SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1993
-----------------
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: 0-6457
------
MCI COMMUNICATIONS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-0886267
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 872-1600
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
----------------------------------------------------------
(Title of class)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock of registrant held by
non-affiliates was $13,110,136,923 at March 25, 1994, based upon the closing
price of such stock on that date.
As of March 25, 1994, registrant had outstanding 542,787,422 shares of
Common Stock.
Documents Incorporated by Reference:
Portions of the Proxy Statement For the 1994 Annual Meeting of Stockholders -
Part III
<PAGE> PAGE 2
PART I
Item 1. Business
GENERAL
- -------
MCI* is the second largest nationwide carrier of long-
distance telecommunications services and provides a wide spectrum
of domestic and international voice and data communications
services. MCI's communications services include long-distance
telephone service, record communications service and electronic
messaging service. During each of the last three years, more
than 90% of MCI's operating revenues, operating income and assets
related to MCI's activities in the long-distance
telecommunications industry.
SERVICES
- ---------
MCI provides a broad range of domestic long-distance
telecommunications services, including dial 1 access and dial
access long-distance telephone service; voice and data services
over software-defined virtual private networks; private line and
switched access services; toll free or 800 services; and 900
services. MCI also provides a range of domestic data services
and electronic messaging services and provides international
long-distance telephone service, international record
communications service, international data service and
international electronic messaging service. These services are
provided to residential, business, governmental and institutional
customers.
Domestic long-distance telecommunications services are
marketed through MCI's Multinational Account unit and its
Communications Services unit. The Multinational Account unit
serves MCI's largest multinational business customers. The
Communications Services unit is comprised of two sub-units:
Business Markets - serving all United States based businesses,
except for the largest multinational businesses, and Federal,
state and local governments; and Consumer Markets - serving
residential customers.
- -----------------------
*MCI conducts its business primarily through its subsidiaries.
Unless the context otherwise requires, "MCI" or "company" means
MCI Communications Corporation, a Delaware corporation organized
in August 1968, and its subsidiaries on a consolidated basis.
MCI is a registered service mark of MCI Communications
Corporation. MCI has its principal executive offices at 1801
Pennsylvania Avenue, N.W., Washington, D.C. 20006 (telephone
number (202) 872-1600).
Page 2 of 62
<PAGE> PAGE 3
Domestic data and electronic messaging services are marketed
through MCI's Data Services Division, which was established in
September 1993. This unit has responsibility for integrating the
data services operations of BT North America Inc. which MCI
acquired in January 1994 as part of the British
Telecommunications plc ("BT") transaction described below under
the caption "LONG-TERM STRATEGY" and in Note 2 of the Notes to
Consolidated Financial Statements on pages 34 and 35 of this
Annual Report on Form 10-K.
International long-distance, record communications, data and
electronic messaging services are marketed through MCI
International, Inc., a wholly-owned subsidiary of MCI. MCI also
markets its services domestically and internationally, to a
lesser extent, through arrangements with third parties.
SYSTEM
- ------
Domestic long-distance telecommunications services are
provided primarily over MCI's own coast-to-coast optical fiber
and terrestrial digital microwave communications system and, to a
lesser extent, over facilities leased from other common carriers.
International communications services are provided by way of
submarine cable systems in which MCI holds investment positions,
satellites, facilities of other domestic and international
carriers and through private line leased channels.
MCI provides most of its customers access to its services
through local interconnection facilities provided by local
exchange telephone companies ("LECs") and, to a lesser extent, by
competitive access providers ("CAPs") that carry
telecommunications between MCI's operations centers and the
premises of its customers. MCI provides customers that have very
large volumes of communications with direct access between their
facilities and MCI's facilities. Additionally, MCI expects in
the future to provide, through its new subsidiary, MCI Metro,
Inc. ("MCI Metro"), where permitted by law, local interconnection
services to connect MCI's long-distance system to the premises of
its business, governmental, institutional and residential
customers located in major metropolitan areas.
MCI's costs of furnishing the required local interconnection
facilities are expected to be favorably impacted by actions taken
by the Federal Communications Commission ("FCC") in 1991. The
actions provide for the restructuring of LECs switched local
transport access charges and allow long-distance carriers, such
as MCI, to collocate facilities and equipment at the LECs offices
for the purpose of providing special access to their customers.
These actions are more fully discussed below under the caption
"REGULATION".
Page 3 of 62
<PAGE> PAGE 4
MCI's continued expansion of its digital transmission and
switching facilities and capabilities to meet the demands of its
customers for additional and enhanced domestic and international
services, to add redundancy to its network and to enhance network
intelligence, requires a high level of capital expenditures.
Capital expenditures were $1,733 million in 1993; $1,272 million
in 1992; and $1,377 million in 1991.
In 1994, MCI plans capital expenditures of between $2.5
billion and $3.0 billion to continue to introduce new services,
develop its communications system and meet the goals of its long-
term strategy.
At December 31, 1993, MCI had approximately 36,000 full-time
employees.
LONG-TERM STRATEGY
- ------------------
As part of its long-term strategic plan, MCI announced
networkMCI**. Under networkMCI, MCI plans to expand its network
to create and deliver a wide variety of new branded services both
domestically and internationally. An initial element of
networkMCI will involve the implementation of high-speed
Synchronous Optical Network ("SONET") technology throughout MCI's
domestic network and on international routes across the Atlantic
and Pacific to substantially increase carrying speeds of traffic
on MCI's network. In addition to the implementation of SONET
technology, MCI plans to increase its network switching
capabilities through the implementation of Asynchronous Transfer
Mode ("ATM") technology, a state-of-the-art switching technology
that enables a wide range of data communication services and will
permit the MCI network to be linked to interactive multimedia and
wireless communications.
In addition, networkMCI will also include the formation by
MCI of a new subsidiary, MCI Metro. MCI Metro will construct
fiber rings and local switching infrastructure in major markets
in the U.S. to provide special and switched transport access for
data, voice, video and enhanced telecommunications services to
business, governmental and institutional customers at a lower
cost than is now generally available and, over time, subject to
regulatory constraints, to offer a full range of local exchange
telecommunications services to business, government,
institutional and residential customers.
- -----------------------
** networkMCI is a service mark of MCI Communications
Corporation.
Page 4 of 62
<PAGE> PAGE 5
Further, in February 1994, MCI entered into a letter
agreement with Nextel Communications, Inc. ("Nextel") and Comcast
Corporation which contemplates, as part of a strategic alliance
between the companies and subject to the terms and conditions of
definitive documentation, that MCI will invest approximately $1.3
billion in Nextel over the next three years for approximately a
17% equity interest. The letter agreement also contemplates that
MCI will utilize Nextel as its principal provider of wireless
telecommunications services and will offer to Nextel all business
opportunities in respect of providing wireless telecommunications
services and products. In addition, MCI will provide Nextel
marketing and other services to support Nextel's sales of
wireless telecommunications services and products.
The development of strategic alliances to expand the use of
MCI's services internationally is also a part of networkMCI. In
August 1993, MCI entered into a definitive agreement with BT
providing for the acquisition by BT of an approximate 20% equity
interest in MCI for approximately $4.3 billion, the formation of
a joint venture between BT and MCI to provide global enhanced and
value-added telecommunications services, and the purchase by MCI
of substantially all the assets of the U.S. operations of BT's
data services subsidiary, BT North America, Inc.
The joint venture, in which MCI will own a 24.9% equity
interest, will provide global enhanced and value-added
telecommunications services for which MCI will be the exclusive
distributor in North, Central and South America, and BT will be
the exclusive distributor in the rest of the world. MCI expects
to invest approximately $250 million in this joint venture over
the next five years.
In January 1994, the company announced its intention to form
a joint venture with Grupo Financiero Banamex-Accival
("Banacci"), Mexico's largest financial group, to provide
competitive domestic and international long-distance
telecommunications services in Mexico using MCI's technology.
Subject to the grant of a concession from the government of
Mexico, which is expected in August 1994, the joint venture will
provide competitive switched telecommunication services
commencing in August 1996. MCI will own a 45% equity interest in
this joint venture. MCI will invest a total of $450 million in
the joint venture over the next several years.
Page 5 of 62
<PAGE> PAGE 6
In 1992, MCI entered into a strategic alliance with Stentor,
an alliance of major Canadian telephone companies, to develop a
fully integrated intelligent network linking the United States
and Canada. The combination of the alliance and the formation of
the joint venture in Mexico will assist in the development of a
fully integrated, seamless North American network capable of
providing services with identical features to customers
throughout the United States, Canada and Mexico.
The consummation of the transactions with BT are subject to
various conditions, including the receipt of regulatory approvals
which have not yet been obtained. The transactions with each of
Banacci and Nextel are subject to the execution of definitive
agreements and the satisfaction of various other conditions,
including the receipt of regulatory approvals which have not yet
been obtained.
MCI estimates that networkMCI will involve the investment by
MCI and its associated venturers of a total of more than $20
billion through the end of the decade.
COMPETITION
- -----------
Competition in the long-distance telecommunications services
market is intense, and MCI expects it to remain so for the
foreseeable future. American Telephone and Telegraph Company
("AT&T") continues to be MCI's primary and most powerful
competitor in the domestic and international long-distance
telecommunications services market. AT&T is substantially larger
than MCI and continues to compete vigorously with MCI. In
general, MCI's long-distance telecommunications services are
priced lower than the comparable services offered by AT&T.
Although price is a significant factor in customer choice,
innovation and quality of services, marketing strategy, customer
service and other non-price factors are also important elements
affecting competition.
MCI also competes with Sprint Corporation and other
facilities-based domestic communications common carriers and
numerous resellers of long-distance telecommunications services.
Under current FCC policy, almost any entity can freely enter the
domestic long-distance telecommunications services market.
Further, MCI also competes with the LEC that services the
local access transport area ("LATA") where MCI is authorized to
provide intra-LATA long-distance telecommunications services.
MCI expects competition in this market to remain intense for the
foreseeable future.
Page 6 of 62
<PAGE> PAGE 7
The seven Regional Bell Operating Companies (individually an
"RBOC" and collectively the "RBOCs"), are presently prohibited by
the 1982 AT&T divestiture decree from entering the interstate
long-distance telecommunications services market. Nevertheless,
they have attempted to obtain relief from this and other
restrictions through petitions to the federal courts and
supporting proposed legislation in Congress. The RBOC's have
very substantial capital and other resources and long standing
customer relationships and if they are permitted to offer
interstate long-distance telecommunications services, they could
be significant competitors in the interstate long-distance
telecommunications services market. Furthermore, to the extent
the RBOC's maintain a monopoly in their local exchange markets,
they have the potential to subsidize any long-distance rates with
profits from their monopoly business.
Several bills have been introduced in Congress that would
permit the RBOCS to provide interstate long-distance
telecommunications services. Some of these bills would permit an
RBOC to enter the interstate long-distance telecommunications
services market only once the RBOC sells separately each element
of the local exchange telecommunications services it provides and
there is actual and demonstrable competition in its local
exchange telecommunications services market. Another bill
introduced in the House of Representatives would permit the RBOCs
to provide intrastate long-distance telecommunications services
subject to state regulatory approval; resell long-distance
telecommunications services for calls that originate in a state
that permits intraLATA toll competition; and provide interstate
long-distance telecommunications services for calls within the
RBOC's service region, subject to FCC and Department of Justice
approval. This bill requires that the RBOCs demonstrate that
their monopoly position in the local exchange telecommunications
services market will not impede competition in the interstate
long-distance telecommunications services market but does not
require that there be competition in an RBOC's local exchange
telecommunications services market before it will be permitted to
provide or resell interstate long-distance telecommunications
services.
It is not possible to predict whether or when any of these
legislative proposals will be enacted, or what they will finally
provide if enacted.
MCI is monitoring these bills closely and will vigorously
oppose any legislation that does not provide for substantial
competition in the local exchange telecommunications services
markets before the RBOCs are allowed into the long-distance
telecommunications services market.
Page 7 of 62
<PAGE> PAGE 8
The partial unbundling of the local exchange
telecommunications services through the FCC's actions related to
special access services and switched access services has created
an opportunity for MCI, through MCI Metro, to compete with the
LECs and the CAPs in providing these services. In addition, as
the states open up additional local exchange telecommunications
services to competition, MCI Metro will also compete with the
LECs in the offering of these services. MCI expects that the
LECs will compete vigorously with MCI Metro in the local exchange
telecommunications services market. The LECs have substantial
capital and other resources, long standing customer relationships
and existing networks. In addition, the state regulatory
agencies regulating the LECs may provide them with a greater
degree of flexibility in pricing their services than is currently
permitted.
This greater flexibility will give the LECs the freedom to
determine their rates within a certain range and to enter into
individual contracts with customers. The company believes this
flexibility and the LECs control of those aspects of the local
exchange network that cannot be reproduced efficiently by a
competitor present opportunities for the LECs to subsidize the
prices of services which compete with MCI Metro's proposed
services in an effort to stifle MCI Metro's competition.
MCI Metro will also compete in the local exchange
telecommunications services market with a number of CAPs, a few
of which have existing local networks and significant financial
resources.
REGULATION
- ----------
The FCC has extensive authority to regulate common carriers,
including the power to review the rates charged by long-distance
carriers and to establish policies that promote competition in
the long-distance telecommunications services market.
The FCC exercised this power by adopting a policy, effective
on May 1, 1993, that requires long-distance carriers to permit
customers to retain their current 800 numbers when they change
long-distance carriers. In recognition of AT&T's dominance in
the 800 services market, this policy also required AT&T to permit
certain large businesses using AT&T's 800 service to cancel their
long-term contracts for AT&T services within 90 days of May 1,
1993 if they desired to choose another long-distance carrier for
those services.
Page 8 of 62
<PAGE> PAGE 9
In another effort to promote competition in the long-distance
telecommunications services market, the FCC in 1991 adopted a two
year transition plan to restructure switched transport access
charges imposed on long-distance carriers by LECs. The plan will
permit the LECs to base a portion of these switched access
charges on a flat, non-usage sensitive rate basis. This provides
both the LECs and CAPs the ability to compete for long-distance
carriers' access business on a more equal basis while minimizing
the adverse impact on long-distance competition.
In September 1992, the FCC voted to require certain of the
LECs, subject to certain exceptions, to offer long-distance
carriers, such as MCI, CAPs and certain others, physical
collocation in the LEC's offices at cost-based rates. The LECs
have filed tariffs for both special and switched access
interconnection. These rates have not yet gone into effect and
are being reviewed by the FCC. Under these decisions by the FCC,
MCI expects to expand the number of customers to which it can
offer special and switched access services by being able to reach
through interconnection virtually every business customer in its
metropolitan service areas.
MCI believes that these regulatory developments will have a
positive impact on its costs for local interconnection
facilities, although it is not possible to estimate what such
impact will be and whether it will be significant.
Rates of international communications carriers for traffic
from the United States to foreign countries are subject to
regulation by the FCC. Revenues derived from international
services (with the exception of leased channel services) are
generally collected by the originating carrier and divided with
the terminating carriers by means of agreements that are subject
to the approval of the FCC and the approval of the appropriate
overseas agency. International communications facilities in the
U.S. are also subject to the jurisdiction of the FCC, and the
provision of service to a foreign country is subject to the
approval of the FCC and the appropriate foreign governmental
agencies.
To the extent MCI provides intrastate local and long-distance
telecommunications services, it is subject to state regulatory
commissions which have extensive authority to regulate the
provision of such services.
Page 9 of 62
<PAGE> PAGE 10
Item 2. Properties.
- -------------------
MCI leases portions of railroad, utility and other rights of
way for its fiber optic transmission system. MCI also has
numerous tower sites, generally in rural areas, to serve as
repeater stations in its domestic microwave transmission system.
Most of these sites are leased, although MCI does own many of
those which are at an intersection of two or more routes of MCI's
transmission system. Generally, MCI owns the buildings that
serve as switch facilities for the transmission system. In
metropolitan areas, MCI leases facilities to serve as operations
facilities for its intercity and overseas transmissions systems.
MCI also leases office space to serve as sales office and/or
administrative facilities. Some of these facilities are located
jointly with operations facilities. In addition, MCI owns its
headquarters in Washington, D.C. and two buildings in a suburb of
Washington, D.C., as well as administrative facilities in
Richardson, Texas; Colorado Springs, Colorado; Piscataway, New
Jersey; and Cedar Rapids, Iowa.
Item 3. Legal Proceedings.
- ---------------------------
Information regarding contingencies and legal proceedings is
included in Note 10 of the Notes to Consolidated Financial
Statements on pages 46 and 47 of this Annual Report on Form 10-K.
In March 1994, the Court of Appeals for the District of
Columbia Circuit upheld the United States District Court for the
District of Columbia's dismissal of the action described in the
last paragraph of Note 10. MCI has been informed that no further
action will be taken by the plaintiffs in this matter.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
Page 10 of 62
<PAGE> PAGE 11
Item 10. Executive Officers of the Registrant.*
- -----------------------------------------------
The executive officers of MCI are elected annually and serve
at the pleasure of the board of directors. They are:
Name Age* Position
Bert C. Roberts, Jr. 51 Chairman of the Board, Chief
Executive Officer, Director
Richard T. Liebhaber 58 Chief Strategy and Technology
Officer, Director
Gerald H. Taylor 52 Executive Vice President and Group
Executive, MCI Telecommunications
Corporation
Eugene Eidenberg 54 Executive Vice President and Group
Executive
Seth D. Blumenfeld 53 President, MCI International, Inc.
Daniel E. Crawford 54 Executive Vice President, MCI
Telecommunications Corporation
Angela O. Dunlap 37 Executive Vice President, MCI
Telecommunications Corporation
Gary M. Parsons 43 Executive Vice President
Timothy F. Price 40 Executive Vice President, MCI
Telecommunications Corporation
Douglas L. Maine 45 Senior Vice President and Chief
Financial Officer
Jack E. Reich 43 Senior Vice President, MCI
Telecommunications Corporation
John R. Worthington 63 Senior Vice President, General
Counsel, Director
Bradley E. Sparks 47 Vice President, Controller
- --------------------
*As of March 1, 1994
Page 11 of 62
<PAGE> PAGE 12
Mr. Roberts has been Chairman of the Board of MCI since June
1992 and Chief Executive Officer of MCI since December 1991. He
was President and Chief Operating Officer of MCI from October
1985 to June 1992 and President of MCI Telecommunications
Corporation, the subsidiary of MCI providing long-distance
telecommunications services, from May 1983 to June 1992. Mr.
Roberts has been a director of MCI since 1985.
Mr. Liebhaber has been Chief Strategy and Technology Officer
and a director of MCI since June 1992. He was an Executive Vice
President and Group Executive of MCI from May 1990 to June 1992.
He was an Executive Vice President of MCI from December 1985 to
May 1990.
Mr. Taylor has been an Executive Vice President and Group
Executive of MCI Telecommunications Corporation since September
1993. He was an Executive Vice President of MCI
Telecommunications Corporation, serving as President, Consumer
Markets, from November 1990 to August 1993. For more than five
years prior thereto, Mr. Taylor was a Senior Vice President of
MCI Telecommunications Corporation, serving, at separate times,
as President of the Mid-Atlantic Division and the West Division.
Mr. Eidenberg has been an Executive Vice President and Group
Executive of MCI since September 1993, an Executive Vice
President of MCI since January 1990 and an Executive Vice
President of MCI Telecommunications Corporation since December
1989. From May 1987 to November 1989, he was President and Chief
Executive Officer of Macrovision Corporation, a technology
company.
Mr. Blumenfeld has been President of MCI International, Inc.,
a subsidiary of MCI that provides and markets telecommunications
services internationally, since September 1984.
Mr. Crawford has been an Executive Vice President of MCI
Telecommunications Corporation, serving as President, Network
Services, since December 1990. For more than five years prior
thereto, Mr. Crawford was a Senior Vice President of MCI
Telecommunications Corporation, serving as President of the
Southwest Division from July 1989 to December 1990.
Ms. Dunlap has been an Executive Vice President of MCI
Telecommunications Corporation, serving as President, Consumer
Markets, since October 1993. She was a Senior Vice President,
Consumer Markets, of MCI Telecommunications Corporation from
April 1993 to October 1993 and Vice President of MCI
Telecommunications Corporation from November 1990 to April 1993.
For more than five years prior thereto, Ms. Dunlap was employed
by MCI Telecommunications Corporation in various managerial
positions.
Page 12 of 62
<PAGE> PAGE 13
Mr. Parsons has been an Executive Vice President of MCI since
August 1993. He was a Senior Vice President of MCI
Telecommunications Corporation from August 1990 to August 1993,
serving as President of the Southern Division and as a Senior
Vice President. From December 1988 to August 1990, he was an
Executive Vice President of Telecom*USA, Inc., a domestic long-
distance telecommunications company acquired by MCI in August
1990.
Mr. Price has been an Executive Vice President of MCI
Telecommunications Corporation, serving as President, Business
Markets, since June 1993. He was a Senior Vice President of MCI
Telecommunications Corporation from November 1990 to June 1993,
serving as President, Business Services, from July 1992 to June
1993 and as Senior Vice President, Consumer Markets, from
November 1990 to June 1992. For more than five years prior
thereto, Mr. Price was a Vice President of MCI Telecommunications
Corporation.
Mr. Maine has been a Senior Vice President of MCI since
September 1988. Mr. Maine has been Chief Financial Officer of
MCI since February 1992, was Controller of MCI from June 1987 to
April 1989 and was Senior Vice President of Finance from April
1989 to November 1990. He has been a Senior Vice President of
MCI Telecommunications Corporation since September 1988, serving
as President of the Southern Division from November 1990 to
February 1992.
Mr. Reich has been a Senior Vice President of MCI
Telecommunications Corporation, serving as President,
Multinational Accounts, since November 1993. For more than five
years prior thereto he was a Vice President of MCI
Telecommunications Corporation.
Mr. Worthington has been General Counsel of MCI since 1971, a
Senior Vice President of MCI since September 1979, and a director
of MCI since 1968.
Mr. Sparks has been a Vice President and Controller of MCI
since September 1993 and was a Vice President and Treasurer of
MCI from September 1988 to September 1993.
PART II BEGINS ON THE NEXT PAGE
Page 13 of 62
<PAGE> PAGE 14
PART II
Item 5. Market for Registrant's Common Equity and Related
- -----------------------------------------------------------------
Stockholder Matters.
- -------------------
MCI Common Stock is traded on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") NMS. The table
below sets forth the high and low sales prices of the Common
Stock as reported by NASDAQ for the periods indicated. (Prices
in the tables below have been adjusted for the two-for-one stock
split effected in the form of a 100% stock dividend paid on July
9, 1993.)
1993
HIGH LOW
-------- ---------
1st Quarter $23 $18 13/16
2nd Quarter 28 15/16 21 7/16
3rd Quarter 29 7/8 26 1/4
4th Quarter 29 5/8 24 1/8
1992
HIGH LOW
-------- ---------
1st Quarter $18 1/16 $14 3/4
2nd Quarter 17 3/8 14 3/4
3rd Quarter 18 1/8 15 3/8
4th Quarter 20 7/16 16 13/16
MCI paid cash dividends of $.025 (adjusted for the effect of
the two-for-one stock split) per share of common stock in June
and December 1992 and in July and December 1993.
At March 25, 1994, there were 49,939 holders of record of
MCI's Common Stock.
Page 14 of 62
<PAGE> PAGE 15
Item 6. Selected Financial Data.
- ----------------------------------
<TABLE>
SELECTED FINANCIAL INFORMATION
MCI Communications Corporation and Subsidiaries
<CAPTION>
Year ended December 31, 1993 1992 1991 1990 1989
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Summary of operations
Revenue $ 11,921 $10,562 $ 9,491 $ 8,454 $ 6,969
Total operating expenses (10,653) (9,351) (8,400) (7,834) (5,987)
Income from operations 1,268 1,211 1,091 620 982
Interest expense (178) (218) (212) (213) (238)
Income before extraordinary item 627 609 551 299 603
Net income 582 609 551 299 558
Earnings applicable to
common stockholders 581 589 522 270 529
Earnings per common and common
equivalent shares
Income before extraordinary item 1.12 1.11 1.00 .53 1.13
Loss on early debt retirements (.08) - - - (.08)
Total 1.04 1.11 1.00 .53 1.05
Cash dividends per share .05 .05 .05 .05 -
Balance sheet
Gross investment in communications system $11,618 $10,316 $ 9,684 $ 8,708 $ 7,345
Annual investment in communications system 2,095 1,371 1,381 1,283 1,052
Total assets 11,276 9,678 8,834 8,249 6,484
Long-term debt 2,366 3,432 3,104 3,147 2,241
Stockholders' equity 4,713 3,150 2,959 2,340 1,995
</TABLE>
In August 1990, the company acquired all the outstanding shares
of common stock of Telecom*USA. The acquisition was accounted
for as a purchase and, accordingly the net assets and results
of operations of Telecom*USA are included in the information
above since the acquisition date.
All per share amounts have been retroactively restated as a
result of a two-for-one stock split in the form of a 100% stock
dividend, paid on July 9, 1993.
Page 15 of 62
<PAGE> PAGE 16
Item 7. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations.
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS - OVERVIEW
Earnings Summary
Net income was $582 million, $609 million and $551 million, for the
years ended December 31, 1993, 1992 and 1991, respectively. Net
income for the year ended December 31, 1993 reflects a pre-tax
charge of $150 million, recorded in the fourth quarter, primarily to
recognize costs associated with the company's
strategic realignment, streamlining of engineering and network
operations facilities and relocation of certain operations to lower
cost areas. These actions are necessary to better meet the
challenging needs of the domestic market, to expand the company's
role in global telecommunications and to pursue business
opportunities in emerging technologies. Net income for 1993
also includes an extraordinary loss of $45 million, net of tax
benefit, for losses on the early retirement of debt.
Earnings per share for the year ended December 31, 1993, were $1.12
before the extraordinary loss and $1.04 after it, compared to $1.11
and $1.00, for the years ended December 31, 1992 and 1991,
respectively. All earnings per share amounts have been restated as
a result of a two-for-one stock split in the form of a 100% stock
dividend paid on July 9, 1993.
In 1993, the company continued to operate in a single industry
segment, the long-distance telecommunications industry. More than
90% of its operating revenue and identifiable assets relate to its
activities in this industry.
British Telecommunications plc Investment
In August 1993, the company and British Telecommunications plc (BT)
entered into a definitive agreement providing for a total investment
by BT of $4.3 billion in exchange for a new class of common stock
giving BT a 20% voting interest in the company. In June 1993, BT
purchased $830 million of newly issued shares of convertible
preferred stock which will be exchanged for shares of the new class
of common stock upon the receipt of the remaining $3.5 billion from
BT. The company expects these transactions to be consummated later
in 1994 (see Note 2 of the Notes to Consolidated Financial
Statements).
Page 16 of 62
<PAGE> PAGE 17
The company and BT also entered into several other definitive
agreements in August 1993, one of which provided for the formation
of a joint venture to provide global enhanced and value-added
telecommunications services. The company expects to invest
approximately $250 million in this venture over the
next five years. Another agreement provided for the company's
purchase of substantially all of the operations of BT North America
Inc. (BTNA), a data services provider. This transaction was
completed on January 31, 1994 for a purchase price of $108 million.
The company used proceeds from the issuance of commercial paper and
cash from operations to fund this purchase.
Competitive Strategy
In January 1994, the company announced networkMCI, its long-term
strategic vision. Initiatives relating to networkMCI will involve a
variety of activities, including the expansion of the company's
network to create and deliver a wide variety of new branded
services. The company estimates that networkMCI will involve
substantial investment through the end of the decade, a portion of
which is expected to be provided through alliances with other
companies.
One of the announced networkMCI initiatives is the implementation of
high-speed Synchronous Optical Network (SONET) technology throughout
the company's domestic network and on international routes across
the Atlantic and Pacific. In addition to the implementation of
SONET technology, the company plans to increase its network
switching capabilities through the implementation of Asychronous
Transfer Mode (ATM) technology, which enables a wide range of data
communications and wireless communications. The company also
announced the creation of MCI Metro, a new subsidiary that will
construct fiber rings and local switching infrastructure in major
U.S. metropolitan markets over the next several years. This
initiative is intended to make local access facilities available to
long-distance telecommunications carriers at a reasonable cost and,
subject to regulatory constraints, permit MCI Metro to compete in
the local telecommunications services market. The total investment
in MCI Metro will be approximately $2 billion over the next several
years, a portion of which is expected to be provided by alliances
with other companies.
As part of its international long-term strategy, the company
announced, in January 1994, its intention to form a joint venture
with Grupo Financiero Banamex-Accival (Banacci) to provide
competitive domestic and international long-distance
telecommunications services in Mexico. The long-distance market in
Mexico will be opened to competition beginning in 1996, with
licenses expected to be awarded in late 1994. The joint venture
Page 17 of 62
<PAGE> PAGE 18
will be 55 percent owned by Banacci and 45 percent by the company.
The company plans to make available certain technology to the joint
venture in order to facilitate the completion of its integrated
North American network. The total investment over the next several
years is expected to approximate $450 million, of which $150 million
will be made in 1994.
The company expects to finance its cash requirements for the
foregoing activities from operating cash flow, the proceeds from the
BT investment and access to the capital markets. Since all of these
investments are in the early stages of development, they will not
have a significant impact on the company's results of operations in
1994. The company anticipates that these investments will have a
more significant impact on future results of operations as they
develop and mature.
On February 28, 1994, the company announced another integral part of
its networkMCI strategy: a strategic alliance with Nextel
Communications, Inc. (Nextel) and Comcast Corporation (Comcast), to
provide digital wireless personal communications services throughout
the U.S. Subject to regulatory approval, the company plans to
invest approximately $1.3 billion in Nextel over the next several
years, which equates to approximately a 17 percent
interest in Nextel. In addition to the cash investment, the company
will bring its marketing expertise, distribution channels and
intelligent network to the alliance. Comcast currently owns
approximately 17 percent of Nextel and will contribute its expertise
in operating cellular and cable systems. These services will be
marketed by the company under the company's brand name.
Under the terms of the agreement, the company will make an initial
investment of $792 million to acquire 22 million shares of Nextel
Class A common stock, which is expected to occur in mid-1994. The
company has also committed to purchase another 15 million shares of
Class A common stock over the next three years, at an average price
of $38 per share, to bring its total investment to approximately
$1.3 billion. As with other networkMCI initiatives, the company
expects to fund this investment from operating cash flow, the
proceeds from the remaining BT investment and access to the capital
markets.
Recent Accounting Pronouncements
In November 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 112,
Employers' Accounting for Postemployment Benefits, effective for
fiscal years beginning after December 15, 1993. This standard
establishes financial accounting and reporting standards for the
estimated cost of benefits provided by an employer to former or
Page 18 of 62
<PAGE> PAGE 19
inactive employees after their employment, but before their
retirement, such as continuation of medical coverage. It requires
that if defined conditions are met, postemployment benefits must be
estimated and accrued rather than recognized as an expense when
paid. The adoption of this new standard, in the first quarter of
1994, will not have a material impact on the company's financial
position or results of operations.
In May 1993, the FASB issued SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, effective for fiscal
years beginning after December 15, 1993. This standard establishes
new accounting and reporting requirements for certain investments in
debt and equity securities. Upon adoption of this new standard in
the first quarter of 1994, there will not be a material impact on
the company's financial position or results of operations. This
standard will be applied to the company's planned investment in
Nextel, which is expected to occur in mid-1994. In accordance with
the provisions of SFAS 115, any holding gains and losses related to
this investment will be excluded from earnings and reported as a net
amount in a separate component of stockholders' equity until
realized. This standard will also be applied to other applicable
investments that may arise as a result of the use of the final
proceeds from the BT transaction.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Revenue
In 1993, the company's revenue grew 13%, primarily due to growth in
traffic volume of 14%. In 1992 and 1991, the company's revenue
increased 11% and 12%, respectively, and traffic volume increased
15% and 16%, respectively. The variance between revenue growth and
traffic growth in each of the past three years generally reflects
the impact of various product promotions and discounts, changes in
the mix of products sold and migration of some business customers to
lower-priced products. In 1993, this variance narrowed to one
percent compared to four percent in each of 1992 and 1991, as a
result of growth in international and data revenue, changes in the
mix of products sold and increases in certain product prices.
While international and data revenues are expected to continue to
provide a positive impact on this variance in 1994, competitive
pressures in the marketplace may have an unfavorable impact. The
overall increase in revenue and traffic over the last three years
reflects ongoing growth in all areas of the company's business.
Page 19 of 62
<PAGE> PAGE 20
Revenue growth from the consumer market is a result of the sustained
growth of the company's Friends & Family*** brand of products and
growth in the international and multilingual markets. The company's
initiatives in these areas have resulted in substantial growth in
international calling volumes on a year-over-year basis. The
company's 1-800-COLLECT*** product, introduced in May 1993, also
contributed to the revenue growth in the consumer market.
In the business market, revenue and traffic grew in each of the last
three years primarily as a result of the continued success of the
company's virtual private network product, Vnet***. MCI's Vision
and Preferred products also experienced growth in these periods and
were enhanced by the company's introduction of its Proof
Positive**** service in 1993. Growth also resulted from 800
products, particularly in 1993 from the initial net gain in signed
contracts following the FCC's 800 portability ruling. This ruling,
which took effect in May 1993, enables customers to keep their
existing 800 numbers when they change long-distance carriers.
The company's various data products experienced significant growth
in 1993. While data products are not currently a large part of the
company's revenue, continued growth is expected due to the
anticipated increases in demand for broadband services.
Telecommunications expense
The principal components of telecommunications expense are the cost
of access facilities provided by local exchange carriers and other
domestic service providers and the payments made to foreign
telephone companies (international settlements) to complete calls
made from the U.S. by the company's customers.
Telecommunications expense increased 12% in 1993, 11% in 1992 and
15% in 1991, primarily due to growth in the company's domestic and
international traffic partially offset by reductions in
international settlement and domestic switched access rates, costs
savings associated with the company's focus on optimizing network
efficiencies and effective use of local exchange carrier term
pricing plans.
Sales, operations and general
Including a 1993 realignment charge of $150 million, sales,
operations and general expenses increased by 18% in 1993, 11% in
1992 and 21% in 1991. Excluding the realignment charge, sales,
operations and general expenses increased 13% in 1993. These
increases generally reflect the overall growth in the company's
business. The company recorded the $150 million charge in the
fourth quarter of 1993, primarily to recognize costs associated with
the company's strategic realignment, streamlining of engineering and
Page 20 of 62
<PAGE> PAGE 21
network operations facilities and relocation of certain operations
to lower cost areas. Also affecting the 1993 increase was the
mid-year implementation of new products and services, such as
1-800-COLLECT and Proof Positive, and the increased sales and
marketing efforts necessary to take advantage of opportunities
provided by the introduction of 800 portability.
The 21% increase in 1991 was also attributable to the full-year
impact of the purchase of Telecom*USA in August 1990, which resulted
in an increase in full-time employees and related compensation
expenses. Increased expenses relating to marketing and customer
service, as well as expanded use of local telephone companies for
billing services, also contributed to the 1991 increase.
Other
Interest expense decreased in 1993 from the 1992 and 1991 levels.
The decreases reflect the interest savings from the early retirement
and redemptions of debt, as well as the decline in interest rates
during 1993. As a result of the early retirement of debt, the
company recorded a $45 million extraordinary loss, net of the
applicable tax benefit.
In August 1993, legislation was passed which changed various
provisions of the federal income tax laws, including an increase in
the statutory federal income tax rate for corporations from 34% to
35%, retroactively effective to January 1, 1993. As required by
SFAS 109, Accounting for Income Taxes, which the company adopted in
the first quarter of 1993, the company recognized the cumulative
effect of the changes in the third quarter of 1993, the period of
enactment. The primary component of this increase was the required
adjustment to the company's net deferred income tax liability at
December 31, 1992, to reflect the tax law changes.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF LIQUIDITY AND FINANCIAL CONDITION
Current assets grew primarily from the increase in accounts
receivable reflecting higher 1993 revenue. The adoption of SFAS
109, which resulted in the reporting of a current deferred tax
asset, accounted for the remaining portion of the increase. This
tax asset was previously reported as a component of the noncurrent
deferred tax liability (see Note 7 of the Notes to Consolidated
Financial Statements). These increases were partially offset by a
decrease in cash, as additional cash was held at December 31, 1992,
in anticipation of the April 1993 partial retirement of the
company's 10% Subordinated Debentures due April 1, 2011 (10%
Debentures).
Page 21 of 62
<PAGE> PAGE 22
The increase in current liabilities is due mainly to the growth in
the company's ongoing business which led to an increase in the
company's accounts payable and accrued telecommunications expense.
The increase in accrued telecommunications expense resulted from the
company's increased revenue, while the increase in accounts payable
resulted from increased investment in the company's communications
system. The $150 million realignment charge, taken in the fourth
quarter of 1993, also increased other accrued liabilities.
As discussed in Note 4 of the Notes to Consolidated Financial
Statements, the company uses its $1.25 billion bank credit facility
in conjunction with its commercial paper program to fund short-term
fluctuations in working capital. At December 31, 1993, $239 million
of commercial paper borrowings were outstanding and no amounts were
outstanding under the credit facility.
To ensure ready access to the financial markets, the company also
has a shelf registration providing for the issuance of debt
securities with a range of possible maturities and interest at fixed
or variable rates. At December 31, 1993, the company had $950
million principal amount of debt securities available under this
shelf registration.
The change in the company's net communications system primarily
reflects continued investment in its digital transmission and
switching facilities to meet customers' demands for new services,
for redundancy and for enhanced network intelligence. This increase
was offset primarily by the impact of the 1993 depreciation charge.
The company's investment in its communications system resulted in a
significant increase in capacity circuit miles, and was funded with
cash generated from operating activities and commercial paper and
bank credit facility borrowings.
Noncurrent liabilities decreased as a result of the company's
refinancing of a major portion of its long-term debt in the first
half of 1993. This was offset by an increase in the net deferred
income tax liability arising from both the effect of implementing
SFAS 109 and the deferred income tax provision for 1993.
In January 1993, the company issued $200 million of 7 1/8% Senior
Notes due January 2000 and $200 million of 8 1/4% Senior Debentures
due January 2023. The proceeds were used primarily to repay credit
facility and commercial paper borrowings. In March 1993, the
company issued $240 million of 7 3/4% Senior Debentures due March
2024. The proceeds from this issuance, along with borrowings under
the company's credit facility and commercial paper program, were
used to redeem all $616 million, net of unamortized discounts, of
the company's Zero-Coupon Subordinated Convertible Notes. Finally,
in 1993, the company redeemed all $575 million principal amount of
its 10% Debentures. Pursuant to the terms of the indenture, the
Page 22 of 62
<PAGE> PAGE 23
call price for these debentures was $1,080 per each $1,000 principal
amount of debenture, plus accrued and unpaid interest. The company
used cash segregated from operations and earnings during both the
fourth quarter of 1992 and the first quarter of 1993 to retire $283
million principal amount of these debentures. The remaining
redemption of $292 million principal amount was funded by the
proceeds of the June 1993 issuance of preferred stock to BT for $830
million. The remaining portion of the preferred stock proceeds was
used to repay credit facility and commercial paper borrowings and
execute an early buyout of a construction lease.
Stockholders' equity increased primarily as a result of the
aforementioned issuance of preferred stock. Additionally, the
change reflects the additions to retained earnings from net income
for 1993 and common stock issued in connection with employee benefit
plans, partially offset by purchases of treasury stock during the
year.
The company's ratio of debt to total debt plus equity has been
reduced substantially, to 35% at December 31, 1993, from 54% at
December 31, 1992, as a result of the debt restructuring and
increase in stockholders' equity.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS
Cash from Operating Activities
Cash flows from operating activities in 1993 reflect the overall
increase in the company's business volume during the year. Cash
receipts from customers increased approximately 12% in 1993,
primarily from the 13% growth in revenue offset by the increase in
accounts receivable during the year. Cash paid to suppliers and
employees increased 12%, while operating expenses, less depreciation
expense, increased approximately 14%. The difference relates
primarily to the realignment charge of $150 million, which was a
non-cash item. The cash outflow for the realignment charge will be
reflected as a component of cash from operating activities.
Cash Used for Investing Activities
The increase in cash used for investing activities is a result of an
increase in capital expenditures of approximately $460 million
related primarily to increased network capacity, necessary to
support the company's growth in business. In 1993, the company
continued to expand and enhance its digital transmission and
switching facilities to meet customers' demands for new services,
redundancy and enhanced network intelligence. Significant additions
in 1993 included the construction of several major interstate fiber
routes and the completion of a new data center. The remainder of
the increase relates to acquisitions and dispositions of minor
business ventures during the year.
Page 23 of 62
<PAGE> PAGE 24
As a result of its networkMCI strategy, the company is planning
capital expenditures of cash in the range of $2.5 to $3.0 billion in
1994. In management's opinion, the company's cash generated from
operating activities, the remaining $3.5 billion of proceeds from BT
and the company's ability to borrow will be sufficient to maintain
an adequate level of funding to finance these expenditures, the
investment in Nextel and other 1994 investments
associated with networkMCI.
Cash Used for Financing Activities
Cash used for financing activities in 1993 reflects activities
designed to position the company for future business expansion. As
discussed in the Liquidity and Financial Condition section, the
company refinanced or redeemed a significant portion of its
long-term debt in the first half of 1993. In addition, the company
had a net decrease in commercial paper and bank credit facility
borrowings during 1993 and purchased more treasury stock than in
1992.
The cash proceeds from the sale of preferred shares to BT and the
impact of increased employee stock option exercises, reflecting the
favorable performance of the company's stock during the year,
partially offset the outflow of cash in 1993 as mentioned above.
ITEM 8. BEGINS ON THE NEXT PAGE
- ----------------------------------
*** Friends & Family, 1-800-COLLECT and Vnet are registered service
marks of MCI Communications Corporation.
**** Proof Positive is a service mark of MCI Communications
Corporation.
Page 24 of 62
<PAGE> PAGE 25
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
REPORT OF MANAGEMENT
The management of the company is responsible for the financial
information and representations contained in the financial
statements, notes and all other sections of the annual report. The
financial statements have been prepared in conformity with generally
accepted accounting principles appropriate under the circumstances
to reflect, in all material respects, the substance of events and
transactions which have occurred. In preparing the financial
statements, it is necessary that management make informed estimates
and judgments based on currently available information in order to
record the results of certain events and transactions.
The company maintains a system of internal controls designed to
enable management to meet its responsibility for reporting reliable
financial information. The system is designed to provide reasonable
assurance that assets are safeguarded and transactions are recorded
and executed with management's authorization. Internal control
systems are subject to inherent limitations due to the necessity to
balance costs incurred with benefits provided. The company believes
that the existing system of internal controls provides reasonable
assurance that errors or irregularities that could be material to
the financial statements are prevented or would be detected in a
timely manner.
The board of directors pursues its oversight role for the financial
statements through its audit committee, which is comprised solely of
directors who are not officers or employees of the company. They
are responsible for engaging, subject to stockholder approval, the
independent accountants. The audit committee meets periodically
with management and the independent accountants to review their
activities in connection with financial reporting matters. The
independent accountants have full and free access to meet with the
audit committee, without management representatives present, to
discuss the results of their examination and the adequacy and
quality of internal controls and financial reporting.
The report of our independent accountants, Price Waterhouse, appears
herewith. Their audit of the financial statements includes a review
of the company's system of internal controls and testing of records
as required by generally accepted auditing standards.
BRADLEY E. SPARKS
- -----------------
Bradley E. Sparks
Vice President and Controller
January 26, 1994
Page 25 of 62
<PAGE> PAGE 26
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse
To the Board of Directors and Stockholders of
MCI Communications Corporation
In our opinion, the accompanying balance sheet and
the related consolidated income statement, statements of cash flows
and stockholders' equity present fairly, in all material
respects, the financial position of MCI Communications Corporation
and its subsidiaries at December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years
in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/PRICE WATERHOUSE
- -------------------
PRICE WATERHOUSE
January 26, 1994
Washington, D.C.
Page 26 of 62
<PAGE> PAGE 27
INCOME STATEMENT
MCI Communications Corporation and Subsidiaries
Year ended December 31, 1993 1992 1991
(In millions, except per share amounts) ---- ---- ----
Revenue
Sales of communications services $11,921 $10,562 $9,491
------- ------- ------
Operating expenses
Telecommunications 6,373 5,684 5,112
Sales, operations and general 3,310 2,794 2,512
Depreciation 970 873 776
------- ------- ------
Total operating expenses 10,653 9,351 8,400
------- ------- ------
Income from operations 1,268 1,211 1,091
Interest expense (178) (218) (212)
Other expense, net (45) (30) (31)
------- ------- ------
Income before income taxes and
extraordinary item 1,045 963 848
Income tax provision 418 354 297
------- ------- ------
Income before extraordinary item 627 609 551
Extraordinary loss on early debt
retirements, less applicable tax
benefit of $26 million 45 - -
------- ------- ------
Net income $ 582 $ 609 $ 551
======= ======= ======
Dividends on preferred stock 1 20 29
------- ------- ------
Earnings applicable to common stockholders $ 581 $ 589 $ 522
======= ======= ======
Earnings per common and common equivalent shares
Income before extraordinary item $ 1.12 $ 1.11 $ 1.00
Loss on early debt retirements (.08) - -
------- ------- ------
Total $ 1.04 $ 1.11 $ 1.00
======= ======= ======
See accompanying Notes to Consolidated Financial Statements
Page 27 of 62
<PAGE> PAGE 28
BALANCE SHEET
MCI Communications Corporation and Subsidiaries
December 31, 1993 1992
(In millions) ---- ----
Assets
Current assets
Cash and cash equivalents $ 165 $ 232
Receivables, net of allowance for
uncollectibles of $211 and $189 million 2,131 1,764
Deferred income taxes 116 -
Other 189 185
------- ------
Total current assets 2,601 2,181
------- ------
Communications system
System in service 8,563 7,723
Other property and equipment 2,172 1,924
------- ------
Total communications system in service 10,735 9,647
------- ------
Accumulated depreciation (4,297) (4,151)
Construction in progress 883 669
------- ------
Total communications system, net 7,321 6,165
------- ------
Other assets
Excess of cost over net assets acquired, net 1,093 1,111
Other assets and deferred charges, net 261 221
------- ------
Total other assets 1,354 1,332
------- ------
Total assets $11,276 $9,678
======= ======
Page 28 of 62
<PAGE> PAGE 29
Liabilities and stockholders' equity
Current liabilities
Accrued telecommunications expense $ 1,507 $1,175
Accounts payable 742 467
Long-term debt due within one year 215 215
Other accrued liabilities 737 607
------- ------
Total current liabilities 3,201 2,464
------- ------
Noncurrent liabilities
Long-term debt 2,366 3,432
Deferred income taxes 927 558
Other 69 74
------- ------
Total noncurrent liabilities 3,362 4,064
------- ------
Stockholders' equity
Series D convertible preferred stock, $.10 par
value, authorized and outstanding 13,736 shares 1 -
Common stock, $.10 par value, authorized 800
million shares, issued 592 and 296 million shares 60 30
Additional paid in capital 2,493 1,479
Retained earnings 2,785 2,231
Treasury stock at cost, 51 and 33 million shares (626) (590)
------- ------
Total stockholders' equity 4,713 3,150
------- ------
Total liabilities and stockholders' equity $11,276 $9,678
======= ======
See accompanying Notes to Consolidated Financial Statements
Page 29 of 62
<PAGE> PAGE 30
STATEMENT OF CASH FLOWS
MCI Communications Corporation and Subsidiaries
Year ended December 31, 1993 1992 1991
(In millions) ---- ---- ----
Operating activities
Cash received from customers $11,546 $10,328 $9,362
Cash paid to suppliers and employees (9,097) (8,154) (7,597)
Taxes paid (321) (292) (292)
Interest paid (150) (156) (202)
------- ------- ------
Cash from operating activities 1,978 1,726 1,271
------- ------- ------
Investing activities
Cash outflow for communications system (1,733) (1,272) (1,377)
Other, net (26) 11 1
------- ------- ------
Cash used for investing activities (1,759) (1,261) (1,376)
------- ------- ------
Net cash flow before financing activities 219 465 (105)
------- ------- ------
Financing activities
Issuance of Senior Notes and other debt 756 481 527
Retirement of Senior Notes and other debt (1,468) (218) (504)
Commercial paper and bank credit facility
activity, net (497) (69) (84)
Issuance of preferred stock 830 - -
Redemption of preferred stock - (400) -
Purchase of treasury stock (198) (180) -
Issuance of common stock for employee plans 319 168 79
Payment of dividends on common and
preferred stock (28) (56) (55)
------- ------- ------
Cash used for financing activities (286) (274) (37)
Net (decrease) increase in cash and cash equivalents (67) 191 (142)
Cash and cash equivalents at beginning of year 232 41 183
------- ------- ------
Cash and cash equivalents at end of year $ 165 $ 232 $ 41
======= ======= ======
See accompanying Notes to Consolidated Financial Statements
Page 30 of 62
<PAGE> PAGE 31
STATEMENT OF STOCKHOLDERS' EQUITY
MCI Communications Corporation and Subsidiaries
<TABLE>
Preferred Stock Common Stock
Issued Issued
--------------- ------------ Additional Treasury Stock-
Par Par Paid in Retained Stock, holders'
(In millions) Shares Value Shares Value Capital Earnings at Cost Equity
--------------- ------------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 2 $ 1 296 $ 30 $1,745 $1,173 $(609) $2,340
Net income - - - - - 551 - 551
Common stock issued for employee
stock and benefit plans (5.6 million shares) - - - - 26 - 80 106
Common and preferred dividends - - - - - (55) - (55)
Tax benefit of common stock
transactions related to
employee benefit plans - - - - 17 - - 17
--------------- ------------ ---------- -------- --------- -------
Balance at December 31, 1991 2 1 296 30 1,788 1,669 (529) 2,959
Net income - - - - - 609 - 609
Preferred stock redeemed (2) (1) - - (399) - - (400)
Common stock issued for employee
stock and benefit plans (9.1 million shares) - - - - 72 - 129 201
Treasury stock purchased (5.6 million shares) - - - - - - (190) (190)
Common and preferred dividends - - - - - (47) - (47)
Tax benefit of common stock
transactions related to
employee benefit plans - - - - 18 - - 18
--------------- ------------ ---------- --------- --------- ---------
Balance at December 31, 1992 - - 296 30 1,479 2,231 (590) 3,150
Net income - - - - - 582 - 582
Common stock issued for employee
stock and benefit plans (22.9 million shares)- - - - 179 - 160 339
Treasury stock purchased (8.4 million shares) - - - - - - (196) (196)
Common and preferred dividends - - - - - (28) - (28)
Preferred stock issued (13,736 shares) 1 1 - - 829 - - 830
Stock split effected in the form of a 100%
stock dividend - - 296 30 (30) - - -
Tax benefit of common stock
transactions related to
employee benefit plans - - - - 36 - - 36
-------------- ------------ ---------- --------- --------- -------
Balance at December 31, 1993 1 $ 1 592 $ 60 $2,493 $2,785 $ (626) $4,713
============== ============ ========== ========= ========= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 31 of 62
<PAGE> PAGE 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MCI Communications Corporation and Subsidiaries
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the consolidated accounts of MCI
Communications Corporation and its majority-owned subsidiaries
(collectively, the company). All significant intercompany
transactions are eliminated in the financial statements. Investments
in 20% to 50% owned companies are accounted for under the equity
method. Other investments are recorded at cost.
Revenue
The company records as revenue the amount of communications services
rendered, as measured by the minutes of traffic processed, after
deducting an estimate of the traffic which will be neither billed nor
collected.
Communications System
The investment in communications system is recorded at cost and
includes material, interest, labor and overhead. The costs of
construction and equipment are transferred to communications system in
service as construction projects are completed and/or equipment is
placed in service. Depreciation is recorded commencing with the first
full month that the assets are in service and is provided using the
straight-line method over their estimated useful lives. The company
periodically reviews and adjusts the useful lives assigned to fixed
assets to ensure that depreciation charges provide appropriate
recovery of capital costs over the estimated physical and
technological lives of the assets. Writedowns related to assets not
yet retired are included in accumulated depreciation. The weighted
average depreciable life of the assets comprising the communications
system in service approximates 11 years. Other property and equipment
includes buildings and administrative assets that are depreciated
using lives of up to 35 years. Most of the company's communications
system assets are depreciated under the group method. Under this
method the cost of equipment retired in the ordinary course of
business, less proceeds, is charged to accumulated depreciation.
Maintenance and repairs are charged to expense as incurred.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired consists of the excess of the
cost to acquire subsidiaries over the estimated fair market value of
the net assets acquired. These amounts are being amortized by the use
of the straight-line method over lives ranging from 10 to 40 years.
Accumulated amortization at December 31, 1993 and 1992 was $101
million and $70 million, respectively.
Page 32 of 62
<PAGE> PAGE 33
Other Assets and Deferred Charges
Included in other assets and deferred charges are investments in
nonconsolidated entities, right-of-way agreements with third parties,
debt issuance costs and unamortized customer discounts. Right-of-way
costs are amortized as the assets are placed in service, over the
lesser of the remaining term of the agreements or 25 years. Debt
issuance costs are amortized over the life of the applicable debt.
Deferred customer discounts are amortized over the life of the
specific contract to which the discount relates.
Capital Leases
Certain of the company's lease obligations meet the criteria of a
capital lease. These obligations are recorded for financial reporting
purposes at the present value of the future lease payments, including
estimated bargain purchase options, discounted at the approximate
interest rate implicit in each lease. Corresponding amounts are
capitalized and depreciated over the estimated useful lives of the
equipment, which are generally longer than the terms of the leases.
Income Taxes
The company files a consolidated federal income tax return on a
March 31 fiscal year-end. Deferred income taxes are provided on
transactions which are reported in the financial statements in
different periods than for income tax purposes. Tax credits are
recorded under the flow-through method of accounting. Effective
January 1, 1993, the company adopted Statement of Financial Accounting
Standards (SFAS) 109, Accounting for Income Taxes (see Note 7). SFAS
109 superseded a similar standard on income tax accounting, SFAS 96,
which the company had been using as the basis for recording its income
taxes. The adoption of SFAS 109 had no impact on the company's
results of operations. Income tax benefits of tax deductions related
to common stock transactions with the company's employee benefit plans
are recorded directly to additional paid in capital.
Earnings Per Share
Earnings per share are computed on the basis of the weighted average
number of shares of common stock outstanding during each year. These
weighted average shares are adjusted for the effect of common stock
equivalents arising from the assumed exercise of stock options and
subordinated convertible debt, if dilutive, and the assumed conversion
of the Series D preferred stock. The weighted average number of
shares used in the per share computations for each of the years was:
562 million shares in 1993, 532 million shares in 1992 and 520 million
shares in 1991. Fully diluted earnings per share are not materially
different from primary earnings per share.
Page 33 of 62
<PAGE> PAGE 34
Cash and Cash Equivalents
At December 31, 1993 and 1992, checks not yet presented for payment of
$193 million and $163 million in excess of cash balances,
respectively, are included in current liabilities. The company had
sufficient funds available to cover these outstanding checks when they
were presented for payment.
Cash equivalents consist of short-term investments with original
maturities of ninety days or less. The carrying amount reported in
the accompanying balance sheet for cash equivalents approximates fair
value due to the short-term maturity of these instruments.
Reclassification
Certain prior year information has been reclassified to conform to the
current year presentation.
NOTE 2. BRITISH TELECOMMUNICATIONS PLC AGREEMENTS
On June 2, 1993, the company and British Telecommunications plc (BT
and, collectively with the company, the Parties) entered into a letter
of intent and, on August 4, 1993, entered into superseding definitive
agreements, providing for, among other things, (a) the purchase by BT
at closing of a number of shares of a new class of voting common stock
(Class A Common Stock) of the company, to be authorized by stock-
holders, for approximately $3.5 billion in cash, (b) the formation of
an international joint venture between BT and the company to provide
global enhanced and value-added telecommunications services and
(c) several other transactions, including the January 31, 1994
purchase of substantially all of the operations of BT North America
Inc. by the company for $108 million.
On June 4, 1993, the company issued 13,736 shares of Series D
nonvoting convertible preferred stock to BT at a purchase price of
$60,400 per share, which, if converted on that date, would have
equated to approximately 4.9% of the outstanding common stock of the
company. Each share of the preferred stock is entitled to receive
dividends equal to 2,000 times the dividends or other distributions,
if any, declared on the company's common stock. Each share of
preferred stock will automatically convert into 2,000 shares of the
company's common stock, subject to certain anti-dilution protections,
upon expiration or termination of the waiting period, including any
extensions thereof, under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, (the HSR Act) applicable to the conversion of
the preferred stock. Each share of the company's common stock so
issuable will be exchanged for one share of Class A Common Stock upon
consummation of the transactions contemplated by the definitive
agreements. In addition, if the Parties have terminated the
transactions contemplated by the definitive agreements, each share of
the preferred stock will be convertible into 2,000 shares of the
company's common stock, subject to the satisfaction of certain
conditions. BT has agreed not to transfer the preferred stock or
Page 34 of 62
<PAGE> PAGE 35
common stock issuable upon conversion until June 1995 and thereafter
may transfer such shares subject to compliance with the registration
requirements of U.S. federal securities laws. Generally, any shares
of preferred stock will automatically convert into common stock on
transfer.
The Class A Common Stock of the company to be issued to BT under the
definitive agreements will be equivalent on a per share basis to the
existing common stock of the company, except with respect to voting
rights. BT's Class A shares will entitle it to proportionate
representation on the company's board of directors, which currently
equates to three seats. In addition to board representation, BT will
be entitled to investor protections with respect to certain corporate
actions of the company. Any shares of Class A Common Stock would
automatically convert into common stock on transfer. The transactions
are subject to a number of conditions, including the approval of the
company's stockholders; required approvals by the European Commission,
United Kingdom regulatory authorities and Federal Communications
Commission; and the expiration of waiting periods under the HSR Act
and Exon-Florio statute.
The shares of Class A Common Stock issuable to BT upon conversion of
the preferred stock and the shares of Class A Common Stock to be
issued to BT under the definitive agreements, will represent
approximately 20% of the company's outstanding common stock at that
time. The blended purchase price of the Class A Common Stock is $32
per share.
The Parties plan to invest approximately $1 billion in the joint
venture over the next five years. At inception, BT will hold 75.1% of
the new venture's equity, with the company holding the remaining
24.9%. Each of the Parties will be exclusive distributors, in their
respective territories, for marketing the global services produced by
the joint venture.
NOTE 3. LEASE TRANSACTIONS
The amounts included in the communications system financed by capital
leases
are:
December 31, 1993 1992
(In millions)
System in service $ 783 $ 986
Other property and equipment 16 6
------ ------
799 992
Accumulated depreciation (440) (589)
------ ------
$ 359 $ 403
====== ======
Page 35 of 62
<PAGE> PAGE 36
Leases not capitalized are primarily for land on which communications
equipment is located and for administrative facilities, including
office buildings, vehicles, certain data processing equipment and
office equipment. Total rental expense for all operating leases was
$227 million, $229 million and $192 million for the years ended
December 31, 1993, 1992 and 1991, respectively.
At December 31, 1993, the future aggregate minimum rental commitments
for capital leases and noncancellable operating leases are:
Year ended Capital Operating
December 31, Leases Leases Total
(In millions) ------- --------- ------
1994 $ 139 $ 150 $ 289
1995 121 124 245
1996 103 101 204
1997 103 76 179
1998 50 57 107
thereafter 683 166 849
------ ------ ------
Minimum lease payments 1,199 $ 674 $1,873
====== ======
Amount representing interest (510)
------
Present value of future
lease payments $ 689
======
NOTE 4. LONG-TERM DEBT
Long-term debt consists of:
December 31, 1993 1992
(In millions) ---- ----
Senior Notes, with maturities
ranging from February 1994 to
August 2004, at a weighted
average interest rate of 7.2% $1,095 $ 868
Capital lease obligations at a
weighted average interest rate
of 7.6% 689 732
Senior Debentures, with maturities
of January 2023 and March 2024,
at a weighted average interest
rate of 8.0%, net of unamortized
discount of $3 million 437 -
Commercial paper and bank
credit facility borrowings at a
weighted average interest rate of 3.5% 239 736
Zero-Coupon Subordinated Convertible
Notes due December 11, 2004, net of
unamortized discount of $697 million - 608
Page 36 of 62
<PAGE> PAGE 37
10% Subordinated Debentures due
April 1, 2011, net of unamortized
discount of $9 million - 566
Other debt at a weighted average
interest rate of 3.2% 121 137
------ ------
Total debt 2,581 3,647
Debt due within one year (215) (215)
------ ------
Total long-term debt $2,366 $3,432
====== ======
Annual maturities of long-term debt for the five years after December
31, 1993 are as follows: $215 million in 1994; $107 million in 1995;
$643 million in 1996; $119 million in 1997 and $88 million in 1998.
Total interest costs were $239 million in 1993, $270 million in 1992
and $270 million in 1991, of which $61 million, $52 million and $58
million, respectively, were capitalized.
At December 31, 1993, the estimated fair value of the company's
long-term debt, excluding capital lease obligations, is as follows.
This valuation represents either quoted market values, when
available, or the company's estimate based upon market prices of
comparable debt instruments.
Estimated
Carrying Fair
Amount Value
(In millions) -------- ---------
Senior Notes $1,095 $1,159
Senior Debentures 437 462
Commercial paper and bank credit facility
borrowings 239 239
Other debt 121 121
Senior Notes and Debentures
During 1993, the company issued $760 million principal amount of
Senior Notes and Debentures under the current and previous shelf
registrations. The company also repaid $93 million principal amount of
Senior Notes during 1993, leaving $1,535 million principal amount of
Senior Notes and Debentures outstanding at December 31, 1993. On
March 31, 1993, the company filed a $1 billion shelf registration
after issuing all the debt securities available under the previous
$750 million shelf registration. The current shelf registration
renews the company's ability to issue debt securities with a range of
possible maturities at either fixed or variable rates. At December
31, 1993, the company had $950 million of available borrowings under
the current shelf registration.
Page 37 of 62
<PAGE> PAGE 38
Commercial Paper and Bank Credit Facility Borrowings
At December 31, 1993, the company had a $1.25 billion bank credit
facility which expires in June 1996. This credit facility supports
the company's commercial paper program and, in conjunction with this
program, is used to fund fluctuations in working capital and other
general corporate requirements.
During 1993, the company issued commercial paper and borrowed under
this credit facility an aggregate of $4,906 million and repaid an
aggregate of $5,403 million of credit facility and commercial paper
borrowings, leaving $239 million of commercial paper outstanding and
no amounts outstanding under the credit facility at December 31, 1993.
Borrowings under the commercial paper program and credit facility are
classified as noncurrent if the remaining term of the credit facility
agreement exceeds one year and the unused commitment thereunder equals
or exceeds the amount of commercial paper then outstanding.
Retirements and Redemptions
In March 1993, the company redeemed all $616 million, net of the
unamortized discount, of its Zero-Coupon Subordinated Convertible
Notes due December 11, 2004. The funds for this redemption came from
the issuance of Senior Notes and Debentures and commercial paper and
credit facility borrowings.
In April and May 1993, the company redeemed a total of $283 million
principal amount of its 10% Subordinated Debentures due April 1, 2011
(10% Debentures). These redemptions were funded from segregated cash
generated by the company's operations and earnings during the fourth
quarter of 1992 and the first quarter of 1993. In June 1993, the
remaining $292 million principal amount of 10% Debentures were
redeemed, funded with a portion of the proceeds from the sale of
preferred stock to British Telecommunications plc (see Note 2).
An extraordinary loss of $45 million, net of current income tax
benefit of $26 million, was recorded for the 1993 redemptions. There
were no redemptions or early retirements of debt in 1992.
In 1991, the company retired its $250 million principal, 7.44%
promissory note due October 23, 1996. The funds for this retirement
came from the issuance of Senior Notes. The resulting gain on
retirement was not significant.
NOTE 5. STOCKHOLDERS' EQUITY
Preferred Stock
The company is authorized to issue 20 million shares of preferred
stock at $.10 par value per share. The terms and conditions are
determined by the board of directors at each issuance.
Page 38 of 62
<PAGE> PAGE 39
In June 1993, the company issued 13,736 shares of preferred stock,
designated as Series D Convertible preferred stock, to BT for $830
million. Each share of preferred stock will automatically convert
into 2,000 shares of the company's common stock, subject to certain
conditions and is entitled to receive dividends equal to 2,000 times
the dividends or other distributions, if any, declared on the
company's common stock (see Note 2). The company paid a dividend of
$100 per share on this convertible preferred stock in 1993.
At December 31, 1991, the company had outstanding two million shares
of preferred stock, designated as Increasing Rate Cumulative Preferred
Stock, totalling $400 million, which had semiannual dividends of $7.35
per share. During September 1992, all two million outstanding shares
were redeemed and retired for $400 million plus accrued and unpaid
dividends.
Common Stock
On May 24, 1993, the company's board of directors declared a
two-for-one stock split in the form of a 100% stock dividend, which
was paid on July 9, 1993, to stockholders of record as of the close of
business on June 11, 1993. The following have been adjusted for the
effect of the common stock dividend: all per share amounts, current
year treasury stock transactions, the December 31, 1993, treasury
stock share balance and data as to common stock options and the
employee stock purchase plan.
In 1993, 1992 and 1991, the company paid dividends of $.05 per share
on its common stock.
NOTE 6. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
Employee and Directors' Stock Option Plans
The current Employee Stock Option Plan (the Plan) provides for the
issuance of up to 76 million shares of common stock. On an annual
basis, pursuant to the Plan, the board of directors may increase the
maximum number of shares as of each January 1, by up to 5% of the
number of shares of common stock outstanding at each such date.
Options granted under the Plan are exercisable at such times and in
such installments as determined by the compensation committee of
the board of directors. Options granted under the Plan may not have
an option price less than the fair market value of common stock on the
date of the grant.
Stock appreciation rights may be granted in combination with a stock
option either at the time of the grant or anytime thereafter. No
stock appreciation rights had been granted as of December 31, 1993.
The compensation committee may also grant restricted stock awards and
performance share awards, subject to such conditions, restrictions and
requirements as the committee may determine in its sole discretion.
As of December 31, 1993, there were approximately 510,000 restricted
Page 39 of 62
<PAGE> PAGE 40
shares issued. No performance share awards had been issued as of
December 31, 1993.
The compensation committee may grant both incentive stock options and
non-qualified options under the Plan. All options granted in the last
three years were non-qualified options. These non-qualified options
expire after 10 years and are exercisable to the extent of 33% of the
option shares after one year, 66% after two years and 100% after three
years. Incentive stock options expire between five and 10 years after
issuance and are exercisable to the extent of 33% of the option shares
after one year, 66% after two years and 100% after three years.
The Plan permits the holder of an option to pay the purchase price for
stock option exercises by surrendering shares of common stock having a
fair market value equal to, or greater than, the purchase price.
The company also has a stock option plan for non-employee directors
(the Directors' Plan) which provides for the issuance of up to one
million shares of common stock. Under the Directors' Plan each
non-employee director has been granted a five-year option to purchase
up to 40,000 shares of common stock at the closing price on the date
of grant. The options are exercisable after the first anniversary of
the date of grant, in cumulative installments of 25% per year.
Similar options will be granted automatically to all new board members
who are not employees. Upon the fifth anniversary of the date of
grant of options, the unexercised portion of the grant shall be
canceled and a new option for 40,000 shares shall be granted
automatically.
Additional information with respect to stock options under these
plans is:
Option Amount
Number -----------------------
of Shares Per Common Share Total
--------- ---------------- -----
(In millions, except per common share amounts)
Shares under option, December 31, 1990 30.0 $ 2.69-22.44 $394.7
Options granted 21.4 9.94-14.44 215.1
Options exercised (4.0) 2.69-12.88 (24.9)
Options terminated (2.6) 2.69-19.57 (38.6)
---- ------------ ------
Shares under option, December 31, 1991 44.8 2.69-22.44 546.3
Options granted 17.0 15.82-17.38 269.7
Options exercised (9.0) 2.69-19.57 (85.2)
Options terminated (2.8) 2.69-22.44 (39.9)
---- ------------ ------
Shares under option, December 31, 1992 50.0 3.25-22.44 690.9
Options granted 18.6 20.56-28.75 394.5
Options exercised (15.0) 3.25-22.44 (202.4)
Options terminated (2.3) 9.38-28.75 (40.6)
---- ------------ ------
Shares under option, December 31, 1993 51.3 $ 3.44-28.75 $842.4
==== ============ ======
Options exercisable, December 31, 1993 18.0 $ 3.44-22.44 $255.6
==== ============ ======
Page 40 of 62
<PAGE> PAGE 41
Shares available for future grant,
December 31, 1993 12.5
====
Employee Stock Purchase Plan
Under the company's Employee Stock Purchase Plan (the ESPP Plan), 25
million shares of common stock are available for purchase by eligible
employees of the company through payroll deductions of up to 15% of
their eligible compensation. The purchase price is equal to the
lesser of (a) 85% of the fair market value of the stock on the date it
is purchased or (b) 85% of the fair market value of the stock on
certain specified valuation dates.
Common Stock Reserved
At December 31, 1993, 70.8 million shares of the company's authorized
common stock were reserved for the Employee and Directors' Stock
Option Plans and the ESPP Plan. However, the company has opted to
fund its obligation under these plans with treasury shares for the
three-year period ended December 31, 1993.
NOTE 7. INCOME TAXES
The components of the total income tax provision are:
Year ended December 31, 1993 1992 1991
(In millions) ---- ---- ----
Current
Federal $148 $121 $ 80
State and local 17 20 14
---- ---- ----
Current income tax provision 165 141 94
---- ---- ----
Deferred
Federal 227 193 181
State and local 26 20 22
---- ---- ----
Deferred income tax provision 253 213 203
---- ---- ----
Total income tax provision $418 $354 $297
==== ==== ====
A reconciliation of the statutory federal income tax rate to the company's
effective income tax rate is:
Year ended December 31, 1993 1992 1991
---- ---- ----
Statutory federal income tax rate 35% 34% 34%
State and local income taxes, net
of federal income tax effect 3 3 3
Nondeductible amortization 1 1 1
Adjustment of prior period estimates - (1) (3)
Changes in federal tax laws 1 - -
---- ---- ----
Effective income tax rate 40% 37% 35%
==== ==== ====
Page 41 of 62
<PAGE> PAGE 42
In 1993, 1992 and 1991 the company recorded a tax benefit of $36
million, $18 million and $17 million, respectively, to additional paid
in capital for tax deductions related to common stock transactions
with its employee benefit plans.
At December 31, 1993 and 1992, the company's net deferred income tax
liability is comprised of the following:
1993 1992
---- ----
(In millions)
Deferred income tax asset $ 338 $ 292
Deferred income tax liability (1,149) (850)
------- -----
Net deferred income tax liability $ (811) $(558)
======= =====
The components of these amounts are:
Communications system $(1,097) $(831)
Allowance for uncollectibles 20 50
Realignment expenses 56 -
License fees 29 35
Customer discounts (43) (5)
Alternative minimum and general
business tax credits 116 83
Other, net 108 110
------- -----
Net deferred income tax liability $ (811) $(558)
======= =====
The balance sheet presentation of deferred income taxes under SFAS 109
requires the company to separately disclose its current and long-term
deferred tax balances on a different basis than that required by SFAS
96. Under SFAS 96, the company's current deferred tax balances were
immaterial and, therefore, deferred taxes were presented as a single
net liability in the 1992 balance sheet.
The company has not recorded any valuation allowances against its
deferred income tax assets, either upon adoption of SFAS 109 or during
the year ended December 31, 1993.
In August 1993, legislation was passed which changed various
provisions of the federal income tax laws, including an increase in
the statutory federal income tax rate for corporations from 34% to
35%, retroactively effective to January 1, 1993. The company's net
deferred income tax liability was increased by approximately $13
million to reflect the impact of the tax law changes on the net
deferred income tax liability as of December 31, 1992.
At December 31, 1993, for federal income tax purposes, the company has
available $35 million of net operating loss carryforwards, $35 million
of Alternative Minimum Tax (AMT) net operating loss carryforwards, $83
Page 42 of 62
<PAGE> PAGE 43
million of general business tax credit carryforwards expiring after
the year 2000 and $180 million of AMT credit carryforwards which have
no expiration date. At December 31, 1993 and 1992, there are no
carryforwards for financial reporting purposes.
NOTE 8. EMPLOYEE BENEFIT PLANS
Pension Plans
The company maintains a noncontributory defined benefit pension plan
(MCI Plan) and a supplemental pension plan (Supplemental Plan).
Western Union International, Inc. (WUI), a subsidiary of the company,
also has a defined benefit plan (WUI Plan). Collectively, these plans
cover substantially all full-time employees. The company's policy is
to fund the MCI Plan and the WUI Plan in accordance with the minimum
funding requirements of the Employee Retirement Income Security Act of
1974.
The MCI Plan and the Supplemental Plan provide pension benefits that
are based on the employee's compensation for each year of service
prior to retirement. The WUI Plan provides pension benefits based on
the employee's compensation for each year of service after 1990 and
prior to retirement.
Net pension expense includes:
Year ended December 31, 1993 1992 1991
(In millions) ---- ---- ----
Service cost during the period $18 $15 $11
Interest cost on projected benefit obligation 14 12 10
Actual return on plan assets (36) (11) (28)
Net amortization and deferral 22 (2) 18
--- --- ---
Net pension expense $18 $14 $11
=== === ===
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected
benefit obligation for the MCI Plan were 7.75% and 5%, respectively.
The expected long-term rate of return on assets was 9%. The decrease
in the funded status as of December 31, 1993 is a direct result of the
decrease in the discount rate from the 8.5% rate used in 1992.
Page 43 of 62
<PAGE> PAGE 44
The MCI Plan pension obligation consists of:
December 31, 1993 1992
(In millions) ---- ----
Plan assets at fair value, primarily listed
stocks and U.S. bonds $110 $ 88
Projected benefit obligation for service
rendered to date (164) (105)
---- ----
Funded status (54) (17)
Unrecognized net results from past experience
different from that assumed 25 2
Prior service cost not yet recognized in net
periodic pension cost 17 11
Unrecognized net asset at January 1, 1986
being recognized over 16 years (4) (5)
---- ----
Total pension obligation $(16) $( 9)
==== ====
The actuarial present value of accumulated benefit obligations for the
MCI Plan is $127 million and $82 million, including vested benefits of
$111 million and $62 million, as of December 31, 1993 and 1992,
respectively.
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected
benefit obligation for the WUI Plan were 7.25% and 5%, respectively.
The expected long-term rate of return on assets was 9%.
The WUI Plan pension (obligation)/asset consists of:
December 31, 1993 1992
(In millions) ---- ----
Plan assets at fair value, primarily listed
stocks and U.S. bonds $ 78 $ 72
Projected benefit obligation for service
rendered to date (60) (53)
---- ----
Funded status 18 19
Unrecognized net results from past experience
different from that assumed (20) (15)
Prior service cost not yet recognized in net
periodic pension cost 1 1
Unrecognized net asset at January 1, 1986
being recognized over 17 years (2) (2)
---- ----
Total pension (obligation)/asset $ (3) $ 3
==== ====
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<PAGE> PAGE 45
The actuarial present value of accumulated benefit obligations is $59
million and $51 million, including vested benefits of $57 million and
$50 million, as of December 31, 1993 and 1992, respectively.
Employee Stock Ownership Plan and 401(k) Plans
The company has combined employee stock ownership (ESOP) and 401(k)
retirement savings plans (RSP) covering substantially all of its
employees. The savings plans allow employees to contribute pre-tax
income in accordance with the requirements of Internal Revenue Code
Section 401(k). Participants vest in the company's matching
contributions at a rate of 20% per year of service and are 100% vested
in their elective contributions.
In accordance with the terms of the ESOP, the company is entitled to
make an annual contribution to the ESOP, either in cash or shares of
the company's common stock, in amounts as determined by the board of
directors. During 1993, the company announced an increase in the
company's match on 401(k) contributions for plan years beginning in
1994 and that it would not make an ESOP contribution for 1993. In
lieu of a 1993 ESOP contribution, the company will make a
similarly-calculated contribution for all eligible employees into
the 401(k) section of the plans during the first quarter of 1994. The
company contributed 1,015,414 and 1,137,588 shares of its common stock
to the ESOP for the plan years ended December 31, 1992 and 1991,
respectively. The company also contributed 791,447, 904,796 and
916,132 shares of its common stock as the company's matching
contribution to the RSP for the plan years ended December 31, 1993,
1992 and 1991, respectively.
WUI sponsors a 401(k) savings plan for its collectively bargained
employees (WUI 401(k)). The savings plan is intended to meet
requirements of Internal Revenue Code Section 401(k). WUI 401(k)
participants vest in the company's matching contributions at a rate of
20% per year of service and are 100% vested in their elective
contributions. The company contributed 18,974, 27,486 and 28,550
shares of its common stock to the WUI 401(k) for the plan years ended
December 31, 1993, 1992 and 1991, respectively.
Postretirement and Postemployment Benefits
Effective January 1, 1993, the company adopted SFAS 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. SFAS 106
requires that certain postretirement benefits, such as medical
insurance coverage, be estimated and accrued over an employee's
working years, rather than recognized as an expense when paid. Except
for pensions, the company does not generally provide postretirement
benefits to its employees. Accordingly, adoption of SFAS 106 did not
have a material impact on the company's financial position or results
of operations. The company elected to amortize the transition
obligation for the covered employees on a straight-line basis over 20
years.
Page 45 of 62
<PAGE> PAGE 46
In November 1992, the Financial Accounting Standards Board issued SFAS
112, Employers' Accounting for Postemployment Benefits, effective for
fiscal years beginning after December 15, 1993. This standard
established financial accounting and reporting standards for the
estimated cost of benefits provided by an employer to former or
inactive employees after their employment, but before their
retirement, such as continuation of medical coverage. It will require
that if defined conditions are met, postemployment benefits be
estimated and accrued rather than recognized as an expense when
paid. The company intends to adopt this new standard in the first
quarter of 1994. Adoption of this new standard will not have a
material impact on the company's financial position or results of
operations.
NOTE 9. CASH FLOW INFORMATION
The reconciliation of net income in the Income Statement to cash from
operating activities in the Statement of Cash Flows is as follows:
Year ended December 31, 1993 1992 1991
(In millions) ---- ---- ----
Net income $ 582 $ 609 $ 551
Adjustments to earnings:
Depreciation and amortization 1,019 955 855
Deferred income tax provision 253 213 203
Net change in operating activity accounts
other than cash and cash equivalents:
Receivables (370) (155) (157)
Accounts payable (68) (120) 128
Other operating activity accounts 562 224 (309)
------ ------ ------
Cash from operating activities $1,978 $1,726 $1,271
====== ====== ======
NOTE 10. CONTINGENCIES
The company is a party to a number of lawsuits and other proceedings
arising out of the conduct of its business, including certain
regulatory proceedings. While the ultimate results of lawsuits or
other proceedings cannot be predicted with certainty, the company's
management does not expect that these matters will have a material
adverse effect on the consolidated financial position or results of
operations of the company.
In December 1992, the company petitioned the United States District
Court for the District of Columbia for a declaratory ruling that
certain patents of American Telephone & Telegraph Company (AT&T) were
invalid or that AT&T should be barred from enforcing them against the
company. AT&T counterclaimed that the company was violating certain
additional patents. In May 1993, AT&T and Unitel Communications Inc.,
a Canadian corporation in which AT&T has an equity interest, filed a
Page 46 of 62
<PAGE> PAGE 47
companion suit in the federal court in Canada, alleging that the
company and the Stentor Group of Canadian telephone companies (with
which the company has an alliance) are infringing in Canada four of
the patents at issue in the U.S. litigation. Although these actions
are in their early stages, the company does not expect that either of
these matters will have a material adverse effect on the consolidated
financial position or results of operations of the company.
In 1990, certain stockholders of the company filed an action in the
United States District Court for the District of Columbia alleging
that the company and three of its officers violated securities laws by
making material misstatements of, or omitting to state, material facts
relating to its financial condition and prospects. In May 1992, the
District Court granted the company's Motion to Dismiss, but the
plaintiffs have filed an appeal. The company will vigorously defend
the District Court's dismissal of the action in the Court of Appeals
for the District of Columbia Circuit.
NOTE 11. SELECTED QUARTERLY INFORMATION (Unaudited)
Three months ended Dec. 31, Sept. 30, June 30, Mar. 31,
(In millions, except 1993 1993 1993 1993
per share amounts) -------- --------- -------- --------
Revenue $3,128 $3,054 $2,929 $2,810
Operating expenses:
Telecommunications 1,659 1,636 1,573 1,505
Sales, operations and general 992 814 772 732
Depreciation 256 245 236 233
Income from operations 221 359 348 340
Income before extraordinary item 107 174 178 168
Net income 107 174 150 151
Earnings applicable to
common stockholders 107 174 149 151
Earnings per common and common
equivalent shares:
Income before extraordinary item .18 .30 .32 .31
Loss on early debt retirements - - (.05) (.03)
------ ------ ------ ------
Total .18 .30 .27 .28
Weighted average number of shares of
common stock and common stock
equivalents outstanding 581 580 554 538
=== === === ===
Page 47 of 62
<PAGE> PAGE 48
Three months ended Dec. 31, Sept. 30, June 30, Mar. 31,
(In millions, except 1992 1992 1992 1992
per share amounts) -------- --------- -------- --------
Revenue $2,761 $2,682 $2,606 $2,513
Operating expenses:
Telecommunications 1,472 1,447 1,407 1,358
Sales, operations and general 740 703 687 664
Depreciation 228 223 214 208
Income from operations 321 309 298 283
Net income 160 159 149 141
Earnings applicable to
common stockholders 160 154 141 134
Earnings per common share .30 .29 .26 .25
Weighted average number of shares of
common stock and common stock
equivalents outstanding 534 532 532 530
=== === === ===
The three months ended December 31, 1993, includes a $150 million
charge primarily associated with the company's strategic realignment,
streamlining of engineering and network operations facilities and
relocation of certain operations to lower cost areas.
The three months ended September 30, 1993, includes the effect of the
retroactive tax law change on the company's net income, which
approximated $13 million.
The three months ended December 31, 1992, includes revenue of $56
million, net of expenses, from the intelligent network licensing
agreement with the Stentor companies of Canada and $47 million of
restructuring charges largely associated with the realignment of the
company's Business Markets organization.
Since there are changes in the weighted average number of shares
outstanding each quarter, the sum of earnings per share by quarter
does not equal the earnings per share for the year.
Item 9. Change in and Disagreements with Accountants on
- --------------------------------------------------------
Accounting and Financial Disclosure.
- ------------------------------------
None.
PART III BEGINS ON THE NEXT PAGE
Page 48 of 62
<PAGE> PAGE 49
PART III
Item 10. Directors and Executive Officers.
- ------------------------------------------
Information with respect to executive officers of MCI is set
forth in Part I of this Annual Report on Form 10-K.
Information with respect to directors of MCI is incorporated
herein by reference to the information under the captions
"Election of Directors" and "Compliance with Section 16(a) of the
Exchange Act" in MCI's Proxy Statement for its 1994 Annual
Meeting of Stockholders (the "1994 Proxy Statement").
Item 11. Executive Compensation.
- --------------------------------
Information with respect to executive compensation is
incorporated herein by reference to information under the
captions "Board of Directors' Committees, Meetings and Fees",
"Remuneration of Executive Officers", "Pension Plans",
"Compensation Committee Report on Executive Compensation",
"Compensation Committee Interlocks and Insider Participation" and
"Five-Year Performance Comparison" in the 1994 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
- -------------------------------------------------------------
Management.
- ----------
Information with respect to security ownership is
incorporated herein by reference to the information under the
captions "Election of Directors" and "Security Ownership of
Management and Certain Beneficial Owners" in the 1994 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
Information with respect to certain relationships and related
transactions is incorporated herein by reference to the
information in the eighth paragraph under the caption "Certain
Relationships and Related Transactions" in the 1994 Proxy
Statement.
PART IV BEGINS ON THE NEXT PAGE
Page 49 of 62
<PAGE> PAGE 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
- -----------------------------------------------------------------
Form 8-K.
- --------
(a) Documents filed as a part of this report.
(1) Financial Statements:
Report of Management
Report of Independent Accountants
Income Statement for the years
ended December 31, 1993, 1992
and 1991
Balance Sheet at December 31, 1993
and 1992
Statement of Cash Flows for the
years ended December 31, 1993,
1992 and 1991
Statement of Stockholders' Equity
for the years ended December 31,
1993, 1992 and 1991
Notes to Consolidated Financial Statements
The Financial Statements and Notes thereto appear under Item
8 to this Annual Report on Form 10-K.
(2) Financial Statement Schedules:
The following additional financial data should be read in
conjunction with the Financial Statements and Notes thereto which
appear under Item 8 to this Annual Report on Form 10-K.
Schedules not included with this additional financial data have
been omitted because they are not required or applicable or the
required information is shown in the Financial Statements or
Notes thereto.
Report of Independent Accountants on
Financial Statement Schedules
Communications System (Schedule V)
Accumulated Depreciation of Communications
System (Schedule VI)
Page 50 of 62
<PAGE> PAGE 51
Valuation and Qualifying Accounts (Schedule
VIII)
Short-Term Borrowings (Schedule IX)
Supplementary Income Statement Information
(Schedule X)
The Financial Statement Schedules are submitted as Exhibits
99(a)-(e) to this Annual Report on Form 10-K.
(3) Exhibits.
Executive compensation plans and arrangements required to be
filed, and which have been filed, with the Commission pursuant to
Item 14(c) of this Annual Report on Form 10-K are listed in this
Annual Report on Form 10-K as Exhibits 10(a)-(g).
Exhibit No. Description
- ----------- -----------
3 (a) Restated Certificate of Incorporation of MCI
Communications Corporation filed on June 25, 1993.
(Incorporated by reference to Exhibit 4(a) to the
registrant's Post Effective Amendment No. 1 to
Registration Statement on Form S-8, Reg. No.
33-35339.)
(b) By-laws of registrant, as amended. (Incorporated
by reference to Exhibit 3(b) to registrant's Form
S-3, Reg. No. 33-49387.)
4 (a) Indenture, dated as of October 15, 1989, between
registrant and Bankers Trust Company.
(Incorporated by reference to Exhibit 4(c) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
(b) Indenture dated as of October 15, 1989 between
registrant and Bankers Trust Company.
(Incorporated by reference to Exhibit 4(d) to
registrant's Registration Statement of Form S-3,
Reg. No. 33-31600.)
(c) Indenture dated as of October 15, 1989 between
registrant and Citibank, N.A. (Incorporated by
reference to Exhibit 4(e) to registrant's
Registration Statement on Form S-3, Reg. No.
33-31600.)
Page 51 of 62
<PAGE> PAGE 52
(d) Form of Senior Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(b) to
registrant's Current Report on Form 8-K dated
October 24, 1990.)
(e) Form of Senior Floating Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(a) to
registrant's Current Report on Form 8-K dated
October 24, 1990.)
(f) Form of Subordinated Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(g) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
(g) Form of Subordinated Floating Rate Medium-Term
Note. (Incorporated by reference to Exhibit 4(i)
to registrant's Registration Statement on Form
S-3, Reg. No. 33-31600.)
(h) Form of 7-5/8% Senior Note due November 7, 1996.
(Incorporated by reference to Exhibit 1(c) to
registrant's Current Report on Form 8-K dated
November 6, 1991.)
(i) Form of 7-1/2% Senior Note due August 20, 2004.
(Incorporated by reference to Exhibit 4 of
registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1992.)
(j) Form of 7-1/8% Senior Note due January 20, 2000.
(Incorporated by reference to Exhibit 1(b) of
registrant's Current Report on Form 8-K dated
January 19, 1993.)
(k) Form of 8-1/4% Senior Debenture due January 20,
2023. (Incorporated by reference to Exhibit 1(c)
of registrant's Current Report on Form 8-K dated
January 19, 1993.)
(l) Form of 7-3/4% Senior Debenture due March 15,
2024. (Incorporated by reference to Exhibit 4(a)
of registrant's Current Report on Form 8-K dated
March 12, 1993.)
(m) Form of 6-1/4% Senior Note due March 23, 1999.
(Incorporated by reference to Exhibit 4(a) of
registrant's Current Report on Form 8-K dated
March 15, 1994.)
Page 52 of 62
<PAGE> PAGE 53
(n) Form of 7-3/4% Senior Debenture due March 23,
2025. (Incorporated by reference to Exhibit 4(b)
of registrant's Current Report on Form 8-K dated
March 15, 1994.)
(o) Form of Senior Floating Rate Note due March 16,
1999. (Incorporated by reference to Exhibit 4(c)
of registrant's Current Report on Form 8-K dated
March 15, 1994.)
10 (a) 1979 Stock Option Plan of registrant, as amended
and restated. (Incorporated by reference to
Exhibit 10(a) to registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.)
(b) Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries, as
amended.
(c) Description of Executive Life Insurance Plan for
MCI Communications Corporation and Subsidiaries.
(Incorporated by reference to "Remuneration of
Officers" in registrant's Proxy Statement for its
1992 Annual Meeting of Stockholders.)
(d) MCI Communications Corporation Executive Incentive
Compensation Plan. (Incorporated by reference to
Exhibit 10(d) to registrant's annual Report on
Form 10-K for the Year Ended December 31, 1988.)
(e) Form of Director Indemnification Agreement.
(Incorporated by reference to Appendix B to
registrant's Proxy Statement for its 1987 Annual
Meeting of Stockholders.)
(f) 1988 Directors' Stock Option Plan of registrant.
(Incorporated by reference to Exhibit D to
registrant's Proxy Statement for its 1989 Annual
Meeting of Stockholders.)
(g) Stock Option Plan of registrant. (Incorporated by
reference to Exhibit C to registrant's Proxy
Statement for its 1989 Annual Meeting of
Stockholders.)
Page 53 of 62
<PAGE> PAGE 54
(h) $1,250,000,000 Revolving Credit Agreement dated as
of June 8, 1992 among MCI Communications
Corporation, Bank of America National Trust and
Savings Association and twenty-nine banks party
thereto. (Incorporated by reference to Exhibit 28
to registrant's Current Report on Form 8-K dated
June 24, 1992, as amended July 9, 1992.) The
First Amendment to Credit Agreement dated June 9,
1993 is filed with this Annual Report on Form 10-
K.
(i) Amended and Restated Investment Agreement dated as
of January 31, 1994 between MCI Communications
Corporation and British Telecommunications plc.
(Incorporated by reference to Appendix I of
registrant's Notice of Special Meeting
of Stockholders and Proxy Statement dated
February 4, 1994.)
(j) Joint Venture Agreement dated as of August 4, 1993
between MCI Communications Corporation and BT
Forty-Eight Company and MCI Ventures Corporation
and Moorgate (Twelve) Limited. (Incorporated by
reference to Exhibit 10 (b) of registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993.)
(k) Letter Agreement dated February 27, 1994 by and
between MCI Communications Corporation, Nextel
Communications, Inc. and Comcast Corporation.
(Incorporated by reference to Exhibit 10(a) of
registrant's Current Report on Form 8-K dated
March 9, 1994.)
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Significant Subsidiaries of MCI Communications
Corporation.
23 Consent of Independent Accountants.
99 (a) Communications System (Schedule V).
(b) Accumulated Depreciation of Communications
System (Schedule VI).
(c) Valuation and Qualifying Accounts (Schedule
VIII).
Page 54 of 62
<PAGE> PAGE 55
(d) Short-Term Borrowings (Schedule IX)
(e) Supplementary Income Statement Information
(Schedule X).
(f) Capitalization Table.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
See Item 14(a)(3) of this Annual Report on Form 10-K.
(d) Financial Statement Schedules
See Items 14(a)(2) and 14(a)(3) of this Annual Report on Form
10-K.
Page 55 of 62
<PAGE> PAGE 56
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
MCI Communications Corporation
Our audits of the consolidated financial statements referred to
in our report dated January 26, 1994 appearing on page 26 of this
Annual Report on Form 10-K also included an audit of the
Financial Statement Schedules listed in Item 14(a)(2) of this
Annual Report on Form 10-K. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/PRICE WATERHOUSE
- ------------------------------
PRICE WATERHOUSE
Washington, D.C.
January 26, 1994
Page 56 of 62
<PAGE> PAGE 57
SIGNATURE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MCI COMMUNICATIONS CORPORATION
Bert C. Roberts, Jr.
Dated: March 30, 1994 By: --------------------------
Bert C. Roberts, Jr.
Chairman
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on March 30, 1994 on behalf of the registrant and in the
capacities indicated.
Signature Title
Bert C. Roberts, Jr.
- ----------------------------- Principal Executive Officer,
Bert C. Roberts, Jr. Director
Douglas L. Maine
- ----------------------------- Principal Financial Officer
Douglas L. Maine
Bradley E. Sparks
- ----------------------------- Principal Accounting Officer
Bradley E. Sparks
Clifford L. Alexander, Jr.
- ----------------------------- Director
Clifford L. Alexander, Jr.
Judith Areen
- ------------------------------ Director
Judith Areen
Page 57 of 62
<PAGE> PAGE 58
Michael H. Bader
- ----------------------------- Director
Michael H. Bader
Richard M. Jones
- ----------------------------- Director
Richard M. Jones
Richard T. Liebhaber
- ----------------------------- Director
Richard T. Liebhaber
- ----------------------------- Director
Gordon S. Macklin
C. B. Rogers, Jr.
- ----------------------------- Director
C. B. Rogers, Jr.
Richard B. Sayford
- ----------------------------- Director
Richard B. Sayford
Judith Whittaker
- ----------------------------- Director
Judith Whittaker
John R. Worthington
- ----------------------------- Director
John R. Worthington
Page 58 of 62
<PAGE> PAGE 59
Exhibit Index
---------------
Exhibit No. Description
- ----------- -----------
3 (a) Restated Certificate of Incorporation of MCI
Communications Corporation filed on June 25, 1993.
(Incorporated by reference to Exhibit 4(a) to the
registrant's Post Effective Amendment No.1 to
Registration Statement on Form S-8, Reg. No.
33-35339.)
(b) By-laws of registrant, as amended. (Incorporated
by reference to Exhibit 3(b) to registrant's Form
S-3, Reg. No. 33-49387.)
4 (a) Indenture, dated as of October 15, 1989, between
registrant and Bankers Trust Company.
(Incorporated by reference to Exhibit 4(c) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
(b) Indenture dated as of October 15, 1989 between
registrant and Bankers Trust Company.
(Incorporated by reference to Exhibit 4(d) to
registrant's Registration Statement of Form S-3,
Reg. No. 33-31600.)
(c) Indenture dated as of October 15, 1989 between
registrant and Citibank, N.A. (Incorporated by
reference to Exhibit 4(e) to registrant's
Registration Statement on Form S-3, Reg. No.
33-31600.)
(d) Form of Senior Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(b) to
registrant's Current Report on Form 8-K dated
October 24, 1990.)
(e) Form of Senior Floating Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(a) to
registrant's Current Report on Form 8-K dated
October 24, 1990.)
(f) Form of Subordinated Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(g) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
Page 59 of 62
<PAGE> PAGE 60
(g) Form of Subordinated Floating Rate Medium-Term
Note. (Incorporated by reference to Exhibit 4(i)
to registrant's Registration Statement on Form
S-3, Reg. No. 33-31600.)
(h) Form of 7-5/8% Senior Note due November 7, 1996.
(Incorporated by reference to Exhibit 1(c) to
registrant's Current Report on Form 8-K dated
November 6, 1991.)
(i) Form of 7-1/2% Senior Note due August 20, 2004.
(Incorporated by reference to Exhibit 4 of
registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1992.)
(j) Form of 7-1/8% Senior Note due January 20, 2000.
(Incorporated by reference to Exhibit 1(b) of
registrant's Current Report on Form 8-K dated
January 19, 1993.)
(k) Form of 8-1/4% Senior Debenture due January 20,
2023. (Incorporated by reference to Exhibit 1(c)
of registrant's Current Report on Form 8-K dated
January 19, 1993.)
(l) Form of 7-3/4% Senior Debenture due March 15,
2024. (Incorporated by reference to Exhibit 4(a)
of registrant's Current Report on Form 8-K dated
March 12, 1993.)
(m) Form of 6-1/4% Senior Note due March 23, 1999.
(Incorporated by reference to Exhibit 4(a) of
registrant's Current Report on Form 8-K dated
March 15, 1994.)
(n) Form of 7-3/4% Senior Debenture due March 23,
2025. (Incorporated by reference to Exhibit 4(b)
of registrant's Current Report on Form 8-K dated
March 15, 1994.)
(o) Form of Senior Floating Rate Note due March 16,
1999. (Incorporated by reference to Exhibit 4(c)
of registrant's Current Report on Form 8-K dated
March 15, 1994.)
10 (a) 1979 Stock Option Plan of registrant, as amended
and restated. (Incorporated by reference to
Exhibit 10(a) to registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.)
Page 60 of 62
<PAGE> PAGE 61
(b) Supplemental Retirement Plan for Employees of MCI
Communications Corporation and subsidiaries, as
amended.
(c) Description of Executive Life Insurance Plan for
MCI Communications Corporation and Subsidiaries.
(Incorporated by reference to "Remuneration of
Officers" in registrant's Proxy Statement for its
1992 Annual Meeting of Stockholders.)
(d) MCI Communications Corporation Executive Incentive
Compensation Plan. (Incorporated by reference to
Exhibit 10(d) to registrant's annual Report on
Form 10-K for the Year Ended December 31, 1988.)
(e) Form of Director Indemnification Agreement.
(Incorporated by reference to Appendix B to
registrant's Proxy Statement for its 1987 Annual
Meeting of Stockholders.)
(f) 1988 Directors' Stock Option Plan of registrant.
(Incorporated by reference to Exhibit D to
registrant's Proxy Statement for its 1989 Annual
Meeting of Stockholders.)
(g) Stock Option Plan of registrant. (Incorporated by
reference to Exhibit C to registrant's Proxy
Statement for its 1989 Annual Meeting of
Stockholders.)
(h) $1,250,000,000 Revolving Credit Agreement dated as
of June 8, 1992 among MCI Communications
Corporation, Bank of America National Trust and
Savings Association and twenty-nine banks party
thereto. (Incorporation by reference to Exhibit
28 to registrant's Current Report on Form 8-K
dated June 24, 1992, as amended July 9, 1992.)
The First Amendment to Credit Agreement dated June
9, 1993 is filed with this Annual Report on Form
10-K.
(i) Amended and Restated Investment Agreement dated as
of January 31, 1994 between MCI Communications
Corporation and British Telecommunications plc.
(Incorporated by reference to Appendix I of
registrant's Notice of Special Meeting of
Stockholders and Proxy Statement dated
February 4, 1994.)
Page 61 of 62
<PAGE> PAGE 62
(j) Joint Venture Agreement dated as of August 4, 1993
between MCI Communications Corporation and BT
Forty-Eight Company and MCI Ventures Corporation
and Moorgate (Twelve) Limited. (Incorporated by
reference to Exhibit 10 (b) of registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993.)
(k) Letter Agreement dated February 27, 1994 by and
between MCI Communications Corporation, Nextel
Communications, Inc. and Comcast Corporation.
(Incorporated by reference to Exhibit 10(a) of
registrant's Current Report on Form 8-K dated
March 9, 1994.)
11 Computation of Earnings per Common share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Significant Subsidiaries of MCI Communications
Corporation.
23 Consent of Independent Accountants.
99 (a) Communications System (Schedule V).
(b) Accumulated Depreciation of Communications
System (Schedule VI).
(c) Valuation and Qualifying Accounts (Schedule
VIII).
(d) Short-Term Borrowings (Schedule IX)
(e) Supplementary Income Statement Information
(Schedule X).
(f) Capitalization Table.
Page 62 of 62
<PAGE> Exhibit 10 (b)
--------------
( 1 of 31 )
SUPPLEMENTAL RETIREMENT PLAN FOR
EMPLOYEES OF
MCI COMMUNICATIONS CORPORATION
AND SUBSIDIARIES
March 1991 Edition
<PAGE> Exhibit 10 (b)
--------------
( 2 of 31 )
Table of Contents
Page
Part I - Supplemental Pension Plan.......................... 1
Part II - Supplemental Employee Stock Ownership Plan......... 6
Part III Supplemental Retirement Plan for Selected
Employees of MCI Communications Corporation
and Subsidiaries.................................. 12
Part IV - Administration..................................... 15
<PAGE> Exhibit 10 (b)
--------------
( 3 of 31 )
INTRODUCTION
Effective April 1, 1981, the Supplemental Retirement
Plan for Selected Employees of MCI Communications Corporation and
Subsidiaries was adopted by MCI Communications Corporation
("MCI"). In response to limitations on the dollar amount of
benefits and other changes made to the Internal Revenue Code and
the Employee Retirement Income Security Act of 1974 ("ERISA") by
the Tax Reform Act of 1986 regarding tax-qualified retirement
plans, MCI has amended and restated this Plan effective January 1,
1989 for employees retiring on or after July 1, 1990, to permit
such employees and their spouses and beneficiaries to be able to
continue to enjoy the benefits which would have been provided to
them but for those limitations and changes. Parts I-IV together
are intended to constitute a single plan. Terms used are defined
specifically for that particular Part of the Plan. The Plan's
name is hereby changed to the Supplemental Retirement Plan for
Employees of MCI Communications Corporation and Subsidiaries.
The Plan reads as follows:
<PAGE> Exhibit 10 (b)
--------------
( 4 of 31 )
Part I
Supplemental Pension Plan
Effective January 1, 1989 for employees retiring on or after
July 1, 1990, MCI Communications Corporation ("MCI") has adopted
this Supplemental Pension Plan for its employees and employees of
certain of its subsidiaries. The Plan reads as follows:
Article I - Definitions
The following terms shall have the designated meaning, unless
a different meaning is clearly required by the context:
1.1 Basic Plan. The Pension Plan for Employees of MCI
Communications Corporation and Subsidiaries as in effect at the
Participant's retirement.
1.2 Basic Plan Benefit. The dollar amount paid to the
Participant from the Basic Plan.
1.3 Beneficiary. Beneficiary means the person, trust,
estate, or other entity entitled to receive benefits (if any)
after the Participant's death.
1.4 Code. The Internal Revenue Code of 1986, as amended.
1.5 Company. MCI and any subsidiary of MCI participating in
the Basic Plan.
<PAGE> Exhibit 10 (b)
--------------
( 5 of 31 )
1.6 Participant. A Participant in the Basic Plan who is
receiving a Basic Plan Benefit and whose Basic Plan Benefit is
subject to the limitations of Section 415 of the Code or whose
compensation for purposes of calculating a Basic Plan Benefit is
limited by Section 401(a)(17) of the Code.
1.7 Plan. The Supplemental Pension Plan.
Defined terms in the Basic Plan which are used in this Plan
shall have the meanings given them in the Basic Plan unless a
different meaning is given above or is clearly required by the
context.
Article 11 - Benefits
2.1 Except as provided in Article 2.3, the dollar amount of
benefit payable under this Plan to a Participant shall be
determined at the Participant's Pension Commencement Date and
shall not be adjusted for any reason prior to the death of the
Participant.
2.2 The benefit payable from this Plan shall equal (a) minus
(b), multiplied by a fraction, the numerator of which is (c) and
the denominator of which is (b) where:
(a) is the benefit that would be payable to a Participant
under the Basic Plan irrespective of any limitations
imposed by Sections 415 or 401(a)(17) of the Code
expressed in the form of a life annuity;
<PAGE> Exhibit 10 (b)
---------------
( 6 of 31 )
(b) is the Basic Plan Benefit that would be paid to the
Participant (after compliance with Sections 415 and
401(a)(17) of the Code) if he had elected a straight
life annuity; and
(c) is the Basic Plan Benefit actually paid to the
Participant (after compliance with Sections 415 and
401(a)(17) of the Code).
2.3 Upon the death of the Participant after his Pension
Commencement Date, benefits will continue to be paid to the
surviving spouse, Beneficiary, or contingent annuitant (if any)
designated by the Participant under the Basic Plan to receive
benefits (if any) after the Participant's death. The benefit
payable after the Participant's death shall equal the benefit
determined under Section 2.2 multiplied by a fraction, the
numerator of which is the benefit payable from the Basic Plan
after the Participant's death, and the denominator of which is the
benefit payable from the Basic Plan immediately prior to the
Participant's death.
2.4 Upon the death of the Participant prior to his Pension
Commencement Date, his surviving spouse (if any) shall receive a
benefit payable for life commencing on the Starting Date. The
amount of such benefit shall equal (a) multiplied by a fraction,
<PAGE> Exhibit 10 (b)
---------------
( 7 of 31 )
the numerator of which is (c) and the denominator of which is (b)
where:
(a) is the benefit that would be payable to the Participant
under Section 2.2 if his benefit had begun on the
Starting Date;
(b) is the Basic Plan Benefit that would be paid to the
Participant (after compliance with Sections 415 and
401(a)(17) of the Code) if he had elected a straight
life annuity; and
(c) is the Basic Plan Benefit actually paid to such spouse
(after compliance with Sections 415 and 401(a)(17) of
the Code).
No benefits shall be paid under this Plan (except to the extent
otherwise provided in an annuity contract purchased pursuant to
Section 2.5) with respect to a Participant who dies prior to his
Pension Commencement Date who has no surviving spouse.
2.5 The Company shall be permitted to purchase immediate or
deferred annuity contracts to provide the benefits under this
Plan. The amount payable from such contract in a straight life
annuity form (regardless of the actual benefit form elected) shall
be subtracted from the amount set forth in subsection (a) of
<PAGE> Exhibit 10 (b)
---------------
( 8 of 31 )
Section 2.2 and subsection (a) of Section 2.4 prior to the
determination of any benefit under Section 2.2 or 2.3.
2.6 Benefits under this Plan payable to the Participant
shall be payable monthly beginning on his Pension
Commencement Date.
2.7 Subject to Article X of Part IV, Participants shall vest
in their benefits under this Plan according to the rules set forth
in the Basic Plan.
<PAGE> Exhibit 10 (b)
---------------
( 9 of 31 )
Part II
Supplemental Employee Stock ownership Plan
Effective January 1, 1989 for employees retiring on or after
July 1, 1990, MCI Communications corporation ("MCI") has adopted
this Supplemental Employee Stock Ownership Plan for its employees
and employees of certain of its subsidiaries. The Plan reads as
follows:
Article I - Definitions
The following terms shall have the designated meaning,
unless a different meaning is clearly required by the context:
1.1 Basic Plan Distribution. The distribution paid to the
Participant from the ESOP.
1.2 Beneficiary. Beneficiary has the same meaning as under
the ESOP.
1.3 Code. The Internal Revenue Code of 1986, as amended.
1.4 Committee. The Administrative Committee appointed by
the Board of Directors under the Basic Plan (as defined in Part
1).
1.5 Company. MCI and any subsidiary of MCI participating in
the ESOP.
<PAGE> Exhibit 10 (b)
--------------
( 10 of 31 )
1.6 compensation. Compensation has the same meaning as
defined in the ESOP except that any limitation imposed by Section
401(a)(17) of the Code as in effect from time to time shall be
disregarded.
1.7 ESOP. Part I - ESOP of the MCI Communications
Corporation Employee Stock Ownership and 401(k) Plan.
1.8 Participant. A Participant in the ESOP whose allocation
of contributions and forfeitures under the ESOP for any Plan Year
is limited by Section 415 or 401(a)(17) of the Code.
1.9 Plan. The Supplemental Employee Stock ownership Plan.
Defined terms in the ESOP which are used in this Plan shall
have the meanings given them in the ESOP unless a different
meaning is given above or is clearly required by the context.
Article II - Benefits
2.1. The distribution payable under this Plan to a
Participant or Beneficiary shall be made in shares of Common Stock
as soon as practicable after the six (6) month anniversary of the
Participant's termination of employment. The number of shares to
be distributed shall be determined as of the Participant's
termination of employment.
<PAGE> Exhibit 10 (b)
--------------
( 11 of 31 )
2.2 The distribution payable under this Plan shall equal
(a) minus (b) where:
(a) is the number of shares that would have been allocated
to the Participant's account under the ESOP, including
any dividends or other distributions in respect thereof
(including dividends or other distributions made
subsequent to distribution from the ESOP but prior to
payment under this Plan), irrespective of the limits
imposed by Section 415 of the Code and using the
Participant's Compensation as set forth in Section 1.5
above, and
(b) is the number of shares allocated to the Participant's
account under the ESOP at the time of the Participant's
termination of employment (or if later, his last
allocation under the Plan) including shares (and
dividends which would have been paid on such shares)
which were transferred out of the ESOP on account of the
Participant's diversification election pursuant to the
requirements of Code section 401(a)(28).
If payment under this Plan is made in cash, the number of
shares determined under the foregoing provision shall be converted
to cash using the value of the shares as determined under Section
<PAGE> Exhibit 10 (b)
--------------
( 12 of 31 )
9.3 of the ESOP. If payment is made in shares, the
number of shares shall be rounded to the nearest whole share.
2.3 Subject to Article X of Part IV, Participants shall vest
in their benefits under this Plan according to the rules set forth
in the ESOP.
2.4 Notwithstanding the foregoing provisions, a Participant
shall not be entitled to a distribution or allocation under this
Part II with respect to Plan Years beginning on or after January
1, 1991 in which he is an "officer" within the meaning of section
16(b) of the Securities and Exchange Act of 1934.
Article III - General Provisions
3.1 Restrictions.
(a) If the Committee shall at any time determine that any
Consent (as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any award
under the Plan, the issuance or purchase of shares or other rights
thereunder or the taking of any other action thereunder (each such
action being hereinafter referred to as a "Plan Action"), then
such Plan Action shall not be taken, in whole or in part, unless
and until such Consent shall have been effected or obtained to the
full satisfaction of the Committee. Without limiting the
generality of the foregoing, in the event that (i) the Committee
shall be entitled under the Plan to make any payment in cash,
<PAGE> Exhibit 10 (b)
--------------
( 13 of 31 )
Common Stock or both and (ii) the Committee shall determine that a
Consent is necessary or desirable as a condition of, or in
connection with, payment in any one or more of such forms, then
the Committee shall be entitled to determine not to make any
payment whatsoever until such Consent shall have been obtained in
the manner aforesaid.
(b) The term "Consent" as used herein with respect to any
Plan Action means (i) any and all listings, registrations or
qualifications in respect thereof upon any securities exchange or
under any federal, state or local law, rule or regulation, (ii)
any and all written agreements and representations by the optionee
or grantee with respect to the disposition of shares of Common
Stock, or with respect to any other matter, which the Committee
shall deem necessary or desirable to comply with the terms of any
such listing, registration or qualification or to obtain an
exemption from the requirement that any such listing,
qualification or registration be made and (iii) any and all
consents, clearances and approvals in respect of a Plan Action by
any governmental or other regulatory bodies.
(c) If the Committee at any time determines that payment of
the par value of the Common Stock is required under local, state
or federal laws, rules or regulations, the Committee may require
<PAGE> Exhibit 10 (b)
-------------
( 14 of 31 )
such a payment as a condition of the issuance of shares under this
Plan.
3.2 Adjustments Upon Changes in Capitalization. In the
event of any change in the outstanding Common Stock by reason of a
stock dividend, recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, the Committee shall
appropriately adjust the number of shares of Common Stock which
may be issued under the Plan.
3.3 No Rights as a Stockholder. No person shall have any of
the rights of a stockholder of the Company until the issuance of a
stock certificate (if any) representing his interest under the
Plan.
<PAGE> Exhibit 10 (b)
--------------
( 15 of 31 )
Part III
Supplemental Retirement Plan for Selected Employees
of MCI Communications Corporation and Subsidiaries
Effective April 1, 1981, MCI Communications Corporation
("MCI") adopted this Supplemental Retirement Plan for Selected
Employees of MCI Communications Corporation and Subsidiaries (the
"Plan") and now restates the Plan as follows:
Article I - Definitions
The following terms shall have the designated meaning, unless
a different meaning is clearly required by the context:
1.1 Basic Plan. The Pension Plan for Employees of MCI
Communications Corporation and its Subsidiaries, as in effect at
the time a Participant terminates employment.
1.3 Chairman. The Chairman of the board of directors of
MCI.
1.4 Code. The Internal Revenue Code of 1986, as amended.
1.5 Company. MCI and any subsidiary of MCI participating in
the Basic Plan.
1.6 Participant. An employee who has become a Participant
pursuant to Article II of this Plan.
1.7 Supplemental Benefit. The benefit awarded to a
Participant under this Plan.
<PAGE> Exhibit 10 (b)
--------------
( 16 of 31 )
Defined terms in the Basic Plan which are used in this Plan
shall have the meanings given them in the Basic Plan unless a
different meaning is given above or is clearly required by
context.
Article II - Participation
A full-time Company employee at the officer level, or
equivalent, who is designated as a Participant by the Company
shall participate in this Plan.
Article III - Vesting
Subject to Article X of Part IV, a Participant shall be
entitled to receive his Supplemental Benefit only on the
occurrence of one of the following events:
3.1 His retirement from the Company at or after age 65;
3.2 His retirement from the Company with the consent and
approval of the Company after reaching his Early Retirement Date.
In determining whether a Participant has completed the 5 years of
Service necessary to attain his Early Retirement Date, the Company
may (solely for purposes of this Plan) credit the Participant with
additional years of Service in excess of his period of actual
employment with the Company; or
3.3 His receipt of a Disability Retirement Pension under the
Basic Plan.
<PAGE> Exhibit 10 (b)
---------------
( 17 of 31 )
Article IV - Benefits
The Company in its sole discretion shall determine whether
and to whom a Supplemental Benefit shall be made, the amount of
the Supplemental Benefit and any other conditions or limitations
on such a benefit.
Article V - Payment of Benefits
5.1 A Participant's Supplemental Benefit will commence on
his Pension Commencement Date or his actual retirement from the
Company, if later; provided that the Company may permit earlier
commencement either without actuarial reduction, or in an amount
reduced as described in Section 5.4.2 of the Basic Plan, whichever
the Company shall prescribe.
5.2 Benefits payable only because the Participant is
entitled to a Disability Retirement Pension under the Basic Plan
shall be payable only so long as the Participant continues
entitled to receive such Disability Retirement Pension.
<PAGE> Exhibit 10 (b)
---------------
( 18 of 31 )
Part IV
Administration
This Part IV applies to Parts I-III of the Plan.
Article I - Definitions
1.1 Board of Directors. The board of directors of MCI
Communications Corporation.
1.2 Common Stock. MCI Communications Corporation Common
Stock.
1.3 MCI. MCI Communications Corporation.
1.4 Plan. Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries Parts I through IV.
Article II - Funding
All benefits payable under the Plan shall be paid directly by
MCI or its subsidiaries from its general assets. The rights or
entitlements of any Participant or Beneficiary shall be no greater
than those of an unsecured general creditor of the Company. The
Company shall have the right, in its sole discretion, to purchase
immediate or deferred annuity contracts on behalf of Participants
to fund the benefits provided under Parts I and III of the Plan.
Any amounts owed to a Participant under the Plan shall be offset
by the pre-tax equivalent of the maximum amount payable to such
Participant at age 65 pursuant to any such annuity contracts. The
purchase of such annuity shall fully discharge all the obligations
<PAGE> Exhibit 10 (b)
--------------
( 19 of 31 )
of the Company to such Participant under this Plan, whether or not
the insurance company or other third party who is obligated to pay
on such annuity contract has paid or will pay the benefit to the
Participant.
Article III - Amendments
The Board of Directors may at any time amend the Plan in any
respect or suspend or terminate the Plan in whole or in part
without the consent of any Participant or Beneficiary or any
subsidiary of MCI whose employees are covered by this Plan.
However, no such amendment, suspension or termination shall
deprive any Participant or Beneficiary of any benefit which they
are currently receiving or reduce the amount of benefit determined
under Parts I through III as of the date of amendment, suspension
or termination. Subject to the provisions of this paragraph, any
amendment, modification, suspension or termination of any
provisions of this Plan may be made retroactively.
Article IV - Claims
The Plan shall be administered by the Administrative
Committee and the Investment Committee appointed by the Board of
Directors under the Basic Plan (as defined in Part I). The
Pension Administrative Committee shall be responsible for the
<PAGE> Exhibit 10 (b)
--------------
( 20 of 31 )
administration of the Plan except for those matters which are the
responsibility of the Pension Investment Committee. The Pension
Investment Committee shall be responsible for making decisions
regarding the funding of benefits under the Plan. Each Committee
shall have all the powers necessary or helpful for the carrying
out of its responsibilities, and the decisions or actions of such
Committee in good faith in respect of any matter hereunder shall
be conclusive and binding upon all parties concerned. Each of the
Committees may delegate its right to act on its behalf to one or
more subcommittees appointed by such Committee from time to time.
The Pension Administrative Committee is authorized, subject
to the provisions of the Plan, from time to time to establish such
rules and regulations as it may deem appropriate for the proper
administration of the Plan and to make such determinations under
the Plan as it may deem necessary or advisable, which
determinations shall be conclusive and binding on all parties.
The Pension Administrative Committee shall have the utmost
discretion permitted by law in interpreting, construing and
administering this Plan or the Basic Plan or ESOP as it relates to
this Plan. Any claims relating to the terms of this Plan should
be addressed to the Pension Administrative Committee, c/o Vice
President - General Counsel's Office, 1133 19th Street, N.W.,
<PAGE> Exhibit 10 (b)
--------------
( 21 of 31 )
Washington, D.C. 20036. The claim will be reviewed and a response
given within 90 days of receipt of the claim, unless the Pension
Administrative Committee requires additional time. The Pension
Administrative Committee shall notify the Participant or
Beneficiary of its decision in writing. The Participant or
Beneficiary may request that the Pension Administrative Committee
make an additional independent review of the claim. Such request
must be received within 60 days after the Participant's or
Beneficiary's receipt of the denial or the right to appeal will be
forfeited. The Pension Administrative Committee shall respond as
to its determination after such additional review within 60 days
of the receipt of the request, unless a longer period of review is
required by the Pension Administrative Committee. If the Pension
Administrative Committee does not respond to a claim, the claim
shall be deemed denied. All decisions by the Pension
Administrative Committee are final, conclusive and binding on all
persons. Judicial review of the Pension Administrative Commit-
tee's decision shall be limited to the question as to whether the
decision on such claim by the Pension Administrative Committee was
arbitrary or capricious.
Article V - No Liability of Committee Members
No Committee member shall be personally liable by reason of
any contract or other instrument executed by him or on his behalf
<PAGE> Exhibit 10 (b)
--------------
( 22 of 31 )
in his capacity as a member of a Committee nor for any mistake of
judgment made in good faith, and MCI shall indemnify and hold
harmless each member of the Committees and each other officer,
employee, or director of MCI to whom any duty or power relating to
the administration or interpretation of the Plan may be allocated
or delegated, against any cost or expenses (including counsel
fees) or liability (including any sum in settlement of a claim
with the approval of the Board of Directors) arising out of any
act or omission to act in connection with the Plan unless arising
out of such person's own fraud or bad faith.
Article VI - No Assignment or Alienation of Benefits
Payment of benefits pursuant to this Plan shall be made only
to Participants or as provided by Article IX of this Part IV.
Such benefits shall not be subject in any manner to the debts or
other obligations of the person to whom they are payable and shall
not be subject to transfer, anticipation, sale, assignment,
bankruptcy, pledge, attachment, charge or encumbrance in any
manner, either voluntarily or involuntarily.
Article VII - No Rights to Continue Employment
This Plan is voluntary on the part of MCI and shall not be
deemed to constitute an employment contract between the Company
and Participant and/or consideration for or an inducement for or
<PAGE> Exhibit 10 (b)
--------------
( 23 of 31 )
condition of employment of any Participant. Nothing in this Plan
shall be deemed to give any employee the right to be retained in
the service of the Company or to interfere with the right of the
Company to discharge, terminate or lay off any Participant at any
time for any reason.
Article VIII - Unfunded Plan; Governing Law
The Plan is intended to constitute an unfunded, nonqualified
pension plan for a select group of management or highly
compensated employees. All rights under this Plan shall be
governed by and construed in accordance with the laws of the State
of New York without regard to its choice of laws provision.
Article IX - Payments to Persons other than the Employee
If the Pension Administrative Committee shall find that any
person to whom any amount is payable under the Plan is unable to
care for his affairs because of illness or accident, or has died,
then any payment due him or his estate (unless a prior claim
therefor has been made by a duly appointed legal representative),
may, if the Pension Administrative Committee so directs MCI, be
paid to the Participant's Beneficiary, or if the Participant's
Beneficiary cannot be located to the Participant's spouse, child,
a relative, an institution maintaining or having custody of such
person, or any other person deemed by the Pension Administrative
<PAGE> Exhibit 10 (b)
--------------
( 24 of 31 )
Committee to be a proper recipient on behalf of the Participant.
Any such payment shall completely discharge all of the liabilities
of the Pension Administrative Committee or the Company therefor.
Article X - Forfeiture
Notwithstanding any other provision of this Plan to the
contrary, in the event that a Participant's employment is
terminated by reason of Dismissal for Cause, such Participant and
his Beneficiaries shall lose and forfeit any and all rights to
benefits which might otherwise be payable under this Plan in
respect of such Participant.
"Dismissal for Cause" means termination of employment for (a)
theft or embezzlement of the property of MCI or any of its
subsidiaries and affiliates; (b) fraud or other wrongdoing against
MCI or any of its subsidiaries and affiliates; (c) conviction of a
crime of moral turpitude; (d) receipt of consideration or
acceptance of benefits from, or the participation in business
activities with, persons doing business with the Company or any of
its subsidiaries or an affiliate, in violation of the business
ethics policy of MCI; (e) malicious destruction of the property of
MCI or any of its subsidiaries and affiliates; (f) improper
disclosure of trade secrets of MCI or any of its subsidiaries and
affiliates; (g) actively engaging in or working for a business in
direct competition with MCI or any of its subsidiaries and
<PAGE> Exhibit 10 (b)
--------------
( 25 of 31 )
affiliates while employed by MCI or any of its subsidiaries and
affiliates; or (h) such other reason as the Pension Administrative
committee in its sole discretion shall determine.
Any determination of forfeiture by the Pension Administrative
Committee under this Article X shall be final, binding and
conclusive upon the Participant and his Beneficiaries.
Article XI - Withholding Taxes
Whenever under the Plan payment of cash or Common Stock is
made to a Participant or Beneficiary, MCI shall be entitled to
require as a condition of transfer or payment that the recipient
remit an amount, sufficient in MCI's opinion, to satisfy all FICA,
federal and other withholding tax requirements related thereto.
MCI shall be entitled to deduct such amount from any payment.
Section Headings
The section headings contained in the Plan are for purposes
of convenience only and are not intended to define or limit the
contents of said sections.
<PAGE> Exhibit 10 (b)
--------------
( 26 of 31 )
IN WITNESS WHEREOF, MCI COMMUNICATIONS CORPORATION, on its
own behalf and as agent for each of its subsidiaries, has caused
this Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries to be amended,
restated and executed by its duly authorized officers, and its
corporate seal to be hereunto affixed this _____ day of
March, 1991.
MCI COMMUNICATIONS CORPORATION
By: ____________________________
Bert C. Roberts, Jr.
President
ATTEST:
____________________________
C. Bolton-Smith, Jr.
Secretary
<PAGE> Exhibit 10 (b)
---------------
( 27 of 31 )
AMENDMENT NO.1
TO THE SUPPLEMENTAL RETIREMENT PLAN
FOR EMPLOYEES OF
MCI COMMUNICATIONS CORPORATION
AND SUBSIDIARIES
The Supplemental Retirement Plan for employees of MCI
Communications Corporation and Subsidiaries is hereby amended in
the following respects:
1. Effective January 1, 1993, Section 2.1 of Part I is
amended by adding the following phrase immediately prior to the
end thereof: "except for reductions which reflect increase in the
Participant's Basic Plan Benefit as a result of cost-of-living
adjustments to the limitations imposed by section 415 of the
Code."
2. Effective January 1, 1993, Section 2.3 of Part I is
restated to read as follows:
Upon the death of the Participant after his Pension
Commencement Date, benefits will continue to be
paid to the surviving spouse, Beneficiary, or
contingent annuitant (if any) designated by the
Participant under the Basic Plan to receive
benefits (if any) after the Participant's death for
the same period of time as such surviving spouse,
Beneficiary, or contingent annuitant receives
benefits under the Basic Plan. The death benefit
payable under this plan shall be redetermined such
that the aggregate death benefit payable pursuant
to this Plan and the Basic Plan shall provide such
surviving spouse, Beneficiary, or contingent
annuitant with the percentage (50%, 66-2/3%, or
100%, as the case may be) of the Participant's
aggregate benefit under this Plan and the Basic
Plan which he elected as a death benefit under
Article VIII of the Basic Plan.
<PAGE> Exhibit 10 (b)
--------------
( 28 of 31 )
3. Effective January 1, 1993, Section 2.4 of Part I is
restated to read as follows:
Upon the death of the Participant prior to his Pension
Commencement date, his surviving spouse (if any) shall
receive a benefit payable for life commencing on the
Starting Date. The amount of such benefit shall equal
the amount that such spouse would have received from the
Basic Plan irrespective of the limitations imposed by
sections 415 or 401(a)(17) of the Code reduced by the
Basic Plan Benefit actually paid to such Spouse.
4. Effective July 1, 1990, Section 2.5 of Part I is
clarified by substituting for the phrase "amount payable from such
contract" the phrase "pre-tax equivalent of the amount payable
from such contracts (determined pursuant to the provisions of
Article II of Part IV)."
5. Effective January 1, 1991, Section 2.7 of Part I is
clarified by substituting for the phrase "Participants shall vest
in their benefits" the phrase "the benefit payable to the
Participant (or Beneficiary in lieu thereof) shall vest."
6. Effective July 1, 1990, Section 2.2(a) of Part II is
clarified by substituting "Section 1.6" for Section 1.5."
7. Effective July 1, 1990, Section 2.3 of Part II is
clarified by substituting for the phrase "Participants shall vest
in their benefits" the phrase "the benefit payable to the
Participant (or Beneficiary in lieu thereof) shall vest."
<PAGE> Exhibit 10 (b)
--------------
( 29 of 31 )
8. Effective retroactively to January 1, 1991 for
distributions made on or after January 1, 1993, Section 2.4 of
Part II is restated to read as follows:
Notwithstanding the first sentence of Section 2.1,
distributions to a Participant who has at any time on or
after May 1, 1991 been an "officer" within the meaning
of section 16(b) of the Securities and Exchange Act of
1934 shall be made in cash.
IN WITNESS WHEREOF, MCI COMMUNICATIONS CORPORATION has caused
this Amendment to be executed and attested by its duly authorized
officers and its corporate seal to be affixed hereto as of this
_____ day of _______________________ 1993.
MCI COMMUNICATIONS CORPORATION
By: _____________________________
Chairman
ATTEST:
_________________________
Secretary
<PAGE> Exhibit 10 (b)
--------------
( 30 of 31 )
AMENDMENT NO. 2
TO THE SUPPLEMENTAL RETIREMENT PLAN
FOR EMPLOYEES OF
MCI COMMUNICATIONS CORPORATION
AND SUBSIDIARIES
The Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries is hereby amended in the
following respects:
1. Effective January 1, 1994, Part I, Section 1.6 is restated to
read as follows:
"1.6 Participant. A Participant in the Basic Plan who is receiving
a Basic Plan Benefit and whose Basic Plan Benefit is subject to the
limitations of Section 415 of the Code or whose compensation for
purposes of calculating a Basic Plan Benefit is limited by Section
401(a)(17) of the Code, and whose job grade level is E9 or above."
2. Effective January 1, 1994, Part II, Section 1.8 is restated to
read as follows:
"1.8 Participant. A Participant in the ESOP whose allocation of
contributions and forfeitures under the ESOP for any Plan Year is
limited by Section 415 or 401(a)(17) of the Code and whose job
grade level is E9 or above."
<PAGE> Exhibit 10 (b)
--------------
( 31 of 31 )
IN WITNESS WHEREOF, MCI COMMUNICATIONS CORPORATION has caused this
Amendment No. 2 to be executed and attested by its duly authorized
officers and its corporate seal to be affixed hereto as of this ___
day of ________________, 1994.
MCI COMMUNICATIONS CORPORATION
By: ___________________________
Bert C. Roberts, Jr.
Chairman
ATTEST:
By: ________________________
C. Bolton-Smith, Jr.
Secretary
<PAGE> Exhibit 10 (h)
--------------
( 1 of 18 )
FIRST AMENDMENT TO CREDIT AGREEMENT
This Agreement, dated as of June 9, 1993 (this "Amendment") is
entered into by and among MCI Communications Corporation, a
Delaware corporation (the "Company") and the several financial
institutions parties to this Agreement (collectively, the "Banks";
individually, a "Bank").
RECITALS
The Company, the Banks and Bank of America National Trust and
Savings Association, as Arranger and as Competitive Bid Agent and
Operating Agent are parties to a Revolving Credit Agreement dated
as of June 8, 1992 (the "Credit Agreement"). Capitalized terms
used and not otherwise defined or amended in this Amendment shall
have the meanings respectively assigned to them in the Credit
Agreement.
The Company has requested that the Banks amend the Credit
Agreement to (a) release each Guarantor from its Guaranty and to
make other conforming changes to the Credit Agreement and (b)
modify the pricing thereunder. In order to induce the Banks to
agree to the foregoing, the Banks have requested, and the Company
has agreed, that (i) the definition of "New Asset Lien Maximum" be
amended as provided herein, (ii) a new provision be added to the
Credit Agreement prohibiting certain Subsidiaries from entering
into agreements that would restrict them from making dividend and
other similar payments to the Company, and (iii) the cross-default
provision be amended as provided herein to correct a technical
error. The Company has requested that the Banks enter into this
Amendment in order to approve and reflect the foregoing, and the
Banks have agreed to do so, all upon the terms and provisions and
subject to the conditions hereinafter set forth, including, without
limitation, payment of the amendment fee referred to in Section D
below.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreement hereinafter set forth, the parties hereto mutually agree
as follows:
<PAGE> Exhibit 10 (h)
--------------
( 2 of 18 )
A. AMENDMENTS
1. Amendments of Section 1.01
Section 1.01 of the Credit Agreement is hereby amended
by:
(a) deleting therefrom the definition of "Guarantor" in
its entirety and substituting therefor the following:
"'Guarantor' means any Subsidiary of the Company
that shall have executed and delivered to the Operating
Agent a Guaranty and documents related to such Subsidiary
comparable to the documents referred to in Section
4.01(d), (f), (h), (j) and (l).";
(b) deleting therefrom the definition of "Initial
Guarantor" in its entirety; and
(c) deleting therefrom the definition of "New Asset Lien
Maximum" in its entirety and substituting therefor the
following:
"'New Asset Lien Maximum' means One Hundred Fifty
Million Dollars ($150,000,000)."
2. Amendments of Section 4.02
Section 4.02 of the Credit Agreement is hereby amended
by:
(a) adding after the words "the Guarantors" appearing in
the penultimate line of Section 4.02(b) the phrase ", if
any,"; and
(b) adding after the words "the Guarantors" appearing in
the penultimate line of Section 4.02(d) the phrase ", if
any,".
3. Amendment of Section 5.10(c)
Section 5.10(c) of the Credit Agreement is hereby amended
by deleting clause (ii) thereof in its entirety and substituting
therefor the following:
"(ii) in which injunctive or similar relief is sought and
which, if adversely determined, could have a material
adverse effect on the business, operations or financial
<PAGE> Exhibit 10 (h)
--------------
( 3 of 18 )
or other condition of the Company and its Subsidiarie
taken as a whole or the ability of the Company or any
Guarantor to pay and perform its obligations under any
Loan Document;"
4. Amendment of Section 5.11
Section 5.11 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting therefor the
following:
"5.11 Intentionally Omitted."
5. Amendment of Section 6.02
Section 6.02 of the Credit Agreement is hereby amended by
deleting from such Section paragraph (g) in its entirety and
substituting therefor the following:
"(g) dispositions by any Subsidiary of all or a material
part of its assets, business or property to the Company or any
other Subsidiary, if immediately after giving effect thereto
no Default or Event of Default would exist; and"
6. Amendment of Section 6.06
Section 6.06 of the Credit Agreement is hereby amended by
deleting the proviso thereto in its entirety and substituting
therefor the following:
"provided, that if no Initial Rating Agency nor (if neither of
the Initial Rating Agencies shall maintain any rating of the
subordinated debt of the Company) any Substitute Rating Agency
shall maintain an investment grade rating for the subordinated
debt of the Company, such failure to maintain such rating
shall not by itself require a reduction of any such Major
Lease Obligation but shall bar any future such Major Lease
Obligation from being created, incurred or assumed unless
otherwise permitted by this Section 6.06."
7. Amendments of Section 6.12
Section 6.12 of the Credit Agreement is hereby amended
by:
(a) deleting from such Section paragraph (c) in its
entirety and substituting therefor the following:
<PAGE> Exhibit 10 (h)
--------------
( 4 of 18 )
"(c) Major Lease Obligations, and any other lease
obligations, of any Subsidiary; provided, that the
incurrence or creation of any such Major Lease Obligation
shall be in compliance with Section 6.06 and
theincurrence or creation of any lease obligation of the
nature described in Section 6.02(c) shall be in
compliance with such Section;" and
(b) deleting from such Section paragraph (g) in its
entirety and substituting therefor the following:
"(g) other unsecured Indebtedness of any Subsidiary that
shall have become a Guarantor, whether or not created,
incurred or assumed in anticipation of the acquisition
thereof; provided, that such Indebtedness shall be evidenced
by documentation that shall expressly provide that such
Indebtedness shall rank pari passu with the obligations of
such Subsidiary under the Guaranty of such Subsidiary."
8. Amendments of Article VI
Article VI of the Credit Agreement is hereby amended by
adding at the end thereof a new Section 6.14 reading in its
entirety as follows:
"6.14 No Restriction on Dividends of Certain
Subsidiaries. The Company shall not cause or permit MCI
International, MCI Telecom, Telecom*USA or WUI to enter into
any agreement of any nature whatsoever that would restrict the
ability of such Subsidiary to declare or make any dividend
payment or other distribution of assets, properties or cash,
rights, obligations or securities on account of any shares of
any class of capital stock of such Subsidiary, or purchase,
redeem or otherwise acquire for value any shares of capital
stock of such Subsidiary or any warrants, rights or options to
acquire such shares."
9. Amendment of Article VII
Article VII of the Credit Agreement is hereby amended by
deleting from clause (h) thereof subclause (ii) of such clause and
substituting therefor the following:
"(ii) default in the observance or performance of any
other condition or covenant or any other event shall
occur or any condition shall exist under any agreement or
instrument relating to any Indebtedness or Contingent
<PAGE> Exhibit 10 (h)
--------------
( 5 of 18 )
Obligation (other than Indebtedness or Contingent
Obligations incurred, created or assumed pursuant to the
Existing Agreements), if the effect of the event or
condition referred to in this subclause (ii) shall be to
cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a trustee or agent on behalf of
such holder or holders or beneficiary or beneficiaries)
to cause, after any required giving of notice or lapse of
time or both, such Indebtedness to be declared to be due
and payable prior to its stated maturity or such
Contingent Obligation to become payable; or"
10. Amendment of Section 9.01
Section 9.01 of the Credit Agreement is hereby amended
by:
(a) adding the word "or" after the semi-colon at the end
of paragraph (d) of the first proviso thereto; and
(b) deleting the remainder of Section 9.01 appearing
after the semi-colon at the end of paragraph (e) of the first
proviso thereto and substituting therefor the following:
"and provided, further, that no amendment, waiver or
consent shall, unless in writing and signed by an Agent
in addition to the Majority Banks, affect the rights or
duties of such Agent under this Agreement."
11. Amendment of Schedule II
Schedule II to the Credit Agreement is hereby amended by
deleting such Schedule in its entirety and substituting therefor a
new Schedule II in the form of Exhibit A hereto.
B. RELEASE OF GUARANTORS
Each of the Guarantors that is party to a Guaranty as of the
date hereof is hereby released from its obligations under such
Guaranty.
C. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Banks that:
<PAGE> Exhibit 10 (h)
--------------
( 6 of 18 )
1. No Event of Default specified in the Credit Agreement and
no event which with notice or lapse of time or both would become
such an Event of Default has occurred and is continuing;
2. The representations and warranties of the Company
pursuant to the Credit Agreement are true on and as of the date
hereof as if made on and as of said date;
3. The making and performance by the Company of this
Amendment have been duly authorized by all corporate action; and
4. No consent, approval, authorization, permit or license
from any federal or state regulatory authority is required in
connection with the making or performance of the Credit Agreement
as amended hereby.
D. CONDITIONS PRECEDENT
This Amendment will become effective as of the date first
written above upon receipt by the Operating Agent of counterparts
hereof duly executed by the Company and each of the Banks party to
the Credit Agreement, provided that contemporaneously with such
execution and delivery, the Operating Agent shall have received for
the account of the Banks, an amendment fee in an amount equal to
0.03125% of the aggregate Commitments, to be distributed to the
Banks pro rata in accordance with their respective Commitment
Percentages.
E. MISCELLANEOUS
1. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with same effect
as if the signatures thereto and hereto were upon the same
instrument.
2. Except as herein specifically amended, all terms,
covenants and provisions of the Credit Agreement shall remain in
full force and effect and shall be performed by the parties hereto
according to its terms and provisions and all references therein or
in the Schedules or Exhibits shall henceforth refer to the Credit
Agreement as amended by this Amendment.
3. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> Exhibit 10 (h)
--------------
( 7 of 18 )
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first written.
MCI COMMUNICATIONS CORPORATION
By:___________________________
Name:_________________________
Title:________________________
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By:___________________________
Name:_________________________
Title:________________________
THE BANK OF NOVA SCOTIA
By:___________________________
Name:_________________________
Title:________________________
CREDIT SUISSE
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 8 of 18 )
THE FUJI BANK, LTD.,
New York Branch
By:___________________________
Name:_________________________
Title:________________________
MELLON BANK, N.A.
By:___________________________
Name:_________________________
Title:________________________
NATIONSBANK OF VIRGINIA,
NATIONAL ASSOCIATION
By:___________________________
Name:_________________________
Title:________________________
THE TORONTO-DOMINION BANK
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 9 of 18 )
ABN AMRO BANK, N.V.,
New York Branch
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
THE BANK OF NEW YORK
By:___________________________
Name:_________________________
Title:________________________
CONTINENTAL BANK, NATIONAL ASSOCIATION
By:___________________________
Name:_________________________
Title:________________________
THE FIRST NATIONAL BANK OF CHICAGO
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 10 of 18 )
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
New York Branch
By:___________________________
Name:_________________________
Title:________________________
BANQUE PARIBAS
By:___________________________
Name:_________________________
Title:________________________
BARCLAYS BANK PLC
By:___________________________
Name:_________________________
Title:________________________
CITICORP U.S.A.
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 11 of 18 )
DEUTSCHE BANK A.G., New York
and/or Cayman Islands Branches
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
THE SUMITOMO BANK, LIMITED,
New York Branch
By:___________________________
Name:_________________________
Title:________________________
THE BANK OF TOKYO, LTD.,
New York Agency
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 12 of 18 )
BANQUE NATIONALE DE PARIS
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 13 of 18 )
THE CHASE MANHATTAN BANK, N.A.
By:___________________________
Name:_________________________
Title:________________________
CIBC, Inc.
By:___________________________
Name:_________________________
Title:________________________
CHEMICAL BANK
By:___________________________
Name:_________________________
Title:________________________
THE TOYO TRUST AND BANKING COMPANY, LIMITED
By:___________________________
Name:_________________________
Title:________________________
THE FIRST NATIONAL BANK OF MARYLAND
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 14 of 18 )
PNC BANK, N.A.
(successor by merger to
Provident National Bank)
By:___________________________
Name:_________________________
Title:________________________
SIGNET BANK/VIRGINIA
By:___________________________
Name:_________________________
Title:________________________
TRUST COMPANY BANK
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
New York and Cayman Islands Branches
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 15 of 18 )
UNION BANK OF SWITZERLAND
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
<PAGE> Exhibit 10 (h)
--------------
( 16 of 18 )
EXHIBIT A
SCHEDULE II
MCI COMMUNICATIONS CORPORATION
$1.25 Billion, 3-Year Revolver
PRICING GRID (in %)
MCI Pricing Level Pricing Level
Senior I: IIA:
Unsecured A-/A3 and Above BBB+/Baa1
LTD Rating *
- ----------------------------------------------------------------
Facility Fee .125% .1875%
- ----------------------------------------------------------------
Commitment Fee .025% .0125%
- ----------------------------------------------------------------
Eurodollar .25% if =< $500MM .3125% if =< $500MM
Rate Advance .3125% if > $500MM .4375% if > $500MM
Margin ** but =< $1BN but =< $1BN
.375% if > $1BN .5125% if > $1BN
- -----------------------------------------------------------------
CD Rate .375% if =< $500MM .4375% if =< $500MM
Advance Margin ** .4375% if > $500MM .5625% if > $500MM
but =< $1BN but =< $1BN
.50% if > $1BN .6375% if > $1BN
- --------------------------------------------------------------
Reference Rate -0- -0-
Advance Margin **
- -----------------------------------------------------------------
NOTE: Margin changes reflecting outstandings (including Pro Rata Advances
hereunder, Competitive Bid Advances hereunder and Existing
Competitive Bid Advances) apply to all Pro Rata Advances
outstanding hereunder.
* In the event of a split rating, the lower rating will determine the
applicable pricing level.
** Based on the aggregate amount of Advances outstanding hereunder and
under Existing Agreements.
<PAGE> Exhibit 10(h)
--------------
( 17 of 18 )
EXHIBIT A
SCHEDULE II
MCI COMMUNICATIONS CORPORATION
$1.25 Billion, 3-Year Revolver
PRICING GRID (in %)
MCI Pricing Level Pricing Level
Senior IIB: III:
Unsecured BBB/Baa2 BBB-/Baa3
LTD Rating *
- -----------------------------------------------------------------
Facility Fee .1875% .25%
- -----------------------------------------------------------------
Commitment Fee .0625% .0625%
- -----------------------------------------------------------------
Eurodollar .3125% if =< $500MM .375% if =< $500MM
Rate Advance .4375% if > $500MM .50% if > $500MM
Margin ** but =< $1BN but =< $1BN
.5125% if > $1BN .625% if > $1BN
- -----------------------------------------------------------------
CD Rate .4375% if =< $500MM .50% if =< $500MM
Advance Margin ** .5625% if > $500MM .625% if > $500MM
but =< $1BN but =< $1BN
.6375% if > $1BN .75% if > $1BN
- -----------------------------------------------------------------
Reference Rate -0- -0-
Advance Margin **
- -----------------------------------------------------------------
NOTE:Margin changes reflecting outstandings (including Pro Rata
Advances hereunder, Competitive Bid Advances hereunder and Existing
Competitive Bid Advances) apply to all Pro Rata Advances
outstanding hereunder.
* In the event of a split rating, the lower rating will determine
the applicable pricing level.
** Based on the aggregate amount of Advances outstanding hereunder
and under Existing Agreements.
<PAGE> Exhibit 10 (h)
--------------
( 18 of 18 )
EXHIBIT A
SCHEDULE II
MCI COMMUNICATIONS CORPORATION
$1.25 Billion, 3-Year Revolver
PRICING GRID (in %)
MCI Pricing Level
Senior IV:
Unsecured Below BBB-/Baa3
LTD Rating *
- ----------------------------------------------------------------
Facility Fee ---
- ----------------------------------------------------------------
Commitment Fee .375%
- ----------------------------------------------------------------
Eurodollar 1.125% if =< $1BN
Rate Advance ---
Margin ** 1.375% if > $1BN --------
- --------------------------------------------------------
CD Rate 1.25% if =< $1BN
Advance Margin ** ---
1.50% if > $1BN
- ----------------------------------------------------------------
Reference Rate -0-
Advance Margin **
- ----------------------------------------------------------------
NOTE:Margin changes reflecting outstandings (including Pro Rata
Advances hereunder, Competitive Bid Advances hereunder and Existing
Competitive Bid Advances) apply to all Pro Rata Advances
outstanding hereunder.
* In the event of a split rating, the lower rating will determine
the applicable pricing level.
** Based on the aggregate amount of Advances outstanding hereunder
and under Existing Agreements.
<PAGE> Exhibit 11
----------
( 1 of 3 )
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per common share amounts)
FOR THE YEAR ENDED
DECEMBER 31, 1993
ASSUMING
PRIMARY FULL DILUTION
Income before extraordinary item.......... $ 627 $ 627
Loss on early debt retirements, after
applicable income tax benefits of
$26 million............................. 45 45
----- -----
Net income ............................... 582 582
Dividends on preferred stock.............. (1) (1)
----- -----
Earnings applicable to common
stockholders.............................. 581 581
===== =====
Add back:
Convertible preferred stock dividends..... 1 1
----- -----
Earnings as adjusted for purposes of
computing earnings per share............ $ 582 $ 582
===== =====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding (a)........................... 524 524
Assumed conversion of preferred stock..... 27 27
Assumed exercise of common stock options.. 51 51
Shares of common stock assumed repurchased
for treasury(b)......................... (40) (35)
----- -----
Adjusted shares of common stock and common
stock equivalents for computation....... 562 567
===== =====
Earnings per common and common equivalent shares:
Income before extraordinary item.......... $1.12 $1.11
Loss on early debt retirements............ (.08) (.08)
---- -----
$1.04 $1.03
===== =====
- --------------------------------
(a) Amounts have been retroactively restated to reflect a two-for-one stock
split effected in the form of a 100% stock dividend declared in the
second quarter of 1993.
(b) At an average market price of $25.24 for primary. The December 31, 1993
market price of $28.25 for fully diluted was used as it is higher than the
average 1993 market price of $25.24.
Page 1 of 3
<PAGE> Exhibit 11
----------
( 2 of 3 )
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per common share amounts)
FOR THE YEAR ENDED
DECEMBER 31, 1992
ASSUMING
PRIMARY FULL DILUTION
Net income ............................... $609 $609
Dividends on preferred stock.............. (20) (20)
---- ----
Earnings applicable to common
stockholders.............................. $589 $589
==== ====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding(a)............................ 524 524
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents............................. 40 40
Shares of common stock assumed repurchased
for treasury(c)......................... (32) (28)
---- ----
Adjusted shares of common stock and common
stock equivalents for computation....... 532 536
==== ====
Earnings per common share................... $1.11 $1.10
===== =====
- --------------------------------
(c) At an average market price of $16.99 for primary. The December 31, 1992
market price of $19.81 for fully diluted was used as it is higher than the
average 1992 market price of $16.99.
Page 2 of 3
<PAGE> Exhibit 11
----------
( 3 of 3 )
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per common share amounts)
FOR THE YEAR ENDED
DECEMBER 31, 1991
ASSUMING
PRIMARY FULL DILUTION
Net income ............................... $551 $551
Dividends on preferred stock.............. (29) (29)
---- ----
Earnings applicable to common
stockholders............................ $522 $522
==== ====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding(a).......................... 514 514
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents............................. 32 32
Shares of common stock assumed repurchased
for treasury(d)......................... (26) (24)
---- ----
Adjusted shares of common stock and common
stock equivalents for computation....... 520 522
==== ====
Earnings per common share................... $1.00 $1.00
===== =====
- --------------------------------
(d) At an average market price of $13.64 for primary. The December 31, 1991
market price of $15.13 was used to compute fully diluted because it was higher
than the 1991 average market price of $13.64.
Page 3 of 3
<PAGE> Exhibit 12
-----------
( 1 of 1 )
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(In millions, except ratio amounts)
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Earnings:
Income before
income taxes and
extraordinary item
per income statement $1,045 $ 963 $ 848 $ 440 $ 804
Add:
Fixed charges 315 346 334 321 330
Less:
Capitalized interest 61 52 58 49 44
------ ------ ------ ------ ------
Total earnings $1,299 $1,257 $1,124 $ 712 $1,090
====== ====== ====== ====== ======
Fixed Charges:
Fixed charges on
indebtedness,
including amortization
of debt discount and
premium $ 239 $ 270 $ 270 $ 262 $ 282
Interest portion of
operating lease
rentals (a) 76 76 64 59 48
------ ------ ------ ------ ------
Total fixed charges $ 315 $ 346 $ 334 $ 321 $ 330
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 4.12 3.63 3.37 2.22 3.30
==== ==== ==== ==== ====
</TABLE>
(a) The interest portion of operating lease rentals is calculated as one
third of rent expense which represents a reasonable approximation of the
interest factor.
Page 1 of 1
Exhibit 21
----------
(1 of 1)
Significant Subsidiaries of MCI Communications Corporation at
December 31, 1993
Subsidiary State of Incorporation
---------- ----------------------
MCI International, Inc. Delaware
MCI International Telecommunications Corporation Delaware
MCI Telecommunications Corporation Delaware
Telecom*USA, Inc. Delaware
Exhibit 23
----------
(1 of 1)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on
Form S-8 (Nos. 33-21740, 33-23275, 33-29547, 33-29549, 33-29550,
33-35339, 33-49304 and 33-49403) and Form S-3 (Nos. 33-48913 and
33-49387) of MCI Communications Corporation of our report dated
January 26, 1994, appearing on page 26 of this Annual Report on
Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedules, which appears on
page 56 of this Annual Report on Form 10-K.
PRICE WATERHOUSE
- ----------------------
PRICE WATERHOUSE
Washington, D.C.
March 30, 1994
<PAGE>
<TABLE>
Exhibit 99 (a)
--------------
(1 of 1)
Schedule V
<CAPTION> MCI COMMUNICATIONS CORPORATION AND SUBSIDIARES
COMMUNICATIONS SYSTEM
(IN MILLIONS)
- ----------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------------------
Balance at Other Balance
beginning Additions Retirements Additions at end
of period at cost or sales (deductions)of period
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993:
Communications system in service. . . . .$ 7,723 $ 38 $ 607 $1,409 $ 8,563
Communications system under construction
and equipment for future use . . . . . 669 2,152 11 (1,927) 883
Tools and test equipment. . . . . . . . . 188 0 26 27 189
Furniture, fixtures and office equipment. 1,279 0 134 370 1,515
Office leasehold improvements . . . . . . 164 0 15 0 149
Administrative land and buildings . . . . 293 0 0 26 319
------- ------ ------ ------ -------
Total . . . . . . . . . . . . . . .$10,316 $2,190 $ 793 $ (95) $11,618
======= ====== ====== ====== =======
For the year ended December 31, 1992:
Communications system in service. . . . .$7,273 $ 4 $ 610 $1,056 $ 7,723
Communications system under construction
and equipment for future use . . . . . 692 1,363 4 (1,382) 669
Tools and test equipment. . . . . . . . . 186 1 14 15 188
Furniture, fixtures and office equipment. 1,120 3 128 284 1,279
Office leasehold improvements . . . . . . 153 5 16 164
Administrative land and buildings . . . . 260 33 293
------ ------ ------ ------ -------
Total . . . . . . . . . . . . . . .$9,684 $1,371 $ 761 $ 22 $10,316
====== ====== ====== ====== =======
For the year ended December 31, 1991:
Communications system in service. . . . .$6,783 $ 9 $ 358 $ 839 $7,273
Communications system under construction
and equipment for future use . . . . . 576 1,362 3 (1,243) 692
Tools and test equipment. . . . . . . . . 166 4 24 186
Furniture, fixtures and office equipment. 863 (2) 98 357 1,120
Office leasehold improvements . . . . . . 117 12 4 28 153
Administrative land and buildings . . . . 203 57 260
------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . .$8,708 $1,381 $ 467 $ 62 $9,684
====== ====== ====== ====== ======
</TABLE>
Page 1 of 1.
<PAGE>
<TABLE>
<CAPTION>
Exhibit 99 (b)
---------------
( 1 of 1 )
Schedule VI
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARES
ACCUMULATED DEPRECIATION OF COMMUNICATIONS SYSTEM
(IN MILLIONS)
- ----------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------------------
Balance at Additions Other Balance
beginning charged Retirements Additions at end
of period to expense or sales (deductions)of period
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993:
Communications system in service. . . . . $3,140 $ 688 $ 605 $ (26) $3,197
Tools and test equipment. . . . . . . . . 107 26 26 (2) 105
Furniture, fixtures and office equipment. 769 213 99 (33) 850
Office leasehold improvements . . . . . . 91 16 12 0 95
Administrative buildings. . . . . . . . . 44 9 0 (3) 50
------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . $4,151 $ 952 $ 742 $ (64) $4,297
====== ====== ====== ====== ======
For the year ended December 31, 1992:
Communications system in service. . . . . $3,170 $ 599 $ 590 $ (39) $3,140
Tools and test equipment. . . . . . . . . 92 26 14 3 107
Furniture, fixtures and office equipment. 618 193 59 17 769
Office leasehold improvements . . . . . . 74 17 4 4 91
Administrative buildings. . . . . . . . . 33 8 3 44
------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . $3,987 $ 843 $ 667 $ (12) $4,151
====== ====== ====== ====== ======
For the year ended December 31, 1991:
Communications system in service. . . . . $3,004 $ 508 $ 364 $ 22 $3,170
Tools and test equipment. . . . . . . . . 77 18 4 1 92
Furniture, fixtures and office equipment. 502 201 73 (12) 618
Office leasehold improvements . . . . . . 64 14 5 1 74
Administrative buildings. . . . . . . . . 28 5 33
------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . $3,675 $ 746 $ 446 $ 12 $3,987
====== ====== ====== ====== ======
</TABLE>
Page 1 of 1.
<PAGE>
<TABLE>
<CAPTION> Exhibit 99 (c)
--------------
( 1 of 1 )
Schedule VIII
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARES
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(IN MILLIONS)
Balance at Balance
Beginning Deductions End of
of period Additions (Write-Offs) Period
--------- --------- ------------ ------
<S> <C> <C> <C> <C>
December 31, 1993. . . . . . . . $189 $346 $324 $211
December 31, 1992. . . . . . . . 156 411 378 189
December 31, 1991. . . . . . . . 130 367 341 156
</TABLE>
Page 1 of 1.
<PAGE>
<TABLE>
Exhibit 99 (d)
---------------
( 1 of 1 )
<CAPTION> Schedule IX
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARES
SHORT-TERM BORROWINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS)
- ----------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------------------
Category Balance Weighted Maximum Average Weighted
of Aggregate at end of Average Amount Amount Average
Short-Term period Interest Outstanding Outstanding Interest
Borrowings Rate During the During the During
(On Balance Period Period (a) Period(b)
at end of
Period)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Medium-Term Notes. . . . . . . . . $93 7.93% $137 $117 7.64%
Promisorry Notes . . . . . . . . . $10 4.87% $ 10 $ 10 4.87%
</TABLE>
NOTES:
(a) Average amount outstanding during the year is a weighted
average based upon outstanding principal weighted by the
number of days outstanding divided by 360.
(b) Average interest rate for the year is a weighted average
computed by dividing short-term interest expenses by
total days outstanding divided by the outstanding
principal multiplied by 360.
Page 1 of 1.
<PAGE> Exhibit 99 (e)
--------------
( 1 of 1 )
<TABLE>
Schedule X
<CAPTION>
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN MILLIONS)
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Column A Column B
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Year ended December 31,
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1993 1992 1991
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<S> <C> <C> <C>
Repairs and Maintenance $ 97 $ 89 $ 91
Taxes, other than payroll
and income taxes 97 100 88
Advertising 476 312 266
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<PAGE> Exhibit 99 (f)
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MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CAPITALIZATION SCHEDULE
(In millions)
Set forth below is the capitalization of the company as of December 31, 1993:
Secured debt:
Capital lease obligations (a)........................ $ 689
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Total secured debt ................................ 689
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Unsecured debt (b):
Senior Notes ........................................ 1,095
Senior Debentures, net............................... 437
Commerical Paper and bank credit facilitiy borrowings 239
Other unsecured debt................................. 121
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Total unsecured debt .............................. 1,892
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Total debt ..................................... 2,581
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Stockholders' equity:
Series D convertible preferred stock, $.10 par value,
authorized and outstanding 13,736 shares........... 1
Common stock, $.10 par value, authorized 800 million
shares, issued 592 million shares.................. 60
Additional paid in capital........................... 2,493
Retained earnings.................................... 2,785
Treasury stock at cost, 51 million shares............ (626)
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Total stockholders' equity...................... 4,713
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Total capitalization............................ $7,294
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(a) See Note 3 of Notes to Consolidated Financial Statements on pages 35 and
36 of this Annual Report on Form 10-K for information concerning the
company's capital lease obligations, which are obligations of
subsidiaries of the company that are guaranteed by the company.
Interest rates on capital lease obligations, on a weighted average
basis, approximated 7.6% per annum at December 31, 1993.
(b) For additional information concerning the company's long-term debt, see
Note 4 of Notes to Consolidated Financial Statements on pages 36 through
38 of this Annual Report on Form 10-K.
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