10-K405

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

(MARK ONE)

  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR

  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 0-11258
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                                 WORLDCOM, INC.

             (Exact name of registrant as specified in its charter)

                  GEORGIA                              58-1521612
      (State or other jurisdiction of        (I.R.S. Employer Identification
       incorporation or organization)                     No.)
     500 CLINTON CENTER DRIVE, CLINTON,                   39056
                MISSISSIPPI                            (Zip Code)
  (Address of principal executive offices)

                                 (601) 460-5600
              Registrant's telephone number, including area code:

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.01 PAR VALUE
              SERIES B CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE
                        PREFERRED STOCK PURCHASE RIGHTS
                            ------------------------

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  /X/

    The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 2001 was:

                 Common Stock, $.01 par value: $49,697,505,246

               Series B Convertible Preferred Stock: $26,963,248

    There were 2,886,027,760 shares of the registrant's common stock outstanding
as of March 16, 2001, net of treasury shares.

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                               TABLE OF CONTENTS



                                                                          PAGE
                                                                        --------
                                                                  
Cautionary Statement Regarding Forward-Looking Statements.............         1

                                     PART I

Item 1.   Business....................................................         2
Item 2.   Properties..................................................        34
Item 3.   Legal Proceedings...........................................        34
Item 4.   Submission of Matters to a Vote of Security Holders.........        34

                                    PART II

Item 5.   Market for Registrant's Common Equity and Related
          Shareholder Matters.........................................        35
Item 6.   Selected Financial Data.....................................        36
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results
          of Operations...............................................        53
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................        72
Item 8.   Financial Statements and Supplementary Data.................        74
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................        74

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant..........        75
Item 11.  Executive Compensation......................................        77
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................        81
Item 13.  Certain Relationships and Related Transactions..............        82

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................        83

Signatures............................................................        84

Index to Financial Statements and Financial Statement Schedule........       F-1

Exhibit Index.........................................................       E-1


                                       i

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995:

    (i) any statements contained or incorporated herein regarding possible or
        assumed future results of operations of WorldCom's business, anticipated
        cost savings or other synergies, the markets for WorldCom's services and
        products, anticipated capital expenditures, the outcome of Euro
        conversion efforts, regulatory developments or competition;

    (ii) any statements preceded by, followed by or that include the words
         "intends," "estimates," "believes," "expects," "anticipates," "should,"
         "could," or similar expressions; and

   (iii) other statements contained or incorporated by reference herein
         regarding matters that are not historical facts.

    Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements; factors that could cause actual results to differ
materially include, but are not limited to:

    - possible effects of our recently announced proposals regarding the
      realignment of our businesses and the possible creation of tracking
      stocks;

    - the effects of vigorous competition;

    - the impact of technological change on our business, new entrants and
      alternative technologies, and dependence on availability of transmission
      facilities;

    - uncertainties associated with the success of acquisitions;

    - risks of international business;

    - regulatory risks in the United States and internationally;

    - contingent liabilities;

    - risks associated with Euro conversion efforts;

    - uncertainties regarding the collectibility of receivables;

    - risks associated with debt service requirements and interest rate
      fluctuations;

    - our financial leverage; and

    - the other risks referenced from time to time in WorldCom's filings with
      the Securities and Exchange Commission.

    Potential purchasers of WorldCom capital stock are cautioned not to place
undue reliance on such statements, which speak only as of the date thereof.

    The cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by WorldCom or persons acting on its behalf.

                                       1

                                     PART I

ITEM 1. BUSINESS

GENERAL

    Organized in 1983, WorldCom, Inc., a Georgia corporation, provides a broad
range of communications services to both U.S. and non-U.S. based businesses and
consumers. We are a global communications company utilizing a strategy based on
being able to provide service through our own facilities throughout the world
instead of being restricted to a particular geographic location. We call this
our "on-net" strategy. The on-net approach allows our customers to send data or
voice communications across town, across the U.S., or to any of our networks in
Europe or Asia, without ever leaving our networks. The on-net approach provides
our customers with superior reliability and low operating costs. Our core
business is communications services, which includes voice, data, Internet and
international services. During each of the last three years, more than 90% of
our operating revenues were derived from communications services.

    We serve as a holding company for our subsidiaries' operations. References
herein to WorldCom include WorldCom and our subsidiaries, unless the context
otherwise requires. Additionally, information in this document has been revised
to reflect the stock splits of our common stock.

BUSINESS COMBINATIONS

    SKYTEL COMMUNICATIONS.  On October 1, 1999, WorldCom acquired SkyTel
Communications, Inc., pursuant to the merger of SkyTel Communications with and
into a wholly owned subsidiary of WorldCom. Upon consummation of the SkyTel
merger, the wholly owned subsidiary was renamed SkyTel Communications, Inc.
SkyTel Communications is a leading provider of nationwide messaging services in
the United States. SkyTel Communications' principal operations include one-way
messaging services in the United States, advanced messaging services on the
narrow band personal communications services network in the United States and
international one-way messaging operations.

    As a result of the merger with SkyTel Communications, each outstanding share
of SkyTel Communications common stock was converted into the right to receive
0.3849 shares of WorldCom common stock, par value $.01 per share, or
approximately 23 million WorldCom common shares in the aggregate. Holders of
SkyTel Communications' $2.25 Cumulative Convertible Exchangeable Preferred Stock
received one share of WorldCom Series C $2.25 Cumulative Convertible
Exchangeable Preferred Stock for each share of SkyTel Communications preferred
stock held.

    Upon effectiveness of the merger with SkyTel Communications, the then
outstanding and unexercised options and warrants exercisable for shares of
SkyTel Communications common stock were converted into options and warrants,
respectively, exercisable for shares of WorldCom common stock having the same
terms and conditions as the SkyTel Communications options and warrants, except
that the exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 0.3849. The merger with SkyTel
Communications was accounted for as a pooling-of-interests; and accordingly,
WorldCom's financial statements for periods prior to the merger with SkyTel
Communications have been restated to include the results of SkyTel
Communications for all periods presented.

    MCI.  On September 14, 1998, we acquired MCI Communications Corporation for
approximately $40 billion, pursuant to the merger of MCI with and into a wholly
owned subsidiary of WorldCom. Upon consummation of the MCI merger, the wholly
owned subsidiary was renamed MCI Communications Corporation. MCI became a wholly
owned subsidiary of WorldCom. Through the merger with MCI, we acquired one of
the world's largest and most advanced digital networks, connecting local markets
in the United States to more than 280 countries and locations worldwide.

                                       2

    As a result of the merger with MCI, each outstanding share of MCI common
stock was converted into the right to receive 1.86585 shares of WorldCom common
stock or approximately 1.13 billion WorldCom common shares in the aggregate, and
each share of MCI Class A common stock outstanding (all of which were held by
British Telecommunications plc) was converted into the right to receive $51.00
in cash or approximately $7 billion in the aggregate. The funds paid to British
Telecommunications was obtained by WorldCom from (i) available cash as a result
of our $6.1 billion public debt offering in August 1998; (ii) the sale of MCI's
Internet backbone facilities and wholesale and retail Internet business to Cable
and Wireless plc for $1.75 billion in cash on September 14, 1998; (iii) the sale
of MCI's 24.9% equity stake in Concert Communications Services to British
Telecommunications for $1 billion in cash on September 14, 1998; and
(iv) availability under our commercial paper program and credit facilities.

    Upon effectiveness of the merger with MCI, the then outstanding and
unexercised options exercisable for shares of MCI common stock were converted
into options exercisable for an aggregate of approximately 125 million shares of
WorldCom common stock having the same terms and conditions as the MCI options,
except that the exercise price and the number of shares issuable upon exercise
were divided and multiplied, respectively, by 1.86585. The merger with MCI was
accounted for as a purchase; accordingly, operating results for MCI have been
included from the date of acquisition.

    EMBRATEL.  On August 4, 1998, MCI acquired a 51.79% voting interest and a
19.26% economic interest in Embratel Participacoes S.A., Brazil's
facilities-based national and international communications provider, for
approximately R$2.65 billion (U.S. $2.3 billion). The purchase price was paid in
local currency installments, of which R$1.06 billion (U.S. $916 million) was
paid on August 4, 1998, R$795 million (U.S. $442 million) was paid on August 4,
1999, and the remaining R$795 million (U.S. $444 million) was paid on August 4,
2000. Embratel provides domestic long distance and international
telecommunications services in Brazil, as well as over 40 other communications
services, including leased high-speed data, Internet, frame relay, satellite and
packet-switched services. Operating results for Embratel are consolidated in the
accompanying Consolidated Financial Statements and are included from the date of
the merger with MCI.

    COMPUSERVE.  On January 31, 1998, WorldCom acquired CompuServe Corporation
for approximately $1.3 billion, pursuant to the merger of a wholly owned
subsidiary of WorldCom, with and into CompuServe. Upon consummation of the
merger with CompuServe Corporation, CompuServe Corporation became a wholly owned
subsidiary of WorldCom.

    As a result of the merger with CompuServe Corporation, each share of
CompuServe Corporation common stock was converted into the right to receive
0.609375 shares of WorldCom common stock or approximately 56 million WorldCom
common shares in the aggregate. Prior to the merger with CompuServe Corporation,
CompuServe Corporation operated primarily through two divisions: Interactive
Services and Network Services. Interactive Services offered worldwide online and
Internet access services for consumers, while Network Services provided
worldwide network access, management and applications, and Internet services to
businesses. The merger with CompuServe Corporation was accounted for as a
purchase; accordingly, operating results for CompuServe Corporation have been
included from the date of acquisition.

    ANS.  On January 31, 1998, we also acquired ANS Communications, Inc. from
America Online, Inc. for approximately $500 million, and entered into five year
contracts with AOL under which WorldCom and its subsidiaries provide network
services to AOL. Additionally, AOL acquired CompuServe's Interactive Services
division and received a $175 million cash payment from WorldCom. WorldCom
retained the CompuServe Network Services division. ANS provided Internet access
to AOL and AOL's subscribers in the United States, Canada, the United Kingdom,
Sweden and Japan. The transaction with AOL was accounted for as a purchase;
accordingly, operating results for ANS have been included from the date of
acquisition.

                                       3

    BROOKS FIBER PROPERTIES.  On January 29, 1998, WorldCom acquired Brooks
Fiber Properties, Inc. pursuant to the merger of a wholly owned subsidiary of
WorldCom, with and into Brooks Fiber Properties. Upon consummation of the merger
with Brooks Fiber Properties, Brooks Fiber Properties became a wholly owned
subsidiary of WorldCom. Brooks Fiber Properties is a leading facilities-based
provider of competitive local telecommunications services, commonly referred to
as a competitive local exchange carrier, in selected cities within the United
States. Brooks Fiber Properties acquires and constructs its own state-of-the-art
fiber optic networks and facilities and leases network capacity from others to
provide long distance carriers, Internet Service Providers, wireless carriers
and business, government and institutional end users with an alternative to the
incumbent local exchange carriers for a broad array of high quality voice, data,
video transport and other telecommunications services.

    As a result of the merger with Brooks Fiber Properties, each share of Brooks
Fiber Properties common stock was converted into the right to receive 2.775
shares of WorldCom common stock or approximately 109 million WorldCom common
shares in the aggregate. The merger with Brooks Fiber Properties was accounted
for as a pooling-of-interests; and accordingly, our financial statements for
periods prior to the merger with Brooks Fiber Properties have been restated to
include the results of Brooks Fiber Properties.

    Upon effectiveness of the merger with Brooks Fiber Properties, the then
outstanding and unexercised options and warrants exercisable for shares of
Brooks Fiber Properties common stock were converted into options and warrants,
respectively, exercisable for shares of WorldCom common stock having the same
terms and conditions as the Brooks Fiber Properties options and warrants, except
that the exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 2.775.

    MFS COMMUNICATIONS.  On December 31, 1996, WorldCom, through a wholly owned
subsidiary, merged with MFS Communications Company, Inc. Through the acquisition
of MFS Communications, valued at approximately $12.5 billion, we acquired local
network access facilities via digital fiber optic cable networks installed in
and around major United States cities, and in several major European cities. We
also acquired a network platform, which consists of owned transmission and
switching facilities, and network capacity leased from other carriers primarily
in the United States and Western Europe.

    As a result of the merger with MFS Communications, each share of MFS
Communications common stock was converted into the right to receive 3.15 shares
of WorldCom common stock or approximately 707 million WorldCom common shares in
the aggregate. Each share of MFS Communications Series A 8% Cumulative
Convertible Preferred Stock was converted into the right to receive one share of
Series A 8% Cumulative Convertible Preferred Stock of WorldCom, or 94,992 shares
of WorldCom Series A Preferred Stock in the aggregate. Each share of MFS
Communications Series B Convertible Preferred Stock was converted into the right
to receive one share of Series B Convertible Preferred Stock of WorldCom, or
approximately 12.7 million shares of WorldCom Series B Preferred Stock in the
aggregate. In addition, each depositary share representing 1/100th of a share of
MFS Communications Series A Preferred Stock was exchanged for a depositary share
representing 1/100th of a share of WorldCom Series A Preferred Stock.

    UUNET TECHNOLOGIES.  On August 12, 1996, MFS Communications acquired UUNET
Technologies, Inc. through a merger of a subsidiary of MFS Communications with
and into UUNET. UUNET is a leading worldwide provider of a comprehensive range
of Internet access options, applications, and value-added services to
businesses, other telecommunications companies and online services providers.

                                       4

                                    BUSINESS

    WorldCom provides a broad range of communications services to both U.S. and
non-U.S. based businesses and consumers. We are a global communications company
utilizing a strategy based on being able to provide service through our own
facilities throughout the world instead of being restricted to a particular
geographic location. We call this our "on-net" strategy. The on-net approach
allows our customers to send data or voice communications across town, across
the U.S., or to any of our networks in Europe or Asia, without ever leaving our
networks. The on-net approach provides our customers with superior reliability
and low operating costs. Our core business is communications services, which
includes voice, data, Internet and international services. During each of the
last three years, more than 90% of our operating revenues were derived from
communications services.

    On November 1, 2000, we announced a realignment of our businesses with the
distinct customer bases they serve. In addition, if approved by our
shareholders, we will create two separately traded tracking stocks: WorldCom
group stock, which is intended to track the separate performance of our data,
Internet, international and commercial voice businesses; and MCI group stock,
which is intended to reflect the performance of our consumer, small business,
wholesale long distance, wireless messaging and dial-up Internet access
businesses. If our shareholders do not approve the recapitalization we still
intend to implement the realignment.

    Following are descriptions of the businesses attributed to each of the
WorldCom group and the MCI group. Although we are describing these businesses
separately for purposes of establishing our tracking stock structure and in
order to give you a better understanding of the assets attributed to each group,
the two groups are not separate legal entities.

    The assets attributed to the WorldCom group include all of our network
assets except voice switches, which are used to forward audio and data
information from one point to another, and dial-up Internet modems, and also
include cash, investments, buildings, furniture, fixtures and equipment, and the
goodwill, other intangible assets, other long-term assets and other current
assets associated with the businesses attributed to the WorldCom group. The
assets attributed to the MCI group include voice switches, dial-up Internet
modems and the goodwill, other intangible assets, other long-term assets and
other current assets associated with the businesses attributed to the MCI group.
For a further discussion of the assets attributed to the groups and the
allocation methods used to allocate the assets, see the management's discussion
and analysis related to each group.

    Certain financial information about operations by segment and by geographic
area for 1998, 1999 and 2000 is included in Note 15 of the Notes to Consolidated
Financial Statements and is incorporated herein by reference. We believe that
all material offices, facilities and equipment are generally in good condition
and suitable for their intended purposes.

                           WORLDCOM GROUP OPERATIONS

OVERVIEW

    Our businesses attributed to the WorldCom group include:

    - data services such as frame relay, asynchronous transfer mode and Internet
      protocol networks. Each of these networks provides a system, requiring a
      standard format, to forward, or switch, video, data or audio information
      from one point to another;

    - Internet related services, including:

       - always-on connections to the Internet, which we refer to as dedicated
         access;

       - secure communication over the Internet allowing a business to link
         various sites and employees, which we refer to as a virtual private
         network;

                                       5

       - high speed and always-on digital connections to the Internet, which we
         refer to as digital subscriber lines; and

       - web site management and web-enabled products which provide customers
         with the hardware, software and monitoring for their web sites;

    - the design, implementation and ongoing management of a customer's
      communications system;

    - commercial voice services; and

    - international communications services.

We believe we are positioned to use those global assets and our customer base to
lead the new generation of fast growing, e-commerce and data-driven segments of
the communications industry.

    The businesses attributed to the WorldCom group accounted for 58.2% of our
revenues, 62.0% of our net income and 85.2% of our assets for the year ended
December 31, 2000.

    We have extensive networks that connect metropolitan centers and various
regions throughout the world. As of December 31, 2000, excluding our investment
in Embratel Participacoes S.A., Brazil's facilities-based national and
international communications provider, our networks that connect metropolitan
centers covered approximately 56,500 route miles, with an additional 10,150
route miles of local connections to customers worldwide. We also had over 2,500
centers where our equipment connects to the local telephone company for call
termination, which we call points of presence, 1,742 data switches, which
forward information to its proper address, and connected 123 cities across North
America, Europe, Latin America and Asia. Embratel provides interstate long
distance and international telecommunications services in Brazil, as well as
over 40 other communications services, including leased high-speed data,
satellite, Internet, frame relay and packet-switched services.

    Using our Internet protocol infrastructure, we intend to continue our
expansion into high growth, next generation services, such as virtual private
networks which use Internet protocol technology, web centers that allow
customers to interact with sales and service agents over the Internet, the
telephone or mail, and Internet content delivery services. We believe the
breadth and scale of these services differentiate our offerings from those of
our competitors and meet our customers' increasingly complex communications
needs, highlighting the unique quality and reach of our networks.

    We are positioning the company for leadership in the high growth segments of
our industry. Our proposed merger with Intermedia Communications and resulting
controlling interest in Digex will provide us with a strong foothold in the
expanding managed hosting arena. Managed hosting services include providing the
computer hardware, software, network technology and systems management necessary
to offer customers comprehensive outsourced web site hosting solutions. This
position, combined with our extensive facilities-based network assets and
corporate customer base, would create a strong competitor for e-commerce
services and a platform for leadership in our target segments of U.S. and
non-U.S. based corporations.

INDUSTRY

    For several years, the communications industry has been undergoing a
dramatic transformation due to several factors including:

    - technological advances such as the Internet;

    - rapid development of new services and products;

    - the Telecommunications Act of 1996;

    - the deregulation of communications services markets in selected countries
      around the world; and

    - the entry of new competitors in existing and emerging markets.

                                       6

    These are only a few of the forces impacting the communications industry
today. However, each of these factors is driven by the rapid development of data
services that are replacing traditional voice services. The development of frame
relay, asynchronous transfer mode and Internet protocol networks has
dramatically transformed the array and breadth of services offered by
telecommunications carriers.

    The use of the Internet, including intranets and extranets, which are
private, secure communications networks, has grown rapidly in recent years. This
growth was driven by a number of factors, including the large and growing
installed base of personal computers, improvements in network architectures,
increasing numbers of network-enabled applications, the emergence of compelling
content and commerce-enabling technologies, and easier, faster and cheaper
Internet access. Consequently, the Internet is now an important new global
communications and commerce medium. The Internet represents an opportunity for
enterprises to interact in new and different ways with both existing and
prospective customers, employees, suppliers and partners. Enterprises are
responding to this opportunity by substantially increasing their investment in
Internet sites and services.

    The market for data communications and Internet access and related products
is characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new product and service introductions. We
believe that the Transmission Control Protocol/IP, where we use fiber optic or
copper-based telecommunications infrastructure, will continue to be the primary
protocol and transport infrastructure for Internet-related services.
Transmission Control Protocol/IP combines two protocols, transmission control
protocol and Internet protocol, to establish a connection between two devices so
that streams of data can be sent between them. Emerging transport alternatives
include wireless cable modems and satellite delivery of Internet information.
Alternative protocols, which are proprietary or allow systems using different
formats to transfer data to communicate with each other, have been and are being
developed. We are also participating in trials of next generation, more advanced
technology.

    Developments in technology are further increasing the capacity and lifespan
of previously deployed fiber optic cables. Throughout 2001, we plan to deploy
high capacity broadband systems and fiber optic systems, both of which function
to connect different networks, and long distance transmission systems which are
not subject to signal deterioration. These network investments result in reduced
regeneration requirements for long distance transmissions and higher bandwidth
capacity from existing fiber optic cables which enhances our ability to serve
global businesses cost effectively.

STRATEGY

    Our objective is to use our strategic assets and customer base to be a
leader in each of our target segments and deliver long-term sustainable growth.
Key elements of our strategy include:

    TARGET HIGH GROWTH DATA BUSINESSES:  Our strategy is to focus primarily on
high growth and high value-added data services that we can provide utilizing our
extensive, high quality global networks. This should decrease our reliance on
traditional voice services, which are experiencing intense pricing pressures.

    CONTINUE OUR FOCUS ON CORPORATE ENTERPRISES:  We are realigning our
businesses with the customer bases they serve. We expect to further focus our
resources, including assets, technical expertise and marketing skills, to better
serve and grow our presence with corporate enterprise customers.

    RAPIDLY DEPLOY WEB HOSTING SERVICES:  We will quickly take advantage of the
web hosting and managed data capabilities of Digex to be acquired through the
proposed merger with Intermedia. By combining Digex's comprehensive portfolio of
hosting products with our extensive networks and customer relationships, we
expect to obtain a significant market position from which to rapidly grow our
data services revenues.

                                       7

    AGGRESSIVELY EXPAND VIRTUAL PRIVATE NETWORK SERVICES USING INTERNET
PROTOCOL:  Virtual private networks are private corporate communications
networks and are quickly replacing private lines as the cost effective and
flexible solution of choice for mid-sized and large corporate enterprises. We
view this segment as a key contributor to our future growth and an integral part
of our high-value service strategy. With over 2,500 points of presence, we
intend to leverage the global reach and quality of our networks to capitalize on
this high growth and high margin segment.

    TARGET WEB CUSTOMER CENTER OPPORTUNITIES:  As part of our strategy to target
emerging growth data services segments, we expect to aggressively expand our web
customer center services. We expect the need for these services to grow in line
with the rapid growth of the Internet and e-commerce. We will capitalize on this
trend by using our customer relationships, networks and expertise in this area
to remain at the forefront of high growth opportunities.

    MAINTAIN LEADERSHIP IN INTERNET DATA TRANSPORT AND ACCESS:  We intend to
remain at the forefront of Internet protocol implementation worldwide. We expect
Internet protocol services such as virtual private networks and e-business
applications to proliferate and will use our tradition of pioneering innovative
Internet infrastructure services to continuously expand our Internet value-added
services.

    EXPAND GLOBALLY:  We intend to leverage and further expand our global
networks in line with our customers' expansion internationally and the rapid
growth in cross-border communications. We expect to see continued rapid
expansion in international communications markets and we believe that our global
networks reaching across North America, Brazil, Europe and our current build-out
in Asia will position us to capitalize on this growth.

    UTILIZE OUR EXTENSIVE NETWORKS:  We will continue to utilize our networks to
benefit our customers and reduce our costs. The global reach and quality of our
networks enable us to provide complex services at low operating costs as a
result of our facilities-based, on-net approach. The on-net approach allows our
customers to send data streams or voice traffic locally, across the United
States, or to any of our facilities-based networks in Europe or Asia, without
ever leaving our networks. We believe this approach lowers our operating costs
and provides our customers with superior reliability and quality of service. Our
networks are also highly adaptable for future capacity expansions at lower per
unit costs, and are designed to cost-effectively integrate future generations of
optical-networking components to enhance efficiency and quality.

DESCRIPTION OF SERVICES

    We provide a broad range of enhanced data and voice communications and
managed network services through our direct commercial sales force of
approximately 8,000 people, excluding Embratel's sales force of approximately
700 people. Core services include data services, Internet services, commercial
local and long distance voice communications and international communications
services.

    According to a Gartner Dataquest report, "E-Data Services North America
2000" authored by Charles Carr, "The total data services market in the United
States in 1999 is estimated to be US $36.5 billion, increasing robustly at a
24.7 percent compound annual growth rate (CAGR) to US $109.8 billion in 2004."
Domestic connections using Internet protocol technology are expected to grow at
an annual rate of approximately 27% from $13.5 billion in 1998 to approximately
$46.3 billion by 2003, according to market studies by Probe Research. Much of
the growth is expected to result from increased demand for e-mail, web hosting
services, e-commerce, collaborative workflow and real-time video services and
applications. We believe that most of the growth in data communications will be
driven by corporations' demand for high quality and scalable Internet-based
infrastructure and services, including web hosting and other managed network
services. We are well positioned to capitalize on these growth opportunities and
to shape the future of global digital communications due to our network, global
customer base, tradition of innovation and corporate strategy to target and lead
the high end of data-driven emerging communications segments.

                                       8

    DATA SERVICES

    The ability of businesses to transmit data within their company or outside
to business partners is a critical function today. Over the last 10 years,
businesses made significant investments in software development and equipment
purchases to effectively process and transmit this data and information. The
Internet also introduced yet another means to communicate digitally worldwide.

    We continue to make significant investments in network technologies to
satisfy the continuing demand in high bandwidth data processing. Our global
frame relay, asynchronous transfer mode and Internet protocol networks provide a
full spectrum of public and private network options for any data transmission
requirement. The ability to interconnect and to increase the bandwidth capacity
of these networks protects customers' existing investments in established
networks while taking advantage of the newest technologies.

    Frame Relay: Frame relay is a high-speed communications technology that
divides the information into frames or packets. Each frame has an address that
the network uses to determine the destination of the frame. The frames travel
through a series of switches within the frame relay network to arrive at their
destination. This technology gives businesses a cost-effective, flexible way to
connect local area networks, system network architecture, voice, and Internet
protocol-based applications. Local area networks are computer networks which
span a relatively small area and system network architecture is a protocol for
connecting computers.

    Our frame relay service, which is operated over our own facilities, is
available in 26 countries and is supplemented by network-to-network interface
partnerships that reach additional locations worldwide. These networks allow us
to provide our customers around the globe with the highest quality standards of
service.

    Asynchronous Transfer Mode: Our on-net asynchronous transfer mode service is
a technology and protocol structure that integrates data, voice, and video over
a single communications network while offering a variety of access speeds and
multiple service categories. Asynchronous transfer mode technology is able to
service both the local area networks and wide area networks, which are computer
networks spanning a large geographic area, providing scalability for users'
current and future needs.

    Our asynchronous transfer mode services use our highly redundant OC-48
backbone to obtain these networking advantages. OC-48 refers to a type of high
speed optical carrier and backbone refers to the network connecting the system.
These public data networking services offer a number of different access speeds
and support multiple classes of service to meet customers' application needs.
The nature of the services provides users with the security and control of a
private network, plus the flexibility and economies of a public network. Our
asynchronous transfer mode services allow for the consolidation of applications
into a single network service, reducing network, equipment and operational
costs.

    Data services revenue grew by approximately 27.0%, to $7.4 billion or 18.9%
of WorldCom total revenues, for the year ended December 31, 2000, from
$5.8 billion, or 16.2% of WorldCom total revenues, during the same period in
1999.

    INTERNET SERVICES

    As a leading Internet backbone provider, we offer a comprehensive range of
Internet access and value-added options, applications and services tailored to
meet the needs of businesses and other telecommunications providers. Our
Internet products and services include dedicated Internet access, managed
networking services and applications (such as virtual private networks), web
hosting, electronic commerce and transaction services (such as web centers and
credit card transaction processing) and wireless Internet access.

                                       9

    INTERNET ACCESS AND TRANSPORT:  Our Internet infrastructure is based on our
OC-192c and OC-48c optical networks which use a combination of asynchronous
transfer mode, frame relay and router technologies at the transport layer for
both metropolitan and inter-regional connectivity. This network infrastructure
enables customers to access the Internet through dedicated lines. Once
connected, the customer's traffic is routed through our networks to the desired
Internet location, whether on our networks or elsewhere on the Internet.

    Through our networks, we offer the following access products to our
customers:

    - full, partial or shadow high speed T1 / T3 connections;

    - Internet gateway services which provide the hardware and software to link
      a customer's network to the Internet;

    - frame relay to Internet protocol connections;

    - asynchronous transfer mode to Internet protocol connections;

    - digital subscriber line; and

    - metropolitan area exchanges asynchronous transfer mode.

    These access options provide the variety of bandwidth choices required for
all business types and sizes.

    VIRTUAL PRIVATE NETWORKS:  We provide virtual private networks on public and
shared environments for small and large customers. Our customers use virtual
private networks to connect their corporate intranets, data centers, remote
users, and the World Wide Web via the public Internet.

    Our virtual private network service, called UUSecure, includes built-in
encryption, bandwidth prioritization and 24-hour centralized management and
monitoring services. UUSecure is already available in 18 countries, with
significant expansion planned.

    WEB HOSTING FOR BUSINESSES AND APPLICATION SERVICE PROVIDERS:  We are a
leading provider of web hosting services to businesses operating
mission-critical, multi-functional web sites and also offer related value-added
services, such as:

    - web site management products, such as Windows NT and UNIX managed servers;

    - integrated business solutions, such as e-commerce, business intelligence
      and office solutions; and

    - enterprise and professional services, such as stress testing and
      customized web site activity reporting.

    We deliver our services from geographically distributed, advanced Internet
data centers that are connected to our dedicated and redundant UUNET Internet
backbone network. Our tailored solutions are designed to integrate with existing
enterprise systems architectures and to enable customers to outsource the
monitoring, administration and optimization of their equipment, applications and
overall Internet operations.

    In September, 2000, we entered into a definitive merger agreement with
Intermedia. We expect the merger to be completed in the second quarter of 2001.
As a result of this merger, WorldCom will acquire a controlling interest in
Digex, a provider of managed web and application hosting services for some of
the world's fastest growing companies. This merger will support our web hosting
expansion by providing a comprehensive portfolio of hosting products and
services for mid-sized and large businesses. These services enable businesses to
more efficiently deliver their application services to their customers over the
Internet. Digex also offers related services, such as firewall management,
stress testing and consulting services, including capacity and migration
planning and database optimization.

                                       10

Digex's services include providing the computer hardware, software, network
technology and systems management necessary to offer our customers comprehensive
outsourced web site hosting solutions.

    Digex's server hosting and Internet connection services are offered through
its advanced data centers. Today, these data centers cover over 200,000 square
feet of space and deploy advanced security systems. Within these centers, Digex
provides the services and expertise to ensure secure, adaptable,
high-performance operation of web sites 24 hours a day. Digex continues to
upgrade its networks in order to accommodate expected traffic growth. Its
managed services include performance monitoring, site management reports, data
backup, content delivery and management services, security services and
professional services. These services provide the foundation for high
performance, availability, adaptability and reliability of customers'
mission-critical Internet operations. In addition, Digex integrates technologies
from leading vendors with our industry expertise and proprietary technology.

    Through a resale agreement completed in November 2000, we are able to sell
Digex services to our customer base prior to the close of the Intermedia merger.
Our combination will:

    - combine Digex's range of managed, enterprise and portal hosting solutions
      with our worldwide, facilities-based networks and relationships with
      leading businesses around the globe;

    - enable us to offer key solutions for emerging and established
      Internet-based businesses and web sites as well as established businesses
      who are leveraging e-business to open new markets, lower costs, improve
      customer satisfaction and broaden distribution;

    - focus our capital investments in one of the industry's fastest growing
      segments; and

    - enable us to strategically integrate Intermedia's network facilities to
      improve our local presence in select key markets.

    With this merger, we believe we will accelerate our ability to provide
managed web and application hosting services--one of the highest growth markets
in the industry--by acquiring the tools to provide premier web hosting products
and services that customers are demanding. We offer a comprehensive suite of
access, transport and applications solutions to customers around the globe.

    WEB CENTERS:  Our web center products, which we are currently testing and
expect to introduce in mid 2001, are unified, web-enabled solutions that allow
customers to interact with sales and service agents using multiple contact
mediums--e-mail, chat, online collaboration, call back request, voice mail and
voice recognition, wireless device support, fax, or traditional toll-free calls
and mail. Customers can order, integrate, maintain, use, monitor, report and
manage customer contacts through a browser-based interface that we provide.

    Internet services revenue grew by approximately 58.7%, to $2.5 billion, or
6.3% of WorldCom total revenues, for the year ended December 31, 2000, from
$1.6 billion, or 4.3% of WorldCom total revenues, during the same period in
1999.

    WIRELESS INTERNET ACCESS:  We provide the Internet protocol network backbone
for Metricom's Richochet wireless service. Metricom's wireless Internet service,
introduced in select markets in October 2000, represents one of the first
commercial rollouts of complete mobile wireless broadband Internet access. The
service offers business users an always-on, low cost, fully compatible and
complete mobile Internet access technology.

    The service offers Internet access at 128 kbps. The network is based on an
architecture that uses a combination of unlicensed spectrum as well as licensed
spectrum. The network is comprised of wireless modems that the users attach to
any PC or handheld computer, and Metricom's wireless network of small
shoebox-sized radio transceivers, typically mounted to streetlights or utility
poles every quarter-to half-mile in a mesh network. The end-user wireless modems
communicate with the radios and on wired access points. The wired access points
collect the information and transmit it on a wired Internet protocol network
backbone that enables users to reach the Internet or a corporate network. Each
wired access point and the radios that support it can handle thousands of
subscribers.

                                       11

    Our wireless Internet services enhance and complement the existing wireless
and messaging services available from us, and are a key component of our focus
on high-growth data, Internet and wireless services. The service ties not only
to our UUNET backbone for Internet protocol access, but also provides an
extension of our virtual private network strategy for customers that want secure
access to corporate intranets.

    COMMERCIAL LOCAL AND LONG DISTANCE VOICE COMMUNICATIONS

    We provide a single source for integrated local and long distance
telecommunications services and facilities management services to businesses,
government entities and other telecommunications companies.

    The market for local exchange services consists of a number of distinct
service components. These services include:

    - local network services, which generally include basic dial tone charges
      and private line services;

    - network access services, which consist of the local portion of long
      distance telephone calls; and

    - long distance network services.

    We also offer a broad range of related services that enhance customer
convenience, add value and provide additional revenue sources. Advanced
toll-free services offer features for caller and customer convenience, including
a variety of call routing and call blocking options, customer reconfiguration,
termination overflow to switched or dedicated lines, dialed number
identification service, real-time automatic number identification and flexible
after-hours call handling services.

    Business local and long distance voice services revenue was $7.0 billion, or
18.0% of WorldCom total revenues, for the year ended December 31, 2000, versus
$7.4 billion, or 20.7% of WorldCom total revenues, during the same period in
1999.

    INTERNATIONAL OPERATIONS

    Our global strategy is enabled by the position of the company as an owner of
telecommunications infrastructure throughout Europe, Asia and North America. Our
international strategy is to use this foundation to design and deliver product
sets and features globally so that multinational enterprises enjoy a consistency
in service performance regardless of geography.

    We provide switched voice, private line and/or value-added data services
over our own facilities and leased facilities in the United Kingdom, Germany,
France, the Netherlands, Sweden, Switzerland, Belgium, Italy, Ireland,
Luxembourg, Denmark, Austria, Norway and Spain. We operate metropolitan digital
fiber optic networks in London, Paris, Frankfurt, Hamburg, Dusseldorf,
Amsterdam, Rotterdam, Stockholm, Brussels, Zurich, Dublin, Birmingham,
Edinburgh, Lyons, Marseille, Lille and Strasbourg. We also offer international
services over leased facilities in selected Asian markets, including Australia,
Japan, Hong Kong, Singapore, New Zealand, Indonesia, Malaysia, Thailand,
Philippines, Taiwan and South Korea. We were granted authority in the first
quarter of 1998 to serve as a local and international facilities-based carrier
in Australia and Japan and now operate metropolitan digital fiber optic networks
in Sydney and Tokyo.

    Data centers are being deployed throughout Europe and Asia, interconnected
with the global networks, allowing us to expand into new business areas using
our worldwide telecommunications infrastructure as the platform for technology
and service expansion.

    Our investment in Embratel further extends our local-to-global-to-local
strategy. Embratel's business consists principally of providing intra-regional
long distance, inter-regional long distance and international long distance
telecommunications services as well as data communications, text, Internet
services and mobile satellite and maritime communications services. Embratel
operates under a domestic long distance concession and an international long
distance concession granted by Brazil's

                                       12

Agencia Nacional de Telecomunicacoes. We have a 51.79% voting interest and a
19.26% economic interest in Embratel.

    Revenues from international operations grew by approximately 33.7%, to
$5.9 billion, or 15.0% of WorldCom total revenues, for the year ended
December 31, 2000, from $4.4 billion, or 12.2% of WorldCom total revenues,
during the same period in 1999.

FACILITIES

    NETWORKS

    We own domestic long distance, international and multi-city local service
fiber optic networks with access to additional fiber optic networks through
lease agreements with other carriers. Additionally, we own and lease
trans-oceanic cable capacity in the Atlantic and Pacific oceans.

    Deployed in business centers throughout the United States, Western Europe,
the United Kingdom, Australia and Japan, our local networks are constructed
using a closed loop which is referred to as ring topology. Transmission networks
are based on optical network equipment. Network backbones and local networks are
installed in conduits owned by us or leased from third parties such as
utilities, railroads, long distance carriers, state highway authorities, local
governments and transit authorities. Lease arrangements are generally executed
under multi-year terms with renewal options and are non-exclusive.

    The long distance networks are protected by systems that are capable of
restoring backbone traffic in the event of an outage in milliseconds. In
addition, long distance switched traffic is dynamically rerouted via switch
software to any available capacity to complete calls.

    To serve customers in buildings that are not located directly on the fiber
networks, we utilize leased T-3s, T-1s or local connections obtained from the
traditional phone companies, competitive local exchange carriers and other
carriers who serve these buildings.

    Our Internet infrastructure is based on our OC-192c and OC-48c optical
networks which use a combination of asynchronous transfer mode, frame relay and
router technologies to transport data.

    We are deploying technology that integrates a business' wide area networks
with the public switched telecommunications network utilizing
voice-over-Internet protocol gateways and session initiated protocol, which will
provide businesses with a wide range of Internet voice and messaging services.

    The WorldCom group is allocated an expense and the MCI group is allocated a
corresponding decrease in costs for the use by the WorldCom group of the
business voice switches attributed to the MCI group. The expense is equal to a
proportion, based on usage, of the MCI group's related costs. All other material
transactions between the groups are intended to be on an arm's-length basis.

    Internationally, we own or lease fiber optic capacity on most major
international undersea cable systems in the Pacific and Atlantic Ocean regions.
In the first quarter of 1998, we, together with our joint venture partner
Cable & Wireless, placed into service a high capacity digital fiber optic
undersea cable between the United States and the United Kingdom. We also own
fiber optic capacity for services to the former Soviet Union Republics, Central
America, South America and the Caribbean. Furthermore, we own and operate 28
international gateway satellite earth stations, which enable us to extend public
switched and private line voice and data communications to and from locations
throughout the world.

                                       13

    Our network statistics, excluding Embratel, are as follows:




                                                                     
                                                               DECEMBER     DECEMBER
                                                                 31,          31,
                                                                 1999         2000
                                                              ----------   ----------
Domestic and international long distance route miles........     55,163        56,496
Local domestic and international route miles................      9,323        10,153
Voice grade equivalents.....................................  33,060,614   65,537,123
Buildings connected.........................................     48,961        61,674
Telecom collocations........................................        429           477


    Embratel owns the largest long distance telecommunications network in Latin
America providing both national and international telecommunications services.
It is the main provider of high-speed data transmission in Brazil, with the
largest network of broadband fiber optic transmission systems, with a total
installed national transmission capacity of 90Gbps, covering approximately
1.7 million fiber miles as of December 31, 2000.

    DATA NETWORK SWITCHING

    Our asynchronous transfer mode networks utilize our intracity fiber
connections to customers, asynchronous transfer mode switches and high-capacity
fiber optic networks. Asynchronous transfer mode is a switching and transmission
technology based on encapsulation of information in short (53-byte) fixed-length
packets or "cells." Asynchronous transfer mode switching was specifically
developed to allow simultaneous switching and transmission of mixed voice, data
and video (sometimes referred to as "multimedia" information at various rates of
transmission). In addition, characteristics of asynchronous transfer mode
switching allow switching information to be directly encoded in integrated
circuitry rather than in software.

    Our frame relay networks utilize our owned and maintained frame relay
switches and our high-capacity fiber optic networks to provide data networking
services to commercial customers. Networking equipment at customer sites
connects to our frame relay switches which in turn are connected to each other
via our extensive fiber optic networks. Frame relay utilizes variable length
frames of data to transport customer data from one customer location across our
networks to another customer location. Customers utilize the frame relay
technology to support traditional business applications such as connecting local
networks and financial applications.

RATES AND CHARGES

    Domestic and international business services originating in the United
States are primarily billed in six-second increments; other rate structures bill
in 18, 30 or 60 second increments. Switched voice services originating in
international markets are billed in increments subject to local market
conditions and interconnect agreements. Switched long distance services are
billed in arrears, with monthly billing statements itemizing date, time,
duration and charges. Local charges may be billed in arrears or in advance.
Fixed recurring charges are billed in advance while metered charges are billed
in arrears. Data services are generally billed a fixed rate per circuit and,
depending on the service, a separate fixed network port charge. Data service
rates are based on the speed of transmission, and depending on the service type,
may be billed in arrears or in advance. Private line services are billed monthly
in advance, with the invoice indicating applicable rates by circuit. Our rates
are generally designed to be competitive with those charged by other long
distance and local carriers.

    Our Internet access options are sold in the United States and in many
foreign countries for both domestic and global Internet services. Prices vary,
based on service type. Due to various factors, such as available
telecommunications technology, foreign government regulation and market demand,
the service options offered outside of the United States vary as to speed, price
and suitability for various purposes.

                                       14

    Embratel's rates for most telecommunications services are subject to final
regulatory approval, to which Embratel submits requests for rate adjustments.
Embratel's rates for domestic and international long distance service are
regulated and are uniform throughout Brazil. The majority of Embratel's revenues
from data communications are provided by monthly line rental charges for private
leased circuits. The balance consists mainly of charges for access to the only
data transmission network and measured charges based on the amount of data
transmitted.

SALES AND MARKETING

    We market our business communications services primarily through a direct
sales force targeted at markets defined by both communications needs and
geographies. Our commercial sales force of approximately 8,000 people, excluding
Embratel's 700 people, also provides advanced data specialization for the
domestic and international marketplaces, including private line services.

    Our sales force can be grouped loosely into three channels. The first
targets small to large U.S.-centric enterprises in the U.S. The second addresses
the same small to large enterprises outside the U.S. The third channel serves
the largest 1,000 multinational corporations with a unified sales and service
organization that mirrors the customers' own operations.

    In each of our geographic markets, we employ full service support teams that
provide our customers with prompt and personal attention. Our localized
management, sales and customer support are designed to engender a high degree of
customer loyalty and service quality.

    In addition, we expect to launch in the second quarter of 2001 an online
sales and support channel that will complement our activities to reach smaller
U.S.-based businesses. This web-based channel will offer a suite of basic data
and voice services in a cost-efficient manner.

COMPETITION

    The telecommunications industry is extremely competitive, and we expect that
competition will intensify in the future. We face substantial competition in
each of our business segments. Some of our existing and potential competitors
have financial and other resources significantly greater than ours. Moreover,
some of these providers presently enjoy advantages as a result of their historic
monopoly control over local exchange facilities. A continuing trend toward
business combinations and alliances in the telecommunications industry may
create significant new competitors. A number of traditional and emerging
competitors, including AT&T, Cable & Wireless, Genuity, Global Crossing, Level
3, Qwest, Sprint and Williams, have made significant investments in advanced
fiber optic network facilities. In addition to voice and data competition from
long distance service competitors, a number of facilities-based competitive
local exchange carriers and cable television multi-system operators plan to
offer local telecommunications services in major U.S. cities over their own
facilities or through resale of the local exchange carriers' or other providers'
services.

    Increasingly, we also must compete with equipment vendors and consulting
companies in emerging Internet service markets. Companies, including Cisco,
Accenture and IBM, obtained or expanded their Internet-based services as a
result of network deployment, acquisitions and strategic investments. We expect
these acquisitions and strategic investments to increase, thus creating
significant new competitors. Furthermore, we expect these firms to devote
greater resources to develop new competitive products and services and to market
those and existing products and services.

    Overseas, we compete with new entrants as well as with incumbent providers,
some of which still are partially government-owned, have special regulatory
status along with the exclusive rights to provide services, and virtually all of
which have historically dominated their local, domestic long distance and
international services business. These incumbent providers enjoy numerous
advantages including

                                       15

existing facilities, customer loyalty, and substantial financial resources. We
often must rely on facilities or termination services from these incumbent
providers. We also compete with other service providers, some of which are
affiliated with incumbent providers in other countries. We devote extensive
resources to obtaining regulatory approvals necessary to operate overseas, and
to obtain access to and interconnect with the incumbent's network on a
non-discriminatory basis. In Europe, we compete directly with companies such as
British Telecom, Deutsche Telekom, Cable & Wireless, France Telecom, and Equant
(in which France Telecom recently announced plans to acquire a controlling
interest), global telecommunications alliances such as Concert and KPNQwest and
regional Internet service providers such as Terra, Oleane, and Demon Internet
Limited.

    The development of new technologies and increased availability of domestic
and international transmission capacity may also give rise to new competitive
pressures. For example, even though fiber optic networks, such as those used by
us, are now widely used for long distance transmission, it is possible that the
desirability of these networks could be adversely affected by changing
technology. The telecommunications industry is in a period of rapid
technological evolution, marked by the introduction of new routing and switching
technologies, new services, and increasing wireless, satellite and fiber optic
transmission capacity for services similar to those provided by us. We cannot
predict with certainty which of many possible future product and service
offerings will help maintain our competitive position or what expenditures will
be required to develop and provide these products and services. Nor can we
predict whether valuable spectrum licenses will be affected by regulatory
decisions to re-allocate spectrum for other uses, or whether current deployment
plans for our MMDS services will be sustainable if spectrum reallocation occurs.

    Under the Telecom Act and ensuing federal and state regulatory initiatives,
many barriers to local exchange competition are being eliminated. The
introduction of competition, however, also establishes, in part, the ability of
the traditional phone companies to provide inter-LATA long distance services
within a particular region. Local access and transport area, or LATA, refers to
an area within a geographic region. To date, the FCC has granted applications by
Verizon for the state of New York and by SBC for Texas, Kansas and Oklahoma to
provide in-region inter-LATA services. We believe the traditional phone
companies will continue to seek to enter these markets given their ownership of
extensive facilities in their local service regions, their long-standing
customer relationships and their very substantial capital and other financial
resources. As the traditional phone companies are allowed to offer in-region
long distance services in additional states, they will be in a position to offer
single source local and long distance service similar, if not superior, to that
being offered by us. We expect that increased competition will result in
additional pricing and margin pressures in the domestic telecommunications
services business. Indeed, competition has already significantly reduced
consumer long distance pricing, and as a result negatively affected the
profitability of traditional service providers. As rates stabilize, we expect to
compete effectively as a result of our innovation, quality and diversity of
services, our ability to offer a combination of services, and our level of
customer service.

    As noted, we offer data communications and Internet-based services,
including web hosting, collocation services, virtual private network services,
dedicated and wholesale Internet access, and related services. This is an
extremely competitive business and we expect that competition will intensify in
the future. We believe that the ability to compete successfully in this arena
depends on a number of factors, including:

    - industry presence;

    - the ability to expand rapidly;

    - the capacity, reliability and security of network infrastructure;

    - ease of access to and navigation on the Internet;

                                       16

    - the pricing policies of our competitors and suppliers;

    - the timing of the introduction of new products and services by us and our
      competitors;

    - our ability to support industry standards; and

    - industry and overall economic trends.

Our success will depend heavily upon our ability to provide high quality data
communications services, including Internet connectivity and value-added
Internet services, at competitive prices.

    Before the Brazilian telecom system reform, Embratel was the exclusive
provider of interstate and international long distance services in Brazil,
although it was subject to indirect competition from a number of sources. The
companies organized under Telecomunicacoes Brasileiras S.A., Telebras were the
exclusive providers of intrastate and local telephone services. However, since
1995, Brazil has been adopting sweeping regulatory changes intended to open the
telecommunications market to competition.

    Under the 1997 General Telecommunications Law and the General Grant Plan,
the Ministry of Communications was required to privatize the Telebras system.
According to the privatization model, the Brazilian states were divided among
three regions and the Telebras companies, which provided services in each of
these states, were grouped under three holding companies and granted concessions
to provide local and intra-regional long distance services within one of the
three regions. On June 2, 1998, Embratel was granted concessions to provide
domestic long distance (intra-regional and inter-regional) and international
services. The privatization occurred on July 29, 1998, but only on July 3, 1999,
with the introduction of the carrier selection code, Embratel became subject to
competition in the intra-regional long distance markets.

    The General Law and the General Grant Plan also required the regulator,
Anatel, promptly after the privatization, to auction the mirror authorizations
for the provision of local and intra-regional long distance telephone services
in each of the three regions, and one mirror authorization for the provision of
intra-regional, inter-regional and international long distance telephone
services.

    Embratel has three competitors in the north east region for the provision of
intra-regional long distance services (the north east incumbent provider, the
north east mirror authorization holder (Vesper, formerly known as Canbra), and
the national long distance mirror authorization holder (Intelig)); three
competitors in the south region for the provision of the intra-regional long
distance services (the south incumbent provider, Global Village Telecom and
Intelig); and three competitors in the Sao Paulo State region for the provision
of inter-regional long distance services (the Sao Paulo State incumbent
provider, Vesper and Intelig).

    Beginning in 2002, Anatel may grant an unlimited number of additional
authorizations for the provision of local and intra-regional, inter-regional and
international long distance telephone services.

EMPLOYEES

    Through our businesses attributed to the WorldCom group, excluding Embratel,
we employed a total of approximately 59,000 full and part-time personnel as of
March 16, 2001, approximately 450 of whom are represented by organized labor
organizations. As of March 16, 2001, Embratel employed approximately 12,200 full
and part-time personnel. We consider our relationship with these employees to be
good.

                                       17

PATENTS, TRADEMARKS, TRADENAMES AND SERVICE MARKS

    We actively pursue the protection of intellectual property rights in the
United States and relevant foreign jurisdictions. Our continuing efforts have
produced numerous issued patents and pending patent applications on innovative
technology.

    All tradenames, including the MCI tradename and the other related MCI
tradenames, have been attributed to the WorldCom group. The MCI group is
allocated an expense and the WorldCom group is allocated a corresponding
decrease in costs for use by the MCI group of the MCI tradenames based on the
following schedule:

                              2001: $27.5 million

                              2002: $30.0 million

                              2003: $35.0 million

                              2004: $40.0 million

                              2005: $45.0 million

    Any renewal or termination of use of the MCI tradename by the businesses
attributed to the MCI group will be subject to the general policy that our board
of directors will act in the best interests of WorldCom. For purposes of
preparing the historical financial statements for the WorldCom group filed as
exhibits to this Form 10-K, costs related to the MCI tradenames allocated to the
WorldCom group were decreased by $27.5 million per annum since the date of
acquisition of MCI, for use of the MCI tradenames by the MCI group.

REGULATION

    We are involved in legal and regulatory proceedings that are incidental to
our business and have included loss contingencies in other current liabilities
and other liabilities for these matters in the WorldCom group's financial
statements. In some instances, rulings by federal and state regulatory
authorities may result in increased operating costs to us. The results of these
various legal and regulatory matters are uncertain and could have a material
adverse effect on the WorldCom group's combined results of operations or
financial position.

    GENERAL

    We are subject to varying degrees of federal, state, local and international
regulation. In the United States, our subsidiaries are most heavily regulated by
the states, especially for the provision of local exchange services. Our
subsidiaries must be certified separately in each state to offer local exchange
and intrastate long distance services. No state, however, subjects us to price
cap or rate of return regulation, nor are we currently required to obtain FCC
authorization for installation or operation of our network facilities used for
domestic services, other than licenses for specific multichannel multipoint
distribution services, wireless communications service and terrestrial microwave
and satellite earth station facilities that utilize radio frequency spectrum.
FCC approval is required, however, for the installation and operation of our
international facilities and services. We are subject to varying degrees of
regulation in the foreign jurisdictions in which we conduct business, including
authorization for the installation and operation of network facilities. Although
the trend in federal, state and international regulation appears to favor
increased competition, no assurance can be given that changes in current or
future regulations adopted by the FCC, state or foreign regulators or
legislative initiatives in the United States or abroad would not have a material
adverse effect on us.

                                       18

    DOMESTIC

    In August 1996, the FCC established nationwide rules pursuant to the Telecom
Act designed to encourage new entrants to compete in local service markets
through interconnection with the traditional phone companies, resale of
traditional phone companies' retail services, and use of individual and
combinations of unbundled network elements, owned by the traditional phone
companies. Unbundled network elements are defined in the Telecom Act as any
"facility or equipment used in the provision of a telecommunication service," as
well as "features, function, and capabilities that are provided by means of such
facility or equipment." Implementation of these rules has been delayed by
various appeals by traditional phone companies. In January 1999, the Supreme
Court of the United States confirmed the FCC's authority to issue the rules,
including a pricing methodology for unbundled network elements. On remand, the
FCC clarified the requirement that traditional phone companies make specific
unbundled network elements available to new entrants. The traditional phone
companies have sought reconsideration of the FCC's order and have petitioned for
review of the order in the United States Court of Appeals for the D.C. Circuit.
The traditional phone companies also petitioned for review of the FCC's rules
for pricing unbundled network elements in the United States Court of Appeals for
the Eighth Circuit which, in July 2000, invalidated the portion of those rules
that mandated that the pricing be based on a forward-looking cost methodology
which calculates costs by reference to efficient technology and design choices.
At the request of various parties, including us, the Supreme Court will review
the Eighth Circuit's decision. A ruling from the Supreme Court is expected in
early 2002.

    The Telecom Act requires traditional phone companies to petition the FCC for
permission to offer long distance services for each state within their region.
Section 271 of the Act provides that for these applications to be granted, the
FCC must find, among other things, that the traditional phone company has
demonstrated that it has met a 14-point competitive checklist to open its local
network to competition and that granting the petition is in the public interest.
To date, the FCC has rejected five traditional phone company applications and it
has granted four: Verizon's for New York and SBC's for Texas, Kansas and
Oklahoma. Currently, an application is pending before the FCC by Verizon for
Massachusetts. Other applications may be filed at any time. We have challenged,
and will continue to challenge, any application that does not satisfy the
requirements of Section 271 or the FCC's local competition rules. To date, these
challenges have focused on the pricing of unbundled network elements and on the
adequacy of the traditional phone companies' operations support systems. In
addition, several bills have been introduced in Congress that would have the
effect of allowing traditional phone companies to offer in-region long distance
data services without satisfying Section 271 of the Act or of making it more
difficult for competitors to resell traditional phone company high-speed
Internet access services or to lease the unbundled network elements used to
provide these services. To date, WorldCom and others have successfully opposed
these bills.

    In August 1998, the FCC ruled that the interconnection, unbundling, and
resale requirements imposed on traditional phone companies by the Telecom Act,
as well as the prohibition on traditional phone company provision of in-region
long distance services, apply to advanced telecommunication services such as
digital subscriber line technology. U S West petitioned for review of this order
in the United States Court of Appeals for the D.C. Circuit which, at the request
of the FCC, remanded the case for further administrative proceedings. In
December 1999, the FCC reaffirmed its order, but reserved ruling on whether
these obligations apply to traffic jointly carried by a traditional phone
company and a competitive local exchange carrier to an Internet service provider
which self-provides the transport component of its Internet access services. The
order also found that digital subscriber line-based advanced services used to
connect Internet service providers to their subscribers to facilitate
Internet-bound traffic ordinarily constitute exchange access service. In
January 2000, we petitioned for review of this latter aspect of the FCC's order
in the United States Court of Appeals for the D.C. Circuit and a decision from
the court is pending.

                                       19

    In November 1999, the FCC's Pricing Flexibility Order, which allowed
price-cap regulated traditional phone companies to offer customer specific
pricing in contract tariffs, took effect. Price-cap regulated traditional phone
companies can now offer access arrangements with contract-type pricing in
competition with long distance carriers and other competitive access providers,
who have previously been able to offer this pricing for access arrangements. As
traditional phone companies experience increasing competition in the local
services market, the FCC will grant increased pricing flexibility and relax
tariffing requirements for access services. The FCC also is conducting a
proceeding to consider additional pricing flexibility for a wider range of
access services. We petitioned for review of the Pricing Flexibility Order in
the United States Court of Appeals for the D.C. Circuit, and in an opinion
entered February 2, 2001, the court denied these petitions and affirmed the
FCC's order.

    In July 1999, the United States Court of Appeals for the Fifth Circuit
reversed in part the FCC's May 1997 universal service decision. Among other
things, the court held that the FCC may collect universal service contributions
from interstate carriers based on only interstate revenues, and that the FCC
could not force the traditional phone companies to recover their universal
service contributions through interstate access charges. In November 1999, the
FCC implemented the Fifth Circuit's decision. AT&T has petitioned for review of
this FCC order in the United States Court of Appeals for the Fifth Circuit, and
we have intervened in support of AT&T. Pending reconsideration petitions at the
FCC seek retroactive treatment for implementation of the remand order. The FCC
has released two additional universal service orders, which provide for federal
support for non-rural high cost areas. Petitions for review of both orders were
filed in the United States Court of Appeals for the Tenth Circuit.

    In March 1999, the FCC sought public comments on its tentative conclusion
that loop spectrum standards should be set in a competitively neutral process.
In December 1999, the FCC concluded that traditional phone companies should be
required to share primary telephone lines with competitive local exchange
carriers, and identified the high frequency portion of the loop as a network
element. In February 2000, U S West and the United States Telephone Association
petitioned for review of the order in the United States Court of Appeals for the
D.C. Circuit; the court held the case in abeyance pending reconsideration at the
FCC. On January 19, 2001, the FCC issued its order on reconsideration which
again is favorable to WorldCom and other firms seeking to gain access to the
high bandwidth portion of the local loop. More specifically, the FCC clarified
that the requirement to share lines applies to the entire loop, even where the
traditional phone company has deployed fiber in the loop. Under the order, the
traditional phone companies must permit competing carriers to self-provision or
partner with a data carrier in order to furnish voice and data service on the
same line. The traditional phone companies have appealed this ruling and we have
intervened to ensure that it is not disturbed.

    In February 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking regarding the regulatory treatment of calls to Internet service
providers. Prior to the FCC's order, over thirty state public utility
commissions issued orders finding that carriers, including us, are entitled to
collect reciprocal compensation for completing calls to Internet service
providers under the terms of their interconnection agreements with traditional
phone companies. Many of these public utility commission decisions were appealed
by the traditional phone companies and, since the FCC's order, many traditional
phone companies have filed new cases at the public utility commissions or in
court. We petitioned for review of the FCC's order in the United States Court of
Appeals for the D.C. Circuit, which vacated the order and remanded the case to
the FCC for further proceedings, which are currently pending. Several bills have
been introduced in Congress that would have the effect of requiring the FCC to
deny reciprocal compensation for dial-up Internet traffic. To date, WorldCom and
others have successfully opposed these bills.

    In 1996 and 1997, the FCC issued orders that would require non-dominant
telecommunications carriers to eliminate domestic interstate service tariffs,
except in limited circumstances. These orders

                                       20

were stayed pending judicial review. In April 2000, however, the United States
Court of Appeals for the D.C. Circuit affirmed the FCC's orders and thereafter
lifted the stay. The FCC's orders prevent us from relying upon our domestic
federal tariff to limit liability or to establish interstate rates for our
customers. On March 20, 2001, the FCC released an order governing the
detariffing of international interexchange services. That order established a
nine-month transition period during which carriers may file new or revised
tariffs only for mass market international exchange services. We will comply
with the FCC's orders and are in the process of developing modifications to the
manner in which we establish contractual relationships with our customers.

    In May 2000, the FCC adopted further access charge and universal service
reforms. In response to a proposal made by CALLS, a group of traditional phone
companies and two long distance companies, the FCC reduced access charges paid
by long distance companies to local exchange carriers by approximately
$3.2 billion annually. The proposal, which will allow charges imposed on end
user customers by traditional phone companies to increase over time, also
created a new $650 million universal service fund. Several parties have
petitioned for review of various aspects of the CALLS order.

    It is possible that rights held by us to multi-channel multipoint
distribution service and/or instructional television fixed service spectrum may
be disrupted by FCC decisions to re-allocate some or all of that spectrum to
other services. If this re-allocation were to occur, we cannot predict whether
current deployment plans for our multi-channel multipoint distribution service
services will be sustainable.

    INTERNATIONAL

    In February 1997, the United States entered into a World Trade Organization
agreement that is designed to have the effect of liberalizing the provision of
switched voice telephone and other telecommunications services in scores of
foreign countries over the next several years. The World Trade Organization
agreement became effective in February 1998. In light of the United States
commitments to the World Trade Organization agreement, the FCC implemented new
rules in February 1998 that liberalize existing policies regarding (1) the
services that may be provided by foreign affiliated U.S. international common
carriers, including carriers controlled or more than 25 percent owned by foreign
carrier that have market power in their home markets, and (2) the provision of
alternative traffic routing. The new rules make it much easier for foreign
affiliated carriers to enter the United States market for the provision of
international services.

    In August 1997, the FCC adopted mandatory settlement rate benchmarks. These
benchmarks are intended to reduce the rates that U.S. carriers pay foreign
carriers to terminate traffic in their home countries. The FCC will also
prohibit a U.S. carrier affiliated with a foreign carrier from providing
facilities-based service to the foreign carrier's home market until and unless
the foreign carrier has implemented a settlement rate at or below the benchmark.
The FCC also adopted new rules that will liberalize the provision of switched
services over private lines to World Trade Organization member countries. These
rules allow these services on routes where 50% or more of U.S. billed traffic is
being terminated in the foreign country at or below the applicable settlement
rate benchmark or where the foreign country's rules concerning provision of
international switched services over private lines are deemed equivalent to U.S.
rules.

    In April 1999, the FCC modified its rules to permit U.S. international
carriers to exchange international public switched voice traffic on many routes
to and from the United States outside of the traditional settlement rate and
proportionate return regimes. In June 1999, the FCC enforced the benchmark rates
on two non-compliant routes. Settlement rates have fallen to the benchmarks or
below on many other routes.

                                       21

    Although the FCC's new policies and implementation of the World Trade
Organization agreement may result in lower settlement payments by us to
terminate international traffic, there is a risk that the payments that we will
receive from inbound international traffic may decrease to an even greater
degree. The implementation of the World Trade Organization agreement may also
make it easier for foreign carriers with market power in their home markets to
offer U.S. and foreign customers end-to-end services to our disadvantage. We may
continue to face substantial obstacles in obtaining from foreign governments and
foreign carriers the authority and facilities to provide these end-to-end
services.

EMBRATEL

    The 1996 General Telecommunications Law provides a framework for
telecommunications regulation for Embratel. Article 8 of the law created an
agency to implement the law through development of regulations and to enforce
these regulations. According to the law, companies wishing to offer
telecommunications services to consumers are required to apply to the agency for
a concession or an authorization.

    The law provides that Embratel and the three regional incumbent telephone
companies are subject to rate regulations. All other telecommunications
companies are not subject to rate regulations although their individual
authorizations may contain specific expansion and continuity obligations.

    The main restriction imposed on carriers by the law is that, until
December 31, 2003, the incumbent telephone companies are prohibited from
offering inter-regional and international long distance service, while Embratel
is prohibited from offering local services. These companies can start providing
those services two years sooner if they meet their network expansion obligations
by December 31, 2001.

    Embratel and the three incumbent telephone companies were granted their
concessions at no fee, until 2005. After 2005, the concessions may be renewed
for a period of 20 years, upon the payment, every two years, of a fee equal to
2% of annual net revenues calculated based on the provision of switched fixed
telephone services in the prior year, excluding taxes and social contributions.

    Embratel also offers a number of ancillary telecommunications services
pursuant to authorizations granted by Anatel. These services include the
provision of dedicated analog and digital lines, packet switched network
services, circuit switched network services, mobile marine telecommunications,
telex and telegraph, radio signal satellite retransmission and television signal
satellite retransmission. Some of these services are subject to some specific
continuity obligations and rate conditions.

LITIGATION

    In November 2000, class action complaints were filed in the United States
District Court for the Southern District of Mississippi against us and some of
our executive officers. The complaints generally allege that the defendants made
false and misleading statements about some aspects of our performance by failing
to disclose, among other things, that the merger with MCI did not yield the
anticipated cost savings and revenue increases, that our growth rate was
declining, and that our financial statements were inflated due to the failure to
write down, on a timely basis, $405 million in receivables. Based on these
allegations, the complaints assert claims for violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and
Section 20(a) of the 1934 Securities Act. The complaints seek to certify a class
of persons who purchased or otherwise acquired our shares between April 13, 2000
and November 1, 2000. We believe that the factual allegations and legal claims
asserted in the complaints are without merit and we intend to defend them
vigorously. Any unfavorable outcome will be allocated to the groups in a manner
our board determines to be in the best interests of WorldCom.

                                       22

    On November 4, 1996, and thereafter, and on August 25, 1997, and thereafter,
MCI and all of its directors were named as defendants in a total of 15
complaints filed in the Court of Chancery in the State of Delaware. British
Telecommunications plc was named as a defendant in 13 of the complaints. The
complaints were brought by alleged stockholders of MCI, individually and
purportedly as class actions on behalf of all other stockholders of MCI. The
complaints allege that MCI's directors breached their fiduciary duty in
connection with the MCI BT merger agreement, that BT aided and abetted those
breaches of duty, that BT owes fiduciary duties to the other stockholders of MCI
and that BT breached those duties in connection with the MCI BT merger
agreement. The complaints seek damages and injunctive and other relief.

    One of the purported stockholder class actions pending in Delaware Chancery
Court has been amended, one of the purported class actions has been dismissed
with prejudice, and plaintiffs in four of the other purported stockholder class
actions have moved to amend their complaints to name us and one of our
subsidiaries as additional defendants. These plaintiffs generally allege that
the defendants breached their fiduciary duties to stockholders in connection
with the merger with MCI and the agreement to pay a termination fee to us. They
further allege discrimination in favor of BT in connection with the MCI merger.
The plaintiffs seek, inter alia, damages and injunctive relief prohibiting the
consummation of the MCI merger and the payment of the inducement fee to BT. Any
unfavorable outcome will be allocated to the groups in a manner our board
determines to be in the best interests of WorldCom.

    Three complaints were filed in the U.S. District Court for the District of
Columbia, as class actions on behalf of purchasers of MCI shares. The three
cases were consolidated on April 1, 1998. On or about May 8, 1998, the
plaintiffs in all three cases filed a consolidated amended complaint alleging,
on behalf of purchasers of MCI's shares between July 11, 1997 and August 21,
1997, inclusive, that MCI and some of its officers and directors failed to
disclose material information about MCI, including that MCI was renegotiating
the terms of the MCI BT merger agreement. The consolidated amended complaint
seeks damages and other relief. WorldCom and the other defendants have moved to
dismiss the consolidated amended complaint. Any unfavorable outcome will be
allocated to the groups in a manner our board determines to be in the best
interests of WorldCom.

    Between September 5, and October 4, 2000, a number of purported class
actions and stockholder derivative actions relating to the merger agreement
between WorldCom and Intermedia were filed in the Delaware Chancery Court. The
named defendants include Intermedia, its publicly-traded subsidiary Digex,
certain directors of Digex who are also directors and/or executive officers of
Intermedia and, in some cases, WorldCom. On October 19, 2000, the court ordered
all purported derivative and class action lawsuits be consolidated into a single
action. The consolidated action filed on October 19, 2000 alleges, among other
things, that the defendants, other than WorldCom, breached their fiduciary
duties to the purported class members by acting to further their own interests
at the expense of Digex public stockholders and that the Digex board members who
are also directors and/or executive officers of Intermedia conferred a
substantial benefit on Intermedia at the expense of the Digex public
stockholders by voting to waive application of Section 203 of the Delaware
General Corporate Law with respect to any future "business combinations," as
defined by Section 203, between WorldCom and Digex. The consolidated complaint
also alleges that WorldCom aided and abetted the Intermedia and Digex
defendants' wrongdoing. The consolidated complaint seeks an order enjoining the
merger, a declaration that the waiver of Section 203 is inapplicable to
WorldCom, attorneys' fees and unspecified damages.

    On December 13, 2000, the court denied the plaintiffs' motion for
preliminary injunctive relief, concluding that plaintiffs were unlikely to
succeed on the merits of their claim that defendants usurped a Digex corporate
opportunity. The court further noted that it had determined, at least
preliminarily, that after a full trial on the merits, the plaintiff minority
stockholders are likely to succeed in

                                       23

invalidating the defendant Digex directors' decision to vote in favor of the
Section 203 waiver and that the plaintiffs could be entitled to a range of
equitable remedies, including monetary damages.

    In general, and subject to certain exceptions, Section 203 prohibits
"business combinations" between a Delaware corporation and an "interested
shareholder" of that corporation for three years from the time that the
shareholder becomes "interested." However, because a majority of Digex's board
of directors voted to waive the applicability of Section 203, WorldCom would be
exempt from the three-year prohibition on "business combinations" with Digex. If
the Digex board's approval of the Section 203 waiver were invalidated, then
WorldCom could be prohibited from entering into "business combinations" with
Digex for the applicable three year period, unless another exception were deemed
applicable (for example, approval of specific "business combination" by the
Digex board and the affirmative vote of 2/3 of the outstanding voting stock not
owned by the interested shareholder).

    On February 15, 2001, the parties agreed to resolve the issues related to
the consolidated action by entering into a memorandum of understanding. The
proposed settlement, which is conditioned on consummation of the merger between
WorldCom and Intermedia, negotiation and execution of a formal written
stipulation of settlement and preliminary and final approval by the court, will
fully resolve all claims asserted in the consolidated action. The principal
terms of the proposed settlement, as set forth in the memorandum of
understanding, are:

    - the exchange ratio in the original merger agreement has been reduced to a
      fixed 1:1 ratio that is not subject to adjustment;

    - certain "material adverse effect" provisions in the original merger
      agreement have been narrowed to eliminate various categories of items as
      potentially giving rise to breaches of Intermedia's representations and
      warranties with respect to material adverse effects;

    - with the reduction in the above-referenced exchange ratio, a settlement
      fund of $165 million in WorldCom common stock will be created for Digex
      shareholder class members and attorneys' fees; a fund of up to
      $15 million in cash will be created to cover expenses incurred by Digex
      and a special committee of independent directors of the Digex board of
      directors, as well as administrative expenses of the settlement;

    - WorldCom and Digex will enter into a series of commercial arrangements;

    - Intermedia and WorldCom will take steps to amend the Digex certificate of
      incorporation to establish certain procedures to be followed by the Digex
      board of directors when considering certain types of transactions with
      interested stockholders, as defined in Section 203, including WorldCom and
      Intermedia, after the merger;

    - the approval of the WorldCom/Intermedia merger by the Digex board pursuant
      to Section 203 will no longer be subject to challenge, and

    - WorldCom will not be subject to any restrictions under Section 203 on
      future "business combinations" with Digex.

                              MCI GROUP OPERATIONS

OVERVIEW

    We provide a broad range of retail and wholesale communications services,
including long distance voice communications, consumer local voice
communications, wireless messaging, private line services and dial-up Internet
access services. Our retail services are provided to consumers and small
businesses in the United States. We are the second largest carrier of long
distance telecommunications services in

                                       24

the United States. We provide a wide range of long distance telecommunications
services, including: basic long distance telephone service, dial around, collect
calling, operator assistance and calling card services (including prepaid
calling cards) and toll-free or 800 services. We offer these services
individually and in combinations. Through combined offerings, we provide
customers with benefits such as single billing, unified services for
multi-location companies and customized calling plans. Our wholesale businesses
include wholesale voice services provided to carrier customers and other
resellers, and dial-up Internet access services.

    Each of our businesses attributed to the MCI group operates in market
segments serving the telecommunications needs of distinct customer bases. We
provide retail communications services, such as long distance and local
telecommunications, prepaid calling cards and paging to over 20 million
residential and small-business customers. We are one of the largest providers of
telecommunications services to residential and small business customers
throughout the United States. We provide wholesale communications services,
including switched voice, dial-up Internet access and private lines, to over 470
carriers and other resellers.

    Our management's mandate is to use our existing market positions and assets
opportunistically to optimize cash flow, while retiring the debt attributed to
the MCI group. Available cash flow, after debt and interest repayments, will be
available for dividend payments and possible share repurchases. The businesses
attributed to the MCI group have significant assets, including the nationally
recognized brand, extensive customer relationships, 20 call centers with highly
effective sales representatives and a tradition of developing innovative calling
plans that enhance customer retention. Management believes it can leverage these
strengths to deliver new services and to bundle existing services.

    The businesses attributed to the MCI group accounted for 41.8% of our
revenues, 38.0% of our net income and 14.8% of our assets for the year ended
December 31, 2000.

INDUSTRY

    The communications services industry continues to change both domestically
and internationally, providing significant opportunities and risks to the
participants in these markets. In the United States, the Telecom Act
significantly impacted our business by establishing a statutory framework for
opening the U.S. local service markets to competition and by allowing the
traditional phone companies to provide in-region long distance services. In
addition, prices for long distance minutes and other basic communications
services declined as a result of competitive pressures, the introduction of more
efficient networks and advanced technologies, product substitution, and
deregulation. Competition in these segments is based more on price and less on
other differentiating factors that appeal to the larger business market
customers including: range of services offered, bundling of products, customer
service, and communications quality, reliability and availability.

    The wholesale carrier business is currently undergoing a similar
transformation. The decreasing number of switchless long distance resellers
combined with the intense competition by new entrants such as Qwest and Level 3
led to significant price declines and margin pressure.

    The consumer and small business long distance segment is characterized by
rapid deregulation and intense competition among long distance providers, and
more recently, traditional phone companies. Under the Telecom Act, traditional
phone companies may offer long distance services in a state within its region if
the FCC finds first, that the traditional phone company's service territory
within the state has been sufficiently opened to local competition and second,
that allowing the traditional phone company to provide these services is in the
public interest. To date, the FCC has granted this access to Verizon in New York
and to SBC in Texas, Kansas and Oklahoma and we expect traditional phone
companies to qualify to offer long distance services in a number of their states
in the near future. Verizon has applied to the FCC for permission to offer long
distance services in Massachusetts.

                                       25

Additional applications by Verizon, SBC, or another traditional phone company
are possible at any time. We challenged, and will continue to challenge, any
regulatory applications that do not meet the criteria envisioned by the Telecom
Act or the related rules relating to local competition issued by the FCC. To
date, these challenges have focused on the pricing of unbundled network elements
and on the adequacy of the traditional phone company's operations support
systems.

STRATEGY

    Because of changes in the communications industry, our objective is to
leverage the assets attributed to the MCI group and our established market
presence to maximize cash flow returns from our mature businesses attributed to
the MCI group. With respect to the businesses attributed to the MCI group we
intend to:

    OPTIMIZE RESOURCES:  We intend to refocus our strategies on enhancing
margins and cash flow. We will be opportunistic and undertake only those
initiatives that can generate cash flow without significant capital commitment.

    LEVERAGE MCI BRAND:  The internationally recognized MCI brand will be an
important component of our marketing initiatives.

    LEVERAGE MARKETING CHANNELS:  We intend to enhance the utilization of our
existing telemarketing centers and mass-market distribution channels to grow our
customer base, enhance customer retention and expand our consumer product
offerings.

    EXPAND LOCAL SERVICES:  We successfully entered local communications markets
in New York, Pennsylvania and Texas, and will selectively evaluate similar
opportunities.

    IMPROVE OPERATIONS SUPPORT SYSTEMS AND AUTOMATION:  We intend to continue to
improve operations support systems and increase automation to improve
efficiency, enhance customer service and develop a platform for more value-added
services.

    CONTINUE TO LEVERAGE ADVANCED NETWORKS:  We intend to continue to leverage
WorldCom's extensive, advanced and scaleable fiber optic networks to provide
differentiated services at competitive rates.

DESCRIPTION OF SERVICES

    Through our 20 call centers and 8,500 customer sales representatives, we
market and sell a variety of communications services to consumers, small
businesses, carrier customers and other resellers across the United States.
Services include long distance voice communications, local voice communications,
wireless messaging and other services, wholesale communication services as well
as dial-up Internet access. We believe that our assets attributed to the MCI
group, including the call centers, sales representatives, customer relationships
and our significant marketing skills will allow us to expand our products and
services to our existing consumer base without significantly increasing capital
spending.

    LONG DISTANCE VOICE COMMUNICATIONS

    We are the second largest provider of long distance telecommunications
services in the United States, including consumer, small business and wholesale.
We offer domestic and international voice services, including basic long
distance telephone, dial around, collect calling, operator assistance and
calling card (including prepaid cards), 800 services, and directory services.
Our well known "5 CENTS Everyday" and "1 800 Collect" campaigns have
differentiated our offerings from those of our competitors. Long distance voice
services are offered individually or combined as a bundle with other services
such as local voice services. Our market position in the long distance voice
segment is sustained by our telemarketing and other marketing channels and
marketing support for the MCI brand. In the year ended December 31, 2000, we
provided 104.4 billion minutes of service compared to

                                       26

92.9 billion in the same period in 1999. For the year ended December 31, 2000,
long distance services, including consumer, small business, wholesale and
alternative channels, provided $12.4 billion of revenues, or 31.7% of WorldCom
total revenues, versus $12.6 billion of revenues, or 35.0% of WorldCom total
revenues, in the same period of 1999.

    CONSUMER LOCAL VOICE COMMUNICATIONS

    As part of our strategy to leverage our presence in the domestic long
distance market, we have selectively entered local exchange markets, including
New York, Pennsylvania and Texas. We provide local toll and switched access
services to residential and small business customers, typically through our own
switches and through unbundled network elements leased from traditional phone
companies. We usually lease the underlying traditional phone company network
elements as a bundle, consisting of seven elements, most notably the local wire
to the customer, the switch equipment, and call switching. We pay the
traditional phone company a monthly fee for the local wire to the customer and
switch equipment and a per-minute fee for switching. This mode of service
delivery enables us to lower the cost of providing call origination as well as
providing us with call termination revenue. For those customers who subscribe
for both local and long distance services, we offer an "all-distance" calling
plan that bundles the services at an attractive price for the customer and
enhances customer retention.

    As of December 31, 2000, we had a total of 419,000 local exchange customers
in New York, 62,000 in Pennsylvania and 181,000 in Texas. Approximately 87% of
our local exchange customers also subscribe to our long distance service. We
estimate that our market share in New York, Pennsylvania and Texas is 7%, 2% and
3%, respectively. For the year ended December 31, 2000, consumer local services
provided $179 million of revenue, or 0.5% of WorldCom total revenues, versus
$41 million, or 0.1% of WorldCom total revenues, in the same period of 1999.

    DIAL-UP INTERNET ACCESS

    Our dial-up Internet access business primarily serves consumer-oriented
Internet service providers that are accessed via dial-up modems. New
technologies, including dedicated access provided by carriers, and increased
competition have caused significant price declines. Although we believe we are
well positioned in this segment due to the strength of our extensive customer
relationships and the scale of our networks, we expect pricing pressure to
continue to affect our business negatively.

    As of December 31, 2000, we managed 2.8 million modems. In addition, we
provided 6.5 billion hours of Internet access for the year ended December 31,
2000 versus 4.2 billion hours for the same period in 1999. For the year ended
December 31, 2000, dial-up Internet access services provided $1.6 billion of
revenue, or 4.2% of WorldCom total revenues, versus $1.5 billion, or 4.2% of
WorldCom total revenues, in the same period of 1999.

    WIRELESS MESSAGING

    We provide and market our paging services through SkyTel
Communications, Inc., a leading provider of wireless messaging services in the
United States and a wholly owned subsidiary of WorldCom. As of December 31,
2000, SkyTel had approximately 1.3 million units in service in the United States
which included approximately 705,000 domestic one-way units and 574,000 advanced
messaging units. For the twelve months ended December 31, 2000, these services
provided $549 million of revenue, or 1.4% of WorldCom total revenues, versus
$470 million, or 1.3% of WorldCom total revenues, in the same period of 1999.

    WHOLESALE DATA SERVICES

    Our wholesale data services consist primarily of the sale of private lines
to carrier customers. This service experienced significant pricing pressure due
largely to the entry of new competitors and the build-out of facilities by our
customers allowing them to provide more services over their own facilities.

                                       27

    We anticipate that wholesale data services will increasingly become a
smaller percentage of total revenues as we focus on providing services to
end-customers rather than competitive carriers. For the year ended December 31,
2000, wholesale data services, including wholesale alternative channels,
provided $1.4 billion of revenue, or 3.7% of WorldCom total revenues, versus
$1.5 billion, or 4.2% of WorldCom total revenues, in the same period of 1999.

FACILITIES

    Our long distance voice switches have been allocated to the MCI group.
Domestic long distance services will be provided primarily over the fiber optic
communications systems attributed to the WorldCom group. To a lesser extent, we
will continue to utilize transmission facilities leased from other common
carriers. International communications services are provided by submarine cable
systems in which WorldCom holds positions, satellites and facilities of other
domestic and foreign carriers.

    Long distance voice services are provided by long distance voice switches
using circuit switched technology. Voice switches are interconnected together
and provide standard long distance voice services as well as a variety of
value-added services. To reduce capital investment in circuit switches, we are
deploying softswitches to process Internet dial-up access independent of our
circuit switches. The softswitches are general-purpose based computer systems
which route calls directly to the public Internet.

    Our dial-up Internet access network consists of equipment and network
configurations all generally designed to terminate inbound Internet data calls
from end users. Generally, the equipment consists of network access servers,
which are general purpose computing devices containing concentrated quantities
of digital modems. In the majority of cases, the equipment is owned and operated
by our partners in an outsourcing arrangement. The remaining equipment is owned
and maintained in our own facilities or in leased co-location facilities.

    The MCI group is allocated an expense and the WorldCom group is allocated a
corresponding decrease in costs for the use by the MCI group of the fiber optic
systems and buildings, furniture, fixtures and equipment attributed to the
WorldCom group. The expense is equal to a proportion, based on usage, of the
WorldCom group's related costs. All other material transactions between the
groups are intended to be on an arm's-length basis.

    Most of our customers access their services through local interconnection
facilities provided by the traditional phone companies. We utilize unbundled
network elements to provide local services in New York, Pennsylvania and Texas.
As we expand in other markets upon deregulation and market evaluation, we expect
to continue to utilize unbundled network elements to offer local communications
services.

    Collectively, we own 20 call centers, which range in size from 40,000 square
feet to over 100,000 square feet.

RATES AND CHARGES

    We charge switched customers on the basis of a fixed rate per line plus
minutes or partial minutes of usage at rates that vary with the distance,
duration and time of day of the call. For local service, customers are billed a
fixed charge plus usage or flat rated charges depending on the plan chosen by
the customer. The rates charged are not affected by the particular transmission
facilities selected by us. Additional discounts are available to customers who
generate higher volumes of monthly usage. Our dial-up Internet access prices
vary based on service type.

SALES AND MARKETING

    We believe our sales and marketing capabilities are one of our strongest
competitive advantages. Telemarketing is a fundamental component of the sales
effort for residential and small business

                                       28

customers. Typically, roughly 50% of our residential and small business
installations are sold through some 8,500 telemarketers based in 20 call centers
nationwide. Our marketing partners, in turn, are a key competitive advantage for
differentiating long distance sales, offering consumers the opportunity to earn
frequent flyer miles, free video rentals, and similar awards based on long
distance usage. Over 50% of subscription long distance minutes are generated by
our 7.5 million partner customers.

    We also increased our market share among high spending international callers
through broad-based marketing efforts. Moreover, we have successfully launched
branded transaction products such as collect calling products. Our 1-800-Collect
product commands a 40% market share.

    Alternate marketing channels include direct sales agents and prepaid card
distribution. Over 500 of our sales representatives focus on small businesses in
23 markets. We retain a leading position in the prepaid calling card market as
well.

    Through our direct sales force, we market various services to resellers.
Major customers for this unit include Verizon and Qwest. We are a leader in the
dial-up Internet access market segment with all major Internet service providers
as wholesale customers, including, among others, AOL, Earthlink, and MSN.

COMPETITION

    The telecommunications industry is extremely competitive, and we expect that
competition will intensify in the future. In each of our business segments, we
face intense competition from other service providers. The primary competitors
in the domestic and international consumer segments are AT&T, Sprint and, where
they are permitted to offer in-region long distance service, Verizon and SBC. We
also compete against other facilities-based long distance providers, such as
Qwest, and against long distance resellers, such as Excel. The traditional phone
companies presently have numerous advantages as a result of their historic
monopoly control over local exchanges, and some of our existing and potential
competitors have financial and other resources significantly greater than ours.
A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors.

    Under the Telecom Act and ensuing federal and state regulatory initiatives,
many barriers to local exchange competition are being eliminated. The
introduction of competition, however, also establishes, in part, the ability of
the traditional phone companies to provide inter-LATA long distance services. To
date, the FCC granted applications by Verizon for the state of New York and by
SBC for the state of Texas, to provide in-region inter-LATA services. We believe
the traditional phone companies will continue to seek to enter these markets
given their ownership of extensive facilities in their local service regions,
their long-standing customer relationships and their very substantial capital
and other financial resources. As the traditional phone companies are allowed to
offer in-region long distance services in additional states, they will be in a
position to offer single source local and long distance service similar, if not
superior, to those being offered by us. We expect that increased competition
will result in additional pricing and margin pressures in the domestic
telecommunications services business. Indeed, competition has already
significantly reduced consumer long distance pricing, and as a result negatively
affected the profitability of traditional service providers. As rates stabilize,
we expect to compete effectively as a result of our innovation, quality and
diversity of services, our ability to offer a combination of services, and our
level of customer service.

    We expect increased competition from new entrants determined to exploit
technologies that may reduce the cost of providing services. We are working to
develop these services and expect to be at the forefront of these technological
developments and to leverage them to protect and grow market share, to increase
revenues and profitability, and to retain customers.

    We also face intense competition in offering wholesale services, small
business services, dial-up Internet, and paging and prepaid calling card
services. In wholesale services, we compete directly with

                                       29

traditional network access providers such as AT&T and Sprint, as well as with
new entrants such as Qwest, Level 3, 360 Networks and Metromedia Fiber Network.
We obtain network capacity from our businesses attributed to the WorldCom group
and provide wholesale service to other carriers in competition with a variety of
facilities-based carriers. Some of these competitors recently introduced high
capacity, nationwide fiber optic networks. There can be no assurance that we
will continue to be successful in this segment. In the small business customer
segment, we compete against traditional phone companies and numerous other
competitive carriers offering local services, long distance services, or both.
Other carriers, particularly competitive local exchange carriers, are
aggressively pursuing this segment of the market. Our paging business competes
directly with traditional one-way paging providers such as PageNet and
Metrocall, and recently experienced significant competition and product
substitution from other advanced wireless data service providers, including
two-way paging services providers such as PageNet and Nextel, and wireless
service providers such as Nextel and Sprint PCS. Prepaid calling cards are also
in an intensely competitive segment, due to many carriers reselling cheaper
aggregated international minutes through this medium. Prepaid calling cards also
face competition from wireless products, further compressing pricing and market
viability.

EMPLOYEES

    Through our businesses attributed to the MCI group, we employed a total of
approximately 27,100 full and part-time personnel as of March 16, 2001 none of
whom are represented by organized labor unions. We consider our relationship
with these employees to be good.

PATENTS, TRADEMARKS, TRADENAMES AND SERVICE MARKS

    All tradenames, including the MCI tradename and the other related MCI
tradenames, were attributed to the WorldCom group. The MCI group is allocated an
expense and the WorldCom group is allocated a corresponding decrease in costs
for the use by the MCI group of the MCI tradenames based on the following
schedule:

                              2001: $27.5 million

                              2002: $30.0 million

                              2003: $35.0 million

                              2004: $40.0 million

                              2005: $45.0 million

    Any renewal or termination of use of the MCI tradename by the businesses
attributed to the MCI group will be subject to the general policy that our board
of directors will act in the best interests of WorldCom. For purposes of
preparing the historical financial statements for the MCI group filed as
exhibits to this Form 10-K, an expense of $27.5 million per annum was allocated
to the MCI group since the date of acquisition of MCI, for use of the MCI
tradenames.

REGULATION

    We are involved in legal and regulatory proceedings that are incidental to
our business and include loss contingencies in other current liabilities and
other liabilities for these matters in the MCI group's financial statements. In
some instances, rulings by federal and state regulatory authorities may result
in increased operating costs to us. The results of these various legal and
regulatory matters are uncertain and could have a material adverse effect on the
MCI group's combined results of operations or financial position.

    GENERAL

    We are subject to varying degrees of federal, state, local and international
regulation. In the United States, our subsidiaries are most heavily regulated by
the states, especially for the provision of local exchange services. Our
subsidiaries must be certified separately in each state to offer local

                                       30

exchange and intrastate long distance services. No state, however, subjects us
to price cap or rate of return regulation. FCC approval is required, however,
for the installation and operation of our international facilities and services.
Although the trend in federal, state and international regulation appears to
favor increased competition, no assurance can be given that changes in current
or future regulations adopted by the FCC, state or foreign regulators or
legislative initiatives in the United States or abroad would not have a material
adverse effect on us.

    DOMESTIC

    In August 1996, the FCC established nationwide rules pursuant to the Telecom
Act designed to encourage new entrants to compete in local service markets
through interconnection with the traditional phone companies, resale of
traditional phone companies' retail services, and use of individual and
combinations of unbundled network elements. Implementation of these rules has
been delayed by various appeals by traditional phone companies. In
January 1999, the Supreme Court of the United States confirmed the FCC's
authority to issue the rules, including a pricing methodology for unbundled
network elements. On remand, the FCC clarified the requirement that traditional
phone companies make specific unbundled network elements available to new
entrants. The traditional phone companies sought reconsideration of the FCC's
order and petitioned for review of the order in the United States Court of
Appeals for the D.C. Circuit. The traditional phone companies also petitioned
for review of the FCC's rules for pricing unbundled network elements in the
United States Court of Appeals for the Eighth Circuit which, in July 2000,
invalidated the portion of those rules that mandated that the pricing be based
on a forward-looking cost methodology which calculates costs by reference to
efficient technology and design choices. At the request of various parties,
including us, the Supreme Court will review the Eighth Circuit's decision. A
ruling from the Supreme Court is expected in early 2002.

    As noted, the Telecom Act requires traditional phone companies to petition
the FCC for permission to offer long distance services for each state within
their region. Section 271 of the Act provides that for these applications to be
granted, the FCC must find, among other things, that the traditional phone
company demonstrated that it has met a 14-point competitive checklist to open
its local network to competition and that granting the petition is in the public
interest. To date, the FCC has rejected five traditional phone company
applications and it has granted four: Verizon's for New York and SBC's for
Texas, Kansas and Oklahoma. Currently, an application is pending before the FCC
by Verizon for Massachusetts. Other applications may be filed at any time. We
have challenged, and will continue to challenge, any application that does not
satisfy the requirements of Section 271 or the FCC's local competition rules. To
date, these challenges have focused on the pricing of unbundled network elements
and on the adequacy of the traditional phone companies' operations support
systems. In addition, several bills have been introduced in Congress that would
have the effect of allowing traditional phone companies to offer in-region long
distance data services without satisfying Section 271 of the Act or of making it
more difficult for competitors to resell traditional phone company high-speed
Internet access services or to lease the unbundled network elements used to
provide these services. To date, WorldCom and others have successfully opposed
these bills.

    In August 1998, the FCC ruled that the interconnection, unbundling, and
resale requirements imposed on tradtional phone companies by the Telecom Act, as
well as the prohibition on traditional phone company provision of in-region long
distance services, apply to advanced telecommunication services such as digital
subscriber line technology. U S West petitioned for review of this order in the
United States Court of Appeals for the D.C. Circuit which, at the request of the
FCC, remanded the case for further administrative proceedings. In
December 1999, the FCC reaffirmed its order, but reserved ruling on whether
these obligations apply to traffic jointly carried by a traditional phone
company and a competitive local exchange carrier to an Internet service provider
which self-provides the transport component of its Internet access services. The
order also found that digital subscriber

                                       31

line-based advanced services used to connect Internet service providers to their
subscribers to facilitate Internet-bound traffic ordinarily constitute exchange
access service. In January 2000, we petitioned for review of this latter aspect
of the FCC's order in the United States Court of Appeals for the D.C. Circuit
and a decision from the court is pending.

    In November 1999, the FCC's Pricing Flexibility Order, which allowed
price-cap regulated traditional phone companies to offer customer specific
pricing in contract tariffs, took effect. Price-cap regulated traditional phone
companies can now offer access arrangements with contract-type pricing in
competition with long distance carriers and other competitive access providers,
who have previously been able to offer this pricing for access arrangements. As
traditional phone companies experience increasing competition in the local
services market, the FCC will grant increased pricing flexibility and relax
tariffing requirements for access services. The FCC also is conducting a
proceeding to consider additional pricing flexibility for a wider range of
access services. We petitioned for review of the Pricing Flexibility Order in
the United States Court of Appeals for the D.C. Circuit, and in an opinion
entered on February 2, 2001, the court denied these petitions and affirmed the
FCC's order.

    In July 1999, the United States Court of Appeals for the Fifth Circuit
reversed in part the FCC's May 1997 universal service decision. Among other
things, the court held that the FCC may collect universal service contributions
from interstate carriers based on only interstate revenues, and that the FCC
could not force the traditional phone companies to recover their universal
service contributions through interstate access charges. In November 1999, the
FCC implemented the Fifth Circuit's decision. AT&T has petitioned for review of
this FCC order in the United States Court of Appeals for the Fifth Circuit and
we have intervened in support of AT&T. Pending reconsideration petitions at the
FCC seek retroactive treatment for implementation of the remand order. The FCC
has released two additional universal service orders, which provide for federal
support for non-rural high cost areas. Petitions for review of both orders were
filed in the United States Court of Appeals for the Tenth Circuit.

    In March 1999, the FCC sought public comments on its tentative conclusion
that loop spectrum standards should be set in a competitively neutral process.
In December 1999, the FCC concluded that traditional phone companies should be
required to share primary telephone lines with competitive local exchange
carriers, and identified the high frequency portion of the loop as a network
element. In February 2000, U S West and the United States Telephone Association
petitioned for review of this order in the United States Court of Appeals for
the D.C. Circuit; the court held the case in abeyance pending reconsideration at
the FCC. On January 19, 2001, the FCC issued its order on reconsideration which
again is favorable to WorldCom and other firms seeking to gain access to the
high bandwidth portion of the local loop. More specifically, the FCC clarified
that the requirement to share lines applies to the entire loop, even where the
traditional phone company has deployed fiber in the loop. Under the order, the
traditional phone companies must permit competing carriers to self-provision or
partner with a data carrier in order to furnish voice and data service on the
same line. The traditional phone comanies have appealed this ruling and we have
intervened to ensure that it is not disturbed.

    In February 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking regarding the regulatory treatment of calls to Internet service
providers. Prior to the FCC's order, over thirty state public utility
commissions issued orders finding that carriers, including us, are entitled to
collect reciprocal compensation for completing calls to Internet service
providers under the terms of their interconnection agreements with traditional
phone companies. Many of these public utility commission decisions were appealed
by the traditional phone companies and, since the FCC's order, many traditional
phone companies have filed new cases at the public utility commission or in
court. We petitioned for review of the FCC's order in the United States Court of
Appeals for the D.C. Circuit, which vacated the order and remanded the case to
the FCC for further proceedings, which are currently pending. Several bills have
been introduced in Congress that would have the effect of

                                       32

requiring the FCC to deny reciprocal compensation for dial-up Internet traffic.
To date, WorldCom and others have successfully opposed these bills.

    In 1996 and 1997, the FCC issued orders that would require non-dominant
telecommunications carriers to eliminate domestic interstate service tariffs,
except in limited circumstances. These orders were stayed pending judicial
review. In April 2000, however, the United States Court of Appeals for the D.C.
Circuit affirmed the FCC's orders and thereafter lifted the stay. The FCC's
orders prevent us from relying upon our domestic federal tariff to limit
liability or to establish interstate rates for our customers. On March 20, 2001,
the FCC released an order governing the detariffing of international
interexchange services. That order establishes a nine-month transition period
during which carriers may file new or revised tariffs only for mass market
international exchange services. We will comply with the FCC's orders and are in
the process of developing modifications to the manner in which it establishes
contractual relationships with its customers.

    In May 2000, the FCC adopted further access charge and universal service
reform. In response to a proposal made by CALLS, a group of traditional phone
companies and two long distance companies, the FCC reduced access charges paid
by long distance companies to local exchange carriers by approximately
$3.2 billion annually. The proposal, which will allow charges imposed on end
user customers by traditional phone companies to increase over time, also
created a new $650 million universal service fund. Several parties petitioned
for review of various aspects of the CALLS order.

LITIGATION

    In November 2000, class action complaints were filed in the United States
District Court for the Southern District of Mississippi against us and some of
our executive officers. The complaints generally allege that the defendants made
false and misleading statements about some aspects of our performance by failing
to disclose, among other things, that the merger with MCI did not yield the
anticipated cost savings and revenue increases, that our growth rate was
declining, and that our financial statements were inflated due to the failure to
write down, on a timely basis, $405 million in receivables. Based on these
allegations, the complaints assert claims for violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and
Section 20(a) of the 1934 Securities Act. The complaints seek to certify a class
of persons who purchased or otherwise acquired our shares between April 13, 2000
and November 1, 2000. We believe that the factual allegations and legal claims
asserted in the complaints are without merit and we intend to defend them
vigorously. Any unfavorable outcome will be allocated to the groups in a manner
our board determines to be in the best interests of WorldCom.

    On November 4, 1996, and thereafter, and on August 25, 1997, and thereafter,
MCI and all of its directors were named as defendants in a total of 15
complaints filed in the Delaware Chancery Court. British Telecommunications plc
was named as a defendant in 13 of the complaints. The complaints were brought by
alleged stockholders of MCI, individually and purportedly as class actions on
behalf of all other stockholders of MCI. The complaints allege that MCI's
directors breached their fiduciary duty in connection with the MCI BT merger
agreement, that BT aided and abetted those breaches of duty, that BT owes
fiduciary duties to the other stockholders of MCI and that BT breached those
duties in connection with the MCI BT merger agreement. The complaints seek
damages and injunctive and other relief.

    One of the purported stockholder class actions pending in Delaware Chancery
Court has been amended, one of the purported class actions has been dismissed
with prejudice, and plaintiffs in four of the other purported stockholder class
actions have moved to amend their complaints to name us and one of our
subsidiaries as additional defendants. These plaintiffs generally allege that
the defendants breached their fiduciary duties to stockholders in connection
with the merger with MCI and the agreement to pay a termination fee to us. They
further allege discrimination in favor of BT in

                                       33

connection with the MCI merger. The plaintiffs seek, inter alia, damages and
injunctive relief prohibiting the consummation of the MCI merger and the payment
of the inducement fee to BT. Any unfavorable outcome will be allocated to the
groups in a manner our board determines to be in the best interests of WorldCom.

    Three complaints were filed in the U.S. District Court for the District of
Columbia, as class actions on behalf of purchasers of MCI shares. The three
cases were consolidated on April 1, 1998. On or about May 8, 1998, the
plaintiffs in all three cases filed a consolidated amended complaint alleging,
on behalf of purchasers of MCI's shares between July 11, 1997 and August 21,
1997, inclusive, that MCI and some of its officers and directors failed to
disclose material information about MCI, including that MCI was renegotiating
the terms of the MCI BT merger agreement. The consolidated amended complaint
seeks damages and other relief. WorldCom and the other defendants have moved to
dismiss the consolidated amended complaint. Any unfavorable outcome will be
allocated to the groups in a manner our board determines to be in the best
interests of WorldCom.

    At least nine class action complaints have been filed that arise out of the
FCC's decision in HALPRIN, TEMPLE, GOODMAN AND SUGRUE V. MCI TELECOMMUNICATIONS
CORP., and allege that we have improperly charged "pre-subscribed" customers
"non-subscriber" or so-called "casual" rates for some direct-dialed calls.
Plaintiffs further challenge our credit policies for this "non-subscriber"
traffic. Plaintiffs assert that our conduct violates the Communications Act and
various state laws; the complaint seeks rebates to all affected customers as
well as punitive damages and other relief. In response to a motion filed by us,
the Judicial Panel on Multi-District Litigation consolidated these matters in
the United States District Court for the Southern District of Illinois. The
parties have entered into a memorandum of understanding to settle these cases,
pursuant to which we would pay $88 million for the benefit of the settlement
class. Judicial approval of the tentative settlement is required. Our appeal of
the FCC's HALPRIN decision to the United States Court of Appeals for the
District of Columbia Circuit is stayed pending judicial review of the proposed
settlement.

ITEM 2. PROPERTIES

    The information contained in "Item 1. Business--Business--WorldCom Group
Operations--Facilities" and "--MCI Group Operations--Facilities" is hereby
incorporated by reference.

ITEM 3. LEGAL PROCEEDINGS

    We are involved in legal and regulatory proceedings generally incidental to
our business. In some instances, rulings by federal and some state regulatory
authorities may result in increased operating costs to us. Except as indicated
above in Item 1. Business or in Note 10 of the Notes to Consolidated Financial
Statements, which are incorporated herein by reference, and while the results of
these various legal and regulatory matters contain an element of uncertainty, we
believe that the probable outcome of these matters should not have a material
adverse effect on our consolidated results of operations or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None

                                       34

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED

    SHAREHOLDER MATTERS

    The shares of WorldCom common stock are quoted on The Nasdaq National Market
under the symbol "WCOM." The following table sets forth the high and low sales
prices per share of WorldCom common stock as reported on The Nasdaq National
Market based on published financial sources, for the periods indicated.



                                                                HIGH       LOW
                                                              --------   --------
                                                                   
1999
- ------------------------------------------------------------
First Quarter...............................................   $62.83     $46.00
Second Quarter..............................................    64.50      53.54
Third Quarter...............................................    60.92      47.92
Fourth Quarter..............................................    61.33      44.04
2000
- ------------------------------------------------------------
First Quarter...............................................   $55.00     $40.63
Second Quarter..............................................    47.00      35.88
Third Quarter...............................................    49.97      25.25
Fourth Quarter..............................................    30.44      13.50


    As of March 16, 2001, there were 2,886,027,760 shares of WorldCom common
stock issued and outstanding, net of treasury shares, held by approximately
65,000 shareholders of record.

    WorldCom has never paid cash dividends on our common stock. The policy of
the our board of directors has been to retain earnings to provide funds for the
operation and expansion of our business.

PREFERRED STOCK

    The WorldCom Series B Preferred Stock is convertible into shares of WorldCom
common stock at any time at a conversion rate of 0.1460868 shares of WorldCom
common stock for each share of WorldCom Series B Preferred Stock. Dividends on
the WorldCom Series B Preferred Stock accrue at the rate of $0.0775 per share,
per annum and are payable in cash. Dividends will be paid only when, as and if
declared by our board of directors. We have not declared any dividends on the
WorldCom Series B Preferred Stock to date and anticipate that future dividends
will not be declared but will continue to accrue. Upon conversion, accrued but
unpaid dividends are payable in cash or shares of WorldCom common stock at our
election. To date, we have elected to pay all accrued dividends in cash, upon
conversion.

    The WorldCom Series B Preferred Stock is also redeemable at our option at
any time after September 30, 2001 at a redemption price of $1.00 per share, plus
accrued and unpaid dividends. The redemption price will be payable in cash or
shares of WorldCom common stock at our election.

    The WorldCom Series B Preferred Stock is entitled to one vote per share with
respect to all matters. The WorldCom Series B Preferred Stock has a liquidation
preference of $1.00 per share plus all accrued and unpaid dividends thereon to
the date of liquidation. As of March 16, 2001, there were 10,584,359 shares of
WorldCom Series B Preferred Stock outstanding held by approximately 548
shareholders of record. There is no established market for the WorldCom
Series B Preferred Stock.

    In January 2000, each outstanding share of WorldCom Series C Preferred Stock
was redeemed by WorldCom for $50.75 in cash, or approximately $190 million in
the aggregate.

                                       35

ITEM 6. SELECTED FINANCIAL DATA

                SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

    We derived the selected historical consolidated financial data presented
below as of and for the five years ended December 31, 2000 from our consolidated
financial statements and related notes, which include the WorldCom group and the
MCI group. Our audited consolidated financial statements for each of the years
ended December 31, 1998, 1999 and 2000 are included in this Form 10-K.

    You should read the selected financial data together with our audited and
unaudited consolidated financial statements and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in this
document. In reading the following selected financial data, please note the
following:

    - On September 14, 1998 we completed our merger with MCI. The MCI merger was
      accounted for as a purchase; accordingly, the operating results of MCI are
      included from the date of that acquisition.

    - Results for 2000 include a pre-tax charge of $93 million associated with
      the termination of the Sprint Corporation merger agreement, including
      regulatory, legal, accounting and investment banking fees and other costs,
      and a $685 million pre-tax charge associated with specific domestic and
      international wholesale accounts that were no longer deemed collectible
      due to bankruptcies, litigation and settlements of contractual disputes
      that occurred in the third quarter of 2000.

    - In 1998, we recorded a pre-tax charge of $196 million in connection with
      the Brooks Fiber Properties, Inc. merger, the MCI merger and the asset
      write-downs and loss contingencies as described below. This charge
      included $21 million for employee severance, $17 million for Brooks Fiber
      Properties direct merger costs, $38 million for conformance of Brooks
      Fiber Properties accounting policies, $56 million for exit costs under
      long-term commitments, $31 million for write-down of a permanently
      impaired investment and $33 million related to asset write-downs and loss
      contingencies associated with the Brooks Fiber Properties merger and the
      MCI merger. Additionally, in connection with 1998 business combinations,
      we made allocations of the purchase price to acquired in-process research
      and development totaling $429 million in the first quarter of 1998 related
      to the CompuServe Corporation merger and the acquisition of ANS
      Communications, Inc., $3.1 billion in the third quarter of 1998 related to
      the MCI merger and $2.1 billion in the fourth quarter of 1996 related to
      the MFS Communications merger.

    - Results for 1996 include other after-tax charges of $121 million for
      employee severance, employee compensation charges, alignment charges, and
      costs to exit unfavorable telecommunications contracts and a $344 million
      after-tax write-down of operating assets within our non-core businesses.
      On a pre-tax basis, these charges totaled $600 million.

    - In connection with debt refinancings, we recognized in 1998, 1997 and 1996
      extraordinary items of $129 million, $3 million and $4 million,
      respectively, net of taxes, consisting of unamortized debt discount,
      unamortized issuance cost and prepayment fees. Additionally, in 1996 we
      recorded an extraordinary item of $20 million, net of taxes, related to a
      write-off of deferred international costs.

    - We adopted the American Institute of Certified Public Accountants'
      Statement of Position 98-5, "Reporting on the Costs of Start-Up
      Activities" as of January 1, 1998. The cumulative
     effect of this change in accounting principle resulted in a one-time,
      non-cash expense of
     $36 million, net of taxes. This expense represented start-up costs incurred
      primarily in

                                       36

      conjunction with the development and construction of the advanced
      messaging network of
     SkyTel Communications, which are required to be expensed as incurred in
      accordance with this accounting standard.

    - During the fourth quarter of 2000, we implemented Staff Accounting
      Bulletin No. 101, "Revenue Recognition in Financial Statements", or
      SAB 101, which requires certain activation and installation fee revenues
      to be amortized over the average life of the related service rather than
      be recognized immediately. Costs directly related to these revenues may
      also be deferred and amortized over the customer contract life. As
      required by SAB 101, we retroactively adopted this accounting effective
      January 1, 2000, which resulted in a one-time expense of $85 million, net
      of income tax benefit of $50 million.

    - Revenues and line costs for all periods reflect classification changes for
      reciprocal compensation and central office based remote access equipment
      sales, which are now being treated as an offset to line costs instead of
      revenues. Reciprocal compensation represents a reimbursement of costs for
      call termination performed on behalf of other carriers' customers and is
      determined contractually based on fixed rate per minute charges to these
      carriers. Central office based remote access equipment sales represent the
      reimbursement of customer specific equipment costs incurred by us on
      behalf of the customer as part of service provisioning. As such, we
      determined that it is more appropriate to reflect these reimbursements net
      of cost. Previously, we recorded these items on a gross basis as revenues.
      Revenues and line costs for all periods also reflect the reclassification
      of small business and consumer primary interexchange carrier charges, or
      PICC, from revenues to line costs. PICC are flat-rate charges mandated by
      the FCC which apply to telecommunications companies that connect to
      customers through a traditional phone company's facilities. Effective
      July 1, 2000, as a result of the FCC's Coalition for Affordable Local and
      Long Distance Services, or CALLs order, the PICC fee is billed directly to
      the customer by the traditional phone company rather than to WorldCom and
      rebilled to the customer. Operating income, net income available to common
      shareholders and the balance sheet are not affected by these
      reclassifications.

                                       37




                                                                 AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                          ----------------------------------------------------
                                                            1996       1997       1998       1999       2000
                                                          --------   --------   --------   --------   --------
                                                            (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                                                                       
OPERATING RESULTS:
Revenues................................................  $ 4,799    $ 7,643    $17,617    $35,908    $39,090
Operating income (loss).................................   (2,006)       982       (942)     7,888      8,153
Income (loss) before cumulative effect of accounting
  change and extraordinary items........................   (2,354)       185     (2,560)     4,013      4,238
Cumulative effect of accounting change..................       --         --        (36)        --        (85)
Extraordinary items.....................................      (24)        (3)      (129)        --         --
Net income (loss) applicable to common shareholders.....   (2,391)       143     (2,767)     3,941      4,088
Preferred dividend requirement..........................       13         39         24          9          1

Earnings (loss) per common share:
Income (loss) before cumulative effect of accounting
  change and extraordinary items:
  Basic.................................................    (3.44)      0.10      (1.35)      1.40       1.46
  Diluted...............................................    (3.44)      0.10      (1.35)      1.35       1.43

Net income (loss):
  Basic.................................................    (3.47)      0.10      (1.43)      1.40       1.43
  Diluted...............................................    (3.47)      0.09      (1.43)      1.35       1.40
Weighted average shares:
  Basic.................................................      689      1,470      1,933      2,821      2,868
  Diluted...............................................      689      1,516      1,933      2,925      2,912

FINANCIAL POSITION:
Total assets............................................  $21,683    $24,400    $87,092    $91,072    $98,903
Long-term debt..........................................    5,758      7,811     16,448     13,128     17,696
Subsidiary trust and other mandatorily redeemable
  preferred securities..................................       --         --        798        798        798
Shareholders' investment................................   13,616     14,087     45,241     51,238     55,409


                                       38

                SELECTED HISTORICAL CONSOLIDATING FINANCIAL DATA

    The following schedules present balance sheet, statement of operations and
statement of cash flows data of the WorldCom group, the MCI group and WorldCom
for each of the three years ended December 31, 2000. We have presented this
information to illustrate the financial results of the WorldCom group and the
MCI group and how the financial results of these groups relate to the
consolidated results of WorldCom. This information, which has been prepared in
accordance with accounting principles generally accepted in the United States,
should be read together with the audited financial statements of each of
WorldCom, the WorldCom group and the MCI group and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in this
Form 10-K.

    The balance sheets, statements of operations and statement of cash flows of
WorldCom for the years ended December 31, 1998, 1999 and 2000 have been derived
from the WorldCom audited financial statements which are included in this
Form 10-K. The balance sheets, statements of operations and statements of cash
flows of the WorldCom group and the MCI group have been derived, in the case of
the year ended December 31, 1998, from the WorldCom group's and the MCI group's
unaudited financial statements, and, in the case of the years ended
December 31, 1999 and 2000, from the WorldCom group's and the MCI group's
audited financial statements included in this Form 10-K.

    The financial information reflects the performance of the businesses
attributed to each of the WorldCom group and the MCI group and includes the
attribution and allocation of our assets, liabilities, revenues and expenses
between the WorldCom group and the MCI group including:

    - centralized management of most financial activities, under which the MCI
      group will generally not be allocated any cash balances;

    - debt allocated to the MCI group to carry an interest rate equal to the
      weighted average interest rate of WorldCom plus a spread based upon rates
      at which the MCI group would borrow if it was a wholly owned subsidiary of
      WorldCom but did not have the benefit of any guarantee by WorldCom. Each
      group's allocated debt will increase or decrease by the amount of any net
      cash generated by, or required to fund, the group's operating activities,
      investing activities, share repurchases and other financing activities;

    - the MCI group to be allocated an expense for use of our fiber optic
      systems, which are attributed to the WorldCom group, and the WorldCom
      group to be allocated an expense for use of our business voice switched
      services, which are attributed to the MCI group. The fees for each of
      these services will be equal to a portion, based on usage, of the
      applicable costs and results in a corresponding decrease in the other
      group's related depreciation expense.

    - the transfer of assets and liabilities between the businesses attributed
      to one group and the businesses attributed to the other group to be at
      fair value, and all other material transactions between the groups are
      intended to be on an arm's-length basis. These other transactions
      initially consist of the MCI group's use of buildings, furniture and
      fixtures and the MCI tradenames, which assets have been attributed to the
      WorldCom group. The MCI group will be allocated a portion, based on usage,
      of the applicable costs, which will result in a corresponding decrease in
      the WorldCom group's related depreciation and amortization expense.

    - line costs to be allocated between the groups using methodologies that
      management believes are reasonable, such as the proportionate usage of the
      network by the businesses attributed to each of the groups and the total
      revenues generated by each group.

    - the cost of shared corporate services and related balance sheet amounts to
      be attributed to each of the groups based upon identification of the
      services specifically benefiting the group. Where determinations based on
      specific identification are impractical, other methods and criteria are

                                       39

      used to make allocations between the groups, such as number of employees
      and total revenues generated by each group; and

    - the tax expense allocable to the MCI group to be the amount the MCI group
      would have incurred had it filed tax returns as a separate taxpayer and
      the tax expense allocable to the WorldCom group to be the excess, if any,
      of WorldCom's tax expense over the tax expense allocable to the MCI group.
      Tax benefits that cannot be used by a group generating those benefits but
      can be used on a consolidated basis will be credited to the group that
      generated those benefits.

                                       40

                          CONSOLIDATING BALANCE SHEET
                            (UNAUDITED. IN MILLIONS)



                                                                  AT DECEMBER 31, 1998
                                                    ------------------------------------------------
                                                    WORLDCOM     MCI
                                                     GROUP      GROUP     ELIMINATIONS(1)   WORLDCOM
                                                    --------   --------   ---------------   --------
                                                                                
Current assets....................................  $ 9,178    $ 2,012         $(421)       $10,769
Property and equipment, net.......................   22,649      1,919            --         24,568
Goodwill and other intangibles....................   37,445      9,840            --         47,285
Other assets......................................    4,361        109            --          4,470
                                                    -------    -------         -----        -------
  Total assets....................................  $73,633    $13,880         $(421)       $87,092
                                                    =======    =======         =====        =======

Current liabilities...............................  $12,197    $ 4,404         $(421)       $16,180
Long-term debt....................................   10,448      6,000            --         16,448
Noncurrent liabilities............................    4,223        502            --          4,725
Minority interests................................    3,676         24            --          3,700
Company obligated mandatorily redeemable preferred
  securities......................................      798         --            --            798
Shareholders' investment..........................   42,291      2,950            --         45,241
                                                    -------    -------         -----        -------

  Total liabilities and shareholders'
    investment....................................  $73,633    $13,880         $(421)       $87,092
                                                    =======    =======         =====        =======


- ------------------------

(1) Represents the elimination of intergroup receivables and payables associated
    with other intergroup allocations between the WorldCom group and the MCI
    group. The WorldCom group had a net receivable from the MCI group of
    $421 million and the MCI group had a corresponding net payable to the
    WorldCom group.

                                       41

                     CONSOLIDATING STATEMENT OF OPERATIONS
                            (UNAUDITED. IN MILLIONS)



                                                               YEAR ENDED DECEMBER 31, 1998
                                                       ---------------------------------------------
                                                       WORLDCOM     MCI
                                                        GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                       --------   --------   ------------   --------
                                                                                
Revenues.............................................  $ 9,809     $7,808       $   --      $17,617
                                                       -------     ------       ------      -------
Operating expenses:
  Line costs:
    Attributed costs (1).............................    4,781      3,201           --        7,982
    Intergroup allocated expenses (2)................       20        118         (138)          --
  Selling, general and administrative:
    Attributed costs (1).............................    1,395      1,641        1,527        4,563
    Shared corporate services (3)....................      817        710       (1,527)          --
    Other intergroup allocated expenses (4)..........       --         90          (90)          --
  Depreciation and amortization:
    Attributed costs (1).............................    1,952        337           --        2,289
    Intergroup allocated expenses (5)................     (208)       (20)         228           --
  In-process research and development and other
    charges..........................................    2,474      1,251           --        3,725
                                                       -------     ------       ------      -------
Total................................................   11,231      7,328           --       18,559
                                                       -------     ------       ------      -------
Operating income (loss)..............................   (1,422)       480           --         (942)
Interest expense.....................................     (180)      (512)          --         (692)
Miscellaneous income.................................       44         --           --           44
                                                       -------     ------       ------      -------
Loss before income taxes, minority interests,
  cumulative effect of accounting change and
  extraordinary items................................   (1,558)       (32)          --       (1,590)
Provision for income taxes...........................      409        468           --          877
                                                       -------     ------       ------      -------
Loss before minority interests, cumulative effect of
  accounting change and extraordinary items..........   (1,967)      (500)          --       (2,467)
Minority interests...................................      (93)        --           --          (93)
                                                       -------     ------       ------      -------
Loss before cumulative effect of accounting change
  and extraordinary items............................   (2,060)      (500)          --       (2,560)
Cumulative effect of accounting change...............       --        (36)          --          (36)
Extraordinary items..................................     (129)        --           --         (129)
                                                       -------     ------       ------      -------
Loss before distributions on subsidiary trust and
  other mandatorily redeemable preferred securities
  and preferred dividend requirements................   (2,189)      (536)          --       (2,725)
Distributions on subsidiary trust mandatorily
  redeemable preferred securities....................       18         --           --           18
Preferred dividend requirements......................       24         --           --           24
                                                       -------     ------       ------      -------
Net loss.............................................  $(2,231)    $ (536)      $   --      $(2,767)
                                                       =======     ======       ======      =======


(1) Attributed costs represent costs directly incurred by or attributed to the
    WorldCom group and the MCI group and do not include any intergroup
    allocations.

(2) The WorldCom group was allocated $20 million for its usage of our business
    voice switches, which have been attributed to the MCI group, and the MCI
    group was allocated $118 million for its usage of our fiber optic systems,
    which have been attributed to the WorldCom group.

                                       42

(3) Our shared corporate services (such as executive management, human
    resources, legal, regulatory, accounting, tax, treasury, strategic planning
    and information systems support) have been allocated to the WorldCom group
    and the MCI group in the amount of $817 million and $710 million,
    respectively.

(4) The MCI group was allocated $83 million of costs related to its use of
    buildings, furniture and fixtures and $7 million for use of the MCI
    tradenames, which assets have been attributed to the WorldCom group.

(5) A credit of $201 million and $20 million to depreciation expense has been
    recorded by the WorldCom group and the MCI group, respectively, to reflect
    the allocation of a portion of the applicable costs for the use by the
    WorldCom group of the business voice switches attributed to the MCI group,
    and the proportionate use by the MCI group of the fiber optic systems and
    buildings, furniture and fixtures attributed to the WorldCom group.
    Additionally, a credit of $7 million to amortization expense has been
    recorded by the WorldCom group to reflect the charge to MCI group for use of
    the MCI tradenames.

                                       43

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                            (UNAUDITED. IN MILLIONS)



                                                              YEAR ENDED DECEMBER 31, 1998
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Cash flows from operating activities:
  Net loss..........................................  $(2,189)   $  (536)    $      --     $(2,725)
  Adjustments to reconcile net loss to net cash
    provided by operating activities................    4,723      2,184            --       6,907
                                                      -------    -------     ---------     -------
    Net cash provided by operating activities.......    2,534      1,648            --       4,182
                                                      -------    -------     ---------     -------

Cash flows from investing activities:
  Capital expenditures..............................   (4,523)      (594)           --      (5,117)
  Capital expenditures, Embratel and undersea
    cables..........................................     (369)        --            --        (369)
  Acquisitions and related costs....................   (1,811)    (1,589)           --      (3,400)
  Other investing activities, net...................     (603)        (9)           --        (612)
                                                      -------    -------     ---------     -------
    Net cash used in investing activities...........   (7,306)    (2,192)           --      (9,498)
                                                      -------    -------     ---------     -------
Cash flows from financing activities:
  Principal borrowings on debt, net.................    6,390         --            --       6,390
  Attributed stock activity of WorldCom, Inc........      472         --            --         472
  Distributions on subsidiary trust mandatorily
    redeemable preferred securities.................      (18)        --            --         (18)
  Dividends paid on preferred stock.................      (24)        --            --         (24)
  Intergroup advances, net..........................     (551)       551            --          --
Other...............................................       48         --            --          48
                                                      -------    -------     ---------     -------
    Net cash provided by financing activities.......    6,317        551            --       6,868
                                                      -------    -------     ---------     -------
Net increase in cash and cash equivalents...........    1,545          7            --       1,552
Cash and cash equivalents beginning of period.......      158         17            --         175
                                                      -------    -------     ---------     -------
Cash and cash equivalents end of period.............  $ 1,703    $    24     $      --     $ 1,727
                                                      =======    =======     =========     =======


                                       44

                          CONSOLIDATING BALANCE SHEET
                                 (IN MILLIONS)



                                                                  AT DECEMBER 31, 1999
                                                    ------------------------------------------------
                                                    WORLDCOM     MCI
                                                     GROUP      GROUP     ELIMINATIONS(1)   WORLDCOM
                                                    --------   --------   ---------------   --------
                                                                                
Current assets....................................  $ 9,037    $ 2,263         $(976)       $10,324
Property and equipment, net.......................   26,227      2,391            --         28,618
Goodwill and other intangibles....................   37,252     10,056            --         47,308
Other assets......................................    4,717        105            --          4,822
                                                    -------    -------         -----        -------
  Total assets....................................  $77,233    $14,815         $(976)       $91,072
                                                    =======    =======         =====        =======

Current liabilities...............................  $12,694    $ 5,491         $(976)       $17,209
Long-term debt....................................    7,128      6,000            --         13,128
Noncurrent liabilities............................    5,276        824            --          6,100
Minority interests................................    2,599         --            --          2,599
Company obligated mandatorily redeemable preferred
  securities......................................      798         --            --            798
Shareholders' investment..........................   48,738      2,500            --         51,238
                                                    -------    -------         -----        -------

  Total liabilities and shareholders'
    investment....................................  $77,233    $14,815         $(976)       $91,072
                                                    =======    =======         =====        =======


- ------------------------

(1) Represents the elimination of intergroup receivables and payables associated
    with other intergroup allocations between the WorldCom group and the MCI
    group. The WorldCom group had a net receivable from the MCI group of
    $976 million and the MCI group had a corresponding net payable to the
    WorldCom group.

                                       45

                     CONSOLIDATING STATEMENT OF OPERATIONS
                                 (IN MILLIONS)



                                                              YEAR ENDED DECEMBER 31, 1999
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Revenues............................................  $19,736    $16,172       $   --      $35,908
                                                      -------    -------       ------      -------
Operating expenses:
  Line costs:
    Attributed costs (1)............................    7,841      6,898           --       14,739
    Intergroup allocated expenses (2)...............       64        189         (253)          --
  Selling, general and administrative:
    Attributed costs (1)............................    2,594      3,113        3,228        8,935
    Shared corporate services (3)...................    1,601      1,627       (3,228)          --
    Other intergroup allocated expenses (4).........       --        331         (331)          --
  Depreciation and amortization:
    Attributed costs (1)............................    3,533        821           --        4,354
    Intergroup allocated expenses (5)...............     (520)       (64)         584           --
  In-process research and development and other
    charges.........................................       (8)        --           --           (8)
                                                      -------    -------       ------      -------
Total...............................................   15,105     12,915           --       28,020
                                                      -------    -------       ------      -------
Operating income....................................    4,631      3,257           --        7,888
Interest expense....................................     (460)      (506)          --         (966)
Miscellaneous income................................      237          5           --          242
                                                      -------    -------       ------      -------
Income before income taxes and minority interests...    4,408      2,756           --        7,164
Provision for income taxes..........................    1,856      1,109           --        2,965
                                                      -------    -------       ------      -------
Income before minority interests....................    2,552      1,647           --        4,199
Minority interests..................................     (186)        --           --         (186)
                                                      -------    -------       ------      -------
Net income before distributions on subsidiary trust
  and other mandatorily redeemable preferred
  securities and preferred dividend requirements....    2,366      1,647           --        4,013
Distributions on subsidiary trust mandatorily
  redeemable preferred securities...................       63         --           --           63
Preferred dividend requirements.....................        9         --           --            9
                                                      -------    -------       ------      -------
Net income..........................................  $ 2,294    $ 1,647       $   --      $ 3,941
                                                      =======    =======       ======      =======


(1) Attributed costs represent costs directly incurred by or attributed to the
    WorldCom group and the MCI group and do not include any intergroup
    allocations.

(2) The WorldCom group was allocated $64 million for its usage of our business
    voice switches, which have been attributed to the MCI group, and the MCI
    group was allocated $189 million for its usage of our fiber optic systems,
    which have been attributed to the WorldCom group.

(3) Our shared corporate services (such as executive management, human
    resources, legal, regulatory, accounting, tax, treasury, strategic planning
    and information systems support) have been allocated to the WorldCom group
    and the MCI group in the amounts of $1.6 billion and $1.6 billion,
    respectively.

(4) MCI group was allocated $303 million of costs related to its use of
    buildings, furniture and fixtures and $28 million for use of the MCI
    tradenames, which assets have been attributed to the WorldCom group.

                                       46

(5) A credit of $492 million and $64 million to depreciation expense has been
    recorded by the WorldCom group and the MCI group, respectively, to reflect
    the allocation of a portion of the applicable costs for the use by the
    WorldCom group of the business voice switches attributed to the MCI group,
    and the proportionate use by the MCI group of the fiber optic systems and
    buildings, furniture and fixtures attributed to the WorldCom group.
    Additionally, a credit of $28 million to amortization expense has been
    recorded by the WorldCom group to reflect the charge to the MCI group for
    use of the MCI tradenames.

                                       47

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)



                                                               YEAR ENDED DECEMBER 31, 1999
                                                       ---------------------------------------------
                                                       WORLDCOM     MCI
                                                        GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                       --------   --------   ------------   --------
                                                                                
Cash flows from operating activities:
Net income...........................................   $2,366     $1,647     $      --      $4,013
Adjustments to reconcile net income to net cash
  provided by operating activities...................    4,986      2,006            --       6,992
                                                        ------     ------     ---------      ------
    Net cash provided by operating activities........    7,352      3,653            --      11,005
                                                        ------     ------     ---------      ------

Cash flows from investing activities:
Capital expenditures.................................   (7,036)      (787)           --      (7,823)
Capital expenditures, Embratel and undersea cables...     (893)        --            --        (893)
Acquisitions and related costs.......................     (786)      (292)           --      (1,078)
Proceeds from sale of SHL............................    1,640         --            --       1,640
Other investing activities, net......................     (970)      (431)           --      (1,401)
                                                        ------     ------     ---------      ------
    Net cash used in investing activities............   (8,045)    (1,510)           --      (9,555)
                                                        ------     ------     ---------      ------

Cash flows from financing activities:
Principal repayments on debt, net....................   (2,894)        --            --      (2,894)
Attributed stock activity of WorldCom, Inc...........      886         --            --         886
Distributions on subsidiary trust mandatorily
  redeemable preferred securities....................      (63)        --            --         (63)
Dividends paid on preferred stock....................       (9)        --            --          (9)
Intergroup advances, net.............................    2,097     (2,097)           --          --
                                                        ------     ------     ---------      ------
    Net cash provided by (used in) financing
      activities.....................................       17     (2,097)           --      (2,080)
                                                        ------     ------     ---------      ------
Effect of exchange rates on cash.....................     (221)        --            --        (221)
                                                        ------     ------     ---------      ------
Net increase (decrease) in cash and cash
  equivalents........................................     (897)        46            --        (851)
Cash and cash equivalents beginning of period........    1,703         24            --       1,727
                                                        ------     ------     ---------      ------
Cash and cash equivalents end of period..............   $  806     $   70     $      --      $  876
                                                        ======     ======     =========      ======


                                       48

                          CONSOLIDATING BALANCE SHEET
                                 (IN MILLIONS)



                                                                  AT DECEMBER 31, 2000
                                                    ------------------------------------------------
                                                    WORLDCOM     MCI
                                                     GROUP      GROUP     ELIMINATIONS(1)   WORLDCOM
                                                    --------   --------   ---------------   --------
                                                                                
Current assets....................................  $ 9,068    $ 2,312        $(1,625)      $ 9,755
Property and equipment, net.......................   35,177      2,246             --        37,423
Goodwill and other intangibles....................   36,685      9,909             --        46,594
Other assets......................................    4,963        168             --         5,131
                                                    -------    -------        -------       -------
  Total assets....................................  $85,893    $14,635        $(1,625)      $98,903
                                                    =======    =======        =======       =======

Current liabilities...............................  $14,213    $ 5,085        $(1,625)      $17,673
Long-term debt....................................   11,696      6,000             --        17,696
Noncurrent liabilities............................    3,648      1,087             --         4,735
Minority interests................................    2,592         --             --         2,592
Company obligated mandatorily redeemable preferred
  securities......................................      798         --             --           798
Shareholders' investment..........................   52,946      2,463             --        55,409
                                                    -------    -------        -------       -------

  Total liabilities and shareholders'
    investment....................................  $85,893    $14,635        $(1,625)      $98,903
                                                    =======    =======        =======       =======


- ------------------------

(1) Represents the elimination of intergroup receivables and payables associated
    with other intergroup allocations between the WorldCom group and the MCI
    group. The WorldCom group had a net receivable from the MCI group of
    $1.6 billion and the MCI group had a corresponding net payable to the
    WorldCom group.

                                       49

                     CONSOLIDATING STATEMENT OF OPERATIONS
                                 (IN MILLIONS)



                                                              YEAR ENDED DECEMBER 31, 2000
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Revenues............................................  $22,755    $16,335       $   --      $39,090
                                                      -------    -------       ------      -------
Operating expenses:
  Line costs:
    Attributed costs (1)............................    8,658      6,804           --       15,462
    Intergroup allocated expenses (2)...............       87        373         (460)          --
  Selling, general and administrative:
    Attributed costs (1)............................    3,682      2,981        3,934       10,597
    Shared corporate services (3)...................    2,007      1,927       (3,934)          --
    Other intergroup allocated expenses (4).........       --        254         (254)          --
  Depreciation and amortization:
    Attributed costs (1)............................    3,907        971           --        4,878
    Intergroup allocated expenses (5)...............     (627)       (87)         714           --
                                                      -------    -------       ------      -------
Total...............................................   17,714     13,223           --       30,937
                                                      -------    -------       ------      -------
Operating income....................................    5,041      3,112           --        8,153
Interest expense....................................     (458)      (512)          --         (970)
Miscellaneous income................................      385         --           --          385
                                                      -------    -------       ------      -------
Income before income taxes, minority interests and
  cumulative effect of accounting change............    4,968      2,600           --        7,568
Provision for income taxes..........................    1,990      1,035           --        3,025
                                                      -------    -------       ------      -------
Income before minority interests and cumulative
  effect of accounting change.......................    2,978      1,565           --        4,543
Minority interests..................................     (305)        --           --         (305)
                                                      -------    -------       ------      -------
Income before cumulative effect of accounting
  change............................................    2,673      1,565           --        4,238
Cumulative effect of accounting change..............      (75)       (10)          --          (85)
Net income before distributions on subsidiary trust
  and other mandatorily redeemable preferred
  securities and preferred dividend requirements....    2,598      1,555           --        4,153
Distributions on subsidiary trust mandatorily
  redeemable preferred securities...................       64         --           --           64
Preferred dividend requirements.....................        1         --           --            1
                                                      -------    -------       ------      -------
Net income..........................................  $ 2,533    $ 1,555       $   --      $ 4,088
                                                      =======    =======       ======      =======


(1) Attributed costs represent costs directly incurred by or attributed to the
    WorldCom group and the MCI group and do not include any intergroup
    allocations.

(2) The WorldCom group was allocated $87 million for its usage of our business
    voice switches, which have been attributed to MCI group, and the MCI group
    was allocated $373 million for its usage of our fiber optic systems, which
    have been attributed to the WorldCom group.

(3) Our shared corporate services (such as executive management, human
    resources, legal, regulatory, accounting, tax, treasury, strategic planning
    and information systems support) have been allocated to the WorldCom group
    and the MCI group in the amounts of $2.0 billion and $1.9 billion,
    respectively.

                                       50

(4) The MCI group was allocated $226 million of costs related to its use of
    buildings, furniture and fixtures and $28 million for use of the MCI
    tradenames, which assets have been attributed to the WorldCom group.

(5) A credit of $599 million and $87 million to depreciation expense has been
    recorded by the WorldCom group and the MCI group, respectively, to reflect
    the allocation of a portion of the applicable costs for the use by the
    WorldCom group of the business voice switches attributed to the MCI group,
    and the proportionate use by the MCI group of the fiber optic systems and
    buildings, furniture and fixtures attributed to the WorldCom group.
    Additionally, a credit of $28 million to amortization expense has been
    recorded by the WorldCom group to reflect the charge to the MCI group for
    use of the MCI tradenames.

                                       51

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)



                                                              YEAR ENDED DECEMBER 31, 2000
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Cash flows from operating activities:
Net income..........................................  $ 2,598    $ 1,555     $      --     $  4,153
Adjustments to reconcile net income to net cash
  provided by operating activities..................    2,732        781            --        3,513
                                                      --------   -------     ---------     --------
    Net cash provided by operating activities.......    5,330      2,336            --        7,666
                                                      --------   -------     ---------     --------

Cash flows from investing activities:
Capital expenditures................................   (9,368)      (500)           --       (9,868)
Capital expenditures, Embratel and undersea
  cables............................................   (1,616)        --            --       (1,616)
Acquisitions and related costs......................      (14)        --            --          (14)
Other investing activities, net.....................   (2,614)      (273)           --       (2,887)
                                                      --------   -------     ---------     --------
    Net cash used in investing activities...........  (13,612)      (773)           --      (14,385)
                                                      --------   -------     ---------     --------

Cash flows from financing activities:
Principal borrowings on debt, net...................    6,377         --            --        6,377
Attributed stock activity of WorldCom, Inc..........      585         --            --          585
Distributions on subsidiary trust mandatorily
  redeemable preferred securities...................      (64)        --            --          (64)
Dividends paid on preferred stock...................       (1)        --            --           (1)
Intergroup advances, net............................    1,592     (1,592)           --           --
Other                                                    (274)        --            --         (274)
                                                      --------   -------     ---------     --------
    Net cash provided by (used in) financing
      activities....................................    8,215     (1,592)           --        6,623
                                                      --------   -------     ---------     --------
Effect of exchange rates on cash....................      (19)        --            --          (19)
                                                      --------   -------     ---------     --------
Net decrease in cash and cash equivalents...........      (86)       (29)           --         (115)
Cash and cash equivalents beginning of period.......      806         70            --          876
                                                      --------   -------     ---------     --------
Cash and cash equivalents end of period.............  $   720    $    41     $      --     $    761
                                                      ========   =======     =========     ========


                                       52

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

    On November 1, 2000, we announced a realignment of our businesses with the
distinct customer bases they serve. In addition, if approved by our
shareholders, we will create two separately traded tracking stocks: WorldCom
group stock, which is intended to track the separate performance of our data,
Internet, international and commercial voice businesses; and MCI group stock,
which is intended to reflect the performance of our consumer, small business,
wholesale long distance, wireless messaging and dial-up Internet access
businesses. If our shareholders do not approve the recapitalization we still
intend to implement the realignment.

    Through the businesses attributed to the WorldCom group, which have an
extensive, advanced facilities-based global communications network, we provide a
broad range of integrated communications and managed network services to both
U.S. and non-U.S. based corporations. Offerings include data services such as
frame relay, asynchronous transfer mode and Internet protocol networks; Internet
related services, including dedicated access, virtual private networks, digital
subscriber lines, web centers encompassing application and server hosting and
managed data services; commercial voice services; and international services.

    Through the businesses attributed to the MCI group, we provide a broad range
of retail and wholesale communications services, including long distance voice
communications, consumer local voice communications, wireless messaging, private
line services and dial-up Internet access services. Our retail services are
provided to consumers and small businesses in the United States. We are the
second largest carrier of long distance telecommunications services in the
United States. We provide a wide range of long distance telecommunications
services, including: basic long distance telephone service, dial around, collect
calling, operator assistance and calling card services (including prepaid
calling cards) and toll free or 800 services. We offer these services
individually and in combinations. Through combined offerings, we provide
customers with benefits such as single billing, unified services for multi-
location companies and customized calling plans. Our wholesale businesses
include wholesale voice services provided to carrier customers and other
resellers and dial-up Internet access services.

    Although we sometimes refer to such assets and liabilities as those of the
WorldCom group or the MCI group, neither of the groups is a separate legal
entity. Rather, all of the assets of a group are owned by WorldCom and, if the
recapitalization is approved by our shareholders, holders of the WorldCom group
stock or the MCI group stock will be shareholders of WorldCom and subject to all
of the risks of an investment in WorldCom and all of its businesses, assets and
liabilities.

ATTRIBUTION AND ALLOCATION OF ASSETS, LIABILITIES, REVENUES AND EXPENSES

    The following is a discussion of the methods used to attribute and allocate
property and equipment, revenues, line costs, shared corporate services,
intangible assets and financing arrangements to the WorldCom group and the MCI
group.

    PROPERTY AND EQUIPMENT.  Property and equipment was attributed to the
WorldCom group and the MCI group based on specific identification consistent
with the assets necessary to support the

                                       53

continuing operations of the businesses attributed to the respective groups. The
balances of property and equipment attributed to each of the groups as of
December 31, 2000 are as follows:



                                        WORLDCOM GROUP   MCI GROUP   WORLDCOM, INC.
                                        --------------   ---------   --------------
                                                       (IN MILLIONS)
                                                            
  Transmission equipment..............     $19,883        $  405         $20,288
  Communications equipment............       5,873         2,227           8,100
  Furniture, fixtures and other.......       8,666           676           9,342
  Construction in progress............       6,727           170           6,897
                                           -------        ------         -------
                                            41,149         3,478          44,627
  Accumulated depreciation............      (5,972)       (1,232)         (7,204)
                                           -------        ------         -------
                                           $35,177        $2,246         $37,423
                                           =======        ======         =======


    Our board of directors may reallocate assets to the other group for fair
value at any time without shareholder approval.

    REVENUES.  Revenues have been attributed to the WorldCom group and the MCI
group based on specific identification of the lines of business that are
attributed to the two groups.

    LINE COSTS.  Allocated costs and related liabilities within this caption
include the costs of the fiber optic systems attributed to the WorldCom group
and the costs of the business voice switched services attributed to the MCI
group. The line costs allocated to the MCI group for use of our fiber optic
systems equal a proportion of the related network costs based on the MCI group's
usage. The costs allocated to the WorldCom group for the business voice switched
services equal a proportion of the long distance switch costs based on the
WorldCom group's usage.

    SHARED CORPORATE SERVICES.  A portion of our shared corporate services and
related balance sheet amounts (such as executive management, human resources,
legal, regulatory, accounting, tax, treasury, strategic planning and information
systems support) has been attributed to the WorldCom group or
the MCI group based upon identification of such services specifically benefiting
such group. Where determinations based on specific usage alone have been
impractical, other allocation methods were used, including methods based on
number of employees and the total revenues generated by each group. Management
believes these allocation methods are equitable and provide a reasonable
estimate of the costs attributable to each group.

    ALLOCATION OF INTANGIBLE ASSETS.  Intangible assets consist of the excess
consideration paid over the fair value of net tangible assets acquired by us in
business combinations accounted for under the purchase method and include
goodwill, channel rights, developed technology and tradenames. These assets have
been attributed to the respective groups based on specific identification and
where acquired companies have been divided between the WorldCom group and the
MCI group, the intangible assets have been allocated based on the respective
fair values at the date of purchase of the related operations attributed to each
group. Management believes that this method of allocation is equitable and
provides a reasonable estimate of the intangible assets attributable to the
WorldCom group and the MCI group.

    All tradenames, including the MCI tradename and the other related MCI
tradenames, have been attributed to the WorldCom group. The MCI group will be
allocated an expense, and the WorldCom group will be allocated a corresponding
decrease in costs, for the use of the MCI tradenames. For purposes of preparing
the historical financial statements for the groups filed as exhibits to this
Form 10-K, an expense of $27.5 million per annum was allocated to the MCI group,
and a corresponding decrease in costs was allocated to the WorldCom group, in
each case since the date of

                                       54

acquisition of MCI, for use by the MCI group of the MCI tradenames. The charge
for the next five years will be based on the following schedule:

    
2001:  $27.5 million
2002:  $30.0 million
2003:  $35.0 million
2004:  $40.0 million
2005:  $45.0 million



    Any renewal or termination of use of the MCI tradename by the MCI group will
be subject to the general policy that our board of directors will act in the
best interests of WorldCom.

    Goodwill and other intangibles assigned or allocated to the WorldCom group
and the MCI group as of December 31, 2000 are as follows:



                                        WORLDCOM GROUP   MCI GROUP   WORLDCOM, INC.
                                        --------------   ---------   --------------
                                                       (IN MILLIONS)
                                                            
  Goodwill............................     $35,596        $ 9,274        $44,870
  Tradenames..........................       1,100             --          1,100
  Developed technology................       1,590            510          2,100
  Other intangibles...................       2,665          1,113          3,778
                                           -------        -------        -------
                                            40,951         10,897         51,848
  Accumulated amortization............      (4,266)          (988)        (5,254)
                                           -------        -------        -------
                                           $36,685        $ 9,909        $46,594
                                           =======        =======        =======


RESULTS OF OPERATIONS

    For the years ended December 31, 1998, 1999 and 2000, our revenues were as
follows:



                                                     1998       1999       2000
                                                   --------   --------   --------
                                                                
WorldCom group...................................  $ 9,809    $19,736    $22,755
MCI group........................................    7,808     16,172     16,335
                                                   -------    -------    -------
                                                   $17,617    $35,908    $39,090
                                                   =======    =======    =======


    Revenues increased 8.9% in 2000 and 104% in 1999. The increase in 2000 total
revenues is attributable to our internal growth. In addition, the increase in
1999 revenues is attributable to the 1998 business combinations described below.

    For the years ended December 31, 1998, 1999 and 2000, net income (loss) was
as follows:



                                                               1998       1999       2000
                                                             --------   --------   --------
                                                                          
WorldCom group.............................................  $(2,231)    $2,294     $2,533
MCI group..................................................     (536)     1,647      1,555
                                                             -------     ------     ------
  Net income (loss) applicable to common shareholders......  $(2,767)    $3,941     $4,088
                                                             =======     ======     ======
  Diluted income (loss) per share applicable to common
    shareholders...........................................  $ (1.43)    $ 1.35     $ 1.40
                                                             =======     ======     ======


                                       55

    Included in net income (loss) are the following items which affect the
comparability of the results from period to period:

    - On September 14, 1998 we completed our merger with MCI. The MCI merger was
      accounted for as a purchase; accordingly, the operating results of MCI are
      included from the date of that acquisition.

    - Results for 2000 include a pre-tax charge of $93 million associated with
      the termination of the Sprint merger agreement, including regulatory,
      legal, accounting and investment banking fees and other costs, and a
      $685 million pre-tax charge associated with specific domestic and
      international wholesale accounts that were no longer deemed collectible
      due to bankruptcies, litigation and settlements of contractual disputes
      that occurred in the third quarter of 2000. We maintain general
      uncollectible reserves based on historical experience, and specific
      reserves for items such as bankruptcies, litigation and contractual
      settlements that are established in the period in which the settlement is
      both estimable and probable. During the third quarter of 2000, an
      unprecedented number of our wholesale customers either filed for
      bankruptcy or changed their status in bankruptcy from reorganization to
      liquidation. This, combined with the third quarter 2000 declines in stock
      prices for many companies in the telecommunications industry and the
      overall tightening of the capital markets, which limited the access of
      many telecommunications providers to the necessary capital to continue
      operations, led to our specific write-off of such accounts. Prior to the
      third quarter 2000 events, the general uncollectible reserves were, in our
      view, adequate. Additionally, under contractual arrangements with
      traditional phone companies and other competitive local exchange carriers,
      we billed the traditional phone companies and competitive local exchange
      carriers for traffic originating on the traditional phone company's or
      competitive local exchange carrier's networks and terminating on our
      network. The traditional phone companies and competitive local exchange
      carriers have historically disputed these billings, although the
      collectibility of these billings had continued to be affirmed by public
      service commission and FCC rulings and by the full payment from a
      traditional phone company of the largest past due amount. However, during
      the third quarter of 2000, court rulings and Congressional discussions led
      to our negotiation and settlement with certain traditional phone companies
      and competitive local exchange carriers for these outstanding receivables.
      Based on the outcome of these negotiations, we recorded a specific
      provision for the associated uncollectible amounts.

    - In 1998, we recorded a pre-tax charge of $196 million in connection with
      the Brooks Fiber Properties merger, the MCI merger and the asset
      write-downs and loss contingencies as described below. This charge
      included $21 million for employee severance, $17 million for Brooks Fiber
      Properties direct merger costs, $38 million for conformance of Brooks
      Fiber Properties accounting policies, $56 million for exit costs under
      long-term commitments, $31 million for write-down of a permanently
      impaired investment and $33 million related to asset write-downs and loss
      contingencies associated with the Brooks Fiber Properties merger and the
      MCI merger. Additionally, in connection with 1998 business combinations,
      we made allocations of the purchase price to acquired in-process research
      and development totaling $429 million in the first quarter of 1998 related
      to the CompuServe Corporation merger and the acquisition of ANS
      Communications, Inc. and $3.1 billion in the third quarter of 1998 related
      to the MCI merger.

    - In connection with debt refinancings, we recognized in 1998, extraordinary
      items of $129 million, net of taxes, consisting of unamortized debt
      discount, unamortized issuance cost and prepayment fees.

    - We adopted, the American Institute of Certified Public Accountants'
      Statement of Position 98-5, "Reporting on the Costs of Start-Up
      Activities" as of January 1, 1998. The cumulative effect of

                                       56

      this change in accounting principle resulted in a one-time, non-cash
      expense of $36 million, net of taxes. This expense represented start-up
      costs incurred primarily in conjunction with the development and
      construction of the advanced messaging network of SkyTel Communications,
      which are required to be expensed as incurred in accordance with this
      accounting standard.

    - During the fourth quarter of 2000, we implemented SAB 101, which requires
      certain activation and installation fee revenues to be amortized over the
      average life of the related service rather than be recognized immediately.
      Costs directly related to these revenues may also be deferred and
      amortized over the customer contract life. As required by SAB 101, we
      retroactively adopted this accounting effective January 1, 2000, which
      resulted in a one-time expense of $85 million, net of income tax benefit
      of $50 million.

    - Revenues and line costs for all periods reflect a classification change
      for reciprocal compensation and central office based remote access
      equipment sales which are now being treated as offsets to cost of sales.
      Reciprocal compensation represents a reimbursement of costs for call
      termination performed on behalf of other carriers' customers and is
      determined contractually based on fixed rate per minute charges to those
      carriers. Central office based remote access equipment sales represent the
      reimbursement of customer specific equipment costs incurred by us on
      behalf of the customer as part of our service provisioning. As such, we
      have determined that it is more appropriate to reflect these
      reimbursements net of cost. Previously, we recorded these items on a gross
      basis as revenues. Revenues and line costs for all periods also reflect
      the reclassification of small business and consumer primary interexchange
      carrier charges to line costs. Primary interexchange carrier charges are
      flat-rate charges mandated by the FCC which apply to telecommunications
      companies that connect to customers through a traditional phone company's
      facilities. Effective July 1, 2000, as a result of the FCC's CALLs order,
      the PICC fee is billed directly to the customer by the traditional phone
      company rather than to WorldCom and rebilled to the customer. Operating
      income, net income available to common shareholders and the balance sheet
      are not affected by these reclassifications.

    WORLDCOM GROUP

    The following table sets forth for the periods indicated the WorldCom
group's statements of operations in millions of dollars and as a percentage of
its revenues for the periods indicated:



                                                          FOR THE YEARS ENDED DECEMBER 31,
                                        ---------------------------------------------------------------------
                                               1998
                                             UNAUDITED                  1999                     2000
                                        -------------------      -------------------      -------------------
                                                                                   
Revenues..............................  $ 9,809      100.0%      $19,736     100.0%       $22,755     100.0%
Line costs............................    4,801       48.9         7,905      40.1          8,745      38.4
Selling, general and administrative...    2,212       22.6         4,195      21.3          5,689      25.0
Depreciation and amortization.........    1,744       17.8         3,013      15.3          3,280      14.4
In-process research and development
  and other charges...................    2,474       25.2            (8)       --             --        --
                                        -------     ------       -------     -----        -------     -----
Operating income (loss)...............  $(1,422)     (14.5)%     $ 4,631      23.5%       $ 5,041      22.2%
                                        =======     ======       =======     =====        =======     =====


                                       57

YEAR ENDED DECEMBER 31, 1999 VS.
  YEAR ENDED DECEMBER 31, 2000

    REVENUES.  Revenues for 2000 increased 15.3% to $22.8 billion versus
$19.7 billion for the same period in the prior year. The increase in total
revenues is attributable to internal growth of the WorldCom group.

    Revenues and line costs for all periods reflect a classification change for
reciprocal compensation which is now being treated as an offset to cost of
sales. Reciprocal compensation represents a reimbursement of costs for call
termination performed on behalf of other carriers' customers and is determined
contractually based on fixed rate per minute charges to those carriers. As such,
the WorldCom group has determined that it is more appropriate to reflect this
reimbursement net of cost. Previously, the WorldCom group recorded reciprocal
compensation on a gross basis as revenues. Operating income, net income and the
balance sheet are not affected by this reclassification.

    Actual reported revenues by category for the years ended December 31, 1999
and 2000 reflect the following changes by category (dollars in millions):



                                                                          PERCENT
                                                      1999       2000      CHANGE
                                                    --------   --------   --------
                                                                 
COMMERCIAL SERVICES REVENUES
  Voice...........................................  $ 7,433    $ 7,036      (5.3)
  Data............................................    5,830      7,407      27.0
  International...................................    4,396      5,879      33.7
  Internet........................................    1,554      2,466      58.7
                                                    -------    -------
TOTAL COMMERCIAL SERVICES REVENUES................   19,213     22,788      18.6
  SAB 101, other..................................      523        (33)       --
                                                    -------    -------
TOTAL.............................................  $19,736    $22,755      15.3
                                                    =======    =======


    Voice revenues for 2000 decreased 5.3% over the prior year period on traffic
growth of 6.4% as a result of federally mandated access charge reductions, noted
under line costs below, that were passed through to the customer. The revenue
decrease was partially offset by local voice revenue increases of 17.4% and
wireless voice revenue increases of 104% for 2000. The WorldCom group continued
to show significant percentage gains in local and wireless voice services as
customers purchased "all-distance" voice services from the WorldCom group.
However, local revenues and wireless voice revenues are still a relatively small
component of total commercial voice revenues. Excluding local and wireless voice
revenues, commercial voice services revenues for 2000 decreased 15.2% over 1999.
Voice revenues include both domestic commercial long distance and local switched
revenues.

    Data revenues for 2000, increased 27.0% over the prior year period. Data
includes both commercial long distance and local dedicated bandwidth sales. The
revenue growth for data services was driven by a 32.8% increase in frame relay
and asynchronous transfer mode services. As of December 31, 2000, approximately
35% of data revenues were derived from frame relay and asynchronous transfer
mode services. The WorldCom group continued to experience strong demand for
capacity increases across the product set as businesses moved more of their
mission-critical applications to their own networks. Additionally, as of
December 31, 2000, the WorldCom group's domestic local voice grade equivalents
had increased 98% to 65.5 million versus the prior year amount.

    International revenues for 2000 increased 33.7% to $5.9 billion versus
$4.4 billion for 1999. This includes a 28% increase in revenues from Europe, a
27% increase in revenues from South America, which is Embratel, and a 119%
increase in revenues from Asia and other areas. The WorldCom group's
international network reach continued to expand. As of December 31, 2000, the
WorldCom group had 21 international facility based city networks versus 17 in
1999. Additionally, during 2000 the

                                       58

WorldCom group added over 5,000 buildings for a total of over 15,000 buildings
connected on the international networks.

    Internet revenues for 2000 increased 58.7% over the prior year period.
Growth was driven by demand for dedicated circuits as business customers
migrated their data networks and applications to Internet-based technologies
with greater amounts of bandwidth. Internet revenues include dedicated Internet
access, managed networking services and applications (such as virtual private
networks), web hosting and electronic commerce and transaction services (such as
web centers and credit card transaction processing).

    SAB 101, other revenues which, prior to April 1999, primarily consisted of
the operations of SHL, were a reduction of $33 million for 2000 and
$523 million for the year ended December 31, 1999. During the fourth quarter of
2000, the WorldCom group implemented SAB 101, which requires certain activation
and installation fee revenues to be amortized over the average life of the
related service rather than be recognized immediately. As required by SAB 101,
the WorldCom group retroactively adopted this accounting effective January 1,
2000, which resulted in a $33 million decrease in revenues for 2000. In
April 1999, the WorldCom group completed the sale of SHL to Electronic Data
Systems for $1.6 billion.

    LINE COSTS.  Line costs as a percentage of revenues for 2000 decreased to
38.4% as compared to 40.1% reported for the prior year. The overall improvement
is a result of increased data and dedicated Internet traffic over WorldCom-owned
facilities, which positively affected line costs as a percentage of revenues by
approximately one and one half percentage points. Additionally, access charge
reductions that occurred in January 2000 and July 2000 reduced total line cost
expense by approximately $95 million for 2000. While access charge reductions
were primarily passed through to customers, line costs as a percentage of
revenues were positively affected by more than a quarter of a percentage point.
Line costs for the year ended December 31, 2000 and 1999 included $87 million
and $64 million, respectively, of charges for business voice switched services
provided by the MCI group.

    The principal components of line costs are access charges and transport
charges. Regulators have historically permitted access charges to be set at
levels that are well above traditional phone companies' costs. As a result,
access charges have been a source of universal service subsidies that enable
local exchange rates to be set at levels that are affordable. The WorldCom group
has actively participated in a variety of state and federal regulatory
proceedings with the goal of bringing access charges to cost-based levels and to
fund universal service using explicit subsidies funded in a competitively
neutral manner. The WorldCom group cannot predict the outcome of these
proceedings or whether or not the results will have a material adverse impact on
our combined financial position or results of operations. However, the WorldCom
group's goal is to manage transport costs through effective utilization of its
networks, favorable contracts with carriers and network efficiencies made
possible as a result of expansion of the WorldCom group's customer base.

    SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses for 2000 were $5.7 billion or 25.0% of revenues as compared to
$4.2 billion or 21.3% of revenues for 1999. Selling, general and administrative
expenses for 2000 includes a $340 million pre-tax charge associated with
specific accounts that were deemed uncollectible due to bankruptcies, litigation
and settlements of contractual disputes that occurred in the third quarter of
2000, and a $93 million pre-tax one-time charge recorded in the second quarter
of 2000 associated with the termination of the Sprint merger agreement,
including regulatory, legal, accounting and investment banking fees and other
costs. Excluding these charges, selling, general and administrative expenses as
a percentage of revenues were 23.1% for 2000. Selling, general and
administrative expenses for 2000 includes increased costs associated with
"generation d" initiatives that include product marketing, customer care,
information system and product development, employee retention costs, and costs
associated with multichannel multipoint distribution service product
development. These increased costs affected selling, general and

                                       59

administrative expense as a percentage of revenues by approximately three
percentage points. The WorldCom group expects selling, general and
administrative expenses to increase over the next twelve months as a result of
the previously noted costs being incurred at an accelerated pace.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
the year ended December 31, 2000 increased to $3.3 billion or 14.4% of revenues
from $3.0 billion or 15.3% of revenues for 1999. This increase reflects
increased depreciation associated with increased capital expenditures. As a
percentage of revenues, these costs decreased due to the higher revenue base.
Depreciation and amortization expense for the years ended December 31, 2000 and
1999 excludes $627 million and $520 million, respectively, of charges allocated
to the MCI group for transit capacity requirements provided by the WorldCom
group, for the MCI group's proportionate share of costs associated with
buildings, furniture and fixtures and for the MCI group's use of the MCI
tradename.

YEAR ENDED DECEMBER 31, 1998 VS.
YEAR ENDED DECEMBER 31, 1999

    REVENUES.  Revenues for 1999 increased 101.2% to $19.7 billion as compared
to $9.8 billion for 1998. The increase in total revenues is attributable to the
MCI merger and Embratel acquisition as well as internal growth. Results include
MCI and Embratel operations from September 14, 1998, and CompuServe Network
Services and ANS from February 1, 1998.

    Actual reported revenues by category for the years ended December 31, 1998,
and 1999 reflect the following changes by category (dollars in millions):



                                                      ACTUAL     ACTUAL    PERCENT
                                                       1998       1999      CHANGE
                                                     --------   --------   --------
                                                                  
COMMERCIAL SERVICES REVENUES
    Voice..........................................   $3,422    $ 7,433     117.2
    Data...........................................    2,644      5,830     120.5
    International..................................    2,272      4,396      93.5
    Internet.......................................      897      1,554      73.2
                                                      ------    -------
TOTAL COMMERCIAL SERVICES REVENUES.................    9,235     19,213     108.0
    Other..........................................      574        523      (8.9)
                                                      ------    -------
TOTAL REPORTED REVENUES............................   $9,809    $19,736     101.2
                                                      ======    =======


    Voice revenues for 1999 increased 9.9% as compared to $6.8 billion for the
1998 pro forma amount, driven by a gain of 6.6% in traffic as a result of
customers purchasing "all-distance" voice services from the WorldCom group. The
1998 pro forma revenues assume that the MCI merger, CompuServe Corporation
merger and ANS acquisition occurred at the beginning of 1998. Local voice
revenues grew 113% in 1999 versus the same period of the prior year, but
remained a relatively small component of voice revenues for 1999. These volume
and revenue gains were offset partially by federally mandated access charge
reductions, noted under line costs below, that were passed through to the
customer.

    Data revenues for 1999 increased 23.2% over the 1998 pro forma amount of
$4.7 billion. The revenue growth for data services continued to be driven by
significant commercial end-user demand for high-speed data and by
Internet-related growth on both a local and long-haul basis. This growth was
driven by connectivity demands and also by corporate enterprise applications
that have become more strategic, far reaching and complex. In addition,
bandwidth consumption drove an acceleration in growth for higher capacity
circuits. As of December 31, 1999, the WorldCom group had approximately
33.1 million domestic local voice grade equivalents and over 39,000 buildings in
the United States

                                       60

connected over its high-capacity circuits. Domestic local route miles of
connected fiber exceeded 8,000 and domestic long distance route miles exceeded
47,000 as of December 31, 1999.

    International revenues increased 93.5% in 1999 to $4.4 billion versus
$2.3 billion for 1998. The increase is attributable to the Embratel acquisition
and internal growth. Embratel revenues for 1998 only reflect Embratel operations
after September 14, 1998 because Embratel was purchased by MCI in August 1998
(just prior to our merger with MCI). International revenues excluding Embratel
for 1999 were $1.6 billion, an increase of 49.0% as compared with $1.1 billion
for the same pro forma period of the prior year. The WorldCom group continued to
extend the reach of its end-to-end networks and as of December 31, 1999,
provided the WorldCom group the capability to connect approximately 10,000
buildings in Europe, all over our high-capacity circuits.

    Internet revenues for 1999 increased 64.8% over the 1998 pro forma amount of
$943 million. Growth for 1999 was driven by more business customers migrating
their data networks and applications to Internet-based technologies.
Additionally, during 1999 the WorldCom group increased the capacity of its
global Internet network to OC-48 in response to the increasing backbone
transport requirements of its commercial and wholesale accounts.

    Other revenues, which primarily consist of the operations of SHL, for 1999
were $523 million, a decrease of 69.8% versus $1.7 billion for the 1998 pro
forma period. In April 1999, the WorldCom group completed the sale of SHL to
Electronic Data Systems for $1.6 billion.

    LINE COSTS.  Line costs as a percentage of revenues for 1999 were 40.1% as
compared to 48.9% reported for the same period in the prior year. Overall
decreases are attributable to changes in the product mix and synergies and
economies of scale resulting from network efficiencies achieved from the
continued assimilation of MCI, CompuServe Network Services, ANS and WorldCom's
operations. Additionally, access charge reductions that occurred in
January 1999 and July 1999 reduced total line cost expense by approximately
$138 million for 1999. While access charge reductions were primarily passed
through to customers, line costs as a percentage of revenues were positively
affected by almost half a percentage point for 1999. Line costs for 1999 and
1998 included $64 million and $20 million, respectively, of charges for business
voice switched services provided by the MCI group.

    SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses for 1999 were $4.2 billion or 21.3% of revenues as compared to
$2.2 billion or 22.6% of revenues for 1998. The decrease in selling, general and
administrative expenses as a percentage of revenues for 1999 reflects scale
savings in corporate overhead and operations from merging the MCI and WorldCom
organizations.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
1999 increased to $3.0 billion or 15.3% of revenues from $1.7 billion or 17.8%
of revenues for 1998. This increase reflects increased amortization and
depreciation associated with the MCI merger, CompuServe merger and ANS
transaction as well as additional depreciation related to capital expenditures.
As a percentage of revenues, these costs decreased due to the higher revenue
base. Depreciation and amortization expense for 1999 and 1998 excludes
$520 million and $208 million, respectively, of charges allocated to the MCI
group for transit capacity requirements provided by the WorldCom group, for the
MCI group's proportionate share of costs associated with buildings, furniture
and fixtures and for its use of the MCI tradename.

    IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES.  In 1998, the
WorldCom group recorded a pre-tax charge of $177 million in connection with the
Brooks Fiber Properties merger, the MCI merger and asset write-downs and loss
contingencies. This charge included $21 million for employee severance,
$17 million for Brooks Fiber Properties direct merger costs, $38 million for
conformance of Brooks Fiber Properties accounting policies, $37 million for exit
costs under long-term commitments, $31 million for the write-down of a
permanently impaired investment and $33 million related to asset

                                       61

write-downs and loss contingencies. The $37 million related to long-term
commitments includes $33 million of minimum commitments between 1999 and 2008
for leased facilities that the WorldCom group has or will abandon, and
$4 million of other commitments. Because of organizational and operational
changes that occurred, management concluded in 1999 that selected leased
properties would not be abandoned according to the original plan that was
approved by management. Therefore, in 1999 a reversal of a $9 million charge to
in-process research and development and other charges was recorded in connection
with this plan amendment. Additionally, the $33 million related to asset write-
downs and loss contingencies includes $9 million for the decommission of
information systems that have no alternative future use, $9 million for the
write-down to fair value of assets held for sale that were disposed of in 1998
and $15 million related to legal costs and other items related to Brooks Fiber
Properties.

    In connection with 1998 business combinations, WorldCom made allocations of
the purchase price to acquired in-process research and development totaling
$429 million in the first quarter of 1998 related to the CompuServe merger and
ANS transaction and $3.1 billion in the third quarter of 1998 related to the MCI
merger. These allocations represent the then estimated fair value based on
risk-adjusted future cash flows related to the incomplete projects. At the date
of the respective business combinations, the development of these projects had
not yet reached technological feasibility and the research and development in
progress had no alternative future uses. Accordingly, these costs were expensed
as of the respective acquisition dates.

    Based on the respective fair values of the related operations allocated to
each group, $2.3 billion of the in-process research and development charge was
allocated to the WorldCom group. Management believes that this method of
allocation provides a reasonable estimate of the in-process research and
development charges attributable to each group.

                                       62

    MCI GROUP

    The following table sets forth for the periods indicated the MCI group's
statements of operations in millions of dollars and as a percentage of its
revenues for the periods indicated:



                                                               FOR THE YEARS ENDED DECEMBER 31,
                                              ------------------------------------------------------------------
                                                                                      
                                                     1998
                                                   UNAUDITED                  1999                  2000
                                              -------------------      -------------------   -------------------
Revenues....................................   $7,808     100.0%       $16,172     100.0%    $16,335     100.0%
Line costs..................................    3,319      42.5          7,087      43.8       7,177      43.9
Selling, general and administrative.........    2,441      31.3          5,071      31.4       5,162      31.6
Depreciation and amortization...............      317       4.1            757       4.7         884       5.4
In-process research and development and
  other charges.............................    1,251      16.0             --        --          --        --
                                               ------     -----        -------     -----     -------     -----
Operating income............................   $  480       6.1%       $ 3,257      20.1%    $ 3,112      19.1%
                                               ======     =====        =======     =====     =======     =====


YEAR ENDED DECEMBER 31, 1999 VS.
YEAR ENDED DECEMBER 31, 2000

    REVENUES.  Revenues for 2000 increased 1.0% to $16.3 billion versus
$16.2 billion for 1999. The increase in total revenues is attributable to
internal growth of the MCI group.

    Revenues and line costs for all periods reflect a classification change for
reciprocal compensation and central office based remote access equipment sales
which are now being treated as offsets to cost of sales. Reciprocal compensation
represents a reimbursement of costs for call termination performed on behalf of
other carriers' customers and is determined contractually based on fixed rate
per minute charges to those carriers. Central office based remote access
equipment sales represent the reimbursement of customer specific equipment costs
incurred by us on behalf of the customer as part of our service provisioning. As
such, the MCI group has determined that it is more appropriate to reflect these
reimbursements net of cost. Previously, the MCI group recorded these items on a
gross basis as revenues. Revenues and line costs for all periods also reflect
the reclassification of small business and consumer primary interexchange
carrier charges to line costs. Effective July 1, 2000, as a result of the FCC's
CALLs order, the PICC fee is billed directly to the customer by the traditional
phone company rather than to WorldCom and rebilled to the customer. Operating
income, net income and the balance sheet are not affected by these
reclassifications.

    Actual reported revenues by category for the year ended December 31, 1999
and 2000 reflect the following changes by category:



                                                                          PERCENT
                                                      1999       2000      CHANGE
                                                    --------   --------   --------
                                                                 
REVENUES
  Wholesale and consumer..........................  $11,533    $11,170      (3.1)
  Alternative channels and small business.........    3,142      3,541      12.7
  Dial-up Internet................................    1,497      1,628       8.8
  SAB 101.........................................       --         (4)       --
                                                    -------    -------
TOTAL REVENUES....................................  $16,172    $16,335       1.0
                                                    =======    =======


    Wholesale and consumer revenues for 2000 decreased 3.1%, over the prior year
period. The wholesale market continues to be extremely price competitive as
declines in minute rates outpaced increases in traffic resulting in revenue
decreases of 14.1%, for 2000, versus the prior year period. The wholesale market
decreases were partially offset by a 2.5% increase in consumer revenues as the
MCI

                                       63

group's partner marketing programs helped to drive Dial-1 product gains.
Consumer revenue growth was impacted by declines in transaction brands and
calling card services, which have been pressured by increasing wireless
substitution, and 10-10-321, which the MCI group no longer actively markets. The
MCI group expects to see continued pricing pressure in both the wholesale and
consumer businesses, which will affect both revenue growth and gross margins.

    Alternative channels and small business revenues for 2000 increased 12.7%
over the prior year period. Alternative channels and small business includes
sales agents and affiliates, wholesale alternative channels, small business,
prepaid calling card and wireless messaging revenues. This increase is primarily
attributable to internal growth for wholesale alternative channel voice
revenues. The MCI group expects that pricing pressures in the wholesale and
small business markets will negatively affect revenue growth in this area and
this level of growth will decline in the foreseeable future as a result of these
services being de-emphasized as the MCI group shifts its focus from revenue
growth to cash generation.

    Dial-up Internet revenue growth for 2000 was 8.8% over the prior year
amount. The MCI group's dial access network has grown 71% to over 2.8 million
modems as of December 31, 2000, compared with the prior year. Additionally,
Internet connect hours increased 54.8% to 6.5 billion hours for 2000 versus the
prior year. These network usage increases were offset by pricing pressure on
dial-up Internet traffic as a result of contract repricings in the second
quarter of 2000, which lowered average revenue per hour by 25% for 2000 versus
the prior year period.

    SAB 101 revenues for 2000 were a reduction of $4 million versus zero for
1999. During the fourth quarter of 2000, the MCI group implemented SAB 101,
which requires certain activation and installation fee revenues to be amortized
over the average life of the related service rather than be recognized
immediately. As required by SAB 101, the MCI group retroactively adopted this
accounting effective January 1, 2000, which resulted in a $4 million decrease in
revenues for 2000.

    LINE COSTS.  Line costs as a percentage of revenues for 2000 increased to
43.9% as compared to 43.8% reported for the prior year period. The increase was
primarily the result of contract repricings in the dial-up Internet business as
noted above and continued competitive pricing on the dial-up Internet business
which effectively held the average cost per hour constant although average
dial-up Internet revenues per hour decreased by 25%. Additionally, access charge
reductions that occurred in January 2000 and July 2000 reduced total line costs
by approximately $150 million for 2000. While access charge reductions were
primarily passed through to customers, line costs as a percentage of revenues
was positively affected by one half of a percentage point. Line costs for the
year ended December 31, 2000 and 1999 included $373 million and $189 million,
respectively, of charges allocated to the MCI group for use of our fiber optic
systems, which have been attributed to the WorldCom group.

    SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses for 2000 were $5.2 billion or 31.6% of revenues as compared to
$5.1 billion or 31.4% of revenues for the prior year period. Selling, general
and administrative expenses for 2000 includes a $345 million pre-tax charge
associated with specific wholesale accounts that were deemed uncollectible due
to bankruptcies, litigation and settlements of contractual disputes that
occurred in the third quarter of 2000. Excluding this charge, selling, general
and administrative expenses as a percentage of revenues were 29.5% for 2000.
This decrease as a percentage of revenues primarily results from lower
advertising and marketing costs incurred in the consumer business. Selling,
general and administrative expenses for year ended December 31, 2000 included
$254 million of charges for the MCI group's proportionate share of costs
associated with buildings, furniture and fixtures ($226 million) and the cost
allocated to the MCI group for use of the MCI tradename ($28 million). For the
year ended December 31, 1999, selling, general and administrative expenses
included $331 million of charges for the MCI group's proportionate share of
costs associated with buildings, furniture and fixtures ($303 million) and the
cost allocated to the MCI group for the use of the MCI tradename ($28 million).

                                       64

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
2000 increased to $884 million or 5.4% of revenues from $757 million or 4.7% of
revenues for 1999. These increases primarily reflect additional depreciation
associated with capital expenditures. Depreciation and amortization for the
years ended December 31, 2000 and 1999 excludes $87 million and $64 million,
respectively, of charges for business voice switched services provided to the
WorldCom group by the MCI group.

YEAR ENDED DECEMBER 31, 1998 VS.
YEAR ENDED DECEMBER 31, 1999

    REVENUES.  Revenues for 1999 increased to $16.2 billion as compared to
$7.8 billion for 1998. The increase in total revenues is attributable to the MCI
merger as well as internal growth. Results include MCI operations from
September 14, 1998, and CompuServe Network Services and ANS from February 1,
1998.

    Actual reported revenues by category for the years ended December 31, 1998
and 1999 reflect the following changes by category (dollars in millions):



                                                      ACTUAL     ACTUAL    PERCENT
                                                       1998       1999      CHANGE
                                                     --------   --------   --------
                                                                  
REVENUES
  Wholesale and consumer...........................   $5,100    $11,533     126.1
  Alternative channels and small business..........    1,706      3,142      84.2
  Dial-up Internet.................................    1,002      1,497      49.4
                                                      ------    -------
TOTAL REVENUES.....................................   $7,808    $16,172     107.1
                                                      ======    =======


    Wholesale and consumer revenues for 1999 experienced a 4.4% increase over
the 1998 pro forma amount of $11.0 billion, driven by a gain of 12.8% in
traffic. The 1998 pro forma revenues assume that the MCI merger, CompuServe
Corporation merger and ANS acquisition occurred at the beginning of 1998.
Consumer revenues increased 7.0% in 1999 on traffic volume gains of 18.9% as
volume gains more than offset pricing declines as a result of federally mandated
access charge reductions, noted under line costs below, that were passed through
to the customer. Additionally, wholesale data revenues increased 28.9% in 1999
on increased demand for wholesale services. These volume and revenue gains were
offset partially by anticipated year-over-year declines in wholesale voice
revenues, which decreased 9.4% on wholesale traffic gains of 6.7% over the 1998
pro forma period.

    Alternative channels and small business revenues for 1999 increased 14.0%
over the 1998 pro forma amount of $2.8 billion. The 1999 increase was driven by
a 27.9% increase in wholesale alternative channels and offset by a decrease in
small business revenues of 3.0%.

    Dial-up Internet revenues for 1999 increased 44.4% over the 1998 pro forma
amount of $1.0 billion. Growth was driven by increased wholesale Internet
service provider arrangements with vendors. The MCI group's dial access network
has grown over 85% to 1.7 million modems, compared with the same period in the
prior year.

    LINE COSTS.  Line costs as a percentage of revenues for 1999 were 43.8% as
compared to 42.5% reported for the same period in the prior year. The increase
was attributable to the change in product mix as a result of the MCI merger
resulting in a larger concentration of consumer and small business revenues. The
increase was partially offset by decreases as a result of synergies and
economies of scale resulting from network efficiencies achieved from the
continued assimilation of MCI, CompuServe Network Services, ANS and WorldCom
operations. Additionally, access charge reductions that occurred in
January 1999 and July 1999 reduced total line cost expense by approximately
$291 million for 1999.

                                       65

While access charge reductions were primarily passed through to customers, line
costs as a percentage of revenues was positively affected by a percentage point.
Line costs for 1999 and 1998 included $189 million and $118 million,
respectively, of charges allocated to the MCI group for transit capacity
requirements provided by the WorldCom group.

    SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses for 1999 were $5.1 billion or 31.4% of revenues as compared to
$2.4 billion or 31.3% of revenues for 1998. The decrease in selling, general and
administrative expenses as a percentage of revenues for 1999 reflects the
assimilation of MCI into our strategy of cost control. Selling, general and
administrative expenses for 1999 included $331 million of charges for the MCI
group's proportionate share of costs associated with buildings, furniture and
fixtures ($303 million) and the cost allocated to the MCI group for use of the
MCI tradename ($28 million). Selling, general and administrative expenses for
1998 included $90 million of charges for the MCI group's proportionate share of
costs associated with buildings, furniture and fixtures ($83 million) and the
cost allocated to the MCI group for use of the MCI tradename ($7 million).

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
1999 increased to $757 million or 4.7% of revenues from $317 million or 4.1% of
revenues for 1998. These increases reflect increased amortization and
depreciation associated with the MCI merger, CompuServe merger and ANS
transaction as well as additional depreciation related to capital expenditures.
Depreciation and amortization for 1999 and 1998 excludes $64 million and
$20 million, respectively, of charges for business voice switched services
provided to the WorldCom group by the MCI group.

    IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES.  In 1998, the MCI
group recorded a pre-tax charge of $19 million in connection with the MCI merger
for minimum contractual network lease commitments that expire between 1999 and
2001, for which the MCI group will receive no future benefit due to the
migration of traffic to owned facilities.

    In connection with 1998 business combinations, WorldCom made allocations of
the purchase price to acquired in-process research and development totaling
$429 million in the first quarter of 1998 related to the CompuServe merger and
ANS transaction and $3.1 billion in the third quarter of 1998 related to the MCI
merger. These allocations represent the then estimated fair value based on
risk-adjusted future cash flows related to the incomplete projects. At the date
of the respective business combinations, the development of these projects had
not yet reached technological feasibility and the research and development in
progress had no alternative future uses. Accordingly, these costs were expensed
as of the respective acquisition dates.

    Based on the respective fair values of the related operations allocated to
each group, $1.2 billion of the in-process research and development was
allocated to the MCI group. Management believes that this method of allocation
provides a reasonable estimate of the in-process research and development
charges attributable to each group.

NON-OPERATING ITEMS

    The following discusses non-operating items affecting results of operations
for WorldCom as a whole.

    INTEREST EXPENSE.  Interest expense for 2000 was $970 million or 2.5% of
revenues as compared to $966 million or 2.7% of revenues for 1999 and
$692 million or 3.9% of revenues for 1998. For 2000, 1999 and 1998, weighted
average annual interest rates on our long-term debt were 7.28%, 7.23% and 7.33%,
respectively, while weighted average levels of borrowings were $21.6 billion,
$19.1 billion and $12.7 billion, respectively.

                                       66

    Interest expense for 2000 was favorably impacted by increased construction
activity and the associated interest capitalization, offset in part by higher
weighted average levels of borrowings and higher interest rates on our variable
rate debt and 2000 public debt offerings. The 1999 increase in interest expense
is attributable to higher debt levels as a result of the MCI merger, higher
capital expenditures and the 1998 fixed rate debt financings, offset by lower
interest rates as a result of tender offers for outstanding debt in the first
and fourth quarters of 1999 and slightly lower rates in effect on our variable
rate debt. Interest expense for 2000 and 1999 was also favorably impacted as a
result of SHL sale proceeds, investment sale proceeds and proceeds from the
increase in our receivables purchase program in the third quarter of 1999 used
to repay indebtedness under our credit facilities and commercial paper program.

    MISCELLANEOUS INCOME AND EXPENSE.  Miscellaneous income for 2000 was
$385 million or 1.0% of revenues as compared to $242 million or 0.7% of revenues
for 1999 and $44 million or 0.2% of revenues for 1998. Miscellaneous income
includes investment income, equity in income and losses of affiliated companies,
the effects of fluctuations in exchange rates for transactions denominated in
foreign currencies, gains and losses on the sale of assets and other
non-operating items.

    PROVISION FOR INCOME TAXES.  The effective income tax rate for 2000 was
40.0% of income before taxes versus 41.4% in 1999. The rates are greater than
the expected federal statutory rate of 35% primarily due to the amortization of
the non-deductible goodwill. Excluding non-deductible amortization of goodwill,
our effective income tax rate would have been 35.0% in 2000, and 36.2% in 1999.
In 1998, we recorded a tax provision of $877 million on a pretax loss of
$1.6 billion. Although we generated a consolidated pretax loss for 1998,
permanent non-deductible items aggregating approximately $4.0 billion, including
the in-process research and development charges discussed above, resulted in the
recognition of taxable income.

    CUMULATIVE EFFECT OF ACCOUNTING CHANGE.  During the fourth quarter of 2000,
we implemented SAB 101, which requires certain activation and installation fee
revenues to be amortized over the average life of the related service rather
than be recognized immediately. Costs directly related to these revenues may
also be deferred and amortized over the customer contract life. As required by
SAB 101, we retroactively adopted this accounting effective January 1, 2000,
which resulted in a one-time expense of $85 million, net of income tax benefit
of $50 million.

    We adopted the American Institute of Certified Public Accountants' Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities", as of January
1, 1998. The cumulative effect of this change in accounting principle resulted
in a one-time, non-cash expense of $36 million, net of income tax benefit of
$22 million. This expense represented start-up costs incurred primarily in
conjunction with the development and construction of the advanced messaging
network of SkyTel Communications, which are required to be expensed as incurred
in accordance with this accounting standard.

    EXTRAORDINARY ITEMS.  In the first quarter of 1998, we recorded an
extraordinary item totaling $129 million, net of income tax benefit of
$78 million. The charge was recorded in connection with the tender offers and
related refinancings of our outstanding debt from the Brooks Fiber Properties
merger.

    NET INCOME APPLICABLE TO COMMON SHAREHOLDERS.  For the year ended
December 31, 2000, we reported net income applicable to common shareholders of
$4.1 billion as compared to $3.9 billion for the year ended December 31, 1999
and a net loss of $2.8 billion reported for 1998. Diluted income per common
share for 2000 was $1.40 compared to income per common share of $1.35 for 1999
and a loss per share of $1.43 in 1998.

                                       67

LIQUIDITY AND CAPITAL RESOURCES

    As of December 31, 2000, our total debt was $24.9 billion, an increase of
$6.8 billion from December 31, 1999. Additionally, at December 31, 2000, we had
available liquidity of $7.8 billion under our credit facilities and commercial
paper program (which are described below) and from available cash. For
December 31, 2000 and 1999, the MCI group was notionally allocated $6.0 billion
of WorldCom's debt and the remaining outstanding debt was notionally allocated
to the WorldCom group. WorldCom management has a wide degree of discretion over
the cash management policies of both the WorldCom group and the MCI group. Cash
generated by either group could be transferred to the other group without prior
approval of WorldCom's shareholders.

    On December 19, 2000, we completed the private offering of $2.0 billion
principal amount of debt securities. The net proceeds of $1.99 billion were used
to repay commercial paper obligations. The offering consisted of $1.0 billion of
7.375% Dealer Remarketable Securities, or Drs., which mature January 15, 2011,
and $1.0 billion of 7.375% Notes Due 2006, which mature January 15, 2006. The
debt securities were not registered under federal securities laws and therefore
may not be offered or sold in the United States unless registered or exempt.

    Interest on the Drs. is payable semiannually on the 15th day of January and
July, beginning July 15, 2001 and including January 15, 2003. Thereafter,
interest on the Drs. is payable annually on January 15th. The Drs. are subject
to mandatory tender by all holders of Drs. to the remarketing dealer on
January 15, 2003 and on each January 15th thereafter, until and including
January 15, 2010. Interest on the 7.375% Notes Due 2006 is payable semiannually
on the 15th day of January and July, beginning July 15, 2001.

    If the remarketing dealer elects to remarket the Drs. on any remarketing
date as described therein, holders must tender the Drs. to the remarketing
dealer at 100% of their principal amount. If the remarketing dealer elects not
to remarket the Drs., or for any reason does not purchase all of the Drs. on
such remarketing date, holders must tender and we will repurchase, at 100% of
their principal amount, any Drs. that have not been purchased by the remarketing
dealer.

    If the remarketing dealer remarkets the Drs. on any remarketing date, the
stated interest rate on the Drs. will be reset at an adjusted fixed rate until
the immediately following remarketing date (or, in the case of the last
remarketing date, until the stated maturity date). The Drs. will generally not
be redeemable by us.

    On May 24, 2000, we completed a public debt offering of $5.0 billion
principal amount of debt securities. The net proceeds of $4.95 billion were used
to pay down commercial paper obligations. The public debt offering consisted of
the following series of notes:



                                           PRINCIPAL
            TITLE                           AMOUNT                    MATURITY
            -----                          ---------                  --------
                                                            
Floating Rate Notes Due 2001             $ 1.5 billion            November 26, 2001
7.875% Notes Due 2003                    $ 1.0 billion            May 15, 2003
8% Notes Due 2006                        $1.25 billion            May 15, 2006
8.25% Notes Due 2010                     $1.25 billion            May 15, 2010


    The Floating Rate Notes bear interest payable quarterly on the 24th day of
February, May, August and November, beginning August 24, 2000. Each of the
7.875% Notes Due 2003, the 8% Notes Due 2006 and the 8.25% Notes Due 2010 bear
interest payable semiannually in arrears on May 15 and November 15 of each year,
commencing November 15, 2000.

    The 8% Notes Due 2006, the 7.375% Notes Due 2006 and the 8.25% Notes Due
2010 are redeemable, as a whole or in part, at our option, at any time or from
time to time, at respective redemption prices equal to the greater of:

                                       68

    - 100% of the principal amount of the Notes to be redeemed or

    - the sum of the present values of the remaining scheduled payments (as
      defined) discounted at the Treasury rate (as defined) plus 0.25% for the
      8% Notes Due 2006 and the 7.375% Notes Due 2006, and 0.30% for the 8.25%
      Notes Due 2010.

    On August 3, 2000, we extended our existing $7 billion 364-Day Revolving
Credit and Term Loan Agreement for a successive 364-day term. We refer to this
credit facility as the Facility C Loans. The Facility C Loans, together with the
$3.75 billion Amended and Restated Facility A Revolving Credit Agreement, which
we refer to as the Facility A Loans, provide us with aggregate credit facilities
of $10.75 billion. These credit facilities provide liquidity support for our
commercial paper program and will be used for other general corporate purposes.

    The Facility A Loans mature on June 30, 2002. The Facility C Loans mature on
August 2, 2001; provided, however, that we may elect at that time to convert up
to $4 billion of the principal debt outstanding under the Facility C Loans from
revolving loans to term loans with a maturity date no later than one year after
the conversion. The Facility A Loans and the Facility C Loans are subject to
annual commitment fees not to exceed 0.25% and 0.15%, respectively, of any
unborrowed portion of the facilities.

    The credit facilities bear interest payable in varying periods, depending on
the interest period, not to exceed six months, or with respect to any Eurodollar
Rate borrowing, 12 months if available to all lenders, at rates selected by us
under the terms of the credit facilities, including a Base Rate or Eurodollar
Rate, plus the applicable margin. The applicable margin for the Eurodollar Rate
borrowing generally varies from 0.35% to 0.75% as to Facility A Loans and from
0.225% to 0.45% as to Facility C Loans, in each case based upon our then current
debt ratings.

    The credit facilities are unsecured but include a negative pledge of our
assets, and, subject to exceptions, the covered subsidiaries.

    The credit facilities require compliance with a financial covenant based on
the ratio of total debt to total capitalization, calculated on a consolidated
basis. The credit facilities require compliance with operating covenants which
limit, among other things, the incurrence of additional indebtedness by us and
the covered subsidiaries and sales of assets and mergers and dissolutions. The
credit facilities do not restrict distributions to shareholders, provided we are
not in default under the credit facilities. At December 31, 2000, we were in
compliance with these covenants.

OPERATING ACTIVITIES

    For the years ended December 31, 1998, 1999 and 2000, our cash flows from
operations was as follows:



                                                      1998       1999       2000
                                                    --------   --------   --------
                                                                 
WorldCom group....................................  $ 2,534    $ 7,352     $5,330
MCI group.........................................    1,648      3,653      2,336
                                                    -------    -------     ------
  Net cash provided by operating activities.......  $ 4,182    $11,005     $7,666
                                                    =======    =======     ======


    The 2000 decrease reflects increases in working capital requirements and
deferred tax obligations in both the WorldCom group and the MCI group, offset by
improved operating results in the WorldCom group. The 1999 increase for the
WorldCom group and the MCI group was primarily attributable to the MCI merger,
internal growth and synergies and economies of scale resulting from network
efficiencies and selling, general and administrative cost savings achieved from
the assimilation of 1998 acquisitions into our operations.

                                       69

INVESTING ACTIVITIES

    For the years ended December 31, 1998, 1999 and 2000, our net cash used in
investing activities was as follows:



                                                     1998       1999       2000
                                                   --------   --------   --------
                                                                
WorldCom group...................................  $(7,306)   $(8,045)   $(13,612)
MCI group........................................   (2,192)    (1,510)       (773)
                                                   -------    -------    --------
  Net cash used in investing activities..........  $(9,498)   $(9,555)   $(14,385)
                                                   =======    =======    ========


    The WorldCom group's primary capital expenditures totaled $4.5 billion in
1998, $7.0 billion in 1999 and $9.4 billion in 2000. Primary capital
expenditures include purchases of transmission, communications and other
equipment. The WorldCom group's capital expenditures for Embratel and undersea
cables was $369 million in 1998, $893 million in 1999 and $1.6 billion in 2000.

    The MCI group's capital expenditures totaled $594 million in 1998,
$787 million in 1999 and $500 million in 2000. The MCI group's capital
expenditures includes purchases of switching equipment, dial modems and
messaging and other equipment.

    Investing activities includes acquisitions and related costs of
$3.4 billion in 1998, $1.1 billion in 1999 and $14 million in 2000.
Additionally, proceeds from the disposition of marketable securities and other
long-term assets were $202 million in 1998, $1.9 billion in 1999 and
$680 million in 2000. In 1999, the WorldCom group received $1.6 billion in
proceeds from the sale of SHL to EDS.

FINANCING ACTIVITIES

    For the years ended December 31, 1998, 1999 and 2000, cash provided by (used
in) financing activities was as follows:



                                                       1998       1999       2000
                                                     --------   --------   --------
                                                                  
WorldCom group.....................................   $6,317    $    17     $8,215
MCI group..........................................      551     (2,097)    (1,592)
                                                      ------    -------     ------
  Net cash provided by (used in) financing
    activities.....................................   $6,868    $(2,080)    $6,623
                                                      ======    =======     ======


    Financing activities includes net proceeds from borrowings on debt of
$6.4 billion in 1998 and 2000 and net repayments on debt of $2.9 billion in
1999. Financing activities for the MCI group reflect the borrowings (repayment)
of intergroup advances.

    Also included in financing activities are proceeds from WorldCom's common
stock issuances of $472 million in 1998, $886 million in 1999 and $585 million
in 2000, as a result of WorldCom common stock option and warrant exercises.

    In January 2000, each share of our Series C Preferred Stock was redeemed by
us for $50.75 in cash, or approximately $190 million in the aggregate. The funds
required to pay all amounts under the redemption were obtained by us from
available liquidity under our credit facilities and commercial paper program.

    In the third quarter of 2000, we paid the final installment of
R$795 million (U.S. $444 million) on the note due in connection with our
purchase of Embratel. Additionally, in the first quarter of 2000, $200 million
of senior notes with an interest rate of 7.13% matured. The funds utilized to
repay this indebtedness were obtained from available liquidity under our credit
facilities and commercial paper program.

                                       70

    In the third quarter of 1999, we increased our $500 million receivables
purchase program to $2.0 billion by including additional receivables eligible
under the agreement. As of December 31, 2000, the purchaser owned an undivided
interest in a $3.5 billion pool of receivables, which includes the
$1.95 billion sold.

    Increases in interest rates on variable rate debt would have an adverse
effect upon our reported net income and cash flow. We believe that we will
generate sufficient cash flow to service our debt and capital requirements;
however, economic downturns, increased interest rates and other adverse
developments, including factors beyond our control, could impair our ability to
service our indebtedness. In addition, the cash flow required to service our
debt may reduce our ability to fund internal growth, additional acquisitions and
capital improvements.

    We believe that, if consummated, the Intermedia merger should support our
web hosting expansion, by providing a comprehensive portfolio of hosting
products and services for mid-sized and large businesses. This will allow us to
accelerate our ability to provide managed web and application hosting services
by 12 to 18 months. Additionally, we expect that, after consummation of the
Intermedia merger, Digex will continue to build its operations and expand its
customer base, causing it to continue to incur operating losses for the
foreseeable future, which could adversely affect our results of operations.

    The development of our businesses and the installation and expansion of our
domestic and international networks will continue to require significant capital
expenditures. We anticipate that such capital expenditures will be approximately
$7.5 billion to $8.0 billion in 2001 for the WorldCom group, excluding
anticipated Embratel capital expenditures of approximately $800 million to
$1.0 billion, and approximately $500 million for the MCI group. Failure to have
access to sufficient funds for capital expenditures on acceptable terms or the
failure to achieve capital expenditure synergies may require us to delay or
abandon some of our plans, which could have a material adverse effect on our
success. We have historically utilized a combination of cash flow from
operations and debt to finance capital expenditures and a mixture of cash flow,
debt and stock to finance acquisitions. Additionally, we expect to experience
increased capital intensity due to network expansion as noted above and believe
that funding needs in excess of internally generated cash flow and our credit
facilities and commercial paper program will be met by accessing the debt
markets. We have filed a shelf registration statement on Form S-3 with the SEC
for the sale, from time to time, of one or more series of unsecured debt
securities having a remaining aggregate value of approximately $9.9 billion. The
shelf registration statement offers us flexibility, as the market permits, to
access the public debt markets. No assurance can be given that any public
financing will be available on terms acceptable to us.

    Absent significant capital requirements for acquisitions, we believe that
cash flow from operations and available liquidity, including our credit
facilities and commercial paper program and available cash will be sufficient to
meet our capital needs for the next twelve months.

RECENTLY ISSUED ACCOUNTING STANDARDS

    The Financial Accounting Standards Board's SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" is effective for
WorldCom as of January 1, 2001. This statement establishes accounting and
reporting standards requiring that derivative instruments (including derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. This statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires a

                                       71

company to formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 must be applied to
(a) derivative instruments and (b) derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at our election, before January 1, 1998). We have
minimal exposure to derivative financial instruments which, as of December 31,
2000, primarily consist of option collar transactions designated as cash flow
value hedges of anticipated sales of an equity investment and various equity
warrants. We believe that the adoption of this standard will not have a material
effect on our consolidated results of operations or financial position.

    In September 2000 the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000, and is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. We believe that the adoption of this standard will not have a material
effect on our consolidated results of operations or financial position.

EURO CONVERSION

    On January 1, 1999, 11 out of the 15 member countries of the European Union
established the Euro, a new common currency for member countries, and fixed
conversion rates between their existing currencies and the Euro. The transition
period for the introduction of the Euro is between January 1, 1999 to
December 31, 2001. We are establishing plans to address the many issues involved
with the introduction of the Euro, including the conversion of information
technology systems, recalculating currency risk, recalibrating derivatives and
other financial instruments, assessing strategies concerning continuity of
contracts, and refining the processes for preparing taxation and accounting
records. At this time, we have not yet determined the cost related to addressing
this issue. We believe that our business will be potentially affected by the
impact of increased price transparency, however, we expect to be able to
maintain our margins across our international operations as a result of any
pricing changes that we decide to make purely as a result of the Euro
transition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to the impact of interest rate changes, foreign currency
fluctuations and changes in market values of our investments.

    Our policy is to manage interest rates through the use of a combination of
fixed and variable rate debt. Currently, we do not use derivative financial
instruments to manage our interest rate risk. We have minimal cash flow exposure
due to general interest rate changes for our fixed rate, long-term debt
obligations. We do not believe a hypothetical 10% adverse rate change in our
variable rate debt obligations would be material to our results of operations.
The tables below provide information about

                                       72

our risk exposure associated with changing interest rates on long-term debt
obligations that impact the fair value of these obligations as of December 31,
1999 and 2000.



                                        LONG-TERM DEBT (IN MILLIONS OF DOLLARS) AS OF DECEMBER 31, 1999
                                       ------------------------------------------------------------------
                                                  AVERAGE               AVERAGE      FOREIGN     AVERAGE
                                        FIXED     INTEREST   VARIABLE   INTEREST    CURRENCY     INTEREST
EXPECTED MATURITY                        RATE     RATE (%)     RATE     RATE (%)   DENOMINATED   RATE (%)
- -----------------                      --------   --------   --------   --------   -----------   --------
                                                                               
2000.................................  $   363       7.27     $3,876      5.48       $  776       10.92
2001.................................    1,642       6.38         --        --           98        9.72
2002.................................       71       7.50         --        --           96        9.67
2003.................................      628       6.29         --        --           82        9.91
2004.................................    1,053       7.52         --        --           75       10.04
Thereafter...........................    9,242       7.10         --        --          141       11.61
                                       -------                ------                 ------
Total................................  $12,999                $3,876                 $1,268
                                       =======                ======                 ======
Fair Value, December 31, 1999........  $12,656                $3,876                 $1,385
                                       =======                ======                 ======




                                        LONG-TERM DEBT (IN MILLIONS OF DOLLARS) AS OF DECEMBER 31, 2000
                                       ------------------------------------------------------------------
                                                  AVERAGE               AVERAGE      FOREIGN     AVERAGE
                                        FIXED     INTEREST   VARIABLE   INTEREST    CURRENCY     INTEREST
EXPECTED MATURITY                        RATE     RATE (%)     RATE     RATE (%)   DENOMINATED   RATE (%)
- -----------------                      --------   --------   --------   --------   -----------   --------
                                                                               
2001.................................  $ 1,609       6.23     $5,129      7.06       $  462        9.40
2002.................................       74       7.75         60      7.30          333        9.29
2003.................................    1,626       7.27         --        --          178        9.28
2004.................................    1,049       7.52         --        --          172        9.03
2005.................................    2,268       6.41         --        --          119        8.83
Thereafter...........................   11,481       7.49         --        --          336        9.47
                                       -------                ------                 ------
Total................................  $18,107                $5,189                 $1,600
                                       =======                ======                 ======
Fair Value, December 31, 2000........  $17,837                $5,188                 $1,551
                                       =======                ======                 ======


    We are exposed to foreign exchange rate risk primarily due to other
international operation's holding of approximately $1.3 billion in U.S. dollar
denominated debt, and approximately $293 million of indebtedness indexed in
other foreign currencies including French Franc, Deutsche Mark, Japanese Yen,
Brazilian REAL and Belgian Franc as of December 31, 2000. Our potential
immediate loss that would result from a hypothetical 10% change in foreign
currency exchange rates based on this position would be approximately
$43 million (after elimination of minority interests). In addition, if that
change were to be sustained, our cost of financing would increase in proportion
to the change.

    We are also subject to risk from changes in foreign exchange rates for our
international operations which use a foreign currency as their functional
currency and are translated into U.S. dollars.

    We believe our market risk exposure with regard to our marketable equity
securities is limited to changes in quoted market prices for the securities.
Based upon the composition of our marketable equity securities at December 31,
2000, we do not believe a hypothetical 10% adverse change in quoted market
prices would be material to our results of operations or financial position.

                                       73

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Consolidated Financial Statements and notes thereto are included elsewhere
in this Annual Report on Form 10-K as follows:



                                                                PAGE
                                                              --------
                                                           
WORLDCOM, INC.
Report of independent public accountants....................     F-2
Consolidated balance sheets as of December 31, 1999
  and 2000..................................................     F-3
Consolidated statements of operations for the three years
  ended December 31, 2000...................................     F-4
Consolidated statements of shareholders' investment for the
  three years ended December 31, 2000.......................     F-5
Consolidated statements of cash flows for the three years
  ended December 31, 2000...................................     F-6
Notes to consolidated financial statements..................     F-7


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
  ACCOUNTING AND FINANCIAL DISCLOSURE

    None

                                       74

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The following states each director or nominee's and each executive officer's
age, principal occupation, present position with WorldCom and the year in which
each director first was elected a director (each serving continuously since
first elected except as set forth otherwise). Unless indicated otherwise, each
individual has held his or her present position for at least five years.

    CLIFFORD L. ALEXANDER, JR., 67, has been a director of WorldCom since the
merger with MCI on September 14, 1998. Mr. Alexander has been President of
Alexander & Associates, Inc., management consultants, since 1981. Mr. Alexander
was Chairman and Chief Executive Officer of The Dun & Bradstreet Corporation, a
provider of business-to-business credit, marketing and purchasing information
and commercial receivables management services, from October 1999 through
October 2000. Mr. Alexander is also Chairman of Moody's Corporation and a
director of Dreyfus 3rd Century Fund, Dreyfus General Family of Funds, Mutual of
America Life Insurance Company, American Home Products Corporation and IMS
Health Incorporated.

    JAMES C. ALLEN, 54, has been a director of WorldCom since March 1998.
Mr. Allen is currently an investment director and member of the general partner
of Meritage Private Equity Fund, a venture capital fund specializing in the
telecommunications industry. Mr. Allen is the former Vice Chairman and Chief
Executive Officer of Brooks Fiber Properties where he served in such capacities
from 1993 until its merger with WorldCom in January 1998. Mr. Allen served as
President and Chief Operating Officer of Brooks Telecommunications Corporation,
a founder of Brooks Fiber Properties, from April 1993 until it was merged with
Brooks Fiber Properties in January 1996. Mr. Allen serves as a director of
Completel LLC, Xspedius, Inc., David Lipscomb University and Family Dynamics
Institute.

    JUDITH AREEN, 56, has been a director of WorldCom since the MCI merger.
Ms. Areen has been Executive Vice President for Law Center Affairs and Dean of
the Law Center, Georgetown University, since 1989. She has been a Professor of
Law, Georgetown University, since 1976.

    CARL J. AYCOCK, 52, has been a director of WorldCom since 1983. Mr. Aycock
served as Secretary of WorldCom from 1987 to 1995 and was the Secretary and
Chief Financial Officer of Master Corporation, a motel management and ownership
company, from 1989 until 1992. Subsequent to 1992, Mr. Aycock has been self
employed as a financial administrator.

    RONALD R. BEAUMONT, 52, has been Chief Operating Officer of the WorldCom
group since December 2000. From 1998 to December 2000 Mr. Beaumont served as the
President and Chief Executive Officer of WorldCom's Operations and Technology
unit. From December 1996 to 1998, Mr. Beaumont was President of WorldCom Network
Services, a subsidiary of WorldCom. Prior to December 1996, Mr. Beaumont was
President and Chief Executive Officer of a subsidiary of MFS Communications.

    MAX E. BOBBITT, 56, has been a director of WorldCom since 1992. Mr. Bobbitt
is currently a director of Verso Technologies, Inc., and Metromedia China
Corporation. From July 1998 to the present, Mr. Bobbitt has been a
telecommunications consultant. From March 1997 until July 1998, Mr. Bobbitt
served as President and Chief Executive Officer of Metromedia China Corporation.
From January 1996 until March 1997, Mr. Bobbitt was President and Chief
Executive Officer of Asian American Telecommunications Corporation, which was
acquired by Metromedia China Corporation in February 1997.

    BERNARD J. EBBERS, 59, has been President and Chief Executive Officer of
WorldCom since April 1985. Mr. Ebbers has served as a director of WorldCom since
1983.

    FRANCESCO GALESI, 70, has been a director of WorldCom since 1992.
Mr. Galesi is the Chairman and Chief Executive Officer of the Galesi Group,
which includes companies engaged in real estate,

                                       75

telecommunications and oil and gas exploration and production. Mr. Galesi serves
as a director of Keystone Property Trust.

    STILES A. KELLETT, JR., 57, has served as a director of WorldCom since 1981.
Mr. Kellett has been Chairman of Kellett Investment Corp. since 1995.
Mr. Kellett serves as a director of Netzee, Inc., Air2web and Virtual Bank.

    GORDON S. MACKLIN, 72, has been a director of WorldCom since the MCI merger.
Mr. Macklin is currently a corporate financial advisor. From 1993 until 1998,
Mr. Macklin served as Chairman of White River Corporation, an information
services company. Mr. Macklin is also a director of White Mountains Insurance
Group, Ltd., Overstock.com, Martek Biosciences Corporation, MedImmune, Inc.,
Spacehab, Inc., and director, trustee or managing general partner, as the case
may be, of 48 of the investment companies in the Franklin Templeton Group of
Funds. Mr. Macklin was formerly Chairman of Hambrecht and Quist Group and
President of the National Association of Securities Dealers, Inc.

    BERT C. ROBERTS, JR., 58, has been the Chairman of the Board and a director
of WorldCom since the MCI merger. From 1992 until the MCI merger, Mr. Roberts
served as Chairman of the Board of MCI. Mr. Roberts was Chief Executive Officer
of MCI from December 1991 to November 1996. He was President and Chief Operating
Officer of MCI from October 1985 to June 1992 and President of MCI
Telecommunications Corporation, a subsidiary of MCI, from May 1983 to
June 1992. Mr. Roberts is a director of The News Corporation Limited,
Championship Auto Racing Teams, Inc., Valence Technology, Inc., and CAPCure.

    JOHN W. SIDGMORE, 50, has been the Vice Chairman of the Board and a director
of WorldCom since December 1996. From December 1996 until the MCI merger,
Mr. Sidgmore served as Chief Operations Officer of WorldCom. Mr. Sidgmore was
President and Chief Operating Officer of MFS Communications Company, Inc. from
August 1996 until December 1996. He was Chief Executive Officer of UUNET
Technologies, Inc. from June 1994 until October 1998, and President of UUNET
from June 1994 to August 1996 and from January 1997 to September 1997.
Mr. Sidgmore is a director of MicroStrategy Incorporated.

    SCOTT D. SULLIVAN, 39, has been a director of WorldCom since 1996.
Mr. Sullivan has served as Chief Financial Officer, Treasurer and Secretary of
WorldCom since December 1994.

    Effective November 1, 2000, Lawrence C. Tucker, 58, became an advisory
director of WorldCom. Mr. Tucker served as a director of WorldCom from May 1995
until November 1, 2000, and previously served as a director of WorldCom from
May 28, 1992 until the ATC merger. Mr. Tucker's compensation as an advisory
director remains unchanged from his compensation as a Board member. Mr. Tucker
has been a general partner of Brown Brothers Harriman & Co., a private banking
firm, since 1979 and currently serves as a member of the Steering Committee of
the firm's partnership. He is also a director of Riverwood Holdings, Inc.,
National Healthcare Corporation, VAALCO Energy Inc., World Access, Inc.,
National Equipment Services, Inc., US Unwired, Inc., Network Telephone and Z-Tel
Communications.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and 10% or greater shareholders of WorldCom ("Reporting
Persons") to file with the SEC initial reports of ownership and reports of
changes in ownership of our equity securities. To our knowledge, based solely on
its review of the copies of such reports furnished to us and written
representations that certain reports were not required, during the year ended
December 31, 2000, all Section 16(a) filing requirements applicable to Reporting
Persons were complied with, except Mr. Alexander, that Mr. Galesi and
Mr. Kellett each filed one late report covering one transaction.

                                       76

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

    The following table sets forth the compensation of the named executive
officers of WorldCom for the three years ended December 31, 2000. The table also
sets forth, for informational purposes, the compensation paid by MCI during 1998
to Mr. Roberts, who became an executive officer of WorldCom upon completion of
the MCI merger.



                                                                                              LONG TERM
                                                                                         COMPENSATION AWARDS
                                                                                      -------------------------
                                                    ANNUAL COMPENSATION                             SECURITIES
                                        -------------------------------------------   RESTRICTED    UNDERLYING
                                                                     OTHER ANNUAL        STOCK       OPTIONS/        ALL OTHER
NAME AND PRINCIPAL POSITION    YEAR     SALARY($)     BONUS($)     COMPENSATION($)    AWARD(S)($)     SARS(#)     COMPENSATION($)
- ---------------------------  --------   ---------   ------------   ----------------   -----------   -----------   ----------------
                                                                                             
Bernard J. Ebbers....          2000     1,000,000     10,000,000(1)        41,756(3)          --    1,200,000/0          8,500(5)
  President and Chief          1999      935,000       7,500,000          52,624(3)           --    1,800,000/0          8,000
  Executive Officer            1998      935,000       7,115,000          54,444(3)           --    1,800,000/0          4,800

Bert C. Roberts,.....          2000     1,050,000             --          62,803(3)           --     240,000/0           8,500(5)
  Chairman of the Board        1999     1,050,000        800,000          81,943(3)           --           0/0          14,877
                               1998     1,050,000      9,651,188(2)     1,995,548(3)   1,785,883(4)  617,924/0         769,472

John W. Sidgmore(6)...         2000      700,000              --              --              --     600,000/0           8,500(5)
  Vice Chairman of the         1999      600,000       2,760,000              --              --     900,000/0           8,000
  Board
                               1998      500,000       2,000,000              --              --     900,000/0           4,800

Scott D. Sullivan....          2000      700,000      10,000,000(1)            --             --     600,000/0           8,500(5)
  Chief Financial Officer,     1999      600,000       2,760,000              --              --     900,000/0           8,000
  Treasurer and Secretary      1998      500,000       2,000,000              --              --     900,000/0           4,800


- ------------------------------

(1) Retention bonus conditioned upon officer remaining with WorldCom for at
    least two more years.

(2) Includes a $7.0 million remaining cash retention bonus paid in connection
    with the MCI merger.

(3) Includes the imputed value of personal use of the WorldCom airplane of
    $41,756 in 2000, $52,624 in 1999 and $54,444 in 1998 for Mr. Ebbers and
    $44,438 in 2000, $54,609 in 1999 and $21,650 in 1998 for Mr. Roberts; and
    the annuity premium and taxes paid of $1,937,355 in 1998 for Mr. Roberts as
    the result of the purchase of an annuity to discharge MCI's Supplemental
    Pension Plan's obligation. The amounts reduce dollar for dollar the actual
    amount of pension to be paid to the executive upon retirement. All other
    perquisites and other personal benefits are less than $50,000 in the
    aggregate.

(4) During 1998, Mr. Roberts was awarded Incentive Stock Units, or ISUs totaling
    68,556 (as adjusted to reflect common stock of WorldCom). The ISUs, which
    are an unfunded promise to deliver shares of stock in the future, were
    awarded under MCI's Executive Stock Award Program or ESA. Under the ESA,
    cash target awards were set for each MCI executive salary range and awards
    determined based on certain performance criteria. Cash awards are converted
    to ISUs by dividing the cash award amount by the stock price on the date the
    awards are determined. ISUs granted under the ESA vest ratably over a
    three-year period. All outstanding restricted shares and ISUs awarded prior
    to November 9, 1997 were accelerated upon consummation of the MCI Merger. As
    of December 31, 2000, had Mr. Roberts had 23,310 nonvested ISUs valued at
    $327,797.

(5) Matching contributions to WorldCom's 401(k) Plan. Excludes $4,559,436 for
    Mr. Roberts in connection with the vesting of ISUs during 2000.

(6) Pursuant to the terms of Mr. Sidgmore's employment agreement with UUNET, if
    Mr. Sidgmore's employment is terminated without cause, he will receive
    severance payments totaling $300,000.

                                       77

OPTION GRANTS IN LAST FISCAL YEAR

    The following table sets forth information concerning stock option grants
made in the fiscal year ended December 31, 2000 to the individuals named in the
Summary Compensation Table. There were no grants of stock appreciation rights
("SARs") to said individuals during the year.



                                                                                   POTENTIAL REALIZABLE VALUE AT
                                                                                      ASSUMED ANNUAL RATE OF
                                                                                   STOCK PRICE APPRECIATION FOR
                                             INDIVIDUAL GRANTS                            OPTION TERM(3)
                           -----------------------------------------------------   -----------------------------
                            NUMBER OF
                           SECURITIES     % OF TOTAL
                           UNDERLYING      OPTIONS
                             OPTIONS      GRANTED TO    EXERCISE OR
                             GRANTED     EMPLOYEES IN   BASE PRICE    EXPIRATION
          NAME               (#)(1)      FISCAL YEAR     ($/SH)(2)       DATE          5%($)          10%($)
- -------------------------  -----------   ------------   -----------   ----------   -------------   -------------
                                                                                 
Bernard J. Ebbers........   1,200,000         1.2          44.50        1/17/10     33,582,973      85,105,847
Bert C. Roberts, Jr......     240,000         0.2          44.50        1/17/10      6,716,595      17,021,169
John W. Sidgmore.........     600,000         0.6          44.50        1/17/10     16,791,487      42,552,924
Scott D. Sullivan........     600,000         0.6          44.50        1/17/10     16,791,487      42,552,924


- ------------------------

(1) The options terminate on the earlier of their expiration date or ten years
    after grant or, generally, immediately on termination for reasons other than
    retirement, disability, death or without cause; three months after
    termination of employment on retirement; 12 months after termination for
    disability, death or without cause; or unless our Compensation and Stock
    Option Committee determines otherwise, upon the consummation of a specified
    change of control transaction. The options may be transferred to certain
    family members and related entities with the consent of our Compensation and
    Stock Option Committee. The options become exercisable in three equal annual
    installments beginning January 1, 2001 through January 1, 2003, but vesting
    is accelerated upon the consummation of a specified change of control.

(2) The exercise price may be paid in cash or, in the discretion of WorldCom's
    compensation and stock option committee, by shares of our common stock
    valued at the closing quoted selling price on the date of exercise, or a
    combination of cash and WorldCom common stock.

(3) The indicated 5% and 10% rates of appreciation are provided to comply with
    SEC regulations and do not necessarily reflect the views of WorldCom as to
    the likely trend in the stock price. Actual gains, if any, on stock option
    exercises and the sale of WorldCom common stock holdings will be dependent
    on, among other things, the future performance of our common stock and
    overall stock market conditions. There can be no assurance that the amounts
    reflected in this table will be achieved.

                                       78

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

    The following table sets forth information concerning the number and value
realized as to options exercised during 2000 and options held at December 31,
2000, by the individuals named in the Summary Compensation Table and the value
of those options held at such date. The options exercised were not exercised as
SARs and no SARs were held at year end.



                                                       NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                      UNDERLYING UNEXERCISED         IN-THE MONEY OPTIONS
                           SHARES        VALUE         OPTIONS AT FY-END(#)            AT FY-END ($)(2)
                         ACQUIRED ON    REALIZED    ---------------------------   ---------------------------
         NAME            EXERCISE(#)     ($)(1)     EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
- -----------------------  -----------   ----------   -----------   -------------   -----------   -------------
                                                                              
Bernard J. Ebbers......   1,163,544    23,493,786    6,750,000      3,000,000     10,696,815              0
Bert C. Roberts, Jr....          --            --      190,920        566,086              0              0
John W. Sidgmore.......          --            --    1,853,056      1,500,000        559,018              0
Scott D. Sullivan......     475,000     9,911,968    1,925,000      1,500,000              0              0


- ------------------------

(1) Based upon the difference between the closing price on the date of exercise
    and the option exercise price.

(2) Based upon a price of $14.0625 per share, which was the closing price of our
    common stock on December 31, 2000.

PENSION PLANS

    As a result of the MCI merger, WorldCom has a noncontributory defined
benefit pension plan (the "Qualified Plan") and a supplemental nonqualified
defined benefit plan (the "Supplemental Plan" and, together with the Qualified
Plan, the "MCI Pension Plans"). The Qualified Plan covers substantially all MCI
employees as of the MCI merger. The Qualified Plan was frozen as of January 1,
1999. MCI employees who were participants as of January 1, 1999 will not have
any further compensation credits added to their accounts, however, interest
credits and vesting service will continue to accrue. The Supplemental Plan
covers only certain of MCI's key executives, including Mr. Roberts, who work at
least 1,000 hours in a year. No employee contributions are required for
participation in the MCI Pension Plans. Retirement benefits are based upon the
employee's compensation during the employee's employment with MCI or a
participating subsidiary. Compensation used to calculate benefits includes
bonuses but does not include compensation related to fringe benefits, stock
options, restricted stock or ISUs. Compensation used for the purposes of
calculating pension benefits for the Qualified Plan is limited by
Section 401(a)(17) of the Internal Revenue Code. The Supplemental Plan pays the
incremental benefit attributable to that part of the employee's compensation
which exceeds the Internal Revenue Code limitation in any plan year.
Participants are fully vested upon the earlier of five years of service or upon
reaching age 65 while employed by MCI or a participating subsidiary. There is no
partial vesting. Normal retirement age is 65, but an employee may elect to
receive an actuarially-reduced pension at or after age 65 with five years of
service with MCI or a participating subsidiary. In addition, the Supplemental
Plan permits MCI to grant additional service and additional pension amounts to
selected employees. For MCI employees employed after January 1, 1989 and prior
to the MCI Merger, the MCI Pension Plans provide a normal retirement benefit for
each year of credited service equal to 1% of the compensation earned by the
employee during that year up to the Social Security "covered compensation" level
plus an additional 1.5% of compensation earned over that level. However,
employees employed on or before January 1, 1993 were credited with an updated
past service benefit which provides a benefit of 1% of the employee's average
annual compensation (for the years 1990, 1991 and 1992) up to $21,000 and 1.5%
of such compensation over $21,000 for such years multiplied by the employee's
service through December 31, 1992. For employees employed on or after
January 1, 1994, the MCI Pension Plans provide a future service benefit for each
subsequent year of credited service equal to a flat 1.8% of the employee's
eligible compensation. Effective January 1, 1996,

                                       79

MCI adopted a Part II to the Qualified Plan ("Part II") which changed the manner
in which pension benefits will be determined. Prior to January 1, 1996, pension
benefits were determined as noted above ("Part I"). Part II is a defined benefit
pension plan. Under Part II, an initial account balance has been established for
each participant equal to the actuarial equivalent of the participant's prior
accruals under the Qualified Plan. Participants employed on or after January 1,
1996 receive compensation credits and interest credits to their accounts.
Compensation credits are a designated percent of pay, based on the participant's
age, according to the following schedule: employees younger than age 25, 2.0%;
age 25-29, 2.5%; age 30-34, 3.0%; age 35-39, 4.0%; age 40-44, 5.0%; age 45-54,
6.0%; and age 55 or older, 6.5%. Part II guarantees a minimum interest credit of
4% per year on the prior year's account balance. For 2000, the guaranteed
interest credit is 5.5%. Part II Participants who were age 50 or older with
5 years of service as of December 31, 1995 will accrue a pension benefit equal
to the greater of benefits calculated under Part I or Part II until the plan
year ended December 31, 2000 for each year they are employed by MCI.

    Benefits payable from tax qualified plans are further limited by
Section 415 of the Internal Revenue Code; in 2000, the annual maximum benefit
from the Qualified Plan was limited to $135,000. When the pension formula would
result in an executive receiving a benefit above the applicable limit, the
Supplemental Plan assumes an obligation to pay the incremental portion above
such limit.

    As of December 31, 2000, Mr. Roberts, upon normal retirement, would be
entitled to annual retirement benefits from the MCI Pension Plans of
approximately $581,961.

COMPENSATION OF DIRECTORS

    Directors are paid fees of $35,000 per year and $1,000 per meeting attended
of the board plus certain expenses. Committee members are paid a fee of $750 for
any committee meeting attended on the same day as a board meeting and $1,000 for
any other committee meeting attended, plus certain expenses. The chairman of
each committee receives an additional $3,000 per year. Additionally, under a
program implemented in May 1999, each director may elect to receive some or all
of his or her annual fees in the form of WorldCom common stock, based on the
fair market value of our common stock at the election date. Under this program,
no more than an aggregate of 37,500 shares of our common stock may be issued.
Pursuant to WorldCom's 1999 Stock Option Plan, each non-employee director is
eligible to receive an annual grant of options. The timing, terms and number of
options awarded to directors is left to the discretion of the compensation and
stock option committee. During 2000, each non-employee director received a grant
of options to purchase 10,000 shares of WorldCom common stock at the fair market
value of such stock on the date of grant. Such options are immediately
exercisable and expire on the earliest to occur of

    - ten years following the date of grant,

    - twelve months following termination of service due to disability or death,

    - upon cessation of service for reasons other than death or disability, or

    - the date of consummation of a specified change in control transaction
      defined generally to include the dissolution or liquidation of WorldCom, a
      reorganization, merger or consolidation of WorldCom in which we are not
      the surviving corporation, or a sale of substantially all of the assets or
      80% or more of the outstanding stock of WorldCom to another entity.

    The exercise price may be paid in cash or, in the discretion of the
Compensation and Stock Option Committee, WorldCom common stock. In the
discretion of the Compensation and Stock Option Committee, shares receivable on
exercise may be withheld to pay applicable taxes on the exercise.

                                       80

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    Since September 14, 1998, our Compensation and Stock Option Committee
includes Stiles A. Kellett, Jr., (Chairman), Max E. Bobbitt and Gordon S.
Macklin. Lawrence C. Tucker was also a member until November 1, 2000, when he
became an advisory member of our Compensation and Stock Option Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth the beneficial ownership of WorldCom common
stock, as of March 16, 2001 by:

    - each person who we know beneficially owns more than 5% of our common
      stock;

    - each member of our board of directors;

    - each of our named executive officers; and

    - all directors and executive officers as a group. As of March 16, 2001,
      there were no persons, individually or as a group, known to be deemed to
      be the beneficial owners of more than five percent of our issued and
      outstanding common stock or preferred stock. No person listed on the
      following table is the beneficial owner of any shares of our preferred
      stock. Each director or executive officer has sole voting and investment
      power over the shares listed opposite his or her name except as set forth
      in the footnotes hereto.



                                                                NUMBER OF SHARES      PERCENT OF
NAME OF BENEFICIAL OWNER                                      BENEFICIALLY OWNED(1)    CLASS(1)
- ------------------------                                      ---------------------   ----------
                                                                                
Clifford L. Alexander, Jr...................................             51,158(2)       *
James C. Allen..............................................            401,713(3)       *
Judith Areen................................................             99,760(4)       *
Carl J. Aycock..............................................          1,059,172(5)       *
Max E. Bobbitt..............................................            418,531(6)       *
Bernard J. Ebbers...........................................         28,785,212(7)       *
Francesco Galesi............................................          4,693,937(8)       *
Stiles A. Kellett, Jr.......................................          6,104,317(9)       *
Gordon S. Macklin...........................................            126,374(10)      *
Bert C. Roberts, Jr.........................................          1,148,085(11)      *
John W. Sidgmore............................................          4,968,771(12)      *
Scott D. Sullivan...........................................          2,730,355(13)      *
All Directors and Current Executive Officers as a Group
  (13 persons)..............................................         52,287,384(14)    1.8%


- ------------------------

  * Less than one percent.

 (1) Based on 2,886,027,760 shares of WorldCom stock issued and outstanding as
     of March 16, 2001, plus, as to the holder thereof only, upon exercise or
     conversion of all derivative securities that are exercisable or convertible
     currently or within 60 days after March 16, 2001.

 (2) Includes 43,658 shares purchasable upon exercise of options.

 (3) Includes 1,026 shares owned by Mr. Allen's spouse, as to which beneficial
     ownership is disclaimed; 20,058 shares held in a revocable trust as to
     which Mr. Allen is a company-trustee; and 32,500 shares purchasable upon
     exercise of options.

 (4) Includes 72,634 shares purchasable upon exercise of options.

 (5) Includes 8,364 shares owned by Mr. Aycock's spouse; 116,170 shares
     purchasable upon exercise of options; and 3,312 shares held as custodian
     for children.

                                       81

 (6) Includes 90,268 shares purchasable upon exercise of options; and 328,263
     shares as to which Mr. Bobbitt shares voting and investment power with his
     spouse.

 (7) Includes 35,551 shares held as custodian for children; 3,000,000 shares
     subject to a forward sale agreement as to which Mr. Ebbers has voting, but
     no dispositive power; and 8,350,000 shares purchasable upon exercise of
     options.

 (8) Includes 4,457,204 shares owned by Rotterdam Ventures, Inc., of which
     Mr. Galesi is sole shareholder; and 90,268 shares purchasable upon exercise
     of options.

 (9) Includes 38,250 shares owned by Mr. Kellett's spouse; 552,554 shares owned
     by family partnerships, as to which Mr. Kellett is the general partner;
     60,750 shares owned by a partnership as to which Mr. Kellett is the general
     partner; 4,000,000 shares subject to a forward sale agreement as to which
     Mr. Kellett has voting power but no dispositive power; and 116,170 shares
     purchasable upon exercise of options held by a family partnership as to
     which Mr. Kellett is the general partner.

(10) Includes 64,057 shares owned by a family trust as to which Mr. Macklin is
     sole trustee and beneficiary; and 62,317 shares purchasable upon exercise
     of options.

(11) Includes 150,000 shares owned by a limited partnership in which
     Mr. Roberts is a general partner and 462,008 shares purchasable upon
     exercise of stock options. Does not include 112,500 shares held by
     Mr. Roberts' spouse in which shares Mr. Roberts disclaims beneficial
     ownership.

(12) Includes 2,653,056 shares purchasable upon exercise of options; and 24,503
     shares held in trusts for which Mr. Sidgmore is sole trustee with sole
     voting and dispositive power.

(13) Includes 2,725,000 shares purchasable upon exercise of options.

(14) Includes an aggregate of 16,214,048 shares purchasable upon exercise of
     options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    During 2000, WorldCom paid a total of $397,934 directly or indirectly to a
corporation owned by Mr. Roberts which provided air transportation to
Mr. Roberts and other WorldCom executives.

    Since September 2000, we agreed to loan up to $100 million to Mr. Ebbers.
The loans are payable on demand and bear interest at a floating rate equal to
that under our existing 364-day credit facility. As of March 30, 2001, the
aggregate amount of indebtedness of Mr. Ebbers to us was $84.6 million,
including accrued interest; the interest rate was 5.33% per annum as of that
date.

    During that period, we also agreed to guarantee up to an aggregate of (1)
$150 million principal amount of indebtedness, together with any related
interest, owed from time to time by Mr. Ebbers to Bank of America, N.A. (the
"Lender"); (2) all Additional Payments as referred to below, plus (3) all costs,
including reasonable attorneys' fees, of collecting or enforcing the guaranty.
The term "Additional Payments" means the following amounts otherwise payable to
the Lender by Mr. Ebbers or certain companies controlled by him: (1) $36 million
due and payable on June 30, 2001, unless an approximately $45.6 million letter
of credit used to support financing to an unrelated third party (the "Letter of
Credit") is cancelled and the Lender is reimbursed for all draws thereunder
other than as a result of the liquidation of collateral by the Lender; (2) $25
million due and payable on September 30, 2001; (3) any amounts subject to a
margin call with respect to certain margin debt (the "Margin Debt") which are
due and payable on the following business day; (4) additional amounts depending
upon the price at which our common stock closes; and (5) all of the Margin Debt
(including interest, principal, fees and expenses) is due and payable on the
business day following the first day on which our common stock closes at $10 per
share or less, together with a cash payment or equivalent sufficient to fully
collateralize the Letter of Credit.

    As of March 30, 2001, the Margin Debt aggregated approximately $183.7
million, including accrued interest, pursuant to various loans which become due
and payable on or before January 31,

                                       82

2002. The loans are secured by the pledge of approximately 11.3 million shares
of our common stock owned by Mr. Ebbers. The obligations of Mr. Ebbers to the
Lender, including the Additional Payments, become due and payable upon an event
of default under the agreements between Mr. Ebbers and the Lender, which
includes, among other things, Mr. Ebbers ceasing to be our President and Chief
Executive Officer or any materially adverse change in his compensation package
from us. As of March 30, 2001, no demand under the guaranty had been made on us.

    Mr. Ebbers has used, or plans to use, the proceeds of the loans from us to
repay certain indebtedness under margin loans secured by shares of our common
stock owned by him and the loans guaranteed by us are also secured by such stock
and the proceeds of such loans were used for private business purposes. The
loans and guaranty by us were made following a determination that they were in
the best interests of WorldCom and its shareholders in order to avoid additional
forced sales of Mr. Ebbers' stock in WorldCom. The determination was made by our
Compensation and Stock Option Committee as a result of the pressure on our stock
price, margin calls faced by Mr. Ebbers and other considerations. Such actions
were ratified and approved by our board of directors.

    In connection with the transactions described above, and subject to certain
limitations, and effective upon termination of restrictions under existing
lending agreements, Mr. Ebbers pledged to WorldCom the shares of our common
stock owned by him with respect to his obligations under the loans and guaranty
from us. The pledge is subordinated to obligations to the Lender and is not
perfected.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a) 1 and 2

FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

    See Index to Consolidated Financial Statements and Financial Statement
Schedule on page F-1. All other schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under the related
instructions or are inapplicable and, therefore, have been omitted.

    (a) 3

EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K

    See Exhibit Index for the exhibits filed as part of or incorporated by
reference into this Annual Report. There are omitted from the exhibits filed
with or incorporated by reference into this Annual Report on Form 10-K certain
promissory notes and other instruments and agreements with respect to long-term
debt of WorldCom, none of which authorizes securities in a total amount that
exceeds 10% of the total assets of WorldCom on a consolidated basis. Pursuant to
Item 601(b)(4)(iii) of Regulation S-K, we hereby agree to furnish to the SEC
copies of any such omitted promissory notes or other instruments or agreements
as the SEC requests.

    (b) Reports on Form 8-K

    Current Report on Form 8-K dated November 1, 2000 (filed November 2, 2000)
       reporting under Item 5, Other Events, information related to WorldCom's
       announcement that it had decided to create tracking stocks.

                                       83

                                   SIGNATURES

    Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                                      
                                                       WorldCom, Inc.

                                                       By:            /s/ SCOTT D. SULLIVAN
                                                            -----------------------------------------
                                                                     Chief Financial Officer



    Date: March 30, 2001

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



                      NAME                                       TITLE                      DATE
                      ----                                       -----                      ----
                                                                                 
         /s/ CLIFFORD L. ALEXANDER, JR.
     --------------------------------------       Director                             March 30, 2001
           Clifford L. Alexander, Jr.

               /s/ JAMES C. ALLEN
     --------------------------------------       Director                             March 30, 2001
                 James C. Allen

                /s/ JUDITH AREEN
     --------------------------------------       Director                             March 30, 2001
                  Judith Areen

               /s/ CARL J. AYCOCK
     --------------------------------------       Director                             March 30, 2001
                 Carl J. Aycock

               /s/ MAX E. BOBBITT
     --------------------------------------       Director                             March 30, 2001
                 Max E. Bobbitt

             /s/ BERNARD J. EBBERS                Director, President and Chief
     --------------------------------------         Executive Officer (Principal       March 30, 2001
               Bernard J. Ebbers                    Executive Officer)

              /s/ FRANCESCO GALESI
     --------------------------------------       Director                             March 30, 2001
                Francesco Galesi


                                       84




                      NAME                                       TITLE                      DATE
                      ----                                       -----                      ----
                                                                                 
           /s/ STILES A. KELLETT, JR.
     --------------------------------------       Director                             March 30, 2001
             Stiles A. Kellett, Jr.

             /s/ GORDON S. MACKLIN
     --------------------------------------       Director                             March 30, 2001
               Gordon S. Macklin

            /s/ BERT C. ROBERTS, JR.
     --------------------------------------       Chairman of the Board                March 30, 2001
              Bert C. Roberts, Jr.

              /s/ JOHN W. SIDGMORE
     --------------------------------------       Director                             March 30, 2001
                John W. Sidgmore

                                                  Director and Chief Financial
             /s/ SCOTT D. SULLIVAN                  Officer (Principal Financial
     --------------------------------------         Officer and Principal Accounting   March 30, 2001
               Scott D. Sullivan                    Officer)


                                       85

                         INDEX TO FINANCIAL STATEMENTS



                                                                PAGE
                                                              --------
                                                           
WORLDCOM, INC.

  Report of independent public accountants..................     F-2

  Consolidated balance sheets as of December 31, 1999 and
    2000....................................................     F-3

  Consolidated statements of operations for the three years
    ended December 31, 2000.................................     F-4

  Consolidated statements of shareholders' investment for
    the three years ended December 31, 2000.................     F-5

  Consolidated statements of cash flows for the three years
    ended December 31, 2000.................................     F-6

  Notes to consolidated financial statements................     F-7

  Financial data schedule...................................    F-55


                                      F-1

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of WorldCom, Inc.:

    We have audited the accompanying consolidated balance sheets of
WorldCom, Inc. (a Georgia corporation) and subsidiaries as of December 31, 1999
and 2000, and the related consolidated statements of operations, shareholders'
investment and cash flows for each of the years in the three-year period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WorldCom, Inc. and
subsidiaries as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.

    As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting for certain
activation and installation fee revenues and expenses. Additionally, effective
January 1, 1998, the Company changed its method of accounting for start-up
activities.

ARTHUR ANDERSEN LLP

Jackson, Mississippi
March 30, 2001

                                      F-2

                        WORLDCOM, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                        (IN MILLIONS, EXCEPT SHARE DATA)



                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
                                                                   
ASSETS
Current assets:
  Cash and cash equivalents.................................  $   876    $   761
  Accounts receivable, net of allowance for bad debts of
    $1,122 in 1999 and $1,532 in 2000.......................    5,746      6,815
  Deferred tax asset........................................    2,565        172
  Other current assets......................................    1,137      2,007
                                                              -------    -------
      Total current assets..................................   10,324      9,755
                                                              -------    -------
Property and equipment:
  Transmission equipment....................................   14,689     20,288
  Communications equipment..................................    6,218      8,100
  Furniture, fixtures and other.............................    7,424      9,342
  Construction in progress..................................    5,397      6,897
                                                              -------    -------
                                                               33,728     44,627
  Accumulated depreciation..................................   (5,110)    (7,204)
                                                              -------    -------
                                                               28,618     37,423
                                                              -------    -------
Goodwill and other intangible assets........................   47,308     46,594
Other assets................................................    4,822      5,131
                                                              -------    -------
                                                              $91,072    $98,903
                                                              =======    =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
  Short-term debt and current maturities of long-term
    debt....................................................  $ 5,015    $ 7,200
  Accounts payable and accrued line costs...................    6,909      6,022
  Other current liabilities.................................    5,285      4,451
                                                              -------    -------
      Total current liabilities.............................   17,209     17,673
                                                              -------    -------
Long-term liabilities, less current portion:
  Long-term debt............................................   13,128     17,696
  Deferred tax liability....................................    4,877      3,611
  Other liabilities.........................................    1,223      1,124
                                                              -------    -------
      Total long-term liabilities...........................   19,228     22,431
                                                              -------    -------
Commitments and contingencies

Minority interests..........................................    2,599      2,592

Company obligated mandatorily redeemable preferred
  securities of subsidiary trust holding solely junior
  subordinated deferrable interest debentures of the Company
  and other redeemable preferred securities.................      798        798

Shareholders' investment:
  Series B preferred stock, par value $.01 per share;
    authorized, issued and outstanding: 11,096,887 shares in
    1999 and 10,693,437 shares in 2000 (liquidation
    preference of $1.00 per share plus unpaid dividends)....       --         --
  Series C preferred stock, par value $.01 per share;
    authorized, issued and outstanding: 3,750,000 in 1999
    and none in 2000 (liquidation preference of $50 per
    share)..................................................       --         --
  Preferred stock, par value $.01 per share; authorized:
    31,155,008 shares in 1999 and 2000; none issued.........       --         --
  Common stock, par value $.01 per share; authorized:
    5,000,000,000 shares; issued and outstanding:
    2,849,743,843 shares in 1999 and 2,887,960,378 shares in
    2000....................................................       28         29
  Additional paid-in capital................................   52,108     52,877
  Retained earnings (deficit)...............................     (928)     3,160
  Unrealized holding gain on marketable equity securities...      575        345
  Cumulative foreign currency translation adjustment........     (360)      (817)
  Treasury stock, at cost, 6,765,316 shares in 1999 and
    2000....................................................     (185)      (185)
                                                              -------    -------
      Total shareholders' investment........................   51,238     55,409
                                                              -------    -------
                                                              $91,072    $98,903
                                                              =======    =======


        The accompanying notes are an integral part of these statements.

                                      F-3

                        WORLDCOM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                      (IN MILLIONS, EXCEPT PER SHARE DATA)



                                                                   FOR THE YEARS ENDED
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
                                                                           
Revenues....................................................  $17,617    $35,908    $39,090
                                                              -------    -------    -------
Operating expenses:
  Line costs................................................    7,982     14,739     15,462
  Selling, general and administrative.......................    4,563      8,935     10,597
  Depreciation and amortization.............................    2,289      4,354      4,878
  In-process research and development and other charges.....    3,725         (8)        --
                                                              -------    -------    -------
      Total.................................................   18,559     28,020     30,937
                                                              -------    -------    -------
Operating income (loss).....................................     (942)     7,888      8,153
Other income (expense):
  Interest expense..........................................     (692)      (966)      (970)
  Miscellaneous.............................................       44        242        385
                                                              -------    -------    -------
Income (loss) before income taxes, minority interests,
  cumulative effect of accounting change and extraordinary
  items.....................................................   (1,590)     7,164      7,568
Provision for income taxes..................................      877      2,965      3,025
                                                              -------    -------    -------
Income (loss) before minority interests, cumulative effect
  of accounting change and extraordinary items..............   (2,467)     4,199      4,543
Minority interests..........................................      (93)      (186)      (305)
                                                              -------    -------    -------
Income (loss) before cumulative effect of accounting change
  and extraordinary items...................................   (2,560)     4,013      4,238
Cumulative effect of accounting change (net of income taxes
  of $22 in 1998 and $50 in 2000)...........................      (36)        --        (85)
Extraordinary items (net of income taxes of $78 in 1998)....     (129)        --         --
                                                              -------    -------    -------
Net income (loss)...........................................   (2,725)     4,013      4,153
Distributions on subsidiary trust mandatorily redeemable
  preferred securities......................................       18         63         64
Preferred dividend requirement..............................       24          9          1
                                                              -------    -------    -------
Net income (loss) applicable to common shareholders.........  $(2,767)   $ 3,941    $ 4,088
                                                              =======    =======    =======
Earnings (loss) per common share:
  Net income (loss) applicable to common shareholders before
    cumulative effect of accounting change and extraordinary
    items:
    Basic...................................................  $ (1.35)   $  1.40    $  1.46
                                                              =======    =======    =======
    Diluted.................................................  $ (1.35)   $  1.35    $  1.43
                                                              =======    =======    =======
Cumulative effect of accounting change......................  $ (0.02)   $    --    $ (0.03)
                                                              =======    =======    =======
Extraordinary items.........................................  $ (0.07)   $    --    $    --
                                                              =======    =======    =======
  Net income (loss) applicable to common shareholders:
    Basic...................................................  $ (1.43)   $  1.40    $  1.43
                                                              =======    =======    =======
    Diluted.................................................  $ (1.43)   $  1.35    $  1.40
                                                              =======    =======    =======


        The accompanying notes are an integral part of these statements.

                                      F-4

                        WORLDCOM, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT

                  FOR THE THREE YEARS ENDED DECEMBER 31, 2000

                                 (IN MILLIONS)



                                                                                             FOREIGN
                                                     ADDITIONAL   RETAINED    UNREALIZED    CURRENCY                    TOTAL
                                           COMMON     PAID-IN     EARNINGS     HOLDING     TRANSLATION   TREASURY   SHAREHOLDERS'
                                           STOCK      CAPITAL     (DEFICIT)      GAIN      ADJUSTMENT     STOCK      INVESTMENT
                                          --------   ----------   ---------   ----------   -----------   --------   -------------
                                                                                               
Balances, December 31, 1997.............    $15       $16,170      $(2,102)      $ 34         $ (30)      $  --        $14,087
Exercise of stock options (49 million
  shares)...............................      1           471           --         --            --          --            472
Tax adjustment resulting from exercise
  of stock options......................     --           208           --         --            --          --            208
Shares issued for acquisitions (1.182
  billion shares).......................     12        33,314           --         --            --        (185)        33,141
Conversion of preferred stock into
  common stock..........................     --             9           --         --            --          --              9
Employee stock purchase plan
  contributions.........................     --             1           --         --            --          --              1
Other comprehensive income (loss) (net
  of taxes and reclassifications):
Net loss................................     --            --       (2,725)        --            --          --         (2,725)
Cash dividends on preferred stock and
  distributions on Trust securities.....     --            --          (42)        --            --          --            (42)
Net change in unrealized holding gain on
  marketable equity securities..........     --            --           --         88            --          --             88
Foreign currency adjustment.............     --            --           --         --             2          --              2
                                                                                                                       -------
    Total comprehensive loss............                                                                                (2,677)
                                            ---       -------      -------       ----         -----       -----        -------
Balances, December 31, 1998.............     28        50,173       (4,869)       122           (28)       (185)        45,241
Exercise of stock options (61 million
  shares)...............................     --           886           --         --            --          --            886
Tax adjustment resulting from exercise
  of stock options......................     --           820           --         --            --          --            820
Shares issued for acquisitions (4
  million shares).......................     --           228           --         --            --          --            228
Conversion of convertible subordinated
  debt into common stock................     --             1           --         --            --          --              1
Other comprehensive income (loss) (net
  of taxes and reclassifications):
Net income..............................     --            --        4,013         --            --          --          4,013
Cash dividends on preferred stock and
  distributions on Trust securities.....     --            --          (72)        --            --          --            (72)
Net change in unrealized holding gain on
  marketable equity securities..........     --            --           --        453            --          --            453
Foreign currency adjustment.............     --            --           --         --          (332)         --           (332)
                                                                                                                       -------
    Total comprehensive income..........                                                                                 4,062
                                            ---       -------      -------       ----         -----       -----        -------
Balances, December 31, 1999.............     28        52,108         (928)       575          (360)       (185)        51,238
Exercise of stock options (38 million
  shares)...............................      1           584           --         --            --          --            585
Tax adjustment resulting from exercise
  of stock options......................     --           348           --         --            --          --            348
Shares issued for acquisitions
  (0.3 million shares)..................     --            27           --         --            --          --             27
Redemption of Series C preferred
  stock.................................     --          (190)          --         --            --          --           (190)
Other comprehensive income (loss) (net
  of taxes and reclassifications):
Net income..............................     --            --        4,153         --            --          --          4,153
Cash dividends on preferred stock and
  distributions on Trust securities.....     --            --          (65)        --            --          --            (65)
Net change in unrealized holding gain on
  marketable equity securities..........     --            --           --       (230)           --          --           (230)
Foreign currency adjustment.............     --            --           --         --          (457)         --           (457)
                                                                                                                       -------
    Total comprehensive income..........                                                                                 3,401
                                            ---       -------      -------       ----         -----       -----        -------
Balances, December 31, 2000.............    $29       $52,877      $ 3,160       $345         $(817)      $(185)       $55,409
                                            ===       =======      =======       ====         =====       =====        =======


        The accompanying notes are an integral part of these statements.

                                      F-5

                        WORLDCOM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN MILLIONS)



                                                                             FOR THE YEARS
                                                                           ENDED DECEMBER 31,
                                                                  ------------------------------------
                                                                    1998          1999          2000
                                                                  --------      --------      --------
                                                                                     
Cash flows from operating activities:
Net income (loss)...........................................      $(2,725)      $  4,013      $  4,153
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
  Cumulative effect of accounting change....................           36             --            85
  Extraordinary items.......................................          129             --            --
  Minority interests........................................           93            186           305
  In-process research and development and other charges.....        3,725             (8)           --
  Depreciation and amortization.............................        2,289          4,354         4,878
  Provision for losses on accounts receivable...............          395            951         1,865
  Provision for deferred income taxes.......................          785          2,903         1,649
  Accreted interest on debt.................................           25             --            --
  Change in assets and liabilities, net of effect of
    business combinations:
    Accounts receivable.....................................         (703)        (1,826)       (2,991)
    Other current assets....................................         (250)           143          (797)
    Accounts payable and other current liabilities..........          423            692        (1,050)
  Other.....................................................          (40)          (403)         (431)
                                                                  -------       --------      --------
Net cash provided by operating activities...................        4,182         11,005         7,666
                                                                  -------       --------      --------
Cash flows from investing activities:
  Capital expenditures......................................       (5,117)        (7,823)       (9,868)
  Capital expenditures, Embratel and undersea cables........         (369)          (893)       (1,616)
  Acquisitions and related costs............................       (3,400)        (1,078)          (14)
  Increase in intangible assets.............................         (351)          (743)         (938)
  Proceeds from the sale of SHL.............................           --          1,640            --
  Proceeds from disposition of marketable securities and
    other long-term assets..................................          202          1,944           680
  Increase in other assets..................................         (319)        (1,952)       (1,790)
  Decrease in other liabilities.............................         (144)          (650)         (839)
                                                                  -------       --------      --------
Net cash used in investing activities.......................       (9,498)        (9,555)      (14,385)
                                                                  -------       --------      --------
Cash flows from financing activities:
  Principal borrowings (repayments) on debt, net............        6,390         (2,894)        6,377
  Common stock issuance.....................................          472            886           585
  Distributions on subsidiary trust mandatorily redeemable
    preferred securities....................................          (18)           (63)          (64)
  Dividends paid on preferred stock.........................          (24)            (9)           (1)
  Redemption of Series C preferred stock....................           --             --          (190)
  Other.....................................................           48             --           (84)
                                                                  -------       --------      --------
Net cash provided by (used in) financing activities.........        6,868         (2,080)        6,623
Effect of exchange rate changes on cash.....................           --           (221)          (19)
                                                                  -------       --------      --------
Net increase (decrease) in cash and cash equivalents........        1,552           (851)         (115)
Cash and cash equivalents at beginning of period............          175          1,727           876
                                                                  -------       --------      --------
Cash and cash equivalents at end of period..................      $ 1,727       $    876      $    761
                                                                  =======       ========      ========


        The accompanying notes are an integral part of these statements.

                                      F-6

                        WORLDCOM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--

DESCRIPTION OF BUSINESS AND ORGANIZATION:

    Organized in 1983, WorldCom, Inc., a Georgia corporation ("WorldCom" or the
"Company") provides a broad range of communications services to both U.S. and
non-U.S. based businesses and consumers. WorldCom is a global communications
company utilizing an "on-net" strategy based on being able to provide service
through its own facilities throughout the world instead of being restricted to a
particular geographic location. The on-net approach allows the Company's
customers to send data or voice communications across town, across the U.S., or
to any of our networks in Europe or Asia, without ever leaving the WorldCom
networks. The on-net approach provides the Company's customers with superior
reliability and low operating costs. Prior to May 1, 2000, the Company was named
MCI WORLDCOM, Inc.

    The Company's core business is communications services, which includes
voice, data, Internet and international services. During each of the last three
years, more than 90% of operating revenues were derived from communications
services.

    The Company serves as a holding company for its subsidiaries' operations.
References herein to the Company include the Company and its subsidiaries,
unless the context otherwise requires.

PRINCIPLES OF CONSOLIDATION:

    The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation. Investments in joint ventures and other
equity investments in which the Company owns a 20% to 50% voting ownership
interest are accounted for by the equity method. Investments of less than 20%
ownership, where the Company does not exercise control or significant influence,
are accounted for under the cost method.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

    The carrying amounts for cash and cash equivalents, marketable securities,
accounts receivable, notes receivable, accounts payable and accrued liabilities
approximate their fair value. The fair value of long-term debt is determined
based on quoted market rates or the cash flows from such financial instruments
discounted at the Company's estimated current interest rate to enter into
similar financial instruments. The carrying amounts and fair values of the
Company's debt were $18.1 billion and $17.9 billion, respectively, at
December 31, 1999; $24.9 billion and $24.6 billion, respectively, at
December 31, 2000.

CASH AND CASH EQUIVALENTS:

    The Company considers cash in banks and short-term investments with original
maturities of three months or less as cash and cash equivalents.

                                      F-7

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--  (CONTINUED)
PROPERTY AND EQUIPMENT:

    Property and equipment are stated at cost. Depreciation is provided for
financial reporting purposes using the straight-line method over the following
estimated useful lives:

                                                           
Transmission equipment (including conduit)                    5 to 45 years
Communications equipment                                      5 to 20 years
Furniture, fixtures, buildings and other                      4 to 40 years



    The Company evaluates the recoverability of property and equipment when
events and circumstances indicate that such assets might be impaired. The
Company determines impairment by comparing the undiscounted future cash flows
estimated to be generated by these assets to their respective carrying amounts.
In the event an impairment exists, a loss is recognized based on the amount by
which the carrying value exceeds the fair value of the asset. If quoted market
prices for an asset are not available, fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on property and equipment to be disposed of are determined in a
similar manner, except that fair market values are reduced for the cost to
dispose.

    Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized. The cost and related reserves of assets sold or
retired are removed from the accounts, and any resulting gain or loss is
reflected in results of operations.

    The Company constructs certain of its own transmission systems and related
facilities. Internal costs directly related to the construction of such
facilities, including interest and salaries of certain employees, are
capitalized. Such internal costs were $305 million ($195 million in interest),
$625 million ($339 million in interest) and $842 million ($495 million in
interest) in 1998, 1999 and 2000, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS:

    The major classes of intangible assets as of December 31, 1999 and 2000 are
summarized below (in millions):



                                                             AMORTIZATION
                                                                PERIOD         1999       2000
                                                             -------------   --------   --------
                                                                               
Goodwill...................................................  5 to 40 years   $44,767    $ 44,870
Tradename..................................................       40 years     1,100       1,100
Developed technology.......................................  5 to 10 years     2,100       2,100
Other intangibles..........................................  5 to 10 years     2,682       3,778
                                                                             -------    --------
                                                                              50,649      51,848
Less: accumulated amortization.............................                   (3,341)     (5,254)
                                                                             -------    --------
Goodwill and other intangible assets, net..................                  $47,308    $ 46,594
                                                                             =======    ========


    Intangible assets are amortized using the straight-line method for the
periods noted above.

                                      F-8

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--  (CONTINUED)
    Goodwill is recognized for the excess of the purchase price of the various
business combinations over the value of the identifiable net tangible and
intangible assets acquired. Realization of acquisition-related intangibles,
including goodwill, is periodically assessed by the management of the Company
based on the current and expected future profitability and cash flows of
acquired companies and their contribution to the overall operations of WorldCom.

    Also included in other intangibles are costs incurred to develop software
for internal use. Such costs were $350 million, $710 million and $925 million
for the years ended December 31, 1998, 1999 and 2000, respectively.

UNREALIZED HOLDING GAIN ON MARKETABLE EQUITY SECURITIES:

    The Company's equity investments in publicly traded companies are classified
as available-for-sale securities. Accordingly, these investments are included in
other assets at their fair value of approximately $1.1 billion and $970 million
at December 31, 1999 and 2000, respectively. The unrealized holding gain on
these marketable equity securities, net of taxes of $345 million and
$207 million as of December 31, 1999 and 2000, respectively, is included as a
component of shareholders' investment in the accompanying consolidated financial
statements. As of December 31, 1999 and 2000, the gross unrealized holding gain
on these securities was $918 million and $716 million, respectively. There was
no gross unrealized holding loss on these securities at December 31, 1999 and a
$164 million gross unrealized holding loss at December 31, 2000. Proceeds from
the sale of marketable equity securities totaled $68 million, $1.7 billion and
$680 million, respectively, for the years ended December 31, 1998, 1999 and
2000. Gross realized gains on marketable equity securities, which represent
reclassification adjustments to other comprehensive income, were $13 million,
$374 million and $643 million for the years ended December 31, 1998, 1999 and
2000, respectively. Gross realized losses were $31 million and $25 million for
the years ended December 31, 1998 and 2000, respectively. There were no gross
realized losses for the year ended December 31, 1999.

FOREIGN CURRENCY TRANSLATION:

    Assets and liabilities are translated at the exchange rate as of the balance
sheet date. All revenue and expense accounts are translated at a
weighted-average of exchange rates in effect during the period. Translation
adjustments are recorded as a separate component of shareholders' investment.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred. The accompanying consolidated
statements of operations include foreign currency transaction gains, after
elimination of minority interests, of $29 million for the year ended
December 31, 1998 and foreign currency transaction losses, after elimination of
minority interests, of $36 million and $38 million for the years ended December
31, 1999 and 2000, respectively.

RECOGNITION OF REVENUES:

    The Company records revenues for telecommunications services at the time of
customer usage. Service activation and installation fees are amortized over the
average customer contract life. Revenues from information technology services
are recognized, depending on the service provided, on a percentage of completion
basis or as services and products are furnished or delivered.

                                      F-9

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--  (CONTINUED)
ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC:

    The Company enters into operating agreements with telecommunications
carriers in foreign countries under which international long distance traffic is
both delivered and received. The terms of most switched voice operating
agreements, as well as established Federal Communications Commission ("FCC")
policy, require that inbound switched voice traffic from the foreign carrier to
the United States be routed to United States international carriers, like
WorldCom, in proportion to the percentage of United States outbound traffic
routed by that United States international carrier to the foreign carrier.
Mutually exchanged traffic between the Company and foreign carriers is settled
in cash through a formal settlement policy that generally extends over a
six-month period at an agreed upon settlement rate. International settlements
are treated as an offset to line costs. This reflects the way in which the
business is operated because WorldCom actually settles in cash through a formal
net settlement process that is inherent in the operating agreements with foreign
carriers.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE:

    During the fourth quarter of 2000, the Company implemented Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", or SAB 101,
which requires certain activation and installation fee revenues to be amortized
over the average life of the related service rather than be recognized
immediately. Costs directly related to these revenues may also be deferred and
amortized over the customer contract life. As required by SAB 101, the Company
retroactively adopted this accounting effective January 1, 2000, which resulted
in a one-time expense of $85 million, net of income tax benefit of $50 million.
The pro forma effect of adopting SAB 101 on periods prior to January 1, 2000 was
not material to the Company's consolidated financial position or results of
operations.

    The Company adopted the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", as
of January 1, 1998. The cumulative effect of this change in accounting principle
resulted in a one-time non-cash expense of $36 million, net of income tax
benefit of $22 million. This expense represented start-up costs incurred
primarily in conjunction with the development and construction of the Advanced
Messaging Network of SkyTel Communications, Inc. ("SkyTel"), which are required
to be expensed as incurred in accordance with this accounting standard.

EXTRAORDINARY ITEMS:

    In the first quarter of 1998, the Company recorded an extraordinary item
totaling $129 million, net of income tax benefit of $78 million. The charge was
recorded in connection with the tender offers and related refinancings of the
Company's outstanding debt from the Brooks Fiber Properties merger.

INCOME TAXES:

    The Company recognizes current and deferred income tax assets and
liabilities based upon all events that have been recognized in the consolidated
financial statements as measured by the provisions of the enacted tax laws.

                                      F-10

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--  (CONTINUED)
EARNINGS PER SHARE:

    The following is a reconciliation of the numerators and the denominators of
the basic and diluted per share computations (in millions, except per share
data):



                                                                1998       1999       2000
                                                              --------   --------   --------
                                                                           
BASIC
Income (loss) before cumulative effect of accounting change
  and extraordinary items...................................  $(2,560)   $ 4,013    $ 4,238
Preferred stock dividends and distributions on trust
  securities................................................      (42)       (72)       (65)
                                                              -------    -------    -------
Net income (loss) applicable to common shareholders before
  cumulative effect of accounting change and extraordinary
  items.....................................................  $(2,602)   $ 3,941    $ 4,173
                                                              =======    =======    =======
Weighted average shares outstanding.........................    1,933      2,821      2,868
                                                              =======    =======    =======
Basic earnings (loss) per share before cumulative effect of
  accounting change and extraordinary items.................  $ (1.35)   $  1.40    $  1.46
                                                              =======    =======    =======
DILUTED
Net income (loss) applicable to common shareholders before
  cumulative effect of accounting change and extraordinary
  items.....................................................  $(2,602)   $ 3,941    $ 4,173
                                                              =======    =======    =======
Weighted average shares outstanding.........................    1,933      2,821      2,868
Common stock equivalents....................................       --        102         42
Common stock issuable upon conversion of preferred stock....       --          2          2
                                                              -------    -------    -------
Diluted shares outstanding..................................    1,933      2,925      2,912
                                                              =======    =======    =======
Diluted earnings (loss) per share before cumulative effect
  of accounting change and extraordinary items..............  $ (1.35)   $  1.35    $  1.43
                                                              =======    =======    =======


                                      F-11

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--  (CONTINUED)

STOCK SPLITS:

    On November 18, 1999, the Board of Directors authorized a three-for-two
stock split in the form of a 50% stock dividend which was distributed on
December 30, 1999 to shareholders of record on December 15, 1999. All per share
data and numbers of common shares have been retroactively restated to reflect
this stock split.

CONCENTRATION OF CREDIT RISK:

    A portion of the Company's revenues is derived from services provided to
others in the telecommunications industry, mainly resellers of long distance
telecommunications service and Internet online services. As a result, the
Company has some concentration of credit risk among its customer base. The
Company performs ongoing credit evaluations of its larger customer's financial
condition and, at times, requires collateral from its customers to support its
receivables, usually in the form of assignment of its customers' receivables to
the Company in the event of nonpayment.

RECENTLY ISSUED ACCOUNTING STANDARDS:

    The Financial Accounting Standards Board's, or FASB's, Statement of
Financial Accounting Standard, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities", is effective for the Company as of January 1,
2001. This statement establishes accounting and reporting standards requiring
that derivative instruments (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. This statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires a company to formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998). The Company has minimal exposure to
derivative financial instruments which, as of December 31, 2000, primarily
consist of option collar transactions designated as cash flow hedges of
anticipated sales of an equity investment and various equity warrants. The
Company believes that the adoption of this standard will not have a material
effect on the Company's consolidated results of operations or financial
position.

    In September 2000 the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000, and is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The Company believes that the adoption of this standard

                                      F-12

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--  (CONTINUED)
will not have a material effect on the Company's consolidated results of
operations or financial position.

USE OF ESTIMATES:

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States, or GAAP, requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the period reported.
Actual results could differ from those estimates. Estimates are used when
accounting for allowance for doubtful accounts, accrued line costs, depreciation
and amortization, taxes, restructuring accruals and contingencies.

RECLASSIFICATIONS:

    Revenues and line costs for all periods reflect a classification change for
reciprocal compensation and central office based remote access equipment sales
which are now being treated as offsets to cost of sales. Reciprocal compensation
represents a reimbursement of costs for call termination performed on behalf of
other carriers' customers and is determined contractually based on fixed rate
per minute charges to those carriers. Central office based remote access
equipment sales represent the reimbursement of customer specific equipment costs
incurred by WorldCom on behalf of the customer as part of service provisioning.
As such, WorldCom determined that it is more appropriate to reflect these
reimbursements net of cost. Previously, WorldCom recorded these items on a gross
basis as revenues. Revenues and line costs for all periods also reflect the
reclassification of small business and consumer primary interexchange carrier
charges, or PICC, from revenues to line costs. PICC are flat-rate charges
mandated by the FCC which apply to telecommunications companies that connect to
customers through a traditional phone company's facilities. Effective July 1,
2000, as a result of the FCC's Coalition for Affordable Local and Long Distance
Services, or CALLs order, the PICC fee is billed directly to the customer by the
traditional phone company rather than to WorldCom and rebilled to the customer.
Operating income, net income available to common shareholders and the balance
sheet are not affected by these reclassifications.

                                      F-13

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--  (CONTINUED)
    The effects of these reclassifications on the accompanying consolidated
statements of operations for the years ended December 31, 1998, 1999 and 2000
are as follows (in millions):



                                                    NEW PRESENTATION
                                            ---------------------------------
                                                   FOR THE YEARS ENDED
                                                      DECEMBER 31,
                                            ---------------------------------
                                              1998        1999        2000
                                              ----        ----        ----
                                                           
Revenues..................................   $17,617     $35,908     $39,090
Line costs................................   $ 7,982     $14,739     $15,462




                                                      OLD PRESENTATION
                                              ---------------------------------
                                                     FOR THE YEARS ENDED
                                                        DECEMBER 31,
                                              ---------------------------------
                                                1998        1999        2000
                                                ----        ----        ----
                                                             
Revenues....................................   $18,169     $37,120     $40,292
Line costs..................................   $ 8,534     $15,951     $16,664


    Additionally, certain consolidated financial statement amounts have been
reclassified for consistent presentation.

(2) BUSINESS COMBINATIONS--

    The Company has acquired other telecommunications companies offering similar
or complementary services to those offered by the Company. These acquisitions
have been accomplished through the purchase of the outstanding stock or assets
of the acquired entity for cash, notes, shares of the Company's common stock, or
a combination thereof. The cash portion of acquisition costs has generally been
financed through the Company's bank credit facilities. In addition to the
business combinations described below, the Company or its predecessors completed
smaller acquisitions during the three years ended December 31, 2000.

    On October 1, 1999, WorldCom acquired SkyTel, pursuant to the merger (the
"SkyTel Merger") of SkyTel with and into a wholly owned subsidiary of WorldCom.
Upon consummation of the SkyTel Merger, the wholly owned subsidiary was renamed
SkyTel Communications, Inc. SkyTel is a leading provider of nationwide messaging
services in the United States. SkyTel's principal operations include one-way
messaging services in the United States, advanced messaging services on the
narrow band personal communications services network in the United States and
international one-way messaging operations.

    As a result of the SkyTel Merger, each outstanding share of SkyTel common
stock was converted into the right to receive 0.3849 shares of WorldCom common
stock, par value $.01 per share (the "WorldCom Common Stock"), or approximately
23 million WorldCom common shares in the aggregate. Holders of SkyTel's $2.25
Cumulative Convertible Exchangeable Preferred Stock (the "SkyTel Preferred
Stock") received one share of WorldCom Series C $2.25 Cumulative Convertible
Exchangeable Preferred Stock (the "WorldCom Series C Preferred Stock") for each
share of SkyTel Preferred Stock held. The SkyTel Merger was accounted for as a
pooling-of-interests; and accordingly, the Company's financial statements for
periods prior to the SkyTel Merger have been restated to include the results of
SkyTel.

                                      F-14

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) BUSINESS COMBINATIONS--  (CONTINUED)
    On September 14, 1998, the Company acquired MCI Communications Corporation
("MCI") for approximately $40 billion, pursuant to the merger (the "MCI Merger")
of MCI with and into a wholly owned subsidiary of the Company. Upon consummation
of the MCI Merger, the wholly owned subsidiary was renamed MCI Communications
Corporation. Through the MCI Merger, the Company acquired one of the world's
largest and most advanced digital networks, connecting local markets in the
United States to more than 280 countries and locations worldwide.

    As a result of the MCI Merger, each outstanding share of MCI common stock
was converted into the right to receive 1.86585 shares of WorldCom Common Stock,
or approximately 1.13 billion WorldCom common shares in the aggregate, and each
share of MCI Class A common stock outstanding (all of which were held by British
Telecommunications plc ("BT")) was converted into the right to receive $51.00 in
cash or approximately $7 billion in the aggregate. The funds paid to BT were
obtained by the Company from (i) available cash as a result of the Company's
$6.1 billion public debt offering in August 1998; (ii) the sale of MCI's
Internet backbone facilities and wholesale and retail Internet business (the
"iMCI Business") to Cable and Wireless plc ("Cable & Wireless") for
$1.75 billion in cash on September 14, 1998; (iii) the sale of MCI's 24.9%
equity stake in Concert Communications Services ("Concert") to BT for
$1 billion in cash on September 14, 1998; and (iv) availability under the
Company's commercial paper program and credit facilities.

    Upon effectiveness of the MCI Merger, the then outstanding and unexercised
options exercisable for shares of MCI common stock were converted into options
exercisable for an aggregate of approximately 125 million shares of WorldCom
Common Stock having the same terms and conditions as the MCI options, except
that the exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 1.86585. The MCI Merger was accounted
for as a purchase; accordingly, operating results for MCI have been included
from the date of acquisition.

    The purchase price in the MCI Merger was allocated based on estimated fair
values at the date of acquisition. This resulted in an excess of purchase price
over net assets acquired of which $3.1 billion was allocated to in-process
research and development ("IPR&D") and $1.7 billion to developed technology,
which will be depreciated over 10 years on a straight-line basis. The remaining
excess of $29.3 billion has been allocated to goodwill and tradename, which are
being amortized over 40 years on a straight-line basis.

    On August 4, 1998, MCI acquired a 51.79% voting interest and a 19.26%
economic interest in Embratel Participacoes S.A. ("Embratel"), Brazil's
facilities-based national and international communications provider, for
approximately R$2.65 billion (U.S. $2.3 billion). The purchase price was paid in
local currency installments, of which R$1.06 billion (U.S. $916 million) was
paid on August 4, 1998, R$795 million (U.S. $442 million) was paid on August 4,
1999, and the remaining R$795 million (U.S. $444 million) was paid on August 4,
2000. Embratel provides domestic long distance and international
telecommunications services in Brazil, as well as over 40 other communications
services, including leased high-speed data, Internet, frame relay, satellite and
packet-switched services. Operating results for Embratel are consolidated in the
accompanying consolidated financial statements and are included from the date of
the MCI Merger.

    On January 31, 1998, WorldCom acquired CompuServe Corporation
("CompuServe"), for approximately $1.3 billion, pursuant to the merger (the
"CompuServe Merger") of a wholly owned

                                      F-15

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) BUSINESS COMBINATIONS--  (CONTINUED)
subsidiary of the Company with and into CompuServe. Upon consummation of the
CompuServe Merger, CompuServe became a wholly owned subsidiary of WorldCom.

    As a result of the CompuServe Merger, each share of CompuServe common stock
was converted into the right to receive 0.609375 shares of WorldCom Common
Stock, or approximately 56 million WorldCom common shares in the aggregate.
Prior to the CompuServe Merger, CompuServe operated primarily through two
divisions: Interactive Services and Network Services. Interactive Services
offered worldwide online and Internet access services for consumers, while
Network Services provided worldwide network access, management and applications,
and Internet service to businesses. The CompuServe Merger was accounted for as a
purchase; accordingly, operating results for CompuServe have been included from
the date of acquisition.

    On January 31, 1998, the Company also acquired ANS Communications, Inc.
("ANS"), from America Online, Inc. ("AOL"), for approximately $500 million, and
entered into five year contracts with AOL under which WorldCom and its
subsidiaries provide network services to AOL (collectively, the "AOL
Transaction"). As part of the AOL Transaction, AOL acquired CompuServe's
Interactive Services division and received a $175 million cash payment from
WorldCom. WorldCom retained the CompuServe Network Services division. ANS
provided Internet access to AOL and AOL's subscribers in the United States,
Canada, the United Kingdom, Sweden and Japan. The AOL Transaction was accounted
for as a purchase; accordingly, operating results for ANS have been included
from the date of acquisition.

    The purchase price in the CompuServe Merger and AOL Transaction was
allocated based on estimated fair values at the date of acquisition. This
resulted in an excess of purchase price over net assets acquired of which
$429 million was allocated to IPR&D. The remaining excess of approximately
$1 billion, has been recorded as goodwill, which is being amortized over
10 years on a straight-line basis.

    On January 29, 1998, WorldCom acquired Brooks Fiber Properties, Inc.
("BFP"), pursuant to the merger (the "BFP Merger") of a wholly owned subsidiary
of WorldCom, with and into BFP. Upon consummation of the BFP Merger, BFP became
a wholly owned subsidiary of WorldCom. BFP is a leading facilities-based
provider of competitive local telecommunications services, commonly referred to
as a competitive local exchange carrier, in selected cities within the United
States. BFP acquires and constructs its own state-of-the-art fiber optic
networks and facilities and leases network capacity from others to provide long
distance carriers, Internet service providers, wireless carriers and business,
government and institutional end users with an alternative to the traditional
phone company for a broad array of high quality voice, data, video transport and
other telecommunications services.

    As a result of the BFP Merger, each share of BFP common stock was converted
into the right to receive 2.775 shares of WorldCom Common Stock or approximately
109 million WorldCom common shares in the aggregate. The BFP Merger was
accounted for as a pooling-of-interests; and, accordingly, the Company's
financial statements for periods prior to the BFP Merger have been restated to
include the results of BFP.

    During 1998, 1999 and 2000, the Company recorded other liabilities of
$2.2 billion, $582 million and $29 million respectively, related to estimated
costs of unfavorable commitments of acquired entities, and other non-recurring
costs arising from various acquisitions and mergers. At December 31,

                                      F-16

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) BUSINESS COMBINATIONS--  (CONTINUED)
1998, 1999 and 2000, other liabilities related to these accruals totaled
$2.0 billion, $1.8 billion and $938 million, respectively.

(3) IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES--

    The following table reflects the components of the significant items
included in IPR&D and other charges in 1998 and 1999 (in millions):



                                                                1998       1999
                                                              --------   --------
                                                                   
IPR&D.......................................................   $3,529      $ --
Provision to reduce the carrying value of certain assets....       49        --
Severance and other employee related costs..................       21        --
Direct merger costs.........................................       17         1
Alignment and other exit activities.........................      109        (9)
                                                               ------      ----
                                                               $3,725      $ (8)
                                                               ======      ====


    In 1998, the Company recorded a pre-tax charge of $196 million in connection
with the BFP Merger, the MCI Merger and asset write-downs and loss
contingencies. This charge included $21 million for employee severance,
$17 million for BFP direct merger costs, $38 million for conformance of BFP
accounting policies, $56 million for exit costs under long-term commitments,
$31 million for write-down of a permanently impaired investment and $33 million
related to asset write-downs and loss contingencies. The $56 million related to
long-term commitments includes $33 million of minimum commitments between 1999
and 2008 for leased facilities that the Company has or will abandon,
$19 million related to minimum contractual network lease commitments that expire
between 1999 and 2001, for which the Company will receive no future benefit due
to the migration of traffic to owned facilities, and $4 million of other
commitments. Because of organizational and operational changes that occurred,
management concluded in 1999 that selected leased properties would not be
abandoned according to the original plan that was approved by management.
Therefore, in 1999 a reversal of a $9 million charge to IPR&D and other charges
was recorded in connection with this plan amendment. Additionally, the
$33 million related to asset write-downs and loss contingencies includes
$9 million for the decommission of information systems that have no alternative
future use, $9 million for the write-down to fair value of assets held for sale
that were disposed of in 1998 and $15 million related to legal costs and other
items related to BFP. As of December 31, 1999 and 2000, the Company's remaining
unpaid liability related to the above charges was $27 million and $20 million,
respectively.

CHARGE FOR IN-PROCESS RESEARCH AND DEVELOPMENT:

    In connection with 1998 business combinations, the Company made allocations
of the purchase price to acquired IPR&D totaling $429 million in the first
quarter of 1998 related to the CompuServe Merger and AOL Transaction and
$3.1 billion in the third quarter of 1998 related to the MCI Merger. These
allocations represent the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects. At the date of the respective
business combinations, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
respective acquisition dates.

                                      F-17

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(4) INVESTMENTS--

    In November 1999, the Company purchased 30 million shares of Metricom, Inc.
("Metricom") Series A1 preferred stock (the "Metricom Preferred Stock") for
$300 million. The Metricom Preferred Stock bears cumulative dividends at the
rate of 6.5% per annum for three years, payable in cash or additional shares of
Metricom Preferred Stock. In addition, the Company has the right to elect one
director to Metricom's board of directors, although voting rights otherwise will
be generally limited to specified matters. The Metricom Preferred Stock is
subject to mandatory redemption by Metricom at the original issuance price in
2009 and to redemption at the option of the holder upon the occurrence of
specified changes in control or major acquisitions. The Metricom Preferred Stock
is convertible into Metricom common stock at the Company's option beginning
May 2002.

    Metricom is a leading provider of mobile data networking and technology.
Metricom's Ricochet service provides mobile professionals with high-performance,
cost effective untethered access to the Internet, private Intranets, local-area
networks, e-mail and other online services.

    Additionally, WorldCom signed a five-year, non-exclusive agreement valued at
$388 million with Metricom to sell subscriptions for Metricom's Ricochet
services. The agreement is subject to the timely deployment of the Metricom
network, Metricom's ability to meet agreed performance standards and Metricom's
ability to attract a significant number of subscribers through other channel
partners.

    In connection with the MCI Merger, the Company acquired an investment in The
News Corporation Limited ("News Corp.") comprised of cumulative convertible
preferred securities and warrants. In July 1999 the Company received
$1.4 billion in cash from the sale of the Company's interest in News Corp.
preferred stock. The Company recorded a gain of $130 million on this sale.
Additionally, the Company recorded dividend income of approximately $17 million
and $32 million, respectively, for the years ended December 31, 1998 and 1999.

    With News Corp., the Company anticipated forming a Direct Broadcast
Satellite ("DBS") joint venture in which the Company would own a 19.9% interest.
DBS is a point-to-multipoint broadcast service that uses high-powered Ku band
satellites placed in geosynchronous orbit. DBS service is capable of delivering
a wide range of services, including subscription television, pay-per-view
services, such as movies, concerts and sporting events, and digitized content,
such as magazines. Prior to the EchoStar Transaction, as discussed below, the
Company held a DBS license from the FCC which it planned to contribute to the
joint venture. The DBS license granted the Company the right to use 28 of 32
channels in the satellite slot located at 110 degrees west longitude, which
provides coverage to all fifty states in the U.S. and Puerto Rico. News Corp.
and the Company planned to contribute to the joint venture the other DBS related
assets they each own.

    In November 1998, the Company and News Corp. entered into an agreement with
EchoStar Communications Corporation ("EchoStar") for the sale and transfer of
the Company's and News Corp.'s DBS assets (the "EchoStar Transaction"). The
EchoStar Transaction was consummated in June 1999 and the Company acquired
preferred shares in a subsidiary of News Corp. for a face amount equal to the
Company's cost of obtaining the DBS license from the FCC, plus interest thereon.
The Company also received from EchoStar approximately 6.8 million shares of
EchoStar Class A Common Stock. In December 1999, the Company sold 2.7 million
shares of EchoStar Class A Common Stock and received $190 million in net
proceeds. The Company recorded a gain of $101 million on this sale.

                                      F-18

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(5) LONG-TERM DEBT--

    Outstanding debt as of December 31, 1999 and 2000 consists of the following
(in millions):



                                                                1999                                  2000
                                                 -----------------------------------   -----------------------------------
                                                 EXCLUDING                             EXCLUDING
                                                 EMBRATEL    EMBRATEL   CONSOLIDATED   EMBRATEL    EMBRATEL   CONSOLIDATED
                                                 ---------   --------   ------------   ---------   --------   ------------
                                                                                            
Commercial paper and credit facilities.........   $ 2,875     $   --      $ 2,875       $ 3,629     $   --      $ 3,629
Floating rate notes due 2001 through 2002......     1,000         --        1,000         1,560         --        1,560
7.88% - 8.25% Notes Due 2003-2010..............        --         --           --         3,500         --        3,500
7.38% Notes Due 2006-2011......................        --         --           --         2,000         --        2.000
6.13% - 6.95% Notes Due 2001-2028..............     6,100         --        6,100         6,100         --        6,100
7.13% - 7.75% Notes Due 2004-2027..............     2,000         --        2,000         2,000         --        2,000
8.88% - 13.5% Senior Notes Due 2002-2006.......       689         --          689           672         --          672
7.13% - 8.25% Senior Debentures Due 2023-2027..     1,438         --        1,438         1,436         --        1,436
6.13% - 7.50% Senior Notes Due 2004-2012.......     2,142         --        2,142         1,934         --        1,934
15% note payable due in annual installments
  through 2000.................................        --        440          440            --         --           --
Capital lease obligations, 7.00% - 11.00%
  (maturing through 2002)......................       483         --          483           413         --          413
Other debt (maturing through 2008).............       148        828          976           518      1,134        1,652
                                                  -------     ------      -------       -------     ------      -------
                                                   16,875      1,268       18,143        23,762      1,134       24,896
Short-term debt and current maturities of
  long-term debt...............................    (4,239)      (776)      (5,015)       (6,764)      (436)      (7,200)
                                                  -------     ------      -------       -------     ------      -------
                                                  $12,636     $  492      $13,128       $16,998     $  698      $17,696
                                                  =======     ======      =======       =======     ======      =======


    On December 19, 2000, the Company completed the private offering of
$2.0 billion principal amount of debt securities. The net proceeds of
$1.99 billion were used to repay commercial paper obligations. The offering
consisted of $1.0 billion of 7.375% Dealer Remarketable Securities, or Drs.,
which mature January 15, 2011 and $1.0 billion of 7.375% Notes Due 2006, which
mature January 15, 2006. The debt securities were not registered under federal
securities laws and therefore may not be offered or sold in the United States
unless registered or exempt.

    Interest on the Drs. is payable semiannually on the 15th day of January and
July, beginning July 15, 2001 and including January 15, 2003. Thereafter,
interest on the Drs. is payable annually on January 15th. The Drs. are subject
to mandatory tender by all holders of Drs. to the remarketing dealer on
January 15, 2003 and on each January 15th thereafter, until and including
January 15, 2010. Interest on the 7.375% Notes Due 2006 is payable semiannually
on the 15th day of January and July, beginning July 15, 2001.

    If the remarketing dealer elects to remarket the Drs. on any remarketing
date as described therein, holders must tender the Drs. to the remarketing
dealer at 100% of their principal amount. If the remarketing dealer elects not
to remarket the Drs., or for any reason does not purchase all of the Drs. on
such remarketing date, holders must tender and the Company will repurchase, at
100% of their principal amount, any Drs. that have not been purchased by the
remarketing dealer.

    If the remarketing dealer remarkets the Drs. on any remarketing date, the
stated interest rate on the Drs. will be reset at an adjusted fixed rate until
the immediately following remarketing date (or, in

                                      F-19

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(5) LONG-TERM DEBT--  (CONTINUED)
the case of the last remarketing date, until the stated maturity date). The Drs.
will generally not be redeemable by the Company.

    On May 24, 2000, the Company completed a public debt offering of
$5.0 billion principal amount of debt securities. The net proceeds of
$4.95 billion were used to pay down commercial paper obligations. The public
debt offering consisted of the following series of notes:



                                                          PRINCIPAL
                        TITLE                              AMOUNT           MATURITY
                        -----                           -------------   -----------------
                                                                  
 Floating Rate Notes Due 2001........................   $1.5 billion    November 26, 2001
 7.875% Notes Due 2003...............................   $1.0 billion    May 15, 2003
 8% Notes Due 2006...................................   $1.25 billion   May 15, 2006
 8.25% Notes Due 2010................................   $1.25 billion   May 15, 2010


    The Floating Rate Notes bear interest payable quarterly on the 24th day of
February, May, August and November, beginning August 24, 2000. Each of the
7.875% Notes Due 2003, the 8% Notes Due 2006 and the 8.25% Notes Due 2010 bear
interest payable semiannually in arrears on May 15 and November 15 of each year,
commencing November 15, 2000.

    The 8% Notes Due 2006, the 7.375% Notes Due 2006 and the 8.25% Notes Due
2010 are redeemable, as a whole or in part, at the option of the Company, at any
time or from time to time, at respective redemption prices equal to the greater
of:

    - 100% of the principal amount of the Notes to be redeemed or

    - the sum of the present values of the remaining scheduled payments (as
      defined) discounted at the Treasury rate (as defined) plus 0.25% for the
      8% Notes Due 2006 and the 7.375% Notes Due 2006, and 0.30% for the 8.25%
      Notes Due 2010.

    On August 3, 2000, the Company extended its existing $7 billion 364-Day
Revolving Credit and Term Loan Agreement for a successive 364-day term. This
credit facility is referred to as the Facility C Loans. The Facility C Loans,
together with the $3.75 billion Amended and Restated Facility A Revolving Credit
Agreement, which the Company refers to as the Facility A Loans, provide the
Company with aggregate credit facilities of $10.75 billion. These credit
facilities provide liquidity support for the Company's commercial paper program
and will be used for other general corporate purposes.

    The Facility A Loans mature on June 30, 2002. The Facility C Loans mature on
August 2, 2001; provided, however, that the Company may elect at that time to
convert up to $4 billion of the principal debt outstanding under the Facility C
Loans from revolving loans to term loans with a maturity date no later than one
year after the conversion. The Facility A Loans and the Facility C Loans are
subject to annual commitment fees not to exceed 0.25% and 0.15%, respectively,
of any unborrowed portion of the facilities.

    The credit facilities bear interest payable in varying periods, depending on
the interest period, not to exceed six months, or with respect to any Eurodollar
Rate borrowing, 12 months if available to all lenders, at rates selected by the
Company under the terms of the credit facilities, including a Base Rate or
Eurodollar Rate, plus the applicable margin. The applicable margin for the
Eurodollar Rate

                                      F-20

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(5) LONG-TERM DEBT--  (CONTINUED)
borrowing generally varies from 0.35% to 0.75% as to Facility A Loans and from
0.225% to 0.45% as to Facility C Loans, in each case based upon the Company's
then current debt ratings.

    The credit facilities are unsecured but include a negative pledge of the
assets of the Company and, subject to exceptions, the covered subsidiaries.

    The credit facilities require compliance with a financial covenant based on
the ratio of total debt to total capitalization, calculated on a consolidated
basis. The credit facilities require compliance with operating covenants which
limit, among other things, the incurrence of additional indebtedness by the
Company and the covered subsidiaries and sales of assets and mergers and
dissolutions. The credit facilities do not restrict distributions to
shareholders, provided the Company is not in default under the credit
facilities. At December 31, 2000, the Company was in compliance with these
covenants.

    Additionally, on June 12, 2000, the Company completed a public debt offering
of $60 million principal amount of debt securities. The net proceeds of
$59.9 million were used for general corporate purposes. The public debt offering
consisted of $60 million of Floating Rate Notes Due 2002 (the "2002 Floating
Rate Notes"), which mature June 11, 2002. The 2002 Floating Rate Notes bear
interest payable quarterly on the 11th day of March, June, September and
December, beginning September 11, 2000.

    In the third quarter of 2000, the Company paid the final installment of
R$795 million (U.S. $444 million) on the note due in connection with the
Company's purchase of Embratel. Additionally, in the first quarter of 2000,
$200 million of senior notes with an interest rate of 7.13% matured. The funds
utilized to repay this indebtedness were obtained from available liquidity under
the Company's credit facilities and commercial paper program.

    As of December 31, 2000, Embratel had $1.1 billion of total long-term debt
outstanding, of which approximately $879 million was denominated in U.S. dollars
and $255 million denominated in other currencies including the French Franc,
Deutsche Mark, Japanese Yen, and Brazilian REAL. The Embratel debt bears fixed
interest rates ranging from 5.7% to 11.2% and variable interest rates ranging
from 0.13% to 3.30% per annum over the LIBOR. The LIBOR rate at December 31,
2000 was 6.39875%.

    As of December 31, 2000, Embratel was in compliance with the various
covenants included in all of its debt agreements.

    The aggregate principal repayments and reductions required in each of the
years ending December 31, 2001 through December 31, 2005 and thereafter for the
Company's long-term debt is as follows (in millions):

                                                           
2001........................................................  $ 7,200
2002........................................................      467
2003........................................................    1,804
2004........................................................    1,221
2005........................................................    2,387
Thereafter..................................................   11,817
                                                              -------
                                                              $24,896
                                                              =======



                                      F-21

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(6) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
    TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES OF
    THE COMPANY AND OTHER REDEEMABLE PREFERRED SECURITIES--

    In connection with the MCI Merger, the Company acquired $750 million
aggregate principal amount of 8% Cumulative Quarterly Income Preferred
Securities, Series A, representing 30 million shares outstanding ("preferred
securities") due June 30, 2026 which were previously issued by MCI Capital I, a
wholly owned Delaware statutory business trust (the "Trust"). The Trust exists
for the sole purpose of issuing the preferred securities and investing the
proceeds in the Company's 8% Junior Subordinated Deferrable Interest Debentures,
Series A ("Subordinated Debt Securities") due June 30, 2026, the only assets of
the Trust.

    Holders of the preferred securities are entitled to receive preferential
cumulative cash distributions from the Trust on a quarterly basis, provided the
Company has not elected to defer the payment of interest due on the Subordinated
Debt Securities to the Trust. The Company may elect this deferral from time to
time, provided that the period of each such deferral does not exceed five years.
The preferred securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debt Securities at maturity or earlier
in an amount equal to the amount of Subordinated Debt Securities maturing or
being repaid. In addition, in the event the Company terminates the Trust, the
Subordinated Debt Securities will be distributed to the then holders of the
preferred securities of the Trust.

    The Company has executed various guarantee agreements and supplemental
indentures which agreements, when taken together with the issuance of the
Subordinated Debt Securities, constitute a full, irrevocable, and unconditional
guarantee by the Company of all of the Trust's obligations under the preferred
securities (the "Guarantee"). A Guarantee Agreement and Supplement No. 1 thereto
covers payment of the preferred securities' quarterly distributions and payments
on maturity or redemption of the preferred securities, but only in each case to
the extent of funds held by the Trust. If the Company does not make interest
payments on the Subordinated Debt Securities held by the Trust, the Trust will
have insufficient funds to pay such distributions. The obligations of the
Company under the Guarantee and the Subordinated Debt Securities are subordinate
and junior in right of payment to all senior debt of the Company.

OTHER REDEEMABLE PREFERRED SECURITIES:

    On December 28, 1998, WorldCom Synergies Management Company, Inc. ("SMC"), a
wholly owned subsidiary of the Company, issued 475 shares of an authorized 500
shares of 6.375% cumulative preferred stock, Class A ("SMC Class A Preferred
Stock") in a private placement. Each share of SMC Class A Preferred Stock has a
par value of $0.01 per share and a liquidation preference of $100,000 per share.
The SMC Class A Preferred Stock is mandatorily redeemable by SMC at the
redemption price of $100,000 per share plus accumulated and unpaid dividends on
January 1, 2019. Dividends on the SMC Class A Preferred Stock are cumulative
from the date of issuance and are payable quarterly at a rate per annum equal to
6.375% of the liquidation preference of $100,000 per share when, as and if
declared by the board of directors of SMC.

                                      F-22

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(7) PREFERRED STOCK--

    The WorldCom Series B Convertible Preferred Stock (the "WorldCom Series B
Preferred Stock") is convertible into shares of WorldCom Common Stock at any
time at a conversion rate of 0.1460868 shares of WorldCom Common Stock for each
share of WorldCom Series B Preferred Stock. Dividends on the WorldCom Series B
Preferred Stock accrue at the rate of $0.0775 per share, per annum and are
payable in cash. Dividends will be paid only when, as and if declared by the
Board of Directors. The Company has not declared any dividends on the WorldCom
Series B Preferred Stock to date and anticipates that future dividends will not
be declared but will continue to accrue. Upon conversion, accrued but unpaid
dividends are payable in cash or shares of WorldCom Common Stock at the
Company's election. To date, the Company has elected to pay all accrued
dividends in cash, upon conversion.

    The WorldCom Series B Preferred Stock is also redeemable at the option of
the Company at any time after September 30, 2001 at a redemption price of $1.00
per share, plus accrued and unpaid dividends. The redemption price will be
payable in cash or shares of WorldCom Common Stock at the Company's election.

    The WorldCom Series B Preferred Stock is entitled to one vote per share with
respect to all matters. The WorldCom Series B Preferred Stock has a liquidation
preference of $1.00 per share plus all accrued and unpaid dividends thereon to
the date of liquidation. There is no established market for the WorldCom
Series B Preferred Stock.

    In January 2000, each outstanding share of WorldCom Series C Preferred Stock
was redeemed by the Company for $50.75 in cash, or approximately $190 million in
the aggregate.

    In May 1998, the Company exercised its option to redeem all of the
outstanding Series A 8% Cumulative Convertible Preferred Stock (the "WorldCom
Series A Preferred Stock") and related depositary shares. Prior to the
redemption date, substantially all of the holders of WorldCom Series A Preferred
Stock elected to convert the preferred stock into WorldCom Common Stock,
resulting in the issuance of approximately 49 million shares of WorldCom Common
Stock.

(8) SHAREHOLDER RIGHTS PLAN--

    On August 25, 1996, the Board of Directors of WorldCom declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
WorldCom Common Stock. Each Right entitles the registered holder to purchase
from the Company one one thousand-five-hundredth of a share of Series 3 Junior
Participating Preferred Stock, par value $.01 per share (the "Junior Preferred
Stock"), of the Company at an initial price of $160.00 per one one-thousandth of
a share of Junior Preferred Stock (the "Purchase Price"), subject to adjustment.

    The Rights generally will be exercisable only after the close of business on
the tenth business day following the date of public announcement or the date on
which the Company first has notice or determines that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or has
obtained the right to acquire, 15% or more of the outstanding shares of voting
stock of the Company without the prior express written consent of the Company,
or after the close of business on the tenth business day (or such later day as
the Board of Directors shall determine, but in no event later than the tenth
business day after a person becomes an Acquiring Person) after the commencement
of a tender offer or exchange offer, by a person which, upon consummation, would

                                      F-23

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(8) SHAREHOLDER RIGHTS PLAN--  (CONTINUED)
result in such party's control of 15% or more of the Company's voting stock. The
Rights will expire, if not previously exercised, exchanged or redeemed, on
September 6, 2001.

    If any person or group acquires 15% or more of the Company's outstanding
voting stock without prior written consent of the Board of Directors, each
Right, except those held by such persons, would entitle each holder of a Right
to acquire such number of shares of WorldCom's Common Stock as shall equal the
result obtained by multiplying the then current Purchase Price by the number of
one one-thousandths of a share of Junior Preferred Stock for which a Right is
then exercisable and dividing that product by 50% of the then current per-share
market price of WorldCom Common Stock.

    If any person or group acquires 15% or more, but less than 50%, of the
outstanding WorldCom Common Stock without prior written consent of the Board of
Directors, each Right, except those held by such persons, may be exchanged by
the Board of Directors for one share of WorldCom Common Stock.

    If the Company were acquired in a merger or other business combination
transaction where the Company is not the surviving corporation or where the
Company is the surviving corporation, but WorldCom Common Stock is exchanged or
changed for stock or other securities of any other person or for cash or other
property, or where 50% or more of the Company's assets or earnings power is sold
in one or several transactions without the prior written consent of the Board of
Directors, each Right would entitle the holders thereof (except for the
Acquiring Person) to receive such number of shares of the acquiring company's
common stock as shall be equal to the result obtained by multiplying the then
current Purchase Price by the number of one one-thousandths of a share of Junior
Preferred Stock for which a Right is then exercisable and dividing that product
by 50% of the then current market price per share of the common stock of the
acquiring company on the date of such merger or other business combination
transaction.

    At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of the Company may redeem the Rights in whole, but not in part, at a
price of $.0067 per Right (the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of the Rights will be to receive the
Redemption Price.

    The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the greater of
(i) any percentage greater than the largest percentage of the voting power of
all securities of the Company then known to the Company to be beneficially owned
by any person or group of affiliated or associated persons (other than an
excepted person) and (ii) 10%, except that from and after such time as any
person or group of affiliated or associated persons becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights.

                                      F-24

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(9) LEASES AND OTHER COMMITMENTS--

    The Company leases office facilities and equipment under non-cancelable
operating leases having initial or remaining terms of more than one year. Rental
expense under these operating leases was $184 million, $323 million and
$392 million in 1998, 1999, and 2000, respectively. In addition, the Company
leases a right-of-way from a railroad company under a fifteen-year lease with
three fifteen-year renewal options. The Company is also obligated under
rights-of-way and franchise agreements with various entities for the use of
their rights-of-way for the installation of the Company's telecommunications
systems.

    At December 31, 2000, minimum lease payments under non-cancelable operating
leases and commitments, other contractual commitments and capital leases were as
follows (in millions):



                                                              OPERATING AND CAPITAL LEASES
                                              ------------------------------------------------------------
                                              OFFICE FACILITIES
                                                AND EQUIPMENT
                                                  AND OTHER       TELECOMMUNICATIONS
                                                 CONTRACTUAL          FACILITIES                  CAPITAL
YEAR                                             COMMITMENTS      AND RIGHTS-OF-WAY     TOTAL      LEASES
- ----                                          -----------------   ------------------   --------   --------
                                                                                      
2001........................................        $  692             $ 2,757         $ 3,449     $  87
2002........................................           795               2,538           3,333        55
2003........................................           720               2,400           3,120        33
2004........................................           621               2,044           2,665        39
2005........................................           568               1,726           2,294        30
Thereafter..................................         2,496               2,006           4,502       375
                                                    ------             -------         -------     -----
Total.......................................        $5,892             $13,471         $19,363     $ 619
                                                    ======             =======         =======
Less: imputed interest......................                                                        (206)
                                                                                                   -----
                                                                                                   $ 413
                                                                                                   =====


    The Company has various facility leases that include renewal options, and
most leases include provisions for rent escalation to reflect increased
operating costs and/or require the Company to pay certain maintenance and
utility costs.

    In October 1999, the Company and Electronic Data Systems Corporation ("EDS")
finalized dual outsourcing agreements that are expected to capitalize on the
individual strengths of each company. Under these agreements, WorldCom has
outsourced portions of its information technology ("IT") operations to EDS. EDS
has assumed responsibility for IT system operations at more than a dozen
WorldCom processing centers worldwide. The IT outsourcing agreement is
represented by a 10-year contractual commitment with contractually specified
minimums over the term of the contract. The contractual minimums aggregate
$3.16 billion and have been included in the operating and capital lease
commitment table above.

    In 1999, the Company amended its existing $500 million receivables purchase
agreement to $2.0 billion by including additional receivables eligible under the
agreement. As of December 31, 2000, the purchaser owned an undivided interest in
a $3.5 billion pool of receivables, which includes the $1.95 billion sold.

                                      F-25

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--

    The Company is involved in legal and regulatory proceedings that are
incidental to its business and has included loss contingencies in other current
liabilities and other liabilities for these matters. In some instances, rulings
by federal and state regulatory authorities may result in increased operating
costs to the Company. The results of these various legal and regulatory matters
are uncertain and could have a material adverse effect on the Company's
consolidated results of operations or financial position.

    GENERAL

    WorldCom is subject to varying degrees of federal, state, local and
international regulation. In the United States, the Company's subsidiaries are
most heavily regulated by the states, especially for the provision of local
exchange services. The Company must be certified separately in each state to
offer local exchange and intrastate long distance services. No state, however,
subjects the Company to price cap or rate of return regulation, nor is the
Company currently required to obtain FCC authorization for installation or
operation of its network facilities used for domestic services, other than
licenses for specific multichannel multipoint distribution services, wireless
communications service and terrestrial microwave and satellite earth station
facilities that utilize radio frequency spectrum. FCC approval is required,
however, for the installation and operation of its international facilities and
services. WorldCom is subject to varying degrees of regulation in the foreign
jurisdictions in which it conducts business, including authorization for the
installation and operation of network facilities. Although the trend in federal,
state and international regulation appears to favor increased competition, no
assurance can be given that changes in current or future regulations adopted by
the FCC, state or foreign regulators or legislative initiatives in the United
States or abroad would not have a material adverse effect on WorldCom.

    DOMESTIC

    In August 1996, the FCC established nationwide rules pursuant to the Telecom
Act designed to encourage new entrants to compete in local service markets
through interconnection with the traditional phone companies, resale of
traditional phone companies' retail services, and use of individual and
combinations of unbundled network elements, owned by the traditional phone
companies. Unbundled network elements are defined in the Telecom Act as any
"facility or equipment used in the provision of a telecommunication service," as
well as "features, function, and capabilities that are provided by means of such
facility or equipment." Implementation of these rules has been delayed by
various appeals by traditional phone companies. In January 1999, the Supreme
Court of the United States confirmed the FCC's authority to issue the rules,
including a pricing methodology for unbundled network elements. On remand, the
FCC clarified the requirement that traditional phone companies make specific
unbundled network elements available to new entrants. The traditional phone
companies have sought reconsideration of the FCC's order and have petitioned for
review of the order in the United States Court of Appeals for the D.C. Circuit.
The traditional phone companies also petitioned for review of the FCC's rules
for pricing unbundled network elements in the United States Court of Appeals for
the Eighth Circuit which, in July 2000, invalidated the portion of those rules
that mandated that the pricing be based on a forward-looking cost methodology
which calculates costs by reference to efficient technology and design choices.
At the request of various parties, including

                                      F-26

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--  (CONTINUED)
WorldCom, the Supreme Court will review the Eighth Circuit's decision. A ruling
from the Supreme Court is expected in early 2002.

    The Telecom Act requires traditional phone companies to petition the FCC for
permission to offer long distance services for each state within their region.
Section 271 of the Act provides that for these applications to be granted, the
FCC must find, among other things, that the traditional phone company has
demonstrated that it has met a 14-point competitive checklist to open its local
network to competition and that granting the petition is in the public interest.
To date, the FCC has rejected five traditional phone company applications and it
has granted four: Verizon's for New York and SBC's for Texas, Kansas and
Oklahoma. Currently, an application is pending before the FCC by Verizon for
Massachusetts. Other applications may be filed at any time. WorldCom has
challenged, and will continue to challenge, any application that does not
satisfy the requirements of Section 271 or the FCC's local competition rules. To
date, these challenges have focused on the pricing of unbundled network elements
and on the adequacy of the traditional phone companies' operations support
systems. In addition, several bills have been introduced in Congress that would
have the effect of allowing traditional phone companies to offer in-region long
distance data services without satisfying Section 271 of the Act or of making it
more difficult for competitors to resell traditional phone company high-speed
Internet access services or to lease the unbundled network elements used to
provide these services. To date, WorldCom and others have successfully opposed
these bills.

    In August 1998, the FCC ruled that the interconnection, unbundling, and
resale requirements imposed on traditional phone companies by the Telecom Act,
as well as the prohibition on traditional phone company provision of in-region
long distance services, apply to advanced telecommunication services such as
digital subscriber line technology. U S West petitioned for review of this order
in the United States Court of Appeals for the D.C. Circuit which, at the request
of the FCC, remanded the case for further administrative proceedings. In
December 1999, the FCC reaffirmed its order, but reserved ruling on whether
these obligations apply to traffic jointly carried by a traditional phone
company and a competitive local exchange carrier to an Internet service provider
which self-provides the transport component of its Internet access services. The
order also found that digital subscriber line-based advanced services used to
connect Internet service providers to their subscribers to facilitate
Internet-bound traffic ordinarily constitute exchange access service. In
January 2000, WorldCom petitioned for review of this latter aspect of the FCC's
order in the United States Court of Appeals for the D.C. Circuit, and a decision
from the court is pending.

    In November 1999, the FCC's Pricing Flexibility Order, which allowed
price-cap regulated traditional phone companies to offer customer specific
pricing in contract tariffs, took effect. Price-cap regulated traditional phone
companies can now offer access arrangements with contract-type pricing in
competition with long distance carriers and other competitive access providers,
who have previously been able to offer this pricing for access arrangements. As
traditional phone companies experience increasing competition in the local
services market, the FCC will grant increased pricing flexibility and relax
tariffing requirements for access services. The FCC also is conducting a
proceeding to consider additional pricing flexibility for a wider range of
access services. WorldCom petitioned for review of the Pricing Flexibility Order
in the United States Court of Appeals for the D.C. Circuit, and in an opinion
entered on February 2, 2001, the court denied those petitions and affirmed the
FCC's order.

                                      F-27

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--  (CONTINUED)
    In July 1999, the United States Court of Appeals for the Fifth Circuit
reversed in part the FCC's May 1997 universal service decision. Among other
things, the court held that the FCC may collect universal service contributions
from interstate carriers based on only interstate revenues, and that the FCC
could not force the traditional phone companies to recover their universal
service contributions through interstate access charges. In November 1999, the
FCC implemented the Fifth Circuit's decision. AT&T has petitioned for review of
this FCC order in the United States Court of Appeals for the Fifth Circuit, and
WorldCom has intervened in support of AT&T. Pending reconsideration petitions at
the FCC seek retroactive treatment for implementation of the remand order. The
FCC has released two additional universal service orders, which provide for
federal support for non-rural high cost areas. Petitions for review of both
orders were filed in the United States Court of Appeals for the Tenth Circuit.

    In March 1999, the FCC sought public comments on its tentative conclusion
that loop spectrum standards should be set in a competitively neutral process.
In December 1999, the FCC concluded that traditional phone companies should be
required to share primary telephone lines with competitive local exchange
carriers, and identified the high frequency portion of the loop as a network
element. In February 2000, U S West and the United States Telephone Association
petitioned for review of the order in the United States Court of Appeals for the
D.C. Circuit; the court held the case in abeyance pending reconsideration at the
FCC. On January 19, 2001, the FCC issued its order on reconsideration which
again is favorable to WorldCom and other firms seeking to gain access to the
high bandwidth portion of the local loop. More specifically, the FCC clarified
that the requirement to share lines applies to the entire loop, even where the
traditional phone company has deployed fiber in the loop. Under the order, the
traditional phone companies must permit competing carriers to self-provision or
partner with a data carrier in order to furnish voice and data service on the
same line. The traditional phone companies have appealed this ruling and the
Company has intervened to ensure that it is not disturbed.

    In February 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking regarding the regulatory treatment of calls to Internet service
providers. Prior to the FCC's order, over thirty state public utility
commissions issued orders finding that carriers, including WorldCom, are
entitled to collect reciprocal compensation for completing calls to Internet
service providers under the terms of their interconnection agreements with
traditional phone companies. Many of these public utility commission decisions
were appealed by the traditional phone companies and, since the FCC's order,
many traditional phone companies have filed new cases at the public utility
commissions or in court. WorldCom petitioned for review of the FCC's order in
the United States Court of Appeals for the D.C. Circuit, which vacated the order
and remanded the case to the FCC for further proceedings, which are currently
pending. Several bills have been introduced in Congress that would have the
effect of requiring the FCC to deny reciprocal compensation for dial-up Internet
traffic. To date, WorldCom and others have successfully opposed these bills.

    In 1996 and 1997, the FCC issued orders that would require non-dominant
telecommunications carriers to eliminate domestic interstate service tariffs,
except in limited circumstances. These orders were stayed pending judicial
review. In April 2000, however, the United States Court of Appeals for the D.C.
Circuit affirmed the FCC's orders and thereafter lifted the stay. The FCC's
orders prevent WorldCom from relying upon its domestic federal tariff to limit
liability or to establish interstate rates

                                      F-28

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--  (CONTINUED)
for the Company's customers. On March 20, 2001, the FCC released an order
governing the detariffing of international interexchange services. That order
established a nine-month transition period during which carriers may file new or
revised tariffs only for mass market international exchange services. WorldCom
will comply with the FCC's orders and is in the process of developing
modifications to the manner in which the Company establishes contractual
relationships with its customers.

    In May 2000, the FCC adopted further access charge and universal service
reforms. In response to a proposal made by "CALLS", a group of traditional phone
companies and two long distance companies, the FCC reduced access charges paid
by long distance companies to local exchange carriers by approximately
$3.2 billion annually. The proposal, which will allow charges imposed on end
user customers by traditional phone companies to increase over time, also
created a new $650 million universal service fund. Several parties have
petitioned for review of various aspects of the CALLS order.

    It is possible that rights held by WorldCom to multi-channel multipoint
distribution service and/or instructional television fixed service spectrum may
be disrupted by FCC decisions to re-allocate some or all of that spectrum to
other services. If this re-allocation were to occur, the Company cannot predict
whether current deployment plans for its multi-channel multipoint distribution
service services will be sustainable.

    INTERNATIONAL

    In February 1997, the United States entered into a World Trade Organization
agreement that is designed to have the effect of liberalizing the provision of
switched voice telephone and other telecommunications services in scores of
foreign countries over the next several years. The World Trade Organization
agreement became effective in February 1998. In light of the United States
commitments to the World Trade Organization agreement, the FCC implemented new
rules in February 1998 that liberalize existing policies regarding (1) the
services that may be provided by foreign affiliated U.S. international common
carriers, including carriers controlled or more than 25 percent owned by foreign
carrier that have market power in their home markets, and (2) the provision of
alternative traffic routing. The new rules make it much easier for foreign
affiliated carriers to enter the United States market for the provision of
international services.

    In August 1997, the FCC adopted mandatory settlement rate benchmarks. These
benchmarks are intended to reduce the rates that U.S. carriers pay foreign
carriers to terminate traffic in their home countries. The FCC will also
prohibit a U.S. carrier affiliated with a foreign carrier from providing
facilities-based service to the foreign carrier's home market until and unless
the foreign carrier has implemented a settlement rate at or below the benchmark.
The FCC also adopted new rules that will liberalize the provision of switched
services over private lines to World Trade Organization member countries. These
rules allow these services on routes where 50% or more of U.S. billed traffic is
being terminated in the foreign country at or below the applicable settlement
rate benchmark or where the foreign country's rules concerning provision of
international switched services over private lines are deemed equivalent to U.S.
rules.

    In April 1999, the FCC modified its rules to permit U.S. international
carriers to exchange international public switched voice traffic on many routes
to and from the United States outside of the

                                      F-29

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--  (CONTINUED)
traditional settlement rate and proportionate return regimes. In June 1999, the
FCC enforced the benchmark rates on two non-compliant routes. Settlement rates
have fallen to the benchmarks or below on many other routes.

    Although the FCC's new policies and implementation of the World Trade
Organization agreement may result in lower settlement payments by WorldCom to
terminate international traffic, there is a risk that the payments that the
Company will receive from inbound international traffic may decrease to an even
greater degree. The implementation of the World Trade Organization agreement may
also make it easier for foreign carriers with market power in their home markets
to offer U.S. and foreign customers end-to-end services to our disadvantage.
WorldCom may continue to face substantial obstacles in obtaining from foreign
governments and foreign carriers the authority and facilities to provide these
end-to-end services.

    EMBRATEL

    The 1996 General Telecommunications Law provides a framework for
telecommunications regulation for Embratel. Article 8 of the law created an
agency to implement the law through development of regulations and to enforce
these regulations. According to the law, companies wishing to offer
telecommunications services to consumers are required to apply to the agency for
a concession or an authorization.

    The law provides that Embratel and the three regional incumbent telephone
companies are subject to rate regulations. All other telecommunications
companies are not subject to rate regulations although their individual
authorizations may contain specific expansion and continuity obligations.

    The main restriction imposed on carriers by the law is that, until
December 31, 2003, the incumbent telephone companies are prohibited from
offering inter-regional and international long distance service, while Embratel
is prohibited from offering local services. These companies can start providing
those services two years sooner if they meet their network expansion obligations
by December 31, 2001.

    Embratel and the three incumbent telephone companies were granted their
concessions at no fee, until 2005. After 2005, the concessions may be renewed
for a period of 20 years, upon the payment, every two years, of a fee equal to
2% of annual net revenues calculated based on the provision of switched fixed
telephone services in the prior year, excluding taxes and social contributions.

    Embratel also offers a number of ancillary telecommunications services
pursuant to authorizations granted by Anatel. These services include the
provision of dedicated analog and digital lines, packet switched network
services, circuit switched network services, mobile marine telecommunications,
telex and telegraph, radio signal satellite retransmission and television signal
satellite retransmission. Some of these services are subject to some specific
continuity obligations and rate conditions.

    LITIGATION

    In November 2000, class action complaints were filed in the United States
District Court for the Southern District of Mississippi against WorldCom and
some of its executive officers. The complaints generally allege that the
defendants made false and misleading statements about some aspects of the

                                      F-30

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--  (CONTINUED)
Company's performance by failing to disclose, among other things, that the
merger with MCI did not yield the anticipated cost savings and revenue
increases, that the Company's growth rate was declining, and that its financial
statements were inflated due to the failure to write down, on a timely basis,
$405 million in receivables. Based on these allegations, the complaints assert
claims for violation of Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder and Section 20(a) of the 1934 Securities Act.
The complaints seek to certify a class of persons who purchased or otherwise
acquired WorldCom shares between April 13, 2000 and November 1, 2000. The
Company believes that the factual allegations and legal claims asserted in the
complaints are without merit and it intends to defend them vigorously.

    On November 4, 1996, and thereafter, and on August 25, 1997, and thereafter,
MCI and all of its directors were named as defendants in a total of 15
complaints filed in the Court of Chancery in the State of Delaware. British
Telecommunications plc was named as a defendant in 13 of the complaints. The
complaints were brought by alleged stockholders of MCI, individually and
purportedly as class actions on behalf of all other stockholders of MCI. The
complaints allege that MCI's directors breached their fiduciary duty in
connection with the MCI BT merger agreement, that BT aided and abetted those
breaches of duty, that BT owes fiduciary duties to the other stockholders of MCI
and that BT breached those duties in connection with the MCI BT merger
agreement. The complaints seek damages and injunctive and other relief.

    One of the purported stockholder class actions pending in Delaware Chancery
Court has been amended, one of the purported class actions has been dismissed
with prejudice, and plaintiffs in four of the other purported stockholder class
actions have moved to amend their complaints to name WorldCom and a subsidiary
as additional defendants. These plaintiffs generally allege that the defendants
breached their fiduciary duties to stockholders in connection with the merger
with MCI and the agreement to pay a termination fee to WorldCom. They further
allege discrimination in favor of BT in connection with the MCI merger. The
plaintiffs seek, inter alia, damages and injunctive relief prohibiting the
consummation of the MCI merger and the payment of the inducement fee to BT.

    Three complaints were filed in the U.S. District Court for the District of
Columbia, as class actions on behalf of purchasers of MCI shares. The three
cases were consolidated on April 1, 1998. On or about May 8, 1998, the
plaintiffs in all three cases filed a consolidated amended complaint alleging,
on behalf of purchasers of MCI's shares between July 11, 1997 and August 21,
1997, inclusive, that MCI and some of its officers and directors failed to
disclose material information about MCI, including that MCI was renegotiating
the terms of the MCI BT merger agreement. The consolidated amended complaint
seeks damages and other relief. WorldCom and the other defendants have moved to
dismiss the consolidated amended complaint.

    At least nine class action complaints have been filed that arise out of the
FCC's decision in HALPRIN, TEMPLE, GOODMAN AND SUGRUE V. MCI TELECOMMUNICATIONS
CORP., and allege that WorldCom improperly charged "pre-subscribed" customers
"non-subscriber" or so-called "casual" rates for some direct-dialed calls.
Plaintiffs further challenge our credit policies for this "non-subscriber"
traffic. Plaintiffs assert that our conduct violates the Communications Act and
various state laws; the complaint seeks rebates to all affected customers as
well as punitive damages and other relief. In response to a motion filed by us,
the Judicial Panel on Multi-District Litigation consolidated these matters in
the United States District Court for the Southern District of Illinois. The
parties have entered into a

                                      F-31

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--  (CONTINUED)
memorandum of understanding to settle these cases, pursuant to which we would
pay $88 million for the benefit of the settlement class. Judicial approval of
the tentative settlement is required. WorldCom's appeal of the FCC's HALPRIN
decision to the United States Court of Appeals for the District of Columbia
Circuit is stayed pending judicial review of the proposed settlement.

    Between September 5, 2000 and October 4, 2000, a number of purported class
actions and stockholder derivative actions relating to the merger agreement
between WorldCom and Intermedia were filed in the Delaware Chancery Court. The
named defendants include Intermedia, its publicly-traded subsidiary Digex,
certain directors of Digex who are also directors and/or executive officers of
Intermedia and, in some cases, WorldCom. On October 19, 2000, the court ordered
all purported derivative and class action lawsuits be consolidated into a single
action. The consolidated action filed on October 19, 2000 alleges, among other
things, that the defendants, other than WorldCom, breached their fiduciary
duties to the purported class members by acting to further their own interests
at the expense of Digex public stockholders and that the Digex board members who
are also directors and/or executive officers of Intermedia conferred a
substantial benefit on Intermedia at the expense of the Digex public
stockholders by voting to waive application of Section 203 of the Delaware
General Corporate Law with respect to any future "business combinations," as
defined by Section 203, between WorldCom and Digex. The consolidated complaint
also alleges that WorldCom aided and abetted the Intermedia and Digex
defendants' wrongdoing. The consolidated complaint seeks an order enjoining the
merger, a declaration that the waiver of Section 203 is inapplicable to
WorldCom, attorneys' fees and unspecified damages.

    On December 13, 2000, the court denied the plaintiffs' motion for
preliminary injunctive relief, concluding that plaintiffs were unlikely to
succeed on the merits of their claim that defendants usurped a Digex corporate
opportunity. The court further noted that it had determined, at least
preliminarily, that after a full trial on the merits, the plaintiff minority
stockholders are likely to succeed in invalidating the defendant Digex
directors' decision to vote in favor of the Section 203 waiver and that the
plaintiffs could be entitled to a range of equitable remedies, including
monetary damages.

    In general, and subject to certain exceptions, Section 203 prohibits
"business combinations" between a Delaware corporation and an "interested
shareholder" of that corporation for three years from the time that the
shareholder becomes "interested." However, because a majority of Digex's board
of directors voted to waive the applicability of Section 203, WorldCom would be
exempt from the three-year prohibition on "business combinations" with Digex. If
the Digex board's approval of the Section 203 waiver were invalidated, then
WorldCom could be prohibited from entering into "business combinations" with
Digex for the applicable three year period, unless another exception were deemed
applicable (for example, approval of specific "business combination" by the
Digex board and the affirmative vote of 2/3 of the outstanding voting stock not
owned by the interested shareholder).

    On February 15, 2001, the parties agreed to resolve the issues related to
the consolidated action by entering into a memorandum of understanding. The
proposed settlement, which is conditioned on consummation of the merger between
WorldCom and Intermedia, negotiation and execution of a formal written
stipulation of settlement and preliminary and final approval by the court, will
fully resolve all claims asserted in the consolidated action. The principal
terms of the proposed settlement, as set forth in the memorandum of
understanding, are:

                                      F-32

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES--  (CONTINUED)
    - the exchange ratio in the original merger agreement has been reduced to a
      fixed 1:1 ratio that is not subject to adjustment;

    - certain "material adverse effect" provisions in the original merger
      agreement have been narrowed to eliminate various categories of items as
      potentially giving rise to breaches of Intermedia's representations and
      warranties with respect to material adverse effects;

    - with the reduction in the above-referenced exchange ratio, a settlement
      fund of $165 million in WorldCom Common Stock will be created for Digex
      shareholder class members and attorneys' fees;

    - a fund of up to $15 million in cash will be created to cover expenses
      incurred by Digex and a special committee of independent directors of the
      Digex board of directors, as well as administrative expenses of the
      settlement;

    - WorldCom and Digex will enter into a series of commercial arrangements;

    - Intermedia and WorldCom will take steps to amend the Digex certificate of
      incorporation to establish certain procedures to be followed by the Digex
      board of directors when considering certain types of transactions with
      interested stockholders, as defined in Section 203, including WorldCom and
      Intermedia, after the merger;

    - the approval of the WorldCom/Intermedia merger by the Digex board pursuant
      to Section 203 will no longer be subject to challenge and

    - WorldCom will not be subject to any restrictions under Section 203 on
      future "business combinations" with Digex.

(11) EMPLOYEE BENEFIT PLANS--

STOCK OPTION PLANS:

    The Company has several stock option plans under which options to acquire up
to 675 million shares of WorldCom Common Stock may be granted to directors,
officers and employees of the Company including the stock option plans acquired
through various acquisitions. As of December 31, 1998, 1999 and 2000,
outstanding options and warrants to acquire 110 million, 98 million, and
133 million shares, respectively, were exercisable. The Company accounts for
these plans under APB Opinion No. 25, under which no compensation cost is
recognized. Terms and conditions of the Company's options, including exercise
price and the period in which options are exercisable, generally are at the
discretion of the Compensation and Stock Option Committee of the Board of
Directors; however, no options are exercisable for more than 10 years after date
of grant. As of December 31, 2000, 512 million options had been granted under
these plans.

    Prior to the MCI Merger, various executives of MCI were granted incentive
stock units ("ISUs") that vested over a three-year period and entitle the holder
to receive shares of WorldCom Common Stock. At December 31, 2000, there were
approximately 730,000 ISUs outstanding.

                                      F-33

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(11) EMPLOYEE BENEFIT PLANS--

    Additionally, there are outstanding warrants to acquire shares of WorldCom
Common Stock at prices ranging from $4.1667 to $44.41 per share which were
granted by acquired entities prior to their merger with WorldCom.

    Additional information regarding options and warrants granted and
outstanding is summarized below (in millions, except per share data):



                                                   NUMBER OF        WEIGHTED-
                                                  OPTIONS AND        AVERAGE
                                                    WARRANTS      EXERCISE PRICE
                                                 --------------   --------------
                                                            
Balance, December 31, 1997.....................       129             $11.27
Assumed in connection with acquisitions........       127              18.68
Granted to employees/directors.................        48              20.38
Exercised......................................       (49)              9.87
Expired or canceled............................        (9)             16.63
                                                      ---             ------
Balance, December 31, 1998.....................       246              16.93
Granted to employees/directors.................       152              46.61
Exercised......................................       (61)             15.32
Expired or canceled............................       (18)             30.87
                                                      ---             ------
Balance, December 31, 1999.....................       319              30.58
Granted to employees/directors.................       109              44.09
Exercised......................................       (37)             15.62
Expired or canceled............................       (46)             41.55
                                                      ---             ------
Balance, December 31, 2000.....................       345             $35.04
                                                      ===             ======


    Options and warrants to purchase 1 million, 1 million and 313 million shares
of WorldCom Common Stock were outstanding as of December 31, 1998, 1999 and
2000, respectively, with an exercise price in excess of the respective year end
closing market price for WorldCom Common Stock.

    The following table summarizes information about the shares outstanding at
December 31, 2000:



                              OPTIONS AND WARRANTS OUTSTANDING          OPTIONS AND WARRANTS EXERCISABLE
                        ---------------------------------------------   --------------------------------
      RANGE OF             NUMBER        REMAINING       WEIGHTED-          NUMBER          WEIGHTED-
      EXERCISE           OUTSTANDING    CONTRACTUAL       AVERAGE        OUTSTANDING         AVERAGE
       PRICES           (IN MILLIONS)   LIFE (YEARS)   EXERCISE PRICE   (IN MILLIONS)    EXERCISE PRICE
- ---------------------   -------------   ------------   --------------   --------------   ---------------
                                                                          
        $ 0.01-17.34          67            4.3            $12.85              64             $12.89
         17.35-34.68          62            6.5             22.57              33              42.61
         34.69-52.03         215            7.9             45.40              35              46.48
         52.04-86.71           1            6.3             58.28               1              58.81
                             ---                                             ----
                             345                                              133
                             ===                                             ====


    SFAS No. 123, "Accounting for Stock-Based Compensation", requires disclosure
of the compensation cost for stock-based incentives granted after January 1,
1995 based on the fair value at

                                      F-34

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(11) EMPLOYEE BENEFIT PLANS--  (CONTINUED)
grant date for awards. Applying SFAS No. 123 would result in pro forma net
income (loss) and earnings (loss) per share ("EPS") amounts as follows (in
millions, except share data):



                                                                         1998       1999       2000
                                                                       --------   --------   --------
                                                                                 
Net income (loss) before cumulative effect of
  accounting change and extraordinary items............  As reported   $(2,602)   $ 3,941     $4,173
                                                         Pro forma      (2,712)     3,442      3,409
Basic EPS..............................................  As reported     (1.35)      1.40       1.46
                                                         Pro forma       (1.40)      1.22       1.19
Diluted EPS............................................  As reported     (1.35)      1.35       1.43
                                                         Pro forma       (1.40)      1.18       1.17


    The fair value of each option is estimated on the date of grant using an
option-pricing model with the following weighted-average assumptions used for
grant:



                                                        WEIGHTED-
                         EXPECTED      RISK-FREE     AVERAGE GRANT-
    DATE GRANTED        VOLATILITY   INTEREST RATE   DATE FAIR VALUE
- ---------------------   ----------   -------------   ---------------
                                            
        1998               23.7%         5.6%            $ 6.68
        1999               26.8%         5.2%            $14.91
        2000               30.2%         6.3%            $16.79


    Additionally, for all options, a 15% forfeiture rate was assumed with an
expected life of 5 years and no dividend yield.

    Because the SFAS No. 123 method of accounting has been applied only to
grants after December 31, 1994, the resulting pro forma compensation cost may
not be representative of that to be expected in future periods.

401(K) PLANS:

    The Company and its subsidiaries offer its qualified employees the
opportunity to participate in one of its defined contribution retirement plans
qualifying under the provisions of Section 401(k) of the Internal Revenue Code.
Each employee may contribute on a tax deferred basis a portion of annual
earnings not to exceed $10,500. The Company matches individual employee
contributions in selected plans, up to a maximum level which in no case exceeds
6% of the employee's compensation. Expenses recorded by the Company relating to
its 401(k) plans were $26 million, $108 million and $112 million for the years
ended December 31, 1998, 1999 and 2000, respectively.

(12) PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS--

    WorldCom maintains a noncontributory defined benefit pension plan (the "MCI
Plan") and a supplemental pension plan (the "Supplemental Plan") and WorldCom
International Data Services, Inc., a subsidiary of MCI, has a defined benefit
pension plan. Collectively, these plans cover substantially all MCI employees
who became WorldCom employees as a result of the MCI Merger and who work
1,000 hours or more in a year. Effective January 1, 1999, no future compensation
credits are earned by participants of the MCI Plan.

                                      F-35

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(12) PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS--  (CONTINUED)
    Annual service cost is determined using the Projected Unit Credit actuarial
method, and prior service cost is amortized on a straight-line basis over the
average remaining service period of employees. As of December 31, 1999 and 2000,
the fair value of MCI Plan assets exceeds the MCI Plan accumulated benefit
obligation by $51 million and $42 million, respectively. There is no additional
minimum pension liability required to be recognized.

    Additionally, Embratel sponsors a contributory defined benefit pension plan
and a post-retirement benefit plan. Annual service cost is determined using the
projected unit credit actuarial method. Approximately 95% of Embratel's
full-time employees are covered by these plans. The defined benefit pension plan
has a fair value of assets in excess of accumulated benefit obligation of
$13 million and $3 million at December 31, 1999 and 2000, respectively. There is
no additional minimum pension liability to be recognized.

    Embratel health care cost trend rates were projected at annual rates
excluding inflation ranging from 5.74% in 2000 to 2.70% in 2048. The effect of a
one percentage point increase in the assumed health care cost trend rates would
increase the Embratel accumulated post-retirement benefit obligation at
December 31, 2000 by $16 million and the aggregate service and interest cost
components by $2 million on an annual basis. The effect of a one percentage
point decrease in the assumed health care cost trend rate would reduce the
accumulated post-retirement benefit obligation by $13 million and reduce the
total service and interest cost component by $1 million.

    In April 1999, the Company completed the sale of MCI Systemhouse Corp. and
SHL Systemhouse Co. (collectively "SHL") to Electronic Data Systems Corporation,
or EDS, for $1.6 billion resulting in a settlement gain of $24 million and
benefit payments of $80 million.

                                      F-36

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(12) PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS--  (CONTINUED)
    The following table sets forth information for the MCI pension plans and
Embratel defined benefit pension and post-retirement plans' assets and
obligations (in millions):



                                                                           EMBRATEL PLANS
                                                                MCI      -------------------
                                                              PENSION    PENSION     OTHER
                                                               PLANS     BENEFITS   BENEFITS
                                                              --------   --------   --------
                                                                           
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1, 1999.......................   $ 582      $  457     $ 132
Service cost................................................       1           1        --
Interest cost...............................................      36          17         5
Actuarial (gain) loss.......................................     (49)         46        17
Benefits paid...............................................     (89)        (25)       (3)
Foreign currency exchange...................................      --        (147)      (42)
Assumption change...........................................      (5)         --        --
                                                               -----      ------     -----
Benefit obligation at December 31, 1999.....................     476         349       109
Service cost................................................      --           1        --
Interest cost...............................................      35          37        12
Actuarial (gain) loss.......................................       8          29         8
Benefits paid...............................................     (59)        (30)       (4)
Foreign currency exchange...................................      --         (32)      (10)
Plan amendments.............................................       4          --        --
Assumption change...........................................       3          --        --
                                                               -----      ------     -----
Benefit obligation at December 31, 2000.....................   $ 467      $  354     $ 115
                                                               =====      ======     =====

CHANGE IN PLAN ASSETS
Fair value at January 1, 1999...............................   $ 581      $  152     $  39
Actual return on plan assets................................      71          79         5
Employer contributions......................................      --           1        --
Employee contributions......................................      --           1        --
Foreign currency exchange...................................      --         (42)      (12)
Benefits paid...............................................     (87)        (25)       (3)
Effect of settlement/transfers..............................      --         195        --
                                                               -----      ------     -----
Fair value of assets at December 31, 1999...................   $ 565      $  361     $  29
                                                               =====      ======     =====
Actual return on plan assets................................      36          57         5
Foreign currency exchange...................................      --         (31)       (2)
Benefits paid...............................................     (59)        (30)       (4)
                                                               -----      ------     -----
Fair value of assets at December 31, 2000...................   $ 542      $  357     $  28
                                                               =====      ======     =====


                                      F-37

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(12) PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS--  (CONTINUED)



                                                                           EMBRATEL PLANS
                                                                MCI      -------------------
                                                              PENSION    PENSION     OTHER
                                                               PLANS     BENEFITS   BENEFITS
                                                              --------   --------   --------
                                                                           
AS OF DECEMBER 31, 2000:
Funded status...............................................   $  75      $    3     $ (87)
Unrecognized net actuarial (gain) loss......................    (102)        (60)       44
Unamortized prior service cost..............................       7          --        --
Unrecognized transition liability...........................      --           2        --
                                                               -----      ------     -----
Accrued benefit cost........................................   $ (20)     $  (55)    $ (43)
                                                               =====      ======     =====
Weighted average actuarial assumptions:
Discount rate...............................................   7.50%       6.00%     6.00%
Expected return on plan assets..............................   9.00%       9.00%     9.00%
Rate of compensation increase...............................     N/A         N/A       N/A

AS OF DECEMBER 31, 1999:
Funded status...............................................   $  89      $   12     $ (80)
Unrecognized net actuarial gain.............................    (136)        (89)       42
Unamortized prior service cost..............................       4          --        --
Unrecognized transition liability...........................      --           3        --
                                                               -----      ------     -----
Accrued benefit cost........................................   $ (43)     $  (74)    $ (38)
                                                               =====      ======     =====
Weighted average actuarial assumptions:
Discount rate...............................................   8.00%       6.00%     6.00%
Expected return on plan assets..............................   8.75%       9.00%       N/A
Rate of compensation increase...............................     N/A       2.00%       N/A


    The components of the net post-retirement benefit and pension costs for the
years ended December 31, 1998, 1999 and 2000 as follows (in millions):



                                     1998                         1999                               2000
                              -------------------   --------------------------------   --------------------------------
                                   EMBRATEL                          EMBRATEL                           EMBRATEL
                              -------------------     MCI      ---------------------     MCI      ---------------------
                              PENSION     OTHER     PENSION    PENSION      OTHER      PENSION    PENSION      OTHER
                              BENEFITS   BENEFITS    PLANS     BENEFITS    BENEFITS     PLANS     BENEFITS    BENEFITS
                              --------   --------   --------   --------   ----------   --------   --------   ----------
                                                                                     
Service cost................    $ 4        $ 2        $  1       $  1     $      --      $ --       $ --     $       --
Interest cost on accumulated
  postretirement benefit
  obligation................     17          4          36         17             5        35         35             11
Expected return on plan
  assets....................    (13)        (1)        (50)       (25)           (2)      (49)       (46)            (4)
Amortization of transition
  obligation................      7         --          --         (2)           --        --         --             --
Amortization of net loss
  (gain)....................     (1)         1          (4)        --             1       (10)        (2)             2
                                ---        ---        ----       ----     ----------     ----       ----     ----------
Net periodic post-retirement
  benefit cost..............    $14        $ 6        $(17)      $ (9)    $       4      $(24)      $(13)    $        9
                                ===        ===        ====       ====     ==========     ====       ====     ==========


                                      F-38

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(12) PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS--  (CONTINUED)
    During 1998 Embratel created a new defined contribution plan (the "New
Plan") which was approved by the Brazilian government. Effective November 19,
1998, all newly hired employees of Embratel automatically enter the New Plan and
entry into the then existing Embratel pension and post-retirement plans was
frozen. Existing Embratel employees were given the option to migrate from the
existing defined benefit pension and post-retirement benefit plans to the New
Plan. The option expired on December 31, 1998 and the New Plan was effective on
January 1, 1999. The New Plan provides an employer match on employee
contributions based on certain limits, transfer of the defined benefit account
balance, employee directed investment, and a lump sum payment from the
post-retirement plan, which can be used to assist with medical coverage in the
future. Any employees not electing to migrate to the New Plan will remain in the
existing plans and will not have a future opportunity to move to the New Plan.

(13) INCOME TAXES--

    The provision for income taxes is composed of the following (in millions):



                                                         1998       1999       2000
                                                       --------   --------   --------
                                                                    
Current..............................................    $ 92      $   62     $1,376
Deferred.............................................     785       2,903      1,649
                                                         ----      ------     ------
Total provision for income taxes.....................    $877      $2,965     $3,025
                                                         ====      ======     ======


    The following is a reconciliation of the provision for income taxes to the
expected amounts using the statutory rate:



                                                        1998        1999        2000
                                                      --------    --------    --------
                                                                     
Expected statutory amount...........................   (35.0)%      35.0%       35.0%
Nondeductible amortization of excess of cost over
  net tangible assets acquired......................    11.2         5.2         5.0
State income taxes..................................    (2.6)        2.5         2.6
Charge for in-process research and development......    83.5          --          --
Valuation allowance.................................      --        (1.5)         --
Other...............................................    (1.9)        0.2        (2.6)
                                                       -----        ----        ----
Actual tax provision................................    55.2%       41.4%       40.0%
                                                       =====        ====        ====


                                      F-39

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(13) INCOME TAXES--  (CONTINUED)
    The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1999 and 2000 (in
millions):



                                                                    1999                     2000
                                                           ----------------------   ----------------------
                                                            ASSETS    LIABILITIES    ASSETS    LIABILITIES
                                                           --------   -----------   --------   -----------
                                                                                   
Fixed assets.............................................   $   --      $(3,167)     $   --      $(4,779)
Goodwill and other intangibles...........................       --          (68)         --         (122)
Investments..............................................       90           --         363           --
Line installation costs..................................       --         (400)         --         (264)
Accrued liabilities......................................      273           --         643           --
NOL carryforwards........................................      926           --         517           --
Tax credits..............................................      220           --         760           --
Other....................................................       --         (135)         --         (366)
                                                            ------      -------      ------      -------
                                                             1,509       (3,770)      2,283       (5,531)
Valuation allowance......................................      (51)          --        (191)          --
                                                            ------      -------      ------      -------
                                                            $1,458      $(3,770)     $2,092      $(5,531)
                                                            ======      =======      ======      =======


    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes and the impact of available
net operating loss ("NOL") carryforwards.

    At December 31, 2000, the Company had unused NOL carryforwards for federal
income tax purposes of approximately $900 million which expire in various
amounts during the years 2011 through 2018. These NOL carryforwards together
with state and other NOL carryforwards within the United States result in a
deferred tax asset of approximately $326 million at December 31, 2000.

    A valuation allowance of $109 million was reversed during 1999 as a result
of a change in tax regulations and recorded as a reduction in goodwill.

    In addition, at December 31, 2000 the Company has unused NOL carryforwards
of $458 million outside the United States which generally do not expire. These
carryforwards result in a $191 million deferred tax asset for which a valuation
allowance has been established.

    Approximately $358 million of the Company's deferred tax assets are related
to preacquisition NOL carryforwards attributable to entities acquired in
transactions accounted for as purchases. If subsequent events or conditions
dictate an increase in the need for a valuation allowance attributable to such
deferred tax assets, the income tax expense for that period will be increased
accordingly.

(14) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--

    Interest paid by the Company during the years ended December 31, 1998, 1999
and 2000 amounted to $543 million, $1.3 billion and $1.1 billion, respectively.
Income taxes paid, net of refunds, during the years ended December 31, 1998,
1999 and 2000 were $38 million, $106 million and $452 million, respectively.

                                      F-40

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(14) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--  (CONTINUED)
    In conjunction with business combinations during the years ended
December 31, 1998, 1999 and 2000, assets acquired, liabilities assumed and
common stock issued were as follows (in millions):



                                                        1998       1999       2000
                                                      --------   --------   --------
                                                                   
Fair value of assets acquired.......................  $ 21,913    $   62      $ --
Goodwill and other intangible assets................    37,104     2,231        43
Liabilities assumed.................................   (22,476)     (987)      (29)
Common stock issued.................................   (33,141)     (228)       --
                                                      --------    ------      ----
Net cash paid.......................................  $  3,400    $1,078      $ 14
                                                      ========    ======      ====


(15) SEGMENT AND GEOGRAPHIC INFORMATION--

    Based on its organizational structure, the Company operates in nine
reportable segments: Commercial voice and data, Internet, International
operations, Embratel, Consumer, Wholesale, Alternative channels and small
business, Dial-up Internet and Other. The Company's reportable segments
represent business units that primarily offer similar products and services;
however, the business units are managed separately due to the type and class of
customer as well as the geographic dispersion of their operations. The
Commercial voice and data segment includes voice, data and other types of
domestic communications services for commercial customers. The Internet segment
provides Internet services including dedicated access and web and application
hosting services. International operations provide voice, data, Internet and
other similar types of communications services to customers primarily in Europe
and the Asia Pacific region. Embratel provides communications services in
Brazil. Consumer includes domestic voice communications services for consumer
customers. Wholesale includes voice and data domestic communications services
for wholesale customers. Alternative channels and small business includes
domestic long distance voice and data, agents, prepaid calling cards and paging
services provided to alternative wholesale and small business customers. Dial-
up Internet includes dial-up Internet access services. Other includes primarily
the operations of SHL and other non-communications services. In April 1999, SHL
was sold to EDS.

    The Company's chief operating decision-maker utilizes revenue information in
assessing performance and making overall operating decisions and resource
allocations. Communications services are generally provided utilizing the
Company's fiber optic networks, which do not make a distinction between the
types of services. Profit and loss information is reported only on a
consolidated basis to the chief operating decision-maker and the Company's Board
of Directors.

                                      F-41

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(15) SEGMENT AND GEOGRAPHIC INFORMATION--  (CONTINUED)
    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Information about the Company's
segments is as follows (in millions):



                                            REVENUES                   SELLING, GENERAL AND
                                         FROM EXTERNAL                    ADMINISTRATIVE                      CAPITAL
                                           CUSTOMERS                         EXPENSES                       EXPENDITURES
                                 ------------------------------   ------------------------------   ------------------------------
                                   1998       1999       2000       1998       1999       2000       1998       1999       2000
                                 --------   --------   --------   --------   --------   --------   --------   --------   --------
                                                                                              
Voice and data.................  $ 6,066    $13,263    $14,443     $1,212     $2,170    $ 2,588     $2,796     $4,186    $ 5,643
Internet.......................      897      1,554      2,466        224        485        612        613      1,346      2,133
International operations.......    1,090      1,624      2,368        348        774      1,117      1,078      1,494      1,592
Consumer.......................    2,204      7,590      7,782        904      3,275      2,807        139        235        146
Wholesale......................    2,896      3,943      3,388        581        620        522        263        192         94
Alternative channels and small
  business.....................    1,706      3,142      3,541        665        808      1,015         94        182         75
Dial-up Internet...............    1,002      1,497      1,628        291        368        426         98        178        185
Corporate--Sprint merger costs
  and other charges............       --         --         --         --         --        778         --         --         --
SAB 101, other.................      574        523        (37)       170        170         33         36         10        762
Elimination of intergroup
  expenses.....................       --         --         --        (90)      (331)      (254)        --         --         --
                                 -------    -------    -------     ------     ------    -------     ------     ------    -------
  Total before Embratel........   16,435     33,136     35,579      4,305      8,339      9,644      5,117      7,823     10,630
Embratel.......................    1,182      2,854      3,665        258        610        980        369        893        854
Elimination of intersegment
  revenue/expenses.............       --        (82)      (154)        --        (14)       (27)        --         --         --
                                 -------    -------    -------     ------     ------    -------     ------     ------    -------
  Total........................  $17,617    $35,908    $39,090     $4,563     $8,935    $10,597     $5,486     $8,716    $11,484
                                 =======    =======    =======     ======     ======    =======     ======     ======    =======


    The following is a reconciliation of the segment information to income
(loss) before income taxes, minority interests, cumulative effect of accounting
change and extraordinary items (in millions):



                                                     1998       1999       2000
                                                   --------   --------   --------
                                                                
Revenues.........................................  $17,617    $35,908    $39,090
Operating expenses...............................   18,559     28,020     30,937
                                                   -------    -------    -------
Operating income (loss)..........................     (942)     7,888      8,153
Other income (expense):
  Interest expense...............................     (692)      (966)      (970)
  Miscellaneous..................................       44        242        385
                                                   -------    -------    -------
Income (loss) before income taxes, minority
  interests, cumulative effect of accounting
  change and extraordinary items.................  $(1,590)   $ 7,164    $ 7,568
                                                   =======    =======    =======


    Information about the Company's operations by geographic areas are as
follows (in millions):



                                                     1998                    1999                    2000
                                             ---------------------   ---------------------   ---------------------
                                                        LONG-LIVED              LONG-LIVED              LONG-LIVED
                                             REVENUES     ASSETS     REVENUES     ASSETS     REVENUES     ASSETS
                                             --------   ----------   --------   ----------   --------   ----------
                                                                                      
United States..............................  $14,713      $17,954    $30,721      $21,965    $32,177      $29,816
Brazil.....................................    1,182        5,049      2,772        4,017      3,511        4,008
All other international....................    1,722        1,565      2,415        2,636      3,402        3,599
                                             -------      -------    -------      -------    -------      -------
Total......................................  $17,617      $24,568    $35,908      $28,618    $39,090      $37,423
                                             =======      =======    =======      =======    =======      =======


                                      F-42

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(16) TRACKING STOCK PROPOSAL--

    On November 1, 2000, WorldCom announced a realignment of its businesses with
the distinct customer bases they serve. While WorldCom, Inc. will remain the
name of the company, it will create two separately traded tracking stocks:

    - WorldCom group stock is intended to reflect the performance of WorldCom's
      data, Internet, international and commercial voice businesses and is
      expected to be quoted on The Nasdaq National Market under the trading
      symbol "WCOM", and

    - MCI group stock is intended to reflect the performance of WorldCom's
      consumer, small business, wholesale long distance, wireless messaging and
      dial-up Internet access businesses and is expected to be quoted on The
      Nasdaq National Market under the trading symbol "MCIT".

    A tracking stock is a separate class of a company's common stock intended to
provide a return to investors based upon the financial performance of a distinct
business unit of the company, sometimes referred to as the targeted business.
These targeted businesses are collections of businesses that WorldCom has
grouped together in order for WorldCom to issue WorldCom group stock and MCI
group stock. The ownership of the targeted business does not change, and while
each of the classes of stock trade separately, all shareholders are common
shareholders of a single company, WorldCom, and will be subject to all risks of
an investment in WorldCom as a whole.

    Under the plan, which must be approved by WorldCom's shareholders, WorldCom
will amend its articles of incorporation to effect a recapitalization that will
replace WorldCom's existing common stock with two new series of WorldCom common
stock that are intended to reflect, or track, the performance of the businesses
attributed to WorldCom group and MCI group. WorldCom expects to hold its
shareholder meeting to vote on the recapitalization in the first half of 2001,
and to effect the recapitalization shortly after WorldCom receives the necessary
shareholder approval. No regulatory approvals are expected to be required.

    If WorldCom shareholders approve the recapitalization, each share of
WorldCom's existing common stock will be changed into one share of WorldCom
group stock and 1/25 of a share of MCI group stock. After the recapitalization,
a common shareholder's ownership in WorldCom will then be represented by two
stocks: WorldCom group stock and MCI group stock.

    WorldCom intends to initially pay a quarterly dividend of approximately
$75 million ($300 million per year) on the MCI group stock. MCI group will
initially be allocated notional debt of $6 billion and the remaining Company
debt will be allocated on a notional basis to WorldCom group. WorldCom will
report separate financial results for WorldCom group and MCI group in addition
to the consolidated Company results.

    Voting rights of the holders of WorldCom group and MCI group stock will be
prorated based on the relative market values of WorldCom group stock and MCI
group stock. The Company will conduct shareholder meetings that encompass all
holders of voting stock. WorldCom group and MCI group shareholders will vote
together as a single class on all matters brought to a vote of shareholders,
including the election of the Company's directors.

    The Company's Board of Directors may at any time convert each outstanding
share of MCI group stock into shares of WorldCom group stock at 110% of the
relative trading value of MCI group stock

                                      F-43

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(16) TRACKING STOCK PROPOSAL--  (CONTINUED)
for the 20 days prior to the announcement of the conversion. No premium will be
paid on a conversion that occurs three years after the issuance of MCI group
stock.

    If all or substantially all of the WorldCom group or MCI group assets are
sold, either: (i) the relevant shareholders will receive a distribution equal to
the fair value of the net proceeds of the sale, either by special dividend or by
redemption of shares; or (ii) each outstanding share of MCI group stock will be
converted into shares of WorldCom group stock at 110% or 100% of the relative
trading value of MCI group stock for a 10 trading day period following the sale.

(17) UNAUDITED QUARTERLY FINANCIAL DATA--



                                                                        QUARTER ENDED
                                    -------------------------------------------------------------------------------------
                                         MARCH 31,             JUNE 30,            SEPTEMBER 30,         DECEMBER 31,
                                    -------------------   -------------------   -------------------   -------------------
                                      1999       2000       1999       2000       1999       2000       1999       2000
                                    --------   --------   --------   --------   --------   --------   --------   --------
                                                                        (IN MILLIONS)
                                                                                         
REVENUES:
  Previously reported.............   $9,122     $9,978     $9,065    $10,193    $ 9,308    $10,303     $9,625     $9,855
  Revenue reclassifications.......     (305)      (359)      (292)      (376)      (312)      (256)      (303)      (211)
  SAB 101.........................       --         (7)        --        (10)        --        (10)        --        (10)
                                     ------     ------     ------    -------    -------    -------     ------     ------
  Revenues, as reported...........    8,817      9,612      8,773      9,807      8,996     10,037      9,322      9,634

OPERATING INCOME:
  Previously reported.............    1,510      2,440      1,782      2,413      2,199      1,874      2,397      1,496
  SAB 101.........................       --        (16)        --        (26)        --        (22)        --         (6)
                                     ------     ------     ------    -------    -------    -------     ------     ------
  Operating income, as reported...    1,510      2,424      1,782      2,387      2,199      1,852      2,397      1,490

INCOME BEFORE CUMULATIVE EFFECT OF
 ACCOUNTING CHANGE AND
 EXTRAORDINARY ITEMS:
  Previously reported.............      729      1,301        884      1,291      1,097        967      1,303        732
  SAB 101.........................       --        (13)        --        (18)        --        (16)        --         (6)
                                     ------     ------     ------    -------    -------    -------     ------     ------
  As reported.....................      729      1,288        884      1,273      1,097        951      1,303        726

NET INCOME:
  Previously reported.............      729      1,301        884      1,291      1,097        967      1,303        732
  SAB 101.........................       --        (98)        --        (18)        --        (16)        --         (6)
                                     ------     ------     ------    -------    -------    -------     ------     ------
  Net income, as reported.........      729      1,203        884      1,273      1,097        951      1,303        726

Distributions on subsidiary trust
  and other mandatorily redeemable
  preferred securities and
  preferred dividend
  requirement.....................       18         17         18         16         18         16         18         16

INCOME PER SHARE BEFORE CUMULATIVE
 EFFECT OF ACCOUNTING CHANGE
 AND EXTRAORDINARY ITEMS:
  Basic--
  Previously reported.............     0.25       0.45       0.31       0.45       0.38       0.33       0.45       0.25
  SAB 101.........................       --         --         --      (0.01)        --         --         --         --
  As reported.....................     0.25       0.45       0.31       0.44       0.38       0.33       0.45       0.25


                                      F-44

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(17) UNAUDITED QUARTERLY FINANCIAL DATA--  (CONTINUED)



                                                                        QUARTER ENDED
                                    -------------------------------------------------------------------------------------
                                         MARCH 31,             JUNE 30,            SEPTEMBER 30,         DECEMBER 31,
                                    -------------------   -------------------   -------------------   -------------------
                                      1999       2000       1999       2000       1999       2000       1999       2000
                                    --------   --------   --------   --------   --------   --------   --------   --------
                                                                        (IN MILLIONS)
                                                                                         
  Diluted--
  Previously reported.............     0.24       0.44       0.30       0.44       0.37       0.33       0.44       0.25
  SAB 101.........................       --         --         --      (0.01)        --      (0.01)        --         --
  As reported.....................     0.24       0.44       0.30       0.43       0.37       0.32       0.44       0.25


See Note 1 for additional information related to the Company's revenue
reclassifications and adoption of SAB 101.

    Results for the quarter ended June 30, 2000 include a pre-tax charge of
$93 million associated with the termination of the Sprint Corporation merger
agreement, including regulatory, legal, accounting and investment banking fees
and other costs, and results for the quarter ended September 30, 2000 include a
$685 million pre-tax charge associated with specific domestic and international
wholesale accounts that were no longer deemed collectible due to bankruptcies,
litigation and settlements of contractual disputes that occurred in the third
quarter of 2000.

(18) RELATED PARTY TRANSACTIONS--

    Since September 2000, the Company agreed to loan up to $100 million to
Bernard J. Ebbers, the Company's President and Chief Executive Officer. The
loans are payable on demand and bear interest at a floating rate equal to that
under the Company's existing 364-day credit facility. As of March 30, 2001, the
aggregate amount of indebtedness of Mr. Ebbers to the Company was $84.6 million,
including accrued interest; the interest rate was 5.33% per annum as of that
date.

    During that period, the Company also agreed to guarantee up to an aggregate
of (1) $150 million principal amount of indebtedness, together with any related
interest, owed from time to time by Mr. Ebbers to Bank of America, N.A. (the
"Lender"); (2) all Additional Payments as referred to below, plus (3) all costs,
including reasonable attorneys' fees, of collecting or enforcing the guaranty.
The term "Additional Payments" means the following amounts otherwise payable to
the Lender by Mr. Ebbers or certain companies controlled by him: (1) $36 million
due and payable on June 30, 2001, unless an approximately $45.6 million letter
of credit used to support financing to an unrelated third party (the "Letter of
Credit") is cancelled and the Lender is reimbursed for all draws thereunder
other than as a result of the liquidation of collateral by the Lender; (2) $25
million due and payable on September 30, 2001; (3) any amounts subject to a
margin call with respect to certain margin debt (the "Margin Debt") which are
due and payable on the following business day; (4) additional amounts depending
upon the price at which WorldCom Common Stock closes; and (5) all of the Margin
Debt (including interest, principal, fees and expenses) is due and payable on
the business day following the first day on which WorldCom Common Stock closes
at $10 per share or less, together with a cash payment or equivalent sufficient
to fully collateralize the Letter of Credit.

    As of March 30, 2001, the Margin Debt aggregated approximately $183.7
million, including accrued interest, pursuant to various loans which become due
and payable on or before January 31, 2002. The loans are secured by the pledge
of approximately 11.3 million shares of WorldCom Common

                                      F-45

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(18) RELATED PARTY TRANSACTIONS--  (CONTINUED)
Stock owned by Mr. Ebbers. The obligations of Mr. Ebbers to the Lender,
including the Additional Payments, become due and payable upon an event of
default under the agreements between Mr. Ebbers and the Lender, which includes,
among other things, Mr. Ebbers ceasing to be the President and Chief Executive
Officer of the Company or any materially adverse change in his compensation
package from the Company. As of March 30, 2001, no demand under the guaranty had
been made on the Company.

    Mr. Ebbers has used, or plans to use, the proceeds of the loans from the
Company to repay certain indebtedness under margin loans secured by shares of
WorldCom Common Stock owned by him and the loans guaranteed by the Company are
also secured by such stock and the proceeds of such loans were used for private
business purposes. The loans and guaranty by the Company were made following a
determination that they were in the best interests of the Company and its
shareholders in order to avoid additional forced sales of Mr. Ebbers' stock in
the Company. The determination was made by the Company's Compensation and Stock
Option Committee as a result of the pressure on the Company's stock price,
margin calls faced by Mr. Ebbers and other considerations. Such actions were
ratified and approved by the Company's Board of Directors.

    In connection with the transactions described above, and subject to certain
limitations, and effective upon termination of restrictions under existing
lending agreements, Mr. Ebbers pledged to the Company the shares of WorldCom
Common Stock owned by him with respect to his obligations under the loans and
guaranty from the Company. The pledge is subordinated to obligations to the
Lender and is not perfected.

(19) CONSOLIDATING INFORMATION--

    After shareholder approval of the recapitalization, the Company intends to
separate for financial reporting purposes WorldCom group and MCI group. Below is
the consolidating financial information of WorldCom group and MCI group. The
financial information reflects the businesses attributed to WorldCom group and
MCI group including the allocation of revenues and expenses between WorldCom
group and MCI group in accordance with our allocation policies. See Note 1 to
the WorldCom group's and MCI group's combined financial statements for a
detailed description of the tracking stock policy statement and intergroup
allocation policies.

    The attribution of the assets, liabilities, equity, revenues and expense for
each group, as reflected in the Company's consolidated financial statements, is
primarily based on specific identification of the businesses included in each
group, which are consolidated in accordance with GAAP in the consolidated
financial statements of the Company. Where specific identification was
impractical, other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the assets, liabilities, equity,
revenues and expenses attributable to each group. The Company's shared corporate
services and related balance sheet amounts (such as executive management, human
resources, legal, regulatory, accounting, tax, treasury, strategic planning and
information systems support) have been attributed to WorldCom group or MCI group
based upon identification of such services specifically benefiting each group.
Where determinations based on specific usage alone are impractical, other
methods and criteria were used that management believes are equitable and
provide a reasonable estimate of the cost attributable to each group. Management
believes that the allocation methods developed will be comparable to the
expected future allocation methods.

                                      F-46

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
    The Company's Board of Directors or any special committee appointed by the
Board of Directors may, without shareholder approval, change the polices set
forth in the Company's policy statement, including any resolution implementing
the provisions of the Company's policy statement. WorldCom's Board of Directors
or any special committee appointed by the Board of Directors also may, without
shareholder approval, adopt additional policies or make exceptions with respect
to the application of the policies described in the Company's policy statement
in connection with particular facts and circumstances, all as its Board of
Directors or any special committee appointed by the Board of Directors may
determine to be in the best interests of the Company as a whole. Any such
change, adoption or exception shall be final, binding and conclusive unless
otherwise determined by the Board of Directors or any special committee
appointed by the Board of Directors.

                                      F-47

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)

                     CONSOLIDATING STATEMENT OF OPERATIONS
                            (UNAUDITED. IN MILLIONS)



                                                               YEAR ENDED DECEMBER 31, 1998
                                                       ---------------------------------------------
                                                       WORLDCOM     MCI
                                                        GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                       --------   --------   ------------   --------
                                                                                
Revenues.............................................  $ 9,809     $7,808       $   --      $17,617
                                                       -------     ------       ------      -------
Operating expenses:
  Line costs:
    Attributed costs.................................    4,781      3,201           --        7,982
    Intergroup allocated expenses....................       20        118         (138)          --
  Selling, general and administrative:
    Attributed costs.................................    1,395      1,641        1,527        4,563
    Shared corporate services........................      817        710       (1,527)          --
    Other intergroup allocated expenses..............       --         90          (90)          --
  Depreciation and amortization:
    Attributed costs.................................    1,952        337           --        2,289
    Intergroup allocated expenses....................     (208)       (20)         228           --
  In-process research and development and other
    charges..........................................    2,474      1,251           --        3,725
                                                       -------     ------       ------      -------
Total................................................   11,231      7,328           --       18,559
                                                       -------     ------       ------      -------
Operating income (loss)..............................   (1,422)       480           --         (942)
Interest expense.....................................     (180)      (512)          --         (692)
Miscellaneous income.................................       44         --           --           44
                                                       -------     ------       ------      -------
Loss before income taxes, minority interests,
  cumulative effect of accounting change and
  extraordinary items................................   (1,558)       (32)          --       (1,590)
Provision for income taxes...........................      409        468           --          877
                                                       -------     ------       ------      -------
Loss before minority interests, cumulative effect of
  accounting change and extraordinary items..........   (1,967)      (500)          --       (2,467)
Minority interests...................................      (93)        --           --          (93)
                                                       -------     ------       ------      -------
Loss before cumulative effect of accounting change
  and extraordinary items............................   (2,060)      (500)          --       (2,560)
Cumulative effect of accounting change...............       --        (36)          --          (36)
Extraordinary items..................................     (129)        --           --         (129)
                                                       -------     ------       ------      -------
Loss before distributions on subsidiary trust and
  other mandatorily redeemable preferred securities
  and preferred dividend requirements................   (2,189)      (536)          --       (2,725)
Distributions on subsidiary trust mandatorily
  redeemable preferred securities....................       18         --           --           18
Preferred dividend requirements......................       24         --           --           24
                                                       -------     ------       ------      -------
Net loss.............................................  $(2,231)    $ (536)      $   --      $(2,767)
                                                       =======     ======       ======      =======


                                      F-48

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
                     CONSOLIDATING STATEMENT OF CASH FLOWS
                            (UNAUDITED. IN MILLIONS)



                                                              YEAR ENDED DECEMBER 31, 1998
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Cash flows from operating activities:
  Net loss..........................................  $(2,189)   $  (536)    $      --     $(2,725)
  Adjustments to reconcile net loss to net cash
    provided by operating activities................    4,723      2,184            --       6,907
                                                      -------    -------     ---------     -------
    Net cash provided by operating activities.......    2,534      1,648            --       4,182
                                                      -------    -------     ---------     -------

Cash flows from investing activities:
  Capital expenditures..............................   (4,523)      (594)           --      (5,117)
  Capital expenditures, Embratel and undersea
    cables..........................................     (369)        --            --        (369)
  Acquisitions and related costs....................   (1,811)    (1,589)           --      (3,400)
  Other investing activities, net...................     (603)        (9)           --        (612)
                                                      -------    -------     ---------     -------
    Net cash used in investing activities...........   (7,306)    (2,192)           --      (9,498)
                                                      -------    -------     ---------     -------
Cash flows from financing activities:
  Principal borrowings on debt, net.................    6,390         --            --       6,390
  Attributed stock activity of WorldCom, Inc........      472         --            --         472
  Distributions on subsidiary trust mandatorily
    redeemable preferred securities.................      (18)        --            --         (18)
  Dividends paid on preferred stock.................      (24)        --            --         (24)
  Intergroup advances, net..........................     (551)       551            --          --
Other...............................................       48         --            --          48
                                                      -------    -------     ---------     -------
    Net cash provided by financing activities.......    6,317        551            --       6,868
                                                      -------    -------     ---------     -------
Net increase in cash and cash equivalents...........    1,545          7            --       1,552
Cash and cash equivalents beginning of period.......      158         17            --         175
                                                      -------    -------     ---------     -------
Cash and cash equivalents end of period.............  $ 1,703    $    24     $      --     $ 1,727
                                                      =======    =======     =========     =======


                                      F-49

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
                          CONSOLIDATING BALANCE SHEET
                                 (IN MILLIONS)



                                                                  AT DECEMBER 31, 1999
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Current assets......................................  $ 9,037    $ 2,263       $(976)      $10,324
Property and equipment, net.........................   26,227      2,391          --        28,618
Goodwill and other intangibles......................   37,252     10,056          --        47,308
Other assets........................................    4,717        105          --         4,822
                                                      -------    -------       -----       -------
  Total assets......................................  $77,233    $14,815       $(976)      $91,072
                                                      =======    =======       =====       =======

Current liabilities.................................  $12,694    $ 5,491       $(976)      $17,209
Long-term debt......................................    7,128      6,000          --        13,128
Noncurrent liabilities..............................    5,276        824          --         6,100
Minority interests..................................    2,599         --          --         2,599
Company obligated mandatorily redeemable preferred
  securities........................................      798         --          --           798
Shareholders' investment............................   48,738      2,500          --        51,238
                                                      -------    -------       -----       -------

  Total liabilities and shareholders' investment....  $77,233    $14,815       $(976)      $91,072
                                                      =======    =======       =====       =======


                                      F-50

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
                     CONSOLIDATING STATEMENT OF OPERATIONS
                                 (IN MILLIONS)



                                                              YEAR ENDED DECEMBER 31, 1999
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Revenues............................................  $19,736    $16,172       $   --      $35,908
                                                      -------    -------       ------      -------
Operating expenses:
  Line costs:
    Attributed costs................................    7,841      6,898           --       14,739
    Intergroup allocated expenses...................       64        189         (253)          --
  Selling, general and administrative:
    Attributed costs................................    2,594      3,113        3,228        8,935
    Shared corporate services.......................    1,601      1,627       (3,228)          --
    Other intergroup allocated expenses.............       --        331         (331)          --
  Depreciation and amortization:
    Attributed costs................................    3,533        821           --        4,354
    Intergroup allocated expenses...................     (520)       (64)         584           --
  In-process research and development and other
    charges.........................................       (8)        --           --           (8)
                                                      -------    -------       ------      -------
Total...............................................   15,105     12,915           --       28,020
                                                      -------    -------       ------      -------
Operating income....................................    4,631      3,257           --        7,888
Interest expense....................................     (460)      (506)          --         (966)
Miscellaneous income................................      237          5           --          242
                                                      -------    -------       ------      -------
Income before income taxes and minority interests...    4,408      2,756           --        7,164
Provision for income taxes..........................    1,856      1,109           --        2,965
                                                      -------    -------       ------      -------
Income before minority interests....................    2,552      1,647           --        4,199
Minority interests..................................     (186)        --           --         (186)
                                                      -------    -------       ------      -------
Net income before distributions on subsidiary trust
  and other mandatorily redeemable preferred
  securities and preferred dividend requirements....    2,366      1,647           --        4,013
Distributions on subsidiary trust mandatorily
  redeemable preferred securities...................       63         --           --           63
Preferred dividend requirements.....................        9         --           --            9
                                                      -------    -------       ------      -------
Net income..........................................  $ 2,294    $ 1,647       $   --      $ 3,941
                                                      =======    =======       ======      =======


                                      F-51

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
                     CONSOLIDATING STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)



                                                               YEAR ENDED DECEMBER 31, 1999
                                                       ---------------------------------------------
                                                       WORLDCOM     MCI
                                                        GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                       --------   --------   ------------   --------
                                                                                
Cash flows from operating activities:
Net income...........................................   $2,366     $1,647     $      --      $4,013
Adjustments to reconcile net income to net cash
  provided by operating activities...................    4,986      2,006            --       6,992
                                                        ------     ------     ---------      ------
    Net cash provided by operating activities........    7,352      3,653            --      11,005
                                                        ------     ------     ---------      ------

Cash flows from investing activities:
Capital expenditures.................................   (7,036)      (787)           --      (7,823)
Capital expenditures, Embratel and undersea cables...     (893)        --            --        (893)
Acquisitions and related costs.......................     (786)      (292)           --      (1,078)
Proceeds from sale of SHL............................    1,640         --            --       1,640
Other investing activities, net......................     (970)      (431)           --      (1,401)
                                                        ------     ------     ---------      ------
    Net cash used in investing activities............   (8,045)    (1,510)           --      (9,555)
                                                        ------     ------     ---------      ------

Cash flows from financing activities:
Principal repayments on debt, net....................   (2,894)        --            --      (2,894)
Attributed stock activity of WorldCom, Inc...........      886         --            --         886
Distributions on subsidiary trust mandatorily
  redeemable preferred securities....................      (63)        --            --         (63)
Dividends paid on preferred stock....................       (9)        --            --          (9)
Intergroup advances, net.............................    2,097     (2,097)           --          --
                                                        ------     ------     ---------      ------
    Net cash provided by (used in) financing
      activities.....................................       17     (2,097)           --      (2,080)
                                                        ------     ------     ---------      ------
Effect of exchange rates on cash.....................     (221)        --            --        (221)
                                                        ------     ------     ---------      ------
Net increase (decrease) in cash and cash
  equivalents........................................     (897)        46            --        (851)
Cash and cash equivalents beginning of period........    1,703         24            --       1,727
                                                        ------     ------     ---------      ------
Cash and cash equivalents end of period..............   $  806     $   70     $      --      $  876
                                                        ======     ======     =========      ======


                                      F-52

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
                          CONSOLIDATING BALANCE SHEET
                                 (IN MILLIONS)



                                                                  AT DECEMBER 31, 2000
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Current assets......................................  $ 9,068    $ 2,312      $(1,625)     $ 9,755
Property and equipment, net.........................   35,177      2,246           --       37,423
Goodwill and other intangibles......................   36,685      9,909           --       46,594
Other assets........................................    4,963        168           --        5,131
                                                      -------    -------      -------      -------
  Total assets......................................  $85,893    $14,635      $(1,625)     $98,903
                                                      =======    =======      =======      =======

Current liabilities.................................  $14,213    $ 5,085      $(1,625)     $17,673
Long-term debt......................................   11,696      6,000           --       17,696
Noncurrent liabilities..............................    3,648      1,087           --        4,735
Minority interests..................................    2,592         --           --        2,592
Company obligated mandatorily redeemable preferred
  securities........................................      798         --           --          798
Shareholders' investment............................   52,946      2,463           --       55,409
                                                      -------    -------      -------      -------

  Total liabilities and shareholders' investment....  $85,893    $14,635      $(1,625)     $98,903
                                                      =======    =======      =======      =======


                                      F-53

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
                     CONSOLIDATING STATEMENT OF OPERATIONS
                                 (IN MILLIONS)



                                                              YEAR ENDED DECEMBER 31, 2000
                                                      ---------------------------------------------
                                                      WORLDCOM     MCI
                                                       GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                      --------   --------   ------------   --------
                                                                               
Revenues............................................  $22,755    $16,335       $   --      $39,090
                                                      -------    -------       ------      -------
Operating expenses:
  Line costs:
    Attributed costs................................    8,658      6,804           --       15,462
    Intergroup allocated expenses...................       87        373         (460)          --
  Selling, general and administrative:
    Attributed costs................................    3,682      2,981        3,934       10,597
    Shared corporate services.......................    2,007      1,927       (3,934)          --
    Other intergroup allocated expenses.............       --        254         (254)          --
  Depreciation and amortization:
    Attributed costs................................    3,907        971           --        4,878
    Intergroup allocated expenses...................     (627)       (87)         714           --
                                                      -------    -------       ------      -------
Total...............................................   17,714     13,223           --       30,937
                                                      -------    -------       ------      -------
Operating income....................................    5,041      3,112           --        8,153
Interest expense....................................     (458)      (512)          --         (970)
Miscellaneous income................................      385         --           --          385
                                                      -------    -------       ------      -------
Income before income taxes, minority interests and
  cumulative effect of accounting change............    4,968      2,600           --        7,568
Provision for income taxes..........................    1,990      1,035           --        3,025
                                                      -------    -------       ------      -------
Income before minority interests and cumulative
  effect of accounting change.......................    2,978      1,565           --        4,543
Minority interests..................................     (305)        --           --         (305)
                                                      -------    -------       ------      -------
Income before cumulative effect of accounting
  change............................................    2,673      1,565           --        4,238
Cumulative effect of accounting change..............      (75)       (10)          --          (85)
                                                      -------    -------       ------      -------
Net income before distributions on subsidiary trust
  and other mandatorily redeemable preferred
  securities and preferred dividend requirements....    2,598      1,555           --        4,153
Distributions on subsidiary trust mandatorily
  redeemable preferred securities...................       64         --           --           64
Preferred dividend requirements.....................        1         --           --            1
                                                      -------    -------       ------      -------
Net income..........................................  $ 2,533    $ 1,555       $   --      $ 4,088
                                                      =======    =======       ======      =======


                                      F-54

                        WORLDCOM, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(19) CONSOLIDATING INFORMATION--  (CONTINUED)
                     CONSOLIDATING STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)



                                                               YEAR ENDED DECEMBER 31, 2000
                                                       ---------------------------------------------
                                                       WORLDCOM     MCI
                                                        GROUP      GROUP     ELIMINATIONS   WORLDCOM
                                                       --------   --------   ------------   --------
                                                                                
Cash flows from operating activities:
Net income...........................................  $ 2,598     $1,555     $      --     $  4,153
Adjustments to reconcile net income to net cash
  provided by operating activities...................    2,732        781            --        3,513
                                                       --------    ------     ---------     --------
    Net cash provided by operating activities........    5,330      2,336            --        7,666
                                                       --------    ------     ---------     --------

Cash flows from investing activities:
Capital expenditures.................................   (9,368)      (500)           --       (9,868)
Capital expenditures, Embratel and undersea cables...   (1,616)        --            --       (1,616)
Acquisitions and related costs.......................      (14)        --            --          (14)
Other investing activities, net......................   (2,614)      (273)           --       (2,887)
                                                       --------    ------     ---------     --------
    Net cash used in investing activities............  (13,612)      (773)           --      (14,385)
                                                       --------    ------     ---------     --------

Cash flows from financing activities:
Principal borrowings on debt, net....................    6,377         --            --        6,377
Attributed stock activity of WorldCom, Inc...........      585         --            --          585
Distributions on subsidiary trust mandatorily
  redeemable preferred securities....................      (64)        --            --          (64)
Dividends paid on preferred stock....................       (1)        --            --           (1)
Intergroup advances, net.............................    1,592     (1,592)           --           --
Other                                                     (274)        --            --         (274)
                                                       --------    ------     ---------     --------
    Net cash provided by (used in) financing
      activities.....................................    8,215     (1,592)           --        6,623
                                                       --------    ------     ---------     --------
Effect of exchange rates on cash.....................      (19)        --            --          (19)
                                                       --------    ------     ---------     --------
Net decrease in cash and cash equivalents............      (86)       (29)           --         (115)
Cash and cash equivalents beginning of period........      806         70            --          876
                                                       --------    ------     ---------     --------
Cash and cash equivalents end of period..............  $   720     $   41     $      --     $    761
                                                       ========    ======     =========     ========


                                      F-55

                                 WORLDCOM, INC.
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS



                                      BALANCE AT    CHARGED TO       FROM        DEDUCTIONS
                                     BEGINNING OF   COSTS AND      PURCHASE     AND ACCOUNTS    BALANCE AT
           DESCRIPTIONS                 PERIOD       EXPENSES    TRANSACTIONS   WRITTEN OFF    END OF PERIOD
           ------------              ------------   ----------   ------------   ------------   -------------
                                                                                
Allowance for doubtful accounts (in
  millions):

Accounts Receivable
    2000...........................     $1,122        $1,865        $   --         $1,455         $1,532
    1999...........................        920           951            19            768          1,122
    1998...........................        223           395           581            279            920


                                      F-56

                                 EXHIBIT INDEX

                     
        2.1*            Agreement and Plan of Merger between WorldCom, Wildcat
                        Acquisition Corp. and Intermedia Communications, Inc. dated
                        as of September 1, 2000 (filed as Annex A to the Proxy
                        Statement/Prospectus included in WorldCom's Registration
                        Statement on Form S-4, Registration No. 333-48012 and
                        incorporated herein by reference)

        3.1             Second Amended and Restated Articles of Incorporation of
                        WorldCom (including preferred stock designations), as
                        amended as of May 1, 2000 (incorporated herein by reference
                        to Exhibit 4.1 of WorldCom's Quarterly Report on Form 10-Q
                        dated March 31, 2000 (File No. 0-11258)

        3.2             Restated Bylaws of WorldCom (incorporated by reference to
                        Exhibit 3.2 to WorldCom's Current Report on Form 8-K dated
                        September 14, 1998) (filed September 29, 1998)) (File No.
                        0-11258)

        4.1             Rights Agreement dated as of August 25, 1996, between
                        WorldCom and The Bank of New York, which includes the form
                        of Certificate of Designations, setting forth the terms of
                        the Series 3 Junior Participating Preferred Stock, par value
                        $.01 per share, as Exhibit A, the form of Rights Certificate
                        as Exhibit B and the Summary of Preferred Stock Purchase
                        Rights as Exhibit C (incorporated herein by reference to
                        Exhibit 4 to WorldCom's Current Report on Form 8-K dated
                        August 26, 1996 filed by WorldCom with the Securities and
                        Exchange Commission on August 26, 1996 (as amended on Form
                        8-K/A filed on August 31, 1996) (File No. 0-11258))

        4.2             Amendment No. 1 to Rights Agreement dated as of May 22,
                        1997, by and between WorldCom and The Bank of New York, as
                        Rights Agent (incorporated herein by reference to Exhibit
                        4.2 of WorldCom's Current Report on Form 8-K dated May 22,
                        1997 (filed June 5, 1997) (File No. 0-11258))

       **

       10.1*            Amended and Restated Facility A Revolving Credit Agreement
                        among WorldCom, NationsBank, N.A., NationsBanc Montgomery
                        Securities LLC, Bank of America NT & SA, Barclays Bank PLC,
                        The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
                        Trust Company of New York, and Royal Bank of Canada and the
                        lenders named therein dated as of August 6, 1998
                        (incorporated herein by reference to Exhibit 10.1 to
                        WorldCom's Current Report on Form 8-K dated August 6, 1998
                        (filed August 7, 1998) (File No. 0-011258))

       10.2*            Amended and Restated 364-Day Revolving Credit and Term Loan
                        Agreement among WorldCom and Bank of America, N.A.,
                        Administrative Agent; Bank of America Securities, LLC, Sole
                        Lead Arranger and Book Manager; Barclays Bank PLC, The Chase
                        Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
                        Company of New York, and Royal Bank of Canada,
                        Co-Syndication Agents; and the lenders named therein dated
                        as of August 5, 1999 (incorporated herein by reference to
                        Exhibit 10.1 of WorldCom's Quarterly Report on Form 10-Q for
                        the quarterly period ended June 30, 1999) (File No.
                        0-11258))

       10.3*            First Amendment and Renewal of the Amended and Restated
                        364-Day Revolving Credit and Term Loan Agreement entered
                        into as of August 3, 2000, among WorldCom certain Purchasing
                        Lenders named therein, certain Increasing Lenders as named
                        therein, Bank of America, N.A., as a Lender and as
                        Administration Agent for itself and the Accepting Lenders
                        (as therein defined) with Banc of America Securities, LLC,
                        as the Sole Lead Arranger and Book Manager (incorporated
                        herein by reference to Exhibit 10.3 of WorldCom's Quarterly
                        Report on Form 10-Q for the quarter ended June 30, 2000)
                        (File No. 0-11258)



                                      E-1

                     
       10.4             WorldCom 1999 Stock Option Plan (incorporated herein by
                        reference to Exhibit A to WorldCom's Proxy Statement dated
                        April 23, 1999 (File No. 0-11258)) (compensatory plan)

       10.5             WorldCom, Inc. Third Amended and Restated 1990 Stock Option
                        Plan (incorporated herein by reference to Exhibit A to
                        WorldCom's Proxy Statement dated April 22, 1996 (File No.
                        0-11258)) (compensatory plan)

       10.6             WorldCom, Inc. Performance Bonus Plan (incorporated herein
                        by reference to Exhibit A to WorldCom's Proxy Statement
                        dated April 21, 1997 (File No. 0-11258)) (compensatory plan)

       10.7             WorldCom/MFS/UUNET 1995 Performance Option Plan
                        (incorporated herein by reference to Exhibit 10.17 to
                        WorldCom's Annual Report on Form 10-K for the period ended
                        December 31, 1996 (File No. 0-11258)) (compensatory plan)

       10.8             WorldCom/MFS/UUNET Equity Incentive Plan (incorporated
                        herein by reference to Exhibit 10.18 to WorldCom's Annual
                        Report on Form 10-K for the period ended December 31, 1996
                        (File No. 0-11258)) (compensatory plan)

       10.9             MCI 1979 Stock Option Plan as amended and restated
                        (incorporated by reference to Exhibit 10(a) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1988 (File No. 0-6457)) (compensatory plan)

       10.10            Supplemental Retirement Plan for Employees of MCI
                        Communications Corporation and Subsidiaries, as amended
                        (incorporated by reference to Exhibit 10(b) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1993 (File No. 0-6457)) (compensatory plan)

       10.11            Description of Executive Life Insurance Plan for MCI
                        Communications Corporation and Subsidiaries (incorporated by
                        reference to "Remuneration of Officers" in MCI's Proxy
                        Statement for its 1992 Annual Meeting of Stockholders (File
                        No. 0-6457)) (compensatory plan)

       10.12            MCI Communications Corporation Executive Incentive
                        Compensation Plan (incorporated by reference to Exhibit
                        10(e) to MCI's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1995 (File No. 0-6457))
                        (compensatory plan)

       10.13            Amendment No. 1 to MCI Communications Corporation Executive
                        Incentive Compensation Plan (incorporated by reference to
                        Exhibit 10(e) to MCI's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1996 (File No. 0-6457))
                        (compensatory plan)

       10.14            1988 Directors' Stock Option Plan of MCI (incorporated by
                        reference to Exhibit D to MCI's Proxy Statement for its 1989
                        Annual Meeting of Stockholders (File No. 0-6457))
                        (compensatory plan)

       10.15            Amendment No. 1 to the 1988 Directors' Stock Option Plan of
                        MCI (incorporated by reference to Appendix D to MCI's Proxy
                        Statement for its 1996 Annual Meeting of Stockholders (File
                        No. 0-6457)) (compensatory plan)

       10.16            Amendment No. 2 to 1988 Directors' Stock Option Plan of MCI
                        (incorporated by reference to Exhibit 10(i) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996) (File No. 0- 6457)) (compensatory plan)

       10.17            Amendment No. 3 to 1988 Directors' Stock Option Plan of MCI
                        (incorporated by reference to Exhibit 10(j) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996 (File No. 0-6457)) (compensatory plan)

       10.18            Stock Option Plan of MCI (incorporated by reference to
                        Exhibit C to MCI's Proxy Statement for its 1989 Annual
                        Meeting of Stockholders (File No. 0-6457)) (compensatory
                        plan)



                                      E-2

                     
       10.19            Amendment No. 1 to the Stock Option Plan of MCI
                        (incorporated by reference to Exhibit 10(l) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996 (File No. 0-6457)) (compensatory plan)

       10.20            Amendment No. 2 to the Stock Option Plan of MCI
                        (incorporated by reference to Appendix B to MCI's Proxy
                        Statement for its 1996 Annual Meeting of Stockholders (File
                        No. 0-6457)) (compensatory plan)

       10.21            Amendment No. 3 to the Stock Option Plan of MCI
                        (incorporated by reference to Exhibit 10(n) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996 (File No. 0-6457)) (compensatory plan)

       10.22            Amendment No. 4 to the Stock Option Plan of MCI
                        (incorporated by reference to Exhibit 10(o) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996 (File No. 0-6457)) (compensatory plan)

       10.23            Amendment No. 5 to the Stock Option Plan of MCI
                        (incorporated by reference to Exhibit 10(p) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996 (File No. 0-6457)) (compensatory plan)

       10.24            Board of Directors Deferred Compensation Plan of MCI
                        (incorporated by reference to Exhibit 10(i) to MCI's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1994 (File No. 0-6457)) (compensatory plan)

       10.25            The Senior Executive Incentive Compensation Plan of MCI
                        (incorporated by reference to Appendix A to MCI's Proxy
                        Statement for its 1996 Annual Meeting of Stockholders (File
                        No. 0-6457)) (compensatory plan)

       10.26            Amendment No. 1 to the Senior Executive Incentive
                        Compensation Plan of MCI (incorporated by reference to
                        Exhibit 10(s) to MCI's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1996 (File No. 0-6457))
                        (compensatory plan)

       10.27            Executive Severance Policy (incorporated by reference to
                        Exhibit 10(a) to MCI's Quarterly Report on Form 10-Q for the
                        quarter ended September 30, 1996 (File No. 0-6457))
                        (compensatory plan)

       10.28            Form of employment agreement, effective as of November 2,
                        1996, between MCI and Bert C. Roberts (incorporated by
                        reference to Exhibit 10(u) to MCI's Annual Report on Form
                        10-K for the fiscal year ended December 31, 1996 (File No.
                        0-6457)) (compensatory plan)

       10.29            Employment Agreement between UUNET and John W. Sidgmore
                        dated May 13, 1994 (incorporated herein by reference to
                        UUNET's Registration on Form S-1 (Registration No.
                        33-91028)) (compensatory plan)

       10.30            Change of Control Severance Agreement effective April 8,
                        1997 between Brooks Fiber Properties, Inc. ("BFP") and James
                        C. Allen (incorporated herein by reference from Exhibit 10.1
                        to BFP's Quarterly Report on Form 10-Q for the quarterly
                        period ended June 30, 1997 (File No. 0-28036)) (compensatory
                        plan)

       10.31            Promissory Note dated September 8, 2000 between Bernard J.
                        Ebbers (the "Borrower") and WorldCom (incorporated herein by
                        reference from Exhibit 10.4 to the WorldCom's Quarterly
                        Report on Form 10-Q for the quarter ended September 30,
                        2000) (File No. 0-11258)

       10.32            Promissory Note dated November 1, 2000 between the Borrower
                        and WorldCom (incorporated herein by reference from Exhibit
                        10.5 to WorldCom's Quarterly Report on Form 10-Q for the
                        quarter ended September 30, 2000) (File No. 0-11258)



                                      E-3

                     
       10.33            Letter Agreement dated November 1, 2000 between the Borrower
                        and WorldCom (incorporated herein by reference from Exhibit
                        10.6 to WorldCom's Quarterly Report on Form 10-Q for the
                        quarter ended September 30, 2000) (File No. 0-11258)

       10.34            Limited Guaranty made as of November 14, 2000 by WorldCom in
                        favor of Bank of America, N.A. (incorporated herein by
                        reference from Exhibit 10.7 to WorldCom's Quarterly Report
                        on Form 10-Q for the quarter ended September 30, 2000) (File
                        No. 0-11258)

       10.35            Limited Guaranty made as of February 12, 2001 by WorldCom in
                        favor of Bank of America, N.A.

       10.36            Promissory Note dated December 29, 2000 between the Borrower
                        and WorldCom

       12.1             Statement re Computation of Ratio of Earnings to Fixed
                        Changes

       21.1             Subsidiaries of WorldCom

       23.1             Consent of Arthur Andersen LLP

       99.1             Financial Statements of WorldCom Group (an integrated
                        business of WorldCom, Inc.)

       99.2             Financial Statements of MCI Group (an integrated business of
                        WorldCom, Inc.)



- ------------------------

*   The registrant hereby agrees to furnish supplementally a copy of any omitted
    schedules to this Agreement to the SEC upon request.

**  No other long-term debt instruments are filed since the total amount of
    securities authorized under any such instrument does not exceed ten percent
    of the total assets of WorldCom and its subsidiaries on a consolidated
    basis. WorldCom agrees to furnish a copy of such instruments to the SEC upon
    request.

                                      E-4

EX-10.35

                                                                   EXHIBIT 10.35

                                LIMITED GUARANTY

      THIS LIMITED GUARANTY (this "Guaranty") is made as of February 12, 2001 by
WORLDCOM, INC., a Georgia corporation ("Guarantor"), in favor of BANK OF
AMERICA, N.A., a national banking association ("Bank of America").

                                   WITNESSETH:

      WHEREAS, Bank of America has made certain loans and other credit
accommodations to BERNARD J. EBBERS ("Ebbers"); and

      WHEREAS, such loans and other credit accommodations from Bank of America
to Ebbers are being modified and amended pursuant to that certain Omnibus
Amendment to Loan Documents of even date herewith among Ebbers, certain entities
owned and controlled by Ebbers (each, a "Company Borrower"), and Bank of America
(the "Amendment"); and

      WHEREAS, it is a condition precedent to Bank of America's agreement to
enter into the Amendment that Guarantor execute and deliver this Guaranty in
favor of Bank of America; and

      WHEREAS, Ebbers is the President and Chief Executive Officer of Guarantor;
and

      WHEREAS, in consideration of Ebbers' services as an officer of Guarantor,
and in order to facilitate the modifications contemplated by the Amendment and
to avoid demand for payment by Bank of America under Guarantor's Existing
Guaranty (as hereafter defined), Guarantor has agreed to enter into this
Guaranty.

      NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, Guarantor hereby agrees in favor of Bank of America as
follows:

      1.    DEFINITIONS.

      "LOAN DOCUMENTS" means the Amendment and any other agreements, notes,
instruments, mortgages, stock pledge agreements, guarantees and other documents
heretofore, now or hereafter evidencing, securing, guaranteeing or otherwise
relating to any of the Obligations, any collateral therefor, or any other aspect
of the transactions described in the Amendment.




      "OBLIGATIONS" means all present and future loans, advances, liabilities,
obligations, covenants, duties, and debts owing by Ebbers or any Company
Borrower to Bank of America, arising under or pursuant to the Amendment, any of
the other Loan Documents or otherwise, whether or not evidenced by any note, or
other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect, absolute or contingent, due or to become
due, primary or secondary, as principal or guarantor, and including all
principal, interest, charges, expenses, fees, attorneys' fees, filing fees and
any other sums chargeable to Ebbers and the Company Borrowers, or any of them,
under the Amendment or any of the other Loan Documents.

      2. CHARACTER OF OBLIGATION. Subject to the provisions of Section 11
hereof, Guarantor hereby guarantees the full payment and performance by Ebbers
of any loans by Bank of America, whether or not evidenced by promissory notes,
any obligations of Ebbers to Bank of America for letters of credit or agreements
with respect thereto, any drafts or any obligations of Ebbers to Bank of America
for acceptances or agreements with respect thereto, including all interest and
other charges stated therein, any other loans, promissory notes, advances or
overadvances payable by Ebbers to Bank of America, including all interest and
other charges stated therein, all obligations of Ebbers to Bank of America under
any guaranty, security agreement, instrument of lien, security deed or other
security device in favor of Bank of America, and all other obligations of Ebbers
to Bank of America however and whenever incurred or evidenced, in each case
under or arising out of the Loan Documents and committed, created, contracted,
assumed or incurred prior to receipt of written notice of termination of this
Guaranty as hereafter provided pursuant to any agreement entered into by Bank of
America prior to receipt of such notice, whether direct or indirect, absolute or
contingent, or due or to become due (hereafter the "Guaranteed Obligations").
The obligation of Guarantor hereunder shall be effective regardless of the
solvency or insolvency of Ebbers at any time, or the extension or modification
of the Guaranteed Obligations by operation of law. The obligation of Guarantor
hereunder may be considered by Bank of America either as a guaranty or agreement
of surety. Payment of any sum or sums due to Bank of America hereunder will be
made by Guarantor immediately upon demand by Bank of America. If claim is ever
made upon Bank of America for repayment or recovery of any amount or amounts
received by Bank of America in payment of any of the Guaranteed Obligations and
Bank of America repays all or part of said amount by reason of (a) any judgment,
decree or order of any court or administrative body having jurisdiction over
Bank of America or any of its property, or (b) any settlement or compromise of
any such claim effected by Bank of America in good faith with any such claimant
(including Ebbers), then in such event, Guarantor shall be and remain obligated
to Bank of America hereunder for the amount so repaid or recovered to the same
extent as if such amount had never originally been received by Bank of America,
notwithstanding any revocation hereof or the cancellation of any note or other
instrument evidencing any of the Guaranteed Obligations by reason of such
receipt. Guarantor agrees that the books and records of Bank of America showing
the account between Bank of America and Ebbers (and the account between Bank of
America and each Company Borrower) shall be

                                      -2-



admissible in evidence in any action or proceeding and shall constitute prima
facie proof thereof. Guarantor agrees to pay all costs of Bank of America (to
the extent incurred in good faith) of collection of any sum or sums due
hereunder, and, if collected by or through an attorney, reasonable attorneys'
fees together with all other legal and court expenses incurred in good faith.
Guarantor agrees that its obligation hereunder shall not be discharged or
impaired in any respect by reason of any failure by Bank of America to perfect,
or continue perfection of, any lien or security interest in any security or any
delay by Bank of America in perfecting any such lien or security interest.

      3. CONSENT AND WAIVER. Guarantor waives notice of acceptance hereof,
creation of any of the Guaranteed Obligations, or nonpayment or default by
Ebbers under any of the Guaranteed Obligations or any agreement now or hereafter
existing between Ebbers and Bank of America, presentment, demand, notice of
dishonor, protest and any other notices whatever, except as expressly provided
herein. Guarantor waives the provisions of the Official Code of Georgia
ss.10-7-24. Guarantor, without affecting its liability hereunder, consents to
and waives notice of all changes of terms of the Guaranteed Obligations, the
withdrawal or extension of credit or time to pay, the release of the whole or
any part of the Guaranteed Obligations, renewal, indulgence, settlement,
compromise or failure to exercise due diligence in collection, the acceptance or
release of security, extension of the time to pay for any period or periods
whether or not longer than the original period, or any surrender, substitution
or release of any other person directly or indirectly liable for any of the
Guaranteed Obligations or any collateral security given by Ebbers or any Company
Borrower. Guarantor agrees that it shall have no right of subrogation,
reimbursement or indemnity whatsoever and no right of recourse, in connection
with this Guaranty, to or with respect to any assets or property of Ebbers or to
any collateral for the Guaranteed Obligations, until payment in full of the
Guaranteed Obligations. Guarantor also consents to and waives notice of any
arrangements or settlements made in or out of court in the event of
receivership, liquidation, readjustment, any proceeding under Title 11 of the
United States Code (entitled "Bankruptcy") as amended, or assignment for the
benefit of creditors of Ebbers, and anything whatever whether or not herein
specified which may be done or waived by or between Bank of America and Ebbers,
or Ebbers and any other person whose claim against Ebbers has been or shall be
assigned or transferred to Bank of America. Guarantor agrees that if any
notification of intended disposition of collateral or of any other act by Bank
of America is required by law and a specific time period is not stated therein,
such notification, if mailed by first class mail at least five (5) business days
before such disposition or act, postage prepaid, addressed to Guarantor either
at the address shown below or at any other address as to which Guarantor
hereafter notifies Bank of America, shall be deemed reasonably and properly
given. Bank of America may, without notice of any kind, sell, assign or transfer
any or all of the Guaranteed Obligations and in such event each and every
immediate and successive assignee, transferee or holder of any of the Guaranteed
Obligations shall have the right to enforce this Guaranty, by suit or otherwise
for the benefit of such assignee, transferee or holder, as fully as if such
assignee, transferee or holder were herein by name specifically given such
rights, powers and benefits; Bank of America shall have an unimpaired right
prior and superior to that of any such assignee,

                                      -3-



transferee or holder to enforce this Guaranty for the benefit of Bank of America
as to such of the Guaranteed Obligations as is not sold, assigned or
transferred. SUBJECT TO SECTION 9 HEREOF, EACH OF BANK OF AMERICA AND GUARANTOR
HEREBY WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED HEREON.

      4. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that:

      (a) Guarantor (i) is a duly organized and validly existing corporation in
good standing under the laws of the State of Georgia, (ii) is duly licensed or
qualified to do business and in good standing in each jurisdiction where the
failure to be so licensed or qualified would impair its ability to perform its
obligations hereunder, and (iii) has all requisite corporate power and authority
to own its properties and conduct its business as presently conducted and to
execute and deliver, and to perform its obligations under, this Guaranty.

      (b) Since December 31, 2000, there has been no material adverse change in
the financial condition or business prospects of Guarantor which could
reasonably be expected to impair the ability of Guarantor to perform its
obligations hereunder (a "Material Adverse Effect").

      (c) There is no action, suit, proceeding or investigation at law or in
equity by or before any court, governmental body or other agency now pending or,
to the knowledge of Guarantor, threatened against or affecting Guarantor or its
property or rights in which there is a reasonable possibility of an adverse
determination and which, if adversely determined, could have a Material Adverse
Effect.

      (d) The execution, delivery and performance of this Guaranty will not, in
each case except to the extent that a Material Adverse Effect would not be
caused thereby, (i) conflict with or result in a breach of any terms or
provisions of, or constitute a default under, any indenture, mortgage or other
agreement or instrument to which Guarantor is a party or by which it or any of
its property is bound, or any existing applicable law, rule, regulation,
license, judgment, order or decree of any government, governmental body or court
having jurisdiction over Guarantor or any of its activities or properties, or
the articles of incorporation or by-laws of Guarantor, or (ii) result in, or
require the creation or imposition of, any lien upon or with respect to any
properties now or hereafter owned by Guarantor, except as may be contemplated
hereby or thereby.

      (e) The execution, delivery and performance of this Guaranty has been duly
authorized by all necessary action of Guarantor. This Guaranty has been duly
executed and delivered by Guarantor and constitutes a legal, valid and binding
obligation of

                                      -4-



Guarantor, enforceable according to its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally, and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).

      (f) Guarantor is not principally engaged in, nor does it have as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying any "margin stock" (as defined in Regulation U of the
Board of Governors of the Federal Reserve System).

      5. CONSTRUCTION. This Guaranty shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia. Wherever possible,
each provision of this Guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Guaranty
shall be prohibited by or invalid under applicable law, said provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. This Guaranty supersedes that certain Limited Guaranty of Guarantor in
favor of Bank of America dated November 14, 2000 (the "Existing Guaranty");
provided, however, that (a) this Guaranty is in addition to any other guaranty
by any person or entity other than Guarantor in favor of Bank of America with
respect to any of the Guaranteed Obligations or any other Obligations, and (b)
at the option of Bank of America in its sole discretion, the Existing Guaranty
shall remain in full force and effect in the event that (i) this Guaranty is
determined by a court or arbitrator of competent jurisdiction to be invalid or
unenforceable for any reason, or (ii) Guarantor or any other person or entity
shall challenge the validity or enforceability of this Guaranty for any reason.

      Notwithstanding anything contained herein to the contrary, to the extent
that Guarantor is liable to Bank of America in respect of any Guaranteed
Obligation under both this Guaranty and the Existing Guaranty, Bank of America
shall be entitled to recover only up to the amount of such Guaranteed
Obligation, and the satisfaction of such Guaranteed Obligation shall be deemed
to satisfy the Guarantor's obligations in respect of such Guaranteed Obligation
under both this Guaranty and the Existing Guaranty, and Guarantor's satisfaction
of any obligation under this Guaranty or the Existing Guaranty shall count
toward the maximum liability of Guarantor hereunder and thereunder.

      6. BENEFIT. This Guaranty shall bind Guarantor and its permitted assigns,
and the rights and privileges of Bank of America hereunder shall inure to the
benefit of its successors and assigns.

      7. DURATION. This Guaranty shall continue in full force and effect until
the first to occur of (i) receipt by Bank of America of notice of termination
hereof by

                                      -5-



Guarantor, or (ii) payment in full of all of the Guaranteed Obligations
(including any Guaranteed Obligations which may arise in the future under any
guaranty by Ebbers of the Obligations of any Company Borrower) and the
termination of the Loan Documents under which the Guaranteed Obligations arose
and any obligation of Bank of America to make loans or extend other financial
accommodations thereunder. No notice of termination hereof shall affect in any
manner rights arising under this Guaranty with respect to Guaranteed Obligations
that shall have been committed, created, contracted, assumed or incurred prior
to receipt of such written notice pursuant to any agreement entered into by Bank
of America prior to receipt of such notice.

      8. CONSENT TO JURISDICTION. SUBJECT TO SECTION 9 HEREOF, EACH OF BANK OF
AMERICA AND GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN ATLANTA,
GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY
OR ANY OF THE OTHER DOCUMENTS OR AGREEMENTS DESCRIBED OR CONTEMPLATED HEREIN,
AND EACH OF BANK OF AMERICA AND GUARANTOR HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH UNITED STATES FEDERAL OR STATE COURT.

      9. ARBITRATION. (a) This Section concerns the resolution of any
controversies or claims between Guarantor and Bank of America, whether arising
in contract, tort or by statute, including but not limited to controversies or
claims that arise out of or relate to: (i) this Guaranty (including any
renewals, extensions or modifications); or (ii) any Loan Document or any
document executed and/or delivered in connection with the Amendment
(collectively a "Claim").

      (b) At the request of Guarantor or Bank of America, any Claim shall be
resolved by binding arbitration in accordance with the Federal Arbitration Act
(Title 9, United States Code) (the "Act"). The Act will apply even though this
Guaranty provides that it is governed by the law of the State of Georgia.

      (c) Arbitration proceedings will be determined in accordance with the Act,
the applicable rules and procedures for the arbitration of disputes of JAMS or
any successor thereof ("JAMS"), and the terms of this Section. In the event of
any inconsistency, the terms of this Section shall control.

      (d) The arbitration shall be administered by JAMS and conducted in the
State of Georgia. All Claims shall be determined by one arbitrator; however, if
Claims exceed Five Million U.S. Dollars ($5,000,000), upon the request of any
party, the Claims shall be decided by three arbitrators. All arbitration
hearings shall commence within 90 days of the demand for arbitration and close
within 90 days of commencement, and the award of the arbitrator(s) shall be
issued within 30 days of the close of the hearing. However, the

                                      -6-



arbitrator(s), upon a showing of good cause, may extend the commencement of the
hearing for up to an additional 60 days. The arbitrator(s) shall provide a
concise written statement of reasons for the award. The arbitration award may be
submitted to any court having jurisdiction to be confirmed and enforced.

      (e) The arbitrator(s) will have the authority to decide whether any Claim
is barred by the statute of limitations and, if so, to dismiss the arbitration
on that basis. For purposes of the application of the statute of limitations,
the service on JAMS under applicable JAMS rules of a notice of claim is the
equivalent of the filing of a lawsuit. Any dispute concerning this arbitration
provision or whether a Claim is arbitrable shall be determined by the
arbitrator(s). The arbitrator(s) shall have the power to award legal fees
pursuant to the terms of this Guaranty.

      (f) This Section does not limit the right of Guarantor or Bank of America
to: (i) exercise self-help remedies, such as but not limited to, setoff, (ii)
initiate judicial or nonjudicial foreclosure against any real or personal
property collateral, (iii) exercise any judicial or power of sale rights, or
(iv) act in a court of law to obtain an interim remedy, such as but not limited
to, injunctive relief, writ of possession or appointment of a receiver, or
additional or supplementary remedies.

      10. INDEMNIFICATION. Guarantor agrees to indemnify and hold harmless Bank
of America and its affiliates, directors, officers, employees, advisors and
agents (each, an "Indemnified Party") from and against (and will reimburse each
Indemnified Party as the same are incurred) any and all losses, claims, damages,
liabilities, and expenses (including, without limitation, the reasonable fees
and expenses of counsel) that may be incurred by or asserted or awarded against
any Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith)
any matters contemplated by this Guaranty, the Amendment, any other Loan
Document or any related transaction, unless and only to the extent that, as to
any Indemnified Party, it shall be determined in a final, non-appealable
judgment by a court of competent jurisdiction that such losses, claims, damages,
liabilities or expenses resulted from the gross negligence or willful misconduct
of such Indemnified Party (all such losses, claims, damages, liabilities and
expenses being hereinafter collectively referred to as "Indemnified Losses").
Guarantor agrees that no Indemnified Party shall have any liability for any
indirect or consequential damages in connection with this Guaranty, the
Amendment, any other Loan Document or any related transaction. Guarantor's
obligations under this Section 10 shall constitute "Guaranteed Obligations"
under this Guaranty and be subject to the terms and conditions applicable
thereto.

      The amount of Indemnified Loss to which an Indemnified Party shall be
entitled to recover hereunder shall be reduced by the amount of any insurance or
other third party recovery in respect thereof (and no right of subrogation shall
accrue to any insurer or such third party).


                                      -7-



      In case any action shall be brought or claim made against any Indemnified
Party with respect to which indemnity may be sought against the Guarantor under
this Guaranty, the Indemnified Party shall promptly notify the Guarantor in
writing and the Guarantor shall, if requested by the Indemnified Party or if the
Guarantor desires to do so, assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and payment of all
reasonable fees and expenses to the extent of the Guarantor's obligations
hereunder. The failure to so notify the Guarantor shall not affect any
obligations the Guarantor may have to the Indemnified Party under this Guaranty
unless (and then only to the extent that) such failure prejudices the ability of
the Guarantor to defend or resolve the action or claim. The Indemnified Party
shall have the right to employ separate counsel in such action and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of the Indemnified Party, unless: (i) the Guarantor has failed to
assume the defense and employ counsel reasonably satisfactory to the Indemnified
Party or (ii) the named parties to any such action (including any impleaded
parties) include the Indemnified Party and the Guarantor, and the Indemnified
Party shall have been advised in good faith by counsel that there is a conflict
which requires separate representation, in which case, if such Indemnified Party
notifies the Guarantor in writing that it elects to employ separate counsel at
the expense of the Guarantor, the Guarantor shall not have the right to assume
the defense of such action or proceeding on behalf of such Indemnified Party.
The Guarantor shall not be liable for any settlement or compromise of any such
action, claim or consent judgment effected without the written consent of the
Guarantor (which shall not be unreasonably withheld, conditioned or delayed) and
the Guarantor agrees to indemnify and hold harmless the Indemnified Party from
and against any Indemnified Loss by reason of settlement of any action effected
with the consent of the Guarantor (subject to the qualification contained in the
first sentence of the first paragraph of this Section 10 and the terms and
conditions applicable to Guaranteed Obligations). In addition, the Guarantor
will not, without the prior written consent of Bank of America (which shall not
be unreasonably withheld, conditioned or delayed), settle or compromise or
consent to the entry of any judgment in any action or claim in respect of which
indemnification or contribution may be sought hereunder.

      The Guarantor's indemnification obligations under this Section 10 shall,
subject to the limits on the Guaranteed Obligations set forth in Section 11,
survive the termination of this Guaranty with respect to Indemnified Losses
arising from or with respect to Loan Documents and related transactions entered
into prior to such termination.

      11. SPECIAL STIPULATIONS. Notwithstanding anything to the contrary
contained herein:


      (a) Guarantor's liability hereunder shall be limited to (i) $150,000,000
of Guaranteed Obligations, plus (ii) all Additional Payments (as defined in the
Amendment)

                                      -8-



provided for in the Amendment, plus (iii) all costs (including reasonable
attorneys' fees) of collecting and enforcing this Guaranty; and

      (b) Ebbers' Obligations with respect to letter of credit number 934190
issued by Bank of America in favor of Wells Fargo Bank, N.A., formerly Norwest
Bank Minnesota, National Association, as trustee, shall not constitute
Guaranteed Obligations hereunder.



                                      -9-




      IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed by
its duly authorized officer as of the day and year first above written.


                                    WORLDCOM, INC.


                                    By: /s/ Scott D. Sullivan
                                        -----------------------------------
                                    Name:  Scott D. Sullivan
                                    Title: Chief Financial Officer




Address:

WorldCom, Inc.
500 Clinton Center Drive
Clinton, Mississippi  39056
Attention:  Chief Financial Officer

EX-10.36

                                                                  EXHIBIT 10.36

                                 PROMISSORY NOTE


                                                          Clinton, Mississippi
$25,000,000                                                  December 29, 2000


      FOR VALUE RECEIVED, the undersigned (the "Borrower") hereby
unconditionally promises to pay to the order of WorldCom, Inc., a Georgia
corporation (the "Lender"), in lawful money of the United States of America and
in immediately available funds, the principal sum of Twenty-Five Million Dollars
($25,000,000) or such lesser amount as may be outstanding hereunder. The
aforesaid principal sum is to be the maximum sum available hereunder and may be
taken in such amounts and at such times as the undersigned requests prior to
demand for payment hereunder. The Borrower further promises to pay interest on
the outstanding balance under this Note, compounded monthly, from the date
hereof until payment in full of this Note, at a fluctuating rate of interest
(the "Normal Rate") equal to the Eurodollar Rate applicable to each one-month
Interest Period commencing on the date hereof plus the Applicable Margin during
the corresponding period applicable to Eurodollar Rate Borrowings by the Lender
pursuant to that certain Amended and Restated 364-Day Revolving Credit and Term
Loan Agreement among the Lender, Bank of America, N.A., as Administrative Agent,
and the other Lenders identified therein dated as of August 5, 1999, as amended;
provided, however, that following demand for payment, the Borrower promises to
pay interest on the unpaid balance hereunder, compounded monthly, at the Default
Rate, as defined herein. The "Default Rate" shall be a fluctuating rate of
interest equal to the sum of the otherwise applicable Normal Rate plus three
percent (3%) per annum. Upon each change in the applicable Normal Rate, the
Default Rate shall simultaneously change to correspond with such change in the
Normal Rate. Interest shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.

      This Note shall constitute a Promissory Note within the meaning and
subject to the provisions of that certain letter agreement dated November 1,
2000, between the Borrower and the Company.

      The principal and accrued interest under this Note are payable on demand.
If this Note is not paid upon demand, the Borrower hereby promises to pay all
costs of collection, including but not limited to the fees and expenses of an
attorney and court costs, in addition to the full amount due hereon.

      Interest shall be due and payable under this Note at the Normal Rate or
the Default Rate, as provided herein, after as well as before demand, default
and judgment, notwithstanding any applicable statutory judgment rate of
interest. If any interest payment or other charge or fee payable hereunder
exceeds the maximum amount then permitted by applicable law, then the Borrower
shall pay the maximum amount then permitted by applicable law.

      The Borrower hereby waives presentment, protest and notice of demand,
presentment, protest and nonpayment.




      This Note shall be interpreted and the rights and liabilities of the
parties hereto shall be determined in accordance with the internal laws (as
opposed to the conflicts of law provisions) and decisions of the State of
Mississippi and the Borrower hereby consents to the jurisdiction of the courts
of or in the State of Mississippi in connection with any dispute, controversy,
collection action or other matter relating to or arising out of this Note.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Note. Whenever in this Note reference is made to the Borrower or the
Lender, such reference shall be deemed to include, in the case of the Borrower,
a reference to his heirs and legal representatives and, in the case of the
Lender, its successors and assigns. The provisions of this Note shall be binding
upon and shall inure to the benefit of such heirs, legal representatives,
successors and assigns.



                                          /s/ Bernard J. Ebbers
                                          ------------------------------
                                          Bernard J. Ebbers



                                      -2-

EX-12.1

                                                                    EXHIBIT 12.1

                         WORLDCOM, INC. AND SUBSIDIARIES
           COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
                            AND PREFERENCE DIVIDENDS
                                  (IN MILLIONS)



                                                                Year Ended December 31,
                                                  -------------------------------------------------
                                                    1996       1997      1998       1999      2000
                                                  -------    -------   -------    -------   -------
                                                                             
EARNINGS:
Pretax income (loss) from continuing operations   $(2,272)   $   578   $(1,590)   $ 7,164   $ 7,568
Fixed charges, net of capitalized interest            315        500       774      1,098     1,120
                                                  -------    -------   -------    -------   -------
      Earnings                                    $(1,957)   $ 1,078   $  (816)   $ 8,262   $ 8,688
                                                  =======    =======   =======    =======   =======

FIXED CHARGES:
Interest cost                                     $   308    $   538   $   928    $ 1,287   $ 1,480
Amortization of financing costs                         4          2        12         18        26
Interest factor of rent expense                        19         47        78        132       149
Preference dividends                                   20         63        67        115       103
                                                  -------    -------   -------    -------   -------
      Fixed charges                               $   351    $   650   $ 1,085    $ 1,552   $ 1,758
                                                  =======    =======   =======    =======   =======

Deficiency of earnings to fixed charges           $(2,308)   $  --     $(1,901)   $  --     $  --

Ratio of earnings to fixed charges (1)               --       1.66:1      --       5.32:1    4.94:1
                                                  =======    =======   =======    =======   =======


- ----------
(1)   For the purpose of computing the ratio of earnings to combined fixed
      charges and preference dividends, earnings consist of pre-tax income
      (loss) from continuing operations, excluding minority interests in
      gains/losses of consolidated subsidiaries, and fixed charges consist of
      pre-tax interest (including capitalized interest) on all indebtedness,
      amortization of debt discount and expense, that portion of rental expense
      that we believe to be representative of interest, and distributions on
      subsidiary trust and other mandatorily redeemable preferred securities and
      preferred dividends, both of which have been grossed up to a pre-tax basis
      utilizing our effective tax rate.

EX-12.2

                                                                    EXHIBIT 12.2

                         WORLDCOM, INC. AND SUBSIDIARIES
           COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
                                  (IN MILLIONS)



                                                               Year Ended December 31,
                                                  -------------------------------------------------
                                                    1996       1997      1998       1999      2000
                                                  -------    -------   -------    -------   -------
                                                                             
EARNINGS:
Pretax income (loss) from continuing operations   $(2,272)   $   578   $(1,590)   $ 7,164   $ 7,568
Fixed charges, net of capitalized interest            315        500       774      1,098     1,120
                                                  -------    -------   -------    -------   -------
      Earnings                                    $(1,957)   $ 1,078   $  (816)   $ 8,262   $ 8,688
                                                  =======    =======   =======    =======   =======

FIXED CHARGES:
Interest cost                                     $   308    $   538   $   928    $ 1,287   $ 1,480
Amortization of financing costs                         4          2        12         18        26
Interest factor of rent expense                        19         47        78        132       149
                                                  -------    -------   -------    -------   -------
      Fixed charges                               $   331    $   587   $ 1,018    $ 1,437   $ 1,655
                                                  =======    =======   =======    =======   =======

Deficiency of earnings to fixed charges           $(2,288)   $  --     $(1,834)   $  --     $  --

Ratio of earnings to fixed charges (1)               --       1.84:1      --       5.75:1    5.25:1
                                                  =======    =======   =======    =======   =======


(1)   For the purpose of computing the ratio of earnings to fixed charges,
      earnings consist of pre-tax income (loss) from continuing operations,
      excluding minority interests in gains/losses of consolidated subsidiaries,
      and fixed charges consist of pre-tax interest (including capitalized
      interest) on all indebtedness, amortization of debt discount and expense,
      and that portion of rental expense that we believe to be representative of
      interest.

EX-21.1

                                                                    Exhibit 21.1

                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
1-800-Collect, Inc.                                                     Delaware
3568695 Canada, Inc.                                                     Canada
ACS California, Inc.                                                    Delaware
Advantage Company Limited                                                Bermuda
ALD Communications, Inc.                                               California
AMI License Corp.                                                       Delaware
ANS Communications Europe Ltd.                                             UK
ANS France S.A.R.L.                                                      France
Applied Video Technologies, Inc.                                        Delaware
Atlantic Microsystems, Inc.                                             Delaware
B.T.C. Real Estate Investments, Inc.                                    Missouri
Baltimore Choice Television, Inc.                                       Delaware
Baltimore License II, Inc.                                              Delaware
Baltimore License, Inc.                                                 Delaware
Bartel, Inc.                                                             Alabama
BFC Communications, Inc.                                                 Nevada
Big Networks Australia P/L                                              Australia
Bittel Telecommunications Corporation                                  California
BLT Technologies, Inc.                                                 Washington
Brooks Fiber Communications of Arkansas, Inc.                           Delaware
Brooks Fiber Communications of Bakersfield, Inc.                        Delaware
Brooks Fiber Communications of Connecticut, Inc.                        Delaware
Brooks Fiber Communications of Fresno, Inc.                             Delaware
Brooks Fiber Communications of Idaho, Inc.                              Delaware
Brooks Fiber Communications of Massachusetts, Inc.                      Delaware
Brooks Fiber Communications of Michigan, Inc.                           Michigan
Brooks Fiber Communications of Minnesota, Inc.                          Delaware
Brooks Fiber Communications of Mississippi, Inc.                        Delaware
Brooks Fiber Communications of Missouri, Inc.                           Delaware
Brooks Fiber Communications of Nevada, Inc.                             Delaware
Brooks Fiber Communications of New England, Inc.                        Delaware


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
Brooks Fiber Communications of New Mexico, Inc.                         Delaware
Brooks Fiber Communications of New York, Inc.                           Delaware
Brooks Fiber Communications of Ohio, Inc.                               Delaware
Brooks Fiber Communications of Oklahoma, Inc.                           Delaware
Brooks Fiber Communications of Rhode Island, Inc.                       Delaware
Brooks Fiber Communications of Sacramento, Inc.                          Nevada
Brooks Fiber Communications of San Jose, Inc.                            Nevada
Brooks Fiber Communications of Stockton, Inc.                           Delaware
Brooks Fiber Communications of Tennessee, Inc.                          Delaware
Brooks Fiber Communications of Texas, Inc.                              Delaware
Brooks Fiber Communications of Tucson, Inc.                             Delaware
Brooks Fiber Communications of Tulsa, Inc.                              Delaware
Brooks Fiber Communications of Utah, Inc.                               Delaware
Brooks Fiber Communications of Virginia, Inc.                           Virginia
Brooks Fiber Communications-LD, Inc.                                     Nevada
Brooks Fiber Properties, Inc.                                           Delaware
BTC Finance Corp.                                                       Delaware
BTC Transportation Corporation                                          Delaware
Buffalo Choice Television, Inc.                                         Delaware
Buffalo License II, Inc.                                                Delaware
Buffalo License, Inc.                                                   Delaware
CAI CT Holdings Corp.                                                   Delaware
CAI Data Systems, Inc. (50%)                                            Delaware
CAI Development, Inc.                                                   Delaware
CAI Satellite Communications, Inc. (50%)                                Delaware
CAI Wireless Internet, Inc.                                             Delaware
CAI Wireless Systems, Inc.                                             Connecticut
CAI/AMI Spectrum Management, Inc.                                       Delaware
CC Wireless, Inc.                                                       Delaware
Chenango Associates, Inc.                                               New York
Chicago Fiber Optic Corporation                                         Illinois


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       2


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
CMIST Pty Limited                                                       Australia
CNS Information (S) Pte. Ltd.                                           Singapore
Com Systems, Inc.                                                      California
COM/NAV Realty Corp.                                                    Delaware
Commonwealth Choice Television, Inc.                                    Delaware
Commonwealth License II, Inc.                                           Delaware
Commonwealth License, Inc.                                              Delaware
Communications Transport, Inc.                                          Delaware
Compuplex Incorporated                                                    Ohio
Comunicaciones Racotec, S.A.                                           Costa Rica
Connecticut Choice Television, Inc.                                    Connecticut
Connecticut License II, Inc.                                            Delaware
Connecticut License, Inc.                                               Delaware
Corporacion ABC Internacional,S. de R.L. de C.V.                         Mexico
Cross Country Telecommunications, Inc.                                 New Jersey
Cross Country Wireless, Inc.                                            Delaware
CS Network Services, Inc.                                              California
CS Wireless Battle Creek, Inc.                                          Delaware
CS Wireless Systems, Inc. (94%)                                         Delaware
Cyber Publications P/L                                                  Australia
Darome Teleconferencing L.L.C.                                          Delaware
Debrant Limited                                                        New Zealand
E.L. Acquisition, Inc.                                                  Delaware
Eastern New England License II, Inc.                                    Delaware
Eastern New England License, Inc.                                       Delaware
Eastern New England TV, Inc.                                            Delaware
Embratel Participacoes S.A. (51.79%)                                     Brazil
Empresa Brasileira de Telecomunicacoes (98.75%)                          Brazil
ESAG Holdings Participacoes S.A.                                         Brazil
Fagem Electronica, S.A.                                                Costa Rica
Fibercom of Missouri, Inc.                                              Missouri


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       3


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
FiberNet Rochester, Inc.                                                Delaware
Fibernet, Inc.                                                          Delaware
Fox Court Nominees Limited                                                 UK
Gemini Submarine Cable System (UK) Limited                           United Kingdom
Gemini Submarine Cable System Limited (50%)                              Bermuda
Gemini Submarine Cable System, Inc.                                     Delaware
Greater Albany License II, Inc.                                         Delaware
Greater Albany License, Inc.                                            Delaware
Greater Albany Wireless Systems, Inc.                                   New York
Greensboro Choice Television, Inc.                                      Delaware
Greensboro License II, Inc.                                             Delaware
Greensboro License, Inc.                                                Delaware
Guimar Holdings S.A.                                                     Brazil
Gulf Coast Wireless, Inc.                                                 Texas
Hampton Roads License II, Inc.                                          Delaware
Hampton Roads License, Inc.                                             Delaware
Hampton Roads Wireless, Inc.                                            Delaware
Healan Communications, Inc.                                              Georgia
Housatonic Wireless, Inc.                                               New York
IDB Communications Group Limited                                     United Kingdom
IDB London Gateway Limited (50%)                                     United Kingdom
INnet International N.V.                                                 Belgium
INnet Luxembourg S.A.                                                  Luxembourg
INnet N.V.                                                               Belgium
INnet Netherlands                                                      Netherlands
Institutional Communications Company                                    Virginia
Intelligent Investment Partners, Inc.                                   Delaware
Internet Connect Centre B.V.                                           Netherlands
InterNLnet B.V.  (50)                                                  Netherlands
J.B. Telecom, Inc.                                                      Missouri
Jones Lightwave of Denver, Inc.                                         Colorado


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       4


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
Kanas Telecom, Inc. (85%)                                                Alaska
Long Island Choice Television, Inc.                                     Delaware
Long Island License II, Inc.                                            Delaware
Long Island License, Inc.                                               Delaware
M.K. International SA                                                    France
Marconi Telegraph Cable Company, Inc.                                   New York
McCourt Cable and Communications Ltd                                 United Kingdom
MCI (CIS) LLC                                                            Russia
MCI Bolivian Investments Company S.A.                                    Bolivia
MCI Canada, Inc.                                                        Delaware
MCI Communications Corporation                                          Delaware
MCI Employee Services, Inc.                                             Delaware
MCI Equipment Acquisition Corporation                                   Delaware
MCI Finance Limited                                                  United Kingdom
MCI Galaxy III Transponder Leasing, Inc.                                Delaware
MCI Global Access Corporation                                           New York
MCI Global Support Corporation                                          Delaware
MCI Global Ventures, B.V.                                              Netherlands
MCI Internacional Guatemala, Sociedad Anonima                        Guatemala City
MCI International (Argentina) S.A.                                      Argentina
MCI International (Belgium) S.A./N.V.                                    Belgium
MCI International (Chile) S.A.                                            Chile
MCI International (Columbia) Ltda.                                      Columbia
MCI International (Deutschland) GmbH                                     Germany
MCI International (France) S.A.R.L.                                      France
MCI International (Ireland) Limited                                      Ireland
MCI International (Italy) S.R.L.                                          Italy
MCI International (Japan) Co., Ltd.                                       Japan
MCI International (Portugal) Telecomunicacoes, Lda.                     Portugal
MCI International (Sweden) AB                                            Sweden
MCI International de Venezuela, S.A.                                    Venezuela


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       5


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
MCI International Panama, S.A.                                           Panama
MCI International Services, L.L.C.                                      Delaware
MCI International Telecommunications Corporation                        Delaware
MCI International Telecomunicacoes do Brasil Ltda.                       Brazil
MCI International, Inc.                                                 Delaware
MCI Investments Holdings, Inc.                                          Delaware
MCI Management Services, Inc.                                           Delaware
MCI Network Technologies, Inc.                                          Delaware
MCI Omega Properties, Inc.                                              Delaware
MCI Payroll Services, LLC                                               Delaware
MCI Research, Inc.                                                      Delaware
MCI Solutions Telecomunicacoes LTDA.                                     Brazil
MCI Systemhouse L.L.C.                                                  Delaware
MCI Telecommunications (Israel) Ltd.                                     Israel
MCI Telecommunications (South Africa) (Proprietary) Limited           South Africa
MCI Telecommunications Ltd                                           United Kingdom
MCI Transcon Corporation                                                Delaware
MCI Transponder Leasing, Inc.                                           Delaware
MCI Videocom, Inc.                                                      Delaware
MCI Wireless, Inc.                                                      Delaware
MCI WorldCom (Ireland) Limited                                           Ireland
MCI WorldCom (Spain), S.A.                                                Spain
MCI WorldCom A.G.                                                      Switzerland
MCI WorldCom AS                                                          Norway
MCI WorldCom Asia Pacific Limited                                    Cayman Islands
MCI WorldCom Asia Pte. Limited                                          Singapore
MCI WorldCom Australia Pty Limited                                      Australia
MCI WorldCom B.V.                                                      Netherlands
MCI WORLDCOM Brands, L.L.C.                                             Delaware
MCI WORLDCOM Brazil LLC                                                 Delaware
MCI WORLDCOM Brooks Telecom, LLC                                        Delaware


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       6


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
MCI WORLDCOM Capital Management Corporation                             Delaware
MCI WORLDCOM Capital Management Partners                                Delaware
MCI WorldCom Communications (Ireland) Limited                            Ireland
MCI WorldCom Communications Japan Ltd.                                    Japan
MCI WORLDCOM Communications of Virginia, Inc.                           Virginia
MCI WORLDCOM Communications, Inc.                                       Delaware
MCI WorldCom Deutschland GmbH                                            Germany
MCI WORLDCOM Financial Management Corporation                           Delaware
MCI WorldCom Finland Oy                                                  Finland
MCI WorldCom Global Networks Limited                                     Bermuda
MCI WORLDCOM Global Networks U.S., Inc.                                 Delaware
MCI WorldCom Holding B.V.                                              Netherlands
MCI WorldCom Holding France                                              France
MCI WorldCom India Private Limited                                        India
MCI Worldcom International (Hungary) Telecommunications Ltd.             Hungary
MCI WORLDCOM International, Inc.                                        Delaware
MCI WorldCom Japan Limited                                                Japan
MCI WorldCom Korea Limited                                                Korea
MCI WorldCom Limited                                                 United Kingdom
MCI WorldCom Malaysia SDN.BHD                                           Malaysia
MCI WorldCom Management Company, Inc.                                   Delaware
MCI WORLDCOM MFS Telecom, LLC                                           Delaware
MCI WORLDCOM Network Services of Virginia, Inc.                         Virginia
MCI WORLDCOM Network Services, Inc.                                     Delaware
MCI WorldCom New Zealand Limited                                       New Zealand
MCI WorldCom Peru SRL                                                     Peru
MCI WorldCom Philippines, Inc.                                         Philippines
MCI WORLDCOM Receivables Corporation                                    Delaware
MCI WorldCom S.A.                                                        France
MCI WorldCom S.p.A.                                                       Italy
MCI WORLDCOM Synergies Management Company, Inc. (89.5%)                 Delaware


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       7


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
MCI WorldCom Taiwan Co. Ltd.                                           Taiwan, ROC
MCI WorldCom Telecommunication Services
  Austria Gesellschaft m.b.H.                                            Austria
MCI WorldCom Telecommunications (Hellas)
  Single-Member Limited Liability Company                                Greece
MCI WorldCom Telecommunications (Czech Republic), s.r.o.             Czech Republic
MCI WorldPhone Limited                                               United Kingdom
MCI/OTI Corporation                                                     Delaware
MCI-CIS                                                                  Russia
MCImetro Access Transmission Services LLC                               Delaware
MCImetro Access Transmission Services of Virginia, Inc.                 Virginia
MEDUSA Beteiligungsverwaltungs-Gesellschaft Nr. 32 mbH                   Germany
Memphis Choice Television, Inc.                                         Delaware
Memphis License II, Inc.                                                Delaware
Memphis License, Inc.                                                   Delaware
Metrex Corporation                                                       Georgia
MetroCable, Inc.                                                          Ohio
Metropolitan Fiber Systems of Alabama, Inc.                             Delaware
Metropolitan Fiber Systems of Arizona, Inc.                             Delaware
Metropolitan Fiber Systems of Baltimore, Inc.                           Delaware
Metropolitan Fiber Systems of California, Inc.                          Delaware
Metropolitan Fiber Systems of Columbus, Inc.                            Delaware
Metropolitan Fiber Systems of Connecticut, Inc.                         Delaware
Metropolitan Fiber Systems of Dallas, Inc.                              Delaware
Metropolitan Fiber Systems of Delaware, Inc.                            Delaware
Metropolitan Fiber Systems of Denver, Inc.                              Delaware
Metropolitan Fiber Systems of Detroit, Inc.                             Delaware
Metropolitan Fiber Systems of Florida, Inc.                             Delaware
Metropolitan Fiber Systems of Hawaii, Inc.                              Delaware
Metropolitan Fiber Systems of Houston, Inc.                             Delaware
Metropolitan Fiber Systems of Indianapolis, Inc.                        Delaware
Metropolitan Fiber Systems of Iowa, Inc.                                Delaware
Metropolitan Fiber Systems of Kansas City, Missouri, Inc.               Missouri


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       8


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
Metropolitan Fiber Systems of Kansas, Inc.                              Delaware
Metropolitan Fiber Systems of Kentucky, Inc.                            Delaware
Metropolitan Fiber Systems of Massachusetts, Inc.                       Delaware
Metropolitan Fiber Systems of Minneapolis/St. Paul, Inc.                Delaware
Metropolitan Fiber Systems of Nebraska, Inc.                            Delaware
Metropolitan Fiber Systems of Nevada, Inc.                              Delaware
Metropolitan Fiber Systems of New Hampshire, Inc.                     New Hampshire
Metropolitan Fiber Systems of New Jersey, Inc.                          Delaware
Metropolitan Fiber Systems of New Orleans, Inc.                         Delaware
Metropolitan Fiber Systems of New York, Inc.                            Delaware
Metropolitan Fiber Systems of North Carolina, Inc.                      Delaware
Metropolitan Fiber Systems of Ohio, Inc.                                Delaware
Metropolitan Fiber Systems of Oklahoma, Inc.                            Delaware
Metropolitan Fiber Systems of Oregon, Inc.                              Delaware
Metropolitan Fiber Systems of Philadelphia, Inc.                        Delaware
Metropolitan Fiber Systems of Pittsburgh, Inc.                          Delaware
Metropolitan Fiber Systems of Rhode Island, Inc.                        Delaware
Metropolitan Fiber Systems of Seattle, Inc.                             Delaware
Metropolitan Fiber Systems of St. Louis, Inc.                           Missouri
Metropolitan Fiber Systems of Tennessee, Inc.                           Delaware
Metropolitan Fiber Systems of Virginia, Inc.                            Delaware
Metropolitan Fiber Systems of Wisconsin, Inc.                           Delaware
Metropolitan Fiber Systems/McCourt, Inc.                                Delaware
Metropolitan Satellite Corp.                                              Ohio
MFS CableCo U.S., Inc.                                                  Delaware
MFS Communications GmbH                                                  Germany
MFS Communications of Canada, Inc.                                       Canada
MFS Communications SA                                                    France
MFS Datanet, Inc.                                                       Delaware
MFS Foreign Personnel, Inc.                                            California
MFS Globenet, Inc.                                                      Delaware


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       9


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
MFS International Holdings, L.L.C.                                      Delaware
MFS Network Technology Ltd                                           United Kingdom
MFS Telecom, Inc.                                                       Delaware
MFS Telephone of Missouri, Inc.                                         Missouri
MFS Telephone of New Hampshire, Inc.                                  New Hampshire
MFS Telephone of Virginia, Inc.                                         Virginia
MFS Telephone, Inc.                                                     Delaware
MFS/C-TEC                                                               Delaware
MFSA Holding, Inc.                                                      Delaware
Military Communications Center, Inc.                                    Delaware
MK International AS                                                      Norway
MK International A/S                                                     Denmark
MK International Limited New Zealand                                   New Zealand
MK International Ltd                                                 United Kingdom
MK International Project Management Pte Limited                         Singapore
MK International Project Management Pty Limited                         Australia
MK International Project Management S.L.                                  Spain
MK International Projekt Menedzsment Kft.                                Hungary
MK International S.A.                                                  Luxembourg
MK International S.r.l.                                                   Italy
MK International s.r.o                                               Czech Republic
MK International Sp. z o.o.                                              Poland
MK International Telekommunikationsgesellschaf m.b.H.                    Austria
MKI Cellular Limited                                                 United Kingdom
MKI GmbH                                                                 Germany
MMDS Satellite Ventures, Inc. (50%)                                     Delaware
MobileComm Europe Inc.                                                  Delaware
Mtel (UK) Limited                                                          UK
Mtel American Radiodetermination Corporation                            Delaware
Mtel Asia, Inc.                                                         Delaware
Mtel Cellular, Inc.                                                     Delaware


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       10


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
Mtel Chile S.A.                                                           Chile
Mtel China, Inc.                                                       British VI
Mtel Columbia S.A.                                                      Colombia
Mtel Costa Rica S.A.                                                   Costa Rica
Mtel del Ecuador S.A.                                                    Ecuador
Mtel Digital Services, Inc.                                             Delaware
Mtel Dominicana, S.A. (50%)                                        Dominican Republic
Mtel Guatemala S.A. (50%)                                               Guatemala
Mtel International, Inc.                                                Delaware
Mtel Latin America, Inc.                                                Delaware
Mtel Microwave, Inc.                                                    Delaware
Mtel Service Corporation                                                Delaware
Mtel Space Technologies Corporation                                     Delaware
Mtel Technologies, Inc.                                                 Delaware
Mtel Uruguay S.A.                                                        Uruguay
N.C.S. Equipment Corporation                                            New York
N.V. WorldCom S.A. (50%)                                                 Belgium
NET TV Australia P/L                                                    Australia
networkMCI, Inc.                                                        Delaware
New England Fiber Communications L.L.C.                                 Delaware
New York Choice Television, Inc.                                        Delaware
New York License II, Inc.                                               Delaware
New York License, Inc.                                                  Delaware
NewSatCo Argentina S.R.L.                                               Argentina
Niskayuna Associates, Inc.                                              Delaware
Northeast Networks, Inc.                                                Delaware
Nova Cellular Co.                                                       Illinois
Nubal S.A.                                                               Uruguay
Onondaga Wireless, Inc.                                                 New York
Onteo Associates, Inc.                                                  New York
Overseas Telecommunications, Inc.                                       Delaware


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       11


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
OzEmail Fax Investments Pty Limited                                     Australia
OzEmail Pty Limited                                                     Australia
OzEmail Technologies Pty Limited                                        Australia
Pan Wireless Communications, Inc.                                       Delaware
PC License II, Inc.                                                     Delaware
PC License, Inc.                                                        Delaware
Philadelphia Choice Television, Inc.                                    Delaware
Phipps Wireless, Inc.                                                    Florida
Pittsburgh Choice Television, Inc.                                      Delaware
Pittsburgh License II, Inc.                                             Delaware
Pittsburgh License, Inc.                                                Delaware
Power Up Pty Limited                                                    Australia
Proceda Tecnologia e Informatica, S.A.                                   Brazil
PT MCI WorldCom Indonesia                                               Indonesia
Rochester Choice Television, Inc.                                       Delaware
Rochester License II, Inc.                                              Delaware
Rochester License, Inc.                                                 Delaware
SE Network Access Pty Limited                                           Australia
Shoals Wireless, Inc.                                                   Tennessee
SkyTel Communications, Inc.                                             Delaware
SkyTel Corp.                                                            Delaware
SkyTel Panama                                                            Panama
Skytel Payroll Services, LLC                                            Delaware
SkyTel Telecomunicaciones Argentina, S.A.                               Argentina
Southern Wireless Video, Inc.                                           Delaware
Southernnet of South Carolina, Inc.                                  South Carolina
Southernnet Systems, Inc.                                               Virginia
Southernnet, Inc.                                                        Georgia
Springfield Choice Television, Inc.                                     Delaware
Springfield License, Inc.                                               Delaware
Startel-Participacoes Ltda.                                              Brazil


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       12


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
SWCC, Inc.                                                               Georgia
Syracuse Choice Television, Inc.                                        Delaware
Syracuse License II, Inc.                                               Delaware
Syracuse License, Inc.                                                  Delaware
Telecom*USA, Inc.                                                       Delaware
Telecomunicaciones SkyTel C.A.                                          Venezuela
Teleconnect Company                                                       Iowa
Teleconnect Long Distance Services & Systems Co.                          Iowa
Telefonica Pan Americana MCI de Panama, S.A.                           Panama City
Telefonica Pan Americana MCI, BV                                       Netherlands
TelQuest Satellite Services LLC (56.68%)                                Delaware
Tenant Network Services, Inc.                                          California
The Public IP Exchange Limited                                             UK
TMC Communications, Inc.                                               California
Touch 1 Long Distance, Inc.                                              Alabama
TransCall America, Inc.                                                  Georgia
Tru Vision Wireless, Inc.                                               Delaware
Tru Vision-Chattanooga, Inc.                                            Delaware
Tru Vision-Flippin, Inc.                                                Delaware
Tru Vision-Gadsden, Inc.                                                Delaware
Tru Vision-Jacksonville, Inc.                                           Delaware
Tru Vision-Lawrenceburg, Inc.                                           Delaware
Tru Vision-Memphis, Inc.                                                Delaware
Tru-Vision-Huntsville, Inc.                                             Delaware
TTI National, Inc.                                                      Delaware
Unipalm Group plc                                                          UK
Unipalm Limited                                                            UK
USA AirLink, Inc.                                                       Delaware
USA Spectrum Holdings, Inc.                                             Delaware
USA Wireless Cable, Inc.                                                Nebraska
UUNET ApS                                                                Denmark


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       13


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
UUNET Argentina S.R.L.                                                  Argentina
UUNET Australia Ltd.                                                    Delaware
UUNET Austria GmbH                                                       Austria
UUNET Brasil L.T.D.A.                                                    Brazil
UUNET Caribbean, Inc.                                                   Delaware
UUNET Caribbean, Inc.                                                   Barbados
UUNET Czech, s.r.o.                                                  Czech Republic
UUNET Deutschland GmbH                                                   Germany
UUNET Development B.V.                                                 Netherlands
UUNET Equipment Singapore Pte. Ltd.                                     Singapore
UUNET European Operations Center B.V.                                  Netherlands
UUNET Finland OY                                                         Finland
UUNET France S.A.                                                        France
UUNET Hellas EPE (Greece)                                                Greece
UUNET Holding B.V.                                                     Netherlands
UUNET Holdings Australia Pty Ltd.                                       Australia
UUNET Holdings Corp.                                                    Delaware
UUNET Holdings GmbH                                                      Germany
UUNET Hong Kong Limited                                                 Hong Kong
UUNET Hungary Kft                                                        Hungary
UUNET International (Chile) Limitada                                      Chile
UUNET International Ltd.                                                Delaware
UUNET International Panama, S.A.                                         Panama
UUNET Ireland Limited                                                    Ireland
UUNET Israel Internet Service Provider Ltd.                              Isreal
UUNET Italia S.R.L.                                                       Italy
UUNET Japan, Inc.                                                         Japan
UUNET Japan Ltd.                                                        Delaware
UUNET Korea , Ltd.                                                        Korea
UUNET Malaysia Sdn. Bhd.                                                Malaysia
UUNET Mexico, S. de R. L. de C.V.                                        Mexico


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       14


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
UUNET Norway AS                                                          Norway
UUNET Payroll Services, LLC                                             Delaware
UUNET Peru S.r.l.                                                         Peru
UUNET Pipex B.V.                                                       Netherlands
UUNET Pipex Belgium, N.V.                                                Belgium
UUNET Polska Sp. z o.o.                                                  Poland
UUNET Portugal Sociedade Unipessoal Lda                                 Portugal
UUNET SA Pty Ltd                                                      South Africa
UUNET Schweiz GmbH                                                     Switzerland
UUNET Services Amsterdam B.V.                                          Netherlands
UUNET Services B.V.                                                    Netherlands
UUNET Singapore Pte. Ltd.                                               Singapore
UUNET Sweden AB                                                          Sweden
UUNET Taiwan Ltd.                                                        Taiwan
UUNET Technologies, Inc.                                                Delaware
UUNET Venezuela C.A.                                                    Venezuela
UUNET Vostok                                                       Russian Federation
UUSociedad Espanola de Servicios de Internet, UUNET, S.L.                 Spain
Valley Wireless Cable, Inc.                                            California
Virginia Metrotel, Inc.                                                 Virginia
Voyager NZ Limited                                                     New Zealand
Washington Choice Television, Inc.                                      Delaware
Washington License II, Inc.                                             Delaware
Washington License, Inc.                                                Delaware
Web Wide Media Pty Limited P/L                                          Australia
Western Business Network, Inc.                                         California
Winston-Choice License II, Inc.                                         Delaware
Winston-Choice License, Inc.                                            Delaware
Winston-Salem Choice Television, Inc.                                   Delaware
Wiregrass Cable Television, Inc.                                         Alabama
Wireless Enterprises LLC (75%)                                          Delaware


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       15


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
Wireless Media Services, Inc.                                           Delaware
Wireless One of Alabama Leasing Company, Inc.                            Alabama
Wireless One of Alabama, Inc.                                            Alabama
Wireless One of Arkansas Leasing Company, Inc.                          Delaware
Wireless One of Arkansas, Inc.                                          Delaware
Wireless One of Bryan, Texas, Inc. (80%)                                Delaware
Wireless One of Florida Leasing Company, Inc.                           Delaware
Wireless One of Florida, Inc.                                           Delaware
Wireless One of Georgia Leasing Company, Inc.                           Delaware
Wireless One of Georgia, Inc.                                           Delaware
Wireless One of Kentucky Leasing Company, Inc.                          Delaware
Wireless One of Kentucky, Inc.                                          Delaware
Wireless One of Louisiana Leasing Company, LLC                            Texas
Wireless One of Louisiana, LLC                                            Texas
Wireless One of Mississippi Leasing Company, Inc.                       Delaware
Wireless One of Natchez, Inc.                                           Delaware
Wireless One of North Carolina, L.L.C. (50%)                            Delaware
Wireless One of Tallahassee, Inc.                                       Delaware
Wireless One of Tennessee GP, Inc.                                      Delaware
Wireless One of Tennessee Leasing, LP                                   Tennessee
Wireless One of Tennessee, Inc.                                         Delaware
Wireless One of Texas GP, Inc.                                          Delaware
Wireless One of Texas Leasing, LP                                         Texas
Wireless One of Texas, Inc.                                             Delaware
Wireless One Operating Company, LLC                                       Texas
Wireless One PCS, Inc.                                                  Delaware
Wireless One, Inc.                                                      Delaware
Wireless Video Enhanced Services                                       California
Wireless Video Enterprises, Inc.                                       California
Wireless Video Services                                                California
WorldCom Advanced Network International Pty Ltd.                        Australia


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       16


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
WorldCom Advanced Networks AG                                          Switzerland
WorldCom Advanced Networks Consulting Limited                              UK
WorldCom Advanced Networks Hong Kong, Ltd.                              Hong Kong
WorldCom Advanced Networks Limited                                         UK
WorldCom Advanced Networks Services
  Integration Group Southwest, Inc.                                      Texas
WorldCom Aktiebolag                                                      Sweden
WorldCom Broadband Solutions, Inc.                                      Delaware
WorldCom Canada Ltd.                                                     Canada
WorldCom Caribbean, Inc.                                                New York
WorldCom Development S.A.                                                Belgium
WorldCom East, Inc.                                                     Delaware
WorldCom Federal Systems, Inc.                                          Delaware
WorldCom Funding Corporation                                            Delaware
WorldCom Holding (Hong Kong) Limited                                    Hong Kong
WorldCom ICC, Inc.                                                      Delaware
WorldCom International Data Services, Inc.                              Delaware
WorldCom International El Salvador, S.A. de C.V.                       El Salvador
WorldCom International Mobile Services LLC                              Delaware
WorldCom International Mobile Services, Inc.                            Delaware
WorldCom International, Inc.                                            Delaware
WorldCom Network Services Asia, Inc.                                      Korea
WorldCom Northern Limited                                            United Kingdom
WorldCom Overseas Holdings, Inc.                                        Delaware
WorldCom Payroll Services, LLC                                          Delaware
WorldCom Purchasing, LLC                                                Delaware
WorldCom Switzerland LLC                                                Delaware
WorldCom Telecommunications A/S                                          Denmark
WorldCom Ventures, Inc.                                                 Delaware
WorldCom West Indies Limited                                        Trinidad & Tobago
WorldCom Wireless (UK) Limited                                       United Kingdom
WorldCom Wireless Deutschland GmbH                                       Germany


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       17


                                 WORLDCOM, INC.
                                SUBSIDIARIES(1)

- --------------------------------------------------------------------------------



                                                                     JURISDICTION OF
        NAME OF COMPANY(2)                                            INCORPORATION
        ------------------                                           ---------------
                                                                  
WorldCom Wireless Switzerland GmbH                                     Switzerland
WorldCom Wireless, Inc.                                                  Arizona
WorldCom, Inc. (Parent)                                                  Georgia


    (1) All subsidiaries are 100% owned by parent or other subsidiary unless
                             otherwise designated.

 (2) Certain of the subsidiaries of the Company conduct business under portions
               of their full name or acronyms of their full name.


                                       18

EX-23.1

                                                                    Exhibit 23.1


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report included in the Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-52168, 33-69322, 33-71450,
33-89072, 333-02115, 333-10349, 333-16531, 333-16015, 333-30279, 333-30281,
333-45079, 333-45095, 333-45083, 333-62609, 333-62613, 333-36901, 333-85393,
333-85389, 333-85919, 333-44374 and 333-44368) and Form S-3 (File Nos.
333-10455, 333-10459, 333-85431, 333-34578 and 333-44380).


ARTHUR ANDERSEN LLP


Jackson, Mississippi
March 30, 2001

EX-99.1

                                                                    EXHIBIT 99.1

                         INDEX TO FINANCIAL STATEMENTS



                                                                PAGE
                                                              --------
                                                           
WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

  Report of independent public accountants..................     F-2

  Combined balance sheets as of December 31, 1999 and
    2000....................................................     F-3

  Combined statements of operations for the three years
    ended December 31, 2000.................................     F-4

  Combined statements of allocated net worth for the three
    years ended December 31, 2000...........................     F-5

  Combined statements of cash flows for the three years
    ended December 31, 2000.................................     F-6

  Notes to combined financial statements....................     F-7


                            ------------------------

    You should understand the following when reading the combined financial
statements of the WorldCom group, which is an integrated business of WorldCom,
Inc.:

    - WorldCom has presented the combined financial statements of the WorldCom
      group at substantially the same level of detail as the consolidated
      financial statements of WorldCom. WorldCom believes that investors will
      require detailed financial information for the WorldCom group to properly
      evaluate the market potential of WorldCom group stock.

    - the WorldCom group is a collection of WorldCom's data, Internet,
      international and commercial voice businesses and is not a separate legal
      entity;

    - the holders of the WorldCom group stock are shareholders of WorldCom and
      do not have an ownership interest in the WorldCom group or any company in
      the WorldCom group or a claim on any of the assets attributed to the
      WorldCom group;

    - the attribution of a portion of WorldCom's assets and liabilities to the
      WorldCom group does not affect WorldCom's ownership of these assets or
      responsibility for these liabilities and does not affect the rights of any
      creditor of WorldCom; and

    - the assets attributed to the WorldCom group could be subject to the
      liabilities attributed to the MCI group.

                                      F-1

                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

      To the Shareholders of WorldCom, Inc.:

    We have audited the accompanying combined balance sheets of WorldCom group
(an integrated business of WorldCom, Inc.) (as described in Note 1) as of
December 31, 1999 and 2000, and the related combined statements of operations,
allocated net worth and cash flows for each of the years in the two-year period
ended December 31, 2000. These financial statements are the responsibility of
WorldCom, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the WorldCom group combined financial statements referred to
above present fairly, in all material respects, the combined financial position
of WorldCom group as of December 31, 1999 and 2000, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

    As discussed in Note 1 to the combined financial statements, effective
January 1, 2000, WorldCom group changed its method of accounting for certain
activation and installation fee revenues and expenses.

    WorldCom group is a fully integrated business of WorldCom, Inc. Accordingly,
as described in Note 1, WorldCom group's combined financial statements have been
derived from the consolidated financial statements and accounting records of
WorldCom, Inc. and, therefore, reflect certain assumptions and allocations. As
more fully discussed in Note 1, the combined financial statements of WorldCom
group should be read in conjunction with the audited consolidated statements of
WorldCom, Inc.

    The financial statements of WorldCom group as of and for the year ended
December 31, 1998, were not audited by us and, accordingly, we do not express an
opinion on them.

ARTHUR ANDERSEN LLP

Jackson, Mississippi
March 30, 2001

                                      F-2

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                            COMBINED BALANCE SHEETS

                                 (IN MILLIONS)



                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
                                                                   
ASSETS
Current assets:
  Cash and cash equivalents.................................  $   806    $   720
  Accounts receivable, net of allowance for bad debts of
    $440 in 1999
    and $1,018 in 2000......................................    3,737      4,980
  Deferred tax asset........................................    2,565        131
  Other current assets......................................      953      1,612
  Receivable from MCI group, net............................      976      1,625
                                                              -------    -------
      Total current assets..................................    9,037      9,068
                                                              -------    -------
Property and equipment:
  Transmission equipment....................................   14,312     19,883
  Communications equipment..................................    4,323      5,873
  Furniture, fixtures and other.............................    6,765      8,666
  Construction in progress..................................    5,179      6,727
                                                              -------    -------
                                                               30,579     41,149
  Accumulated depreciation..................................   (4,352)    (5,972)
                                                              -------    -------
                                                               26,227     35,177
                                                              -------    -------
Goodwill and other intangible assets........................   37,252     36,685
Other assets................................................    4,717      4,963
                                                              -------    -------
                                                              $77,233    $85,893
                                                              =======    =======
LIABILITIES AND ALLOCATED NET WORTH
Current liabilities:
  Short-term debt and current maturities of long-term
    debt....................................................  $ 5,015    $ 7,200
  Accounts payable and accrued line costs...................    3,731      3,584
  Other current liabilities.................................    3,948      3,429
                                                              -------    -------
      Total current liabilities.............................   12,694     14,213
                                                              -------    -------
Long-term liabilities, less current portion:
  Long-term debt............................................    7,128     11,696
  Deferred tax liability....................................    4,229      2,683
  Other liabilities.........................................    1,047        965
                                                              -------    -------
      Total long-term liabilities...........................   12,404     15,344
                                                              -------    -------
Commitments and contingencies
Minority interests..........................................    2,599      2,592
Company obligated mandatorily redeemable preferred
  securities of subsidiary trust holding solely junior
  subordinated deferrable interest debentures of the Company
  and other redeemable preferred securities.................      798        798
Allocated net worth.........................................   48,738     52,946
                                                              -------    -------
                                                              $77,233    $85,893
                                                              =======    =======


   The accompanying notes are an integral part of these combined statements.

                                      F-3

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                       COMBINED STATEMENTS OF OPERATIONS

                                 (IN MILLIONS)



                                                               FOR THE YEARS ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                 1998         1999        2000
                                                              -----------   ---------   ---------
                                                              (UNAUDITED)
                                                                               
Revenues....................................................    $ 9,809      $19,736     $22,755
                                                                -------      -------     -------
Operating expenses:
  Line costs................................................      4,801        7,905       8,745
  Selling, general and administrative.......................      2,212        4,195       5,689
  Depreciation and amortization.............................      1,744        3,013       3,280
  In-process research and development and other charges.....      2,474           (8)         --
                                                                -------      -------     -------
      Total.................................................     11,231       15,105      17,714
                                                                -------      -------     -------
Operating income (loss).....................................     (1,422)       4,631       5,041
Other income (expense):
  Interest expense..........................................       (180)        (460)       (458)
  Miscellaneous.............................................         44          237         385
                                                                -------      -------     -------
Income (loss) before income taxes, minority interests,
  cumulative effect of accounting change and extraordinary
  items.....................................................     (1,558)       4,408       4,968
Provision for income taxes..................................        409        1,856       1,990
                                                                -------      -------     -------
Income (loss) before minority interests, cumulative effect
  of accounting change and extraordinary items..............     (1,967)       2,552       2,978
Minority interests..........................................        (93)        (186)       (305)
                                                                -------      -------     -------
Income (loss) before cumulative effect of accounting change
  and extraordinary items...................................     (2,060)       2,366       2,673
Cumulative effect of accounting change (net of income tax of
  $43 in 2000)..............................................         --           --         (75)
Extraordinary items (net of income taxes of $78 in 1998)....       (129)          --          --
                                                                -------      -------     -------
Net income (loss) before distributions on subsidiary trust
  and other mandatorily redeemable preferred securities and
  preferred dividend requirements...........................     (2,189)       2,366       2,598
Distributions on subsidiary trust and other mandatorily
  redeemable preferred securities...........................         18           63          64
Preferred dividend requirement..............................         24            9           1
                                                                -------      -------     -------
Net income (loss)...........................................    $(2,231)     $ 2,294     $ 2,533
                                                                =======      =======     =======


   The accompanying notes are an integral part of these combined statements.

                                      F-4

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                   COMBINED STATEMENTS OF ALLOCATED NET WORTH

                  FOR THE THREE YEARS ENDED DECEMBER 31, 2000

                                 (IN MILLIONS)



                                                                                     FOREIGN
                                                                      UNREALIZED    CURRENCY
                                                         ATTRIBUTED    HOLDING     TRANSLATION   ALLOCATED
                                                          CAPITAL        GAIN      ADJUSTMENT    NET WORTH
                                                         ----------   ----------   -----------   ---------
                                                                                     
Balances, December 31, 1997............................    $19,148       $ 34         $ (30)      $19,152
Funds attributed from WorldCom, Inc....................     25,831         --            --        25,831
Advances to MCI group, net.............................       (551)        --            --          (551)
Other comprehensive loss (net of taxes and
  reclassifications):
Net loss before distributions on subsidiary trust and
  other mandatorily redeemable preferred securities and
  preferred dividend requirements......................     (2,189)        --            --        (2,189)
Cash dividends on preferred stock and distributions on
  trust securities.....................................        (42)        --            --           (42)
Net change in unrealized holding gain on marketable
  equity securities....................................         --         88            --            88
Foreign currency adjustment............................         --         --             2             2
                                                                                                  -------
        Total comprehensive loss.......................                                            (2,141)
                                                           -------       ----         -----       -------
Balances, December 31, 1998............................     42,197        122           (28)       42,291
Funds attributed from WorldCom, Inc....................      1,935         --            --         1,935
Advances from MCI group, net...........................      2,097         --            --         2,097
Other comprehensive income (net of taxes and
  reclassifications):
Net income before distributions on subsidiary trust and
  other mandatorily redeemable preferred securities and
  preferred dividend requirements......................      2,366         --            --         2,366
Cash dividends on preferred stock and distributions on
  trust securities.....................................        (72)        --            --           (72)
Net change in unrealized holding gain on marketable
  equity securities....................................         --        453            --           453
Foreign currency adjustment............................         --         --          (332)         (332)
                                                                                                  -------
        Total comprehensive income.....................                                             2,415
                                                           -------       ----         -----       -------
Balances, December 31, 1999............................     48,523        575          (360)       48,738
Funds attributed from WorldCom, Inc....................        770         --            --           770
Advances from MCI group, net...........................      1,592         --            --         1,592
Other comprehensive income (net of taxes and
  reclassifications):
Net income before distributions on subsidiary trust and
  other mandatorily redeemable preferred securities and
  preferred dividend requirements......................      2,598         --            --         2,598
Cash dividends on preferred stock and distributions on
  trust securities.....................................        (65)        --            --           (65)
Net change in unrealized holding gain on marketable
  equity securities....................................         --       (230)           --          (230)
Foreign currency translation adjustment................         --         --          (457)         (457)
                                                                                                  -------
        Total comprehensive income.....................                                             1,846
                                                           -------       ----         -----       -------
Balances, December 31, 2000............................    $53,418       $345         $(817)      $52,946
                                                           =======       ====         =====       =======


Note: Amounts presented prior to December 31, 1998 are unaudited.

   The accompanying notes are an integral part of these combined statements.

                                      F-5

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                       COMBINED STATEMENTS OF CASH FLOWS

                                 (IN MILLIONS)



                                                                       FOR THE YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------------------
                                                                   1998              1999              2000
                                                              ---------------   ---------------   ---------------
                                                                (UNAUDITED)
                                                                                         
Cash flows from operating activities:
Net income (loss) before distributions on subsidiary trust
  and other mandatorily redeemable preferred securities and
  preferred dividend requirements...........................      $(2,189)          $ 2,366          $  2,598
Adjustments to reconcile net income (loss) before
  distributions on subsidiary trust and other mandatorily
  redeemable preferred securities and preferred dividend
  requirements to net cash provided by operating activities:
  Extraordinary items.......................................          129                --                --
  Cumulative effect of accounting change....................           --                --                75
  Minority interests........................................           93               186               305
  In-process research and development and other charges.....        2,474                (8)               --
  Depreciation and amortization.............................        1,744             3,013             3,280
  Provision for losses on accounts receivable...............          212               330             1,091
  Provision for deferred income taxes.......................          626             2,510             1,410
  Accreted interest on debt.................................           25                --                --
  Change in assets and liabilities, net of effect of
    business combinations:
    Accounts receivable.....................................         (483)             (941)           (2,391)
    Receivable from MCI group, net..........................         (259)             (555)             (649)
    Other current assets....................................         (209)              119              (582)
    Accounts payable and other current liabilities..........          411               746               624
  Other.....................................................          (40)             (414)             (431)
                                                                  -------           -------          --------
Net cash provided by operating activities...................        2,534             7,352             5,330
                                                                  -------           -------          --------
Cash flows from investing activities:
  Capital expenditures......................................       (4,523)           (7,036)           (9,368)
  Capital expenditures, Embratel and undersea cables........         (369)             (893)           (1,616)
  Acquisitions and related costs............................       (1,811)             (786)              (14)
  Increase in intangible assets.............................         (300)             (389)             (771)
  Proceeds from the sale of SHL.............................           --             1,640                --
  Proceeds from disposition of marketable securities and
    other long-term assets..................................          202             1,940               676
  Increase in other assets..................................         (384)           (1,956)           (1,696)
  Decrease in other liabilities.............................         (121)             (565)             (823)
                                                                  -------           -------          --------
Net cash used in investing activities.......................       (7,306)           (8,045)          (13,612)
                                                                  -------           -------          --------
Cash flows from financing activities:
  Principal borrowings (repayments) on debt, net............        6,390            (2,894)            6,377
  Attributed stock activity of WorldCom, Inc................          472               886               585
  Distributions on subsidiary trust mandatorily redeemable
    preferred securities....................................          (18)              (63)              (64)
  Dividends paid on preferred stock.........................          (24)               (9)               (1)
  Redemption of Series C preferred stock....................           --                --              (190)
  Advances (to) from MCI group, net.........................         (551)            2,097             1,592
  Other.....................................................           48                --               (84)
                                                                  -------           -------          --------
Net cash provided by financing activities...................        6,317                17             8,215
Effect of exchange rate changes on cash.....................           --              (221)              (19)
                                                                  -------           -------          --------
Net increase (decrease) in cash and cash equivalents........        1,545              (897)              (86)
Cash and cash equivalents at beginning of period............          158             1,703               806
                                                                  -------           -------          --------
Cash and cash equivalents at end of period..................      $ 1,703           $   806          $    720
                                                                  =======           =======          ========


   The accompanying notes are an integral part of these combined statements.

                                      F-6

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--

DESCRIPTION OF BUSINESS AND ORGANIZATION:

    Organized in 1983, WorldCom, Inc., a Georgia corporation (the "Company")
provides a broad range of communications services to both U.S. and non-U.S.
based businesses and consumers. The Company is a global communications company
utilizing an "on-net" strategy based on being able to provide service through
its own facilities throughout the world instead of being restricted to a
particular geographic location. The on-net approach allows the Company's
customers to send data or voice communications across town, across the U.S., or
to any of our networks in Europe or Asia, without ever leaving the Company's
networks. The on-net approach provides the Company's customers with superior
reliability and low operating costs. Prior to May 1, 2000, the Company was named
MCI WORLDCOM, Inc.

    The Company's core business is communications services, which includes
voice, data, Internet and international services. The Company serves as a
holding company for its subsidiaries' operations. References herein to the
Company include the Company and its subsidiaries, unless the context otherwise
requires.

BASIS OF COMBINATION AND PRESENTATION:

    On November 1, 2000, the Company announced a realignment of its businesses
with the distinct customer bases they serve. While WorldCom, Inc. will remain
the name of the company, it will create two separately traded tracking stocks:

    - WorldCom group stock ("WorldCom stock") is intended to reflect the
      performance of the Company's data, Internet, international and commercial
      voice businesses and is expected to be quoted on The Nasdaq National
      Market under the trading symbol "WCOM", and

    - MCI group stock ("MCI stock") is intended to reflect the performance of
      the Company's consumer, small business, wholesale long distance, wireless
      messaging and dial-up Internet access businesses and is expected to be
      quoted on The Nasdaq National Market under the trading symbol "MCIT".

    A tracking stock is a separate class of a company's common stock intended to
provide a return to investors based upon the financial performance of a distinct
business unit of the company, sometimes referred to as the targeted business.
These targeted businesses are collections of businesses that the Company has
grouped together in order for the Company to issue WorldCom stock and MCI stock.
The ownership of the targeted business does not change, and while each of the
classes of stock trade separately, all shareholders are common shareholders of a
single company, WorldCom, Inc., and will be subject to all risks of an
investment in the Company as a whole.

    Under the plan, which must be approved by the Company's shareholders, the
Company will amend its articles of incorporation to effect a recapitalization
that will replace the Company's existing common stock with two new series of
Company common stock that are intended to reflect, or track, the performance of
the businesses attributed to WorldCom group and MCI group. The Company expects
to hold its shareholder meeting to vote on the recapitalization in the first
half of 2001, and to effect the recapitalization shortly after the Company
receives the necessary shareholder approval. No regulatory approvals are
expected to be required.

                                      F-7

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
    If the Company's shareholders approve the recapitalization, each share of
the Company's existing common stock will be changed into one share of WorldCom
stock and 1/25 of a share of MCI stock. After the recapitalization, a common
shareholder's ownership in WorldCom, Inc. will then be represented by two
stocks: WorldCom stock and MCI stock.

    All assets reported in the accompanying combined financial statements are
owned by the Company or one of its subsidiaries. These combined financial
statements are based on the operations, attributed assets and attributed
liabilities of WorldCom group and are not representative of any separately
incorporated entity.

    The WorldCom group combined financial statements will provide WorldCom group
shareholders with financial information about WorldCom group's operations.
Investors in WorldCom stock and MCI stock will be shareholders of the Company
and will be subject to risks related to all of the Company's businesses, assets
and liabilities. The Company retains ownership and control of the attributed
assets, attributed liabilities and operations of WorldCom group and MCI group.
Financial effects of either group that affect the Company's consolidated results
of operations or financial position could affect the results of operations or
financial position of the other group or the market price of the other group's
stock. Net losses of either WorldCom group or MCI group and any dividends or
distributions on, or repurchases of, WorldCom stock or MCI stock will reduce
Company funds legally available for dividends on WorldCom stock or MCI stock. As
a result, the WorldCom group combined financial statements should be read along
with the Company's consolidated financial statements.

    The combined financial statements of WorldCom group reflect the results of
operations, financial position, changes in allocated net worth and cash flows of
WorldCom group as if WorldCom group was a separate entity for the periods
presented. The financial information included herein, however, may not
necessarily reflect the combined results of operations, financial position,
changes in allocated net worth and cash flows of WorldCom group had it been a
separate, stand-alone entity during the periods presented.

    For financial reporting purposes, the Company has attributed all of its
consolidated assets, liabilities, shareholders' investment, revenues, expenses
and cash flows to either WorldCom group or MCI group. The separate financial
statements give effect to the allocation policies described below under
"Intergroup Allocation Policies". Intergroup allocation policies adopted by the
Company's Board of Directors can be rescinded or amended, or new policies may be
adopted, at the discretion of the Board of Directors, without any prior approval
of shareholders, although no such changes are currently contemplated.

    As integrated businesses, the Company has not historically prepared separate
financial statements of WorldCom group and MCI group. The combined financial
statements of WorldCom group reflect certain assets, liabilities, revenues and
expenses directly attributable to WorldCom group as well as allocations based on
methodologies deemed reasonable by management; however, the costs of such
allocated services charged between WorldCom group and MCI group may not
necessarily be indicative of the costs that would have been incurred if WorldCom
group and MCI group had performed these functions entirely as stand-alone
entities. The Company's Board of Directors will have the ability to control
transfers of funds or other assets between WorldCom group and MCI group. The
financial statements of WorldCom group are presented to provide additional
disclosure related to the underlying businesses that comprise WorldCom group.
Management intends on providing audited financial

                                      F-8

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
statements prepared in accordance with accounting principles generally accepted
in the United States, or GAAP, for WorldCom group as long as WorldCom stock is
outstanding.

INTERGROUP ALLOCATION POLICIES:

    TRACKING STOCK POLICY STATEMENT

    The Company's Board of Directors has fiduciary duties to all shareholders of
the Company, and no independent fiduciary duties to the holders of WorldCom
stock and MCI stock. The Board of Directors of the Company has adopted a policy
statement regarding WorldCom group and MCI group matters. The Company's Board of
Directors or any special committee appointed by the Company's Board of
Directors, may amend, modify or rescind the policies set forth in this policy
statement from time to time at its sole discretion and without shareholder
approval. The material provisions of the policy statement are as follows:

    GENERAL POLICY.  The policy statement provides that all material matters as
to which the holders of WorldCom stock and MCI stock may have potentially
divergent interests will be resolved in a manner that the Board of Directors of
the Company or any special committee appointed by the Board of Directors
determines to be in the best interests of the Company as a whole, after giving
due consideration to the potentially divergent interests and all other interests
of the holders of the separate series of common stock of the Company that the
Board of Directors or any special committee, as the case may be, deems relevant.
The policy statement provides that the Company will manage the businesses in
WorldCom group and MCI group in a manner intended to maximize the operations,
assets and values of both groups, and with complementary deployment of
personnel, capital and facilities, consistent with their respective business
objectives.

    Under this policy statement, all material transactions which are determined
by the Company's Board of Directors to be in the ordinary course of business
between WorldCom group and MCI group, except for those described in the
paragraphs below, are intended to be on terms consistent with terms that would
be applicable to arm's-length dealings with unrelated third parties.

    CASH MANAGEMENT.  Decisions regarding the investment of surplus cash, the
issuance and retirement of debt, and the issuance and repurchase of common and
preferred stock will continue to be made by the Company's corporate headquarters
on behalf of the groups. Under this centralized cash management system, MCI
group will generally not be allocated any cash balances. Historically, the
Company determined the amount of funding provided to WorldCom group based on
actual cash used for capital and operating expenses, net of WorldCom group and
MCI group cash receipts.

    CORPORATE ALLOCATIONS

    Corporate allocations have been attributed and/or allocated to WorldCom
group or MCI group based upon identification of such services specifically
benefiting each group. Such corporate allocations may change at the discretion
of the Company and do not require shareholder approval. Management believes that
the allocation methodologies applied are reasonable. However, it is not
practical to determine whether the allocated amounts represent amounts that
would have been incurred on a stand alone basis. Management believes that the
allocation methods developed will be comparable to the

                                      F-9

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
expected future allocation methods. Explanations of the composition and the
method of allocation for such items are described below.

    SHARED CORPORATE SERVICES.  The Company has directly charged specifically
identifiable costs to WorldCom group and MCI group. Where determinations based
on specific usage alone were impracticable, the Company used other allocation
methods that it believes are fair, including methods based on factors such as
the number of employees and total revenues generated by each group. For the
years ended December 31, 1998, 1999 and 2000. WorldCom group was allocated
$817 million, $1.6 billion and $2.0 billion of these costs, respectively.

    COMMERCIAL INTER-GROUP TRANSACTIONS.  The MCI group is allocated a
proportion, based on usage, of the Company's fiber optic system costs for use of
the fiber optic systems, which are attributed to WorldCom group and WorldCom
group is allocated a corresponding decrease to depreciatioon expense which
totaled $118 million, $189 million and $373 million for the years ended
December 31, 1998, 1999 and 2000, respectively. In addition, WorldCom group is
allocated a proportion, based on usage, of the Company's switching costs for use
of the business voice switched services, which are attributed to MCI group. For
the years ended December 31, 1998, 1999 and 2000, switching costs allocated to
WorldCom group were $20 million, $64 million and $87 million, respectively.
Additionally, MCI group is allocated a proportionate share of costs associated
with buildings, furniture and fixtures attributed to WorldCom group, and is also
allocated costs for use of the MCI tradenames as discussed below. WorldCom group
is allocated a corresponding decrease to depreciation and amortization expense.
For the years ended December 31, 1998, 1999 and 2000, these allocated costs
totaled $90 million, $331 million and $254 million, respectively.

    All other material commercial transactions in the ordinary course of
business between the groups are intended, to the extent practicable, to be on
terms consistent with terms that would be applicable to arm's-length dealings
with unrelated third parties and will be subject to the review and approval of
the Board of Directors or any special committee. Neither group is under any
obligation to use services provided by the other group, and each group may use
services provided by a competitor of the other group if the Board of Directors
or any special committee determines it is in the best interests of the Company
as a whole.

    ALLOCATION OF INTANGIBLE ASSETS.  Intangible assets consist of the excess
consideration paid over the fair value of net tangible assets acquired by the
Company in business combinations accounted for under the purchase method and
include goodwill, channel rights, developed technology and tradenames. These
assets have been attributed to the respective groups based on specific
identification and where acquired companies have been divided between WorldCom
group and MCI group, the intangible assets have been attributed based on the
respective fair values at the date of purchase of the related operations
attributed to each group. Management believes that this method of allocation is
equitable and provides a reasonable estimate of the intangible assets
attributable to WorldCom group and MCI group. All tradenames, including the MCI
tradename and the other related MCI tradenames, have been attributed to WorldCom
group. MCI group will be allocated an expense and the WorldCom group

                                      F-10

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
will be allocated a corresponding decrease in amortization expense for the use
of the MCI tradenames for the next five years based on the following fee
schedule:



YEAR ENDED
DECEMBER 31,
- ------------
                                                           
2001:.......................................................  $  27.5 million
2002:.......................................................  $  30.0 million
2003:.......................................................  $  35.0 million
2004:.......................................................  $  40.0 million
2005:.......................................................  $  45.0 million


    Any renewal or termination of use of the MCI tradename by MCI group will be
subject to the general policy that our board of directors will act in the best
interests of the Company. For each of the years ended December 31, 1998, 1999
and 2000, costs related to the MCI tradenames allocated to the WorldCom group
were decreased by $27.5 million per annum since the date of the acquisition of
MCI, for use of the MCI tradenames by MCI group.

    FINANCING ARRANGEMENTS.  As of January 1, 1999, $6.0 billion of the
Company's outstanding debt was notionally allocated to MCI group and
$15.2 billion of our debt was notionally allocated to WorldCom group. The
Company's debt was allocated between WorldCom group and MCI group based upon a
number of factors including estimated future cash flows and the ability to pay
debt service and dividends of each of the groups. In addition, managmement
considered certain measures of creditworthiness, such as coverage ratios and
various tests of liquidity, in the allocation process. Management believes that
the initial allocation is equitable and supportable by both WorldCom group and
MCI group. The debt allocated to MCI group will bear interest at a rate
indicative of the rate at which MCI group would borrow from third parties if it
was a wholly owned subsidiary of the Company but did not have the benefit of any
guarantee by the Company. Interest rates will be calculated on a quarterly
basis. For purposes of the combined historical financial statements of each of
the groups, debt allocated to MCI group was determined to bear an interest rate
equal to the weighted-average interest rate, excluding capitalized interest, of
the Company's debt plus 1 1/4 percent. Interest allocated to WorldCom group
reflects the difference between our actual interest expense and the interest
expense charged to MCI group. Upon the recapitalization each group's debt will
increase or decrease by the amount of any net cash generated by, or required to
fund, the group's operating activities, investing activities, share repurchases
and other financing activities.

    In 1999, the Company amended its existing $500 million receivables purchase
agreement to $2.0 billion by including additional receivables eligible under the
agreement. As of December 31, 2000, the purchaser owned an undivided interest in
a $3.5 billion pool of receivables which includes the $1.95 billion sold, of
which $2.4 billion and $1.6 billion relate to WorldCom group, respectively. The
receivables sold were assigned based on specific identification where practical,
or allocated based on total revenues. Management believes that this method of
allocation is equitable and provides a reasonable estimate of the receivables
attributable to the groups.

                                      F-11

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS:

    The Company estimates the fair value of attributed WorldCom group financial
instruments using available market information and appropriate valuation
methodologies. The carrying amounts for cash and cash equivalents, accounts
receivable, notes receivable, marketable equity securities, accounts payable,
accrued liabilities and long-term debt approximate their fair value. The fair
value of long-term debt is determined based on quoted market rates or the cash
flows from such financial instruments discounted at the Company's estimated
current interest rate to enter into similar financial instruments.

CASH AND CASH EQUIVALENTS:

    The Company considers cash in banks and short-term investments with original
maturities of three months or less as cash and cash equivalents.

PROPERTY AND EQUIPMENT:

    Property and equipment are stated at cost. Depreciation is provided for
financial reporting purposes using the straight-line method over the following
estimated useful lives:

                                                           
Transmission equipment (including conduit)..................  5 to 45 years
Communications equipment....................................  5 to 20 years
Furniture, fixtures, buildings and other....................  4 to 40 years



    The Company evaluates the recoverability of property and equipment when
events and circumstances indicate that such assets might be impaired. The
Company determines impairment by comparing the undiscounted future cash flows
estimated to be generated by these assets to their respective carrying amounts.
In the event an impairment exists on property and equipment attributed to
WorldCom group, a loss will be recognized by WorldCom group based on the amount
by which the carrying value exceeds the fair value of the asset. If quoted
market prices for an asset are not available, fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on property and equipment to be disposed of are
determined in a similar manner, except that fair market values are reduced for
the cost to dispose.

    Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized. The cost and related reserves of assets sold or
retired are removed from the accounts, and any resulting gain or loss is
reflected in results of operations.

    The Company constructs certain of its own transmission systems and related
facilities. Internal costs directly related to the construction of such
facilities, including interest and salaries of certain employees, are
capitalized. Such internal costs were $305 million ($195 million in interest),
$625 million ($339 million in interest) and $842 million ($495 million in
interest) in 1998, 1999 and 2000, respectively, and have been allocated to
WorldCom group.

                                      F-12

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS:

    The major classes of intangible assets attributed to WorldCom group as of
December 31, 1999 and 2000 are summarized below (in millions):



                                           AMORTIZATION PERIOD     1999       2000
                                           -------------------   --------   --------
                                                                   
Goodwill.................................     5 to 40 years      $35,483    $35,596
Tradename................................          40 years        1,100      1,100
Developed technology.....................     5 to 10 years        1,590      1,590
Other intangibles........................     5 to 10 years        1,879      2,665
                                                                 -------    -------
                                                                  40,052     40,951
Less: accumulated amortization...........                         (2,800)    (4,266)
                                                                 -------    -------
Goodwill and other intangible assets,
  net....................................                        $37,252    $36,685
                                                                 =======    =======


    Intangible assets are amortized using the straight-line method for the
periods noted above.

    Goodwill is recognized for the excess of the purchase price of the various
business combinations over the value of the identifiable net tangible and
intangible assets acquired. Realization of acquisition-related intangibles,
including goodwill, is periodically assessed by the management of the Company
based on the current and expected future profitability and cash flows of
acquired companies and their contribution to the overall operations of WorldCom
group.

    Also included in other intangibles are costs incurred to develop software
for internal use. Such costs were $150 million, $354 million and $765 million
for the years ended December 31, 1998, 1999 and 2000, respectively.

UNREALIZED HOLDING GAIN ON MARKETABLE EQUITY SECURITIES:

    WorldCom group's attributed equity investments in publicly traded companies
are classified as available-for-sale securities. Accordingly, these investments
are included in other assets at their fair value of approximately $1.1 billion
and $970 million at December 31, 1999 and 2000, respectively. The unrealized
holding gain on these marketable equity securities, net of taxes of
$345 million and $207 million as of December 31, 1999 and 2000, respectively, is
included as a component of allocated net worth in the accompanying combined
financial statements. As of December 31, 1999 and 2000, the gross unrealized
holding gain on these securities was $918 million and $716 million,
respectively. There was no gross unrealized holding loss on these securities at
December 31, 1999 and a $164 million gross unrealized holding loss at
December 31, 2000. Proceeds from the sale of marketable equity securities
totaled $68 million, $1.7 billion and $680 million for the years ended
December 31, 1998, 1999 and 2000, respectively. Gross realized gains on
marketable equity securities, which represent reclassification adjustments to
other comprehensive income, were $13 million, $374 million and $643 million for
the years ended December 31, 1998, 1999 and 2000, respectively. Gross realized
losses were $31 million and $25 million for the years ended December 31, 1998
and 2000, respectively. There were no gross realized losses for the year ended
December 31, 1999.

                                      F-13

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
FOREIGN CURRENCY TRANSLATION:

    Assets and liabilities are translated at the exchange rate as of the balance
sheet date. All revenue and expense accounts are translated at a
weighted-average of exchange rates in effect during the period. Translation
adjustments are recorded as a separate component of allocated net worth.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred. The accompanying combined
statements of operations include foreign currency transaction gains, after
elimination of minority interests, of $29 million for the year ended
December 31, 1998 and foreign currency transaction losses, after elimination of
minority interests, of $36 million and $38 million for the years ended
December 31, 1999 and 2000, respectively.

RECOGNITION OF REVENUES:

    WorldCom group records revenues for telecommunications services at the time
of customer usage. Service activation and installation fees are amortized over
the average customer contract life. Revenues from information technology
services are recognized, depending on the service provided, on a percentage of
completion basis or as services and products are furnished or delivered.

ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC:

    WorldCom group enters into operating agreements with telecommunications
carriers in foreign countries under which international long distance traffic is
both delivered and received. The terms of most switched voice operating
agreements, as well as established Federal Communications Commission ("FCC")
policy, require that inbound switched voice traffic from the foreign carrier to
the United States be routed to United States international carriers, like
WorldCom group, in proportion to the percentage of United States outbound
traffic routed by that United States international carrier to the foreign
carrier. Mutually exchanged traffic between WorldCom group and foreign carriers
is settled in cash through a formal settlement policy that generally extends
over a six-month period at an agreed upon settlement rate. International
settlements are treated as an offset to line costs. This reflects the way in
which the business is operated because WorldCom group actually settles in cash
through a formal net settlement process that is inherent in the operating
agreements with foreign carriers.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE:

    During the fourth quarter of 2000, the WorldCom group implemented SAB 101,
which requires certain activation and installation fee revenues to be amortized
over the average life of the related service rather than be recognized
immediately. Costs directly related to these revenues may also be deferred and
amortized over the customer contract life. As required by SAB 101, the WorldCom
group retroactively adopted this accounting effective January 1, 2000, which
resulted in a one-time expense of $75 million, net of income tax benefit of
$43 million. The pro forma effect of adopting SAB 101 on periods prior to
January 1, 2000 was not material to WorldCom group's financial position or
results of operations.

                                      F-14

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
EXTRAORDINARY ITEM:

    In the first quarter of 1998, the WorldCom group recorded an extraordinary
item totaling $129 million, net of income tax benefit of $78 million. The charge
was recorded in connection with the tender offers and related refinancings of
the Company's outstanding debt from the Brooks Fiber Properties merger.

INCOME TAXES:

    The federal and state income tax liabilities incurred by the Company and
which are determined on a consolidated, combined, or unitary basis will be
allocated between WorldCom group and MCI group in accordance with the Company's
policy statement. The Company currently intends that the income tax expense for
each group and the balance sheet allocation of the expense will be based on a
comparison of the Company's tax expense with the hypothetical tax expense of MCI
group. The tax expense allocable to MCI group will be the amount that MCI group
would have incurred if it had filed tax returns as a separate taxpayer and the
tax expense allocable to WorldCom group will be the excess, if any, of the
Company's tax expense over the tax expense allocable to MCI group. Tax benefits
that cannot be used by a group generating those benefits but can be used on a
consolidated basis will be credited to the group that generated those benefits.
Had WorldCom group and MCI group filed separate tax returns, the provision for
income taxes and net income for each group would not have significantly differed
from the amounts reported on the group's statements of operations for the years
ended December 31, 1998, 1999 and 2000. However, the amounts of current and
deferred taxes and taxes payable or refundable attributed to each group on the
historical financial statements may differ from those that would have been
allocated had WorldCom group or MCI group filed separate income tax returns.

    Deferred tax assets and liabilities are based on temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their respective tax bases, and the impact of available net
operating loss ("NOL") carryforwards. Valuation allowances have been recorded to
reduce the deferred tax asset to the amount more likely than not to be realized.

EARNINGS PER SHARE:

    After implementation of the recapitalization, the consolidated financial
statements of the Company will present basic and diluted earnings per share for
WorldCom stock and MCI stock using the two-class method. The two-class method is
an earnings formula that determines the earnings per share for WorldCom stock
and MCI stock according to participation rights in undistributed earnings. The
combined financial statements of WorldCom group will not present earnings per
share because WorldCom stock is a series of common stock of the Company and
WorldCom group is not a legal entity with a capital structure.

    For purposes of the consolidated financial statements of the Company, basic
earnings per share for WorldCom stock will be computed by dividing net income
for the period by the number of weighted-average shares of WorldCom stock then
outstanding. Diluted earnings per share of WorldCom stock will be computed by
dividing net income for the period by the weighted-average number of shares of
WorldCom stock outstanding, including the dilutive effect of WorldCom stock
equivalents.

                                      F-15

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
CONCENTRATION OF CREDIT RISK:

    A portion of WorldCom group's revenues is derived from services provided to
other telecommunications service providers. As a result, WorldCom group has some
concentration of credit risk among its customer base. WorldCom group performs
ongoing credit evaluations of its larger customers' financial condition and, at
times, requires collateral from its customers to support its receivables,
usually in the form of assignment of its customers' receivables to WorldCom
group in the event of nonpayment.

RECENTLY ISSUED ACCOUNTING STANDARDS:

    The Financial Accounting Standards Board's, or FASB's, Statement of
Financial Accounting Standard, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133", and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," is effective for WorldCom group as
of January 1, 2001. This statement establishes accounting and reporting
standards requiring that derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. This statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires a company to
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the Company's election, before January 1, 1998). WorldCom group has
minimal exposure to derivative financial instruments which, as of December 31,
2000, primarily consist of option collar transactions designated as cash flow
hedges of anticipated sales of an equity investment and various equity warrants.
The Company believes that the adoption of this standard will not have a material
effect on WorldCom group's combined results of operations or financial position.

    In September 2000 the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000, and is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The Company believes that the adoption of this standard will not have a
material effect on WorldCom group's combined results of operations or financial
position.

USE OF ESTIMATES:

    The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of

                                      F-16

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates.

    The accompanying combined financial statements for WorldCom group as of and
for the year ended December 31, 1998 are unaudited. Management of WorldCom group
is solely responsible for these financial statements, without benefit of
independent accounting experts, and believes the 1998 combined financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States using standards of materiality consistent with the
audited combined financial statements for 1999 and 2000.

RECLASSIFICATIONS:

    Revenues and line costs for all periods reflects a classification change for
reciprocal compensation which is now being treated as an offset to cost of
sales. Reciprocal compensation represents a reimbursement of costs for call
termination performed on behalf of other carriers' customers and is determined
contractually based on fixed rate per minute charges to those carriers. As such,
WorldCom group determined that it is more appropriate to reflect this
reimbursement net of cost. Previously, WorldCom group recorded this item on a
gross basis as revenues. Operating income, net income and the balance sheet are
not affected by this reclassification.

    The effects of this reclassification on the accompanying combined statements
of operations for the years ended December 31, 1998, 1999 and 2000 are as
follows (in millions):



                                                                      NEW PRESENTATION
                                                         ------------------------------------------
                                                                    FOR THE YEARS ENDED
                                                                        DECEMBER 31,
                                                         ------------------------------------------
                                                           1998             1999             2000
                                                         --------         --------         --------
                                                                                  
Revenues...............................................  $ 9,809          $19,736          $22,755
Line costs.............................................  $ 4,801          $ 7,905          $ 8,745




                                                                      OLD PRESENTATION
                                                         ------------------------------------------
                                                                    FOR THE YEARS ENDED
                                                                        DECEMBER 31,
                                                         ------------------------------------------
                                                           1998             1999             2000
                                                         --------         --------         --------
                                                                                  
Revenues...............................................  $10,035          $20,131          $23,155
Line costs.............................................  $ 5,027          $ 8,300          $ 9,145


(2) BUSINESS COMBINATIONS--

    The Company has acquired other telecommunications companies offering similar
or complementary services to those offered by WorldCom group. These acquisitions
have been accomplished through the purchase of the outstanding stock or assets
of the acquired entity for cash, notes, shares of the Company's common stock, or
a combination thereof. The cash portion of acquisition costs has generally been
financed through the Company's bank credit facilities. In addition to the
business combinations described below, the Company or its predecessors completed
smaller acquisitions during the three years ended December 31, 2000.

                                      F-17

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) BUSINESS COMBINATIONS-- (CONTINUED)
    On September 14, 1998, the Company acquired MCI Communications Corporation
("MCI") for approximately $40 billion, pursuant to the merger (the "MCI Merger")
of MCI with and into a wholly owned subsidiary of the Company. Upon consummation
of the MCI Merger, the wholly owned subsidiary was renamed MCI Communications
Corporation. Through the MCI Merger, the Company acquired one of the world's
largest and most advanced digital networks, connecting local markets in the
United States to more than 280 countries and locations worldwide.

    As a result of the MCI Merger, each outstanding share of MCI common stock
was converted into the right to receive 1.86585 shares of Company common stock,
or approximately 1.13 billion Company common shares in the aggregate, and each
share of MCI Class A common stock outstanding (all of which were held by British
Telecommunications plc ("BT")) was converted into the right to receive $51.00 in
cash or approximately $7 billion in the aggregate. The funds paid to BT were
obtained by the Company from (i) available cash as a result of the Company's
$6.1 billion public debt offering in August 1998; (ii) the sale of MCI's
Internet backbone facilities and wholesale and retail internet business (the
"iMCI Business") to Cable and Wireless plc ("Cable & Wireless") for
$1.75 billion in cash on September 14, 1998; (iii) the sale of MCI's 24.9%
equity stake in Concert Communications Services ("Concert") to BT for
$1 billion in cash on September 14, 1998; and (iv) availability under the
Company's commercial paper program and credit facilities.

    Upon effectiveness of the MCI Merger, the then outstanding and unexercised
options exercisable for shares of MCI common stock were converted into options
exercisable for an aggregate of approximately 125 million shares of Company
common stock having the same terms and conditions as the MCI options, except
that the exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 1.86585. The MCI Merger was accounted
for as a purchase; accordingly, operating results for MCI attributed to WorldCom
group have been included from the date of acquisition.

    The purchase price in the MCI Merger was allocated based on estimated fair
values at the date of acquisition. This resulted in an excess of purchase price
over net assets acquired of which, on a consolidated basis, $3.1 billion was
allocated to in-process research and development ("IPR&D") and $1.7 billion to
developed technology, which will be depreciated over 10 years on a straight-line
basis. The remaining excess of $29.3 billion has been allocated to goodwill and
tradename, which are being amortized over 40 years on a straight-line basis.
Such amounts have been allocated to WorldCom group and MCI group based on the
respective fair values of the related operations allocated to each group.
Accordingly, WorldCom group has been allocated $2.3 billion, $1.3 billion and
$22.3 billion of such IPR&D, developed technology and goodwill, respectively.

    On August 4, 1998, MCI acquired a 51.79% voting interest and a 19.26%
economic interest in Embratel Participacoes S.A. ("Embratel"), Brazil's
facilities-based national and international communications provider, for
approximately R$2.65 billion (U.S. $2.3 billion). The purchase price was paid in
local currency installments, of which R$1.06 billion (U.S. $916 million) was
paid on August 4, 1998, R$795 million (U.S. $442 million) was paid on August 4,
1999, and the remaining R$795 million (U.S. $444 million) was paid on August 4,
2000. Embratel provides domestic long distance and international
telecommunications services in Brazil, as well as over 40 other communications
services, including leased high-speed data, Internet, frame relay, satellite and
packet-switched services. Operating

                                      F-18

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) BUSINESS COMBINATIONS-- (CONTINUED)
results for Embratel are included in the accompanying combined financial
statements of WorldCom group and are included from the date of the MCI Merger.

    On January 31, 1998, the Company acquired CompuServe Corporation
("CompuServe"), for approximately $1.3 billion, pursuant to the merger (the
"CompuServe Merger") of a wholly owned subsidiary of the Company with and into
CompuServe. Upon consummation of the CompuServe Merger, CompuServe became a
wholly owned subsidiary of the Company.

    As a result of the CompuServe Merger, each share of CompuServe common stock
was converted into the right to receive 0.609375 shares of Company common stock,
or approximately 56 million Company common shares in the aggregate. Prior to the
CompuServe Merger, CompuServe operated primarily through two divisions:
Interactive Services and Network Services. Interactive Services offered
worldwide online and Internet access services for consumers, while Network
Services provided worldwide network access, management and applications, and
Internet service to businesses. The CompuServe Merger was accounted for as a
purchase; accordingly, operating results for CompuServe attributed to WorldCom
group have been included from the date of acquisition.

    On January 31, 1998 the Company also acquired ANS Communications, Inc.
("ANS"), from America Online, Inc. ("AOL"), for approximately $500 million, and
entered into five year contracts with AOL under which the Company and its
subsidiaries provide network services to AOL (collectively, the "AOL
Transaction"). As part of the AOL Transaction, AOL acquired CompuServe's
Interactive Services division and received a $175 million cash payment from the
Company. The Company retained the CompuServe Network Services division. ANS
provided Internet access to AOL and AOL's subscribers in the United States,
Canada, the United Kingdom, Sweden and Japan. The AOL Transaction was accounted
for as a purchase; accordingly, operating results for ANS attributed to WorldCom
group have been included from the date of acquisition.

    The purchase price in the CompuServe Merger and AOL Transaction was
allocated based on estimated fair values at the date of acquisition. This
resulted in an excess of purchase price over net assets acquired of which, on a
consolidated Company basis, $429 million was allocated to IPR&D. The remaining
excess of approximately $1 billion, has been recorded as goodwill, which is
being amortized over 10 years on a straight-line basis. Such amounts have been
allocated to WorldCom group and MCI group based on the respective fair values of
the related operations allocated to each group. Accordingly, WorldCom group has
been allocated $127 million and $545 million of the IPR&D and goodwill,
respectively.

    On January 29, 1998, MCI WorldCom acquired Brooks Fiber Properties, Inc.
("BFP"), pursuant to the merger (the "BFP Merger") of a wholly owned subsidiary
of the Company, with and into BFP. Upon consummation of the BFP Merger, BFP
became a wholly owned subsidiary of the Company. BFP is a leading
facilities-based provider of competitive local telecommunications services,
commonly referred to as a competitive local exchange carrier, in selected cities
within the United States. BFP acquires and constructs its own state-of-the-art
fiber optic networks and facilities and leases network capacity from others to
provide long distance carriers, Internet service providers, wireless carriers
and business, government and institutional end users with an alternative to the
traditional phone company for a broad array of high quality voice, data, video
transport and other telecommunications services.

                                      F-19

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2) BUSINESS COMBINATIONS-- (CONTINUED)
    As a result of the BFP Merger, each share of BFP common stock was converted
into the right to receive 2.775 shares of Company common stock or approximately
109 million Company common shares in the aggregate. The BFP Merger was accounted
for as a pooling-of-interests; and, accordingly, the Company's financial
statements for periods prior to the BFP Merger have been restated to include the
results of BFP.

    During 1998, 1999 and 2000, the Company recorded other liabilities of
$2.2 billion, $582 million and $29 million, respectively, related to estimated
costs of unfavorable commitments of acquired entities, and other non-recurring
costs arising from various acquisitions and mergers. At December 31, 1998, 1999
and 2000, other liabilities attributed to WorldCom group related to these
accruals totaled $1.8 billion, $1.6 billion and $832 million, respectively.

(3) IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES--

    The following table reflects the components of the significant items
included in WorldCom group's IPR&D and other charges in 1998 and 1999 (in
millions):



                                                                1998         1999
                                                             -----------   --------
                                                             (UNAUDITED)
                                                                     
IPR&D......................................................     $2,297       $ --
Provision to reduce the carrying value of certain assets...         49         --
Severance and other employee related costs.................         21         --
Direct merger costs........................................         17          1
Alignment and other exit activities........................         90         (9)
                                                                ------       ----
                                                                $2,474       $ (8)
                                                                ======       ====


    In 1998, WorldCom group recorded a pre-tax charge of $177 million in
connection with the BFP Merger, the MCI Merger and asset write-downs and loss
contingencies. This charge included $21 million for employee severance,
$17 million for BFP direct merger costs, $38 million for conformance of BFP
accounting policies, $37 million for exit costs under long-term commitments,
$31 million for write-down of a permanently impaired investment and $33 million
related to asset write-downs and loss contingencies. The $37 million related to
long-term commitments includes $33 million of minimum commitments between 1999
and 2008 for leased facilities that WorldCom group has or will abandon, and $4
million of other commitments. Because of organizational and operational changes
that occurred, management concluded in 1999 that selected leased properties
would not be abandoned according to the original plan that was approved by
management. Therefore, in 1999 a reversal of a $9 million charge to IPR&D and
other charges was recorded in connection with this plan amendment. Additionally,
the $33 million related to asset write-downs and loss contingencies includes
$9 million for the decommission of information systems that have no alternative
future use, $9 million for the write-down to fair value of assets held for sale
that were disposed of in 1998 and $15 million related to legal costs and other
items related to BFP. As of December 31, 1999 and 2000, WorldCom group's
remaining unpaid liability related to the above charges was $27 million and
$20 million, respectively.

                                      F-20

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(3) IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES-- (CONTINUED)
CHARGE FOR IN-PROCESS RESEARCH AND DEVELOPMENT:

    In connection with 1998 business combinations, the Company made allocations
of the purchase price to acquired IPR&D totaling $429 million in the first
quarter of 1998 related to the CompuServe Merger and AOL Transaction and
$3.1 billion in the third quarter of 1998 related to the MCI Merger. These
allocations represent the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects. At the date of the respective
business combinations, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
respective acquisition dates. Based on the respective fair values of the related
operations allocated to each group, $2.3 billion of the IPR&D charge was
allocated to WorldCom group. Management believes that this method of allocation
provides a reasonable estimate of the IPR&D charges attributable to each group.

(4) INVESTMENTS--

    In November 1999, the Company purchased 30 million shares of Metricom, Inc.
("Metricom") Series A1 preferred stock (the "Metricom Preferred Stock") for
$300 million. The Metricom Preferred Stock bears cumulative dividends at the
rate of 6.5% per annum for three years, payable in cash or additional shares of
Metricom Preferred Stock. In addition, the Company has the right to elect one
director to Metricom's board of directors, although voting rights otherwise will
be generally limited to specified matters. The Metricom Preferred Stock is
subject to mandatory redemption by Metricom at the original issuance price in
2009 and to redemption at the option of the holder upon the occurrence of
specified changes in control or major acquisitions. The Metricom Preferred Stock
is convertible into Metricom common stock at the Company's option beginning
May 2002.

    Additionally, the Company signed a five-year, non-exclusive agreement valued
at $388 million with Metricom to sell subscriptions for Metricom's Ricochet
services. The agreement is subject to the timely deployment of the Metricom
network, Metricom's ability to meet agreed performance standards and Metricom's
ability to attract a significant number of subscribers through other channel
partners.

    In connection with the MCI Merger, the Company acquired an investment in The
News Corporation Limited ("News Corp.") comprised of cumulative convertible
preferred securities and warrants. In July 1999 the Company received
$1.4 billion in cash from the sale of the Company's interest in News Corp.
preferred stock. The Company recorded a gain of $130 million on this sale.
Additionally, the Company recorded dividend income of approximately $17 million
and $32 million for the years ended December 31, 1998 and 1999, respectively.
These amounts have been allocated to WorldCom group.

    In November 1998, the Company and News Corp. entered into an agreement with
EchoStar Communications Corporation ("EchoStar") for the sale and transfer of
the Company's and News Corp.'s Direct Broadcast Satellite ("DBS") assets (the
"EchoStar Transaction"). The EchoStar Transaction was consummated in June 1999
and the Company acquired preferred shares in a subsidiary of News Corp. for a
face amount equal to the Company's cost of obtaining the DBS license from the
FCC, plus interest thereon. The Company also received from EchoStar
approximately 6.8 million shares of EchoStar Class A Common Stock. In
December 1999, the Company sold 2.7 million shares of EchoStar Class A Common
Stock and received $190 million in net proceeds. The Company recorded a gain of
$101 million on this sale which has been allocated to WorldCom group.

                                      F-21

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(5) LONG-TERM DEBT--

    The Company's outstanding debt as of December 31, 1999 and 2000 consists of
the following (in millions):



                                                         1999                                  2000
                                          -----------------------------------   -----------------------------------
                                          EXCLUDING                             EXCLUDING
                                          EMBRATEL    EMBRATEL   CONSOLIDATED   EMBRATEL    EMBRATEL   CONSOLIDATED
                                          ---------   --------   ------------   ---------   --------   ------------
                                                                                     
Commercial paper and credit
  facilities............................   $ 2,875     $   --      $  2,875      $ 3,629     $   --      $  3,629
Floating rate notes due 2001-2002.......     1,000         --         1,000        1,560         --         1,560
7.88% - 8.25% Notes Due 2003-2010.......        --         --            --        3,500         --         3,500
7.38% Notes Due 2006-2011...............        --         --            --        2,000         --         2,000
6.13% - 6.95% Notes Due 2001-2028.......     6,100         --         6,100        6,100         --         6,100
7.13% - 7.75% Notes Due 2004-2027.......     2,000         --         2,000        2,000         --         2,000
8.88% - 13.5% Senior Notes Due
  2002-2006.............................       689         --           689          672         --           672
7.13% - 8.25% Senior Debentures Due
  2023-2027.............................     1,438         --         1,438        1,436         --         1,436
6.13% - 7.50% Senior Notes Due
  2004-2012.............................     2,142         --         2,142        1,934         --         1,934
15% note payable due in annual
  installments through 2000.............        --        440           440           --         --            --
Capital lease obligations, 7.00% -
  11.00% (maturing through 2002)........       483         --           483          413         --           413
Other debt (maturing through
  2008).................................       148        828           976          518      1,134         1,652
                                           -------     ------      --------      -------     ------      --------
                                            16,875      1,268        18,143       23,762      1,134        24,896
Notional debt allocated to MCI group....    (6,000)        --        (6,000)      (6,000)        --        (6,000)
                                           -------     ------      --------      -------     ------      --------
Notional debt allocated to WorldCom
  group.................................    10,875      1,268        12,143       17,762      1,134        18,896
Short-term debt and current maturities
  of allocated WorldCom group long-term
  debt..................................    (4,239)      (776)       (5,015)      (6,764)      (436)       (7,200)
                                           -------     ------      --------      -------     ------      --------
                                           $ 6,636     $  492      $  7,128      $10,998     $  698      $ 11,696
                                           =======     ======      ========      =======     ======      ========


    As of January 1, 1998, $6.0 billion of debt was notionally allocated by the
Company to MCI group with the remaining debt notionally allocated to WorldCom
group. See Note 1 for a more detailed description of how the Company allocates
debt to the groups and Note 5 of the Company's consolidated financial statements
for additional debt descriptions.

(6) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
    TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES OF
    THE COMPANY AND OTHER REDEEMABLE PREFERRED SECURITIES--

    In connection with the MCI Merger, the Company acquired $750 million
aggregate principal amount of 8% Cumulative Quarterly Income Preferred
Securities, Series A, representing 30 million shares outstanding ("preferred
securities") due June 30, 2026 which were previously issued by MCI Capital I, a
wholly owned Delaware statutory business trust (the "Trust"). The Trust exists
for the sole purpose of issuing the preferred securities and investing the
proceeds in the Company's 8% Junior Subordinated Deferrable Interest Debentures,
Series A ("Subordinated Debt Securities") due June 30, 2026, the only assets of
the Trust.

                                      F-22

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(6) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
    TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES OF
    THE COMPANY AND OTHER REDEEMABLE PREFERRED SECURITIES-- (CONTINUED)
    Holders of the preferred securities are entitled to receive preferential
cumulative cash distributions from the Trust on a quarterly basis, provided the
Company has not elected to defer the payment of interest due on the Subordinated
Debt Securities to the Trust. The Company may elect this deferral from time to
time, provided that the period of each such deferral does not exceed five years.
The preferred securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debt Securities at maturity or earlier
in an amount equal to the amount of Subordinated Debt Securities maturing or
being repaid. In addition, in the event the Company terminates the Trust, the
Subordinated Debt Securities will be distributed to the then holders of the
preferred securities of the Trust.

    The Company has executed various guarantee agreements and supplemental
indentures which agreements, when taken together with the issuance of the
Subordinated Debt Securities, constitute a full, irrevocable, and unconditional
guarantee by the Company of all of the Trust's obligations under the preferred
securities (the "Guarantee"). A Guarantee Agreement and Supplement No. 1 thereto
covers payment of the preferred securities' quarterly distributions and payments
on maturity or redemption of the preferred securities, but only in each case to
the extent of funds held by the Trust. If the Company does not make interest
payments on the Subordinated Debt Securities held by the Trust, the Trust will
have insufficient funds to pay such distributions. The obligations of the
Company under the Guarantee and the Subordinated Debt Securities are subordinate
and junior in right of payment to all senior debt of the Company.

OTHER REDEEMABLE PREFERRED SECURITIES:

    On December 28, 1998, WorldCom Synergies Management Company, Inc. ("SMC"), a
wholly owned subsidiary of the Company, issued 475 shares of an authorized 500
shares of 6.375% cumulative preferred stock, Class A ("SMC Class A Preferred
Stock") in a private placement. Each share of SMC Class A Preferred Stock has a
par value of $0.01 per share and a liquidation preference of $100,000 per share.
The SMC Class A Preferred Stock is mandatorily redeemable by SMC at the
redemption price of $100,000 per share plus accumulated and unpaid dividends on
January 1, 2019. Dividends on the SMC Class A Preferred Stock are cumulative
from the date of issuance and are payable quarterly at a rate per annum equal to
6.375% of the liquidation preference of $100,000 per share when, as and if
declared by the board of directors of SMC.

(7) PREFERRED STOCK--

    The Company Series B Convertible Preferred Stock (the "Series B Preferred
Stock") is convertible into shares of Company common stock at any time at a
conversion rate of 0.1460868 shares of Company common stock for each share of
Series B Preferred Stock. Dividends on the Series B Preferred Stock accrue at
the rate of $0.0775 per share, per annum and are payable in cash. Dividends will
be paid only when, as and if declared by the Board of Directors. The Company has
not declared any dividends on the Series B Preferred Stock to date and
anticipates that future dividends will not be declared but will continue to
accrue. Upon conversion, accrued but unpaid dividends are payable in cash or
shares of Company common stock at the Company's election. To date, the Company
has elected to pay all accrued dividends in cash, upon conversion.

                                      F-23

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(7) PREFERRED STOCK-- (CONTINUED)
    The Series B Preferred Stock is also redeemable at the option of the Company
at any time after September 30, 2001 at a redemption price of $1.00 per share,
plus accrued and unpaid dividends. The redemption price will be payable in cash
or shares of Company common stock at the Company's election.

    The Series B Preferred Stock is entitled to one vote per share with respect
to all matters. The Series B Preferred Stock has a liquidation preference of
$1.00 per share plus all accrued and unpaid dividends thereon to the date of
liquidation. There is no established market for the Series B Preferred Stock.

    In January 2000, each outstanding share of Series C Preferred Stock was
redeemed by the Company for $50.75 in cash, or approximately $190 million in the
aggregate.

    In May 1998, the Company exercised its option to redeem all of the
outstanding Series A 8% Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock") and related depositary shares. Prior to the redemption date,
substantially all of the holders of Series A Preferred Stock elected to convert
the preferred stock into Company common stock, resulting in the issuance of
approximately 49 million shares of Company common stock.

(8) SHAREHOLDER RIGHTS PLAN--

    Under the Company's existing shareholder rights plan, each share of Company
common stock has associated with it one preferred stock purchase right entitling
its holder to purchase a designated number of shares of Company preferred stock
under the circumstances provided for in the rights agreement. Upon shareholder
approval of the recapitalization, the Company will amend and restate the
shareholder rights plan to provide shareholder rights to both WorldCom group and
MCI group shareholders with generally the same terms and conditions as the
current rights agreement. See Note 8 to the Company's consolidated financial
statements for a more detailed description of the existing shareholder rights
plan.

(9) LEASES AND OTHER COMMITMENTS--

    The Company leases office facilities and equipment under non-cancelable
operating and capital leases and is also obligated under various right-of-way
agreements having initial or remaining terms of more than one year and allocates
rent expense on these leases attributable to WorldCom group and MCI group in
accordance with the Company's allocation policies. Rental expense allocated to
WorldCom group under these operating leases was $74 million, $160 million and
$203 million in 1998, 1999 and 2000, respectively.

    WorldCom group is an integrated business of the Company and is therefore
subject to all the Company's liabilities and obligations, including lease and
other commitments. See Note 9 to the Company's consolidated financial statements
for a description of the Company's leases and other commitments.

(10) CONTINGENCIES--

    WorldCom group shareholders are subject to all of the risks related to an
investment in the Company and WorldCom group, including the effects of any legal
proceedings and claims against MCI

                                      F-24

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10) CONTINGENCIES-- (CONTINUED)
group. See Note 10 to the Company's consolidated financial statements for
information related to the Company's contingencies.

(11) EMPLOYEE BENEFIT PLANS--

STOCK OPTION PLANS:

    The Company has several stock option plans under which options to acquire
shares of Company common stock may be granted to directors, officers and
employees of WorldCom group and MCI group. The Company accounts for these plans
under APB Opinion No. 25, under which no compensation cost is recognized. Terms
and conditions of the Company's options, including exercise price and the period
in which options are exercisable, generally are at the discretion of the
Compensation and Stock Option Committee of the Board of Directors; however, no
options are exercisable for more than 10 years after date of grant.

401(K) PLANS:

    The Company offers its qualified employees the opportunity to participate in
one of its defined contribution retirement plans qualifying under the provisions
of Section 401(k) of the Internal Revenue Code. Each employee may contribute on
a tax deferred basis a portion of annual earnings not to exceed $10,500. The
Company matches individual employee contributions in selected plans, up to a
maximum level which in no case exceeds 6% of the employee's compensation.
Expenses allocated to WorldCom group relating to the Company's 401(k) plans were
$12 million, $45 million and $44 million for the years ended December 31, 1998,
1999 and 2000, respectively.

PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS:

    The Company maintains various defined benefit plans and other
post-retirement benefit plans that cover selected eligible employees of WorldCom
group and MCI group. Annual service cost is determined using the Projected Unit
Credit actuarial method, and prior service cost is amortized on a straight-line
basis over the average remaining service period of employees.

    See Notes 11 and 12 to the Company's consolidated financial statements for
additional disclosures related to employee benefit plans.

(12) INCOME TAXES--

    The WorldCom group combined balance sheets reflect the anticipated tax
impact of future taxable income or deductions implicit in the combined balance
sheets in the form of temporary differences. These temporary differences reflect
the difference between the basis in the assets and liabilities for financial
reporting purposes and amounts used for income tax purposes and the impact of
available net operating loss ("NOL") carryforwards as measured in WorldCom
group's combined financial statements and as measured by tax laws using enacted
tax rates.

                                      F-25

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(12) INCOME TAXES-- (CONTINUED)
    The provision for income taxes is composed of the following (in millions):



                                                      1998         1999       2000
                                                   -----------   --------   --------
                                                   (UNAUDITED)
                                                                   
Current..........................................     $ (217)     $ (654)    $  580
Deferred.........................................        626       2,510      1,410
                                                      ------      ------     ------
Total provision for income taxes.................     $  409      $1,856     $1,990
                                                      ======      ======     ======


    The following is a reconciliation of the provision for income taxes to the
expected amounts using the statutory rate:



                                                      1998         1999       2000
                                                   -----------   --------   --------
                                                   (UNAUDITED)
                                                                   
Expected statutory amount........................      (35.0)%      35.0%     35.0%
Nondeductible amortization of excess of cost over
  net tangible assets acquired...................       10.1         6.7       6.0
State income taxes...............................       (2.6)        2.5       2.6
Charge for in-process research and development...       55.4          --        --
Valuation allowance..............................         --        (2.5)       --
Other............................................       (1.6)        0.4      (3.5)
                                                      ------      ------     -----
Actual tax provision.............................       26.3%       42.1%     40.1%
                                                      ======      ======     =====


    The following is a summary of the significant components of WorldCom group's
attributed deferred tax assets and liabilities as of December 31, 1999 and 2000
(in millions):



                                                    1999                     2000
                                           ----------------------   ----------------------
                                            ASSETS    LIABILITIES    ASSETS    LIABILITIES
                                           --------   -----------   --------   -----------
                                                                   
Fixed assets.............................   $   --      $(2,556)     $   --      $(3,957)
Goodwill and other intangibles...........       --         (132)         --         (167)
Investments..............................       90           --         363           --
Line installation costs..................       --         (400)         --         (264)
Accrued liabilities......................      375           --         745           --
NOL carryforwards........................      926           --         517           --
Tax credits..............................      189           --         692           --
Other....................................       --         (105)         --         (290)
                                            ------      -------      ------      -------
                                             1,580       (3,193)      2,317       (4,678)
Valuation allowance......................      (51)          --        (191)          --
                                            ------      -------      ------      -------
                                            $1,529      $(3,193)     $2,126      $(4,678)
                                            ======      =======      ======      =======


    At December 31, 2000, WorldCom group was attributed unused NOL carryforwards
for federal income tax purposes of approximately $900 million which expire in
various amounts during the years 2011 through 2019. These NOL carryforwards
together with state and other NOL carryforwards within the United States result
in a deferred tax asset of approximately $326 million at December 31, 2000.

                                      F-26

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(12) INCOME TAXES-- (CONTINUED)
    A valuation allowance of $109 million was reversed during 1999 as a result
of a change in tax regulations and recorded as a reduction in goodwill.

    In addition, at December 31, 2000 WorldCom group was attributed unused NOL
carryforwards of $458 million outside the United States which generally do not
expire. These carryforwards result in a $191 million deferred tax asset for
which a valuation allowance has been established.

    Approximately $358 million of WorldCom group's allocated deferred tax assets
are related to preacquisition NOL carryforwards attributable to entities
acquired in transactions accounted for as purchases. Accordingly, any future
reductions in the valuation allowance related to such deferred tax assets will
result in a corresponding reduction in goodwill. If, however, subsequent events
or conditions dictate an increase in the need for a valuation allowance
attributable to such deferred tax assets, the income tax expense for that period
will be increased accordingly.

(13) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--

    Interest paid by WorldCom group during the years ended December 31, 1998,
1999 and 2000 amounted to $37 million, $816 million and $488 million,
respectively. WorldCom group made no income tax payments during the year ended
December 31, 1998 and income taxes paid, net of refunds, during the years ended
December 31, 1999 and 2000 were $35 million and $28 million, respectively.

    In conjunction with business combinations attributed to WorldCom group,
assets acquired and liabilities assumed, including revisions to previously
recorded acquisitions, and Company common stock issued were as follows (in
millions):



                                                       1998         1999       2000
                                                    -----------   --------   --------
                                                    (UNAUDITED)
                                                                    
Fair value of assets acquired.....................    $ 19,964    $   (92)     $ --
Goodwill and other intangible assets..............      26,275      2,041        43
Liabilities assumed...............................     (19,287)      (935)      (29)
Company common stock issued.......................     (25,141)      (228)       --
                                                      --------    -------      ----
Net cash paid.....................................    $  1,811    $   786      $ 14
                                                      ========    =======      ====


                                      F-27

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(14) SEGMENT AND GEOGRAPHIC INFORMATION--

    Based on its organizational structure, WorldCom group operates in five
reportable segments: Commercial voice and data, Internet, International
operations, Embratel and Other. WorldCom group's reportable segments represent
business units that primarily offer similar products and services; however, the
business units are managed separately due to the type and class of customer as
well as the geographic dispersion of their operations. The Commercial voice and
data segment includes voice, data and other types of domestic communications
services for commercial customers. The Internet segment provides Internet
services including dedicated access and web and application hosting services.
International operations provide voice, data, Internet and other similar types
of communications services to customers primarily in Europe and the Asia Pacific
region. Embratel provides communications services in Brazil. Other includes
primarily the operations of MCI Systemhouse Corp. and SHL Systemhouse Co.
(collectively, "SHL") and other non-communications services. In April 1999, SHL
was sold to Electronic Data Systems Corporation.

    The Company's chief operating decision-maker utilizes revenue information in
assessing performance and making overall operating decisions and resource
allocations. Communications services are generally provided utilizing the
Company's fiber optic networks, which do not make a distinction between the
types of services. Profit and loss information is reported only on a
consolidated basis to the chief operating decision-maker and the Company's Board
of Directors.

    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Information about WorldCom
group's segments is as follows (in million):


                                      REVENUES FROM                   SELLING, GENERAL AND            CAPITAL
                                   EXTERNAL CUSTOMERS                ADMINISTRATIVE EXPENSES        EXPENDITURES
                            ---------------------------------   ---------------------------------   -----------
                               1998         1999       2000        1998         1999       2000        1998
                            -----------   --------   --------   -----------   --------   --------   -----------
                            (UNAUDITED)                         (UNAUDITED)                         (UNAUDITED)
                                                                               
Voice and data............    $ 6,066     $13,263    $14,443      $ 1,212      $2,170     $2,588      $ 2,796
Internet..................        897       1,554      2,466          224         485        612          613
International
  operations..............      1,090       1,624      2,368          348         774      1,117        1,078
Corporate-Sprint merger
  costs and other
  charges.................         --          --         --           --          --        433           --
SAB 101, Other............        574         523        (33)         170         170        (14)          36
                              -------     -------    -------      -------      ------     ------      -------
Total before Embratel.....      8,627      16,964     19,244        1,954       3,599      4,736        4,523
Embratel..................      1,182       2,854      3,665          258         610        980          369
Elimination of
  intersegment
  revenues/expenses.......         --         (82)      (154)          --         (14)       (27)          --
                              -------     -------    -------      -------      ------     ------      -------
Total.....................    $ 9,809     $19,736    $22,755      $ 2,212      $4,195     $5,689      $ 4,892
                              =======     =======    =======      =======      ======     ======      =======


                                  CAPITAL
                             EXPENDITURES
                            -------------------
                              1999       2000
                            --------   --------

                                 
Voice and data............   $4,186    $ 5,643
Internet..................    1,346      2,133
International
  operations..............    1,494      1,592
Corporate-Sprint merger
  costs and other
  charges.................       --         --
SAB 101, Other............       10        762
                             ------    -------
Total before Embratel.....    7,036     10,130
Embratel..................      893        854
Elimination of
  intersegment
  revenues/expenses.......       --         --
                             ------    -------
Total.....................   $7,929    $10,984
                             ======    =======


                                      F-28

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(14) SEGMENT AND GEOGRAPHIC INFORMATION-- (CONTINUED)
    The following is a reconciliation of the segment information to income
(loss) before income taxes, minority interests, cumulative effect of accounting
change and extraordinary items (in millions):



                                                    1998         1999       2000
                                                 -----------   --------   --------
                                                 (UNAUDITED)
                                                                 
Revenues.......................................    $ 9,809     $19,736    $22,755
Operating expenses.............................     11,231      15,105     17,714
                                                   -------     -------    -------
Operating income (loss)........................     (1,422)      4,631      5,041
Other income (expense):
  Interest expense.............................       (180)       (460)      (458)
  Miscellaneous................................         44         237        385
                                                   -------     -------    -------
Income (loss) before income taxes, minority
  interests, cumulative effect of accounting
  change and extraordinary items...............    $(1,558)    $ 4,408    $ 4,968
                                                   =======     =======    =======


    Information about WorldCom group's operations by geographic areas are as
follows (in millions):



                               1998                    1999                    2000
                       ---------------------   ---------------------   ---------------------
                            (UNAUDITED)
                                  LONG-LIVED              LONG-LIVED              LONG-LIVED
                       REVENUES     ASSETS     REVENUES     ASSETS     REVENUES     ASSETS
                       --------   ----------   --------   ----------   --------   ----------
                                                                
United States........  $ 7,085      $16,081    $14,760      $19,635    $16,111      $27,643
Brazil...............    1,182        5,049      2,772        4,017      3,511        4,008
All other
  international......    1,542        1,519      2,204        2,575      3,133        3,526
                       -------      -------    -------      -------    -------      -------
Total................  $ 9,809      $22,649    $19,736      $26,227    $22,755      $35,177
                       =======      =======    =======      =======    =======      =======


(15) RELATED PARTY TRANSACTIONS--

    See Note 18 to the Company's consolidated financial statements for
information pertaining to the Company's related party transactions.

                                      F-29

           WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(16) UNAUDITED QUARTERLY FINANCIAL DATA--



                                                                  QUARTER ENDED
                              -------------------------------------------------------------------------------------
                                   MARCH 31,             JUNE 30,            SEPTEMBER 30,         DECEMBER 31,
                                1999       2000       1999       2000       1999       2000       1999       2000
                              --------   --------   --------   --------   --------   --------   --------   --------
                                                                  (IN MILLIONS)
                                                                                   
Revenues:
  Previously reported.......   $5,026     $5,550     $4,949     $5,743     $4,965     $5,952     $5,191     $5,943
  Revenue
  reclassifications.........      (88)      (115)      (101)      (113)      (103)       (99)      (103)       (73)
  SAB 101...................       --         (6)        --         (9)        --         (9)        --         (9)
                               ------     ------     ------     ------     ------     ------     ------     ------
  Revenues, as reported.....    4,938      5,429      4,848      5,621      4,862      5,844      5,088      5,861

Operating income:
  Previously reported.......      686      1,393        992      1,377      1,332      1,148      1,621      1,142
  SAB 101...................       --         (3)        --        (13)        --         (9)        --          6
                               ------     ------     ------     ------     ------     ------     ------     ------
  Operating income, as
  reported..................      686      1,390        992      1,364      1,332      1,139      1,621      1,148

Income before cumulative
  effect of accounting
change
  and extraordinary items:
  Previously reported.......      310        746        487        743        654        607        915        600
  SAB 101...................       --         (5)        --        (11)        --         (8)        --          1
                               ------     ------     ------     ------     ------     ------     ------     ------
  As reported...............      310        741        487        732        654        599        915        601

Net income:
  Previously reported.......      293        729        468        727        636        591        897        584
  SAB 101...................       --        (80)        --        (11)        --         (8)        --          1
                               ------     ------     ------     ------     ------     ------     ------     ------
  Net income, as reported...      293        649        468        716        636        583        897        585


    See Note 1 for additional information related to WorldCom group's revenue
reclassifications and adoption of SAB 101.

    Results for the quarter ended June 30, 2000 include a pre-tax charge of
$93 million associated with the termination of the Sprint Corporation merger
agreement, including regulatory, legal, accounting and investment banking fees
and other costs, and results for the quarter ended September 30, 2000, include a
$340 million pre-tax charge associated with specific domestic and international
wholesale accounts that were no longer deemed collectible due to bankruptcies,
litigation and settlements of contractual disputes that occurred in the third
quarter of 2000.

                                      F-30

EX-99.2

                                                                    EXHIBIT 99.2

                         INDEX TO FINANCIAL STATEMENTS



                                                                PAGE
                                                              --------
                                                           
MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

  Report of independent public accountants..................     F-2

  Combined balance sheets as of December 31, 1999 and
    2000....................................................     F-3

  Combined statements of operations for the three years
    ended December 31, 2000.................................     F-4

  Combined statements of allocated net worth for the three
    years ended December 31, 2000...........................     F-5

  Combined statements of cash flows for the three years
    ended December 31, 2000.................................     F-6

  Notes to combined financial statements....................     F-7


                            ------------------------

    You should understand the following when reading the combined financial
statements of the MCI group, which is an integrated business of WorldCom, Inc.:

    - WorldCom has presented the combined financial statements of the MCI group
      at substantially the same level of detail as the consolidated financial
      statements of WorldCom. WorldCom believes that investors will require
      detailed financial information for the MCI group to properly evaluate the
      market potential of MCI group stock.

    - the MCI group is a collection of WorldCom's MCI businesses and is not a
      separate legal entity;

    - the holders of the MCI group stock are shareholders of WorldCom and do not
      have an ownership interest in the MCI group or any company in the MCI
      group or a claim on any of the assets attributed to the MCI group;

    - the attribution of a portion of WorldCom's assets and liabilities to the
      MCI group does not affect WorldCom's ownership of these assets or
      responsibility for these liabilities and does not affect the rights of any
      creditor of WorldCom; and

    - the assets attributed to the MCI group could be subject to the liabilities
      attributed to the WorldCom group.

                                      F-1

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of WorldCom, Inc.:

    We have audited the accompanying combined balance sheets of MCI group (an
integrated business of WorldCom, Inc.) (as described in Note 1) as of
December 31, 1999 and 2000, and the related combined statements of operations,
allocated net worth and cash flows for each of the years in the two-year period
ended December 31, 2000. These financial statements are the responsibility of
WorldCom, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the MCI group combined financial statements referred to
above present fairly, in all material respects, the combined financial position
of MCI group as of December 31, 1999 and 2000, and the combined results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

    As discussed in Note 1 to the combined financial statements, effective
January 1, 2000, MCI group changed its method of accounting for certain
activation and installation fee revenues and expenses. Additionally, effective
January 1, 1998, MCI group changed its method of accounting for start-up
activities.

    MCI group is a fully integrated business of WorldCom, Inc. Accordingly, as
described in Note 1, the MCI group's combined financial statements have been
derived from the consolidated financial statements and accounting records of
WorldCom, Inc. and, therefore, reflect certain assumptions and allocations. As
more fully discussed in Note 1, the combined financial statements of MCI group
should be read in conjunction with the audited consolidated statements of
WorldCom, Inc.

    The financial statements of MCI group as of and for the year ended
December 31, 1998, were not audited by us and, accordingly, we do not express an
opinion on them.

ARTHUR ANDERSEN LLP

Jackson, Mississippi
March 30, 2001

                                      F-2

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                            COMBINED BALANCE SHEETS

                                 (IN MILLIONS)



                                                                   DECEMBER 31,
                                                              -----------------------
                                                                1999           2000
                                                              --------       --------
                                                                       
ASSETS
Current assets:
  Cash and cash equivalents.................................  $    70        $    41
  Accounts receivable, net of allowance for bad debts of
    $682 in 1999 and $514 in 2000...........................    2,009          1,835
  Deferred tax asset........................................       --             41
  Other current assets......................................      184            395
                                                              -------        -------
    Total current assets....................................    2,263          2,312
                                                              -------        -------
Property and equipment:
  Transmission equipment....................................      377            405
  Communications equipment..................................    1,895          2,227
  Furniture, fixtures and other.............................      659            676
  Construction in progress..................................      218            170
                                                              -------        -------
                                                                3,149          3,478
  Accumulated depreciation..................................     (758)        (1,232)
                                                              -------        -------
                                                                2,391          2,246
                                                              -------        -------
Goodwill and other intangible assets........................   10,056          9,909
Other assets................................................      105            168
                                                              -------        -------
                                                              $14,815        $14,635
                                                              =======        =======
LIABILITIES AND ALLOCATED NET WORTH
Current liabilities:
  Accounts payable and accrued line costs...................  $ 3,178        $ 2,438
  Payable to Worldcom group, net............................      976          1,625
  Other current liabilities.................................    1,337          1,022
                                                              -------        -------
    Total current liabilities...............................    5,491          5,085
                                                              -------        -------
Long-term liabilities, less current portion:
  Long-term debt............................................    6,000          6,000
  Deferred tax liability....................................      648            928
  Other liabilities.........................................      176            159
                                                              -------        -------
    Total long-term liabilities.............................    6,824          7,087
                                                              -------        -------
Commitments and contingencies

Allocated net worth.........................................    2,500          2,463
                                                              -------        -------
                                                              $14,815        $14,635
                                                              =======        =======


   The accompanying notes are an integral part of these combined statements.

                                      F-3

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                       COMBINED STATEMENTS OF OPERATIONS

                                 (IN MILLIONS)



                                                                      FOR THE YEARS ENDED
                                                                          DECEMBER 31,
                                                              ------------------------------------
                                                                 1998            1999       2000
                                                              -----------      --------   --------
                                                              (UNAUDITED)
                                                                                 
Revenues....................................................    $ 7,808        $16,172    $16,335
                                                                -------        -------    -------
Operating expenses:
  Line costs................................................      3,319          7,087      7,177
  Selling, general and administrative.......................      2,441          5,071      5,162
  Depreciation and amortization.............................        317            757        884
  In-process research and development and other charges.....      1,251             --         --
                                                                -------        -------    -------
    Total...................................................      7,328         12,915     13,223
                                                                -------        -------    -------
Operating income............................................        480          3,257      3,112
Other income (expense):
  Interest expense..........................................       (512)          (506)      (512)
  Miscellaneous.............................................         --              5         --
                                                                -------        -------    -------
Income (loss) before income taxes and cumulative effect of
  accounting change.........................................        (32)         2,756      2,600
Provision for income taxes..................................        468          1,109      1,035
                                                                -------        -------    -------
Income (loss) before cumulative effect of accounting
  change....................................................       (500)         1,647      1,565
Cumulative effect of accounting change (net of income taxes
  of $22 in 1998 and $7 in 2000)............................        (36)            --        (10)
                                                                -------        -------    -------
Net income (loss)...........................................    $  (536)       $ 1,647    $ 1,555
                                                                =======        =======    =======


   The accompanying notes are an integral part of these combined statements.

                                      F-4

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                   COMBINED STATEMENTS OF ALLOCATED NET WORTH

                  FOR THE THREE YEARS ENDED DECEMBER 31, 2000
                                 (IN MILLIONS)

                                                           
Allocated deficit at December 31, 1997......................  $(5,065)
Funds attributed from WorldCom, Inc.........................    8,000
Net loss....................................................     (536)
Advances from WorldCom group, net...........................      551
                                                              -------
Allocated net worth at December 31, 1998....................    2,950
Net income..................................................    1,647
Advances to WorldCom group, net.............................   (2,097)
                                                              -------
Allocated net worth at December 31, 1999....................    2,500
Net income..................................................    1,555
Advances to WorldCom group, net.............................   (1,592)
                                                              -------
Allocated net worth at December 31, 2000....................  $ 2,463
                                                              =======



Note: Amounts presented prior to December 31, 1998 are unaudited.

   The accompanying notes are an integral part of these combined statements.

                                      F-5

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                       COMBINED STATEMENTS OF CASH FLOWS

                                 (IN MILLIONS)



                                                                        FOR THE YEARS ENDED
                                                                           DECEMBER 31,
                                                             -----------------------------------------
                                                                1998             1999           2000
                                                             -----------       --------       --------
                                                             (UNAUDITED)
                                                                                     
Cash flows from operating activities:
Net income (loss)..........................................    $  (536)        $ 1,647        $ 1,555
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
  Cumulative effect of accounting change...................         36              --             10
  In-process research and development and other charges....      1,251              --             --
  Depreciation and amortization............................        317             757            884
  Provision for losses on accounts receivable..............        183             621            774
  Provision for deferred income taxes......................        159             393            239
  Change in assets and liabilities, net of effect of
    business combinations:
    Accounts receivable....................................       (220)           (885)          (600)
    Other current assets...................................        (41)             24           (215)
    Accounts payable and other current liabilities.........        240             530           (960)
    Payable to WorldCom group, net.........................        259             555            649
  Other....................................................         --              11             --
                                                               -------         -------        -------
Net cash provided by operating activities..................      1,648           3,653          2,336
                                                               -------         -------        -------
Cash flows from investing activities:
  Capital expenditures--dial modems........................        (98)           (178)          (185)
  Capital expenditures--messaging equipment................        (65)            (87)           (35)
  Capital expenditures--all other..........................       (431)           (522)          (280)
  Acquisitions and related costs...........................     (1,589)           (292)            --
  Increase in intangible assets............................        (51)           (354)          (167)
  Proceeds from disposition of marketable securities.......         --               4              4
  Decrease (increase) in other assets......................         65               4            (94)
  Decrease in other liabilities............................        (23)            (85)           (16)
                                                               -------         -------        -------
Net cash used in investing activities......................     (2,192)         (1,510)          (773)
                                                               -------         -------        -------
Cash flows from financing activities:
  Advances from (to) WorldCom group, net...................        551          (2,097)        (1,592)
                                                               -------         -------        -------
Net cash provided by (used in) financing activities........        551          (2,097)        (1,592)
                                                               -------         -------        -------
Net increase (decrease) in cash and cash equivalents.......          7              46            (29)
Cash and cash equivalents at beginning of period...........         17              24             70
                                                               -------         -------        -------
Cash and cash equivalents at end of period.................    $    24         $    70        $    41
                                                               =======         =======        =======


   The accompanying notes are an integral part of these combined statements.

                                      F-6

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

                     NOTES TO COMBINED FINANCIAL STATEMENTS

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES--

DESCRIPTION OF BUSINESS AND ORGANIZATION:

    Organized in 1983, WorldCom, Inc., a Georgia corporation (the "Company")
provides a broad range of communications services to both U.S. and non-U.S.
based businesses and consumers. The Company is a global communications company
utilizing an "on-net" strategy based on being able to provide service through
its own facilities throughout the world instead of being restricted to a
particular geographic location. The on-net approach allows the Company's
customers to send data or voice communications across town, across the U.S., or
to any of our networks in Europe or Asia, without ever leaving the Company's
networks. The on-net approach provides the Company's customers with superior
reliability and low operating costs. Prior to May 1, 2000, the Company was named
MCI WORLDCOM, Inc.

    The Company's core business is communications services, which includes
voice, data, Internet and international services. The Company serves as a
holding company for its subsidiaries' operations. References herein to the
Company include the Company and its subsidiaries, unless the context otherwise
requires.

BASIS OF COMBINATION AND PRESENTATION:

    On November 1, 2000, the Company announced a realignment of its businesses
with the distinct customer bases they serve. While WorldCom, Inc. will remain
the name of the company, it will create two separately traded tracking stocks:

    - WorldCom group stock ("WorldCom stock") is intended to reflect the
      performance of the Company's data, Internet, international and commercial
      voice businesses and is expected to be quoted on The Nasdaq National
      Market under the trading symbol "WCOM", and

    - MCI group stock ("MCI stock") is intended to reflect the performance of
      the Company's consumer, small business, wholesale long distance, wireless
      messaging and dial-up Internet access businesses and is expected to be
      quoted on The Nasdaq National Market under the trading symbol "MCIT".

    A tracking stock is a separate class of a company's common stock intended to
provide a return to investors based upon the financial performance of a distinct
business unit of the company, sometimes referred to as the targeted business.
These targeted businesses are collections of businesses that the Company has
grouped together in order for the Company to issue WorldCom group stock and MCI
group stock. The ownership of the targeted business does not change, and while
each of the classes of stock trade separately, all shareholders are common
shareholders of a single company, WorldCom, Inc., and will be subject to all
risks of an investment in the Company as a whole.

    Under the plan, which must be approved by the Company's shareholders, the
Company will amend its articles of incorporation to effect a recapitalization
that will replace the Company's existing common stock with two new series of
Company common stock that are intended to reflect, or track, the performance of
the businesses attributed to WorldCom group and MCI group. The Company expects
to hold its shareholder meeting to vote on the recapitalization in the first
half of 2001, and to effect the recapitalization shortly after the Company
receives the necessary shareholder approval. No regulatory approvals are
expected to be required.

                                      F-7

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
    If the Company's shareholders approve the recapitalization, each share of
the Company's existing common stock will be changed into one share of WorldCom
stock and 1/25 of a share of MCI stock. After the recapitalization, a common
shareholder's ownership in WorldCom, Inc. will then be represented by two
stocks: WorldCom stock and MCI stock.

    All assets reported in the accompanying combined financial statements are
owned by the Company or one of its subsidiaries. These combined financial
statements are based on the operations, attributed assets and attributed
liabilities of MCI group and are not representative of any separately
incorporated entity.

    The MCI group combined financial statements will provide MCI group
shareholders with financial information about MCI group's operations. Investors
in MCI stock and WorldCom stock will be shareholders of the Company and will be
subject to risks related to all of the Company's businesses, assets and
liabilities. The Company retains ownership and control of the attributed assets,
attributed liabilities and operations of MCI group and WorldCom group. Financial
effects of either group that affect the Company's consolidated results of
operations or financial position could affect the results of operations or
financial position of the other group or the market price of the other group's
stock. Net losses of either MCI group or WorldCom group, and any dividends or
distributions on, or repurchases of, MCI stock or WorldCom stock will reduce
Company funds legally available for dividends on MCI stock or WorldCom stock. As
a result, the MCI group combined financial statements should be read along with
the Company's consolidated financial statements.

    The combined financial statements of MCI group reflect the results of
operations, financial position, changes in allocated net worth and cash flows of
MCI group as if MCI group was a separate group for the periods presented. The
financial information included herein, however, may not necessarily reflect the
combined results of operations, financial position, changes in allocated net
worth and cash flows of MCI group had it been a separate, stand-alone group
during the periods presented.

    For financial reporting purposes, the Company has attributed all of its
consolidated assets, liabilities, shareholders' investment, revenues, expenses
and cash flows to either WorldCom group or MCI group. The separate financial
statements give effect to the allocation policies described below under
"Intergroup Allocation Policies". Intergroup allocation policies adopted by the
Company's Board of Directors can be rescinded or amended, or new policies may be
adopted, at the discretion of the Board of Directors, without any prior approval
of shareholders, although no such changes are currently contemplated.

    As integrated businesses, the Company has not historically prepared separate
financial statements of WorldCom group and MCI group. The combined financial
statements of MCI group reflect certain assets, liabilities, revenues and
expenses directly attributable to MCI group as well as allocations based on
methodologies deemed reasonable by management; however, the costs of such
allocated services charged between WorldCom group and MCI group may not
necessarily be indicative of the costs that would have been incurred if WorldCom
group and MCI group had performed these functions entirely as stand-alone
entities. The Company's Board of Directors will have the ability to control
transfers of funds or other assets between WorldCom group and MCI group. The
combined financial statements of MCI group are presented to provide additional
disclosure related to the underlying businesses that comprise MCI group.
Management intends on providing audited financial statements prepared in

                                      F-8

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
accordance with accounting principles generally accepted in the United States,
or GAAP, for MCI group as long as MCI stock is outstanding.

INTERGROUP ALLOCATION POLICIES:

    TRACKING STOCK POLICY STATEMENT

    The Company's Board of Directors has fiduciary duties to all shareholders of
the Company, and no independent fiduciary duties to the holders of WorldCom
stock and MCI stock. The Board of Directors of the Company has adopted a policy
statement regarding WorldCom group and MCI group matters. The Company's Board of
Directors or any special committee appointed by the Company's Board of
Directors, may amend, modify or rescind the policies set forth in this policy
statement from time to time at its sole discretion and without shareholder
approval. The material provisions of the policy statement are as follows:

    GENERAL POLICY.  The policy statement provides that all material matters as
to which the holders of WorldCom stock and MCI stock may have potentially
divergent interests will be resolved in a manner that the Board of Directors of
the Company or any special committee appointed by the Board of Directors
determines to be in the best interests of the Company as a whole, after giving
due consideration to the potentially divergent interests and all other interests
of the holders of the separate series of common stock of the Company that the
Board of Directors or any special committee, as the case may be, deems relevant.
The policy statement provides that the Company will manage the businesses in
WorldCom group and MCI group in a manner intended to maximize the operations,
assets and values of both groups, and with complementary deployment of
personnel, capital and facilities, consistent with their respective business
objectives.

    Under this policy statement, all material transactions which are determined
by the Company's Board of Directors to be in the ordinary course of business
between WorldCom group and MCI group, except for those described in the
paragraphs below, are intended to be on terms consistent with terms that would
be applicable to arm's-length dealings with unrelated third parties.

    CASH MANAGEMENT.  Decisions regarding the investment of surplus cash, the
issuance and retirement of debt, and the issuance and repurchase of common and
preferred stock will continue to be made by the Company's corporate headquarters
on behalf of the groups. Under this centralized cash management system, MCI
group will generally not be allocated any cash balances. Historically, the
Company determined the amount of funding provided to MCI group based on actual
cash used for capital and operating expenses, net of WorldCom group and MCI
group cash receipts.

    CORPORATE ALLOCATIONS:

    Corporate allocations have been attributed and/or allocated to WorldCom
group or MCI group based upon identification of the services specifically
benefiting each group. Such corporate allocations may change at the discretion
of the Company and do not require shareholder approval. Management believes that
the allocation methodologies applied are reasonable. However, it is not
practical to determine whether the allocated amounts represent amounts that
would have been incurred on a stand alone basis. Management believes that the
allocation methods developed will be comparable to the

                                      F-9

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
expected future allocation methods. Explanations of the composition and the
method of allocation for such items are described below.

    SHARED CORPORATE SERVICES.  The Company has directly charged specifically
identifiable costs to WorldCom group and MCI group. Where determinations based
on specific usage alone were impracticable, the Company used other allocation
methods that it believes are fair, including methods based on factors such as
the number of employees and total revenues generated by each group. For the
years ended December 31, 1998, 1999, and 2000, MCI group was allocated
$710 million, $1.6 billion and $1.9 billion of these costs, respectively.

    COMMERCIAL INTER-GROUP TRANSACTIONS.  The MCI group is allocated a
proportion, based on usage, of the Company's fiber optic system costs for use of
the fiber optic systems, which are attributed to WorldCom group. For the years
ended December 31, 1998, 1999 and 2000, fiber optic system costs allocated to
MCI group were $118 million, $189 million and $373 million, respectively. In
addition, WorldCom group is allocated a proportion, based on usage, of the
Company's switching costs for use of the business voice switched services, which
are attributed to MCI group and MCI group is allocated a corresponding decrease
to depreciation expense which, for the years ended December 31, 1998, 1999 and
2000 totaled $20 million, $64 million and $87 million, respectively. Selling,
general and administrative expenses for MCI group include allocated costs for
MCI group's proportionate share of costs associated with buildings, furniture
and fixtures attributed to WorldCom group, and the cost allocated to MCI group
for use of the MCI tradenames as discussed below. For the years ended
December 31, 1998, 1999 and 2000, these allocated costs totaled $90 million,
$331 million and $254 million, respectively.

    All other material commercial transactions in the ordinary course of
business between the groups are intended, to the extent practicable, to be on
terms consistent with terms that would be applicable to arm's-length dealings
with unrelated third parties and will be subject to the review and approval of
the Board of Directors or any special committee. Neither group is under any
obligation to use services provided by the other group, and each group may use
services provided by a competitor of the other group if the Board of Directors
or any special committee determines it is in the best interests of the Company
as a whole.

    ALLOCATION OF INTANGIBLE ASSETS.  Intangible assets consist of the excess
consideration paid over the fair value of net tangible assets acquired by the
Company in business combinations accounted for under the purchase method and
include goodwill, channel rights, developed technology and tradenames. These
assets have been attributed to the respective groups based on specific
identification and where acquired companies have been divided between WorldCom
group and MCI group, the intangible assets have been attributed based on the
respective fair values at date of purchase of the related operations attributed
to each group. Management believes that this method of allocation is equitable
and provides a reasonable estimate of the intangible assets attributable to
WorldCom group and MCI group. All of the tradenames, including the MCI tradename
and the other related MCI tradenames, have been attributed to WorldCom group.
MCI group will be allocated an expense, and the WorldCom group will

                                      F-10

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
be allocated a corresponding decrease in amortization expense for the use of the
MCI tradenames for the next five years based on the following fee schedule:



                         YEAR ENDED
                        DECEMBER 31,
                        ------------
                                                           
  2001......................................................  $27.5 million
  2002......................................................  $30.0 million
  2003......................................................  $35.0 million
  2004......................................................  $40.0 million
  2005......................................................  $45.0 million


    Any renewal or termination of use of the MCI tradename by MCI group will be
subject to the general policy that our board of directors will act in the best
interests of WorldCom. For each of the years ended December 31, 1998, 1999 and
2000, an expense of $27.5 million per annum was allocated to the MCI group since
the date of acquisition of MCI, for use of the MCI tradenames.

    FINANCING ARRANGEMENTS.  As of January 1, 1999, $6.0 billion of our
outstanding debt was notionally allocated to MCI group and $15.2 billion of our
debt was notionally allocated to WorldCom group. The Company's debt was
allocated between WorldCom group and MCI group based upon a number of factors
including estimated future cash flows and the ability to pay debt service and
dividends of each of the groups. In addition, management considered certain
measures of creditworthiness, such as coverage ratios and various tests of
liquidity, in the allocation process. Management believes that the initial
allocation is equitable and supportable by both WorldCom group and MCI group.
The debt allocated to MCI group will bear interest at a rate indicative of the
rate at which MCI group would borrow from third parties if it was a wholly owned
subsidiary of the Company but did not have the benefit of any guarantee by the
Company. Interest rates will be calculated on a quarterly basis. For purposes of
the combined historical financial statements of each of the groups, debt
allocated to MCI group was determined to bear an interest rate equal to the
weighted average interest rate, excluding capitalized interest, of the Company's
debt plus 1 1/4 percent. Interest allocated to WorldCom group reflects the
difference between our actual interest expense and the interest expense charged
to MCI group. Upon the recapitalization each group's debt will increase or
decrease by the amount of any net cash generated by, or required to fund, the
group's operating activities, investing activities, share repurchases and other
financing activities.

    In 1999, the Company amended its existing $500 million receivables purchase
agreement to $2.0 billion by including additional receivables eligible under the
agreement. As of December 31, 2000, the purchaser owned an undivided interest in
a $3.5 billion pool of receivables which includes the $1.95 billion sold, of
which $1.1 billion and $374 million relate to MCI group, respectively. The
receivables sold were assigned based on specific identification where practical,
or allocated based on total revenues. Management believes that this method of
allocation is equitable and provides a reasonable estimate of the receivables
attributable to the groups.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

    The Company estimates the fair value of attributed MCI group financial
instruments using available market information and appropriate valuation
methodologies. The carrying amounts for cash

                                      F-11

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
and cash equivalents accounts receivable, notes receivable, accounts payable,
accrued liabilities and long-term debt approximate their fair value. The fair
value of long-term debt is determined based on quoted market rates or the cash
flows from such financial instruments discounted at the Company's estimated
current interest rate to enter into similar financial instruments.

CASH AND CASH EQUIVALENTS:

    The Company considers cash in banks and short-term investments with original
maturities of three months or less as cash and cash equivalents.

PROPERTY AND EQUIPMENT:

    Property and equipment are stated at cost. Depreciation is provided for
financial reporting purposes using the straight-line method over the following
estimated useful lives:

                                                           
Transmission equipment......................................  5 to 10 years
Communications equipment....................................  5 to 20 years
Furniture, fixtures, buildings and other....................  4 to 40 years



    The Company evaluates the recoverability of property and equipment when
events and circumstances indicate that such assets might be impaired. The
Company determines impairment by comparing the undiscounted future cash flows
estimated to be generated by these assets to their respective carrying amounts.
In the event an impairment exists on property and equipment attributed to MCI
group, a loss will be recognized by MCI group based on the amount by which the
carrying value exceeds the fair value of the asset. If quoted market prices for
an asset are not available, fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on property and equipment to be disposed of are determined in a similar
manner, except that fair market values are reduced for the cost to dispose.

    Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized. The cost and related reserves of assets sold or
retired are removed from the accounts, and any resulting gain or loss is
reflected in results of operations.

GOODWILL AND OTHER INTANGIBLE ASSETS:

    The major classes of intangible assets attributed to MCI group as of
December 31, 1999 and 2000 are summarized below (in millions):



                                           AMORTIZATION PERIOD    1999      2000
                                           -------------------   -------   -------
                                                                  
Goodwill.................................     10 to 40 years     $ 9,284   $ 9,274
Developed technology.....................      5 to 10 years         510       510
Other intangibles........................      5 to 10 years         803     1,113
                                                                 -------   -------
                                                                  10,597    10,897
Less: accumulated amortization...........                           (541)     (988)
                                                                 -------   -------
Goodwill and other intangible assets,
  net....................................                        $10,056   $ 9,909
                                                                 =======   =======


                                      F-12

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
    Intangible assets are amortized using the straight-line method for the
periods noted above.

    Goodwill is recognized for the excess of the purchase price of the various
business combinations over the value of the identifiable net tangible and
intangible assets acquired. Realization of acquisition-related intangibles,
including goodwill, is periodically assessed by the management of the Company
based on the current and expected future profitability and cash flows of
acquired companies and their contribution to the overall operations of MCI
group.

    Also included in other intangibles are costs incurred to develop software
for internal use. Such costs were $200 million, $356 million and $160 million
for the years ended December 31, 1998, 1999 and 2000, respectively.

RECOGNITION OF REVENUES:

    MCI group records revenues for telecommunications services at the time of
customer usage. Service activation and installation fees are amortized over the
average customer contract life.

CUMULATIVE EFFECT OF ACCOUNTING CHANGES:

    During the fourth quarter of 2000, MCI group implemented SAB 101, which
requires certain activation and installation fee revenues to be amortized over
the average life of the related service rather than be recognized immediately.
Costs directly related to these revenues may also be deferred and amortized over
the customer contract life. As required by SAB 101, MCI group retroactively
adopted this accounting effective January 1, 2000, which resulted in a one-time
expense of $10 million, net of income tax benefit of $7 million. The pro forma
effect of adopting SAB 101 on periods prior to January 1, 2000 was not material
to MCI group's financial position or results of operations.

    MCI group adopted American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities," as
of January 1, 1998. The cumulative effect of this change in accounting principle
resulted in a one-time non-cash expense of $36 million, net of income tax
benefit of $22 million. This expense represented start-up costs incurred
primarily in conjunction with the development and construction of the advanced
messaging network of SkyTel Communications, Inc. ("SkyTel"), which are required
to be expensed as incurred in accordance with this accounting standard.

INCOME TAXES:

    The federal and state income tax liabilities incurred by the Company and
which are determined on a consolidated, combined, or unitary basis will be
allocated between WorldCom group and MCI group in accordance with the Company's
policy statement. The Company currently intends that the income tax expense for
each group and the balance sheet allocation of the expense will be based on a
comparison of the Company's tax expense with the hypothetical tax expense of MCI
group. The tax expense allocable to MCI group will be the amount that MCI group
would have incurred if it had filed tax returns as a separate taxpayer and the
tax expense allocable to WorldCom group will be the excess, if any, of the
Company's tax expense over the tax expense allocable to MCI group. Tax benefits
that cannot be used by a group generating those benefits but can be used on a
consolidated basis will be credited to the group that generated those benefits.
Had WorldCom group and MCI group filed

                                      F-13

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
separate tax returns, the provision for income taxes and net income for each
group would not have significantly differed from the amounts reported on the
group's statements of operations for the years ended December 31, 1998, 1999 and
2000. However, the amounts of current and deferred taxes and taxes payable or
refundable attributed to each group on the historical financial statements may
differ from those that would have been allocated had WorldCom group or MCI group
filed separate income tax returns.

    Deferred tax assets and liabilities are based on temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their respective tax bases.

EARNINGS PER SHARE:

    After the implementation of the recapitalization, the consolidated financial
statements of the Company will present basic and diluted earnings per share for
WorldCom stock and MCI stock using the two-class method. The two-class method is
an earnings formula that determines the earnings per share for WorldCom stock
and MCI stock according to participation rights in undistributed earnings. The
combined financial statements of MCI group will not present earnings per share
because MCI stock is a series of common stock of the Company and MCI group is
not a legal group with a capital structure.

    For purposes of the consolidated financial statements of the Company, basic
earnings per share for MCI stock will be computed by dividing net income for the
period by the number of weighted average shares of MCI stock then outstanding.
Diluted earnings per share of MCI stock will be computed by dividing net income
for the period by the weighted-average number of shares of MCI stock
outstanding, including the dilutive effect of MCI stock equivalents.

CONCENTRATION OF CREDIT RISK:

    A portion of MCI group's revenues is derived from services provided to
others in the telecommunications industry, mainly resellers of long distance
telecommunications service and Internet online services. As a result, MCI group
has some concentration of credit risk among its customer base. MCI group
performs ongoing credit evaluations of its larger customers' financial condition
and, at times, requires collateral from its customers to support its
receivables, usually in the form of assignment of its customers' receivables to
MCI group in the event of nonpayment.

RECLASSIFICATIONS:

    Revenues and line costs for all periods reflect classification changes for
reciprocal compensation and central office based remote access equipment sales
which are now being treated as offsets to cost of sales. Reciprocal compensation
represents a reimbursement of costs for call termination performed on behalf of
other carriers' customers and is determined contractually based on fixed rate
per minute charges to those carriers. Central office based remote access
equipment sales represent the reimbursement of customer specific equipment costs
incurred by MCI group on behalf of the customer as part of service provisioning.
As such, MCI group determined that it is more appropriate to reflect these
reimbursements net of cost. Previously, MCI group recorded these items on a
gross basis as revenues. Revenues and line costs for all periods also reflect
the reclassification of small business and

                                      F-14

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
consumer primary interexchange carrier charges, or PICC, from revenues to line
costs. PICC are flat-rate charges mandated by the FCC which apply to
telecommunications companies that connect to customers through a traditional
phone company's facilities. Effective July 1, 2000, as a result of the FCC's
Coalition for Affordable Local and Long Distance Services, or CALLs order, the
PICC fee is billed directly to the customer by the traditional phone company
rather than to MCI group and rebilled to the customer. Operating income, net
income and the balance sheet are not affected by these reclassifications.

    The effects of these reclassifications on the accompanying combined
statements of operations for the years ended December 31, 1998, 1999 and 2000
are as follows (in millions):



                                                           NEW PRESENTATION
                                                    ------------------------------
                                                         FOR THE YEARS ENDED
                                                             DECEMBER 31,
                                                    ------------------------------
                                                      1998       1999       2000
                                                    --------   --------   --------
                                                                 
Revenues..........................................   $7,808    $16,172    $16,335
Line costs........................................   $3,319    $ 7,087    $ 7,177




                                                           OLD PRESENTATION
                                                    ------------------------------
                                                         FOR THE YEARS ENDED
                                                             DECEMBER 31,
                                                    ------------------------------
                                                      1998       1999       2000
                                                    --------   --------   --------
                                                                 
Revenues..........................................   $8,134    $16,989    $17,137
Line costs........................................   $3,645    $ 7,904    $ 7,979


RECENTLY ISSUED ACCOUNTING STANDARDS:

    The Financial Accounting Standards Board's, or FASB's, Statement of
Financial Accounting Standard, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," is effective for the Company as of
January 1, 2001. This statement establishes accounting and reporting standards
requiring that derivative instruments (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. This statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires a company to formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998). The Company has minimal exposure to
derivative financial instruments which, as of December 31, 2000, primarily
consist of option collar transactions designated as cash flow hedges of
anticipated sales of an equity investment and various equity warrants. The
Company believes the adoption of this standard will not have a material effect
on MCI group's combined results of operations or financial position.

                                      F-15

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(1)  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
    In September 2000 the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000, and is effective for transfers and servicing of
financial assets and extinguishments of liabilities occuring after March 31,
2001. The Company believes that the adoption of this standard will not have a
material effect on MCI group's combined results of operations or financial
position.

USE OF ESTIMATES:

    The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during the period
reported. Actual results could differ from those estimates.

    The accompanying combined financial statements for MCI group as of and for
the year ended December 31, 1998 are unaudited. Management of MCI group is
solely responsible for these financial statements, without benefit of
independent accounting experts, and believes the 1998 combined financial
statements have been prepared in conformity with GAAP using standards of
materiality consistent with the audited combined financial statements for 1999
and 2000.

(2)  BUSINESS COMBINATIONS--

    The Company has acquired other telecommunications companies offering similar
or complementary services to those offered by MCI group. These acquisitions have
been accomplished through the purchase of the outstanding stock or assets of the
acquired entity for cash, notes, shares of the Company's common stock, or a
combination thereof. The cash portion of acquisition costs has generally been
financed through the Company's bank credit facilities. In addition to the
business combinations described below, the Company or its predecessors completed
smaller acquisitions during the three years ended December 31, 2000.

    On September 14, 1998, the Company acquired MCI Communications Corporation
("MCI") for approximately $40 billion, pursuant to the merger (the "MCI Merger")
of MCI with and into a wholly owned subsidiary of the Company. Upon consummation
of the MCI Merger, the wholly owned subsidiary was renamed MCI Communications
Corporation. Through the MCI Merger, the Company acquired one of the world's
largest and most advanced digital networks, connecting local markets in the
United States to more than 280 countries and locations worldwide.

    The purchase price in the MCI Merger was allocated based on estimated fair
values at the date of acquisition. This resulted in an excess of purchase price
over net assets acquired of which, on a Company consolidated basis,
$3.1 billion was allocated to in-process research and development ("IPR&D") and
$1.7 billion to developed technology, which will be depreciated over 10 years on
a straight-line basis. The remaining excess of $29.3 billion has been allocated
to goodwill and tradename, which are being amortized over 40 years on a
straight-line basis. Such amounts have been allocated to

                                      F-16

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(2)  BUSINESS COMBINATIONS-- (CONTINUED)
WorldCom group and MCI group based on the respective fair values of the related
operations allocated to each group. Accordingly, MCI group has been allocated
$775 million, $425 million and $7.0 billion of such IPR&D, developed technology
and goodwill, respectively.

    On January 31, 1998, the Company acquired CompuServe Corporation
("CompuServe"), for approximately $1.3 billion, pursuant to the merger (the
"CompuServe Merger") of a wholly owned subsidiary of the Company with and into
CompuServe. Upon consummation of the CompuServe Merger, CompuServe became a
wholly owned subsidiary of the Company.

    As a result of the CompuServe Merger, each share of CompuServe common stock
was converted into the right to receive 0.609375 shares of Company common stock,
or approximately 56 million Company common shares in the aggregate. Prior to the
CompuServe Merger, CompuServe operated primarily through two divisions:
Interactive Services and Network Services. Interactive Services offered
worldwide online and Internet access services for consumers, while Network
Services provided worldwide network access, management and applications, and
Internet service to businesses. The CompuServe Merger was accounted for as a
purchase; accordingly, operating results for CompuServe attributed to MCI group
have been included from the date of acquisition.

    On January 31, 1998, the Company also acquired ANS Communications, Inc.
("ANS"), from America Online, Inc. ("AOL"), for approximately $500 million, and
entered into five year contracts with AOL under which the Company and its
subsidiaries provide network services to AOL (collectively, the "AOL
Transaction"). As part of the AOL Transaction, AOL acquired CompuServe's
Interactive Services division and received a $175 million cash payment from the
Company. The Company retained the CompuServe Network Services division. ANS
provided Internet access to AOL and AOL's subscribers in the United States,
Canada, the United Kingdom, Sweden and Japan. The AOL Transaction was accounted
for as a purchase; accordingly, operating results for ANS attributed to MCI
group have been included from the date of acquisition.

    The purchase price in the CompuServe Merger and AOL Transaction was
allocated based on estimated fair values at the date of acquisition. This
resulted in an excess of purchase price over net assets acquired of which, on a
consolidated basis, $429 million was allocated to IPR&D. The remaining excess of
approximately $1 billion has been recorded as goodwill, which is being amortized
over 10 years on a straight-line basis. These amounts have been allocated to
WorldCom group and MCI group based on the respective fair values of the related
operations allocated to each group. Accordingly, MCI group has been allocated
$302 million and $446 million of the IPR&D and goodwill, respectively.

    During 1998, 1999 and 2000, the Company recorded other liabilities of
$2.2 billion, $582 million and $29 million, respectively, related to estimated
costs of unfavorable commitments of acquired entities, and other non-recurring
costs arising from various acquisitions and mergers. At December 31, 1998, 1999
and 2000, other liabilities attributed to MCI group related to these accruals
totaled $200 million, $160 million and $106 million, respectively.

                                      F-17

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(3)  IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES--

    The following table reflects the components of the significant items
included in MCI group's IPR&D and other charges in 1998 (in millions):



                                                                 1998
                                                              -----------
                                                              (UNAUDITED)
                                                           
IPR&D.......................................................     $1,232
Alignment and other exit activities.........................         19
                                                                 ------
                                                                 $1,251
                                                                 ======


    In 1998, MCI group recorded a pre-tax charge of $19 million related to
minimum contractual network lease commitments that expire between 1999 and 2001,
for which MCI Group will receive no future benefit due to the migration of
traffic to owned facilities.

    In connection with 1998 business combinations, the Company made allocations
of the purchase price to acquired IPR&D totaling $429 million in the first
quarter of 1998 related to the CompuServe Merger and AOL Transaction and $3.1
billion in the third quarter of 1998 related to the MCI Merger. These
allocations represent the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects. At the date of the respective
business combinations, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
respective acquisition dates. Based on the respective fair values of the related
operations allocated to each group, $1.2 billion of the IPR&D charge was
allocated to MCI group. Management believes that this method of allocation
provides a reasonable estimate of the IPR&D charges attributable to each group.

                                      F-18

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(4)  LONG-TERM DEBT--

    The Company's outstanding debt as of December 31, 1999 and 2000 consists of
the following (in millions):



                                                        1999                                  2000
                                         -----------------------------------   -----------------------------------
                                         EXCLUDING                             EXCLUDING
                                         EMBRATEL    EMBRATEL   CONSOLIDATED   EMBRATEL    EMBRATEL   CONSOLIDATED
                                         ---------   --------   ------------   ---------   --------   ------------
                                                                                    
Commercial paper and credit
  facilities...........................  $  2,875    $    --      $  2,875     $  3,629    $    --      $  3,629
Floating rate notes due 2001-2002......     1,000         --         1,000        1,560         --         1,560
7.88% - 8.25% Notes Due 2003-2010......        --         --            --        3,500         --         3,500
7.38% Notes Due 2006-2011..............        --         --            --        2,000         --         2,000
6.13% - 6.95% Notes Due 2001-2028......     6,100         --         6,100        6,100         --         6,100
7.13% - 7.75% Notes Due 2004-2027......     2,000         --         2,000        2,000         --         2,000
8.88% - 13.5% Senior Notes Due
  2002-2006............................       689         --           689          672         --           672
7.13% - 8.25% Senior Debentures Due
  2023-2027............................     1,438         --         1,438        1,436         --         1,436
6.13% - 7.50% Senior Notes Due
  2004-2012............................     2,142         --         2,142        1,934         --         1,934
15% note payable due in annual
  installments through 2000............        --        440           440           --         --            --
Capital lease obligations, 7.00% -
  11.00% (maturing through 2002).......       483         --           483          413         --           413
Other debt (maturing through 2008).....       148        828           976          518      1,134         1,652
                                         --------    -------      --------     --------    -------      --------
                                           16,875      1,268        18,143       23,762      1,134        24,896
Notional debt allocated to WorldCom
  group................................   (10,875)    (1,268)      (12,143)     (17,762)    (1,134)      (18,896)
                                         --------    -------      --------     --------    -------      --------
Notional debt allocated to MCI group...  $  6,000    $    --      $  6,000     $  6,000    $    --      $  6,000
                                         ========    =======      ========     ========    =======      ========


    As of January 1, 1998, $6.0 billion of debt was notionally allocated by the
Company to MCI group with the remaining debt notionally allocated to WorldCom
group. See Note 1 for a more detailed description of how the Company allocates
debt to the groups and Note 5 of the Company's consolidated financial statements
for additional debt descriptions.

(5)  SHAREHOLDER RIGHTS PLAN--

    Under the Company's existing shareholder rights plan, each share of Company
common stock has associated with it one preferred stock purchase right entitling
its holder to purchase a designated number of shares of Company preferred stock
under the circumstances provided for in the rights agreement. Upon shareholder
approval of the recapitalization, the Company will amend and restate the
shareholder rights plan to provide shareholder rights to both WorldCom group and
MCI group shareholders with generally the same terms and conditions as the
current rights agreement. See Note 8 to the Company's consolidated financial
statements for a more detailed description of the existing shareholder rights
plan.

                                      F-19

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(6)  LEASES AND OTHER COMMITMENTS--

    The Company leases office facilities and equipment under non-cancelable
operating and capital leases and is also obligated under various rights-of-way
agreements having initial or remaining terms of more than one year and allocates
rent expense on these leases attributable to WorldCom group and MCI group in
accordance with the Company's allocation policies. Rental expense allocated to
MCI group under these operating leases was $110 million, $163 million and
$189 million in 1998, 1999 and 2000, respectively.

    The MCI group is an integrated business of the Company and is therefore
subject to all the Company's liabilities and obligations, including lease and
other commitments. See Note 9 to the Company's consolidated financial statements
for a description of the Company's leases and other commitments.

(7)  CONTINGENCIES--

    MCI group shareholders are subject to all of the risks related to an
investment in the Company and MCI group, including the effects of any legal
proceedings and claims against WorldCom group. See Note 10 to the Company's
consolidated financial statements for information related to the Company's
contingencies.

(8)  EMPLOYEE BENEFIT PLANS--

STOCK OPTION PLANS:

    The Company has several stock option plans under which options to acquire
shares of Company common stock may be granted to directors, officers and
employees of WorldCom group and MCI group. The Company accounts for these plans
under APB Opinion No. 25, under which no compensation cost is recognized. Terms
and conditions of the Company's options, including exercise price and the period
in which options are exercisable, generally are at the discretion of the
Compensation and Stock Option Committee of the board of directors; however, no
options are exercisable for more than 10 years after date of grant.

401(k) PLANS:

    The Company offers its qualified employees the opportunity to participate in
one of its defined contribution retirement plans qualifying under the provisions
of Section 401(k) of the Internal Revenue Code. Each employee may contribute on
a tax deferred basis a portion of annual earnings not to exceed $10,500. The
Company matches individual employee contributions in selected plans, up to a
maximum level which in no case exceeds 6% of the employee's compensation.
Expenses allocated to MCI group relating to the Company's 401(k) plans were
$14 million, $63 million and $68 million for the years ended December 31, 1998,
1999 and 2000, respectively.

PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS:

    The Company maintains various defined benefit plans and other
post-retirement benefit plans that cover selected eligible employees of WorldCom
group and MCI group. Annual service cost is determined using the Projected Unit
Credit actuarial method, and prior service cost is amortized on a straight-line
basis over the average remaining service period of employees.

                                      F-20

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(8)  EMPLOYEE BENEFIT PLANS-- (CONTINUED)
    See Notes 11 and 12 to the Company's consolidated financial statements for
additional disclosures related to employee benefit plans.

(9)  INCOME TAXES--

    The MCI group combined balance sheets reflects the anticipated tax impact of
future taxable income or deductions implicit in the combined balance sheets in
the form of temporary differences. These temporary differences reflect the
difference between the basis in the assets and liabilities for financial
reporting purposes and amounts used for income tax purposes and the impact of
available net operating loss ("NOL") carryforwards as measured in MCI group's
combined financial statements and as measured by tax laws using enacted tax
rates.

    The provision for income taxes is composed of the following (in millions):



                                                 1998           1999        2000
                                              -----------      ------      ------
                                              (UNAUDITED)
                                                                  
Current.....................................     $309          $  716      $  796
Deferred....................................      159             393         239
                                                 ----          ------      ------
Total provision for income taxes............     $468          $1,109      $1,035
                                                 ====          ======      ======


    The following is a reconciliation of the provision for income taxes to the
expected amounts using the statutory rate:



                                                      1998       1999    2000
                                                   -----------   -----   -----
                                                   (UNAUDITED)
                                                                
Expected statutory amount........................      (35.0)%    35.0%   35.0%
Nondeductible amortization of excess of cost over
  net tangible assets acquired...................       67.3       3.0     3.1
State income taxes...............................       (2.6)      2.5     2.6
Charge for in-process research and development...    1,447.9        --      --
Other............................................      (15.1)     (0.3)   (0.9)
                                                    --------     -----   -----
Actual tax provision.............................    1,462.5%     40.2%   39.8%
                                                    ========     =====   =====


    The following is a summary of the significant components of MCI group's
attributed deferred tax assets and liabilities as of December 31, 1999 and 2000
(in millions):



                                                      1999                     2000
                                             ----------------------   ----------------------
                                              ASSETS    LIABILITIES    ASSETS    LIABILITIES
                                             --------   -----------   --------   -----------
                                                                     
Fixed assets...............................    $--         $(611)       $ --       $  (822)
Goodwill and other intangibles.............     64            --          45            --
Accrued liabilities........................     --          (102)         --          (102)
Tax credits................................     31            --          68            --
Other......................................     --           (30)         --           (76)
                                               ---         -----        ----       -------
                                               $95         $(743)       $113       $(1,000)
                                               ===         =====        ====       =======


                                      F-21

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(10)  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--

    Interest paid by MCI group during the years ended December 31, 1998, 1999
and 2000 amounted to $506 million, $490 million and $564 million, respectively.
Income taxes paid, net of refunds, during the years ended December 31, 1998,
1999 and 2000 were $38 million, $71 million and $424 million, respectively.

    In conjunction with business combinations attributed to MCI group, assets
acquired and liabilities assumed, including revisions to previously recorded
acquisitions, were as follows (in millions):



                                                                 1998         1999       2000
                                                              -----------   --------   --------
                                                              (UNAUDITED)
                                                                              
Fair value of assets acquired...............................     $1,949       $154       $ --
Goodwill and other intangible assets........................     10,829        190         --
Liabilities assumed.........................................     (3,189)       (52)        --
Company common stock issued.................................     (8,000)        --         --
                                                                 ------       ----       ----
Net cash paid...............................................     $1,589       $292       $ --
                                                                 ======       ====       ====


(11)  SEGMENT AND GEOGRAPHIC INFORMATION--

    Based on its organizational structure, MCI group operates in four reportable
segments: Consumer, Wholesale, Alternative channels and small business and
Dial-up Internet. MCI group's reportable segments represent business units that
primarily offer similar products and services; however, the business units are
managed separately due to the type and class of customer as well as the
geographic dispersion of their operations. Consumer includes domestic voice
communications services for consumer customers. Wholesale includes voice and
data domestic communications services for wholesale customers. Alternative
channels and small business includes domestic long distance voice and data,
agents, prepaid calling cards and paging services provided to alternative
wholesale and small business customers. Dial-up Internet includes dial-up
Internet access services.

    The Company's chief operating decision-maker utilizes revenue information in
assessing performance and making overall operating decisions and resource
allocations. Communications services are generally provided utilizing the
Company's network facilities, which do not make a distinction between the types
of services. Profit and loss information is reported only on a combined basis to
the chief operating decision-maker and the Company's Board of Directors.

                                      F-22

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(11)  SEGMENT AND GEOGRAPHIC INFORMATION-- (CONTINUED)
    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Information about MCI group's
segments is as follows (in millions):



                                     REVENUES FROM                   SELLING, GENERAL AND                       CAPITAL
                                  EXTERNAL CUSTOMERS                ADMINISTRATIVE EXPENSES                  EXPENDITURES
                           ---------------------------------   ---------------------------------   ---------------------------------
                              1998         1999       2000        1998         1999       2000        1998         1999       2000
                           -----------   --------   --------   -----------   --------   --------   -----------   --------   --------
                           (UNAUDITED)                         (UNAUDITED)                         (UNAUDITED)
                                                                                                 
Consumer.................    $2,204      $ 7,590    $ 7,782      $  904       $3,275     $2,807       $139         $235       $146
Wholesale................     2,896        3,943      3,388         581          620        522        263          192         94
Alternative channels and
  small business.........     1,706        3,142      3,541         665          808      1,015         94          182         75
Dial-up Internet.........     1,002        1,497      1,628         291          368        426         98          178        185
Corporate--other
  charges................        --           --         --          --           --        345         --           --         --
SAB 101..................        --           --         (4)         --           --         47         --           --         --
                             ------      -------    -------      ------       ------     ------       ----         ----       ----
Total....................    $7,808      $16,172    $16,335      $2,441       $5,071     $5,162       $594         $787       $500
                             ======      =======    =======      ======       ======     ======       ====         ====       ====


    The following is a reconciliation of the segment information to income
before income taxes and cumulative effect of accounting change (in millions):



                                                  1998        1999      2000
                                               -----------   -------   -------
                                               (UNAUDITED)
                                                              
Revenues.....................................    $7,808      $16,172   $16,335
Operating expenses...........................     7,328       12,915    13,223
                                                 ------      -------   -------
Operating income.............................       480        3,257     3,112
Other income (expense):
  Interest expense...........................      (512)        (506)     (512)
  Miscellaneous..............................        --            5        --
                                                 ------      -------   -------
Income (loss) before income taxes and
  cumulative effect of accounting change.....    $  (32)     $ 2,756   $ 2,600
                                                 ======      =======   =======


    Information about MCI group's operations by geographic areas are as follows
(in millions):



                                   1998                            1999                            2000
                       -----------------------------   -----------------------------   -----------------------------
                                (UNAUDITED)
                       REVENUES    LONG-LIVED ASSETS   REVENUES    LONG-LIVED ASSETS   REVENUES    LONG-LIVED ASSETS
                       ---------   -----------------   ---------   -----------------   ---------   -----------------
                                                                                 
United States........   $ 7,628         $1,873          $15,961         $2,330          $16,066         $2,173
International........       180             46              211             61              269             73
                        -------         ------          -------         ------          -------         ------
Total................   $ 7,808         $1,919          $16,172         $2,391          $16,335         $2,246
                        =======         ======          =======         ======          =======         ======


(12)  RELATED PARTY TRANSACTIONS--

   See Note 18 to the Company's consolidated financial statements for
information pertaining to the Company's related party transactions.

                                      F-23

              MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 2000

(13)  UNAUDITED QUARTERLY FINANCIAL DATA--



                                                                                QUARTER ENDED
                                            -------------------------------------------------------------------------------------
                                                 MARCH 31,             JUNE 30,            SEPTEMBER 30,         DECEMBER 31,
                                              1999       2000       1999       2000       1999       2000       1999       2000
                                              ----       ----       ----       ----       ----       ----       ----       ----
                                                                                (IN MILLIONS)
                                                                                                 
Revenues:
  Previously reported.....................   $4,096     $4,428     $4,116     $4,450     $4,343     $4,351     $4,434     $3,912
  Revenue reclassifications...............     (217)      (244)      (191)      (263)      (209)      (157)      (200)      (138)
  SAB 101.................................       --         (1)        --         (1)        --         (1)        --         (1)
                                             ------     ------     ------     ------     ------     ------     ------     ------
  Revenues, as reported...................    3,879      4,183      3,925      4,186      4,134      4,193      4,234      3,773

Operating income:
  Previously reported.....................      824      1,047        790      1,036        867        726        776        354
  SAB 101.................................       --        (13)        --        (13)        --        (13)        --        (12)
                                             ------     ------     ------     ------     ------     ------     ------     ------
  Operating income, as reported...........      824      1,034        790      1,023        867        713        776        342

Income before cumulative effect of
  accounting change:
  Previously reported.....................      419        555        397        548        443        360        388        132
  SAB 101.................................       --         (8)        --         (7)        --         (8)        --         (7)
                                             ------     ------     ------     ------     ------     ------     ------     ------
  As reported.............................      419        547        397        541        443        352        388        125

Net income:
  Previously reported.....................      419        555        397        548        443        360        388        132
  SAB 101.................................       --        (18)        --         (7)        --         (8)        --         (7)
                                             ------     ------     ------     ------     ------     ------     ------     ------
  Net income, as reported.................      419        537        397        541        443        352        388        125


    See Note 1 for additional information related to MCI group's revenue
reclassifications and adoption of SAB 101.

    Results for the quarter ended September 30, 2000 include a $345 million
pre-tax charge associated with specific domestic and international wholesale
accounts that were no longer deemed collectible due to bankruptcies, litigation
and settlements of contractual disputes that occurred in the third quarter of
2000.

                                      F-24