-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VPEznu0VwrC3O20i/S/tsHifhKSJH9GZIGCtYlXL5LZSB2o0jV0hTMTW1AdcyYzl kU3GQTuFQ7c6/iOA6w9xoA== 0000950134-94-001440.txt : 19941130 0000950134-94-001440.hdr.sgml : 19941130 ACCESSION NUMBER: 0000950134-94-001440 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940822 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941128 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LDDS COMMUNICATIONS INC /GA/ CENTRAL INDEX KEY: 0000723527 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 581521612 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11258 FILM NUMBER: 94562186 BUSINESS ADDRESS: STREET 1: 515 EAST AMITE ST CITY: JACKSON STATE: MS ZIP: 39201-2702 BUSINESS PHONE: 6013608600 FORMER COMPANY: FORMER CONFORMED NAME: RESURGENS COMMUNICATIONS GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL CORP /GA/ DATE OF NAME CHANGE: 19890523 FORMER COMPANY: FORMER CONFORMED NAME: TFC TELESERVICES CORP DATE OF NAME CHANGE: 19870517 8-K/A 1 FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 22, 1994 LDDS COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in its Charter) Georgia 0-11258 58-1521612 (State or Other (Commission File (I.R.S. Employer Jurisdiction of Number) Identification Incorporation) Number) 515 East Amite Street Jackson, Mississippi (Address of Principal Executive Office) Registrant's telephone number, including area code: (601) 360-8600 Page 1 of 3 pages 2 ITEM 5. OTHER EVENTS. LDDS Communications, Inc., ("LDDS") has entered into a definitive agreement, dated as of August 22, 1994, with The Williams Companies, Inc. ("Williams"), for the acquisition from a subsidiary of Williams of all of the issued and outstanding capital stock of Williams Telecommunications Group, Inc. ("WTG") for $2.5 billion in cash. WTG owns WilTel Network Services, which operates one of only four national digital telecommunications networks in the United States. Prior to the Closing, WTG will dividend up to a Williams subsidiary WTG businesses that are not related to WilTel Network Services. Completion of the acquisition is subject to, among other things, customary closing conditions, and certain federal and state regulatory approvals. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Pro Forma Financial Information. The pro forma financial information required by this item are contained in the financial statements and footnotes thereto listed in the Index on page F-1. (b) Exhibits. None. Page 2 of 3 pages 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: November 28, 1994 LDDS COMMUNICATIONS, INC. By: /s/ Charles T. Cannada Charles T. Cannada Treasurer and Chief Financial Officer Page 3 of 3 pages 4 INDEX TO FINANCIAL STATEMENTS
Financial Statements Page Numbers -------------------- ------------ LDDS Communications, Inc. - for the nine month period ended September 30, 1994 and 1993 and for the fiscal years ended December 31, 1993, 1992 and 1991: Pro Forma Combining Financial Statements F-2 Pro Forma Combining Balance Sheet as at September 30, 1994 F-3 Pro Forma Combining Income Statement for the nine months ended September 30, 1994 F-4 Pro Forma Combining Income Statement for the nine months ended September 30, 1993 F-5 Pro Forma Combining Income Statement for the fiscal years ended December 31, 1993, 1992 and 1991 F-6 Notes to Pro Forma Combining Financial Statements F-9
F-1 5 PRO FORMA COMBINING FINANCIAL STATEMENTS The following unaudited Pro Forma Combining Balance Sheet as of September 30, 1994 and unaudited Pro Forma Combining Income Statements for the nine months ended September 30, 1994 and 1993, and for the years ended December 31, 1993, 1992 and 1991, illustrate the effect of the proposed issuance of LDDS Common Stock pursuant to an Agreement and Plan of Merger dated as of August 1, 1994 (the "Merger Agreement") by and among LDDS, IDB Communications Group, Inc. ("IDB") and 123 Corp. ("Acquisition Subsidiary"), a wholly-owned subsidiary of LDDS, as if the proposed issuance had occurred at the beginning of the earliest period presented. Pursuant to the Merger Agreement, Acquisition Subsidiary would merge with and into IDB in a transaction which would result in the survival of IDB as a wholly-owned subsidiary of LDDS (the "Merger"). As a result of the Merger, each holder of IDB Common Stock will be entitled to receive a certain fraction of a share of LDDS Common Stock based on an average closing trade price of LDDS Common Stock. These pro forma financial statements have been prepared assuming the LDDS Share Value to be equal to or greater than $22.00 resulting in an exchange ratio of 0.450867 (the "Exchange Ratio"). No assurance can be given as to the actual Exchange Ratio that will be utilized in the Merger. The Merger will be accounted for as a pooling of interests. The following unaudited Pro Forma Combining Balance Sheet as of September 30, 1994 and the unaudited Pro Forma Combining Income Statements for the nine months ended September 30, 1994 and for the year ended December 31, 1993 also illustrate the effect of LDDS's proposed acquisition of Williams Telecommunications Group, Inc. ("WilTel") for $2.5 billion in cash (the "WilTel Acquisition") and the proposed financing thereof. Pursuant to the terms of the acquisition agreement, LDDS will acquire WilTel for cash payments of $2.5 billion, subject to adjustments. The WilTel Acquisition will be accounted for as a purchase. Completion of the Merger is not a condition to the consummation of the WilTel Acquisition. These Pro Forma Combining Financial Statements should be read in conjunction with the historical financial statements of LDDS and IDB and the network services operations of WilTel, the LDDS Adjusted Historical Financial Statements and the IDB Adjusted Historical Financial Statements which are set forth elsewhere herein. The Pro Forma Combining Financial Statements are presented for comparative purposes only and are not intended to be indicative of actual results had the transactions occurred as of the dates indicated above nor do they purport to indicate results which may be attained in the future. F-2 6 PRO FORMA COMBINING BALANCE SHEET(1) AS OF SEPTEMBER 30, 1994 (IN THOUSANDS)
LDDS/IDB LDDS/IDB WilTel LDDS IDB Pro Forma Pro Forma WilTel Pro Forma Pro Forma Historical Historical Adjustments Combined Historical Adjustments Combined ----------- ---------- ----------- ----------- ---------- ----------- ----------- Current assets $ 437,785 $ 164,823 $ -- $ 602,608 $ 78,352 $ (11,966)(3) $ 696,724 27,730 (4) Property and equipment 326,107 251,740 -- 577,847 760,088 -- 1,337,935 Excess cost over net tangible assets acquired 1,955,740 181,177 -- 2,136,917 58,929 1,986,241 (5) 4,182,087 Other assets 62,934 65,438 -- 128,372 1,215 45,000 (6) 174,587 ----------- ---------- ----------- ----------- ---------- ----------- ----------- Total assets $2,782,566 $ 663,178 $ -- $3,445,744 $ 898,584 $2,047,005 $6,391,333 =========== ========== =========== =========== ========== =========== =========== Current liabilities $ 405,992 $ 256,997 $ -- $ 662,989 $ 241,888 $ (16,834)(3) $ 888,043 Deferred income taxes 27,653 20,096 -- 47,749 33,475 (33,475)(3) 47,749 Long term debt 519,171 205,500 -- 724,671 344,828 (344,828)(3) 3,369,671 (123,000)(7) 2,768,000 (8) Other liabilities 89,412 36,979 -- 126,391 75,535 -- 201,926 Shareholders' investment Series 1 preferred stock 109 -- -- 109 -- -- 109 Series 2 preferred stock 20 -- -- 20 -- -- 20 Common stock 1,231 744 (408)(2) 1,567 4 (4)(9) 1,567 Additional paid-in capital 1,455,326 296,708 408 (2) 1,752,442 168,193 (168,193)(9) 1,752,442 Retained earnings 283,652 (153,846) -- 129,806 34,661 (34,661)(9) 129,806 ----------- ---------- ----------- ----------- ---------- ----------- ----------- Total shareholders' investment 1,740,338 143,606 -- 1,883,944 202,858 (202,858) 1,883,944 ----------- ---------- ----------- ----------- ---------- ----------- ----------- Total liabilities and shareholders' investment $2,782,566 $ 663,178 $ -- $3,445,744 $ 898,584 $2,047,005 $6,391,333 =========== ========== =========== =========== ========== =========== ===========
F-3 7 PRO FORMA COMBINING INCOME STATEMENT(1) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA)
LDDS/IDB LDDS IDB Pro Forma Pro Forma WilTel Pro Forma Historical Historical(10) Adjustments Combined Historical(10) Adjustments ----------- -------------- ----------- ----------- -------------- ----------- Revenues $1,275,536 $ 378,100 $(5,865)(11) $1,647,771 $656,996 $(55,204)(12) Operating expenses: Cost of sales 723,672 324,777 (5,865)(11) 1,042,584 324,608 (55,204)(12) Selling, general and administrative 227,030 63,925 -- 290,955 183,151 -- Depreciation and amortization 99,612 21,497 -- 121,109 61,585 37,242 (13) Provision to reduce the carrying 5,625 (14) values of certain assets -- 35,000 -- 35,000 -- -- ----------- -------------- ----------- ----------- -------------- ----------- Operating income (loss) 225,222 (67,099) -- 158,123 87,652 (42,867) Other income (expense): Interest expense (26,279) (8,019) -- $ (34,298) (50,838) 50,838 (15) (139,092)(16) 6,753 (17) Shareholder litigation settlement -- (76,000) -- (76,000) -- -- Other 5,510 (1,079) -- 4,431 (160) -- ----------- -------------- ----------- ----------- -------------- ----------- Income (loss) before income taxes 204,453 (152,197) -- 52,256 36,654 (124,368) Provision for income taxes 85,786 18,323 (29,640)(18) 74,469 15,038 (48,504)(18) ----------- -------------- ----------- ----------- -------------- ----------- Net income (loss) from continuing operations 118,667 (170,520) 29,640 (22,213) 21,616 (75,864) Preferred dividend requirement 20,828 -- -- 20,828 -- -- ----------- -------------- ----------- ----------- -------------- ----------- Net income (loss) applicable to common shareholders $ 97,839 $(170,520) $29,640 $ (43,041) $ 21,616 $(75,864) =========== ============== =========== =========== ============== =========== Number of shares issued and outstanding: Primary 128,467 73,859 155,374 =========== ============== =========== Fully diluted 132,825 73,859 155,374 =========== ============== =========== Earnings (loss) per share(19) : Primary $0.76 $(2.31) $(0.28) =========== ============== =========== Fully diluted $0.76 $(2.31) $(0.28) =========== ============== ===========
LDDS/IDB WilTel Pro Forma Combined ----------- Revenues $2,249,563 Operating expenses: Cost of sales 1,311,988 Selling, general and administrative 474,106 Depreciation and amortization 225,561 Provision to reduce the carrying values of certain assets 35,000 ----------- Operating income (loss) 202,908 Other income (expense): Interest expense (166,637) Shareholder litigation settlement (76,000) Other 4,271 ----------- Income (loss) before income taxes (35,458) Provision for income taxes 41,003 ----------- Net income (loss) from continuing operations (76,461) Preferred dividend requirement 20,828 ----------- Net income (loss) applicable to common shareholders $ (97,289) Number of shares issued and outstanding: Primary 155,374 =========== Fully diluted 155,374 =========== Earnings (loss) per share(19) : Primary $(0.63) =========== Fully diluted $(0.63) ===========
F-4 8 PRO FORMA COMBINING INCOME STATEMENT(1) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA)
LDDS/IDB LDDS IDB Pro Forma Pro Forma Historical Historical(10) Adjustments Combined ---------- -------------- ------------ --------- Revenues $752,313 $221,370 $(6,726)(11) $966,957 Operating expenses: Cost of sales 435,291 148,531 (6,726)(11) 577,096 Selling, general and administrative 138,791 24,144 -- 162,935 Depreciation and amortization 50,212 17,104 -- 67,316 ---------- -------------- ------------ --------- Operating income 128,019 31,591 -- 159,610 Other income (expense): Interest expense (18,338) (5,846) -- (24,184) Other 2,711 1,093 -- 3,804 ---------- -------------- ------------ --------- Income before tax 112,392 26,838 -- 139,230 Provision for income taxes 45,439 11,033 -- 56,472 ---------- -------------- ------------ --------- Net income from continuing operations 66,953 15,805 -- 82,758 Preferred dividend requirement 3,513 1,058 -- 4,571 Net income applicable to common shareholders $ 63,440 $ 14,747 $ -- $ 78,187 ========== ============== ============ ========= Number of shares issued and outstanding: Primary 102,120 53,928 126,434 ========== ============== ============ ========= Fully diluted 102,436 60,244 129,598 ========== ============== ============ ========= Earnings per share(19) : Primary $0.62 $0.27 $0.62 ========== ============== ============ ========= Fully diluted $0.62 $0.25 $0.60 ========== ============== ============ =========
F-5 9 PRO FORMA COMBINING INCOME STATEMENT(1) FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA)
LDDS IDB LDDS/IDB Adjusted Adjusted Pro Forma Pro Forma WilTel Pro Forma Historical(20) Historical(20) Adjustments Combined Historical(10) Adjustments -------------- -------------- ----------- ----------- -------------- ----------- Revenues $1,570,718 $457,341 $(9,821)(11) $2,018,238 $663,785 $ (50,283)(12) Operating expenses: Cost of sales 923,892 336,819 (9,821)(11) 1,250,890 291,478 (50,283)(12) Selling, general and administrative 319,421 47,928 -- 367,349 203,078 -- Depreciation and amortization 124,619 29,295 -- 153,914 78,884 49,656 (13) 7,500 (14) Direct merger costs -- -- -- -- -- -- Streamlining charges -- 5,920 -- 5,920 -- -- -------------- -------------- ----------- ----------- -------------- ----------- Operating income 202,786 37,379 -- 240,165 90,345 (57,156) Other income (expense): Interest expense (39,012) (6,350) -- (45,362) (61,058) 61,058 (15) (185,456)(16) 9,004 (17) Other 6,308 (152) -- 6,156 3,627 -- -------------- -------------- ----------- ----------- -------------- ----------- Income before tax 170,082 30,877 -- 200,959 32,914 (172,550) Provision for income taxes 77,358 12,350 -- 89,708 13,312 (67,295)(18) -------------- -------------- ----------- ----------- -------------- ----------- Net income from continuing operations 92,724 18,527 -- 111,251 19,602 (105,255) Preferred dividend requirement 27,751 1,232 -- 28,983 -- -- -------------- -------------- ----------- ----------- -------------- ----------- Net income applicable to common shareholders $ 64,973 $ 17,295 $ -- $ 82,268 $ 19,602 $(105,255) ============== ============== =========== =========== ============== =========== Number of shares issued and outstanding: Primary 116,108 65,441 145,613 ============== ============== =========== Fully diluted 116,374 71,212 148,481 ============== ============== =========== Earnings per share(19) : Primary $0.56 $0.26 $0.56 ============== ============== =========== Fully diluted $0.56 $0.26 $0.55 ============== ============== ===========
LDDS/IDB WilTel Pro Forma Combined ----------- Revenues $2,631,740 Operating expenses: Cost of sales 1,492,085 Selling, general and administrative 570,427 Depreciation and amortization 289,954 Direct merger costs -- Streamlining charges 5,920 ----------- Operating income 273,354 Other income (expense): Interest expense (221,814) Other 9,783 ----------- Income before tax 61,323 Provision for income taxes 35,725 ----------- Net income from continuing operations 25,598 Preferred dividend requirement 28,983 ----------- Net income applicable to common shareholders $ (3,385) =========== Number of shares issued and outstanding: Primary 140,979 =========== Fully diluted 140,979 =========== Earnings per share(19) : Primary $(0.02) =========== Fully diluted $(0.02) ===========
F-6 10 PRO FORMA COMBINING INCOME STATEMENT(1) FOR THE YEAR ENDED DECEMBER 31, 1992 (IN THOUSANDS, EXCEPT PER SHARE DATA)
LDDS/IDB LDDS IDB Pro Forma Pro Forma Historical Historical(10) Adjustments Combined ---------- -------------- ----------- --------- Revenues $800,753 $155,344 $(8,037) (11) $948,060 Operating expenses: Cost of sales 458,184 102,485 (8,037) (11) 552,632 Selling, general and administrative 170,466 18,889 -- 189,355 Depreciation and amortization 53,896 13,094 -- 66,990 Direct merger costs 7,262 -- -- 7,262 Restructuring charges 79,838 -- -- 79,838 ---------- -------------- ----------- --------- Operating income 31,107 20,876 -- 51,983 Other income (expense): Interest expense (23,778) (6,533) -- (30,311) Other 856 (15) -- 841 ---------- -------------- ----------- --------- Income before tax 8,185 14,328 -- 22,513 Provision for income taxes 8,369 5,800 -- 14,169 ---------- -------------- ----------- --------- Net income from continuing operations (184) 8,528 -- 8,344 Preferred dividend requirement 2,112 -- -- 2,112 ---------- -------------- ----------- --------- Net income applicable to common shareholders $ (2,296) $ 8,528 $ -- $ 6,232 ========== ============== =========== ========= Number of shares issued and outstanding: Primary 93,472 35,548 111,728 ========== ============== ========= Fully diluted 93,472 36,162 112,112 ========== ============== ========= Earnings per share(19) : Primary $(0.03) $0.24 $0.06 ========== ============== ========= Fully diluted $(0.03) $0.24 $0.06 ========== ============== =========
F-7 11 PRO FORMA COMBINING INCOME STATEMENT(1) FOR THE YEAR ENDED DECEMBER 31, 1991 (IN THOUSANDS, EXCEPT PER SHARE DATA)
LDDS/IDB LDDS IDB Pro Forma Pro Forma Historical Historical(10) Adjustments Combined ---------- -------------- ----------- --------- Revenues $618,056 $104,437 $(3,279)(11) $719,214 Operating expenses: Cost of sales 345,996 66,514 (3,279)(11) 409,231 Selling, general and administrative 145,289 14,688 -- 159,977 Depreciation and amortization 43,659 10,150 -- 53,809 Direct merger costs -- -- -- -- Restructuring charges -- -- -- -- ---------- -------------- ----------- --------- Operating income 83,112 13,085 -- 96,197 Other income (expense): Interest expense (22,977) (8,618) -- (31,595) Other 865 179 -- 1,044 ---------- -------------- ----------- --------- Income before tax 61,000 4,646 -- 65,646 Provision for income taxes 24,243 1,811 -- 26,054 ---------- -------------- ----------- --------- Net income from continuing operations $ 36,757 $ 2,835 $ -- $ 39,592 ========== ============== =========== ========= Number of shares issued and outstanding: Primary 90,747 24,976 102,008 ========== ============== ========= Fully diluted 90,924 25,540 102,439 ========== ============== ========= Earnings per share(19): Primary $0.41 $0.11 $0.39 ========== ============== ========= Fully diluted $0.40 $0.11 $0.39 ========== ============== =========
F-8 12 NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS 1. The adjustments to the unaudited Pro Forma Combining Financial Statements do not give effect to direct transaction costs or any resulting restructuring costs associated with the consummation of the Merger. All such costs are estimated to be $50.0 million, which amount includes approximately $10.0 million of direct transaction costs. The pro forma financial data do not give effect to any potential cost savings and synergy's that could result from the Merger or the WilTel Acquisition. The pro forma data are not necessarily indicative of the operating results or financial position that would have occurred had the Merger or the WilTel Acquisition been consummated at the dates indicated, nor necessarily indicative of future operating results or financial position. 2. These adjustments reflect the issuance of approximately 33.4 million shares of LDDS Common Stock in accordance with the assumed Exchange Ratio of 0.450867 shares of LDDS Common Stock for each share of IDB Common Stock outstanding. The actual number of shares of LDDS Common Stock to be issued, pursuant to the Merger, will be based on the number of shares of IDB Common Stock outstanding immediately prior to the consummation of the Merger and the actual Exchange Ratio, based on the LDDS Share Value. 3. These adjustments represent the elimination of certain assets and liabilities of WilTel that LDDS will not acquire as part of the WilTel Acquisition as set forth in the acquisition agreement. The assets and liabilities excluded include cash, tax asset and liability accounts with affiliates, accounts payable to affiliates and amounts due from affiliates, which consist of unsecured payables and receivables of WilTel with Williams. 4. This adjustment reflects an increase to WilTel's working capital to comply with the required working capital amounts as set forth in the WilTel Acquisition agreement. The acquisition agreement provides that upon the date of its acquisition by LDDS, WilTel will have a current ratio equal to the ratio existing at December 31, 1993. At September 30, 1994, this requirement would have necessitated a $27.7 million increase to WilTel's current assets. 5. This adjustment reflects the excess of cost over net tangible assets acquired in the WilTel Acquisition. For purposes of allocating the acquisition costs among the various assets acquired, LDDS has tentatively considered the carrying value of the acquired assets to approximate their fair value, with all of the excess of such acquisition costs being attributed to goodwill. It is LDDS's intention, subsequent to the acquisition, to more fully evaluate the acquired assets and, as a result, the allocation of the acquisition costs among the tangible and intangible assets acquired may change. F-9 13 6. This adjustment reflects the capitalization of fees incurred to obtain the new credit facilities (see Note 8). 7. This adjustment represents the replacement of the LDDS $123.0 million Senior Notes with a portion of the new credit facilities (see Note 8). 8. This adjustment represents the incremental proceeds to be received under the new credit facilities for the purpose of financing the WilTel Acquisition and its related costs. 9. These adjustments represent the elimination of WilTel's shareholders' investment accounts. 10. These columns represent the historical results of operations. 11. These adjustments eliminate the revenues and corresponding line costs attributable to the intercompany traffic between LDDS and IDB. 12. These adjustments eliminate the revenues and corresponding line costs attributable to the intercompany traffic between LDDS/IDB pro forma combined operations and WilTel. 13. This adjustment reflects amortization over 40 years of the excess of cost over net tangible assets acquired in the WilTel Acquisition (see Note 5). 14. This adjustment reflects the amortization over 6 years of capitalized fees incurred to obtain the new credit facilities (see Note 6). 15. These adjustments represent interest savings to LDDS, as it will not acquire any of WilTel's debt in the WilTel Acquisition (see Note 3). 16. This adjustment represents the recognition of interest expense on the additional borrowings of LDDS to fund the WilTel Acquisition and related costs (see Note 8). The interest expense was calculated at an assumed rate of interest of 6.7%. A change of 1/8% in the assumed rate would affect interest expense by $2.6 million for the nine months ended September 30, 1994 and by $3.5 million for the year ended December 31, 1993. 17. This adjustment reflects the interest savings resulting from the replacement of LDDS' $123.0 million Senior Notes with the new credit facilities (see Note 8). 18. These adjustments represent the tax effect of adjustments due to inclusion of the acquired operations. The tax provisions were calculated at a combined federal and state rate of 39% applied to items impacting taxable income. However, for the nine months ended September 30, 1994, the only item considered to have an impact upon LDDS/IDB Pro Forma Combined taxable income was the $76.0 million shareholder litigation settlement. Because of tax planning strategies, LDDS management believes that presently the shareholder litigation settlement is the only item F-10 14 contributing to IDB's results of operations for the nine months ended September 30, 1994 for which the combined company of LDDS and IDB is more likely than not to realize a tax benefit. After consummation of the Merger, LDDS management will review tax planning strategies in order to identify any additional net operating loss utilization available to the combined company of LDDS and IDB. 19. Pro forma per share data are calculated using the pro forma net income (loss) applicable to the common shareholders divided by the pro forma weighted average common and common equivalent shares outstanding. The pro forma weighted average common and common equivalent shares outstanding includes the LDDS weighted average common and common equivalent shares outstanding plus the Exchange Ratio multiplied by the weighted common and common equivalent shares outstanding of IDB. For periods of pro forma losses, common equivalent shares are not considered in the calculation of pro forma per share data, as their inclusion would be anti dilutive. 20. The LDDS Adjusted Historical Income Statement for the year ended December 31, 1993 includes (1) the effect of LDDS' acquisition in March 1993 of Dial-Net for cash payments of approximately $31.2 million and the issuance of 2.7 million shares of LDDS Common Stock valued at approximately $42.9 million and (2) the effect of LDDS's acquisition in September 1993 of MCC and Resurgens for cash payments of approximately $150.0 million and the issuance of common and preferred stock valued at approximately $1.1 billion. The LDDS Adjusted Historical Income Statement assumes that the Prior Mergers and the Dial-Net acquisition occurred at the beginning of the earliest period presented. See "LDDS Adjusted Historical Financial Statements" which are set forth elsewhere herein. The IDB Adjusted Historical Income Statement for the year ended December 31, 1993 includes the effect of IDB's acquisition in September 1993 of TRT Communications, Inc. ("TRT") for cash payments of $1.0 million and the issuance of 10.1 million shares of IDB Common Stock valued at approximately $79.0 million. The IDB Adjusted Historical Income Statement assumes that the TRT acquisition occurred at the beginning of the earliest period presented. See "IDB Adjusted Historical Income Statement" which is set forth elsewhere herein. After consummation of the Merger, the financial statements of LDDS as of and for the year ended December 31, 1993, will be restated to reflect the combination of the financial position and results of operations of LDDS and IDB. Such financial statements will report revenues of $1.5 billion, net income available to common shareholders of $112.6 million, primary earnings per share of $0.83 and fully diluted earnings per share of $0.81. F-11 15 LDDS ADJUSTED HISTORICAL INCOME STATEMENT The following unaudited LDDS Adjusted Historical Income Statement for the year ended December 31, 1993, illustrates the effect of LDDS's acquisition in March 1993 of Dial-Net, Inc. ("Dial-Net") for cash payments of $31.2 million and the issuance of 2.75 million shares of LDDS Common Stock valued at approximately $42.9 million and the September 15, 1993, three-way merger whereby (i) Metromedia Communications Corporation ("MCC") merged with and into Resurgens Communications Group, Inc. ("Resurgens") and (ii) LDDS Communications, Inc., a Tennessee corporation ("LDDS-TN"), merged with and into Resurgens (the "Prior Mergers") for an aggregate purchase price of $1.2 billion. The LDDS Adjusted Historical Income Statement assumes that the Prior Mergers and the Dial-Net acquisition, all accounted for as purchase transactions, occurred at the beginning of the earliest period presented. At the time of the Prior Mergers, the name of Resurgens, the legal survivor, was changed to LDDS Communications, Inc. and the separate corporate existence of LDDS-TN and MCC terminated. For accounting purposes, LDDS-TN is the survivor because the former shareholders of LDDS-TN acquired the majority ownership of LDDS. Upon effectiveness of the Prior Mergers, each share of the outstanding Class A Common Stock of LDDS-TN was converted into the right to receive 0.9595 shares of LDDS Common Stock. As a result of the consummation of the Prior Mergers, Metromedia Company, the sole stockholder of MCC, received 2,758,620 shares of the LDDS Common Stock, 10,896,785 shares of LDDS Series 1 $2.25 Cumulative Senior Perpetual Convertible Preferred Stock having a liquidation value of $50 per share and a conversion price of $24.9046875 per share (the "Series 1 Preferred Stock"), warrants to purchase 5,000,400 shares of the LDDS Common Stock, and $150.0 million in cash. The common stock of Resurgens was unchanged in the Prior Mergers. This LDDS Adjusted Historical Income Statement should be read in conjunction with the historical financial statements of LDDS, MCC and Resurgens. The LDDS Adjusted Historical Income Statement is presented for comparative purposes only and is not intended to be indicative of actual results had the transactions occurred as of the date indicated above nor does it purport to indicate results which may be attained in the future. F-12 16 LDDS ADJUSTED HISTORICAL INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA)
LDDS LDDS Dial-Net Metromedia Resurgens Pro Forma Adjusted Historical Historical(1) Historical(1) Historical(1) Adjustments Historical ----------- ------------- ------------- ------------- ----------- ----------- Revenues $1,144,714 $18,757 $296,967 $115,871 $ (5,591)(2) $1,570,718 Operating expenses: Cost of sales 657,837 12,177 183,647 75,822 (5,591)(2) 923,892 Selling, general and administrative 208,724 5,037 83,184 22,476 -- 319,421 Depreciation and amortization 79,921 844 18,253 4,686 20,413 (3) 124,619 502 (4) ----------- ------------- ------------- ------------- ----------- ----------- Operating income 198,232 699 11,883 12,887 (20,915) 202,786 Other income (expense): Interest expense (27,032) (286) (1,380) (2,680) (7,228)(5) (39,012) (406)(6) Other 4,295 43 1,570 400 -- 6,308 ----------- ------------- ------------- ------------- ----------- ----------- Income before tax 175,495 456 12,073 10,607 (28,549) 170,082 Provision for income taxes 71,313 -- 200 1,159 4,686 (7) 77,358 ----------- ------------- ------------- ------------- ----------- ----------- Net income from continuing operations 104,182 456 11,873 9,448 (33,235) 92,724 Preferred dividend requirement 10,451 -- -- -- 17,300 (8) 27,751 ----------- ------------- ------------- ------------- ----------- ----------- Net income applicable to common shareholders $ 93,731 $ 456 $ 11,873 $ 9,448 $(50,535) $ 64,973 =========== ============= ============= ============= =========== =========== Number of shares issued and outstanding: Primary 110,325 116,108 =========== =========== Fully diluted 110,442 116,374 =========== =========== Earnings per share (9): Primary $0.85 $0.56 =========== =========== Fully diluted $0.85 $0.56 =========== ===========
F-13 17 NOTES TO LDDS ADJUSTED HISTORICAL INCOME STATEMENT 1. These columns represent the historical results of operations of Dial-Net, MCC and Resurgens, respectively for the period from January 1, 1993 to their respective date of acquisition by LDDS. 2. These adjustments eliminate the revenues and corresponding line costs attributable to the intercompany traffic between MCC and Resurgens. 3. This adjustment represents the amortization expense of the excess of cost over net tangible assets acquired in the Prior Mergers. The excess purchase price over net tangible assets acquired has been recorded based upon an estimate of fair values of assets acquired and liabilities assumed. A final allocation of the purchase price will be determined when appraisals and other studies relating to fixed assets and the utilization of MCC's and Resurgens' net operating loss carryforwards are completed. The excess cost over net tangible assets acquired is composed primarily of goodwill which is amortized over 40 years using the straight-line method. 4. This adjustment represents the amortization of the excess cost over net tangible assets acquired in the Dial-Net acquisition. The excess cost over net tangible assets acquired is comprised primarily of goodwill and customer base which are amortized over 40 years and 10 years, respectively, using the straight-line method. 5. This adjustment represents the recognition of interest expense on the additional borrowings of LDDS to fund the transaction costs of the Prior Mergers. The interest expense was calculated based on LDDS's incremental borrowing rate of 6.25% at December 31, 1993. A change of 1/8% in the assumed rate would affect interest expense by $145,000 for the year ended December 31, 1993. 6. This adjustment represents the recognition of interest expense on additional borrowings of LDDS to fund the acquisition of Dial-Net. The interest expense was calculated at LDDS's incremental borrowing rate at December 31, 1993 of 6.25% per annum. A change of 1/8% in the assumed rate would affect interest expense by $8,000 for the year ended December 31, 1993. 7. These adjustments represent the tax effect of adjustments due to inclusion of the acquired operations. The tax provisions were provided at a combined federal and state rate of 39% applied to items impacting taxable income. For purposes of the pro forma provision for income taxes for the year ended December 31, 1993, loss carryovers utilized by MCC and Resurgens were eliminated because utilization of such carryovers after the Prior Mergers would have resulted in adjustments to goodwill. 8. This adjustment represents the recognition of dividends on the Series 1 Preferred Stock issued to the MCC shareholder. The Series 1 Preferred Stock provides for dividends at the rate of $24.5 million per year. 9. Pro forma per share data are based on the number of LDDS common and common equivalent shares that would have been outstanding had the acquisitions of Dial-Net, MCC and Resurgens occurred on January 1, 1993. F-14 18 IDB ADJUSTED HISTORICAL INCOME STATEMENT The following unaudited IDB Adjusted Historical Income Statement for the year ended December 31, 1993, illustrates the effect of IDB's acquisition in September 1993 of TRT for a cash payment of $1.0 million and the issuance of 10.1 million shares of IDB Common Stock valued at approximately $79.0 million. The acquisition was accounted for as a purchase. The IDB Adjusted Historical Income Statement assumes that the TRT acquisition occurred at January 1, 1993. The IDB Adjusted Historical Income Statement should be read in conjunction with the historical financial statements of IDB and TRT. The IDB Adjusted Historical Income Statement is presented for comparative purposes only and is not intended to be indicative of actual results had the transactions occurred as of the dates indicated above nor does it purport to indicate results which may be attained in the future. F-15 19 IDB ADJUSTED HISTORICAL INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA)
IDB IDB TRT Pro Forma Adjusted Historical Historical(2) Adjustments Historical ---------- ------------- ----------- ---------- Revenues(1) $339,364 $124,977 $(7,000)(3a) $457,341 Operating expenses: Cost of sales 233,524 112,730 (9,435)(3b) 336,819 Selling, general and administrative 37,381 15,201 (4,654)(3c) 47,928 Depreciation and amortization 21,938 9,857 (2,500)(3d) 29,295 Streamlining charge 5,920 -- -- 5,920 Restructuring charge -- 8,792 (8,792)(3e) -- ---------- ------------- ----------- ---------- Operating income 40,601 (21,603) 18,381 37,379 Other income (expense): Interest expense (6,350) -- -- (6,350) Other 174 (326) -- (152) ---------- ------------- ----------- ---------- Income before tax 34,425 (21,929) 18,381 30,877 Provision for income taxes 14,286 22 (1,958)(3f) 12,350 ---------- ------------- ----------- ---------- Net income from continuing operations 20,139 (21,951) 20,339 18,527 Preferred dividend requirement 1,232 -- -- 1,232 ---------- ------------- ----------- ---------- Net income applicable to common shareholders $ 18,907 $(21,951) $20,339 $ 17,295 ========== ============= =========== ========== Number of shares issued and outstanding: Primary 57,881 65,441 ========== ========== Fully diluted 63,652 71,212 ========== ========== Earnings per share (4): Primary $0.33 $0.26 ========== ========== Fully diluted $0.32 $0.26 ========== ==========
F-16 20 NOTES TO IDB ADJUSTED HISTORICAL INCOME STATEMENT 1. IDB reclassified payments to foreign telephone companies to complete calls made from the United States by IDB's customers. These payments, which previously were classified as direct reductions of transmission services revenue, are now classified as cost of sales. Operating income (loss), net income (loss) available to common shareholders and the balance sheet are not affected. The amount of revenue reported by IDB for the years ended prior to December 31, 1993 do not reflect this reclassification because the amounts subject to reclassification were not material. 2. This column represents the results of operations of TRT for the period from January 1, 1993 to the date of acquisition by IDB. The historical revenues and cost of sales of TRT have been adjusted to reclassify the payments to foreign telephone companies from a direct reduction of revenue to cost of sales. 3. Restructuring cost savings will accrue from the combination, as a direct result of reductions in operating labor force and the elimination of duplicative facilities, including reductions in duplicative management, administrative locations and selling and administrative functions. The pro forma adjustments are based on management estimates of the actual effects of restructuring decisions and are presented as if the restructuring were completed as of January 1, 1993. a). Total revenues Fees to IDB from TRT $(7,000) ======= b). Cost of sales Restructuring cost savings $(2,435) Fees from TRT to IDB (7,000) ------- Total adjustment $(9,435) ======= c). Selling, general and administrative expenses Restructuring cost savings $(4,654) ======= d). Depreciation and amortization Decrease in depreciation and amortization principally due to property retained by Pacific Telecom, Inc. $(2,500) ======= e). Provision for restructuring Loss on sale of text to fax business line $(1,275) Loss on sale of Panama operations (487) Employee severance costs incurred in contemplation of merger with IDB (3,985) Curtailment obligation related to post retirement benefits (as a result of a workforce reduction of approximately 60% through September 23, 1993, the date of acquisition) (3,045) ------- Total adjustment $(8,792) =======
F-17 21 f). Provision (benefit) for income taxes Income taxes have been adjusted to reflect an estimated combined tax rate of 40%.
4. The pro forma per share data are based on the number of IDB common and common equivalent shares that would have been outstanding had the acquisition of TRT occurred on January 1, 1993. F-18 -----END PRIVACY-ENHANCED MESSAGE-----