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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 4, 1999
-------------------------------
IXC Communications, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-20803 74-2644120
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
1122 Capital of Texas Highway South, Austin, Texas 78746
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 328-1112
----------------------------
Not applicable
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
Attached as Exhibit 99.1 is a press release issued by IXC
Communications, Inc. dated February 4, 1999 which is incorporated by reference
herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
99.1 Press Release dated February 4, 1999
2.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 4, 1999
IXC Communications, Inc.
By: /s/ Jeffrey C. Smith
------------------------------
Jeffrey C. Smith
Senior Vice President, General
Counsel and Secretary
3.
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
99.1 Press Release dated February 4, 1999
4.
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EXHIBIT 99.1
[IXC COMMUNICATIONS INC. LOGO] NEWS RELEASE
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IXC COMMUNICATIONS, INC. ANNOUNCES 1998 RESULTS
Austin, TX - February 4, 1999 - IXC Communications, Inc. (Nasdaq: IIXC)
announced today that revenue for 1998 increased 28.2% to $668.6 million, from
$521.6 million in 1997. Earnings before interest, taxes, depreciation and
amortization (EBITDA) for the year increased 291.3% to $90.7 million, from $23.2
million in 1997. The net loss for 1998 was $162.5 million, or ($6.15) per common
share (basic and diluted), compared with a loss of $99.2 million, or ($3.47) per
share (basic and diluted) in 1997. Current and prior year results have been
restated to include the operations of Eclipse (formerly Network Long Distance,
Inc.), which was acquired in a transaction accounted for as a pooling of
interests.
CONSOLIDATED RESULTS
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FULL YEAR
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Total revenue for the year reached $668.6 million, including $19.8 million of
"other revenue" from the sale of an option on usage rights in fibers that are
owned jointly with another carrier. Recurring revenue, consisting of the
Company's private line, switched long distance and data services, increased
$127.2 million, or 24.4% to $648.8 million, versus $521.6 million in 1997. Gross
profit increased $109.3 to $235.3 million, compared with $126.0 million in 1997.
This improvement included $89.5 million related to increases in recurring
revenue and $19.8 million from nonrecurring other revenue. Gross margin related
to recurring revenue improved to 33.2% from 24.1% in 1997. The gross margin
improvement resulted primarily from the realization of economies from IXC's
expanded fiber network, and lower access rates from FCC mandated reductions in
unitary (per minute) access costs, partially offset by increased costs related
to new tandem-trunking charges implemented in July 1998. Transmission lease
expense increased 21.5% over 1997, but decreased as a percentage of recurring
revenue from 20.4% in 1997 to 19.9% in the current year, as the Company
transferred off-net leased capacity to its expanding fiber network, and as a
greater proportion of new revenue was generated on-net. Access costs increased
3.4%, declining as a percentage of switched long distance to 72.1% in 1998 from
80.5% in 1997.
Operating and administrative costs in 1998 increased to $144.5 million from
$102.8 million in 1997, representing 22.3% of recurring revenue this year versus
19.7% in the prior year. The increase was due primarily to operating costs
related to the expanded fiber network, development of the Company's IT
infrastructure supporting the growth in revenue, and sales administrative costs
related to expanding the sales force of Eclipse, the Company's retail operation.
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EBITDA related to recurring revenue increased 206.0% to $71.0 million from $23.2
million in 1997 due to the items identified above.
The net loss of $162.5 million for 1998 increased 63.8% over 1997 reflecting the
$67.0 million extraordinary charge associated with the early redemption of debt,
increased depreciation related to the fiber expansion program ($36.9 million),
greater equity losses in the Company's domestic and European investments ($9.2
million), and increased tax expense related mainly to the IRU transactions
consummated during the year ($12.6 million), partially offset by greater
interest income from structured IRU payments.
"1998 was a big year for us - not only because of our strong year-over-year
revenue and EBITDA improvements, but also in our success in putting in place our
coast-to-coast network and other critical building blocks to support our future
growth," said Ben Scott, Chairman and Chief Executive Officer. "We continued to
grow both our private line and our switched services businesses. Despite the
negative impact of a one-time problem with a debit card customer, we increased
EBITDA by over 200.0%."
"During the year, we made substantial investments in both the Company's internal
infrastructure, and through key acquisitions to establish and expand our retail
distribution channel and our Internet business - businesses that will drive our
growth in the future," said Mr. Scott. "We believe the Company has created
significant value which is not reflected in the current price of the Company's
stock. Like many others in the quickly changing telecommunications industry, the
Company is considering various strategic alternatives to create advanced,
diversified products and services and the scale to provide complete voice, data
and Internet solutions to a broad customer base. Alternatives under
consideration include many possibilities, from sales or swaps of fiber to joint
ventures or a combination of the Company with another company. To review some of
the alternatives which have been initiated either by the Company or by others,
we have retained Morgan Stanley for assistance."
FOURTH QUARTER
- --------------
Revenue for the fourth quarter 1998 increased 3.5% to $169.8 million from $164.1
million in the fourth quarter 1997. Total revenue in the current quarter
included $10.8 million in "other revenue." Recurring revenue declined slightly
to $159.0 million from $164.1 million in last year's fourth quarter, reflecting
the migration of a large customer, Excel, from a higher-revenue switched service
agreement to a higher-margin private line agreement in 1998, partially offset by
revenue related to a new ISP agreement.
Gross profit for the quarter increased $16.7 million versus the 1997 fourth
quarter, including gross profit of $51.2 million from recurring revenue. Gross
profit as a percentage of recurring revenue improved to 32.2% for the 1998
quarter versus 27.6% in 1997. This improvement resulted from the increase in
higher-margin private line revenue, and the favorable impact of the FCC-mandated
reductions in access costs, partially offset by costs related to the debit card
customer which defaulted on payments and was terminated as a customer during the
quarter.
2
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Operating and administrative costs in the quarter increased $16.8 million to
$45.1 million compared with $28.4 million in the prior year's fourth quarter.
The 1998 amount represents 28.4% of recurring revenue versus 17.3% in the prior
year's fourth quarter. The year-over-year increase was due primarily to
operating costs related to the expanded fiber network as well as sales and
administrative costs related to expanding the sales force in Eclipse and costs
associated with expanding the Company's IT infrastructure to support growing
revenue from broader service offerings.
EBITDA for the quarter declined slightly to $16.9 million from $17.0 million in
last year's fourth quarter, and EBITDA related to recurring revenue declined
$10.9 million to $6.1 million, reflecting the items identified above.
The net loss for the quarter was $26.8 million or ($1.17) per common share
(basic and diluted) compared with a loss of $17.6 million or ($0.84) per common
share (basic and diluted) in the 1997 fourth quarter. The net loss for the
quarter reflected higher depreciation expense related to the fiber expansion
program ($14.3 million), partially offset by lower equity losses from
investments ($7.5 million).
On a sequential-quarter basis, fourth quarter 1998 recurring revenue declined
9.8% to $159.0 million from $176.3 million in the third quarter 1998, largely
due to termination of service for the debit card customer during the current
quarter. Gross profit related to recurring revenue declined $15.1 million, or
22.7% in the fourth quarter, substantially related to the impact of terminating
business with the debit card customer. Operating and administrative costs
increased 12.5% to $45.1 million from $40.1 million in the prior quarter,
primarily related to costs associated with the Company's expanded IT
infrastructure to support its broader service offerings and costs to expand its
retail sales force.
SEGMENT RESULTS
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PRIVATE LINE SERVICES
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Private line revenue in 1998 increased 39.5% to $225.4 million, from $161.6
million in 1997 due mainly to the impact of a new $265 million ISP contract.
Private line gross profit for the year reached $139.6 million versus $88.9
million in 1997, with gross margin increasing to 61.9% of private line revenue
compared with 55.0% in the prior year. The gross profit improvement resulted
from lower growth of transmission lease expense versus the significant revenue
growth, as the Company realized economies from its expanding fiber network.
On a sequential-quarter basis, fourth quarter 1998 private line revenue grew
$9.0 million or 14.5% over the third quarter, due primarily to the full quarter
impact of leased circuits under the new ISP contract. Gross profit increased to
$46.5 million, versus $42.2 million in the third quarter, with the gross margin
declining somewhat to 65.6% of recurring revenue in the current quarter from
68.1% in the prior quarter, due to a short term increase in transmission lease
expense to support large capacity contracts in advance of fiber network
completions.
3
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SWITCHED LONG DISTANCE SERVICES
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Switched long distance revenue in 1998 reached $414.4 million, compared with
$359.3 million in 1997, or an increase of 15.3%. Wholesale switched long
distance revenue increased 18.9% over 1997, while retail switched revenue
increased by 8.9% over the same period, as usage grew in both areas.
Gross profit for switched long distance for 1998 reached $80.3 million,
increasing 100.5% over 1997. Gross margin as a percentage of switched revenue
increased to 19.4% versus 11.1% in 1997 - the result of FCC mandated reductions
in access costs.
On a sequential-quarter basis, fourth quarter switched revenue declined to $84.4
million from $110.7 million in the 1998 third quarter, related mainly to the
decline in revenue of the debit card provider, the migration of Excel traffic
from IXC's switched network, and year-end seasonality.
DATA/INTERNET SERVICES
- ----------------------
Data services revenue increased to $9.0 million in 1998 from $0.8 million in
1997, reflecting the growth of wholesale data services as well as the partial
year impact of Internet acquisitions made during the year. The gross margin loss
increased to $4.4 million from a loss of $2.9 million in 1997, the result of
greater transmission lease costs related to the development and expansion of the
network required to support the data and Internet product lines.
Fourth quarter Data/Internet revenue was $3.7 million up slightly from the $3.6
million in the 1998 third quarter. This segment's gross margin decreased $0.9
million from the third quarter mainly due to an increase in Internet usage and
connection charges.
YEAR IN REVIEW
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"Once again, this has been an important building year for IXC," Mr. Scott said.
"We put in place a new management team, established our retail sales channel,
launched our European operation, and made several important moves to establish
IXC's position as a leading player in the Internet business. Also, we completed
over 7,400 miles of fiber network and are on track to grow our advanced network
from 9,300 miles today to over 16,500 miles by the end of 1999. Finally, our
launch of Gemini2000 represents the first implementation of the IP network
architecture for the new millennium," said Mr. Scott.
Mr. Scott noted significant achievements during 1998:
o Completion of the 5,000 mile fiber backbone between Los Angeles and
New York - the first coast-to-coast fiber network developed in over
a decade.
o Completion and activation of 2,400 additional fiber route miles,
including:
- New York to Washington D.C.
- Washington D.C. to Houston
- Houston to Dallas
- Los Angeles to San Francisco
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o Launch of IXC's OCX High Capacity Transmission Service and the
signing of a 5-year, $265 million agreement to provide OC-12
capacity to a major Internet service provider.
o Implementation of the first OC-192 fiber optic transmission system
supporting up to 80 gigabits per second of capacity - the longest
eight-wavelength OC-192 system deployed anywhere in the world.
o Formation of a long-term alliance with PSINet in which IXC will
provide 10,000 miles of OC-48 transmission capacity for 20 years in
exchange for 20% of PSINet's common stock (current market value
approximately $370 million).
o Completion of significant new service and capacity contracts with
Excel Communications, Time Warner, Adelphia Communications, Star
Telecommunications, RSL Communications, Bell Atlantic and Level 3
Communications.
o Acquisition of Eclipse Telecommunications, Inc. (formerly Network
Long Distance, Inc.) as the centerpiece of IXC's emerging retail
strategy.
o Agreement to acquire Coastal Telephone as an additional key retail
channel focusing on the small business market.
o Acquisition of several Internet companies as key elements in IXC's
expansion into the Internet business:
- Network Evolutions, Inc. (NEI)
- SMARTNAP
- the DataPlace, Inc.
- ntr.net Corporation
o Purchase of 34% stake in AppliedTheory Communications, Inc.,
positioning IXC as a developer of the next generation of IP
technical infrastructure.
o Launch of Gemini 2000, the first coast-to-coast, next generation
Internet backbone network to carry both research and commercial
traffic.
o Launch of Storm Communications, Ltd., IXC's joint venture with
Telenor International (Norway's PTT) to provide switched voice
services throughout Europe.
o Expansion of senior management team with the addition of:
- David Hughart, President - Retail Division
- Leo Welsh, President - Wholesale Division
- Valerie Walden, Sr. Vice President - Switched and Private
Line Services
- Dominick DeAngelo, Sr. Vice President - Internet Services
- Greg Tolander, Sr. Vice President - Chief Information Officer
o Successful completion of IXC's plan for refinancing, including:
- sale of $155 million of 6 3/4% Convertible Preferred Stock
- retirement of the Company's outstanding $285 million in 12-1/2%
Senior Notes due 2005
- sale of $450 million of 9% Senior Subordinated Notes due 2008
- completion of $600 million Senior Secured Credit Facility
5
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ABOUT IXC
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IXC's network-based delivery solutions are designed to address the speed and
capacity requirements of the global communications market. Having completed the
first new coast-to-coast fiber optic network in the United States in more than a
decade, IXC Communications, Inc. is at the forefront of the industry's new class
of emerging domestic and international carriers. IXC offerings include private
line, broadband, Internet and long distance switched and dedicated services. IXC
is a publicly traded company listed on Nasdaq under the symbol IIXC. IXC's Web
site is at www.ixc-comm.com.
# # #
Except for the historical information contained herein, this press release
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbors created thereby.
The Company's future actual results could differ materially from the
forward-looking statements discussed herein. A list of the factors that could
cause actual results to differ materially can be found in the documents the
Company files with the SEC, including those contained in the Company's
prospectus, and the Form 10-Q for the quarter ended September 30, 1998.
Regarding the Company's evaluation of possible strategic alternatives, there can
be no assurance that any such alternatives could be successfully identified or
consummated to the betterment of the Company or the Company's stock price, or
what the timing, terms, or ultimate impact of any such arrangement might be.
IXC Contacts:
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Media Contact: Investor Contact:
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Melissa Jackson Greta Wiechman
Senior Manager, Public Relations Senior Manager, Investor Relations
(512) 231-5247 (888) 267-9478
[email protected] [email protected]
6
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IXC COMMUNICATIONS, INC.
SUMMARY OF OPERATING RESULTS
($000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Year To Date
December 31, December 31,
--------------------------- ------------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Private line $ 70,878 $ 50,650 $ 225,358 $ 161,570
Long distance switched services 84,395 113,076 414,405 359,288
Broadband & Internet services 3,721 368 9,029 759
Other 10,787 -- 19,776 --
-------- --------- --------- ---------
Total operating revenue 169,781 164,094 668,568 521,617
Gross margin 62,007 45,335 235,268 125,950
% 36.5% 27.6% 35.2% 24.1%
EBITDA 16,893 16,985 90,732 23,190
% 9.9% 10.4% 13.6% 4.4%
Depreciation and amortization 35,997 19,065 113,586 69,139
Pooling costs (134) (36) 7,955 3,591
-------- --------- --------- ---------
OPERATING LOSS (18,970) (2,044) (30,809) (49,540)
Interest expense, net 2,003 4,519 17,344 23,934
Equity in net loss of
unconsolidated subsidiaries 2,660 10,132 32,986 23,800
Other, net 156 32 440 531
-------- --------- --------- ---------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS (23,789) (16,727) (81,579) (97,805)
Income tax provision 5,659 853 13,925 1,359
-------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY LOSS (29,448) (17,580) (95,504) (99,164)
Extraordinary loss (benefit)
on early extinguishment of
debt (2,695) -- 66,952 --
-------- --------- --------- ---------
NET LOSS $(26,753) $ (17,580) $(162,456) $ (99,164)
======== ========= ========= =========
Dividends applicable to preferred
stock (15,691) (12,151) (58,239) (21,636)
-------- --------- --------- ---------
Net loss applicable to common
stockholders $(42,444) $ (29,731) $(220,695) $(120,800)
======== ========= ========== =========
Loss per share before
extraordinary item $ (1.24) $ (0.84) $ (4.28) $ (3.47)
Loss per share from extraordinary
item 0.07 -- (1.87) --
-------- --------- --------- ---------
Basic and diluted loss per share $ (1.17) $ (0.84) (6.15) (3.47)
======== ========= ========= =========
Weighted average common shares 36,150 35,239 35,868 34,777
outstanding
</TABLE>
7
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IXC COMMUNICATIONS, INC.
OPERATING SUMMARY BY SEGMENT
($000'S)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended December 31, Year Ended December 31,
September 30, -------------------------- -----------------------
1998 1998 1997 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET REVENUE
Private line $ 61,908 $ 70,878 $ 50,650 $225,358 $161,570
Switched Long
Distance 110,741 84,395 113,076 414,405 359,288
Broadband/Internet 3,631 3,721 368 9,029 759
-------- -------- -------- -------- --------
Subtotal - Recurring 176,280 158,994 164,094 648,792 521,617
Other 8,989 10,787 -- 19,776 --
-------- -------- -------- -------- --------
Total Revenue 185,269 169,781 164,094 668,568 521,617
GROSS PROFIT
Private line 42,158 46,465 30,692 139,558 88,851
% of Net Revenue 68.1% 65.6% 60.6% 61.9% 55.0%
Switched Long Distance 24,404 5,888 15,343 80,296 40,041
% of Net Revenue 22.0% 7.0% 13.6% 19.4% 11.1%
Broadband/Internet (266) (1,133) (700) (4,362) (2,942)
% of Net Revenue (7.3%) (30.4%) (190.2%) (48.3%) (387.6%)
-------- -------- -------- -------- --------
Subtotal - Recurring
Gross Profit 66,296 51,220 45,335 215,492 125,950
% of Net Revenue 37.6% 32.2% 27.6% 33.2% 24.1%
Other 8,989 10,787 -- 19,776 --
-------- -------- -------- -------- --------
Total Gross Profit $ 75,285 $ 62,007 $ 45,335 $235,268 $125,950
======== ======== ======== ======== ========
</TABLE>
8
