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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) May 11, 1999
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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
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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 May 11, 1999 which is incorporated by reference
herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
99.1 Press Release dated May 11, 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: May 17, 1999
IXC Communications, Inc.
By: /s/ Jeffrey C. Smith
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Jeffrey C. Smith
Senior Vice President, General
Counsel and Secretary
3.
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EXHIBIT INDEX
Exhibit
Number Description
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99.1 Press Release dated May 11, 1999
4.
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EXHIBIT 99.1
[IXC LOGO] NEWS RELEASE
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IXC COMMUNICATIONS, INC. ANNOUNCES FIRST QUARTER RESULTS
Company to Downsize Switched Wholesale Business
Austin, TX - May 11, 1999 - IXC Communications, Inc. (Nasdaq: IIXC) today
announced revenue of $161.4 million for the first quarter of 1999, up from
$157.6 million in the first quarter of 1998. Earnings before interest, taxes,
depreciation and amortization (EBITDA) were $4.7 million, down from $20.3
million in the prior year's first quarter. The net loss for the quarter was
$42.2 million, or $(1.60) per share (basic and diluted), compared with a net
loss of $17.9 million, or $(.83) per share in the first quarter of 1998. 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 in June 1998.
CONSOLIDATED RESULTS
Total revenue for the quarter included $70.9 million from private line, $5.2
million from data/Internet, $77.7 million from switched services and $7.6
million from other sources. Compared to the first quarter of 1998, private line
services increased 63.5% and data/Internet services increased ten-fold. Switched
services declined 31.7%, largely because of the migration of the Company's
largest switched services customer, Excel Communications, to its own network.
EBITDA for the quarter declined versus the first quarter of 1998 due to two
major factors: (1) the impact of higher access costs mandated by the FCC for
tandem trunking charges and special assessment charges affecting the switched
long distance business, and (2) increased operating and other costs related to
expansion of IXC's nationwide fiber network and IT infrastructure as well as
costs related to expansion of its retail distribution operation.
The new access cost structure, together with industry-wide pricing pressure,
have diminished the economics of the switched wholesale business and have been
the principal cause of volatility in the Company's financial results. In
contrast, however, IXC's private line business has maintained strong revenue
growth and healthy operating margins, and the data/Internet business has
developed according to plan. Further, with yesterday's successful completion of
the Coastal Telephone acquisition, IXC has strengthened the capabilities and
reach of its retail channel in providing integrated voice, data and Internet
solutions to the small/medium-sized business market.
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SWITCHED WHOLESALE BUSINESS
The switched wholesale business has historically produced low margins and
significant bad debt exposure for carriers. As a result of the recent changes in
the access cost structure, IXC has elected to de-emphasize its switched
wholesale business and refocus operations on its strategically important private
line and data/Internet business segments, its expanding retail distribution
channel and its developing international ventures.
IXC initially began to de-emphasize its switched wholesale operations in the
fourth quarter of 1998. As a next step, the Company now expects to downsize
operations and record a non-recurring charge of approximately $25-35 million in
the second quarter of 1999. The one-time charge will include costs related to
staffing reductions, termination costs, equipment write-downs and
decommissioning costs. The restructuring is expected to result in future cost
savings in access costs, network facility and other costs that should more than
offset the expected reduction in switched wholesale revenue, and thus improve
EBITDA going forward.
"Detailed analysis in recent months has confirmed that changed economics in the
switched wholesale business have created a situation where results in this
non-strategic segment are overshadowing the solid progress of our core
businesses. That cannot continue," said Ben Scott, IXC chairman and chief
executive officer. "Ironically, we entered switched wholesale in 1995 fully
aware of the low margins, but seeking economies of scale for our other
businesses - and that effort was successful. But things change - today we're a
much larger business with significant economies of our own, and the regulatory
changes have further reduced the attractiveness of what was already a low margin
business."
"As a result, we have taken corrective action," Scott said. "We are already
taking steps to mitigate the future impact of switched wholesale on our overall
operations. The fact is, without its impact in each of the last two quarters,
our results would have been very different. With successful implementation of
our revised action plan, together with continued strong growth in our other
businesses, we expect to deliver improved results over the balance of the year,"
Scott said.
NETWORK DEVELOPMENT
IXC has completed and activated approximately 10,200 route miles of advanced
fiber optic network including the recently activated route between Atlanta and
Miami. In addition, the Company has completed construction of an additional
2,300 route miles of network, including the Toledo-Detroit-Chicago route and the
segments between Boston and New York, Las Vegas and Portland, and a second
diverse route between New York and Washington, D.C. IXC expects to activate
these additional routes shortly, which will bring its total network in service
to over 12,500 route miles. The Company is currently on track to extend its
fiber network to over 16,400 fiber route miles near the end of the year.
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In addition, IXC is nearing completion of Gemini2000, its IP OC-48 (2.5 Gbps)
network. The Gemini2000 network will include over 70,000 OC-48 miles. It is
designed to eliminate Internet congestion with high-speed communications at
speeds 100 to 1,000 times faster than those generally available on the Internet.
The Gemini2000 network is segmented into eight regions, each containing a
central traffic aggregation point. Six of these regions will be operational by
the end of May and the network will be available for commercial service in June.
The remaining two regions are scheduled to be fully operational by late summer.
STRATEGIC INITIATIVES
IXC's strategic Internet investments include PSINet (PSIX) and AppliedTheory
(ATHY), which have a combined current value of approximately $16.00 per IXC
share. In addition, the strong growth and development of the Company's
investments in MarcaTel (Mexico) and Storm Communications (Europe) provide an
additional boost to IXC's valuation while extending its business model outside
of the United States.
"We have leveraged our state-of-the-art fiber backbone and complementary IP
OC-48 network, Gemini2000, to expand our sales of private line and Internet
services to ISPs, so that we are now one of the largest wholesale Internet
carriers in the world," Scott said. "Through our developing retail channel, we
have become an important supplier of data/Internet products and services to the
small/medium-sized business market. That being said, we continue to believe that
our true value has yet to be reflected in our share price and, as a result, the
Company will continue to pursue appropriate strategic and operational
alternatives to enhance shareholder value," Scott added.
IXC continues to retain Morgan Stanley to assist in its review of various
strategic alternatives which might secure or solidify an appropriate valuation
for the Company. IXC has considered, and is still considering, numerous
alternatives including joint ventures, strategic investments and mergers with
other companies. To date, IXC's board of directors has seriously considered, but
ultimately turned away, several proposals for business combinations. A committee
of the board continues to work actively with Morgan Stanley to evaluate ongoing
and future opportunities for value enhancement.
ADDITIONAL INFORMATION ABOUT IXC
More complete information on IXC's first quarter results is available in the
"Quarterly Analysis" in the financial highlights section of IXC's Web site at
www.ixc-investor.com.
IXC's network-based delivery solutions are designed to address the speed and
capacity requirements of the global communications market. Its offerings include
private line, fast packet (ATM and frame relay), Internet and long distance
switched and dedicated services. IXC is at the forefront of the industry's new
class of emerging domestic and international carriers that include Qwest (QWST)
and Level 3 (LVLT). IXC is a publicly traded company listed on Nasdaq under the
symbol "IIXC." For more information, visit IXC's Web site at www.ixc-comm.com.
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# # #
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. In particular, no assurance can be
made that the restructuring of the Company's switched wholesale business will
have the results expected by the Company or that certain parts of the network
will be completed as scheduled. 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-K for the year ended December 31, 1998.
IXC Contacts:
Media Contact: Investor Contact:
Melissa Jackson Greta Wiechman
Senior Manager, Public Relations Director, Investor Relations
(512) 231-5247 (888) 267-9478
[email protected] [email protected]
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IXC COMMUNICATIONS, INC.
SUMMARY OF OPERATING RESULTS
($000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1999 1998
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<S> <C> <C>
REVENUES:
Private line $ 70,864 $ 43,340
Long distance switched services 77,747 113,767
Broadband & Internet services 5,175 476
Other 7,572 --
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Total operating revenue 161,358 157,583
GROSS PROFIT 56,554 49,634
% 35.0% 31.5%
EBITDA 4,745 20,298
% 2.9% 12.9%
Depreciation and amortization 36,278 20,152
Pooling costs 55 (36)
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OPERATING LOSS (31,588) 182
Interest expense, net 5,193 4,714
Equity in net loss of unconsolidated subsidiaries 2,871 11,265
Other, net 173 30
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LOSS BEFORE INCOME TAXES (39,825) (15,827)
Income tax provision 2,411 2,068
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NET LOSS $ (42,236) $ (17,895)
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Dividends applicable to preferred stock (16,018) (11,736)
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Net loss applicable to common stockholders $ (58,254) $ (29,631)
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Basic and diluted loss per share $ (1.60) $ (0.83)
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Weighted average common shares outstanding 36,411 35,522
</TABLE>
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IXC COMMUNICATIONS, INC.
OPERATING SUMMARY BY SEGMENT
($000'S)
<TABLE>
<CAPTION>
Quarter Ended
December 31, Quarter Ended March 31,
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1998 1999 1998
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<S> <C> <C> <C>
NET REVENUE
Private line $ 70,878 $ 70,864 $ 43,340
Switched Long Distance 84,395 77,747 113,767
Broadband/Internet 3,721 5,175 476
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Subtotal - Recurring 158,994 153,786 157,583
Other 10,787 7,572 --
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Total Revenue 169,781 161,358 157,583
GROSS PROFIT
Private line 46,465 44,762 24,151
% of Net Revenue 65.6% 63.2% 55.7%
Switched Long Distance 5,888 3,418 26,850
% of Net Revenue 7.0% 4.4% 23.6%
Broadband & Internet (1,133) 802 (1,367)
% of Net Revenue (30.4%) 15.5% (287.2%)
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Subtotal - Recurring Gross Profit 51,220 48,982 49,634
% of Net Revenue 32.2% 31.9% 31.5%
Other 10,787 7,572 --
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Total Gross Profit $ 62,007 $ 56,554 $ 49,634
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</TABLE>
