0000950138-95-000201.txt : 19950914 0000950138-95-000201.hdr.sgml : 19950914 ACCESSION NUMBER: 0000950138-95-000201 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950908 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: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-69122 FILM NUMBER: 95572101 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 424B3 1 1 Filed Pursuant To Rule 424(b)(3) Registration No. 33-69122 PROSPECTUS SUPPLEMENT (To Prospectus dated October 18, 1993) WorldCom, Inc. 999,705 Shares of Series 2 6.50% Cumulative Senior Perpetual Convertible Preferred Stock 2,115,919 Shares of Common Stock All of the 999,705 shares (the "Preferred Shares") of Series 2 6.50% Cumulative Senior Perpetual Convertible Preferred Stock (the "Series 2 Preferred Stock") and the 2,115,919 shares (the "Common Shares," collectively with the Preferred Shares, the "Shares") of Common Stock (the "WorldCom Common Stock") of WorldCom, Inc., which conducts business under the name "LDDS WorldCom" (the "Company" or "WorldCom"), offered hereby, are being sold by The 1818 Fund, L.P. (the "Selling Shareholder"). The Common Shares represent shares of WorldCom Common Stock issuable upon conversion of the Preferred Shares. If all the Shares offered hereby are sold, the Selling Shareholder will have no beneficial ownership of any shares of the Company's capital stock. The Company will not receive any of the proceeds from the sale of the Shares. All expenses incurred in connection with this Offering are being borne by the Company, other than any commissions or discounts paid or allowed by the Selling Shareholder to underwriters, dealers, brokers or agents. The Series 2 Preferred Stock is entitled to receive cumulative dividends at the rate of $1.625 per share annually (6.5% of the liquidation preference (the "Liquidation Preference") of $25 per share), payable quarterly. Unless previously redeemed, the Series 2 Preferred Stock is convertible at the option of the holder at any time into shares of WorldCom Common Stock at a conversion price of $11.81171 per share of WorldCom Common Stock (2.116543 shares of WorldCom Common Stock per share of Series 2 Preferred Stock), subject to adjustment in certain conditions. The Series 2 Preferred Stock may be redeemed, subject to certain restrictions and conditions, at the Company's sole option, in whole or in part, in integral multiples of $10.0 million, on and after June 5, 1996 at 108% of the Liquidation Preference, if redeemed during the twelve-month period beginning June 5, 1996, and thereafter at prices declining annually to 100% of the Liquidation Preference on or after June 5, 2002, together with accrued and unpaid dividends to the date of redemption. Holders of the Series 2 Preferred Stock are entitled to cast votes on all matters voted on by holders of WorldCom Common Stock on an as-if-converted basis. The Company has the right to exchange the outstanding shares of Series 2 Preferred Stock, in integral multiples of $10.0 million, for 6.5% Convertible Subordinated Notes due June 5, 1998. At any time on or after May 6, 1997, to and including May 6, 2002, holders of 50% or more of the outstanding shares of Series 2 Preferred Stock have the right to require the Company to exchange all of the shares of Series 2 Preferred Stock for notes having a floating interest rate or for WorldCom Common Stock, or any combination of the two, at the option of the Company. In the event the Company fails to pay the required dividends with respect to the Series 2 Preferred Stock for two quarterly dividend periods, holders of Series 2 Preferred Stock shall elect a director to the Company's Board of Directors to serve until such time as the dividends have been paid in full or upon conversion or exchange of the Series 2 Preferred Stock. See "Description of Capital Stock -- Description of Series 2 Preferred Stock" in the accompanying Prospectus. The Selling Shareholder directly, or through agents designated from time to time, or through dealers or underwriters also to be designated, may sell the 2 Shares from time to time on terms to be determined at the time of sale. To the extent required, the purchase price, public offering price, the names of any such agent, dealer or underwriter, and any applicable commission or discount with respect to a particular offering will be set forth in an additional Prospectus Supplement. The aggregate proceeds to the Selling Shareholder from the sale of the Shares will be the purchase price thereof less the aggregate agent's commission or underwriter's discount, if any, and other expenses of distribution not borne by the Company. Sales of the Shares may also be made through negotiated transactions or otherwise. The Selling Shareholder and the brokers and dealers through which the sales of the Shares may be made may be deemed to be "underwriters," as defined in the Securities Act of 1933, as amended, and their commissions and discounts and other compensation may be regarded as underwriters' compensation. See "Plan of Distribution" contained in the accompanying Prospectus. Prior to the offering, there has been no public market for the Series 2 Preferred Stock, and there can be no assurance one will develop. The WorldCom Common Stock is traded on the Nasdaq National Market under the trading symbol "WCOM." The last reported sale price of the WorldCom Common Stock as reported on the Nasdaq National Market on September 6, 1995 was $32.75 per share. See "Risk Factors" on page S-4 for information that should be considered by prospective investors. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus Supplement is September 7, 1995. 3 No dealer, salesperson or other person has been authorized to give any information or to make any representations not contained in this Prospectus Supplement and the accompanying Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus Supplement and the accompanying Prospectus does not constitute an offer to sell, or solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus Supplement nor the accompanying Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at Commission's Regional Offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company has filed with the Commission a registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Shares offered hereby. This Prospectus Supplement and accompanying Prospectus do not contain all the information set forth in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in this Prospectus Supplement and accompanying Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed or incorporated by reference as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and the schedules thereto. For further information pertaining to the Company or the Shares offered hereby, reference is made to the Registration Statement and such exhibits and schedules thereto, which may be inspected without charge at, and copies thereof may be obtained at prescribed rates from, the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. "LDDS WorldCom" is a service mark of the Company. 4 TABLE OF CONTENTS Supplement Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends . 12 Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Incorporation of Certain Documents By Reference . . . . . . . . . . . . . . 14 Prospectus Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Incorporation By Reference. . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . 5 Description of Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . 6 Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Plan Of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 5 RISK FACTORS The following factors should be carefully considered in evaluating the Company and its business before purchasing any of the Shares offered hereby. Risks of Increased Financial Leverage; Debt Service, Interest Rate Fluctuations, Possible Reduction in Liquidity, Dividend Restrictions, and Other Restrictive Covenants As a result of the acquisition of the network services operations of Williams Telecommunications Group, Inc. ("WilTel") and the financing thereof, the Company has a significantly higher degree of leverage than previously existed. At June 30, 1995, the Company reported $3.41 billion of long-term debt (including capital leases and excluding current maturities) and a long-term debt to equity ratio of 1.72. Borrowings under the Company's new bank credit facilities bear interest at rates that fluctuate with prevailing short-term interest rates. Increases in interest rates on these obligations could have an adverse effect upon the Company's reported net income and liquidity. In addition, these credit facilities restrict the payment of cash dividends and otherwise limit the Company's financial flexibility. The Company believes that the combined operations of the Company, IDB Communications Group, Inc. ("IDB") and WilTel will generate sufficient cash flow to service the Company's debt under the bank credit facilities; however, economic downturns, increased interest rates and other adverse developments, including factors beyond the Company's control, could impair its ability to service its indebtedness. In addition, the cash flow required to service the Company's debt may reduce its ability to fund internal growth, additional acquisitions and capital improvements. One facility (the "Term Principal Debt") of the new bank credit facilities, which totals $1.25 billion, matures in a single installment on December 31, 1996. The other facility (the "Revolving Facility Commitment"), which totals $2.16 billion, will be reduced at the end of each fiscal quarter, commencing on September 30, 1996, in varying amounts, and must be paid in full on December 31, 2000. The Company anticipates it will need to refinance a portion of the Term Principal Debt thereby requiring the Company to seek financing alternatives such as public or private debt or equity offerings, or refinancing with the existing or new lenders. The Company is committed to a priority plan of accelerating operating cash flow to reduce debt. The Company anticipates that the remaining debt balances will be refinanced with a combination of commercial bank debt and public market debt. Successful execution of this priority plan would provide continued compliance with required operating ratio covenants 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 or any refinancing will be available on terms acceptable to the Company. See "Pro Forma Combining Financial Statements" contained in the Company's Current Report on Form 8-K dated August 22, 1994 (as amended by Current Report on Form 8-K/A filed April 19, 1995), which is hereby incorporated herein by reference. Acquisition Integration A major portion of the Company's growth in recent years has resulted from acquisitions, which involve certain operational and financial risks. 6 Operational risks include the possibility that an acquisition does not ultimately provide the benefits originally anticipated by management of the acquiror, while the acquiror continues to incur operating expenses to provide the services formerly provided by the acquired company. Financial risks involve the incurrence of indebtedness by the acquiror in order to effect the acquisition and the consequent need to service that indebtedness. In addition, the issuance of stock in connection with acquisitions dilutes the voting power and may dilute certain other interests of existing stockholders. In carrying out its acquisition strategy, the Company attempts to minimize the risk of unexpected liabilities and contingencies associated with acquired businesses through planning, investigation and negotiation, but such unexpected liabilities may nevertheless accompany acquisitions. There can be no assurance that the Company will be successful in identifying attractive acquisition candidates or completing additional acquisitions on favorable terms. In addition, although the Company believes that it will be able to integrate successfully the business and operations of IDB and WilTel, there can be no assurance that the Company will be able to accomplish such integration with the Company's operations, or that the efficiencies and growth opportunities anticipated as a result of the combination of the Company, IDB and WilTel will materialize, or that the Company will be able to integrate any other acquired businesses into its operations and obtain the desired networking and operating efficiencies. There can also be no assurance that the anticipated growth opportunities resulting from the consolidated organization will materialize. Contingent Liabilities The Company is subject to a number of legal and regulatory proceedings, including certain legal proceedings pending against IDB prior to its merger with a wholly-owned subsidiary of WorldCom on December 30, 1994 (the "IDB Merger"). While the Company believes that the probable outcome of any of these matters, or all of them combined, will not have a material adverse effect on the Company's consolidated results of operations or financial position, no assurance can be given that a contrary result will not be obtained. See Item 3 -- "Legal Proceedings" contained in the 1994 Form 10-K (as hereinafter defined), which is hereby incorporated herein by reference. In addition to a number of other pending legal proceedings, on May 23, 1994, Deloitte & Touche LLP ("Deloitte") resigned as IDB's independent auditors. Deloitte has stated it resigned as a result of events surrounding the release and reporting of IDB's financial results for the first quarter of 1994. In submitting its resignation, Deloitte informed IDB management and the Audit Committee of the IDB Board of Directors that there had been a serious breakdown in IDB's process of identifying, analyzing and recording IDB's business transactions which prohibited Deloitte from the satisfactory completion of a quarterly review, and that Deloitte was no longer willing to rely on IDB management's representations regarding IDB's interim financial statements. IDB announced Deloitte's resignation on May 31, 1994. On June 24, 1994, upon the recommendation of the independent members of IDB's Audit Committee, IDB retained Arthur Andersen LLP as its new independent auditors. On August 1, 1994, IDB announced that it would restate its reported financial results for the quarter ended March 31, 1994 to eliminate approximately $6.0 million of pre-tax income, approximately $5.0 million of which related to a sale of transponder capacity and approximately $1.0 million of which related to purchase accounting adjustments and on August 22, 1994, IDB filed Amendment No. 1 on Form 10-Q/A restating its 1994 first quarter results in order to 7 eliminate previously recorded items. Certain of these items were among those as to which Deloitte had expressed disagreement. On November 21, 1994, IDB filed Form 10-Q/A amendments to its reported first and second quarter financial results making the previously announced changes and reflecting the effect of IDB's method of accounting for international long distance traffic, thereby reducing its first quarter net income from $0.12 per share, as originally reported, to $0.05 per share and, when combined with adjustments for income tax effects, increasing its second quarter net loss from $0.20 per share, as originally reported, to $0.27 per share. A number of class action complaints (on behalf of persons who purchased certain IDB securities) and stockholder derivative actions (on behalf of IDB) were filed against IDB and its former directors and certain former officers of IDB and other parties. The U.S. District Court for the Central District of California (the "District Court") ordered the class action complaints and one of the derivative actions consolidated and styled In re IDB Communications Group, Inc. Securities Litigation. An amended complaint was filed with the District Court on November 18, 1994 consolidating all of the class and derivative actions. IDB, certain of its former directors and officers and other parties were named as defendants in the consolidated complaint. The class action claims alleged violations of federal and state securities laws and state corporate laws for disseminating allegedly false and misleading statements concerning IDB's earnings and accounting practices. The derivative claims alleged that IDB's former officers and directors breached their fiduciary duties to IDB by trading on inside information, accepting bonuses based on false and inflated IDB financial results and exposing IDB to liability under the securities laws, and include claims for gross negligence and violation of state corporate laws. Plaintiffs sought damages, restitution to IDB, injunctive relief, punitive damages, and costs and attorneys' fees. IDB, the Company and representatives of the plaintiffs in the foregoing litigation entered into a Stipulation of Settlement (the "Stipulation"). The Stipulation provides that all claims for the period April 27, 1992 through August 1, 1994, inclusive, that were or could have been asserted by plaintiffs against IDB or any of the other defendants in the consolidated action, or in any court with respect to the fairness or adequacy of the consideration paid to IDB stockholders in the IDB Merger and the accuracy of related disclosures made by the IDB defendants or the Company, or on behalf of or by IDB against former IDB directors and officers will, subject to the fulfillment of certain conditions and the approval of the court, be settled and released and the litigation dismissed in its entirety with prejudice in exchange for payments totalling $75.0 million. The settlement and releases do not affect any claims of persons who purchased IDB securities outside the period April 27, 1992 through August 1, 1994, inclusive, or who timely and validly opt out. Following a February 27, 1995 hearing to determine whether the settlement should be finally approved by the District Court, on March 16, 1995, the court entered a judgment approving the settlement, except as to fee applications submitted by class and derivative counsel. The settlement was not contingent on the amount of class and derivative counsel fees and expenses ultimately approved by the court. On April 5, 1995, the settlement payments agreed to in the Stipulation were made. Plaintiffs' counsel has indicated that they will dismiss two related state court actions, as contemplated by the Stipulation. IDB is a party to indemnification agreements with certain of the defendants in the actions described above, including IDB's former officers and directors, certain selling stockholders and certain underwriters. IDB's former officers and directors are not covered by any applicable liability insurance. The 8 Company has agreed to provide indemnification to IDB's officers and directors under certain circumstances pursuant to the agreement relating to the IDB Merger. On June 9, 1994, the Commission issued a formal order of investigation concerning certain matters, including IDB's financial position, books and records and internal controls and trading in IDB securities on the basis of non-public information. The Commission has issued subpoenas to IDB and others, including certain former officers of IDB, in connection with its investigation. The National Association of Securities Dealers, Inc. 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 has issued grand jury subpoenas to IDB seeking documents relating to IDB's 1994 first quarter results, the Deloitte resignation, trading in IDB securities and other matters, including information concerning certain entities in which certain former officers of IDB are personal investors and transactions between such entities and IDB. IDB has been informed that a criminal investigation has commenced. The U.S. Attorney's Office for the Central District of California issued a grand jury subpoena to the Company arising out of the same investigation seeking certain documents relating to IDB. The outcome of any of the foregoing litigation or investigations, or of other pending legal proceedings, has not been determined. See Item 3 -- "Legal Proceedings" contained in the Company's 1994 Form 10-K for more information regarding the foregoing litigation and investigations, as well as other pending legal proceedings. Risks of International Business As a result of the IDB Merger, the Company derives substantial revenues by providing international communication services primarily to customers headquartered in the United States. Such operations are subject to certain risks such as changes in foreign government regulations and telecommunication standards, licensing requirements, tariffs or taxes and other trade barriers and political and economic instability. In addition, such revenues and cost of sales are sensitive to changes in international settlement rates. International rates may decrease in the future due to aggressiveness on the part of existing carriers, aggressiveness on the part of new entrants into niche markets, the widespread resale of international private lines, the consummation of joint ventures among large international carriers that facilitate targeted pricing and cost reductions, and the rapid growth of international circuit capacity due to the deployment of new transatlantic and transpacific fiber optic cables. The traffic volumes and cost reductions related to the IDB Merger may not offset any resulting rate decreases. Dependence on Availability of Transmission Facilities The future profitability of the Company will be dependent in part on its ability to utilize transmission facilities leased from others on a cost-effective basis. Due to the possibility of unforeseen changes in industry conditions, the continued availability of leased transmission facilities at historical rates cannot be assured. See "Item 1 -- Business -- Transmission Facilities" contained in the 1994 Form 10-K, which is hereby incorporated herein by reference. 9 Regulation Risks The Company is subject to extensive regulation at the federal and state levels, as well as in various foreign countries in connection with certain overseas business activities. The regulatory environment varies substantially by jurisdiction. The regulation of the telecommunications industry is changing rapidly, and the regulatory environment varies substantially from state to state. There can be no assurance that future regulatory changes will not have a material adverse impact on the Company. Recent developments include, without limitation, consideration by Congress of legislation that would modify the restrictions (as set forth in the AT&T Divestiture Decree entered into on August 24, 1982 by the United States District Court for the District of Columbia (the "AT&T Divestiture Decree")) on the provision of long distance services between the approximately 200 geographic local access and transport areas ("LATAs") defined in the AT&T Divestiture Decree, by the Bell System Operating Companies ("BOCs"), as discussed below; consideration by the Justice Department and courts of related BOC requests for waiver of the AT&T Divestiture Decree to permit them to provide significant interLATA services (such as service outside their respective regions, and in other circumstances) or for the elimination of the AT&T Divestiture Decree altogether; action by the Federal Communication Commission ("FCC") or Public Utility Commissions (the "PUCs") changing access rates charged by local exchange carriers ("LECs") and making other related changes to access and interconnection policies, certain of which could have adverse consequences for the Company; related FCC and state regulatory proceedings considering additional deregulation of LECs access pricing; a pending FCC rulemaking on "billed party preference" that could affect the Company's provision of operator services; and various legislative and regulatory proceedings that would result in new local exchange competition. Both the United States Senate and House of Representatives have passed bills that, if enacted into legislation, would permit the BOCs to provide domestic and international long distance services upon a finding by the FCC that the petitioning BOC had 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. Both bills are scheduled to be considered by a House-Senate conference committee shortly. Although the outcome of pending legislation cannot be predicted, both the House and Senate bills passed with sufficient votes to override a Presidential veto. The Company will need to comply with the applicable laws and obtain the approval of the regulatory authority of each country in which it provides or proposes to provide telecommunication services. The laws and regulatory requirements vary from country to country. Some countries have substantially deregulated various communications services, while other countries have maintained strict regulatory regimes. The application procedure can be time-consuming and costly, and terms of licenses vary for different countries. Transmissions from earth stations to all satellites, transmissions from microwave and other transmitters, reception from international satellites, and transmission of international traffic by any means, including satellite and undersea cable, must be pursuant to license or other authorizations issued by the FCC. The Company has operating authority or has made other suitable arrangements to transmit and/or receive signals from all locations where it currently offers satellite transmission and/or reception service. Although the Company has never had a license application denied by the FCC, there can be no assurance that the Company will receive all authorizations or licenses 10 necessary for new communications services or that delays in the licensing process will not adversely affect the Company's business. Domestic radio licenses issued by the FCC are for limited periods not to exceed 10 years. The Company must seek renewal of such licenses prior to their expiration. The Company knows of no facts that would result in the denial of any such renewals. Most of the Company's services are deemed common carriage and as such must be provided at just and reasonable rates and free of all unlawful discrimination. The Company monitors compliance with federal, state and local regulations governing the discharge and disposal of hazardous and environmentally sensitive materials, including the emission of electromagnetic radiation. Although the Company believes that it is in compliance with such regulations, there can be no assurance that any such discharge, disposal or emission might not expose the Company to claims or actions that could have a material adverse effect on financial results. See "Item 1 -- Business -- Regulation" contained in the 1994 Form 10-K, which is hereby incorporated herein by reference. Competition Risks The Company faces intense competition in providing domestic and international long distance telecommunications services. Domestically, the Company competes for interLATA services with other national and regional interexchange carriers ("IXCs"), including AT&T Communications, Inc. ("AT&T"), MCI Telecommunications Corporation ("MCI") and Sprint Corporation ("Sprint"); with respect to intraLATA long distance services, with AT&T, MCI, Sprint, the LECs and other IXCs, where permissible; and with respect to operator services, with AT&T and other operator service providers. Internationally, the Company competes for services with other IXCs, including AT&T, MCI and Sprint. Certain of these companies have substantially greater market share and financial resources than the Company, and some of them are the source of communications capacity used by the Company to provide its own respective services. The Company expects to encounter increasing competition from major domestic and international communications companies, including AT&T, MCI and Sprint. In addition, in the future, the Company may be subject to additional competition due to the development of new technologies and increased availability of domestic and international transmission capacity. For example, even though fiber-optic networks, such as that of the Company, are now widely used for long distance transmission, it is possible that the desirability of such networks could be adversely affected by changing technology. The telecommunications industry is in a period of rapid technological evolution, marked by the introduction of new product and service offerings and increasing satellite transmission capacity for services similar to those provided by the Company. The Company cannot predict which of many possible future product and service offerings will be important to maintain its competitive position or what expenditures will be required to develop and provide such products and services. See "Item 1 -- Business -- Competition" contained in the 1994 Form 10-K, which is hereby incorporated herein by reference. U.S. Domestic and International Satellite Systems On April 25, 1995, the FCC proposed to eliminate certain regulatory distinctions between U.S. licensed domestic and international satellites, and to treat all U.S. licensed geostationary fixed satellites under a single regulatory scheme. The effect of this proposal, if adopted, could increase the ability of U.S. domestic satellite operators to provide international service and international satellite operators to provide domestic service, in direct competition with the Company. The FCC also has requested comment on other 11 issues affecting competition in the satellite industry. The Company cannot predict when the FCC will adopt final rules in this proceeding or what those rules might be. Anti-Takeover Provisions The Amended and Restated Articles of Incorporation of the Company contain provisions (a) requiring a 70% vote for approval of certain business combinations with certain 10% stockholders unless approved by a majority of the continuing Board of Directors or unless certain minimum price, procedural and other requirements are met; (b) restricting aggregate beneficial ownership of the capital stock of the Company by foreign stockholders to 20% of the total outstanding capital stock, and subjecting excess shares to redemption; and (c) requiring a two-thirds vote of the holders of the Company's Series 2 Preferred Stock to approve certain extraordinary transactions or, alternatively, redemption of such stock at a specified premium. In addition, the Bylaws of the Company (a) contain requirements regarding advance notice of nomination of directors by stockholders, and (b) restrict the calling of special meetings by stockholders to those owning shares representing not less than 40% of the votes to be cast. These provisions may have an "anti-takeover" effect. See "Information Regarding Resurgens -- Amendments to Resurgens' Restated Articles of Incorporation -- LDDS Merger Agreement," "Proposals No. 1 and 2 -- The Proposed Mergers -- Description of the Series 2 Preferred Stock" and "-- Special Redemption Provisions" and "Information Regarding Resurgens -- Amendments to Resurgens' Restated Articles of Incorporation" contained in the 1993 Joint Proxy Statement/Prospectus (as hereinafter defined) and the August 14, 1995 Form 8-K (as hereinafter defined), which are hereby incorporated herein by reference. RECENT DEVELOPMENTS On August 23, 1995, Metromedia Company ("Metromedia") converted its Series 1 $2.25 Cumulative Senior Perpetual Convertible Preferred Stock (the "Series 1 Preferred Stock") of the Company into 21,876,976 shares of WorldCom Common Stock and exercised warrants to acquire 3,106,976 shares of WorldCom Common Stock and thereafter sold its position of 30,849,548 shares of WorldCom Common Stock in a public offering. Accordingly, no shares of Series 1 Preferred Stock are outstanding as of the date hereof. In connection with the preferred stock conversion, the Company 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). Metromedia offered the shares immediately through an underwriting by Donaldson, Lufkin & Jenrette Securities Corporation, as representative for the several underwriters, at a price of $30.25 per share. The Company did not receive any proceeds from the sale of the shares, but did receive approximately $33.7 million in proceeds from the exercise of the warrants. On May 25, 1995, the name of the Company was changed from LDDS Communications, Inc. to WorldCom, Inc. If the FCC finds the public interest will be served, the Communications Act permits the FCC to refuse common carrier radio (including microwave) and certain other licenses to an entity directly or indirectly 12 controlled by a corporation of which more than 25 percent of the capital stock is owned by aliens or more than one-fourth of whose directors or any officers are aliens, or to revoke a license granted to such entity. The Communications Act also prohibits any entity more than 20 percent of whose capital stock is owned by aliens or whose directors or officers are aliens from receiving or holding a license in the common carrier radio (including microwave) and certain other services. The FCC is conducting a rulemaking proceeding in which it has proposed guidelines for the public interest analysis statutorily required when a common carrier holding company proposes to exceed the 25 percent alien ownership benchmark described in the preceding paragraph. Under the FCC's proposal, an important element (but not the only element) in the public interest determination would be whether the primary market(s) of the foreign countr(ies) in which the alien is a citizen or conducts substantial business offer effective market access to U.S. citizens to provide common carrier services. In addition, legislation currently pending before Congress would liberalize the statutory alien ownership restrictions. The results of the FCC's rulemaking proceeding, as well as whether and to what extent alien ownership reform legislation will be enacted, cannot be predicted at this time. RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The following table sets forth the ratio of earnings to combined fixed charges and preferred stock dividends for each of the five years ended December 31, 1994 and for the six months ended June 30, 1994 and 1995, which ratios are based on the historical consolidated financial statements of WorldCom. The table also sets forth the pro forma combined data for the year ended December 31, 1994, which data give effect to the acquisition of WilTel on January 5, 1995 for approximately $2.5 billion in cash (the "WilTel Acquisition") and the financing thereof as if it occurred on January 1, 1994. The WilTel Acquisition was accounted for as a purchase transaction. The pro forma combined data are presented for comparative purposes only and are not intended to be indicative of actual results had the transactions occurred as of the date indicated above nor do they purport to indicate results which may be attained in the future.
Historical Pro Forma Combined Historical ------------------------------------------------ ------------------ ------------------ Year Ended December 31, Year Ended Six Months Ended December 31, June 30, 1990 1991 1992 1993 1994 1994 1994 1995 -------- -------- -------- -------- -------- ------------------ -------- -------- Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 2.45:1 2.53:1 1.40:1 4.14:1 0.13:1 0.45:1 3.43:1 2.14:1 Deficiency of Earnings to Combined Fixed Charges and Preferred Stock Dividends (in thousands) N/A N/A N/A N/A (78,008) (153,203) N/A N/A
13 For the purpose of computing the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income (loss) from continuing operations and fixed charges and preferred stock dividends, and fixed charges consist of interest (including capitalized interest, but excluding amortization amounts previously capitalized) on all indebtedness, amortization of debt discount and expense and that portion of rental expense which the Company believes to be representative of interest. Notes to Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (1) On January 5, 1995, the Company completed the acquisition of WilTel for approximately $2.5 billion in cash. The WilTel Acquisition is being accounted for as a purchase. (2) As a result of the IDB Merger and the merger with Advanced Telecommunications Corporation (the "ATC Merger"), the Company initiated plans to reorganize and restructure its management and operational organization and facilities to eliminate duplicate personnel, physical facilities and service capacity, to abandon certain products and marketing activities, and to further take advantage of the synergy available to the combined entities. Also, during the fourth quarter of 1993, plans were approved to reduce IDB's cost structure and to improve productivity. Accordingly, in 1994, 1993 and 1992, the Company charged to operations the estimated costs of such reorganization and restructuring activities, including employee severance, physical facility abandonment and duplicate service capacity. These costs totaled $43.7 million in 1994, $5.9 million in 1993 and $79.8 million in 1992. Also, during 1994 and 1992, the Company incurred direct merger costs of $15.0 million and $7.3 million, respectively, related to the IDB Merger (in 1994) and the ATC Merger (in 1992). These costs include professional fees, proxy solicitation costs, travel and related expenses and certain other direct costs attributable to these mergers. (3) In connection with certain debt refinancing, the Company recognized in 1993 and 1992 extraordinary items of approximately $7.9 million and $5.8 million, respectively, net of income taxes, consisting of unamortized debt discount, unamortized issuance cost and prepayment fees. SELLING SHAREHOLDER The Selling Shareholder, which is a Delaware limited partnership, owns 999,705 shares, or approximately 50% of the 2,000,000 outstanding shares, of Series 2 Preferred Stock. The general and managing partner of the Selling Shareholder is Brown Brothers Harriman & Co., a New York partnership ("Brown Brothers"), which has designated its partners T. Michael Long and Lawrence C. Tucker the sole and exclusive partners having voting and investment power with respect to the WorldCom Common Stock into which said Series 2 Preferred Stock is convertible. Mr. Tucker is a director of the Company. As of the date hereof, the 999,705 shares of Series 2 Preferred Stock are convertible into 2,115,919 shares of WorldCom Common Stock, representing approximately 1% of the outstanding WorldCom Common Stock. 14 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE This Prospectus Supplement and the accompanying Prospectus incorporate documents by reference which are not presented herein or delivered herewith, as indicated below. The Company will provide without charge to each person to whom a copy of this Prospectus Supplement and the accompanying Prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the documents referred to below which are incorporated herein by reference (other than exhibits to such documents unless they are specifically incorporated by reference into such documents). Requests for such copies should be directed to Scott D. Sullivan, Treasurer and Chief Financial Officer, WorldCom, Inc., 515 East Amite Street, Jackson, Mississippi 39201-2702; telephone number (601) 360-8600. The following documents filed with the Commission by the Company (formerly Resurgens Communications Group, Inc. ("Resurgens")) under File No. 0-11258 (formerly File No. 1-10415) pursuant to the Exchange Act are incorporated herein by reference: (1) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "1994 Form 10-K"); (2) the Company's Reports by Issuer of Securities Quoted on NASDAQ on Form 10-C dated May 25, 1995 and dated August 23, 1995, the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995, and the Company's Current Reports on Form 8-K dated August 14, 1995 (filed August 14, 1995) (the "August 14, 1995 Form 8-K") and dated August 23, 1995 (filed August 29, 1995); (3) audited financial statements as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994 of the network services operations of WilTel, including WilTel, Inc., WilTel Undersea Cable, Inc. and WilTel International Inc., which are wholly-owned subsidiaries of WilTel (collectively "WilTel Network Services"), included in the Company's Current Report on Form 8-K dated August 22, 1994 (filed September 8, 1994) (as amended by Current Reports on Form 8-K/A filed November 17, 1994, November 28, 1994 and April 19, 1995); and (4) the description of the Company's (formerly Resurgens') Common Stock as contained in Item 1 of Resurgens' Registration Statement on Form 8-A dated December 12, 1989, as updated by the descriptions contained in Amendment No. 2 of the Resurgens' Registration Statement on Form S-4 (File No. 33-62746), as declared effective by the Commission on August 11, 1993, which includes the Joint Proxy Statement/Prospectus (the "1993 Joint Proxy Statement/Prospectus") with respect to Resurgens' Annual Meeting of Shareholders held on September 14, 1993, under the following captions: "Proposals No. 1 and 2 -- The Proposed Mergers -- Description of the Series 1 Preferred Stock," "-- Description of the Series 2 Preferred Stock," "-- Special Redemption Provisions," "Information Regarding Resurgens -- Description of Resurgens Capital Stock," and "-- Amendments to Resurgens' Restated Articles of Incorporation -- LDDS Merger Agreement" and the August 14, 1995 Form 8-K. Any other financial statements filed with the Commission prior to the filing of the 1994 Form 10-K shall not be deemed to be incorporated herein by reference. All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this Prospectus Supplement and accompanying Prospectus and prior to the termination of the offering of the Shares offered hereby shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. See "Available Information" contained herein and in the accompanying Prospectus. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus Supplement and the accompanying Prospectus to the extent that a statement contained herein or in any subsequently filed document incorporated or deemed to be incorporated 15 herein by reference, which statement is also incorporated herein by reference, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus Supplement and the accompanying Prospectus.