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 September 30, 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
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 September 30, 1995, the registrant had outstanding 135,998,932 shares of
Class A common stock and 545,276,100 shares of common stock.
<PAGE>
PAGE 2
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For The Quarter Ended September 30, 1995
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Income Statements for the three and nine months ended
September 30, 1995 and 1994 3
Balance Sheets as of September 30, 1995 and December 31, 1994 4-5
Statements of Cash Flows for the nine months ended
September 30, 1995 and 1994 6
Statement of Stockholders' Equity for the nine months
ended September 30, 1995 7
Notes to Interim Condensed Consolidated Financial
Statements 8-12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-25
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 26
SIGNATURE 27
EXHIBIT INDEX 28
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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 Nine months
ended September 30, ended September 30,
------------------ -------------------
1995 1994 1995 1994
------- ------- -------- --------
REVENUE $ 3,862 $ 3,407 $ 11,128 $ 9,937
------- ------- -------- --------
OPERATING EXPENSES
Telecommunications 2,001 1,765 5,741 5,152
Sales, operations and general 1,283 952 3,298 2,791
Depreciation 328 282 973 818
Asset write-down 520 - 520 -
------- ------- -------- --------
TOTAL OPERATING EXPENSES 4,132 2,999 10,532 8,761
------- ------- -------- --------
INCOME (LOSS) FROM OPERATIONS (270) 408 596 1,176
Interest expense (35) (43) (109) (114)
Interest income 36 1 131 3
Other expense, net (2) (12) (23) (30)
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
RESULTS OF AFFILIATED COMPANIES (271) 354 595 1,035
Income tax (provision) benefit 147 (135) (168) (393)
------- ------- -------- --------
INCOME (LOSS) BEFORE RESULTS
OF AFFILIATED COMPANIES (124) 219 427 642
Equity in income (losses) of
affiliated companies (116) 1 (163) 2
------- ------- -------- --------
NET INCOME (LOSS) $ (240) $ 220 $ 264 $ 644
======= ======= ======== ========
Dividends on preferred stock - - - 1
------- ------- -------- --------
Earnings (loss) applicable to
common stockholders $ (240) $ 220 $ 264 $ 643
======= ======= ======== ========
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARES $ (.35) $ .38 $ .38 $ 1.11
Weighted average number of shares
of common stock and common stock
equivalents outstanding 688 579 686 578
Dividends declared per common share $ - $ - $ .025 $ .025
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
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PAGE 4
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
September 30, December 31,
1995 1994
------------ -----------
(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,006 $ 1,429
Marketable securities 229 839
Receivables, net of allowance for
uncollectibles of $215 and $226 million 2,722 2,266
Other assets 520 354
-------- --------
TOTAL CURRENT ASSETS 4,477 4,888
-------- --------
COMMUNICATIONS SYSTEM, net 9,945 9,059
OTHER ASSETS
Noncurrent marketable securities 73 824
Other assets and deferred charges, net 365 293
Investment in affiliates 171 199
Investment in News Corp 1,000 -
Goodwill, net 1,284 1,103
-------- --------
TOTAL OTHER ASSETS 2,893 2,419
-------- --------
TOTAL ASSETS $ 17,315 $ 16,366
======== ========
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
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PAGE 5
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
September 30, December 31,
1995 1994
------------ ------------
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued telecommunications expense $ 1,690 $ 1,505
Accounts payable 773 609
Other accrued liabilities 1,275 893
Long-term debt due within one year 160 130
-------- --------
TOTAL CURRENT LIABILITIES 3,898 3,137
-------- --------
NONCURRENT LIABILITIES
Long-term debt 2,905 2,997
Deferred taxes and other 1,285 1,228
-------- --------
TOTAL NONCURRENT LIABILITIES 4,190 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
593 and 592 million shares 60 60
Additional paid in capital 6,371 6,227
Retained earnings 3,796 3,548
Treasury stock, at cost,
48 million shares (1,014) (845)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 9,227 9,004
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,315 $ 16,366
======== ========
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
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PAGE 6
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(unaudited) Nine months ended
September 30,
------------------------
1995 1994
------ ------
OPERATING ACTIVITIES (In millions)
Receipts from customers $ 10,705 $ 9,852
Payments to suppliers and employees (8,476) (7,779)
Taxes paid (261) (321)
Interest paid (120) (98)
Interest received 151 2
-------- --------
CASH FROM OPERATING ACTIVITIES 1,999 1,656
-------- --------
INVESTING ACTIVITIES
Cash outflow for communications system (2,261) (2,081)
Purchases, maturities and sales of
marketable securities, net 1,371 (219)
Investment in News Corp (1,000) -
Investment in affiliates (145) (115)
Acquisition of businesses (194) (110)
Other, net 11 (59)
-------- --------
CASH USED FOR INVESTING ACTIVITIES (2,218) (2,584)
-------- --------
NET CASH FLOW BEFORE FINANCING ACTIVITIES (219) (928)
-------- --------
FINANCING ACTIVITIES
Issuance of Senior Notes and other debt - 939
Payments of Senior Notes and other debt (105) (216)
Commercial paper and bank credit facility
activity, net - (239)
Purchase of treasury stock (285) (269)
Issuance of Class A common stock - 3,522
Issuance of common stock for employee plans 202 194
Payment of dividends on common and
preferred stock (16) (14)
-------- --------
CASH (USED FOR) FROM FINANCING ACTIVITIES (204) 3,917
-------- --------
Net (decrease) increase in cash and cash equivalents (423) 2,989
Cash and cash equivalents - beginning balance 1,429 165
-------- --------
Cash and cash equivalents - ending balance $ 1,006 $ 3,154
======== ========
Reconciliation of net income to cash from
operating activities:
Net income $ 264 $ 644
Adjustments to net income:
Depreciation and amortization 1,012 849
Asset write-down 520 -
Deferred income tax provision 51 175
Net change in operating activity accounts
other than cash and cash equivalents:
Receivables (456) (166)
Payables 173 132
Other operating activity accounts 435 22
-------- --------
Cash from operating activities $ 1,999 $ 1,656
======== ========
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
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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
(14 million shares) - - 123 - 116 239
Acquisition of business
(.793 million shares) - - 16 - - 16
Unrealized gain on
marketable securities - - 5 - - 5
Net income - - - 264 - 264
Common and Class A
common stock dividends - - - (16) - (16)
Treasury stock
purchased
(14 million shares) - - - - (285) (285)
---- ---- ------- ------- ------- -------
Balance at
September 30, 1995 $ 14 $ 60 $ 6,371 $ 3,796 $(1,014) $ 9,227
==== ==== ======= ======= ======= =======
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
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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 rules and regulations of the
Securities and Exchange Commission (SEC). 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. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such SEC rules and regulations. 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: THIRD QUARTER SPECIAL CHARGES
During the third quarter of 1995, the company implemented a reorganization
designed to increase efficiency, enhance marketplace effectiveness and improve
business focus. The reorganization is largely in response to the rapid changes
in business scope, technology and regulation affecting the telecommunications
industry. The company has separated its core communications business from its
ventures and alliances and has centralized major administrative functions. The
core communications business includes a consolidation of network operations,
information systems and the former Business Markets and Consumer Markets units.
In connection with this reorganization and in response to other third quarter
events, the company recorded special pretax charges of $831 million which is
comprised of the following three major components.
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PAGE 9
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
One, there was a $520 million charge for an asset write-down pertaining to
certain of the company's communications systems and administrative assets to
reflect a decline in value caused by changes in the business organization and
technology strategy. The write-down primarily relates to assets that have become
redundant or are no longer aligned with strategic product offerings. The amount
of the write-down was measured in conformity with the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which the company adopted
in the third quarter of 1995. Under this standard, charges were taken for the
difference between the current carrying value and the estimated fair value of
such assets at the expected disposal date. In the company's case, the fair value
of most of the assets covered by this write-down was deemed to be salvage value.
Disposal or abandonment of most of these assets will occur by December 31, 1995.
Two, the company recorded a $216 million charge in sales, operations and general
relating primarily to reorganization costs. These costs consist of severance
associated with a workforce reduction of approximately 3,000 employees (the
majority of whom will be terminated before year end), lease obligations and
penalties associated with facilities that will be vacated, and costs to modify
and terminate contracts associated with changes in the business organization and
strategic product offerings. Cash expenditures for these reorganization costs,
most of which will be incurred within the next year, will be funded from
operations. In addition, certain legal costs were included in this charge.
Three, there was a charge of $95 million recorded in equity in income (loss) of
affiliated companies relating to several investees where restructuring plans
have been implemented in the third quarter of 1995 or where product offerings
are not expected to generate future cash flows sufficient to recover current
carrying values.
<PAGE>
PAGE 10
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3: ACQUISITIONS
In September 1995, the company completed its acquisition of Nationwide Cellular
Service, Inc. (Nationwide) for approximately $190 million in cash. This
acquisition represents part of the company's strategy to provide value-added
wireless services integrated with other company services for both consumer and
business customers.
On September 19, 1995, the company entered into an agreement with SHL
Systemhouse Inc. (SHL), a Canadian corporation which provides information
technology services to commercial and government enterprises. Pursuant to the
tender offer required under the agreement, the company offered to purchase all
the outstanding shares of SHL common stock for U.S. $13.00 per share or
approximately U.S. $1 billion. On November 13, 1995, the expiration date of the
tender offer, the company took up for purchase in excess of 72.4 million shares
of SHL common stock tendered pursuant to the tender offer or in excess of 93% of
the outstanding shares of SHL common stock. The company expects to purchase the
tendered shares on November 16, 1995 and to acquire the shares not tendered in
accordance with the provisions of the Canada Business Corporations Act shortly
thereafter.
The company anticipates that SHL will provide it with the ability to design,
build and manage information solutions that integrate computing and
communications technologies for its business customers. As a result, the company
will combine its existing professional services organization with SHL, which
will operate as a separate division.
The Nationwide and SHL acquisitions will be accounted for under the purchase
method of accounting.
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PAGE 11
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4: NEWS CORP INVESTMENT
On August 2, 1995, the company, after approval by its board of directors of
definitive agreements with The News Corporation Limited (News Corp), acquired
for $1 billion (i) an aggregate of 51 preferred shares of two U.S. subsidiaries
of News Corp (News Triangle Finance, Inc. and News T Investments, Inc.) with a
stated value and liquidation preference of $850 million and bearing a dividend
coupon rate of 5.147%, and (ii) a 4 year warrant (purchase price of $150
million) to acquire up to approximately 155 million ordinary shares of News Corp
for $850 million. The exercise price of the warrant is payable, at the company's
option, in cash or through the surrender of the preferred shares. In addition,
the company has an option for five years to invest an additional $1 billion
under the same terms and for the same consideration as its initial investment.
Under certain circumstances, News Corp shall have the right to cause the company
to make the additional $1 billion investment or a portion thereof.
Should the company exercise its warrants and acquire ordinary shares of News
Corp, subject to certain exceptions, the company shall vote in the same
proportion as all other votes. The company accounts for its investment in News
Corp under the cost method.
NOTE 5: MARKETABLE SECURITIES
As of September 30, 1995, all of the company's marketable securities were
classified as available-for-sale and stated at fair value. These securities were
included in the accompanying balance sheets as either cash and cash equivalents,
current marketable securities or noncurrent marketable securities. The portfolio
consisted of certificates of deposit, U.S. Government agency securities,
corporate debt securities, U.S. Treasury securities and asset-backed securities.
<PAGE>
PAGE 12
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6: COMMUNICATIONS SYSTEM
September 30, December 31,
1995 1994
--------- ----------
(in millions)
Communications system in service $ 10,683 $ 9,766
Furniture and fixtures 2,054 1,796
Other property and equipment 630 656
-------- --------
Total 13,367 12,218
Accumulated depreciation (4,925) (4,349)
Construction in progress 1,503 1,190
-------- --------
Total communications system, net $ 9,945 $ 9,059
======== ========
NOTE 7: 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 against the company by AT&T Corp. (AT&T) were invalid and that AT&T
should therefore, and for other reasons, 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 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 discovery has not yet
been completed, the company does not expect that either action will have a
material adverse effect on the consolidated financial position or results of
operations of the company.
<PAGE>
PAGE 13
PART I.
ITEM 2.
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 predominantly 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 has embarked on a strategy that is designed to expand the
company's business into other aligned markets and industries (see Business
Acquisitions, Ventures and Alliances).
During the third quarter of 1995, the company implemented a reorganization
designed to increase efficiency, enhance marketplace effectiveness and improve
business focus. The reorganization is largely in response to the rapid changes
in business scope, technology and regulation affecting the telecommunications
industry. The company has separated its core communications business from its
ventures and alliances and has centralized major administrative functions. In
connection with the reorganization and in response to other third quarter
events, the company recorded total special pretax charges of $831 million which
are discussed in more detail under Results of Operations. As a result of these
charges, the company reported a loss in the third quarter of 1995 of $240
million or $.35 per share. For the nine month period ending September 30, 1995,
earnings were $264 million or $.38 per share. Excluding the special pretax
charges, income from operations increased 14% and 13% for the three and nine
months ended September 30, 1995, respectively, from the year-ago periods.
Earnings were $275 million, or $.40 per share, and $779 million, or $1.14 per
share, for the three and nine months ended September 30, 1995, respectively,
compared to the year-ago periods of $220 million, or $.38 per share, and $643
million, or $1.11 per share, respectively.
<PAGE>
PAGE 14
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
RESULTS OF OPERATIONS
- --------------------- Increase (decrease) Increase (decrease)
for the three months for the nine months
ended September 30, ended September 30,
(In millions, except % change) 1995 vs. 1994 1995 vs. 1994
------------------ ------------------
Revenue $ 455 13.4% $ 1,191 12.0%
------- ---- ------- ----
Operating expenses
Telecommunications 236 13.4% 589 11.4%
Sales, operations and general 331 34.8% 507 18.2%
Depreciation 46 16.3% 155 18.9%
Asset write-down 520 NM 520 NM
------- ---- ------- ----
Total operating expenses 1,133 37.8% 1,771 20.2%
------- ---- ------- ----
Income from operations $ (678) NM $ (580) (49.3)%
======= ==== ======= ====
Revenue
- -------
Revenue grew $455 million or 13.4% to $3.9 billion in the third quarter of 1995
versus $3.4 billion in the third quarter of 1994. Revenue for the nine months
ended September 30, 1995 grew 12% to $11.1 billion compared to $9.9 billion in
the same period last year.
Three months Nine months
ended September 30, ended September 30,
1995 vs. 1994 1995 vs. 1994
------------- -------------
Increase in revenue 13.4% 12.0%
Increase in traffic 19.3% 14.4%
---- ----
Revenue to traffic variance (5.9)% (2.4)%
---- ----
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PAGE 15
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The company had a negative variance between revenue and traffic growth of 5.9%
and 2.4% for the three and nine month period ended September 30, 1995,
respectively. The negative variance was due to increased volume and promotional
discounts partially offset by tariff rate increases and revenue growth from
international traffic and data products. Also contributing to the negative
variance were lower revenue rates associated with increased carrier market
traffic. The company expects the year-over-year quarterly negative variance to
narrow from the third quarter to the fourth quarter of 1995 as a result of
changes in discount and promotional programs.
In the business market, year-over-year revenue and traffic showed continued
growth for the three and nine months ended September 30, 1995 driven by
increases in most segments of the business market, especially in the carrier
market. Year-over-year revenue increases for both periods were primarily
attributable to growth in data products, which continued to grow in excess of
30%, 800, MCI Vision** and Vnet** products. International traffic grew more than
50% for the three months ended September 30, 1995, and approximately 50% for the
nine months ended September 30, 1995.
Consumer market revenue and traffic also showed continued year-over-year growth
for the three and nine months ended September 30, 1995 due to growth in the
company's Friends & Family** products, its collect-calling product,
1-800-COLLECT** and calling card products.
Telecommunications Expense
- --------------------------
Telecommunications expense as a percentage of revenue remained constant at 51.8%
for the third quarters of 1995 and 1994. On a year-to-date basis,
telecommunications expense as a percentage of revenue decreased to 51.6% in 1995
from 51.8% in 1994, due to reductions in domestic access rates and international
settlement rates and continued network optimization.
On April 14, 1995, the Federal Communications Commission (FCC) issued its
Revisions to Tariff Review Plan for Price Cap Companies and Order, effective
August 1, 1995. The effect of these revisions was to decrease the costs that
long distance companies pay local exchange companies for access. Although
domestic access rates have decreased in the second half of 1995 as a result of
this ruling, the impact of the rate reductions was offset, on a percent of
revenue basis, by reduced revenue rates, seasonality and changes in product mix.
<PAGE>
PAGE 16
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Third Quarter Special Charges
- -----------------------------
The company recorded special charges of $831 million which is comprised of the
following three major components.
One, there was a $520 million charge for an asset write-down pertaining to
certain of the company's communications systems and administrative assets to
reflect a decline in value caused by changes in the business organization and
technology strategy. The write-downs primarily relate to assets that have become
redundant or are no longer aligned with strategic product offerings. Disposal or
abandonment of most of these assets will occur by December 31, 1995.
Two, the company recorded a $216 million charge in sales, operations and general
relating primarily to reorganization costs. These costs consist of severance
associated with a workforce reduction of approximately 3,000 employees (the
majority of whom will be terminated before year end), lease obligations and
penalties associated with facilities that will be vacated, and costs to modify
and terminate contracts associated with changes in the business organization and
strategic product offerings. Cash expenditures for these reorganization costs,
most of which will be incurred within the next year, will be funded from
operations. In addition, certain legal costs were included in this charge.
Three, there was a charge of $95 million recorded in equity in income (loss) of
affiliated companies relating to several investees where restructuring plans
have been implemented in the third quarter of 1995 or where product offerings
are not expected to generate future cash flows sufficient to recover current
carrying values.
After applicable tax benefit, the charge resulted in a reduction to earnings of
$518 million, or $.75 per share.
As a result of the reorganization, during 1996, the company expects to realize
annual savings of approximately $100 million in sales, operations and general
expenses. The depreciation savings from the asset write-downs will partially
offset increases in depreciation expense from continuing additions to the
communications system.
<PAGE>
PAGE 17
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Sales, Operations and General
- -----------------------------
Sales, operations and general expense increased 34.8% and 18.2% year-over-year
for the three and nine months ended September 30, 1995, respectively. Excluding
the aforementioned $216 million of special charges, sales, operations and
general expense increased 12.1% and 10.4% year-over-year for the three and nine
months ended September 30, 1995, respectively. This increase was primarily due
to (i) increased personnel costs in sales and customer service related to the
introduction of new products and services, and increased sales and customer
volumes; and, (ii) increased sales and marketing costs due to the introduction
of the new Friends & Family, as well as the impact of costs associated with the
company's networkMCI Solutions*, networkMCI BUSINESS*** and 1-800-COLLECT
programs.
Sales, operations and general expense as a percentage of revenue, excluding the
aforementioned special charges, decreased to 27.6% and 27.7% for the three and
nine months ended September 30, 1995, respectively, from 27.9% and 28.1% for the
corresponding periods in 1994, respectively.
Depreciation Expense
- --------------------
Depreciation expense increased year-over-year 16.3% and 18.9% for the three and
nine months ended September 30, 1995, respectively. Depreciation as a percent of
revenue was 8.5% and 8.7% for the three and nine months ended September 30,
1995, respectively, compared to 8.3% and 8.2% for the same periods in 1994,
respectively. This increase was primarily a result of additions to the
communications network which were made in order to increase network capacity,
redundancy and reliability.
Interest Expense
- ----------------
Interest expense for the third quarter of 1995 decreased by $8 million from the
year-ago period, primarily as a result of a decrease in the average level of
debt outstanding and an increase in capitalized interest. On a year-to-date
basis, interest expense decreased by $5 million due to the increase in
capitalized interest.
<PAGE>
PAGE 18
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Interest Income
- ---------------
Interest income increased significantly in the three and nine month periods
ended September 30, 1995 versus the same periods a year-ago due to the
investment of the funds received from British Telecommunications plc (BT) in
September 1994. Interest income declined in the third quarter of 1995 and this
decline will continue in the fourth quarter of 1995 as cash is used to fund the
company's business acquisitions, ventures and alliances.
Equity in Income (Losses) of Affiliated Companies
- -------------------------------------------------
The company's equity in losses from its investment in affiliates, exclusive of
the aforementioned $95 million for reorganization costs and impairment
recognition, was $21 million and $68 million for the three and nine months ended
September 30, 1995, respectively. Most of these losses were attributable to
Concert Communications Company and In-Flight Phone Corporation.
Weighted Average Shares
- -----------------------
Weighted average shares increased approximately 19% year-over-year for the three
and nine months ended September 30, 1995 due to the issuance on September 30,
1994 of 108.5 million shares of the total 136 million shares of Class A common
stock issued to BT.
<PAGE>
PAGE 19
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
BUSINESS ACQUISITIONS, VENTURES AND ALLIANCES
- ---------------------------------------------
The company's investments fall into three categories: fully consolidated
subsidiaries, equity investees and investment in News Corp. 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. The
company's investment in News Corp is accounted for under the cost method and is
separately presented on the balance sheet.
The following section provides a discussion of the company's strategic
initiatives in the professional services, multimedia, local, wireless and
international markets.
SHL Systemhouse Inc.
- --------------------
On September 19, 1995, the company entered into an agreement with SHL
Systemhouse Inc. (SHL), a Canadian corporation which provides information
technology services to commercial and government enterprises. Pursuant to the
tender offer required under the agreement, the company offered to purchase all
the outstanding shares of SHL common stock for U.S. $13.00 per share or
approximately U.S. $1 billion. On November 13, 1995, the expiration date of the
tender offer, the company took up for purchase in excess of 72.4 million shares
of SHL common stock tendered pursuant to the tender offer or in excess of 93% of
the outstanding shares of SHL common stock. The company expects to purchase the
tendered shares on November 16, 1995 and to acquire the shares not tendered in
accordance with the provisions of the Canada Business Corporations Act shortly
thereafter.
The company anticipates that SHL will provide it with the ability to design,
build and manage information solutions that integrate computing and
communications technologies for its business customers. As a result, the company
will combine its existing professional services organization with SHL, which
will operate as a separate division.
<PAGE>
PAGE 20
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
News Corp
- ---------
On August 2, 1995, the company, after approval by its board of directors of
definitive agreements with The News Corporation Limited (News Corp), acquired
for $1 billion (i) an aggregate of 51 preferred shares of two U.S. subsidiaries
of News Corp (News Triangle Finance, Inc. and News T Investments, Inc.) with a
stated value and liquidation preference of $850 million and bearing a dividend
coupon rate of 5.147%, and (ii) a 4 year warrant (purchase price of $150
million) to acquire up to approximately 155 million ordinary shares of News Corp
for $850 million. The exercise price of the warrant is payable, at the company's
option, in cash or through the surrender of the preferred shares. In addition,
the company has an option for five years to invest an additional $1 billion
under the same terms and for the same consideration as its initial investment.
Under certain circumstances, News Corp shall have the right to cause the company
to make the additional $1 billion investment or a portion thereof.
MCImetro*
- ---------
MCImetro, Inc. (MCImetro), the company's wholly-owned local services subsidiary,
is a provider of local fiber-optic capacity and competitive access services to
the company and other long distance carriers, large businesses and government
users of telecommunications services. MCImetro intends to become a single source
provider of comprehensive local wireline telecommunications services,
encompassing voice, data and enhanced services in key markets throughout the
U.S. as regulatory authorities permit. During the third quarter of 1995,
MCImetro was granted authority to offer local phone service in an additional 5
states, bringing the total to 13 states in which such authority has been
granted. As of September 30, 1995, MCImetro had applications pending in 4 other
states. MCImetro has installed Class 5 switches in 7 major cities and by year
end 1995, intends to offer switched local phone services in 10 major cities,
pending local regulatory approval.
<PAGE>
PAGE 21
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
MCImetro, which currently owns or operates conduit and fiber cable facilities in
more than 200 U.S. cities, increased its total route mileage to 2,234 miles and
rights-of-way mileage to more than 3,500 miles during the third quarter of 1995.
By the end of the third quarter, MCImetro had 24 operational local city networks
located in 17 major cities. Detroit, Newark, Chicago, Philadelphia and
Pittsburgh were added to the list of cities where Local Choice Direct* service
is offered. This family of access services provides businesses with high quality
dedicated access connections to a long distance carrier or other service
provider. In addition, Local Choice Custom* provides complete network design and
implementation for customized network solutions.
Wireless
- --------
In September 1995, the company completed its acquisition of Nationwide Cellular
Service, Inc. (Nationwide) for approximately $190 million in cash. This
acquisition represents part of the company's strategy to provide value-added
wireless services integrated with other company services for both consumer and
business customers. During the third quarter of 1995, the company also entered
into agreements with GTE Mobilnet, BellSouth, McCaw, Frontier and NewPar (a
joint venture of Airtouch Communications and Cellular Communications, Inc.) to
purchase wireless services for resale. These agreements, including arrangements
that Nationwide has with other cellular carriers, gives the company the ability
to market wireless services in the top 100 U.S. markets.
AVANTEL
- -------
The company plans to increase its investment in AVANTEL, S.A. (AVANTEL), the
company's 45% owned business venture formed with Grupo Financiero
Banamex-Accival, to approximately $250 million in November 1995. This investment
represents approximately half of the company's total anticipated investment in
AVANTEL; the remainder is expected to be invested in 1996. In September 1995,
AVANTEL received a license from the Secretariat of Communications and
Transportation to construct and operate a nationwide fiber-optic
telecommunications network in Mexico. AVANTEL plans to provide business
customers with certain competitive domestic and international long distance
telecommunications services in Mexico when the market opens for competition in
August 1996, although certain value added, private line and data services may be
offered primarily to business customers prior to that time. A full range of
competitive switched long distance services is expected to be offered by AVANTEL
beginning in January 1997.
<PAGE>
PAGE 22
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Working Capital
- ---------------
The company had positive working capital (current assets less current
liabilities) of approximately $0.6 billion and $1.8 billion as of September 30,
1995 and December 31, 1994, respectively. The decrease in working capital was
primarily due to the investments in News Corp and Nationwide. Increased
investment in the company's communications system also contributed to this
working capital decline.
Communications System
- ---------------------
The company continued to invest in its communications system in order to enhance
network intelligence and increase network capacity and capability. Cash outflows
for its communications system were $2,261 million and $2,081 million for the
nine months ended September 30, 1995 and 1994, respectively. The company also
proceeded with its plans to deploy advanced network technologies for improved
reliability and delivery of advanced services. In addition to the construction
of MCImetro's network, the company completed its deployment of Synchronous
Optical Network (SONET) rings around Denver and Kansas City during the third
quarter of 1995. By year end 1995, the company expects to have a total of 15
SONET rings operational, including two international rings.
<PAGE>
PAGE 23
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 AVANTEL,
acquisition of SHL, and investment in MCImetro, through its cash flows from
operating activities, existing cash and cash equivalents and marketable
securities, its bank credit facility and access to the public markets. Cash and
cash equivalents and marketable securities totaled approximately $1.3 billion as
of September 30, 1995. The company has available a $2 billion bank credit
facility, expiring in July 1999, which supports the company's commercial paper
program and may be used in conjunction with the commercial paper program 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 covering debt securities with a range of maturities at either fixed or
variable rates. As of September 30, 1995, there were no amounts outstanding
under the bank credit facility, commercial paper program or the shelf
registration.
CASH FLOWS
- ---------- Nine months ended
(in millions) September 30,
1995 1994 Change
----- ------ -------
Cash from operating
activities $1,999 $1,656 $ 343
Cash used for
investing activities (2,218) (2,584) 366
Cash (used for) from
financing activities (204) 3,917 (4,121)
------ ------ -------
Net (decrease) increase in
cash and cash equivalents $ (423) $2,989 $(3,412)
====== ====== =======
<PAGE>
PAGE 24
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
EBITDA
- ------
EBITDA (earnings before interest, taxes, depreciation and amortization),
excluding the special charges, increased approximately 16% to $2,305 million for
the nine months ended September 30, 1995 from $1,994 million for the year-ago
period. EBITDA, a 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 principles. EBITDA, also known as operating cash
flow, is often used by analysts when evaluating companies in the
telecommunications industry.
Cash from Operating Activities
- ------------------------------
Cash from operating activities for the nine months ended September 30, 1995
increased year-over-year due to an increase in cash received from the growth in
revenue, which was only partially offset by an increase in cash paid to
suppliers and employers. Additionally, interest earned on the investment of
funds received from BT in September 1994 contributed to the increase in cash
from operating activities.
Cash used for Investing Activities
- ----------------------------------
Cash used for investing activities decreased year-over-year as a result of the
proceeds from the net investment activity associated with the company's
marketable securities portfolio acquired with BT funds. This decrease was
partially offset by the company's investment in News Corp and Nationwide, and
the increase in capital expenditures for the nine months ended September 30,
1995, as a result of the continued investment in the company's network.
Cash (used for) from Financing Activities
- -----------------------------------------
Cash (used for) from financing activities decreased significantly year-over-year
due to the final issuance of Class A common stock to BT on September 30, 1994
and the March 1994 issuance of Senior Notes and debentures which was partially
offset by the repayment of commercial paper.
<PAGE>
PAGE 25
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
CURRENT LEGISLATION
- -------------------
Congress is considering comprehensive legislation which affects every sector of
the telecommunications industry, including opening up local telephone markets to
competition and providing for Bell Operating Company (BOC) entry into the long
distance telecommunications market. The Senate acted on June 15, 1995 passing S.
652, and the House approved H.R. 1555, its version of telecommunications
legislation, on August 4, 1995. In October 1995, Congress selected
representatives to a House-Senate conference committee to reconcile differences
between the House and Senate versions of the legislation. It is not possible to
determine which form of the legislation, if any, will ultimately be enacted into
law or its impact on the company.
- -----------------------------------------------
* MCImetro, Local Choice Direct, Local Choice Custom and networkMCI Solutions
are service marks of MCI Communications Corporation.
** 1-800-COLLECT, Vnet, MCI Vision and Friends & Family are registered service
marks of MCI Communications Corporation.
*** networkMCI BUSINESS is a trademark of MCI Communications Corporation.
<PAGE>
PAGE 26
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 September 30, 1995.
99(a) Capitalization Schedule as of September 30, 1995.
b)Reports on Form 8-K
The company filed a current report on Form 8-K on September 28, 1995 related to
the announcement of the transaction with SHL Systemhouse Inc.
<PAGE>
PAGE 27
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: November 14, 1995 Signed: /s/ Douglas L. Maine
---------------------
Douglas L. Maine
Executive Vice President
and Chief Financial Officer
Signed: /s/ James M. Schneider
-----------------------
James M. Schneider
Senior Vice President, Finance
and Chief Accounting Officer
<PAGE>
PAGE 28
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 September 30, 1995.
99(a) Capitalization Schedule as of September 30, 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 Nine months
ended ended
September 30, September 30,
-------------- --------------
1995 1994 1995 1994
Primary ----- ----- ----- -----
- -------
Net income (loss) $(240) $ 220 $ 264 $ 644
Dividends on preferred stock - - - 1
----- ----- ----- -----
Earnings (loss) applicable to common
stockholders (240) 220 264 643
Add back:
Convertible preferred stock dividends - - - 1
----- ----- ----- -----
Earnings (loss) as adjusted for purposes
of computing earnings per share $(240) $ 220 $ 264 $ 644
===== ===== ===== =====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding 680 571 680 569
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents 55 44 55 44
Shares of common stock assumed repurchased
for treasury(a) (47) (36) (49) (35)
----- ----- ----- -----
Adjusted shares of common stock and common
stock equivalents for computation 688 579 686 578
===== ===== ===== =====
Earnings (loss) per common and common
equivalent shares $(.35) $ .38 $ .38 $1.11
===== ===== ===== =====
(a) At an average market price of $23.63 and $21.35 for the three and nine
months ended September 30, 1995, respectively, and $23.44 and $24.29 for the
three and nine months ended September 30, 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 Nine months
ended ended
September 30, September 30,
-------------- --------------
1995 1994 1995 1994
Assuming Full Dilution ----- ----- ----- -----
- ----------------------
Net income (loss) $(240) $ 220 $ 264 $ 644
Dividends on preferred stock - - - 1
----- ----- ----- -----
Earnings (loss) applicable to common
stockholders (240) 220 264 643
Add back:
Convertible preferred stock dividends - - - 1
----- ----- ----- -----
Earnings (loss) as adjusted for purposes
of computing earnings per share $(240) $ 220 $ 264 $ 644
===== ===== ===== =====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding 680 571 679 569
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents 56 43 55 44
Shares of common stock assumed repurchased
for treasury(b) (43) (33) (40) (34)
----- ----- ----- -----
Adjusted shares of common stock and common
stock equivalents for computation 693 581 694 579
===== ===== ===== =====
Earnings (loss) per common and common
equivalent shares $(.35) $ .38 $ .38 $1.11
===== ===== ===== =====
(b) The ending market price of $26.06 was used as it is higher than the average
market price of $23.63 and $21.35 for the three and nine months ended September
30, 1995, respectively. The ending market price of $25.38 was used as it is
higher than the average market price of $23.44 and $24.29 for the three and
nine months ended September 30, 1994, respectively.
Exhibit 12
----------
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio amounts)
(unaudited)
Nine Months Ended
September 30, Year Ended December 31,
---------------- -------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ----- ---- ---- ---- ---- ----
Earnings:
Income before
income taxes and
extraordinary item(a) $432 $1,037 $1,280 $1,045 $ 963 $ 848 $ 440
Add:
Fixed charges 253 236 315 315 346 334 321
Less:
Capitalized interest 68 58 78 61 52 58 49
---- ------ ------ ------ ------ ------ -----
Total earnings $617 $1,215 $1,517 $1,299 $1,257 $1,124 $ 712
==== ====== ====== ====== ====== ====== =====
Fixed Charges:
Fixed charges on
indebtedness,
including amortization
of debt discount and
premium $177 $ 172 $ 231 $ 239 $ 270 $ 270 $ 262
Interest portion of
operating lease
rentals(b) 76 64 84 76 76 64 59
---- ------ ------ ------ ------ ------ -----
Total fixed charges $253 $ 236 $ 315 $ 315 $ 346 $ 334 $ 321
==== ====== ====== ====== ====== ====== =====
Ratio of earnings to
fixed charges 2.44 5.15 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 September 30, 1995
and the income statement for the nine months ended September 30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,006
<SECURITIES> 229
<RECEIVABLES> 2,937
<ALLOWANCES> 215
<INVENTORY> 0
<CURRENT-ASSETS> 4,477
<PP&E> 14,870
<DEPRECIATION> 4,925
<TOTAL-ASSETS> 17,315
<CURRENT-LIABILITIES> 3,898
<BONDS> 2,905
<COMMON> 74
0
0
<OTHER-SE> 9,153
<TOTAL-LIABILITY-AND-EQUITY> 17,315
<SALES> 0
<TOTAL-REVENUES> 11,128
<CGS> 0
<TOTAL-COSTS> 10,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 109
<INCOME-PRETAX> 595
<INCOME-TAX> 168
<INCOME-CONTINUING> 264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
Exhibit 99(a)
-------------
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CAPITALIZATION SCHEDULE
(In millions)
(unaudited)
Set forth below is the capitalization of the company as of September 30,
1995:
Debt(a):
Secured debt:
Capital lease obligations ........................ $ 537
Other secured obligations ........................ 35
--------
Total secured debt .................................. 572
--------
Unsecured debt:
Senior Notes, net ................................ 1,496
Senior Debentures, net ........................... 884
Other unsecured debt ............................. 113
--------
Total unsecured debt ................................ 2,493
--------
Total debt ....................................... $ 3,065
--------
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 593 million shares .............. 60
Additional paid in capital ....................... 6,371
Retained earnings ................................ 3,796
Treasury stock, at cost, 48 million shares ....... (1,014)
--------
Total stockholders' equity .......................... 9,227
--------
Total capitalization ................................ $ 12,292
========
(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 8.7% per annum at September 30, 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.
