-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Joku9s1SzmQUfYmjeGSZlriSPr2yk5KFf3KYwRVtTaI44AX7EDEsVJyuKsdKeLaV 7BSWM6skQYzmVooyXzcJcQ== 0000950134-96-005961.txt : 19961113 0000950134-96-005961.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950134-96-005961 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLDCOM INC /MS/ CENTRAL INDEX KEY: 0000723527 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 581521612 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11258 FILM NUMBER: 96658917 BUSINESS ADDRESS: STREET 1: 515 EAST AMITE ST CITY: JACKSON STATE: MS ZIP: 39201-2702 BUSINESS PHONE: 6013608600 FORMER COMPANY: FORMER CONFORMED NAME: LDDS COMMUNICATIONS INC /GA/ DATE OF NAME CHANGE: 19930916 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 10-Q 1 FORM 10-Q PERIOD END SEPTEMBER 30, 1996 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ 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 ---------------------- WorldCom, Inc. (Exact name of registrant as specified in its charter) ---------------------- Georgia 58-1521612 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 515 East Amite Street, Jackson, Mississippi 39201-2702 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code : (601) 360-8600 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 whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ----- ----- The number of outstanding shares of the registrant's Common Stock, par value $.01 per share, was 409,245,881 on October 31, 1996. ================================================================================ 2 FORM 10-Q INDEX
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 . . . . . . . . 3 Consolidated Statements of Operations for the three and nine months ended September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 15 Item 3. Defaults upon Senior Securities . . . . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Securities Holders . . . . . . . . . . . . . . . . . 15 Item 5. Other Information . . . . . . . . . . . . . . . . . . . 15 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Page 2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements WORLDCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Per Share Data)
September 30, December 31, 1996 1995 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 18,845 $ 41,525 Accounts receivable, net of allowance for bad debts of $66,338 in 1996 and $59,055 in 1995 670,140 532,571 Income taxes receivable 38,055 17,499 Deferred tax asset 22,959 16,899 Other current assets 75,915 50,792 ----------- ----------- Total current assets 825,914 659,286 ----------- ----------- Property and equipment: Transmission equipment 1,564,327 1,376,242 Communications equipment 306,749 401,454 Furniture, fixtures and other 259,978 279,705 ----------- ----------- 2,131,054 2,057,401 Less - accumulated depreciation (365,507) (487,370) ----------- ----------- 1,765,547 1,570,031 ----------- ----------- Excess of cost over net tangible assets acquired, net of accumulated amortization 4,012,234 4,292,752 Other assets 251,271 117,655 ----------- ----------- $ 6,854,966 $ 6,639,724 =========== =========== LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities: Short-term debt and current maturities of long-term debt $ 1,071 $ 1,113,670 Accounts payable 165,309 140,932 Accrued line costs 421,093 391,604 Other current liabilities 314,237 337,814 ----------- ----------- Total current liabilities 901,710 1,984,020 ----------- ----------- Long-term liabilities, less current portion: Long-term debt 3,276,641 2,278,791 Deferred income taxes payable 83,348 26,172 Other liabilities 150,925 163,873 ----------- ----------- Total long-term liabilities 3,510,914 2,468,836 ----------- ----------- Commitments and contingencies Shareholders' investment: Series 2 preferred stock, par value $.01 per share; authorized, issued and outstanding: none in 1996 and 1,244,048 shares in 1995 (liquidation preference of $31,101 in 1995) -- 12 Preferred stock, par value $.01 per share; authorized: 50,000,000 shares in 1996 and 48,755,952 shares in 1995; none issued -- -- Common stock, par value $.01 per share; authorized: 750,000,000 shares; issued and outstanding: 408,408,243 shares in 1996 and 386,485,278 shares in 1995 4,084 3,876 Additional paid-in capital 2,184,633 1,900,809 Unrealized holding gain on marketable securities 44,922 -- Retained earnings 208,703 282,171 ----------- ----------- Total shareholders' investment 2,442,342 2,186,868 ----------- ----------- $ 6,854,966 $ 6,639,724 =========== ===========
The accompanying notes are an integral part of these statements. Page 3 4 WORLDCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data)
For the Three Months For the Nine Months Ended September 30, Ended September 30, -------------------------- -------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Revenues $ 1,131,519 $ 938,884 $ 3,235,552 $ 2,706,060 ----------- ----------- ----------- ----------- Operating expenses: Line costs 618,089 511,827 1,763,421 1,489,330 Selling, general and administrative 208,348 169,908 597,558 496,222 Depreciation and amortization 73,021 79,850 228,489 231,458 Provision to reduce carrying value of certain assets -- -- 402,000 -- ----------- ----------- ----------- ----------- Total 899,458 761,585 2,991,468 2,217,010 ----------- ----------- ----------- ----------- Operating income 232,061 177,299 244,084 489,050 Other income (expense): Interest expense (55,014) (62,556) (167,946) (189,431) Miscellaneous 1,725 3,752 5,810 7,125 ----------- ----------- ----------- ----------- Income before taxes and extraordinary items 178,772 118,495 81,948 306,744 Provision for income taxes 69,721 46,424 129,843 120,446 ----------- ----------- ----------- ----------- Income (loss) before extraordinary items 109,051 72,071 (47,895) 186,298 Extraordinary items (net of income taxes of $15,621 in 1996) -- -- (24,434) -- ----------- ----------- ----------- ----------- Net income (loss) 109,051 72,071 (72,329) 186,298 ----------- ----------- ----------- ----------- Preferred dividend requirement -- 3,811 860 17,686 Special dividend payment to Series 1 preferred shareholder -- 15,000 -- 15,000 ----------- ----------- ----------- ----------- Net income (loss) applicable to common shareholders $ 109,051 $ 53,260 $ (73,189) $ 153,612 =========== =========== =========== =========== Earnings (loss) per common share - Net income (loss) applicable to common shareholders before extraordinary items: Primary $ 0.27 $ 0.15 $ (0.12) $ 0.44 Fully diluted 0.27 0.14 (0.12) 0.44 Extraordinary items $ -- $ -- $ (0.06) $ -- Net income (loss) applicable to common shareholders: Primary $ 0.27 $ 0.15 $ (0.18) $ 0.44 Fully diluted 0.27 0.14 (0.18) 0.44 Net income applicable to common shareholders before non-recurring charges and extraordinary items: Primary $ 0.27 $ 0.18 $ 0.73 $ 0.48 Fully diluted 0.27 0.18 0.73 0.48 Weighted average shares outstanding: Primary 415,189 390,028 393,869 385,034 Fully diluted 415,195 405,922 393,869 401,052
The accompanying notes are an integral part of these statements. Page 4 5 WORLDCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
For the Nine Months Ended September 30, -------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net income (loss) $ (72,329) $ 186,298 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary items 24,434 -- Provision to reduce carrying value of certain assets 402,000 -- Depreciation and amortization 228,489 231,458 Provision for losses on accounts receivable 42,422 29,852 Provision for deferred income taxes 101,079 47,293 Change in assets and liabilities, net of effect of business combinations: Accounts receivable (170,669) (41,146) Income taxes, net 12,718 66,526 Other current assets (46,416) (522) Accrued line costs 7,489 49,882 Shareholder litigation reserve -- (75,000) Accounts payable and other current liabilities (15,800) (125,111) Other (16,673) (6,349) ----------- ----------- Net cash provided by operating activities 496,744 363,181 ----------- ----------- Cash flows from investing activities: Capital expenditures (415,343) (288,019) Acquisitions and related costs (18,535) (2,713,765) Increase in intangible assets (71,240) (6,350) Increase in other assets (106,866) (19,489) Decrease in other liabilities (39,784) (21,468) Proceeds from sale of long-term assets 21,962 28,153 Other -- 1,000 ----------- ----------- Net cash used in investing activities (629,806) (3,019,938) ----------- ----------- Cash flows from financing activities: Borrowings 95,500 2,717,650 Principal payments on debt (19,174) (127,438) Common stock issuance 35,191 90,646 Dividends paid on preferred stock (860) (32,686) Other (275) -- ----------- ----------- Net cash provided by financing activities 110,382 2,648,172 ----------- ----------- Net decrease in cash and cash equivalents (22,680) (8,585) Cash and cash equivalents at beginning of period 41,525 19,770 ----------- ----------- Cash and cash equivalents at end of period $ 18,845 $ 11,185 =========== ===========
The accompanying notes are an integral part of these statements. Page 5 6 WORLDCOM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (A) GENERAL The financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission ("SEC") regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (of a normal and recurring nature) which are necessary to present fairly the financial position, results of operations and cash flows for the interim periods. These financial statements should be read in conjunction with the Annual Report of the Company on Form 10-K for the year ended December 31, 1995. The results for the nine month period ended September 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. In the third quarter of 1996, the Company acquired Choice Communications, Inc. ("Choice"), a cellular resale company. This transaction was accounted for as a pooling-of-interests and, accordingly, the WorldCom financial statements for periods prior to the Choice acquisition have been restated to include the results of Choice for all periods presented. (B) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid by the Company during the nine months ended September 30, 1996 and 1995 amounted to $170.8 million and $165.4 million, respectively. Income taxes paid during the nine months ended September 30, 1996 and 1995 were $16.0 million and $7.4 million, respectively. In conjunction with business combinations during the nine months ended September 30, 1996 and 1995, assumed assets and liabilities were as follows (in thousands):
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1996 1995 --------- ----------- Fair value of assets acquired $ 12,065 $ 829,806 Excess of cost over net tangible assets acquired 60,698 2,199,415 Liabilities assumed (30,877) (302,606) Common stock issued (23,351) (12,850) --------- ----------- Net cash paid $ 18,535 $ 2,713,765 ========= ===========
(C) UNREALIZED HOLDING GAIN ON MARKETABLE SECURITIES In the third quarter of 1996, one of the Company's equity investments became publicly traded. This investment, previously recorded at cost, has been classified as an available for sale security under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FASB 115"). Accordingly, this investment is recorded at its fair value of approximately $75 million at September 30, 1996, and is included in other assets in the accompanying consolidated financial statements. The unrealized holding gain on this marketable equity security is included as a component of shareholders' investment at September 30, 1996. (D) LONG-TERM DEBT On June 28, 1996, WorldCom replaced its then existing $3.41 billion credit facilities (the "Previous Facilities") with a new $3.75 billion revolving credit facility (the "Credit Facility"). Borrowings under the Credit Facility were used to refinance the Previous Facilities and will be used to finance capital expenditures and provide additional working capital. As a result of the refinancing, WorldCom recorded an extraordinary charge of $4.2 million, net of $2.7 million in taxes, related to the charge-off of the unamortized portion of costs associated with the refinanced debt. Page 6 7 The Credit Facility has a five-year term and bears interest, payable quarterly, at variable rates selected by the Company under the terms of the Credit Facility including a Base Rate or the London Interbank Offering Rate ("LIBOR"), plus applicable margin. The applicable margin for LIBOR rate borrowings varies from 0.35% to 0.875% based upon a specified financial test. The Credit Facility is unsecured and requires compliance with certain financial and other operating covenants which limit, among other things, the incurrence of additional indebtedness by WorldCom and restricts the payment of cash dividends to WorldCom's shareholders. The Credit Facility is also subject to an annual commitment fee not to exceed 0.25% of any unborrowed portion of the Credit Facility. On July 15, 1996, WorldCom announced that it had exercised its option to redeem on August 16, 1996, all of the outstanding IDB WorldCom, Inc. 5% Convertible Subordinated Notes due 2003 (the "Notes"), at a price equal to 103.5% of the principal amount, plus accrued and unpaid interest. Prior to such redemption date, substantially all of the holders of the Notes elected to convert their notes into WorldCom common stock, resulting in the issuance of approximately 10.3 million shares of WorldCom common stock. (E) STOCK SPLIT On May 23, 1996, the Board of Directors authorized a 2-for-1 stock split in the form of a 100% stock dividend which was distributed on July 3, 1996 to shareholders of record on June 6, 1996. All per share data and numbers of common shares have been retroactively restated to reflect the stock split. (F) PREFERRED STOCK In connection with the announcement in May 1996, that the Company would redeem its Series 2 Preferred Stock on June 5, 1996, all of the remaining outstanding Series 2 Preferred Stock (1,244,048 shares) was converted into 5,266,160 shares of common stock of the Company in the second quarter of 1996. (G) 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 common stock, par value $.01 per share, of the Company (the "Common Stock"). The dividend distribution was paid on September 6, 1996 to the shareholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series 3 Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Stock") of the Company at a price of $160.00 per one one-thousandth of a share of 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 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 the close of business on the tenth business day following the commencement of a tender offer or exchange offer, without the prior written consent of the Company, by a person which, upon consummation, would 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, 2006. 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 the Company'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 Preferred Stock for which a Right is then exercisable and dividing that product by 50% of the then current per-share market price of Common Stock. If any person or group acquires more than 15% but less than 50% of the outstanding 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 Common Stock. Page 7 8 If the Company were acquired in a merger or other business combination transaction where the Company is not the surviving corporation or where Common Stock is exchanged or changed or 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 one one-thousandths of a share of 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 $.01 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. (H) PROVISION TO REDUCE THE CARRYING VALUE OF CERTAIN ASSETS In the second quarter of 1996, the Company incurred non-cash charges related to a write-down in the carrying value of certain assets, including goodwill and equipment. Because of events resulting from the passage of the Telecommunications Act of 1996 (the "Telecom Act"), and changes in circumstances impacting certain non-core operations, management estimates of the Company's fair value of operating assets within its core and non-core businesses resulted in a non-cash charge of $344 million after-tax or $.87 per share. On a pre-tax basis, the write-down was $402 million and included $139 million for network facilities and $263 million for non-core businesses, primarily operator services goodwill. Fair value of the non-core business was determined by estimating the present value of future cash flows to be generated from those operations while the majority of the network facilities were recorded at net salvage value due to anticipated early disposal. In connection with the signing of agreements to provide long distance telecommunications services to certain local exchange carriers, and after the successful assimilation of recent facilities-based acquisitions, WorldCom evaluated the impact that the increased traffic volumes would have on the Company's network. This review resulted in the Company's current plans to expand and upgrade its existing network switching, transmission and other communications equipment. This capital project directly affected the estimated useful lives of certain network facilities which will result in replacement of these facilities prior to June 30, 1997. Additionally, due to the decreasing emphasis on operator services, including non-renewal of existing long-term contracts, management adjusted the fair value of this non-core business based upon its projections of future cash flow. Operator services now comprises less than 3% of WorldCom's consolidated revenues. (I) EXTRAORDINARY ITEMS In the second quarter of 1996, the Company recorded extraordinary items totaling $24.4 million, net of income tax benefit of $15.6 million. The items consisted of $4.2 million in connection with the Company's debt refinancing, as discussed in Note D and $20.2 million related to a write-off of deferred international costs. Previously, a portion of the outbound call fee due the foreign carrier was deferred and accounted for as a cost attributable to the revenue associated with the inbound call. Currently, the outbound call fee due the foreign carrier is expensed as incurred. (J) CONTINGENCIES IDB RELATED INVESTIGATIONS. On June 9, 1994, the SEC issued a formal order of investigation concerning certain matters, including IDB Communication Group, Inc.'s ("IDB") financial position, books and records and internal controls and trading in IDB securities on the basis of non-public information. The SEC has issued subpoenas to WorldCom, IDB and others, including certain former officers of IDB, in connection with its investigation. The National Association of Securities Dealers and other self-regulatory bodies have also made inquiries of IDB concerning similar matters. The U.S. Attorney's Office for the Central District of California (the "U.S. Attorney's Office") issued grand jury subpoenas to IDB and WorldCom in 1994 and 1995 seeking documents relating to IDB's first quarter of 1994 results, the resignation of Deloitte & Page 8 9 Touche LLP as IDB's auditors, trading in IDB securities and other matters. In October, 1996, the U.S. Attorney's Office entered into an agreement with WorldCom not to criminally prosecute IDB with respect to IDB's financial reporting on or before January 1, 1995 (including but not limited to the resignation of Deloitte & Touche LLP), trading in IDB securities, misuse of IDB's assets, attempts to obstruct the proceedings of the SEC and other matters. The agreement does not cover potential violations of the federal tax code and is expressly contingent upon the cooperation of IDB and WorldCom with the U.S. Attorney's Office, the Federal Bureau of Investigation and any other federal law enforcement agency, including the SEC. OTHER. On February 8, 1996, President Clinton signed the Telecom Act, which permits, without limitation, the Bell Operating Companies (the "BOCs") to provide domestic and international long distance services to customers located outside of the BOC's home regions; permits a petitioning BOC to provide domestic and international long distance service to customers within its home region upon a finding by the Federal Communications Commission (the "FCC") that a petitioning BOC has satisfied certain criteria for opening up its local exchange network to competition and that its provision of long distance services would further the public interest; and removes existing barriers to entry into local service markets. Additionally, there are significant changes in: the manner in which carrier-to-carrier arrangements are regulated at the federal and state level; procedures to revise universal service standards; and, penalties for unauthorized switching of customers. The FCC has instituted proceedings addressing the implementation of this legislation. On August 1, 1996, the FCC announced its intention to conduct a proceeding in the fall of 1996 leading to the reform of access charges. Such charges are a principal component of the Company's line cost expense. The Company cannot predict whether or not the result of such a proceeding will have a material impact upon the Company. On August 8, 1996 the FCC released its First Report and Order in the Matter of Implementation of the Local Competition Provisions in the Telecom Act (the "FCC Interconnect Order"). In the FCC Interconnect Order, the FCC established nationwide rules designed to encourage new entrants to participate in the local service markets through interconnection with the incumbent local exchange carriers ("ILEC"), resale of the ILEC's retail services and unbundled network elements. These rules set the groundwork for the statutory criteria governing BOC entry into the long distance market. The Company cannot predict the effect such legislation or the implementing regulations will have on the Company or the industry. Motions to stay implementation of the FCC Interconnect Order have been filed with the FCC and federal courts of appeal. Appeals challenging, among other things, the validity of the FCC Interconnect Order have been filed in several federal courts of appeal and assigned to the Eighth Circuit Court of Appeals for disposition. The Eighth Circuit Court of Appeals has stayed the pricing provisions of the FCC Interconnect Order. The Circuit Justice of the Supreme Court has declined to review the propriety of the stay. The Company cannot predict either the outcome of these challenges and appeals or the eventual effect on its business or the industry in general. The Company is involved in other legal and regulatory proceedings generally incidental to its business. In some instances, rulings by regulatory authorities in some states may result in increased operating costs to the Company. While the results of these various legal and regulatory matters contain an element of uncertainty, the Company believes that the probable outcome of any of the legal or regulatory matters, or all of them combined, should not have a material adverse effect on the Company's consolidated results of operations or financial position. (K) 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. As a result, the Company has some concentration of credit risk among its customer base. The Company 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 the Company in the event of nonpayment. (L) MERGER AGREEMENT As of August 25, 1996, WorldCom executed an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which a wholly owned subsidiary of the Company will be merged with and into MFS Communications Company, Inc. ("MFS"), a Delaware corporation (the "Merger"). Pursuant to the Merger Agreement, (i) each share of common stock of MFS will be converted into and represent the right to receive 2.1 shares of Common Stock of the Company, (ii) each share of Series A 8% Cumulative Convertible Page 9 10 Preferred Stock, par value $.01 per share, of MFS will be converted into and represent the right to receive one (1) share of Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of the Company, and (iii) each share of Series B Convertible Preferred Stock, par value $.01 per share, of MFS will be converted into and represent the right to receive one (1) share of Series B Convertible Preferred Stock, par value $.01 per share, of the Company. The transaction is subject to customary closing conditions and shareholder and regulatory approval. On August 25, 1996, the Company and MFS entered into an agreement pursuant to which, in the event the Merger Agreement is terminated under certain specified circumstances, the party terminating the Merger Agreement will be entitled to receive from the other party certain telecommunications services. On August 25, 1996, pursuant to Stock Option Agreements, dated as of August 25, 1996, between the Company and MFS (the "Option Agreements"), the Company granted an option to MFS to purchase up to 81,224,137 or approximately 19.9% of the currently outstanding shares of Common Stock of the Company with an exercise price of $26.375 per share and MFS granted an option to WorldCom to purchase up to 43,953,073 or approximately 19.9% of the currently outstanding shares of common stock of MFS with an exercise price of $55.3875 per share, which options become exercisable upon the occurrence of certain events. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q may be deemed to include forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risk and uncertainty, including financial, regulatory environment and trend projections. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. The important factors that could cause actual results to differ materially from those in the forward looking statements herein include, without limitation, the Company's high degree of financial leverage, risks associated with debt service requirements and interest rate fluctuations, risks associated with acquisitions and the integration thereof, risks of international business, dependence on availability of transmission facilities, regulation risks including the impact of the Telecom Act, contingent liabilities, and the impact of competitive services and pricing, as well as other risks referenced from time to time in the Company's filings with the SEC. The following discussion and analysis relates to the financial condition and results of operations of the Company for the three and nine months ended September 30, 1996 and 1995, and should be read in conjunction with the consolidated financial statements and notes thereto. GENERAL The Company's continued emphasis on acquisitions has taken the Company from a small regional long distance carrier to one of the largest long distance telecommunications companies in the industry, serving customers domestically and internationally. The Company's operations have grown significantly in each year of its operations as a result of internal growth, the selective acquisition of smaller long distance companies with limited geographic service areas and market shares, the consolidation of certain third tier long distance carriers with larger market shares and international expansion. The Company's long distance revenues are derived principally from the number of minutes of use billed by the Company. Minutes billed are those conversation minutes during which a call is actually connected at the Company's switch (except for minutes during which the customer receives a busy signal or the call is unanswered at its destination). The Company's profitability is dependent upon, among other things, its ability to achieve economies of scale in line cost expenditures and to control and maintain selling, general and administrative overhead costs. The principal components of line costs are access charges and transport charges. Access charges are expenses incurred by all interexchange carriers ("IXCs") for accessing the local networks of the local exchange carriers ("LECs") in order to originate and terminate calls and payments made to foreign telephone administrations to complete calls made from the U.S. by the Company's customers. Transport charges are the expenses incurred in transmitting calls between or within local access and transport areas. The most significant portion of the Company's line costs is access charges, which are highly regulated. The FCC regulates international communications services and interstate telephone service and certain states, through the appropriate regulatory agency, regulate intrastate telephone service. Accordingly, the Company cannot predict what effect continued regulation and increased competition between LECs and other IXCs will have on future access charges. However, the Company believes that it will be able to continue to reduce transport costs through effective utilization of its network, favorable contracts with carriers and network efficiencies made possible as a result of expansion of the Company's customer base by acquisitions and internal growth. Page 10 11 On February 8, 1996, President Clinton signed the Telecom Act which permits, without limitation, the BOCs to provide domestic and international long distance services to customers located outside of the BOC's home regions; permits a petitioning BOC to provide domestic and international long distance service to customers within its home region upon a finding by the FCC that a petitioning BOC has satisfied certain criteria for opening up its local exchange network to competition and that its provision of long distance services would further the public interest; and removes existing barriers to entry into local service markets. Additionally, there are significant changes in: the manner in which carrier-to-carrier arrangements are regulated at the federal and state level; procedures to revise universal service standards; and, penalties for unauthorized switching of customers. The FCC has instituted proceedings addressing the implementation of this legislation. On August 1, 1996, the FCC announced its intention to conduct a proceeding in the fall of 1996 leading to the reform of access charges. Such charges are a principal component of the Company's line cost expense. The Company cannot predict whether or not the result of such a proceeding will have a material impact upon the Company. In the FCC Interconnect Order, which was released on August 8, 1996, the FCC established nationwide rules designed to encourage new entrants to participate in the local service markets through interconnection with the ILEC, resale of the ILEC's retail services and unbundled network elements. These rules set the groundwork for the statutory criteria governing BOC entry into the long distance market. The Company cannot predict the effect such legislation or the implementing regulations will have on the Company or the industry. Motions to stay implementation of the FCC Interconnect Order have been filed with the FCC and federal courts of appeal. Appeals challenging, among other things, the validity of the FCC Interconnect Order have been filed in several federal courts of appeal and assigned to the Eighth Circuit Court of Appeals for disposition. The Eighth Circuit Court of Appeals has stayed the pricing provisions of the FCC Interconnect Order. The Circuit Justice of the Supreme Court has declined to review the propriety of the stay. The Company cannot predict either the outcome of these challenges and appeals or the eventual effect on its business or the industry in general. As of August 25, 1996, WorldCom executed the Merger Agreement, pursuant to which a wholly owned subsidiary of the Company will be merged with and into MFS. Pursuant to the Merger Agreement, (i) each share of common stock of MFS will be converted into and represent the right to receive 2.1 shares of Common Stock of the Company, (ii) each share of Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of MFS will be converted into and represent the right to receive one (1) share of Series A 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of the Company, and (iii) each share of Series B Convertible Preferred Stock, par value $.01 per share, of MFS will be converted into and represent the right to receive one (1) share of Series B Convertible Preferred Stock, par value $.01 per share, of the Company. The transaction is subject to customary closing conditions and shareholder and regulatory approval. The combination of WorldCom, MFS and UUNET Technologies, Inc., which recently merged with MFS, will bring together the leading growth companies from four key telecom industry segments: long distance, local, Internet and international. The Merger would (1) enhance the combined entity's opportunities for future growth, (2) create a stronger competitor in the changing long distance and local telecommunications industry, (3) allow provision of end-to-end bundled long distance and local and internet services over a global network and (4) provide the opportunity for significant cost savings for the combined organization. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the Company's statement of operations as a percentage of its operating revenues. Page 11 12
For the Three Months For the Nine Months Ended September 30, Ended September 30, -------------------- ------------------- 1996 1995 1996 1995 ----- ----- ----- ----- Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- Line costs . . . . . . . . . . . . . . . . . . . . . . . . . 54.6 54.5 54.5 55.0 Selling, general and administrative . . . . . . . . . . . . . 18.4 18.1 18.5 18.3 Depreciation and amortization . . . . . . . . . . . . . . . . 6.5 8.5 7.1 8.6 Provision to reduce carrying value of certain assets . . . . - - 12.4 - ----- ----- ----- ----- Operating income . . . . . . . . . . . . . . . . . . . . . . 20.5 18.9 7.5 18.1 Other income (expense): Interest expense . . . . . . . . . . . . . . . . . . . . (4.9) (6.7) (5.2) (7.0) Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 0.2 0.4 0.2 0.3 ----- ----- ----- ----- Income before income taxes and extraordinary items . . . . . 15.8 12.6 2.5 11.4 Provision for income taxes . . . . . . . . . . . . . . . . . 6.2 4.9 4.0 4.5 ----- ----- ----- ----- Net income (loss) before extraordinary items . . . . . . . . 9.6 7.7 (1.5) 6.9 Extraordinary items, net of taxes . . . . . . . . . . . . . . - - (0.8) - Preferred dividend requirement . . . . . . . . . . . . . . . - 0.4 - 0.7 Special dividend payment to Series 1 preferred shareholder . - 1.6 - 0.5 ----- ----- ----- ----- Net income (loss) applicable to common shareholders . . . . . 9.6% 5.7% (2.3)% 5.7% ===== ===== ===== =====
Revenues for the three months ended September 30, 1996 increased 20.5% to $1.13 billion on 6.12 billion revenue minutes as compared to $938.9 million on 5.0 billion revenue minutes for the three months ended September 30, 1995. For the nine months ended September 30, 1996, revenues increased 19.6% to $3.24 billion on 17.41 billion revenue minutes versus $2.71 billion on 14.26 billion revenue minutes. The increase in total revenues and minutes is primarily attributable to internal growth of the Company. In the third quarter of 1996, the Company acquired Choice Communications, Inc. ("Choice"), a cellular resale company. The transaction was accounted for as a pooling-of-interests and, accordingly, all prior period amounts have been restated to include the results of Choice. Third quarter revenues for Choice increased 79% to $9.5 million on 21.1 million revenue minutes as compared to $5.3 million on 12.0 million revenue minutes for the comparable 1995 period. For the nine months ended September 30, 1996, revenues for Choice increased 104% to $25.6 million on 56.5 million revenue minutes versus $12.7 million on 20.7 million revenue minutes for the nine months ended September 30, 1995. The Company's third quarter switched retail and wholesale revenue, excluding operator services and cellular traffic, increased 21.7% over 1995 results, while traffic growth from these businesses approximated 22.8%. Private line revenues for the three months ended September 30, 1996, also reflected growth, with an increase of 29.8% over the 1995 results. Line costs as a percentage of revenues increased to 54.6% during the third quarter of 1996 as compared to 54.5% for the same period in the prior year. On a year-to-date basis, line costs as a percentage of revenues decreased to 54.5% in 1996 from 55.0% in 1995. These changes are attributable to changes in the product mix, and for the nine month period, synergies and economies of scale resulting from network efficiencies achieved from the assimilation of recent acquisitions into the Company's operations. Selling, general and administrative expenses for the third quarter of 1996 increased to $208.3 million or 18.4% of revenues as compared to $169.9 million or 18.1% of revenues for the third quarter of 1995. On a year-to-date basis, these expenses increased to $597.6 million or 18.5% of revenues from $496.2 million or 18.3% of revenues for the nine months ended September 30, 1995. The increase in selling, general and administrative expenses results from the Company's expanding operations, primarily through internal growth. Depreciation and amortization expense for the third quarter of 1996 decreased to $73.0 million or 6.5% of revenues from $79.9 million or 8.5% of revenues for the third quarter of 1995. This decrease reflects the reduction in depreciation and amortization Page 12 13 associated with the second quarter 1996 write-down in the carrying value of goodwill and equipment. On a year-to-date basis, this expense decreased to $228.5 million or 7.1% of revenues versus $231.5 million or 8.6% of revenues for the comparable 1995 period. This decrease reflects the reduction in depreciation and amortization associated with the second quarter write-downs offset by additional depreciation related to capital expenditures The reduction in the percentage is due to a relatively stable dollar of amortization on a higher revenue base. In the second quarter of 1996, the Company incurred non-cash charges related to a write-down in the carrying value of certain assets, including goodwill and equipment. Because of events resulting from the passage of the Telecom Act, and changes in circumstances impacting certain non-core operations, management estimates of the Company's fair value of operating assets within its core and non-core businesses resulted in a non-cash charge of $344 million after-tax or $.87 per share. On a pre-tax basis, the write-down was $402 million and included $139 million for network facilities and $263 million for non-core businesses, primarily operator services goodwill. Interest expense in the third quarter of 1996 was $55.0 million or 4.9% of revenues, as compared to $62.6 million or 6.7% of revenues in the third quarter of 1995. For the nine months ended September 30, 1996, interest expense was $167.9 million or 5.2% of revenues, as compared to $189.4 million or 7.0% of revenues for the first nine months of 1995. The decrease in interest expense is attributable to lower interest rates in effect on the Company's long-term debt. For the nine months ended September 30, 1996 and 1995, weighted average annual interest rates were 6.29% and 7.26%, respectively, while weighted average annual levels of borrowing were $3.47 billion and $3.45 billion, respectively. In the second quarter of 1996, the Company recorded extraordinary items totaling $24.4 million, net of income tax benefit of $15.6 million. The items included $4.2 million in connection with the Company's debt refinancing, and $20.2 million related to a write-off of deferred international costs. Previously, a portion of the outbound call fee due the foreign carrier was deferred and accounted for as a cost attributable to the revenue associated with the inbound call. Currently, the outbound call fee due the foreign carrier is expensed as incurred. In the third quarter of 1995, Metromedia Company converted its Series 1 Preferred Stock into 43.8 million shares of WorldCom common stock and exercised warrants to acquire 6.2 million shares of WorldCom common stock and immediately sold its position of 61.7 million shares of WorldCom common stock in a public offering. In connection with the preferred stock conversion, WorldCom made a one-time non-recurring payment of $15.0 million to Metromedia, representing a discount to the minimum nominal dividends that would have been payable on the Series 1 Preferred Stock prior to the September 15, 1996 optional call date of approximately $26.6 million (which amount includes an annual dividend requirement of $24.5 million plus accrued dividends to such call date). For the third quarter ended September 30, 1996, net income increased 60% to $109.1 million compared with $68.3 million, before the special preferred stock dividend payment in the 1995 third quarter. Fully diluted earnings per common share increased 50% to $0.27 compared with $0.18, before the one-time payment, a year ago. For the nine months ended September 30, 1996, net income, before non-cash charges, increased 75% to $294.8 million compared with $168.6 million before the special dividend payment in the 1995 nine-month period. Fully diluted earnings per common share, before the non-cash charges increased 52% to $0.73 compared with $0.48 a year ago. Including the non- cash, after-tax charges, the Company reported a net loss of $73.2 million or $0.18 per share for the first nine months of 1996. LIQUIDITY AND CAPITAL RESOURCES On June 28, 1996, WorldCom replaced its then existing $3.41 billion credit facilities (the "Previous Facilities") with a new $3.75 billion revolving credit facility (the "Credit Facility"). Borrowings under the Credit Facility were used to refinance the Previous Facilities and will be used to finance capital expenditures and provide additional working capital. As a result of the refinancing, WorldCom recorded an extraordinary charge of $4.2 million, net of $2.7 million in taxes, related to the charge-off of the unamortized portion of costs associated with the refinanced debt. The Credit Facility has a five-year term and bears interest, payable quarterly, at variable rates selected by the Company under the terms of the Credit Facility including a Base Rate or the LIBOR, plus applicable margin. The applicable margin for LIBOR rate Page 13 14 borrowings varies from 0.35% to 0.875% based upon a specified financial test. The Credit Facility is unsecured and requires compliance with certain financial and other operating covenants which limit, among other things, the incurrence of additional indebtedness by WorldCom and restricts the payment of cash dividends to WorldCom's shareholders. The Credit Facility is also subject to an annual commitment fee not to exceed 0.25% of any unborrowed portion of the Credit Facility. The Company has historically utilized cash flow from operations to finance capital expenditures and a mixture of cash flow, debt and stock to finance acquisitions. The Company is committed to a priority plan of accelerating operating cash flow to reduce debt. Additional capital availability may be generated through a combination of commercial bank debt and public market debt. Successful execution of the priority plan would provide continued compliance with required operating ratio covenants and improved interest rate spread pricing, and would eliminate any type of equity financing other than equity issued in connection with acquisitions. No assurance can be given that the Company will achieve its priority plan. Borrowings under the Credit Facility bear interest at rates that fluctuate with prevailing short-term interest rates. To protect against the effect of rising interest rates, the Company has entered into financial hedging agreements with various financial institutions in connection with requirements under the Credit Facility. The hedging agreements establish capped fixed rates of interest ranging from 7.43% to 8.3125% on an aggregate notional value of $1.7 billion and mature in 1997. If interest rates do not reach this cap, the Company's interest rate remains variable. For the nine months ended September 30, 1996, the Company's cash flow from operations was $496.7 million, increasing from $363.2 million in the comparable period for 1995. The increase in cash flow from operations was primarily attributable to internal growth. The Company's existing $300.0 million receivables purchase agreement generated additional proceeds of $4.6 million in the first quarter of 1996. The Company used these proceeds to reduce outstanding debt under the Company's credit facilities. As of September 30, 1996, the purchaser owned an undivided interest in a $700.9 million pool of receivables which includes the $300.0 million sold. Cash used in investing activities in the nine months ended September 30, 1996 totaled $629.8 million and included $293.0 million for normal capital expenditures and an additional $122.3 million for additional city pair network construction. Primary capital expenditures include purchases of switching, transmission, communication and other equipment. The Company's current budgeted capital expenditures for 1996 approximates $400.0 million. In addition to this amount, the Company has additional city pair network construction opportunities which could approximate $700.0 million to $800.0 million over the next two years. Included in cash flows from financing activities are payments of $0.9 million for preferred dividend requirements. In connection with the announcement in May 1996, that the Company would redeem its Series 2 Preferred Stock on June 5, 1996, all of the remaining outstanding Series 2 Preferred Stock (1,244,048 shares) was converted into 5,266,160 shares of common stock of the Company in the second quarter of 1996. The fully diluted common shares outstanding were unaffected by the conversion and the Company has no further dividend requirements. On July 15, 1996, WorldCom announced that it had exercised its option to redeem on August 16, 1996, all of the outstanding IDB WorldCom, Inc. 5% Convertible Subordinated Notes due 2003 (the "Notes"). Prior to the redemption date, substantially all of the holders of the Notes elected to convert their Notes into WorldCom common stock, resulting in the issuance of approximately 10.3 million shares of WorldCom common stock. The fully diluted common shares outstanding were unaffected by the conversion, and the Company has no further cash interest requirement related to the Notes. Absent significant capital requirements for other acquisitions, the Company believes that cash flow from operations and funds available under the Credit Facility will be adequate to meet the Company's capital needs for the remainder of 1996. Page 14 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings. There have been no material changes in the legal proceedings reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, filed on March 30, 1996 except as may be reflected in the discussion under Note J of the Notes to Consolidated Financial Statements in Part I, Item 1, above. Item 2. Changes in Securities. None Item 3. Defaults upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. A. Exhibits See Exhibit Index B. Reports on Form 8-K Current Report on Form 8-K dated August 25, 1996 (filed August 26, 1996), reporting under Item 5, Other Events, information relative to the Company's execution of an Agreement and Plan of Merger, pursuant to which a wholly owned subsidiary of the Company will be merged with and into MFS Communications Company, Inc. Current Report on Form 8-K dated July 23, 1996 (filed August 26, 1996), as amended on Form 8 K/A dated August 25, 1996 (filed August 30, 1996), reporting under Item 5, Other Events, information relative to the Company's Shareholders' Rights agreement. Page 15 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by Scott D. Sullivan, thereunto duly authorized to sign on behalf of the registrant and as the principal financial officer thereof. WORLDCOM, INC. By: /s/ Scott D. Sullivan ---------------------------------- Chief Financial Officer Dated: November 12, 1996 Page 16 17 EXHIBIT INDEX
Exhibit No. Description - ------- ----------- 2.1 Agreement and Plan of Merger, dated as of August 25, 1996, among WorldCom, HIJ Corp., a Delaware corporation and a wholly owned subsidiary of WorldCom and MFS Communications Company, Inc., a Delaware corporation (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated August 25, 1996 (filed August 26, 1996))* 2.2 Stock Option Agreement, dated as of August 25, 1996, between WorldCom, Inc. and MFS Communications Company, Inc. (incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated August 25, 1996 (filed August 26, 1996)) 3(i) Amended and Restated Articles of Incorporation of the Company (including preferred stock designations) as of September 15, 1993, as amended by Articles of Amendment dated May 26, 1994, as amended by Articles of Amendment dated May 25, 1995 (incorporated herein by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed by the Company for the year ended December 31, 1995) 3(ii) Articles of Amendment to the Amended and Restated Articles of Incorporation dated May 23, 1996 (incorporated herein by reference to Exhibit 3(ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996) 3(iii) Bylaws of the Company, as amended (incorporated herein by reference to Exhibit 3(iii) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996) 4.1 Rights Agreement, dated as of August 25, 1996 between WorldCom, Inc. 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 Right Certificate as Exhibit B and the Summary of Preferred Stock Purchase Rights as Exhibit C. Pursuant to the Rights Agreement, printed Right Certificates will not be mailed until as soon as practicable after the earlier of the tenth day after public announcement that a person or group (except for certain exempted persons or groups) has acquired beneficial ownership of 15% or more of the outstanding shares of Common Stock or the tenth business day (or such later date as may be determined by action of the Board of Directors) after a person commences, or announces its intention to commence, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding shares of Common Stock (incorporated herein by reference Exhibit 4 to the Company's Current Report on Form 8-K/A dated August 25, 1996 (filed August 30, 1996)) 10.1 Agreement, dated as of August 25, 1996, between WorldCom, Inc. and MFS Communications Company, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 25, 1996 (filed August 26, 1996))
Page 17 18
Exhibit No. Description - ------- ----------- 10.2 Amended and Restated Credit Agreement among the Company, Nations Bank of Texas, N.A. (Managing Agent and Administrative Agent), Bank of America Illinois, The Bank of New York, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Chemical Bank, Credit Lyonnais New York Branch, First Union National Bank of North Carolina, The Industrial Bank of Japan, Limited, Atlanta Agency, The First National Bank of Chicago, The Long-Term Credit Bank of Japan, Limited, New York Branch, Toronto Dominion (Texas), Inc., and Wachovia Bank of Georgia N.A., (Agents) and the Lenders named therein (Lenders) dated as of June 28, 1996 (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996) 10.3 WorldCom, Inc. Third Amended and Restated 1990 Stock Option Plan (incorporated herein by reference to Exhibit A to the Company's Proxy Statement dated April 22, 1996 used in connection with the Company's 1996 Annual Meeting of Shareholders) (Compensatory Plan) 10.4 WorldCom, Inc. Special Performance Bonus Plan (incorporated by reference to Exhibit B to the Company's Proxy Statement dated April 22, 1996 used in connection with the Company's 1996 Annual Meeting of Shareholders) (Compensatory Plan) 11.1 Computation of Per Share Earnings 27.1 Financial Data Schedule 99.1 Stock Option Agreement, dated as of August 25, 1996, between WorldCom, Inc. and MFS Communications Company, Inc. (incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated August 25, 1996 (filed August 26, 1996))
- -------------------------- * The Registrant hereby agrees to furnish supplementally a copy of any omitted schedules to this Agreement to the Securities and Exchange Commissipn upon request. Page 18 EX-11.1 2 COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11.1 WORLDCOM, INC. AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data)
For the Three Months Ended For the Nine Months Ended --------------------------- ------------------------- September 30, September 30, --------------------------- ------------------------- 1996 1995 1996 1995 ------------ ------------ ----------- ---------- Primary: Weighted average shares outstanding 402,881 353,288 393,869 333,450 Common stock equivalents 7,724 8,984 -- 11,030 Common shares issuable upon conversion of: Series 1 preferred stock -- 25,206 -- 37,572 Series 2 preferred stock -- 2,550 -- 2,982 5% convertible notes 4,584 -- -- -- --------- --------- --------- --------- 415,189 390,028 393,869 385,034 ========= ========= ========= ========= Income (loss) applicable to common shareholders before extraordinary items $ 109,051 $ 53,260 $ (48,755) $ 153,612 Extraordinary items -- -- (24,434) -- --------- --------- --------- --------- Income (loss) applicable to common shareholders $ 109,051 $ 53,260 $ (73,189) $ 153,612 Add back: Dividend paid on Series 1 preferred stock conversions -- 3,062 -- 15,312 Dividend paid on Series 2 preferred stock conversions -- 243 -- 858 Interest paid on 5% convertible notes conversions, net of taxes 1,489 -- -- -- --------- --------- --------- --------- Net income (loss) applicable to common shareholders 110,540 56,565 (73,189) 169,782 One-time dividend payment on Series1 preferred stock conversion -- 15,000 -- 15,000 --------- --------- --------- --------- Net income (loss) applicable to common shareholders before one-time dividend $ 110,540 $ 71,565 $ (73,189) $ 184,782 ========= ========= ========= ========= Primary earnings (loss) per share: Before one-time dividend payment to Series 1 preferred shareholder $ 0.27 $ 0.18 $ (0.18) $ 0.48 ========= ========= ========= ========= Applicable to common shareholders before extraordinary items $ 0.27 $ 0.15 $ (0.12) $ 0.44 ========= ========= ========= ========= Extraordinary items $ -- $ -- $ (0.06) $ -- ========= ========= ========= ========= Applicable to common shareholders $ 0.27 $ 0.15 $ (0.18) $ 0.44 ========= ========= ========= ========= Fully diluted: Weighted average shares outstanding 402,881 353,288 393,869 333,450 Common stock equivalents 7,730 9,342 -- 11,512 Common stock issuable upon conversion of: 5% convertible notes 4,584 10,270 -- 10,270 Series 1 preferred stock -- 25,206 -- 37,572 Series 2 preferred stock -- 7,816 -- 8,248 --------- --------- --------- --------- 415,195 405,922 393,869 401,052 ========= ========= ========= ========= Income (loss) applicable to common shareholders before extraordinary items $ 109,051 $ 53,260 $ (48,755) $ 153,612 Extraordinary items -- -- (24,434) -- Add back: Interest on 5% convertible notes, net of taxes 1,489 1,491 -- 4,472 Series 1 preferred dividend requirement -- 3,062 -- 15,312 Series 2 preferred dividend requirement -- 749 -- 2,374 --------- --------- --------- --------- Income (loss) applicable to common shareholders $ 110,540 $ 58,562 $ (73,189) $ 175,770 One-time dividend payment on Series 1 preferred stock conversion -- 15,000 -- 15,000 --------- --------- --------- --------- Net income (loss) applicable to common shareholders before one-time dividend $ 110,540 $ 73,562 $ (73,189) $ 190,770 ========= ========= ========= ========= Fully diluted earnings per share: Before one-time dividend payment to Series 1 preferred shareholder $ 0.27 $ 0.18 $ (0.18) $ 0.48 ========= ========= ========= ========= Applicable to common shareholders before extraordinary items $ 0.27 $ 0.14 $ (0.12) $ 0.44 ========= ========= ========= ========= Extraordinary items $ -- $ -- $ (0.06) $ -- ========= ========= ========= ========= Applicable to common shareholders $ 0.27 $ 0.14 $ (0.18) $ 0.44 ========= ========= ========= =========
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF WORLDCOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 18,845 0 736,478 66,338 0 825,914 2,131,054 (365,507) 6,854,966 901,710 3,276,641 0 0 4,084 2,438,258 6,854,966 3,235,552 3,235,552 1,763,421 2,991,468 (5,810) 42,422 167,946 81,948 129,843 (47,895) 0 (24,434) 0 (73,189) (0.18) (0.18)
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