PAGE 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1995
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 0-6547
MCI COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-0886267
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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
N/A
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of March 31, 1995, the registrant had outstanding 135,998,932 shares of Class
A common stock and 543,724,065 shares of common stock.
<PAGE>
PAGE 2
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For The Quarter Ended March 31, 1995
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Income Statements for the three months ended
March 31, 1995 and 1994 3
Balance Sheets as of March 31, 1995 and
December 31, 1994 4-5
Statements of Cash Flows for the three months ended
March 31, 1995 and 1994 6
Statement of Stockholders' Equity for the three months
ended March 31, 1995 7
Notes to Interim Condensed Consolidated Financial
Statements 8-9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-17
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 19
<PAGE>
PAGE 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCI COMMUNICATIONS AND SUBSIDIARIES
INCOME STATEMENTS
(In millions, except per share amounts)
(unaudited)
Three months
ended
March 31,
------------------
1995 1994
------ ------
REVENUE $3,561 $3,221
------ ------
OPERATING EXPENSES
Telecommunications 1,819 1,672
Sales, operations and general 993 906
Depreciation 319 264
------ ------
TOTAL OPERATING EXPENSES 3,131 2,842
------ ------
INCOME FROM OPERATIONS 430 379
Interest expense (38) (31)
Interest income 46 1
Other expense, net (12) (9)
------ ------
INCOME BEFORE INCOME TAXES AND
RESULTS OF AFFILIATED COMPANIES 426 340
Income tax provision 153 131
------ ------
INCOME BEFORE RESULTS
OF AFFILIATED COMPANIES 273 209
Equity in income (losses) of
affiliated companies (29) -
------ ------
NET INCOME $ 244 $ 209
====== ======
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARES $ .36 $ .36
Weighted average number of shares
of common stock and common stock
equivalents outstanding 685 580
See accompanying Notes to Interim Condensed Consolidated Financial Statements
<PAGE>
PAGE 4
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
March 31, December 31,
1995 1994
-------- --------
(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 939 $ 1,429
Marketable securities 604 839
Receivables, net of allowance for
uncollectibles of $217 and $226 million 2,442 2,266
Other assets 450 354
------- -------
TOTAL CURRENT ASSETS 4,435 4,888
------- -------
COMMUNICATIONS SYSTEM, net 9,543 9,059
OTHER ASSETS
Noncurrent marketable securities 1,273 824
Goodwill, net 1,102 1,103
Investment in affiliates 201 199
Other assets and deferred charges, net 285 293
------- -------
TOTAL OTHER ASSETS 2,861 2,419
------- -------
TOTAL ASSETS $16,839 $16,366
======= =======
See accompanying Notes to Interim Condensed Consolidated Financial Statements
<PAGE>
PAGE 5
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
March 31, December 31,
1995 1994
-------- --------
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued telecommunications expense $ 1,555 $ 1,505
Accounts payable 772 609
Other accrued liabilities 900 893
Long-term debt due within one year 136 130
------- -------
TOTAL CURRENT LIABILITIES 3,363 3,137
------- -------
NONCURRENT LIABILITIES
Long-term debt 2,936 2,997
Deferred taxes and other 1,301 1,228
------- -------
TOTAL NONCURRENT LIABILITIES 4,237 4,225
------- -------
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value,
authorized 500 million shares, issued
136 million shares 14 14
Common stock, $.10 par value, authorized
2 billion shares, issued
592 million shares 60 60
Additional paid in capital 6,270 6,227
Retained earnings 3,792 3,548
Treasury stock at cost, 48 million shares (897) (845)
------- -------
TOTAL STOCKHOLDERS' EQUITY 9,239 9,004
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,839 $16,366
======= =======
See accompanying Notes to Interim Condensed Consolidated Financial Statements
<PAGE>
PAGE 6
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
March 31,
------------------
1995 1994
---- ----
(In millions)
OPERATING ACTIVITIES
Receipts from customers $3,385 $3,111
Payments to suppliers and employees (2,729) (2,503)
Taxes paid (101) (78)
Interest paid (61) (32)
Interest received 41 1
------ ------
CASH FROM OPERATING ACTIVITIES 535 499
------ ------
INVESTING ACTIVITIES
Cash outflow for communications system (713) (746)
Purchases, maturities and sales of
marketable securities, net (202) -
Investment in affiliates (27) (117)
Other, net (7) (2)
------ ------
CASH USED FOR INVESTING ACTIVITIES (949) (865)
------ ------
NET CASH FLOW BEFORE FINANCING ACTIVITIES (414) (366)
------ ------
FINANCING ACTIVITIES
Issuance of Senior Notes and other debt - 938
Retirement of Senior Notes and other debt (60) (133)
Commercial paper and bank credit facility
activity, net - (234)
Purchase of treasury stock (70) (100)
Issuance of common stock for employee plans 54 74
------ ------
CASH (USED FOR) FROM FINANCING ACTIVITIES (76) 545
------ ------
Net (decrease) increase
in cash and cash equivalents (490) 179
Cash and cash equivalents - beginning balance 1,429 165
------ ------
Cash and cash equivalents - ending balance $ 939 $ 344
====== ======
Reconciliation of net income to cash from
operating activities:
Net income $ 244 $ 209
Adjustments to earnings:
Depreciation and amortization 324 274
Deferred income tax provision 83 70
Net change in operating activity accounts
other than cash and cash equivalents:
Receivables (177) (190)
Payables 94 25
Other operating activity accounts (33) 111
------ ------
Cash from operating activities $ 535 $ 499
====== ======
See accompanying Notes to Interim Condensed Consolidated Financial Statements
<PAGE>
PAGE 7
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Treas. Total
Class A Addit'l Stock, Stock-
Common Common Paid in Retained at holders'
Stock Stock Capital Earnings Cost Equity
------ ----- ------- -------- ------ -------
(In Millions)
Balance at
December 31, 1994 $14 $60 $6,227 $3,548 $(845) $9,004
Common stock issued
for employee stock
and benefit plans
(4 million shares) - - 37 - 31 68
Unrealized gain on
marketable securities - - 6 - - 6
Net income - - - 244 - 244
Treasury stock
purchased
(4 million shares) - - - - (83) (83)
--- --- ------ ----- ----- -----
Balance at
March 31, 1995 $14 $60 $6,270 $3,792 $(897) $9,239
=== === ====== ====== ===== ======
See accompanying Notes to Interim Condensed Consolidated Financial Statements
<PAGE>
PAGE 8
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: GENERAL
The accompanying unaudited interim condensed consolidated financial statements
have been prepared in accordance with the instructions to Quarterly Reports on
Form 10-Q. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of the financial
position, results of operations and cash flows for the interim periods presented
have been made. These financial statements should be read in conjunction with
the company's Annual Report on Form 10-K for the year ended December 31, 1994.
NOTE 2: MARKETABLE SECURITIES
As of March 31, 1995, all of the company's marketable securities were classified
as available-for-sale and accordingly were stated at fair value. Marketable
securities are classified as cash and cash equivalents and current and
noncurrent marketable securities consisting of certificates of deposits, U.S.
Government agency securities, corporate debt securities, U.S. Treasury
securities and asset-backed securities.
NOTE 3: COMMUNICATIONS SYSTEM
March 31, December 31,
1995 1994
-------- -----------
(in millions)
Communications system in service $10,245 $ 9,766
Furniture and fixtures 1,882 1,796
Other property and equipment 666 656
------- -------
Total 12,793 12,218
Accumulated depreciation (4,556) (4,349)
Construction in progress 1,306 1,190
------- -------
Total communications system, net $ 9,543 $ 9,059
======= =======
<PAGE>
PAGE 9
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4: CONTINGENCIES
The company, in the normal course of business, is a party to a number of
lawsuits and regulatory and other proceedings. The company's management does not
expect that the results in these lawsuits and proceedings 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 being
asserted by AT&T Corp. (AT&T) were invalid and that AT&T should be otherwise
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 companion suit 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 still in their early stages, the company
does not expect that either will have a material adverse effect on the
consolidated financial position or results of operations of the company.
NOTE 5: SUBSEQUENT EVENT
On May 10, 1995, the company entered into a letter of intent with The News
Corporation Limited (News Corp) whereby the company will acquire for $1
billion preferred shares of a U.S. subsidiary of News Corp and a warrant to
acquire ordinary shares of News Corp. The exercise price under the warrant shall
be payable, at the company's option, in cash or through the surrender of
preferred shares. In addition, the company will have an option for five years to
invest an additional $1 billion under the same terms as its initial investment.
In certain events, News Corp shall have the right to cause the company to make
the additional $1 billion investment or a portion thereof. If the warrants
relating to the $2 billion investment were exercised today, the company would
hold a 16.2% voting interest in News Corp (13.5% on a fully diluted basis).
<PAGE>
PAGE 10
PART I.
ITEM 2.
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
OVERVIEW
- --------
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the interim condensed consolidated financial
statements and notes thereto.
The company operates in a single industry segment, the long distance
telecommunications industry. More than 90% of the company's operating revenues
and identifiable assets relate to the company's activities in this industry.
Management is also embarking on a strategy that is designed to expand the
company's business into other aligned markets and industries (see STRATEGIC
INITIATIVES).
FINANCIAL SUMMARY
- -----------------
The company had a positive variance between revenue and traffic growth of 1.4%
in the first quarter of 1995 which was primarily a result of revenue growth in
international and data revenue, offset partially by product promotions and
discounts.
Period ended
March 31,
1995 vs 1994
------------
Increase in revenue 10.6%
Increase in traffic 9.2%
-----
Revenue to traffic variance 1.4%
-----
Income from operations increased more than 13% and operating margin increased to
12.1% from 11.8% in the first quarter of 1994. These increases were largely due
to the cost savings realized in telecommunications expense. Net income was $244
million or $.36 per share for the first quarter of 1995 and $209 million or $.36
per share for the year-ago quarter. Weighted average shares increased 18% in the
first quarter of 1995 versus the first quarter of 1994 due to the issuance of an
additional 108.5 million shares of the total 136 million shares of Class A
common stock issued to British Telecommunications plc (BT) in September 1994.
<PAGE>
PAGE 11
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
RESULTS OF OPERATIONS
- --------------------- Three months ended
(In millions, except % change) March 31,
1995 1994 $ Change % Change
------ ------ -------- --------
Revenue $3,561 $3,221 $340 10.6%
------ ------ ---- -----
Operating expenses
Telecommunications 1,819 1,672 147 8.8%
Sales, operations and general 993 906 87 9.6%
Depreciation 319 264 55 20.8%
------ ------ ---- -----
Total operating expenses 3,131 2,842 289 10.2%
------ ------ ---- -----
Income from operations $ 430 $ 379 $ 51 13.5%
====== ====== ==== =====
Revenue
- -------
Business Markets
Revenue and traffic volume grew year-over-year in the business market for the
three months ended March 31, 1995. The primary components of this revenue and
traffic growth were international traffic, which grew more than 40%, and the
company's 800, MCI Vision**, MCI Preferred** and Vnet** products. In addition,
revenue from the company's various data products grew nearly 30% in the first
quarter of 1995 versus the first quarter of 1994, primarily due to the
increasing demand for high-speed data transmission products.
Consumer Markets
In the consumer market, year-over-year revenue growth for the first quarter of
1995 resulted from the continued success of the company's collect-calling
product, 1-800-COLLECT, and increased international traffic. In January 1995,
the company announced NEW Friends & Family**, which was designed to re-
establish the company's savings position and benefit a wider range of consumers.
<PAGE>
PAGE 12
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Telecommunications Expense
- --------------------------
Telecommunications expense as a percentage of revenue decreased to 51.1% for the
three months ended March 31, 1995, from 51.9% for the corresponding period in
1994. This decrease was due to continued network optimization and to reductions
in domestic access rates and international settlement rates.
On March 30, 1995, the Federal Communications Commission (FCC) ruled to make
modifications to local exchange carrier (LEC) price caps which would lower
access fees charged to long distance carriers. Although the company expects that
the FCC's ruling will ultimately decrease domestic access rates in the second
half of 1995, it is currently too soon to determine the ultimate impact of the
rate reductions on the company's results of operations. Any favorable impact may
be somewhat offset by seasonality and product mix, especially the mix of
international services.
Sales, Operations and General
- -----------------------------
Sales, operations and general expense increased $87 million for the first
quarter of 1995 over the first quarter of 1994, primarily due to increased
personnel costs. The increase in personnel costs was primarily associated with
the introduction of new products and services which required increases in
customer service and sales and sales support staff. Sales and marketing costs
increased largely due to the introduction of NEW Friends & Family, as well as
the impact of costs associated with the company's Proof Positive and
1-800-COLLECT programs. Sales, operations and general expense as a percentage of
revenue decreased to 27.9% for the three months ended March 31, 1995 from 28.1%
in the corresponding period in 1994.
Depreciation Expense
- --------------------
In the first quarter of 1995, depreciation expense increased 20.8% or $55
million over the year-ago quarter, primarily as a result of additions to the
company's communications network.
Interest Expense
- ----------------
Interest expense for the three months ended March 31, 1995 increased from $31
million in the first quarter of 1994 to $38 million in the first quarter of
1995. The increase was due to the issuance of $950 million aggregate principal
amount of Senior Notes and Debentures in March 1994 which was partially offset
by savings from repayments of commercial paper.
<PAGE>
PAGE 13
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Interest Income
- ---------------
Interest income increased significantly in the first quarter of 1995 versus the
year-ago quarter due to the investment of the funds received from BT in
September 1994. The amount of interest income to be recognized for the full year
1995 will depend upon the timing and investment of existing cash balances
currently invested in short and medium-term marketable securities.
STRATEGIC INITIATIVES
- ---------------------
The company has made certain investments in activities which are in the early
stages of development. These investments fall into two categories: subsidiaries
and equity investees. Investments in subsidiaries, entities in which the company
owns a majority interest, are consolidated in the financial statements and all
significant intercompany transactions are eliminated. Equity investees are
entities in which the company has less than a majority interest but can exercise
significant influence. Investments in equity investees are presented on the
balance sheet as investment in affiliates, and the company's related share of
investee income (losses) is presented on the income statement as equity in
income (losses) of affiliated companies.
MCImetro*
- ---------
MCImetro, Inc. (MCImetro), the company's wholly-owned local services subsidiary,
will provide a full range of basic and enhanced local telecommunications
services utilizing SONET fiber-optic networks and local switching equipment
throughout the U.S. as regulatory authorities permit. MCImetro has filed
applications in 11 states for the authority to offer local phone service, of
which 6 states have granted such authority to date. MCImetro currently owns or
operates conduit and fiber cable facilities in more than 200 U.S. cities.
MCImetro continued to expand its coverage area and service offerings during the
first quarter of 1995. MCImetro's Local Choice Direct* service is currently
available in Atlanta, Boston, Dallas, Los Angeles, New York and Washington, D.C.
This family of access services provides businesses with high quality dedicated
access connections to a long distance carrier or other service provider. In
addition, through Local Choice Custom*, MCImetro provides complete network
design and implementation for customized network solutions.
During the first quarter, MCImetro increased its fiber route miles to 2,107, and
local city networks to 9 in 6 cities. By year end, MCImetro plans to have
constructed more than 40 local city networks in 20 major metropolitan areas and
to have installed 10 switches to expand its portfolio of local services as
regulatory authorities permit.
<PAGE>
PAGE 14
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Summary financial information for MCImetro as of and for the three months ended
March 31, 1995 was as follows:
March 31, 1995
--------------
(in millions)
Assets $216
Revenue 17
Operating Loss (2)
The company remains MCImetro's largest customer.
Equity Investees
- ----------------
The company has made strategic investments in several ventures. In the first
quarter of 1995, the company reported equity in losses in these ventures of $29
million, a majority of which resulted from its share of Concert Communications
Company's (Concert) losses. Concert, a business venture formed in 1994 with BT
in which the company owns a 24.9% interest, provides global telecommunications
services for business customers. Concert's losses were higher than expected in
the first quarter of 1995 due to one-time start-up charges. Concert is expected
to continue to generate losses in 1995 due to its start-up nature. The company's
share of these losses is anticipated to be between $10 million and $15 million
per quarter. AVANTEL, S.A. (AVANTEL), a 45% owned business venture with Grupo
Financiero Banamex-Accival (Banacci), was formed in 1994 to provide competitive
domestic and international long distance telecommunications services in Mexico,
subject to the grant of a concession from the government of Mexico and the
satisfaction of various other conditions. In 1994, the company made an
investment in In-Flight Phone Corporation (In-Flight) which provides airline
passengers digital air-to-ground communications.
The company also has several other investments including a 23.5% interest in
Belize Telecommunications, Ltd., a 25% interest in CLEAR Communications, Ltd.,
of New Zealand, a 30.9% interest in General Communication, Inc. and a 34.6%
interest in Interactive Cable Systems, Inc.
<PAGE>
PAGE 15
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Working Capital
- ---------------
The company had positive working capital (current assets less current
liabilities) of approximately $1.1 billion and $1.8 billion as of March 31, 1995
and December 31, 1994, respectively. The decrease was primarily attributable to
the company's shifting of a portion of its investment portfolio from current to
noncurrent marketable securities in order to obtain higher yields.
Communications System
- ---------------------
The company continued to invest in its communications system in order to
increase network capacity and capability and to enhance network intelligence.
Cash outflows for its communications system, including customer-specific
equipment, were $713 million and $746 million in the three months ended March
31, 1995 and 1994, respectively. The company also proceeded with its plans to
deploy advanced network technologies for improved reliability and delivery of
advanced services. During the first quarter of 1995, the company completed its
deployment of Synchronous Optical Network (SONET) rings around Houston, Los
Angeles and San Diego. By year end 1995, additional SONET rings are expected to
be operational around St. Louis, Atlanta, Boston, New York, Dallas, Detroit,
Minneapolis and San Francisco. In addition, the company activated the nation's
first commercial network combining SONET and Asynchronous Transfer Mode (ATM)
technologies called vBNS, very high-speed backbone network service. SONET and
ATM will allow the company to combine voice, data and video transmissions for
unique high-speed applications over a single channel.
<PAGE>
PAGE 16
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Funding of Alliances, Investments and Initiatives
- -------------------------------------------------
The company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including its planned investment in News
Corp and its fixed charges, through its cash flows from operating activities,
existing cash and cash equivalents and marketable securities, its bank credit
facility and other external financing. Cash and cash equivalents and marketable
securities totaled approximately $2.8 billion as of March 31, 1995. The company
has available a $2 billion bank credit facility, expiring in July 1999, which
supports the company's commercial paper program, and, in conjunction with this
program, will be used to fund short-term fluctuations in working capital and
other general corporate requirements. In addition, the company has a $1 billion
shelf registration in effect which will enable the company to issue debt
securities with a range of maturities at either fixed or variable rates. As of
March 31, 1995, there were no amounts outstanding under the bank credit
facility, commercial paper program or the shelf registration.
CASH FLOWS
- ---------- Three months ended
(in millions) March 31,
1995 1994 Change
----- ----- -------
Cash from operating
activities $ 535 $ 499 $ 36
Cash used for
investing activities (949) (865) (84)
Cash (used for) from
financing activities (76) 545 (621)
----- ----- -----
Net (decrease) increase in
cash and cash equivalents $(490) $ 179 $(669)
===== ===== =====
EBITDA
- ------
Earnings before interest, taxes, depreciation and amortization (EBITDA), also
known as operating cash flow, increased 16% to $749 million in the quarter ended
March 31, 1995 from $643 million in the year-ago period. The increase was a
function of the overall growth in the company's business. EBITDA, another
measure of the company's ability to generate cash flows, should be considered in
addition to but not as a substitute for, or superior to, other measures of
financial performance reported in accordance with generally accepted accounting
principals.
<PAGE>
PAGE 17
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Cash from Operating Activities
- ------------------------------
Cash from operating activities increased as a result of an increase in cash
received from customers due to the growth in the company's revenue, which was
only partially offset by an increase in cash paid to suppliers and employees.
Also contributing to the increase in cash was the interest received on the
investment of funds from BT in September 1994.
Cash used for Investing Activities
- ----------------------------------
The increase in cash used for investing activities resulted from the net
investment of $202 million in noncurrent marketable securities which was
partially offset by the January 1994 purchase of substantially all of the
operations of BT North America Inc. for $108 million.
Cash (used for) from Financing Activities
- -----------------------------------------
Cash (used for) from financing activities for the three months ended March 31,
1995 decreased significantly from the year-ago period, primarily due to the
decrease in the amount of debt issued in the respective quarters. In March 1994,
the company issued an aggregate principal amount of $950 million of Senior Notes
and Debentures. A substantial portion of the net proceeds were used to repay
commercial paper borrowings and the balance for general corporate purposes.
- -----------------------------------------------
* MCImetro, Local Choice Direct and Local Choice Custom are service marks of
MCI Communications Corporation.
** Proof Positive, 1-800-COLLECT, Vnet, MCI Vision, MCI Preferred and NEW
Friends & Family are registered service marks of MCI Communications
Corporation.
<PAGE>
PAGE 18
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a)Exhibits
Exhibit No. Description
- ----------- -----------
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule as of March 31, 1995.
99(a) Capitalization Schedule as of March 31, 1995.
b)Reports on Form 8-K
The company filed a Current Report of Form 8-K on February 16, 1995, which
is reported pursuant to Item 7.
<PAGE>
PAGE 19
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
MCI COMMUNICATIONS CORPORATION
Date: May 15, 1995 Signed: /s/ Douglas L. Maine
-----------------------
Douglas L. Maine
Executive Vice President
and Chief Financial Officer
<PAGE>
PAGE 20
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule as of March 31, 1995.
99(a) Capitalization Schedule as of March 31, 1995.
Exhibit 11
-------------
(Page 1 of 2)
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per share amounts)
(unaudited)
Three months
ended
March 31,
--------------
1995 1994
---- ----
Primary
- -------
Net income................................ $244 $209
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding.. .......................... 680 542
Assumed conversion of preferred stock..... - 27
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents............................. 43 47
Shares of common stock assumed repurchased
for treasury(a)......................... (38) (36)
---- ----
Adjusted shares of common stock and common
stock equivalents for computation....... 685 580
==== ====
Earnings per common and common equivalent
shares.................................... $.36 $.36
==== ====
- --------------------------------
(a) At an average market price of $19.47 and $26.26 for the three months
ended March 31, 1995 and 1994, respectively.
<PAGE>
Exhibit 11
-------------
(Page 2 of 2)
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per share amounts)
(unaudited)
Three months
ended
March 31,
--------------
1995 1994
---- ----
Assuming Full Dilution
- ----------------------
Net income................................ $244 $209
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding............................. 680 542
Assumed conversion of preferred stock..... - 27
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents.............................. 43 47
Shares of common stock assumed repurchased
for treasury(b)......................... (36) (36)
---- ----
Adjusted shares of common stock and common
stock equivalents for computation....... 687 580
==== ====
Earnings per common and common equivalent
shares.................................... $.36 $.36
==== ====
- --------------------------------
(b) The March 31, 1995 ending market price of $20.63 was used as it is higher
than the average market price of $19.47. The average market price of
$26.26 for the three months ended March 31, 1994 was used as it is higher
than the March 31, 1994 ending market price of $23.38.
Exhibit 12
----------
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio amounts)
(unaudited)
Three Months Ended
March 31, Year Ended December 31,
-------------- ----------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
Earnings:
Income before
income taxes and
extraordinary item(a) $397 $340 $1,280 $1,045 $ 963 $ 848 $ 440
Add:
Fixed charges 83 71 315 315 346 334 321
Less:
Capitalized interest 21 19 78 61 52 58 49
---- ---- ------ ------ ------ ------ -----
Total earnings $459 $392 $1,517 $1,299 $1,257 $1,124 $ 712
==== ==== ====== ====== ====== ====== =====
Fixed Charges:
Fixed charges on
indebtedness,
including amortization
of debt discount and
premium $ 59 $ 50 $ 231 $ 239 $ 270 $ 270 $ 262
Interest portion of
operating lease
rentals(b) 24 21 84 76 76 64 59
---- ---- ------ ------ ------ ------ -----
Total fixed charges $ 83 $ 71 $ 315 $ 315 $ 346 $ 334 $ 321
==== ==== ====== ====== ====== ====== =====
Ratio of earnings to
fixed charges 5.53 5.52 4.82 4.12 3.63 3.37 2.22
==== ==== ====== ====== ====== ====== =====
(a) Includes equity in income (losses) of affiliated companies.
(b) The interest portion of operating lease rentals is calculated as one third
of rent expense which represents a reasonable approximation of the interest
factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of MCI Communications Corporation and Subsidiaries at March 31, 1995 and
the income statement for the three months ended March 31, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000064079
<NAME> MCI Communications Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 939
<SECURITIES> 604
<RECEIVABLES> 2,659
<ALLOWANCES> 217
<INVENTORY> 0
<CURRENT-ASSETS> 4,435
<PP&E> 14,099
<DEPRECIATION> 4,556
<TOTAL-ASSETS> 16,839
<CURRENT-LIABILITIES> 3,363
<BONDS> 2,936
<COMMON> 74
0
0
<OTHER-SE> 9,165
<TOTAL-LIABILITY-AND-EQUITY> 16,839
<SALES> 3,561
<TOTAL-REVENUES> 3,561
<CGS> 0
<TOTAL-COSTS> 3,131
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 426
<INCOME-TAX> 153
<INCOME-CONTINUING> 244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
Exhibit 99(a)
-------------
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CAPITALIZATION SCHEDULE
(In millions)
Set forth below is the capitalization of the company as of March 31, 1995:
Debt(a):
Secured debt:
Capital lease obligations ........................... $ 555
Other secured obligations ........................... 22
-------
Total secured debt ................................ 577
-------
Unsecured debt:
Senior Notes, net ................................... 1,501
Senior Debentures, net............................... 884
Other unsecured debt................................. 110
-------
Total unsecured debt ............................... 2,495
-------
Total debt ...................................... $ 3,072
-------
Stockholders' equity:
Class A common stock, $.10 par value, authorized
500 million shares, issued 136 million shares...... $ 14
Common stock, $.10 par value, authorized 2 billion
shares, issued 592 million shares.................. 60
Additional paid in capital........................... 6,270
Retained earnings.................................... 3,792
Treasury stock at cost, 48 million shares............ (897)
-------
Total stockholders' equity...................... 9,239
-------
Total capitalization............................ $12,311
=======
(a) See Note 6 of Notes to Consolidated Financial Statements on page 19 of the
company's Annual Report to Stockholders, which is included in Exhibit 13 to
the company's Annual Report on Form 10-K for the year ended December 31,
1994, for additional 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 8.8% per annum at March 31, 1995.
For additional information concerning the company's long-term debt, see Note
5 of Notes to Consolidated Financial Statements on pages 17 and 18 of the
company's Annual Report to Stockholders, which is included in Exhibit 13 to
the company's Annual Report on Form 10-K for the year ended December 31,
1994.
