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 June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number 0-6547
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 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
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 June 30, 1996, the registrant had outstanding 135,998,932 shares of Class
A common stock and 551,643,766 shares of common stock.
<PAGE>
PAGE 2
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For The Quarter Ended June 30, 1996
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Income Statements for the three and six months ended
June 30, 1996 and 1995 3
Balance Sheets as of June 30, 1996 and December 31, 1995 4-5
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 6
Statement of Stockholders' Equity for the six months
ended June 30, 1996 7
Notes to Interim Condensed Consolidated Financial
Statements 8-11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-24
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25-26
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 27
SIGNATURE 28
EXHIBIT INDEX 29
<PAGE>
PAGE 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INCOME STATEMENTS
(In millions, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
REVENUE $ 4,565 $ 3,706 $ 9,056 $ 7,267
------- ------- ------- -------
OPERATING EXPENSES
Cost of services 2,342 1,921 4,686 3,740
Sales, operations and general 1,229 1,023 2,414 2,016
Depreciation 412 325 793 645
------- ------- ------- -------
TOTAL OPERATING EXPENSES 3,983 3,269 7,893 6,401
------- ------- ------- -------
INCOME FROM OPERATIONS 582 437 1,163 866
Interest expense (52) (36) (102) (75)
Interest income 9 49 20 96
Equity in income (losses) of
affiliated companies (45) (18) (100) (47)
Other income (expense), net 3 (9) (1) (21)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES AND
TRUST DISTRIBUTIONS 497 423 980 819
Income tax provision 192 163 380 315
Distributions on Trust preferred
securities 5 - 5 -
------- ------- ------- -------
NET INCOME $ 300 $ 260 $ 595 $ 504
======= ======= ======= =======
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARES $ .43 $ .38 $ .85 $ .74
Weighted average number of shares
of common stock and common stock
equivalents outstanding 698 684 698 685
Dividends declared per common share $ .025 $ .025 $ .025 $ .025
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
<PAGE>
PAGE 4
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
June 30, December 31,
1996 1995
----------- -----------
(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 415 $ 471
Marketable securities 169 373
Receivables, net of allowance for
uncollectibles of $270 and $260 million 3,180 2,954
Other assets 958 749
------- -------
TOTAL CURRENT ASSETS 4,722 4,547
------- -------
PROPERTY AND EQUIPMENT, net 11,276 10,309
OTHER ASSETS
Noncurrent marketable securities 35 -
Other assets and deferred charges, net 764 469
Investment in affiliates 422 495
Investment in News Corp. 1,350 1,000
Goodwill, net 2,450 2,481
------- -------
TOTAL OTHER ASSETS 5,021 4,445
------- -------
TOTAL ASSETS $21,019 $19,301
======= =======
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
<PAGE>
PAGE 5
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
June 30, December 31,
1996 1995
----------- -----------
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,013 $ 706
Accrued telecommunications expense 1,938 1,936
Other accrued liabilities 1,765 1,728
Long-term debt due within one year 440 500
------- -------
TOTAL CURRENT LIABILITIES 5,156 4,870
------- -------
NONCURRENT LIABILITIES
Long-term debt 3,468 3,444
Deferred taxes and other 1,534 1,385
------- -------
TOTAL NONCURRENT LIABILITIES 5,002 4,829
------- -------
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES OF THE COMPANY 750 -
------- -------
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 million shares 60 60
Additional paid in capital 6,389 6,405
Retained earnings 4,641 4,063
Treasury stock, at cost,
41 and 43 million shares (993) (940)
------- -------
TOTAL STOCKHOLDERS' EQUITY 10,111 9,602
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,019 $19,301
======= =======
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
<PAGE>
PAGE 6
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
-------------------
1996 1995
-------- --------
(In millions)
OPERATING ACTIVITIES
Receipts from customers $ 8,796 $ 7,078
Payments to suppliers and employees (6,801) (5,553)
Taxes paid (391) (168)
Interest paid (86) (62)
Interest and dividends received 37 104
------- -------
CASH FROM OPERATING ACTIVITIES 1,555 1,399
------- -------
INVESTING ACTIVITIES
Capital expenditures for property and equipment (1,607) (1,518)
Purchases, maturities and sales of
marketable securities, net 168 136
Investment in News Corp. (350) -
Investment in DBS (215) -
Investment in affiliates (30) (122)
Acquisition of businesses (24) (21)
Other, net (43) 12
------- -------
CASH USED FOR INVESTING ACTIVITIES (2,101) (1,513)
------- -------
NET CASH FLOW BEFORE FINANCING ACTIVITIES (546) (114)
------- -------
FINANCING ACTIVITIES
Issuance (payment) of Debentures and other debt, net 234 (79)
Commercial paper and bank credit facility
activity, net (352) -
Issuance of Trust preferred securities, net 726 -
Issuance of common stock for employee plans 243 110
Purchase of treasury stock (344) (217)
Payment of dividends on common stock and
Class A common stock (17) (16)
------- -------
CASH FROM (USED FOR) FINANCING ACTIVITIES 490 (202)
------- -------
Net decrease in cash and cash equivalents (56) (316)
Cash and cash equivalents - beginning balance 471 1,429
------- -------
Cash and cash equivalents - ending balance $ 415 $ 1,113
======= =======
Reconciliation of net income to cash from
operating activities:
Net income $ 595 $ 504
Adjustments to net income:
Depreciation and amortization 821 654
Equity in (income) losses of affiliated companies 100 47
Deferred income tax provision 146 181
Net change in operating activity accounts
other than cash and cash equivalents:
Receivables (226) (212)
Operating accounts payable 216 226
Other operating activity accounts (97) (1)
------- -------
Cash from operating activities $ 1,555 $ 1,399
======= =======
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, 1995 $14 $60 $6,405 $4,063 $(940) $ 9,602
Common stock issued
for employee stock
and benefit plans
(14 million shares) - - (16) - 305 289
Net income - - - 595 - 595
Common stock dividends - - - (17) - (17)
Treasury stock
purchased
(12 million shares) - - - - (358) (358)
----- ----- ------ ------ ----- -------
Balance at
June 30, 1996 $14 $60 $6,389 $4,641 $(993) $10,111
===== ===== ====== ====== ===== =======
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 rules and regulations of the
Securities and Exchange Commission (SEC). The interim condensed consolidated
financial statements include the consolidated accounts of MCI Communications
Corporation and its majority-owned subsidiaries (collectively, the company) with
all significant intercompany transactions eliminated. 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, 1995.
NOTE 2. PROPERTY AND EQUIPMENT
June 30, December 31,
1996 1995
---------- -----------
(In millions)
Communications system in service $ 12,689 $ 11,318
Furniture, fixtures and equipment 2,709 2,432
Other property 508 493
-------- --------
Total 15,906 14,243
Accumulated depreciation (5,974) (5,238)
Construction in progress 1,344 1,304
-------- --------
Total property and equipment, net $ 11,276 $ 10,309
======== ========
<PAGE>
PAGE 9
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3. NEWS CORP. ALLIANCE
In August 1995 and May 1996, the company invested $1 billion and $350 million,
respectively, in The News Corporation Limited (News Corp.). Under certain
circumstances, News Corp. has the right until August 2000 to require the company
to make an additional investment of up to an aggregate of $650 million on the
same terms and for the same consideration as these initial investments. The
company accounts for its investment in News Corp., which is in the form of
preferred stock and a warrant to obtain News Corp. ordinary shares, under the
cost method. For the three and six months ended June 30, 1996, the company
recorded dividend income of $13 million and $24 million, respectively, on its
preferred stock investment in News Corp.
In January 1996, the company won the last national direct broadcast satellite
(DBS) license with a bid of $682 million. The company has paid $136 million of
the license fee, which is included in "other assets and deferred charges, net",
on the accompanying balance sheet as of June 30, 1996. The remainder will be due
upon receipt of the license, which is expected later this year. In March 1996,
the company entered into contracts for the insurance, construction and launch of
two high-powered satellites at a cost of approximately $430 million. The company
and News Corp. have agreed to form a joint venture to provide digital satellite
services to homes and businesses beginning in late 1997. The total cost required
to initiate service, including the cost of the license, construction and launch
of the satellites, and the related ground facilities, is expected to be
approximately $1.3 billion.
NOTE 4. LONG-TERM DEBT
On June 24, 1996, the company issued $500 million aggregate principal amount of
7 1/8% Debentures due June 15, 2027 under its existing $1 billion debt shelf
registration statement, leaving $500 million available for issuance as of June
30, 1996. The proceeds of the issuance were used for general corporate purposes,
including the repayment of short-term borrowings under the company's commercial
paper program.
<PAGE>
PAGE 10
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 5. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF THE COMPANY
On May 29, 1996, MCI Capital I, a wholly-owned Delaware statutory business trust
(Trust), issued $750 million of 8% Cumulative Quarterly Income Preferred
Securities, Series A (preferred securities) due June 30, 2026. The Trust exists
for the sole purpose of issuing the preferred securities and investing the
proceeds in the company's 8% Junior Subordinated Deferrable Interest Debentures,
Series A (Subordinated Debt Securities) due June 30, 2026, the only assets of
the Trust. The proceeds from the issuance of the Subordinated Debt Securities
were used for general corporate purposes.
Holders of the preferred securities are entitled to receive preferential
cumulative cash distributions from the Trust, on a quarterly basis, provided the
company has not elected to defer the payment of interest due on the Subordinated
Debt Securities to the Trust. The company may elect this deferral from time to
time, provided that the period of each such deferral does not exceed five years.
The preferred securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debt Securities at maturity or earlier
in an amount equal to the amount of Subordinated Debt Securities maturing or
being repaid. In addition, in the event the company terminates the Trust, the
Subordinated Debt Securities will be distributed to the then holders of the
preferred securities of the Trust.
In connection with the issuance of the preferred securities, the company
executed a Trust Agreement, an Indenture, a Guarantee Agreement and an Expense
Agreement. These agreements, taken together with the issuance of the
Subordinated Debt Securities, constitute a full, irrevocable and unconditional
guarantee by the company of all of the Trust's obligations under the preferred
securities (the Guarantee). The Guarantee covers payment of the preferred
securities' quarterly distributions and payments on maturity or redemption of
the preferred securities, but only in each case to the extent of funds held by
the Trust. If the company does not make interest payments on the Subordinated
Debt Securities held by the Trust, the Trust will have insufficient funds to pay
such distributions. The obligations of the company under the Guarantee and the
Subordinated Debt Securities are subordinate and junior in right of payment to
all senior debt of the company.
<PAGE>
PAGE 11
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6. 1995 SPECIAL CHARGE FOR REORGANIZATION
During the third quarter of 1995, the company recorded a pretax operating charge
associated with a reorganization of $736 million, which included a $520 million
asset write-down and a workforce reduction of approximately 2,800 employees. As
of June 30, 1996, the impacted workforce had been reduced by approximately 2,700
employees, with the remaining reduction expected during the second half of 1996.
The unexpended portion of the reorganization accrual amounted to $129 million at
June 30, 1996, the majority of which will be utilized during the remainder of
1996. This remaining accrual is primarily comprised of costs associated with
lease obligations, modification and termination of contracts, employee
severance, other business reorganization costs and certain accrued legal costs.
NOTE 7. SUBSEQUENT EVENT
On August 9, 1996, the company issued $300 million aggregate principal amount of
6.95% Senior Notes due August 15, 2006 under its existing $1 billion debt shelf
registration statement, leaving $200 million available for issuance as of August
14, 1996. The proceeds of the issuance will be used for general corporate
purposes, including the repayment of short-term borrowings under the company's
commercial paper program.
<PAGE>
PAGE 12
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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL
- -------
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 and the company's Annual Report on Form 10-K for
the year ended December 31, 1995.
The company operates predominantly in a single industry segment, the long
distance telecommunications industry (core business). Through acquisitions and
investments in ventures and alliances, the company has expanded its business
into certain developing markets. Provided below is a discussion of the company's
consolidated results, along with additional information about the company's core
business and its ventures and developing markets businesses.
CONSOLIDATED RESULTS
- --------------------
Total revenue for the three and six months ended June 30, 1996 increased 23% and
25% to $4.6 billion and $9.1 billion, respectively, from the comparable periods
in 1995. Core business revenue growth accounted for approximately 55% of the
total year-over-year growth in each period. The remainder of the growth was
primarily from activities of SHL Systemhouse Inc. (SHL) and Nationwide Cellular
Service, Inc. (Nationwide), both acquired in late 1995. Total operating expenses
increased 22% and 23%, respectively, for the same periods.
Income from operations increased 33% and 34% for the three and six months ended
June 30, 1996, respectively, from the comparable periods in 1995. Core business
income from operations for the three months ended June 30, 1996 increased 35%
year-over-year to $600 million, while the ventures and developing markets
businesses operating loss for the quarter increased $(7) million year-over-year
to $(15) million. For the six months ended June 30, 1996, income from operations
for the core business increased 38% year-over-year to $1,214 million, while the
ventures and developing markets businesses operating loss increased $(34)
million year-over-year to $(48) million. Operating margins for the three and six
months ended June 30, 1996 improved to 12.8% from 11.8% and 11.9% for the same
periods in 1995, respectively.
<PAGE>
PAGE 13
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net income increased 15% and 18% year-over-year for the three and six months
ended June 30, 1996, respectively. Core business net income increased 34% and
38% year-over-year for the three and six months ended June 30, 1996,
respectively, while the company's ventures and developing markets businesses for
the same periods in 1996 reported net losses of $(69) million and $(152)
million, respectively, which losses include the company's equity in the net
results of affiliated companies. Second quarter earnings per share increased 13%
from the year-ago quarter to $.43 per share and the 1996 six months earnings per
share increased 15% from the first six months of 1995 to $.85 per share.
Cost of services increased 22% and 25% year-over-year for the three and six
months ended June 30, 1996, respectively. Cost of services primarily consists of
telecommunications expense and other costs of products and services associated
with the ventures and developing markets businesses. Other costs of products and
services include equipment, software and information technology services costs.
As a percentage of revenue, cost of services decreased to 51.3% for the three
months ended June 30, 1996 from 51.8% for the same period in 1995 due to a
higher average revenue rate and reductions in access and international
settlement rates. On a year-to-date basis, cost of services increased to 51.7%
year-over-year from 51.5%.
In the core business, telecommunications expense as a percentage of revenue
decreased in the second quarter of 1996 to 50.4% from 52.2% in the year-ago
quarter and on a year-to-date basis, to 50.6% in 1996 from 51.8% in 1995. These
declines were largely a result of decreases in access and international
settlement rates and higher average revenue rates. While the U.S. local exchange
carriers annual access rate increases, which were effective July 1, 1996, will
have a minimal impact on access rates the company pays, the company does not
expect as steep a decline in access and interconnection rates during the second
half of 1996 as it experienced in 1995.
Sales, operations and general expense increased 20% year-over-year for the three
and six months ended June 30, 1996. This increase was primarily attributable to
an increase in the company's core business revenue, the inclusion of SHL's and
Nationwide's expenses, as well as additional expenditures for increased sales
campaigns and customer service. Sales, operations and general expense decreased
as a percentage of revenue to 26.9% and 26.7% for the three and six months ended
June 30, 1996, respectively, from 27.6% and 27.7% for the comparable periods of
1995, respectively. These decreases were primarily due to cost savings realized
from the reorganization initiated in the third quarter of 1995.
<PAGE>
PAGE 14
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Depreciation expense increased 27% and 23% year-over-year for the three and six
months ended June 30, 1996, respectively. The increase was primarily a result of
additions to the communications system network in order to increase network
capacity, redundancy and reliability, partially offset by depreciation savings
associated with the third quarter 1995 asset write-down. Additional depreciation
and amortization associated with the company's acquisitions in late 1995 also
contributed to the year-over-year increase. Depreciation expense as a percentage
of revenue increased to 9.0% for the second quarter of 1996 from 8.8% for the
year-ago quarter and decreased on a year-to-date basis to 8.8% from 8.9% for the
first six months of 1995.
Interest expense for the three and six months ended June 30, 1996 increased $16
million and $27 million, respectively, from the year-ago periods due to
increased debt balances as a result of commercial paper and Debenture issuances,
and the debt of SHL. Interest income declined significantly year-over-year due
to the lower cash balances that resulted from the continued use of cash to fund
business acquisitions and investments in ventures and developing markets. Equity
in income (losses) of affiliated companies more than doubled for the six months
ended June 30, 1996 compared to the same period in 1995, primarily due to losses
associated with the company's equity investment in ICS Communications, Inc.
(ICS) and the company's multimedia initiatives, which are discussed in more
detail under the ventures and developing markets results within the enterprise
reporting section below. Other income (expense), net, increased $12 million and
$20 million for the three and six months ended June 30, 1996, respectively, from
the comparable periods a year ago, due to the $13 million and $24 million of
dividend income from the company's preferred stock investment in News Corp.
Distributions on Trust preferred securities issued in May 1996 totaled $5
million.
<PAGE>
PAGE 15
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
ENTERPRISE REPORTING
- --------------------
This section segregates the performance of the company's core business from its
investments in ventures and developing markets. The following unaudited
information was prepared using all amounts included in the company's interim
condensed consolidated financial statements and reflects estimates and
allocations that management believes provide a reasonable basis on which to
present such information.
CORE BUSINESS RESULTS
- ---------------------
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 Change 1996 1995 Change
------ ------ ------ ------ ------ ------
REVENUE $4,158 $3,691 12.7% $8,208 $7,241 13.4%
------ ------ ------ ------ ------ ------
OPERATING EXPENSES
Cost of services 2,094 1,926 8.7% 4,155 3,749 10.8%
Sales, operations and general 1,080 1,001 7.9% 2,107 1,977 6.6%
Depreciation 384 319 20.4% 732 634 15.5%
------ ------ ------ ------ ------ ------
TOTAL OPERATING EXPENSES 3,558 3,246 9.6% 6,994 6,360 10.0%
------ ------ ------ ------ ------ ------
INCOME FROM OPERATIONS 600 445 34.8% 1,214 881 37.8%
Non-operating income, net 1 4 (75.0)% 2 - NM
------ ------ ------ ------ ------ ------
INCOME BEFORE INCOME TAXES 601 449 33.9% 1,216 881 38.0%
Income tax provision 229 172 (33.1)% 466 338 (37.9)%
------ ------ ------ ------ ------ ------
NET INCOME $ 372 $ 277 34.3% $ 750 $ 543 38.1%
====== ====== ====== ====== ====== ======
NM - not meaningful
<PAGE>
PAGE 16
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
For the second quarter of 1996, core business revenue grew 12.7% and core
business traffic grew 14.5% year-over-year, which resulted in a revenue to
traffic variance of (1.8%). The revenue to traffic variance was a result of
promotional and volume discounts, partially offset by tariff rate increases and
revenue growth from international business traffic and data products. Also
contributing to the variance were lower revenue rates associated with sales to
resellers and slower year-over-year traffic growth in consumer international
products. The second quarter of 1996 revenue to traffic variance improved
significantly from the first quarter of 1996 variance of (7.2)% as a result of a
more comparable mix of traffic between the second quarter of 1996 and 1995, the
impact of rate increases in the residential market, slower growth in the
reseller market, and a decline in promotional activities in the consumer market.
For the first half of 1996, core business revenue grew 13.4% and core business
traffic grew 17.8% year-over-year, which resulted in a revenue to traffic
variance of (4.4)%. The company expects the revenue to traffic variances to
continue to narrow during the remainder of 1996.
In the business market, year-over-year revenue and traffic continued to grow in
the second quarter and first half of 1996 as a result of increases in most
segments of the business market. Year-over-year revenue increases were primarily
attributable to growth in 800 products, data products, prepaid cards, conference
calling and Internet services. International traffic grew approximately 50%
year-over-year for the three and six months ended June 30, 1996.
For mass markets, which includes the former consumer market group and small
business market group, revenue and traffic also grew year-over-year for the
three and six months ended June 30, 1996 from the comparable periods in 1995 due
to growth in the company's 800 and collect-calling products. Increased
competitive pressure during the second quarter of 1996 continued to affect mass
markets revenue and traffic growth.
<PAGE>
PAGE 17
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
EBITDA (earnings before interest, taxes, depreciation and amortization),
excluding equity in income (losses) of affiliated companies and other income
(expense), net, increased 29% to $984 million for the second quarter of 1996
from $764 million for the year-ago quarter. On a year-to-date basis, EBITDA
increased 28% year-over-year to $1,946 million from $1,515 million. 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. Income from operations increased 35% and operating margin increased
to 14.4% from 12.1% in the second quarter of 1996 versus the year-ago quarter.
In the first half of 1996, income from operations increased 38% year-over-year
and operating margin increased to 14.8% in 1996 from 12.2% in 1995. Operating
margin improvements were attributable to efficiencies in managing the network
and streamlining actions taken in the third quarter of 1995.
VENTURES AND DEVELOPING MARKETS RESULTS
- ---------------------------------------
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
REVENUE $ 477 $ 33 $ 953 $ 57
------- ------- ------- -------
OPERATING EXPENSES
Cost of services 315 14 633 23
Sales, operations and general 149 21 307 38
Depreciation 28 6 61 10
------- ------- ------- -------
TOTAL OPERATING EXPENSES 492 41 1,001 71
------- ------- ------- -------
LOSS FROM OPERATIONS (15) (8) (48) (14)
Non-operating expense, net (46) - (89) -
Equity in income (losses)
of affiliated companies (45) (18) (100) (47)
------- ------- ------- -------
LOSS BEFORE INCOME TAXES (106) (26) (237) (61)
Income tax benefit 37 9 85 22
------- ------- ------- -------
NET LOSS $ (69) $ (17) $ (152) $ (39)
======= ======= ======= =======
<PAGE>
PAGE 18
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The significant year-over-year quarterly changes in the ventures and developing
markets business results reflect the acquisitions in late 1995 of SHL and
Nationwide. The 1995 results reflected primarily the operations of MCImetro,
Inc. (MCImetro*), a wholly-owned subsidiary of the company.
Loss from operations increased year-over-year for the three and six months ended
June 30, 1996 compared to the prior year periods primarily due to multimedia
product operating costs and losses from wireless services and MCImetro, which
more than offset operating income from SHL's operations. Equity in losses of
affiliated companies for the three and six months ended June 30, 1996 more than
doubled from the prior year. The increased losses were largely due to increased
losses of ICS, costs associated with the company's on-line project with News
Corp., and initial start-up costs for Avantel S.A. de C.V. (Avantel), the
company's 44.5% owned business venture with Grupo Financiero Banamex-Accival in
Mexico. The increased losses were partially offset by a decrease in the losses
of Concert Communications Company (Concert**), a global services venture with
British Telecommunications plc (BT) in which the company has a 24.9% interest.
Information Technology Services
- -------------------------------
Revenue from information technology services, which was primarily derived from
SHL's operations, for the three and six months ended June 30, 1996 was $331
million and $672 million, respectively. EBITDA was $32 million and $66 million
for the three and six months ended June 30, 1996, respectively. Net loss for
these periods was $(15) million and $(26) million, respectively. Backlog at June
30, 1996 was $1.7 billion, the majority of which was from SHL's 10 largest
customers. The company expects that approximately 20% of this estimated backlog
will be delivered in 1996.
Wireless Services
- -----------------
Revenue from wireless services for the three and six months ended June 30, 1996,
which includes Nationwide's operations, was $96 million and $184 million,
respectively, and was derived from cellular and paging services, as well as
equipment sales. For the same periods, EBITDA was $(6) million and $(10) million
and net loss was $(7) million and $(17) million, respectively. At June 30, 1996,
the company had 391 thousand cellular service subscribers and 474 thousand
paging service subscribers. Paging subscribers declined during the second
quarter of 1996 as the company reduced outbound consumer sales while operational
systems are being retooled for a new paging program expected later this year.
<PAGE>
PAGE 19
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Local Services
- --------------
During the three and six months ended June 30, 1996, MCImetro, the company's
local services provider, reported revenue of $44 million and $84 million,
respectively, on sales of fiber-optic capacity and competitive access services,
substantially all of which was derived from sales to the company's core
business. For the three and six months ended June 30, 1996, EBITDA was $(12)
million and $(20) million, respectively, and net loss was $(15) million and
$(25) million, respectively. During the second quarter of 1996, MCImetro added
12 local city networks, which brought the total number of operational local city
networks to 55 in 31 cities. MCImetro installed two additional Class 5 local
switches in the second quarter of 1996, bringing the total to 13. MCImetro also
increased its route miles during the quarter to 2,625 from 2,524 and its
right-of-way miles to 4,050 from 3,924.
Global Services
- ---------------
For the three and six months ended June 30, 1996, Concert product sales by its
distributors amounted to approximately $139 million and $244 million,
respectively, almost double from the year-ago periods. Concert's virtual network
service continued to grow with over 90 sites active or becoming operational
around the world. For the three and six months ended June 30, 1996, the
company's share of Concert's losses reported in accordance with U.S. generally
accepted accounting principles was $(6) million and $(16) million, respectively.
During the second quarter of 1996, Avantel continued to expand its network
coverage and opened its major switching facility and voice center in July 1996
in preparation for the opening of the Mexican market to competition in August
1996. Avantel increased its fiber-optic network in Mexico during the quarter by
17% from 2,200 route miles to 2,570 route miles at June 30, 1996. Capital
expenditures for the first half of 1996 were $303 million. The company's share
of Avantel's losses was $(4) million and $(11) million for the three and six
months ended June 30, 1996, respectively.
Multimedia Services
- -------------------
In May 1996, the company made an additional investment of $350 million in News
Corp., bringing its total investment in News Corp. to $1.35 billion. For the
three and six months ended June 30, 1996, the company recorded dividend income
of $13 million and $24 million, respectively, on its preferred stock investment
in News Corp.
<PAGE>
PAGE 20
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
In January 1996, the company won the last national direct broadcast satellite
(DBS) license with a bid of $682 million, of which the company has paid $136
million. The remainder will be due upon receipt of the license, which is
expected later this year. In March 1996, the company entered into contracts for
the insurance, construction and launch of two high-powered satellites at a cost
of approximately $430 million. The company and News Corp. have agreed to form a
joint venture to provide digital satellite services to homes and businesses
beginning in late 1997. The total cost required to initiate service, including
the cost of the license, construction and launch of the satellites, and the
related ground facilities, is expected to be approximately $1.3 billion.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Cash Flows
- ----------
EBITDA, excluding equity in income (losses) of affiliated companies and other
income (expense), net, increased 29% to $1,956 million for the first half of
1996 from $1,511 million for the year-ago period. Cash from operating activities
for the first half of 1996 increased $156 million year-over-year as a result of
strong revenue growth, partially offset by an increase in cash paid to suppliers
and employees.
<PAGE>
PAGE 21
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Cash used for investing activities in the first half of 1996 increased $588
million year-over-year due to the additional News Corp. investment of $350
million, DBS venture costs of $215 million and increased network capital
expenditures. Capital expenditures for property and equipment increased $89
million year-over-year to $1,607 million for the first half of 1996. The company
continued to invest in networking capabilities through the ongoing development
of information technology, network reliability and increased Internet capacity.
Investment in network reliability and deployment of Synchronous Optical Network
(SONET) and Asynchronous Transfer Mode (ATM) technologies continue to be a
priority to improve the reliability and delivery of advanced services. In
addition to the construction of MCImetro's SONET-based local city networks, the
company continued to deploy additional SONET rings around major metropolitan
areas for use in the company's long distance network, bringing the total to 26
as of June 30, 1996. By year end 1996, the company expects to have a total of 35
SONET rings operational in its long distance network.
Cash from (used for) financing activities increased significantly from $(202)
million in the first half of 1995 to $490 million in 1996 due to the issuance of
$750 million of preferred securities and $500 million aggregate principal amount
of 7 1/8% Debentures due 2027. Cash inflow from these issuances was partially
offset by the repayment of commercial paper, capital lease obligations and other
debt.
Working Capital
- ---------------
The company had working capital (current assets less current liabilities) of
$(434) million at June 30, 1996 and $(323) million at December 31, 1995. The
decrease in working capital was primarily due to an increase in operating
accounts payable as a result of timing.
<PAGE>
PAGE 22
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Capital Resources and Liquidity
- -------------------------------
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,
planned DBS venture costs, and investments in News Corp. and MCImetro, through
its cash flows from operating activities, bank credit facility and access to the
capital markets. The company has available a $2 billion bank credit facility,
expiring in July 2000, which supports the company's commercial paper program and
may be used separately or in conjunction with the commercial paper program to
fund short-term fluctuations in working capital and other general corporate
requirements. During the first half of 1996, the company issued $3,694 million
and repaid $4,046 million of commercial paper borrowings, leaving $353 million
of such borrowings outstanding at June 30, 1996.
On May 29, 1996, MCI Capital I, a wholly-owned Delaware statutory business trust
(Trust), issued $750 million of 8% Cumulative Quarterly Income Preferred
Securities, Series A (preferred securities) due June 30, 2026. The Trust exists
for the sole purpose of issuing the preferred securities and investing the
proceeds in the company's 8% Junior Subordinated Deferrable Interest Debentures,
Series A (Subordinated Debt Securities) due June 30, 2026, the only assets of
the Trust. The obligations of the company under the Subordinated Debt Securities
are subordinate and junior in right of payment to all senior debt of the
company. The proceeds from the issuance of the Subordinated Debt Securities were
used for general corporate purposes.
Holders of the preferred securities are entitled to receive preferential
cumulative cash distributions from the Trust, on a quarterly basis, provided the
company has not elected to defer the payment of interest due on the Subordinated
Debt Securities to the Trust. The company may elect this deferral from time to
time, provided that the period of each such deferral does not exceed five years.
The preferred securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Subordinated Debt Securities at maturity or earlier
in an amount equal to the amount of Subordinated Debt Securities maturing or
being repaid. In addition, in the event the company terminates the Trust, the
Subordinated Debt Securities will be distributed to the then holders of the
preferred securities of the Trust.
<PAGE>
PAGE 23
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
On June 24, 1996, the company issued $500 million aggregate principal amount of
7 1/8% Debentures due June 15, 2027 under its existing $1 billion debt shelf
registration statement and on August 9, 1996, the company issued $300 million
aggregate principal amount of 6.95% Senior Notes due August 15, 2006 under the
shelf registration statement, leaving $200 million available for issuance as of
August 14, 1996. The proceeds of these issuances were and will be used for
general corporate purposes, including the repayment of short-term borrowings
under the company's commercial paper program.
1995 SPECIAL CHARGE FOR REORGANIZATION
- --------------------------------------
During the third quarter of 1995, the company recorded a pretax operating charge
associated with a reorganization of $736 million, which included a $520 million
asset write-down and a workforce reduction of approximately 2,800 employees. As
of June 30, 1996, the impacted workforce had been reduced by approximately 2,700
employees, with the remaining reduction expected during the second half of 1996.
The unexpended portion of the reorganization accrual amounted to $129 million at
June 30, 1996, the majority of which will be utilized during the remainder of
1996. This remaining accrual is primarily comprised of costs associated with
lease obligations, modification and termination of contracts, employee
severance, other business reorganization costs and certain accrued legal costs.
CURRENT INDUSTRY ENVIRONMENT
- ----------------------------
In April 1996, two separate mergers among four of the seven Regional Bell
Operating Companies (RBOCs) were proposed. While each of these mergers requires
approval of the Federal Communications Commission (the "FCC"), the Department of
Justice and regulatory commissions in a number of states, the company believes
that the consummation of these mergers could adversely affect the development of
competition in local services markets, and may increase the ability of the
companies that result from the mergers, each of which will have substantial
financial and other resources, to compete in other telecommunications markets,
including the company's core business of providing long-distance
telecommunication services.
<PAGE>
PAGE 24
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
On August 8, 1996, pursuant to the Telecommunications Act of 1996, the FCC
adopted rules relating to the manner in which and the price at which new
entrants into local services markets will be able to interconnect with the
incumbent local exchange carriers ("ILECs"). These rules provide the framework
for resolution at the state level of negotiations or arbitration proceedings
between the ILECs and the new entrants regarding local interconnection
arrangements.
The company believes that these rules will help to clarify many issues relating
to the company's ability to obtain ILEC services and facilities on an economic
basis and will generally facilitate competition in the local services markets.
In anticipation of entry into these markets, the company's subsidiary, MCImetro,
currently has 13 switches installed in major U.S. cities and plans an additional
11 switches by the end of 1996. However, there can be no assurance how these
rules will impact the ability of the company to compete successfully in local
services markets.
- -----------------------------------------------
* MCImetro is a registered service mark of MCI Communications Corporation.
** Concert is a mark of Concert Communications Company and is used under
license.
<PAGE>
PAGE 25
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a)The company's annual meeting of stockholders was held on April 25, 1996.
(b)The nominees for directors of the company set forth in full in the
company's Proxy Statement dated March 15, 1996 (Proxy Statement) were
elected at the annual meeting.
(c)Holders of common stock and Class A common stock voted at the annual
meeting on the following matters which were set forth in the company's
Proxy Statement.
(1) To elect three directors by the holders of common
stock, each to serve for a three year term.
VOTES (In millions):
Nominee For Abstain
------- --- -------
Judith Areen 447 10
Gerald H. Taylor 447 10
Judith Whittaker 447 10
Broker non-votes: None
(2) To elect three Class A directors by the holders of Class
A common stock, each to serve a one year term.
VOTES (In millions):
Nominee For Abstain
------- --- -------
Sir Peter L. Bonfield 136 -
Alfred T. Mockett 136 -
Dr. Alan W. Rudge 136 -
Broker non-votes: None
(3) To approve the company's Senior Executive Incentive
Compensation Plan by the holders of common stock and
Class A common stock.
VOTES (In millions):
For: 550
Against: 31
Abstain: -
Broker non-votes: 12
<PAGE>
PAGE 26
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
(4) To approve Amendment No.2 to the Company's Stock Option
Plan by the holders of common stock and Class A common
stock.
VOTES (In millions):
For: 435
Against: 146
Abstain: -
Broker non-votes: 12
(5) To approve Amendment No.2 to the Company's 1990 Stock
Purchase Plan by the holders of common stock and Class A
common stock.
VOTES (In millions):
For: 548
Against: 33
Abstain: -
Broker non-votes: 12
(6) To approve Amendment No.1 to the Company's 1988
Directors' Stock Option Plan by the holders of common
stock and Class A common stock.
VOTES (In millions):
For: 406
Against: 175
Abstain: -
Broker non-votes: 12
(7) To approve the appointment by the Board of Directors of
Price Waterhouse LLP as independent accountants for the
year ending December 31, 1996 by the holders of common
stock and Class A common stock.
VOTES (In millions):
For: 590
Against: 3
Abstain: -
Broker non-votes: None
<PAGE>
PAGE 27
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
PART II. OTHER INFORMATION (continued)
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 June 30, 1996.
99(a) Capitalization Schedule as of June 30, 1996.
b)Reports on Form 8-K
The company filed a Current Report on Form 8-K on June 21, 1996, which reported
pursuant to Items 5 and 7.
<PAGE>
PAGE 28
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: August 14, 1996 Signed: /s/ James M. Schneider
-----------------------
James M. Schneider
Senior Vice President, Finance
and Chief Accounting Officer
<PAGE>
PAGE 29
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 June 30, 1996.
99(a) Capitalization Schedule as of June 30, 1996.
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 Six months
ended ended
June 30, June 30,
------------- -------------
1996 1995 1996 1995
Primary ---- ---- ---- ----
- -------
Net income $300 $260 $595 $504
==== ==== ==== ====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding 689 678 689 679
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents 61 46 61 46
Shares of common stock assumed repurchased
for treasury(a) (52) (40) (52) (40)
---- ---- ---- ----
Adjusted shares of common stock and common
stock equivalents for computation 698 684 698 685
==== ==== ==== ====
Earnings per common and common
equivalent shares $.43 $.38 $.85 $.74
==== ==== ==== ====
(a) At an average market price of $28.46 and $28.57 for the three and six
months ended June 30, 1996, respectively, and $20.91 and $20.19 for the three
and six months ended June 30, 1995, 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 Six months
ended ended
June 30, June 30,
------------- -------------
1996 1995 1996 1995
Assuming Full Dilution ---- ---- ---- ----
- ----------------------
Net income $300 $260 $595 $504
==== ==== ==== ====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding 689 678 689 679
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents 61 46 61 46
Shares of common stock assumed repurchased
for treasury(b) (52) (38) (52) (37)
---- ---- ---- ----
Adjusted shares of common stock and common
stock equivalents for computation 698 686 698 688
==== ==== ==== ====
Earnings per common and common
equivalent shares $.43 $.38 $.85 $.73
==== ==== ==== ====
(b) The three and six months ended June 30, 1996 average market price of $28.46
and $28.57, respectively, was used as it is higher than the ending market price
of $25.63. The June 30, 1995 ending market price of $22 was used as it is
higher than the average market price of $20.91 and $20.19 for the three and six
months ended June 30, 1995, respectively.
Exhibit 12
----------
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio amounts)
(unaudited)
Six Months Ended
June 30, Year Ended December 31,
--------------- --------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Earnings:
Income before
income taxes and
extraordinary item(a) $ 975 $819 $ 897 $1,280 $1,045 $ 963 $ 848
Add:
Fixed charges 211 168 344 315 315 346 334
Less:
Capitalized interest 51 43 93 78 61 52 58
------ ------ ------ ------ ------ ------ ------
Total earnings $1,135 $944 $1,148 $1,517 $1,299 $1,257 $1,124
====== ====== ====== ====== ====== ====== ======
Fixed Charges:
Fixed charges on
indebtedness,
including amortization
of debt discount and
premium(a) $ 158 $118 $ 242 $ 231 $ 239 $ 270 $ 270
Interest portion of
operating lease
rentals(b) 53 50 102 84 76 76 64
------ ------ ------ ------ ------ ------ ------
Total fixed charges $ 211 $168 $ 344 $ 315 $ 315 $ 346 $ 334
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 5.38 5.62 3.34 4.82 4.12 3.63 3.37
====== ====== ====== ====== ====== ====== ======
(a) Includes distributions on Trust preferred securities.
(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 June 30, 1996 and
the income statement for the six months ended June 30, 1996 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 415
<SECURITIES> 169
<RECEIVABLES> 3,450
<ALLOWANCES> 270
<INVENTORY> 0
<CURRENT-ASSETS> 4,722
<PP&E> 17,250
<DEPRECIATION> 5,974
<TOTAL-ASSETS> 21,019
<CURRENT-LIABILITIES> 5,156
<BONDS> 3,468
750
0
<COMMON> 74
<OTHER-SE> 10,037
<TOTAL-LIABILITY-AND-EQUITY> 21,019
<SALES> 0
<TOTAL-REVENUES> 9,056
<CGS> 0
<TOTAL-COSTS> 7,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 268
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 975
<INCOME-TAX> 380
<INCOME-CONTINUING> 595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</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 June 30, 1996:
Debt(a):
Secured debt:
Capital lease obligations ........................ $ 527
Other secured obligations ........................ 46
--------
Total secured debt .................................. 573
--------
Unsecured debt:
Senior Notes, net ................................ 1,436
Senior Debentures, net ........................... 1,383
Commercial paper borrowings ...................... 353
Other unsecured debt ............................. 163
--------
Total unsecured debt ................................ 3,335
--------
Total debt ............................................ $ 3,908
--------
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely
Junior Subordinated Deferrable Interest
Debentures of the Company (b) .................... $ 750
--------
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 ....................... 6,389
Retained earnings ................................ 4,641
Treasury stock, at cost, 41 million shares ....... (993)
--------
Total stockholders' equity ............................ $ 10,111
--------
Total capitalization .................................. $ 14,769
========
(a) For additional information concerning the company's capital lease
obligations, which are obligations of subsidiaries of the company that are
guaranteed by the company, and for additional information concerning the
company's long-term debt, see Note 9 of Notes to Consolidated Financial
Statements on pages 22 through 24 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, 1995. Interest rates on capital lease
obligations, on a weighted average basis, approximated 9.0% per annum at June
30, 1996.
(b) On May 29, 1996, MCI Capital I, a wholly-owned Delaware statutory business
trust (Trust), issued $750 million of 8% Cumulative Quarterly Income Preferred
Securities, Series A (preferred securities) and $23 million in common securities
(Common Securities). The company holds all of the outstanding Common Securities
of the Trust. The Trust exists for the sole purpose of issuing the preferred
securities and investing the proceeds in the company's 8% Junior Subordinated
Deferrable Interest Debentures, Series A (Subordinated Debt Securities) due June
30, 2026.
