The first tip-off to WorldCom problems should have been the Mississippi hayseed that built and ran

the place--Bernie Ebbers--who

seemed more bent on empire building than in sound business practices. For example, he reportedly paid about $2 billion for an
acquisition that his CFO later admitted was worth no more than $50 million. Such are the perils of bidding wars and the "winner's
curse"--the winning bidder in an auction usually overpays.

Mr. Ebbers aside, WorldCom spun a similar tale to Enron (discussed in last week's newsletter) in terms of fudging the financials. In
WorldCom's case it was a matter of capitalizing certain costs as opposed to recording them properly as expenses, which--surprise!--
would have resulted in lower reported earnings.

Here's a SPREDGAR graph showing the earnings per share numbers versus free cash flow per share over the Sept. 98 - Sept. 2000
period:

Note that except for two periods, free cash flow is negative--usually dramatically so--than reported positive earnings. How can this be?
Let's take a look at SPREDGAR's net balance sheet cash flow for the quarter ending December 1998:

WorldCom's expenses most likely show up in the Property, Plant, & Equipment (PP&E) line item. During this period PP&E was more
than five times reported net income! Note that this does not represent a long-term asset or investment, which is listed on the next line.
From eight quarters starting in October 1998, PP&E ranged from 80%-400% of net income. Stuffing expenses into this area allowed net
income to be reported as positive

Note also that Depreciation & Amortization is higher than net income for the period! This is not likely to happen, if at all, to a legitimate
business. However, for the next seven quarters, Depreciation & Amortization ran between 30%-100% of net income--yet another red
flag. Of course, if you're capitalizing expenses, then you have to amortize them, which results in the high Depreciation & Amortization
expenses.

We recently read the highly entertaining and informative book by John Allen Paulos, A Mathematician Plays the Stock Market.
Interestingly, the author lost a bundle in WorldCom stock in spite of his obvious numerical prowess. The author writes: "Had I paid more
attention to WorldCom fundamentals, particularly its $30 billion in debt, and less attention to WorldCom fairy tales...I no doubt would
have fared better."

Mr. Paulos offer's a fascinating discussion of "Benford's law", which has to do with the relative frequency of certain leading digits in
numbers (including accounting numbers). The number "1" appears most frequently at about 30%, the number "2" less frequently at
about 18%, and so on. The tie-in to WorldCom (and other book-cookers) is whether or not the numbers were actually made up. It turns
out that when people are asked to make up numbers, they usually do a poor job. Numbers describing real-life phenomena follow a
predictable pattern.

Here's the rationale: Suppose a company has sales of $10 million per year. If sales grow at 7.2% a year, it will have sales of $20 million
in ten years--so sales will have a leading digit of "1" for a long time. Sales will reach $30 million in only six years, and $40 million four
years after that, so the "2" and "3" digits will appear somewhat less frequently. Thus a large set of numbers can be analyzed to see
whether or not they follow the expected pattern.

OTHER CURRENT AND LONG-TERM ASSETS

(in millions) 12/31/2000 12/31/2001 Change

---------- ---------- ------
Other current assets $2,179 $2,481 $302(a)
Other long-term assets $5,131 $5,363 $232(b)

(a)Comprised of: WorldCom group MCI group WorldCom, Inc.

-------------- --------- --------------
Deferred tax asset $362 $(30) $332
Income tax receivable 230 -- 230
Effect of Embratel
 deconsolidation (308) -- (308)
Vendor prepayment 95 -- 95
Other 14 (61) (47)
----- ----- -----
Change in other current
assets $393 $(91) $302
===== ===== =====

(b)Comprised of: WorldCom group MCI group WorldCom, Inc.

-------------- --------- --------------
Vendor prepayment $105 $ -- $105
Equity investment in Embratel 992 -- 992
Effect of Embratel
deconsolidation (382) -- (382)
Investments, other (542) 59 (483)
----- ----- -----
Change in other long-term
assets $173 $59 $232
===== ===== =====

WorldCom, Inc.
Consolidated Net Debt
(In millions)

09/30/2001 12/31/2001 Change

---------- -----------------------
Net debt
Cash $2,581 $1,416 $(1,165)(a)
Debt $(31,270) $(30,210) $1,060
---------- -----------------------
Net debt $(28,689) $(28,794) $(105)(b)
========== =======================

(a) Cash used as follows:

Maturity of floating rate notes $(917)
Pay off commercial paper (12)
Open market purchases of Intermedia
outstanding debt (70)
Purchase Rhythms assets (32)
Vendor prepayment (200)
Other 66
-------
$(1,165)
=======

(b) Comprised of:

Foreign currency effect on foreign denominated
debt and cash $18
Debt accretion on senior discount notes (10)
Purchase Rhythms assets (32)
Vendor prepayment (200)
Other 119
-----
$(105)
=====

WORLDCOM GROUP
COMBINED STATEMENTS OF OPERATIONS
(Unaudited. In Millions, Except Per Share Data)

Excluding Charges and Embratel

-----------------------------------
Three Months Ended Year Ended
December 31, December 31,
----------------- -----------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Voice $1,570 $1,708 $6,591 $7,036
Data 2,139 1,927 8,620 7,389
International 768 625 2,977 2,367
Internet dedicated and other 824 688 3,160 2,455
-------- -------- -------- --------
Total revenues 5,301 4,948 21,348 19,247
-------- -------- -------- --------

Operating expenses:
Line costs:
Attributed costs 1,983 1,904 8,019 7,031
Intergroup allocated
expenses 26 23 101 87
Selling, general and
administrative:
Attributed costs 775 838 3,164 2,752
Shared corporate services 490 339 1,981 1,575
Depreciation and amortization:
Attributed costs 1,350 931 4,841 3,420
Intergroup allocated expenses (179) (163) (720) (627)
-------- -------- -------- --------
Total 4,445 3,872 17,386 14,238
-------- -------- -------- --------
Operating income 856 1,076 3,962 5,009
Other income (expense):
Interest expense (312) (152) (1,029) (502)
Miscellaneous 130 87 520 468
-------- -------- -------- --------
Income before income taxes and
minority interests 674 1,011 3,453 4,975
Provision for income taxes 263 410 1,315 2,050
-------- -------- -------- --------
Income before minority
interests 411 601 2,138 2,925
Minority interests 15 -- 35 --
-------- -------- -------- --------
Net income before distributions
on mandatorily redeemable
preferred securities 426 601 2,173 2,925
Distributions on mandatorily
redeemable preferred
securities and other preferred
dividend requirements 42 16 117 65
-------- -------- -------- --------
Net income $384 $585 $2,056 $2,860
======== ======== ======== ========

PRO FORMA
-----------------------------------
Diluted earnings per
common share(1) $0.13 $0.20 $0.70 $0.98
======== ======== ======== ========
Diluted weighted average
WorldCom group shares
outstanding(1) 2,965 2,893 2,933 2,912
======== ======== ======== ========

(1) On June 7, 2001, WorldCom, Inc. recapitalized its common

shares into two separate stocks - WorldCom group stock and MCI
group stock - and each share of WorldCom, Inc. stock was
changed into one share of WorldCom group stock and 1/25 of a
share of MCI group stock. The above pro forma information was
used as the basis to compute diluted earnings per common share
and assumes the recapitalization occurred at the beginning of
2000 and the WorldCom group stock and MCI group stock existed
for all periods presented.
 WORLDCOM GROUP
COMBINED STATEMENTS OF OPERATIONS
(Unaudited. In Millions, Except Per Share Data)

Financial Reporting
-----------------------------------
Three Months Ended Year Ended
December 31, December 31,
----------------- -----------------
2001 2000(1) 2001 2000(1)
-------- -------- -------- --------
Revenues:
Voice $1,570 $1,708 $6,591 $7,036
Data 2,139 1,927 8,620 7,389
International 768 1,538 2,977 5,875
Internet dedicated and other 824 688 3,160 2,455
-------- -------- -------- --------
Total revenues 5,301 5,861 21,348 22,755
-------- -------- -------- --------

Operating expenses:
Line costs:
Attributed costs 1,983 2,315 8,019 8,658
Intergroup allocated expenses 26 23 101 87
Selling, general and
administrative:
Attributed costs 857 1,144 4,052 3,682
Shared corporate services 490 339 2,006 2,007
Depreciation and amortization:
Attributed costs 1,350 1,055 4,841 3,907
Intergroup allocated expenses (179) (163) (720) (627)
-------- -------- -------- --------
Total 4,527 4,713 18,299 17,714
-------- -------- -------- --------
Operating income 774 1,148 3,049 5,041
Other income (expense):
Interest expense (312) (140) (1,029) (458)
Miscellaneous 82 58 412 385
-------- -------- -------- --------
Income before income taxes,
minority interests and
cumulative effect of
accounting change 544 1,066 2,432 4,968
Provision for income taxes 212 385 943 1,990
-------- -------- -------- --------
Income before minority
interests and cumulative
effect of accounting change 332 681 1,489 2,978
Minority interests 15 (80) 35 (305)
-------- -------- -------- --------
Income before cumulative effect
of accounting change 347 601 1,524 2,673
Cumulative effect of accounting
change (net of income tax of
$43 in 2000) -- -- -- (75)
-------- -------- -------- --------
Net income before distributions
on mandatorily redeemable
preferred securities 347 601 1,524 2,598
Distributions on mandatorily
redeemable preferred
securities and other preferred
dividend requirements 42 16 117 65
-------- -------- -------- --------
Net income $305 $585 $1,407 $2,533
======== ======== ======== ========

PRO FORMA
-----------------------------------
Diluted earnings per
common share(2) $0.10 $0.20 $0.48 $0.87
======== ======== ======== ========
Diluted weighted average
WorldCom group shares
outstanding(2) 2,965 2,893 2,933 2,912
======== ======== ======== ========

(1) In the second quarter of 2001, WorldCom made a strategic

decision to restructure its investment in Embratel. As a
result of actions taken in the second quarter of 2001, the
accounting principles generally accepted in the United States
prohibit the continued consolidation of Embratel's results.
Accordingly, WorldCom deconsolidated this investment as of
January 1, 2001. The operating results for 2000 reflect the
consolidation of Embratel and the results for 2001 reflect the
deconsolidation.

(2) On June 7, 2001, WorldCom, Inc. recapitalized its common

shares into two separate stocks - WorldCom group stock and MCI
group stock - and each share of WorldCom, Inc. stock was
changed into one share of WorldCom group stock and 1/25 of a
share of MCI group stock. The above pro forma information was
used as the basis to compute diluted earnings per common share
and assumes the recapitalization occurred at the beginning of
2000 and the WorldCom group stock and MCI group stock existed
for all periods presented.

WORLDCOM GROUP
CONDENSED COMBINED BALANCE SHEETS
(Unaudited. In Millions)

Dec. 31, Dec. 31,

2001 2000
------- -------
ASSETS
Current assets:
Cash and cash equivalents $1,409 $720
Accounts receivable, net 3,734 4,980
Receivable from MCI group, net 900 649
Other current assets 2,136 1,743
------- -------
Total current assets 8,179 8,092
------- -------

Property and equipment, net 36,792 35,177

Goodwill and other intangibles, net 40,818 36,685

Long-term receivable from MCI group, net 976 976

Other assets 5,136 4,963

------- -------
$91,901 $85,893
======= =======

LIABILITIES AND ALLOCATED NET WORTH

Current liabilities:
Short-term debt and current maturities of
long-term debt $172 $7,200
Accounts payable and accrued line costs 2,751 3,584
Other current liabilities 2,992 3,429
------- -------
Total current liabilities 5,915 14,213
------- -------

Long-term debt 24,533 11,696

Other liabilities 3,742 3,648

Minority interests 101 2,592

Mandatorily redeemable and other preferred securities 1,993 798

Allocated net worth 55,617 52,946

------- -------
$91,901 $85,893
======= =======

Note: In the second quarter of 2001, WorldCom made a strategic

decision to restructure its investment in Embratel. As a
result of actions taken in the second quarter of 2001, the
accounting principles generally accepted in the United States
prohibit the continued consolidation of Embratel's results.
Accordingly, WorldCom deconsolidated this investment as of
January 1, 2001. The balance sheet as of December 31, 2000
includes the effects of the Embratel consolidation.

WORLDCOM GROUP
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited. In Millions)

Year Ended Dec. 31,

----------------
2001 2000(1)
------ ------
Cash flows from operating activities:
Net income before distributions on mandatorily
redeemable preferred securities $1,524 $2,598
Adjustments to reconcile net income before
distributions on mandatorily redeemable preferred

securities to net cash provided by operating

activities:
Cumulative effect of accounting change -- 75
Minority interests (35) 305
Depreciation and amortization 4,121 3,280
Provision for deferred income taxes 1,131 1,410
Change in assets and liabilities, net of effect
of business combinations:
Accounts receivable, net 104 (1,300)
Receivable from MCI group, net (251) (649)
Other current assets 104 (582)
Accounts payable and other current liabilities (200) 624
All other operating activities 107 (431)
-------- --------
Net cash provided by operating activities 6,605 5,330
-------- --------
Cash flows from investing activities:
Capital expenditures (7,619) (10,984)
Acquisitions and related costs (206) (14)
Increase in intangible assets (367) (771)
Decrease in other liabilities (351) (823)
All other investing activities (275) (1,020)
-------- --------
Net cash used in investing activities (8,818) (13,612)
-------- --------
Cash flows from financing activities:
Principal borrowings on debt, net 3,526 6,377
Attributed stock activity of WorldCom, Inc. 124 585
Distributions on mandatorily redeemable preferred
securities and dividends paid on preferred stock (83) (65)
Redemption of Series C preferred stock (200) (190)
Advances from (to) MCI group, net (15) 1,592
All other financing activities (272) (84)
 -------- --------
Net cash provided by financing activities 3,080 8,215
Effect of exchange rate changes on cash 38 (19)
-------- --------

Net increase (decrease) in cash and cash equivalents 905 (86)

Cash and cash equivalents at beginning of period 720 806
Deconsolidation of Embratel (216) --
-------- --------
Cash and cash equivalents at end of period $1,409 $720
======== ========

(1) In the second quarter of 2001, WorldCom made a strategic

decision to restructure its investment in Embratel. As a
result of actions taken in the second quarter of 2001, the
accounting principles generally accepted in the United States
prohibit the continued consolidation of Embratel's results.
Accordingly, WorldCom deconsolidated this investment as of
January 1, 2001. The statement of cash flows for 2000 reflects
the consolidation of Embratel and the statement of cash flows
for 2001 reflects the deconsolidation.

WORLDCOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited. In Millions, Except Per Share Data)

Excluding Charges and Embratel

------------------------------------
Three Months Ended Year Ended
December 31, December 31,
------------------ -----------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Voice $1,570 $1,708 $6,591 $7,036
Data 2,139 1,927 8,620 7,389
International 768 625 2,977 2,367
Internet dedicated and other 824 688 3,160 2,455
-------- -------- -------- --------
Commercial services 5,301 4,948 21,348 19,247
Consumer 1,711 1,888 7,227 7,778
Wholesale 591 733 2,641 3,388
Alternative channels and small
business 531 749 2,427 3,541
Dial-up Internet 344 403 1,536 1,628
-------- -------- -------- --------
Total revenues 8,478 8,721 35,179 35,582
-------- -------- -------- --------

Operating expenses:
Line costs 3,568 3,675 14,739 13,835
Selling, general and
administrative 2,461 2,444 9,951 8,890
Depreciation and amortization 1,614 1,184 5,880 4,391
-------- -------- -------- --------
Total 7,643 7,303 30,570 27,116
-------- -------- -------- --------
Operating income 835 1,418 4,609 8,466
Other income (expense):
Interest expense (438) (283) (1,533) (1,014)
Miscellaneous 130 87 520 468
-------- -------- -------- --------
Income before income taxes and
minority interests 527 1,222 3,596 7,920
Provision for income taxes 205 496 1,374 3,222
-------- -------- -------- --------
Income before minority
interests 322 726 2,222 4,698
Minority interests 15 -- 35 --
-------- -------- -------- --------
Net income 337 726 2,257 4,698
Distributions on mandatorily
redeemable preferred
securities and other preferred
dividend requirements 42 16 117 65
-------- -------- -------- --------
Net income applicable to common
shareholders $295 $710 $2,140 $4,633
======== ======== ======== ========

Net income attributed to

WorldCom group $384 $585 $2,056 $2,860
======== ======== ======== ========
Net income (loss) attributed
to MCI group $(89) $125 $84 $1,773
======== ======== ======== ========

Diluted earnings (loss) per

common share: PRO FORMA
------------------------------------
WorldCom group stock(1) $0.13 $0.20 $0.70 $0.98
======== ======== ======== ========
MCI group stock(1) $(0.75) $1.09 $0.72 $15.42
======== ======== ======== ========

Diluted weighted average

common shares outstanding:
WorldCom group stock(1) 2,965 2,893 2,933 2,912
======== ======== ======== ========
MCI group stock(1) 119 115 117 115
======== ======== ======== ========

(1) On June 7, 2001, WorldCom, Inc. recapitalized its common

shares into two separate stocks - WorldCom group stock and MCI
group stock - and each share of WorldCom, Inc. stock was
changed into one share of WorldCom group stock and 1/25 of a
share of MCI group stock. The above pro forma information was
used as the basis to compute diluted earnings per common share
and assumes the recapitalization occurred at the beginning of
2000 and the WorldCom group stock and MCI group stock existed
for all periods presented.

WORLDCOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited. In Millions, Except Per Share Data)

Financial Reporting
-----------------------------------
Three Months Ended Year Ended
December 31, December 31,
----------------- -----------------
2001 2000(1) 2001 2000(1)
-------- -------- -------- --------
Revenues:
Voice $1,570 $1,708 $6,591 $7,036
Data 2,139 1,927 8,620 7,389
International 768 1,538 2,977 5,875
Internet dedicated and other 824 688 3,160 2,455
-------- -------- -------- --------
Commercial services 5,301 5,861 21,348 22,755
Consumer 1,711 1,888 7,227 7,778
Wholesale 591 733 2,641 3,388
Alternative channels and small
business 531 749 2,427 3,541
Dial-up Internet 344 403 1,536 1,628
-------- -------- -------- --------
Total revenues 8,478 9,634 35,179 39,090
-------- -------- -------- --------

Operating expenses:
Line costs 3,568 4,086 14,739 15,462
Selling, general and
administrative 2,543 2,750 11,046 10,597
Depreciation and amortization 1,614 1,308 5,880 4,878
-------- -------- -------- --------
Total 7,725 8,144 31,665 30,937
-------- -------- -------- --------
Operating income 753 1,490 3,514 8,153
Other income (expense):
Interest expense (438) (271) (1,533) (970)
Miscellaneous 82 58 412 385
-------- -------- -------- --------
Income before income taxes,
minority interests and
cumulative effect of
accounting change 397 1,277 2,393 7,568
Provision for income taxes 154 471 927 3,025
-------- -------- -------- --------
Income before minority
interests and cumulative
effect of accounting change 243 806 1,466 4,543
Minority interests 15 (80) 35 (305)
-------- -------- -------- --------
Income before cumulative effect
of accounting change 258 726 1,501 4,238
Cumulative effect of accounting
change (net of income tax of
$50 in 2000) -- -- -- (85)
-------- -------- -------- --------
Net income 258 726 1,501 4,153
Distributions on mandatorily
redeemable preferred
securities and other preferred
dividend requirements 42 16 117 65
-------- -------- -------- --------
Net income applicable to common
shareholders $216 $710 $1,384 $4,088
======== ======== ======== ========

Net income attributed to

WorldCom Group $305 $585 $1,407 $2,533
======== ======== ======== ========
Net income (loss) attributed
to MCI Group $(89) $125 $(23) $1,555
======== ======== ======== ========

Diluted earnings (loss) per

common share: PRO FORMA
-----------------------------------
WorldCom group stock(2) $0.10 $0.20 $0.48 $0.87
======== ======== ======== ========
MCI group stock(2) ($0.75) $1.09 $(0.20) $13.52
======== ======== ======== ========

Diluted weighted average common

shares outstanding:
WorldCom Group stock(2) 2,965 2,893 2,933 2,912
======== ======== ======== ========
MCI Group stock(2) 119 115 117 115
======== ======== ======== ========

(1) In the second quarter of 2001, WorldCom made a strategic

decision to restructure its investment in Embratel. As a
result of actions taken in the second quarter of 2001, the
accounting principles generally accepted in the United States
 prohibit the continued consolidation of Embratel's results.
Accordingly, WorldCom deconsolidated this investment as of
January 1, 2001. The operating results for 2000 reflect the
consolidation of Embratel and the results for 2001 reflect the
deconsolidation.

(2) On June 7, 2001, WorldCom, Inc. recapitalized its common

shares into two separate stocks - WorldCom group stock and MCI
group stock - and each share of WorldCom, Inc. stock was
changed into one share of WorldCom group stock and 1/25 of a
share of MCI group stock. The above pro forma information was
used as the basis to compute diluted earnings per common share
and assumes the recapitalization occurred at the beginning of
2000 and the WorldCom group stock and MCI group stock existed
for all periods presented.

WORLDCOM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited. In Millions)

Dec. 31, Dec. 31,

2001 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $1,416 $761
Accounts receivable, net 5,308 6,815
Other current assets 2,481 2,179
-------- --------
Total current assets 9,205 9,755
-------- --------

Property and equipment, net 38,809 37,423

Goodwill and other intangibles, net 50,537 46,594

Other assets 5,363 5,131

-------- --------
$103,914 $98,903
======== ========

LIABILITIES AND SHAREHOLDERS' INVESTMENT

Current liabilities:
Short-term debt and current maturities of
long-term debt $172 $7,200
Accounts payable and accrued line costs 4,844 6,022
Other current liabilities 4,194 4,451
-------- --------
Total current liabilities 9,210 17,673
-------- --------

Long-term debt 30,038 17,696

Other liabilities 4,642 4,735

Minority interests 101 2,592

Mandatorily redeemable and other preferred securities 1,993 798

Total shareholders' investment 57,930 55,409

-------- --------
$103,914 $98,903
======== ========

Note: In the second quarter of 2001, WorldCom made a strategic

decision to restructure its investment in Embratel. As a
result of actions taken in the second quarter of 2001, the
 accounting principles generally accepted in the United States
prohibit the continued consolidation of Embratel's results.
Accordingly, WorldCom deconsolidated this investment as of
January 1, 2001. The balance sheet as of December 31, 2000
includes the effects of the Embratel consolidation.

WORLDCOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited. In Millions)

Year Ended Dec. 31,

-----------------
2001 2000(1)
-------- --------
Cash flows from operating activities:
Net income $1,501 $4,153
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change -- 85
Minority interests (35) 305
Depreciation and amortization 5,880 4,878
Provision for deferred income taxes 1,104 1,649
Change in assets and liabilities, net of effect
of business combinations:
Accounts receivable, net 281 (1,126)
Other current assets 164 (797)
Accounts payable and other current liabilities (1,154) (1,050)
All other operating activities 253 (431)
-------- --------
Net cash provided by operating activities 7,994 7,666
-------- --------
Cash flows from investing activities:
Capital expenditures (7,886) (11,484)
Acquisitions and related costs (206) (14)
Increase in intangible assets (694) (938)
Decrease in other liabilities (480) (839)
All other investing activities (424) (1,110)
-------- --------
Net cash used in investing activities (9,690) (14,385)
-------- --------
Cash flows from financing activities:
Principal borrowings on debt, net 3,031 6,377
Common stock issuance 124 585
Distributions on mandatorily redeemable preferred
securities and dividends paid on preferred stock (154) (65)
Redemption of preferred stock (200) (190)
All other financing activities (272) (84)
-------- --------
Net cash provided by financing activities 2,529 6,623
Effect of exchange rate changes on cash 38 (19)
-------- --------

Net increase (decrease) in cash and cash equivalents 871 (115)

Cash and cash equivalents at beginning of period 761 876

Deconsolidation of Embratel (216) --
-------- --------
Cash and cash equivalents at end of period $1,416 $761
======== ========

(1) In the second quarter of 2001, WorldCom made a strategic

decision to restructure its investment in Embratel. As a
result of actions taken in the second quarter of 2001, the
accounting principles generally accepted in the United States
prohibit the continued consolidation of Embratel's results.
Accordingly, WorldCom deconsolidated this investment as of
January 1, 2001. The statement of cash flows for 2000 reflects
the consolidation of Embratel and the statement of cash flows
for 2001 reflects the deconsolidation.