multimedia digital library project in Brazil.

The telecom used the announcement as an opportunity to update its financial guidance for 2001. It said deconsolidation of Embratel's results, in addition to other factors like the company's May 2001 debt issuance, the acquisition of Intermedia/Digex, lower than expected Embratel equity results and increased depreciation will mean a hit to earnings per share for the year. The company now anticipates cash EPS of between $1.05 and $1.10, down from previous guidance of between $1.21 and $1.31. However, the company now expects revenue growth to come in at 12 to 15 percent, up from previous guidance of 11 to 14 percent.

In the immediate future, WorldCom is looking for second quarter 2001 revenues of between $5.3 billion and $5.4 billion, representing growth of 11 to 13 percent over second quarter 2000. It also expects cash earnings per share for the quarter to be in line with consensus estimates at between 28 and 29 cents.

"I'm very pleased that we are able to reaffirm our industry leading revenue growth and EBITDA guidance," Ebbers said. "We have taken very proactive measures to fund our expected growth, as well as investing in networks, systems and acquisitions to enhance our position in strategic areas like Internet-based virtual private networks and managed Web hosting. These actions improve WorldCom's ability to execute its mission of providing enterprise customers around the world with the digital communications services they need. While these deliberate measures impact our below-the-line earnings in the short-term, I'm confident they make the company stronger going forward."