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Pursuant to Rule 424(b)(3)
File No. 033-67340
File No. 033-61923
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 15, 1993)
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30,855,983 SHARES
WORLDCOM, INC. [LOGO]
COMMON STOCK
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All of the 30,855,983 shares (the "Common Shares") of Common Stock (the
"WorldCom Common Stock") of WorldCom, Inc., which conducts business under the
name "LDDS WorldCom" (the "Company" or "WorldCom"), offered hereby, are being
sold by Metromedia Company (the "Selling Stockholder"). The Common Shares
include 21,876,976 Common Shares issuable upon conversion of 10,896,785 shares
of Series 1 $2.25 Cumulative Senior Perpetual Convertible Preferred Stock (the
"Series 1 Preferred Stock") of the Company and 3,106,976 Common Shares issuable
upon exercise of warrants owned by the Selling Stockholder (the "Metromedia
Warrants"). Upon completion of the Offering, the Selling Stockholder will have
no beneficial ownership of any shares of the Company's capital stock. The
Company will not receive any of the proceeds from the sale of the Common Shares.
The WorldCom Common Stock is traded on the Nasdaq National Market under the
trading symbol "WCOM." The last reported sale price of the WorldCom Common Stock
as reported on the Nasdaq National Market on August 17, 1995 was $30 3/8 per
share.
SEE "RISK FACTORS" ON PAGE S-6 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS TO
TO THE DISCOUNTS AND THE SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
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Per Common Share....................... $30.25 $1.00 $29.25
Total.................................. $933,393,486 $30,855,983 $902,537,503
------------------------------------------------------------------------------------------------------
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(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $100,000, which will be paid by the
Selling Stockholder.
The Common Shares are offered, subject to prior sale, when, as and if
accepted by the Underwriters named herein and subject to approval of certain
legal matters by counsel for the Underwriters. It is expected that delivery of
the Common Shares will be made against payment therefor in New York, New York on
or about August 23, 1995.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus Supplement is August 18, 1995.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at Commission's Regional Offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549.
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Shares offered hereby. This
Prospectus Supplement and accompanying Prospectus do not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus Supplement and accompanying Prospectus
as to the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed or incorporated by reference as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and the schedules thereto. For further
information pertaining to the Company or the Common Shares offered hereby,
reference is made to the Registration Statement and such exhibits and schedules
thereto, which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from, the Public Reference Branch of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.
"LDDS WorldCom" is a service mark of the Company.
EXCEPT AS OTHERWISE EXPRESSLY AUTHORIZED BY THE COMPANY, THE WORLDCOM
COMMON STOCK MAY NOT BE OFFERED OR SOLD IN OR INTO THE UNITED KINGDOM EXCEPT TO,
AND THIS DOCUMENT MAY ONLY BE ISSUED OR PASSED ON IN OR INTO THE UNITED KINGDOM
TO, PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM, AS PRINCIPAL OR AS AGENT, IN
ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS FOR THE PURPOSES OF A
BUSINESS CARRIED ON BY THEM.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE WORLDCOM COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUPPLEMENT SUMMARY
The following is a summary qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included in this Prospectus Supplement or the accompanying Prospectus or
incorporated herein by reference. References herein to the Company refer to
WorldCom, Inc. and its subsidiaries, which prior to May 25, 1995, was named LDDS
Communications, Inc. ("LDDS"). Investors should carefully consider the
information set forth under the heading "Risk Factors." See "Glossary" for
definitions of certain terms used in this Prospectus Supplement or the
accompanying Prospectus.
THE COMPANY
WorldCom, Inc., which conducts business under the name "LDDS WorldCom," is
one of the four largest long distance telecommunications companies in the United
States based on 1994 revenues. The Company provides long distance
telecommunications services through its network of fiber optic cables, digital
microwave and fixed and transportable satellite earth stations to business and
residential customers, with service to points throughout the nation and is a
full service provider of international telecommunications services as well as
specialized broadcasting services. The products and services provided by
WorldCom include: switched and dedicated long distance products, 800 services,
calling cards, operator services, private lines, frame relays, debit cards,
conference calling, advanced billing systems, facsimile and data connections,
television and radio transmission and mobile satellite communications.
WorldCom was organized in 1983. Its operations have grown as a result of
management's emphasis on a four-point growth strategy, which includes internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of certain
third tier long distance carriers with larger market shares, and international
expansion. The Company's continued emphasis on acquisitions has taken the
Company from a small, regional, long distance carrier to one of the largest long
distance telecommunications companies in the industry, serving customers
domestically and internationally.
On January 5, 1995, WorldCom completed the acquisition of the network
services operations of Williams Telecommunications Group, Inc. ("WilTel"), a
subsidiary of The Williams Companies, Inc. ("Williams"), for approximately $2.5
billion in cash (the "WilTel Acquisition"). Through this purchase, the Company
acquired a nationwide common carrier network of approximately 11,000 miles of
fiber optic cable and digital microwave facilities. On December 30, 1994,
WorldCom, through a wholly-owned subsidiary, merged with IDB Communications
Group, Inc., a Delaware corporation ("IDB"). IDB operates a domestic and
international communications network providing international and private line
and public switched long distance telecommunications services, facsimile and
data connections, television and radio transmission services and mobile
satellite communications capabilities.
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THE OFFERING
Common Shares Offered by
the Selling Stockholder.. 30,855,983 shares
Common Shares Outstanding
after the Offering (as of
July 31, 1995)........... 190,294,131 shares
Nasdaq National Market
Symbol................... WCOM
Concurrent Events.......... In connection with the Offering, Metromedia will
exercise the Metromedia Warrants to acquire
3,106,976 shares of WorldCom Common Stock and will
convert the Series 1 Preferred Stock into
21,876,976 shares of WorldCom Common Stock pursuant
to the terms of the Series 1 Preferred Stock.
Metromedia will receive a one-time, non-recurring
payment of $15.0 million for exercising this
conversion option, representing a discount to the
minimum nominal dividends that would have been
payable on the Series 1 Preferred Stock of
approximately $26.6 million, which amount includes
the $24.5 million annual dividend requirement plus
accrued dividends to the September 15, 1996
optional call date. WorldCom will have no remaining
dividend requirements on the Series 1 Preferred
Stock upon exercise of this conversion option.
Following the Offering, John W. Kluge, Chairman of
WorldCom, will remain Chairman, and the two other
directors appointed by Metromedia as the current
holder of all of the shares of Series 1 Preferred
Stock, will remain directors of the Company.
Use of Proceeds............ The Company will not receive any proceeds from the
sale of the Common Shares offered hereby. The
Company will receive approximately $33.7 million in
proceeds from the exercise of the Metromedia
Warrants, which proceeds will be used to retire
certain of the Company's existing bank debt.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
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PRO FORMA
FISCAL YEAR ENDED FISCAL YEAR SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30,
-------------------------------------- DECEMBER 31, -------------------------
1992 1993 1994 1994(1) 1994 1995
-------- ---------- ---------- ------------ ---------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
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INCOME STATEMENT DATA:
Revenues................................. $948,060 $1,474,257 $2,220,765 $3,067,994 $1,079,213 $1,759,754
Operating income......................... 51,983 238,833 69,738 169,384 133,061 313,293
Income (loss) before income taxes,
extraordinary item..................... 22,513 209,920 (48,342) (123,537) 114,749 189,800
Net income (loss)........................ 2,544 116,372 (122,158) (175,167) 59,903 115,778
Net income (loss) applicable to common
shareholders........................... 432 104,689 (149,924) (202,933) 46,013 101,903
Fully diluted earnings (loss) per common
share before extraordinary item........ $ 0.06 $ 0.80 $ (0.95) $ (1.29) $ 0.28 $ 0.60
OTHER DATA:
EBITDA(2)................................ $206,073 $ 346,612 $ 340,772 $ 582,111 $ 211,524 $ 464,807
MARGIN DATA (% OF REVENUES):
Line costs............................... 58.3% 59.8% 65.2% 59.4% 62.7% 55.3%
EBITDA(2)................................ 21.7 23.5 15.3 19.0 19.6 26.4
Operating income......................... 5.5 16.2 3.1 5.5 12.3 17.8
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AT JUNE 30, 1995
--------------------------
AS
ACTUAL ADJUSTED(3)
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BALANCE SHEET DATA (END OF PERIOD):
Total assets............................................................................. $6,436,688 $6,436,688
Long-term debt........................................................................... 3,412,302 3,393,616
Shareholders' investment................................................................. 1,989,456 2,008,142
</TABLE>
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(1) Pro forma to give effect to the WilTel Acquisition, as if the WilTel
Acquisition took place at the beginning of the period indicated.
(2) EBITDA represents net income before extraordinary items, provision for
income taxes, depreciation and amortization, provision to reduce carrying
value of certain assets, direct merger costs, restructuring and other
charges, interest expense, stockholder litigation settlement and
miscellaneous income/expenses. While EBITDA should not be construed as a
substitute for operating income or a better measure of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs.
(3) As adjusted for: (i) the exercise of the Metromedia Warrants; (ii) the
conversion of the Series 1 Preferred Stock (as a result of which the
Company's annual dividend requirement of $24.5 million on the Series 1
Preferred Stock will be eliminated); and (iii) the payment of $15.0 million
to Metromedia in connection with the conversion of the Series 1 Preferred
Stock concurrent with the Offering.
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RISK FACTORS
The following factors should be carefully considered in evaluating the
Company and its business before purchasing any of the Common Shares offered
hereby. See "Glossary" for definitions of certain terms used in this Prospectus
Supplement.
RISKS OF INCREASED FINANCIAL LEVERAGE; DEBT SERVICE, INTEREST RATE FLUCTUATIONS,
POSSIBLE REDUCTION IN LIQUIDITY, DIVIDEND RESTRICTIONS, AND OTHER RESTRICTIVE
COVENANTS
As a result of the WilTel Acquisition and the financing thereof, the
Company has a significantly higher degree of leverage than previously existed.
At June 30, 1995, the Company reported $3.41 billion of long-term debt
(including capital leases and excluding current maturities) and a long-term debt
to equity ratio of 1.72.
Borrowings under the Company's new bank credit facilities bear interest at
rates that fluctuate with prevailing short-term interest rates. Increases in
interest rates on these obligations could have an adverse effect upon the
Company's reported net income and liquidity. In addition, these credit
facilities restrict the payment of cash dividends and otherwise limit the
Company's financial flexibility. The Company believes that the combined
operations of the Company, IDB and WilTel will generate sufficient cash flow to
service the Company's debt under the bank credit facilities; however, economic
downturns, increased interest rates and other adverse developments, including
factors beyond the Company's control, could impair its ability to service its
indebtedness. In addition, the cash flow required to service the Company's debt
may reduce its ability to fund internal growth, additional acquisitions and
capital improvements. One facility (the "Term Principal Debt") of the new bank
credit facilities, which totals $1.25 billion, matures in a single installment
on December 31, 1996. The other facility (the "Revolving Facility Commitment"),
which totals $2.16 billion, will be reduced at the end of each fiscal quarter,
commencing on September 30, 1996, in varying amounts, and must be paid in full
on December 31, 2000.
The Company anticipates it will need to refinance a portion of the Term
Principal Debt thereby requiring the Company to seek financing alternatives such
as public or private debt or equity offerings, or refinancing with the existing
or new lenders. The Company is committed to a priority plan of accelerating
operating cash flow to reduce debt. The Company anticipates that the remaining
debt balances will be refinanced with a combination of commercial bank debt and
public market debt. Successful execution of this priority plan would provide
continued compliance with required operating ratio covenants and would eliminate
any type of equity financing other than equity issued in connection with
acquisitions. No assurance can be given that the Company will achieve its
priority plan or any refinancing will be available on terms acceptable to the
Company. See "Pro Forma Combining Financial Statements" contained in the
Company's Current Report on Form 8-K dated August 22, 1994 (as amended by
Current Report on Form 8-K/A filed April 19, 1995), which is hereby incorporated
herein by reference.
ACQUISITION INTEGRATION
A major portion of the Company's growth in recent years has resulted from
acquisitions, which involve certain operational and financial risks. Operational
risks include the possibility that an acquisition does not ultimately provide
the benefits originally anticipated by management of the acquiror, while the
acquiror continues to incur operating expenses to provide the services formerly
provided by the acquired company. Financial risks involve the incurrence of
indebtedness by the acquiror in order to effect the acquisition and the
consequent need to service that indebtedness. In addition, the issuance of stock
in connection with acquisitions dilutes the voting power and may dilute certain
other interests of existing stockholders. In carrying out its acquisition
strategy, the Company attempts to minimize the risk of unexpected liabilities
and contingencies associated with acquired businesses through planning,
investigation and negotiation, but such unexpected liabilities may nevertheless
accompany acquisitions. There can be no assurance that the Company will be
successful in identifying attractive acquisition candidates or completing
additional acquisitions on favorable terms.
In addition, although the Company believes that it will be able to
integrate successfully the business and operations of IDB and WilTel, there can
be no assurance that the Company will be able to accomplish such
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integration with the Company's operations, or that the efficiencies and growth
opportunities anticipated as a result from the combination of the Company, IDB
and WilTel will materialize, or that the Company will be able to integrate any
other acquired businesses into its operations and obtain the desired networking
and operating efficiencies. There can also be no assurance that the anticipated
growth opportunities resulting from the consolidated organization will
materialize.
CONTINGENT LIABILITIES
The Company is subject to a number of legal and regulatory proceedings,
including certain legal proceedings pending against IDB prior to its merger with
a wholly-owned subsidiary of WorldCom on December 30, 1994 (the "IDB Merger").
While the Company believes that the probable outcome of any of these matters, or
all of them combined, will not have a material adverse effect on the Company's
consolidated results of operations or financial position, no assurance can be
given that a contrary result will not be obtained. See Item 3 -- "Legal
Proceedings" contained in the 1994 Form 10-K (as hereinafter defined), which is
hereby incorporated herein by reference.
In addition to a number of other pending legal proceedings, on May 23,
1994, Deloitte & Touche LLP ("Deloitte") resigned as IDB's independent auditors.
Deloitte has stated it resigned as a result of events surrounding the release
and reporting of IDB's financial results for the first quarter of 1994. In
submitting its resignation, Deloitte informed IDB management and the Audit
Committee of the IDB Board of Directors that there had been a serious breakdown
in IDB's process of identifying, analyzing and recording IDB's business
transactions which prohibited Deloitte from the satisfactory completion of a
quarterly review, and that Deloitte was no longer willing to rely on IDB
management's representations regarding IDB's interim financial statements. IDB
announced Deloitte's resignation on May 31, 1994. On June 24, 1994, upon the
recommendation of the independent members of IDB's Audit Committee, IDB retained
Arthur Andersen LLP as its new independent auditors. On August 1, 1994, IDB
announced that it would restate its reported financial results for the quarter
ended March 31, 1994 to eliminate approximately $6.0 million of pre-tax income,
approximately $5.0 million of which related to a sale of transponder capacity
and approximately $1.0 million of which related to purchase accounting
adjustments and on August 22, 1994, IDB filed Amendment No. 1 on Form 10-Q/A
restating its 1994 first quarter results in order to eliminate previously
recorded items. Certain of these items were among those as to which Deloitte had
expressed disagreement. On November 21, 1994, IDB filed Form 10-Q/A amendments
to its reported first and second quarter financial results making the previously
announced changes and reflecting the effect of IDB's method of accounting for
international long distance traffic, thereby reducing its first quarter net
income from $0.12 per share, as originally reported, to $0.05 per share and,
when combined with adjustments for income tax effects, increasing its second
quarter net loss from $0.20 per share, as originally reported, to $0.27 per
share.
A number of class action complaints (on behalf of persons who purchased
certain IDB securities) and stockholder derivative actions (on behalf of IDB)
were filed against IDB and its former directors and certain former officers of
IDB and other parties. The U.S. District Court for the Central District of
California (the "District Court") ordered the class action complaints and one of
the derivative actions consolidated and styled In re IDB Communications Group,
Inc. Securities Litigation. An amended complaint was filed with the District
Court on November 18, 1994 consolidating all of the class and derivative
actions. IDB, certain of its former directors and officers and other parties
were named as defendants in the consolidated complaint. The class action claims
alleged violations of federal and state securities laws and state corporate laws
for disseminating allegedly false and misleading statements concerning IDB's
earnings and accounting practices. The derivative claims alleged that IDB's
former officers and directors breached their fiduciary duties to IDB by trading
on inside information, accepting bonuses based on false and inflated IDB
financial results and exposing IDB to liability under the securities laws, and
include claims for gross negligence and violation of state corporate laws.
Plaintiffs sought damages, restitution to IDB, injunctive relief, punitive
damages, and costs and attorneys' fees.
IDB, the Company and representatives of the plaintiffs in the foregoing
litigation entered into a Stipulation of Settlement (the "Stipulation"). The
Stipulation provides that all claims for the period April 27, 1992 through
August 1, 1994, inclusive, that were or could have been asserted by the
plaintiffs against IDB or
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any of the other defendants in the consolidated action, or in any court with
respect to the fairness or adequacy of the consideration paid to IDB
stockholders in the IDB Merger and the accuracy of related disclosures made by
the IDB defendants or the Company, or on behalf of or by IDB against former IDB
directors and officers will, subject to the fulfillment of certain conditions
and the approval of the court, be settled and released and the litigation
dismissed in its entirety with prejudice in exchange for payments totalling
$75.0 million. The settlement and releases do not affect any claims of persons
who purchased IDB securities outside the period April 27, 1992 through August 1,
1994, inclusive, or who timely and validly opt out.
Following a February 27, 1995 hearing to determine whether the settlement
should be finally approved by the District Court, on March 16, 1995, the court
entered a judgment approving the settlement, except as to fee applications
submitted by class and derivative counsel. The settlement was not contingent on
the amount of class and derivative counsel fees and expenses ultimately approved
by the court. On April 5, 1995, the settlement payments agreed to in the
Stipulation were made. Plaintiffs' counsel has indicated that they will dismiss
two related state court actions, as contemplated by the Stipulation.
IDB is a party to indemnification agreements with certain of the defendants
in the actions described above, including IDB's former officers and directors,
certain selling stockholders and certain underwriters. IDB's former officers and
directors are not covered by any applicable liability insurance. The Company has
agreed to provide indemnification to IDB's officers and directors under certain
circumstances pursuant to the agreement relating to the IDB Merger.
On June 9, 1994, the Commission issued a formal order of investigation
concerning certain matters, including IDB's financial position, books and
records and internal controls and trading in IDB securities on the basis of
non-public information. The Commission has issued subpoenas to IDB and others,
including certain former officers of IDB, in connection with its investigation.
The National Association of Securities Dealers, Inc. and other self-regulatory
bodies have also made inquiries of IDB concerning similar matters.
The U.S. Attorney's Office for the Central District of California has
issued grand jury subpoenas to IDB seeking documents relating to IDB's 1994
first quarter results, the Deloitte resignation, trading in IDB securities and
other matters, including information concerning certain entities in which
certain former officers of IDB are personal investors and transactions between
such entities and IDB. IDB has been informed that a criminal investigation has
commenced. The U.S. Attorney's Office for the Central District of California
issued a grand jury subpoena to the Company arising out of the same
investigation seeking certain documents relating to IDB.
The outcome of any of the foregoing litigation or investigations, or of
other pending legal proceedings, has not been determined. See Item 3 -- "Legal
Proceedings" contained in the Company's 1994 Form 10-K for more information
regarding the foregoing litigation and investigations, as well as other pending
legal proceedings.
RISKS OF INTERNATIONAL BUSINESS
As a result of the IDB Merger, the Company derives substantial revenues by
providing international communication services primarily to customers
headquartered in the United States. Such operations are subject to certain risks
such as changes in foreign government regulations and telecommunication
standards, licensing requirements, tariffs or taxes and other trade barriers and
political and economic instability. In addition, such revenues and cost of sales
are sensitive to changes in international settlement rates. International rates
may decrease in the future due to aggressiveness on the part of existing
carriers, aggressiveness on the part of new entrants into niche markets, the
widespread resale of international private lines, the consummation of joint
ventures among large international carriers that facilitate targeted pricing and
cost reductions, and the rapid growth of international circuit capacity due to
the deployment of new transatlantic and transpacific fiber optic cables. The
traffic volumes and cost reductions related to the IDB Merger may not offset any
resulting rate decreases.
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DEPENDENCE ON AVAILABILITY OF TRANSMISSION FACILITIES
The future profitability of the Company will be dependent in part on its
ability to utilize transmission facilities leased from others on a
cost-effective basis. Due to the possibility of unforeseen changes in industry
conditions, the continued availability of leased transmission facilities at
historical rates cannot be assured. See "Business -- Transmission Facilities."
REGULATION RISKS
The Company is subject to extensive regulation at the federal and state
levels, as well as in various foreign countries in connection with certain
overseas business activities. The regulatory environment varies substantially by
jurisdiction.
The regulation of the telecommunications industry is changing rapidly, and
the regulatory environment varies substantially from state to state. There can
be no assurance that future regulatory changes will not have a material adverse
impact on the Company. Recent developments include, without limitation,
consideration by Congress of legislation that would modify the AT&T Divestiture
Decree restrictions on the provision of long distance services between LATAs, as
defined in the AT&T Divestiture Decree, by the BOCs, as discussed below;
consideration by the Justice Department and courts of related BOC requests for
waiver of the AT&T Divestiture Decree to permit them to provide significant
interLATA services (such as service outside their respective regions, and in
other circumstances) or for the elimination of the AT&T Divestiture Decree
altogether; action by the FCC or PUCs changing access rates charged by LECs and
making other related changes to access and interconnection policies, certain of
which could have adverse consequences for the Company; related FCC and state
regulatory proceedings considering additional deregulation of LEC access
pricing; a pending FCC rulemaking on "billed party preference" that could affect
the Company's provision of operator services; and various legislative and
regulatory proceedings that would result in new local exchange competition.
Both the United States Senate and House of Representatives have passed
bills that, if enacted into legislation, would permit the BOCs to provide
domestic and international long distance services upon a finding by the FCC that
the petitioning BOC had satisfied certain criteria for opening up its local
exchange network to competition and that its provision of long distance services
would further the public interest. Both bills are scheduled to be considered by
a House-Senate conference committee shortly. Although the outcome of pending
legislation cannot be predicted, both the House and Senate bills passed with
sufficient votes to override a Presidential veto.
The Company will need to comply with the applicable laws and obtain the
approval of the regulatory authority of each country in which it provides or
proposes to provide telecommunications services. The laws and regulatory
requirements vary from country to country. Some countries have substantially
deregulated various communications services, while other countries have
maintained strict regulatory regimes. The application procedure can be
time-consuming and costly, and terms of licenses vary for different countries.
Transmissions from earth stations to all satellites, transmissions from
microwave and other transmitters, reception from international satellites, and
transmission of international traffic by any means, including satellite and
undersea cable, must be pursuant to license or other authorizations issued by
the FCC. The Company has operating authority or has made other suitable
arrangements to transmit and/or receive signals from all locations where it
currently offers satellite transmission and/or reception service. Although the
Company has never had a license application denied by the FCC, there can be no
assurance that the Company will receive all authorizations or licenses necessary
for new communications services or that delays in the licensing process will not
adversely affect the Company's business. Domestic radio licenses issued by the
FCC are for limited periods not to exceed 10 years. The Company must seek
renewal of such licenses prior to their expiration. The Company knows of no
facts that would result in the denial of any such renewals. Most of the
Company's services are deemed common carriage and as such must be provided at
just and reasonable rates and free of all unlawful discrimination. The Company
monitors compliance with federal, state and local regulations governing the
discharge and disposal of hazardous and environmentally sensitive materials,
including the emission of electromagnetic radiation. Although the Company
believes that it is in compliance
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with such regulations, there can be no assurance that any such discharge,
disposal or emission might not expose the Company to claims or actions that
could have a material adverse effect on financial results. See
"Business -- Regulation."
COMPETITION RISKS
The Company faces intense competition in providing domestic and
international long distance telecommunications services. Domestically, the
Company competes for interLATA services with other national and regional IXCs,
including AT&T, MCI and Sprint; with respect to intraLATA long distance
services, with AT&T, MCI, Sprint, the LECs and other IXCs, where permissible;
and with respect to operator services, with AT&T and other operator service
providers. Internationally, the Company competes for services with other IXCs,
including AT&T, MCI and Sprint. Certain of these companies have substantially
greater market share and financial resources than the Company, and some of them
are the source of communications capacity used by the Company to provide its own
respective services. The Company expects to encounter increasing competition
from major domestic and international communications companies, including AT&T,
MCI and Sprint. In addition, in the future, the Company may be subject to
additional competition due to the development of new technologies and increased
availability of domestic and international transmission capacity. For example,
even though fiber-optic networks, such as that of the Company, are now widely
used for long distance transmission, it is possible that the desirability of
such networks could be adversely affected by changing technology. The
telecommunications industry is in a period of rapid technological evolution,
marked by the introduction of new product and service offerings and increasing
satellite transmission capacity for services similar to those provided by the
Company. The Company cannot predict which of many possible future product and
service offerings will be important to maintain its competitive position or what
expenditures will be required to develop and provide such products and services.
See "Business -- Competition."
U.S. DOMESTIC AND INTERNATIONAL SATELLITE SYSTEMS
On April 25, 1995, the FCC proposed to eliminate certain regulatory
distinctions between U.S. licensed domestic and international satellites, and to
treat all U.S. licensed geostationary fixed satellites under a single regulatory
scheme. The effect of this proposal, if adopted, could increase the ability of
U.S. domestic satellite operators to provide international service and
international satellite operators to provide domestic service, in direct
competition with the Company. The FCC also has requested comment on other issues
affecting competition in the satellite industry. The Company cannot predict when
the FCC will adopt final rules in this proceeding or what those rules might be.
ANTI-TAKEOVER PROVISIONS
The Amended and Restated Articles of Incorporation of the Company contain
provisions (a) requiring a 70% vote for approval of certain business
combinations with certain 10% stockholders unless approved by a majority of the
continuing Board of Directors or unless certain minimum price, procedural and
other requirements are met; (b) restricting aggregate beneficial ownership of
the capital stock of the Company by foreign stockholders to 20% of the total
outstanding capital stock, and subjecting excess shares to redemption; and (c)
requiring a two-thirds vote of the holders of the Company's Series 2 6.5%
Cumulative Senior Perpetual Convertible Preferred Stock (the "Series 2 Preferred
Stock") to approve certain extraordinary transactions or, alternatively,
redemption of such stock at a specified premium. In addition, the Bylaws of the
Company (a) contain requirements regarding advance notice of nomination of
directors by stockholders, and (b) restrict the calling of special meetings by
stockholders to those owning shares representing not less than 40% of the votes
to be cast. These provisions may have an "anti-takeover" effect. See
"Information Regarding Resurgens -- Amendments to Resurgens' Restated Articles
of Incorporation -- LDDS Merger Agreement," "Proposals No. 1 and 2 -- The
Proposed Mergers -- Description of the Series 2 Preferred Stock" and "-- Special
Redemption Provisions" and "Information Regarding Resurgens -- Amendments to
Resurgens' Restated Articles of Incorporation" contained in the 1993 Joint Proxy
Statement/Prospectus (as hereinafter defined) and the August Form 8-K (as
hereinafter defined), which are hereby incorporated herein by reference.
S-10
<PAGE> 11
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The shares of WorldCom Common Stock are quoted on the Nasdaq National
Market. Before the Prior Mergers (as hereinafter defined), the common stock of
Resurgens (as hereinafter defined) was traded on the American Stock Exchange
(the "AMEX") under the trading symbol RCG. At the close of business on September
14, 1993, Resurgens' common stock ceased trading on the AMEX and, on September
15, 1993, WorldCom Common Stock started trading on the Nasdaq National Market
under the trading symbol LDDS. The name of Resurgens, the legal survivor, was
changed to LDDS Communications, Inc. at the time of the Prior Mergers. Before
the Prior Mergers, the common stock of LDDS-TN (as hereinafter defined) was
traded on the Nasdaq National Market under the trading symbol LDDSA. Upon
effectiveness of the Prior Mergers on September 15, 1993, each share of the
outstanding Class A Common Stock of LDDS-TN was converted into the right to
receive 0.9595 shares of LDDS Common Stock; the information below has been
adjusted to reflect this exchange ratio. On May 25, 1995, LDDS changed its name
to WorldCom, Inc. and its trading symbol became WCOM. The following table sets
forth the high and low sales prices per share of WorldCom Common Stock
(including the common stock of Resurgens and LDDS-TN prior to September 15,
1993) as reported on the Nasdaq National Market or the AMEX, as applicable, in
each case based on published financial sources, for the periods indicated.
<TABLE>
<CAPTION>
WORLDCOM COMMON STOCK(1)
---------------------------------------
RESURGENS PRIOR LDDS-TN PRIOR TO
TO 9/15/93 9/15/93
----------------- -----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1993
First quarter......................................... $19.81 $14.50 $19.15 $14.85
Second quarter........................................ 20.38 17.19 20.97 17.20
Third quarter......................................... 26.00 18.13 26.00 17.77
</TABLE>
<TABLE>
<CAPTION>
WORLDCOM COMMON
STOCK(1)
-----------------
HIGH LOW
------ ------
<S> <C> <C>
Fourth quarter................................................. $26.38 $20.13
1994
First quarter.................................................. $29.50 $23.25
Second quarter................................................. 25.25 14.00
Third quarter.................................................. 25.00 16.50
Fourth quarter................................................. 24.38 16.38
1995
First quarter.................................................. $26.25 $19.13
Second quarter................................................. 27.38 23.13
Third quarter (through August 17, 1995)........................ 32.00 26.75
</TABLE>
---------------
(1) At the close of business on September 14, 1993, in connection with the Prior
Mergers, Resurgens' common stock ceased trading on the AMEX. On September
15, 1993, WorldCom Common Stock, the stock of the corporation surviving the
Prior Mergers, commenced trading on the Nasdaq National Market. Accordingly,
the high and low sales prices per share shown for Resurgens and LDDS-TN
beginning on September 15, 1993 are the same and are the high and low sales
prices per share of WorldCom Common Stock.
As of July 31, 1995, there were 165,310,179 shares of WorldCom Common Stock
issued and outstanding (upon consummation of the Offering there will be
190,294,131 shares of WorldCom Common Stock issued and outstanding). The last
reported sale price of the WorldCom Common Stock as reported on the Nasdaq
National Market on August 17, 1995 was $30 3/8 per share.
Neither the Company nor Resurgens has ever paid cash dividends on its
common stock. The policy of the Company's Board of Directors has been to retain
earnings to provide funds for the operation and expansion of its business. Also,
the Company's credit facilities restrict the payment of dividends on its
WorldCom Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
appearing elsewhere herein and Note 4 of Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
S-11
<PAGE> 12
CAPITALIZATION
The following table summarizes the Company's capitalization at June 30,
1995, and as adjusted for the repayment of bank debt with the proceeds from the
exercise of the Metromedia Warrants, the conversion of the Series 1 Preferred
Stock and the $15 million payment to Metromedia in connection with the
conversion of the Series 1 Preferred Stock concurrently with the Offering.
<TABLE>
<CAPTION>
AT JUNE 30, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
($ IN MILLIONS)
<S> <C> <C>
Cash and equivalents.................................................... $ 34.7 $ 34.7
======== ===========
Short-term debt and current maturities of long-term debt................ $ 4.0 $ 4.0
======== ===========
Bank credit facility.................................................... $3,206.5 $ 3,187.8
Convertible subordinated notes.......................................... 195.5 195.5
Other debt.............................................................. 10.3 10.3
-------- -----------
Total long-term debt.......................................... 3,412.3 3,393.6
-------- -----------
Series 1 preferred stock................................................ 0.1 --
Series 2 preferred stock................................................ -- --
Common stock............................................................ 1.7 2.0
Additional paid-in capital.............................................. 1,833.2 1,866.7
Retained earnings....................................................... 154.5 139.5
-------- -----------
Total equity.................................................. 1,989.5 2,008.2
-------- -----------
Total capitalization..................................... $5,401.8 $ 5,401.8
======== ===========
</TABLE>
S-12
<PAGE> 13
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial information for the Company for the years
ended December 31, 1992, 1993 and 1994 presented below has been derived from the
Company's audited consolidated financial statements which are incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. The
historical financial information for the years ended December 31, 1992, 1993 and
1994 have been audited by Arthur Andersen LLP ("Arthur Andersen"), independent
accountants. Arthur Andersen's report on the Company's consolidated statements
of operations for these periods contains language that explains that Arthur
Andersen did not audit the financial statements of IDB Communications Group,
Inc. (previously defined as "IDB") which was acquired by the Company during 1994
and accounted for as a pooling of interests transaction. IDB's statements of
operations as of and for the years ended December 31, 1992 and 1993 were audited
by Deloitte & Touche LLP. The unaudited selected pro forma income statement data
for the year ended December 31, 1994 give effect to the WilTel Acquisition, as
if such transaction had occurred on January 1, 1994. The unaudited financial
information as of June 30, 1994 and 1995 and the six months then ended have been
derived from unaudited consolidated financial statements of the Company. The
results of these interim periods are not necessarily indicative of the operating
results for a full year, and the information for the six months ended June 30,
1994 is not pro forma for the WilTel Acquisition. All financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein and
"Unaudited Pro Forma Financial Information" and the consolidated and condensed
financial statements and the related notes thereto incorporated herein by
reference.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR ENDED FISCAL YEAR SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30,
------------------------------------ DECEMBER 31, -----------------------
1992 1993 1994 1994(1) 1994 1995
---------- ---------- ---------- ------------ ---------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues....................................... $ 948,060 $1,474,257 $2,220,765 $3,067,994 $1,079,213 $1,759,754
Operating expenses:
Line costs................................... 552,632 881,540 1,447,633 1,823,861 677,071 972,378
Selling, general and administrative.......... 189,355 246,105 432,360 662,022 190,618 322,569
Depreciation and amortization................ 66,990 101,859 163,828 305,521 78,463 151,514
Provision to reduce carrying value of certain
assets(2).................................. -- -- 48,500 48,500 -- --
Direct merger costs(3)....................... 7,262 -- 15,002 15,002 -- --
Restructuring and other charges(4)........... 79,838 5,920 43,704 43,704 -- --
---------- ---------- ---------- ----------- ---------- ----------
Total.................................. 896,077 1,235,424 2,151,027 2,898,610 946,152 1,446,461
Operating income............................... 51,983 238,833 69,738 169,384 133,061 313,293
Other income (expense):
Interest expense............................. (30,311) (35,557) (47,303) (222,568) (21,520) (126,866)
Stockholder litigation settlement(5)......... -- -- (76,000) (76,000) -- --
Miscellaneous................................ 841 6,644 5,223 5,647 3,208 3,373
---------- ---------- ---------- ----------- ---------- ----------
Total.................................. (29,470) (28,913) (118,080) (292,921) (18,312) (123,493)
Income (loss) before income taxes and
extraordinary item........................... 22,513 209,920 (48,342) (123,537) 114,749 189,800
Provision for income taxes..................... 14,169 85,599 73,816 51,630 54,846 74,022
---------- ---------- ---------- ----------- ---------- ----------
Net income (loss) before extraordinary item.... 8,344 124,321 (122,158) (175,167) 59,903 115,778
Extraordinary item(6).......................... (5,800) (7,949) -- -- -- --
---------- ---------- ---------- ----------- ---------- ----------
Net income (loss).............................. 2,544 116,372 (122,158) (175,167) 59,903 115,778
Preferred dividend requirement(7).............. 2,112 11,683 27,766 27,766 13,890 13,875
---------- ---------- ---------- ----------- ---------- ----------
Net income (loss) applicable to common
shareholders................................. $ 432 $ 104,689 $ (149,924) $ (202,933) $ 46,013 $ 101,903
========== ========== ========== ========== ========== ==========
Fully diluted earnings (loss) per common share
before extraordinary item.................... $ 0.06 $ 0.80 $ (0.95) $ (1.29) $ 0.28 $ 0.60
========== ========== ========== ========== ========== ==========
OTHER DATA:
EBITDA(8)...................................... $ 206,073 $ 346,612 $ 340,772 $ 582,111 $ 211,524 $ 464,807
MARGIN DATA (% OF REVENUES):
Line costs..................................... 58.3% 59.8% 65.2% 59.4% 62.7% 55.3%
EBITDA(8)...................................... 21.7 23.5 15.3 19.0 19.6 26.4
Operating income............................... 5.5 16.2 3.1 5.5 12.3 17.8
BALANCE SHEET DATA (END OF PERIOD):
Total assets................................... $1,241,278 $3,236,718 $3,430,192 $6,387,823 $3,322,323 $6,436,688
Long-term debt................................. 440,076 721,480 788,005 3,447,046 746,888 3,412,302
Shareholders' investment....................... 478,823 1,911,800 1,827,170 1,827,170 1,983,353 1,989,456
</TABLE>
S-13
<PAGE> 14
---------------
(1) Pro forma to give effect to the WilTel Acquisition as if the acquisition
took place on January 1, 1994.
(2) The Company recorded adjustments of $48.5 million, to reduce the carrying
value of the assets of IDB Broadcast (as hereinafter defined) (primarily
intangible assets and property and equipment) to the Company's best
estimate of the net realizable value. Subsequent to December 31, 1994 the
Company sold its simulcasting operations and entered into an agreement to
out source the management of the remaining operations of IDB Broadcast, a
unit of the Company ("IDB Broadcast").
(3) Direct merger costs of $15.0 million and $7.3 million were related to the
IDB Merger (in 1994) and the ATC Merger (as hereinafter defined) (in 1992),
respectively. These costs include professional fees, proxy solicitation
costs, travel and related expenses and certain other direct costs
attributable to those mergers.
(4) As a result of the IDB Merger and the merger of Advanced Telecommunications
Corporation with a wholly-owned subsidiary of WorldCom on December 4, 1992
(the "ATC Merger"), the Company initiated plans to reorganize and
restructure its management and operational organization and facilities to
eliminate duplicate personnel, physical facilities and service capacity, to
abandon certain products and marketing activities, and to further take
advantage of the synergy available to the combined entities. Accordingly,
the Company charged to operations $43.7 million during the fourth quarter
of 1994 for the IDB Merger and $79.8 million during the fourth quarter of
1992 for the ATC Merger, the estimated costs of such reorganization and
restructuring activities, including employee severance, physical facility
abandonment, and duplicate service capacity. In addition, during 1993,
plans were approved to reduce IDB's cost structure and to improve
productivity. Such plans included a reduction in the number of employees
and the disposition of certain assets. The consolidated statement of
operations for 1993 includes a charge of $5.9 million related to this
program.
(5) In the third quarter of 1994, the Company recorded a $76.0 million charge,
representing the estimated settlement liability related to a Stipulation of
Settlement entered into by IDB, LDDS and representatives of the plaintiffs
in the litigation arising from class action complaints and stockholder
derivative actions filed against IDB and its former directors and certain
former officers of IDB and other parties.
(6) In connection with certain debt refinancing, the Company recognized in 1993
and 1992 extraordinary items of $7.9 million and $5.8 million,
respectively, net of income taxes, consisting of unamortized debt discount,
unamortized issuance cost and prepayment fees.
(7) As a result of the conversion of the Series 1 Preferred Stock upon
consummation of the Offering, the Company's annual dividend requirement of
$24.5 million on the Series 1 Preferred Stock will be eliminated. In
addition, upon conversion of the Series 1 Preferred Stock, the Company will
make a one-time, non-recurring payment of $15.0 million to Metromedia
Company, representing a discount to the minimum remaining nominal dividends
payable on the Series 1 Preferred Stock prior to the September 15, 1996
optional call date of approximately $26.6 million (annual dividends plus
accrued dividends to such call date).
(8) EBITDA represents net income before extraordinary items, provision for
income taxes, depreciation and amortization, provisions to reduce carrying
value of certain assets, direct merger costs, restructuring and other
charges, interest expenses, stockholder litigation settlement and
miscellaneous expenses. While EBITDA should not be construed as a
substitute for operating income or a better measure of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included hereinto provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs.
S-14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the financial condition
and results of operations of the Company for the six months ended June 30, 1995
and 1994 and the three years ended December 31, 1994 after giving effect to the
IDB Merger and the ATC Merger, which were accounted for as
poolings-of-interests. This information should be read in conjunction with the
"Selected Consolidated Historical and Pro Forma Financial Data" and the
Company's Consolidated Financial Statements appearing elsewhere in, or
incorporated by reference into, this Prospectus Supplement.
GENERAL
The Company's continued emphasis on acquisitions has taken the Company from
a small regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically and
internationally. The Company's operations have grown significantly in each year
of its operations as a result of internal growth, the selective acquisition of
smaller long distance companies with limited geographic service areas and market
shares, the consolidation of certain third tier long distance carriers with
larger market shares and international expansion.
On January 5, 1995, the Company completed the acquisition of the network
services operations of Williams Telecommunications Group, Inc., a subsidiary of
Williams, for approximately $2.5 billion in cash (previously defined as the
"WilTel Acquisition"). Through this purchase, the Company acquired a nationwide
common carrier network of approximately 11,000 miles of fiber optic cable and
digital microwave facilities. The WilTel Acquisition was effected pursuant to a
Stock Purchase Agreement, dated as of August 22, 1994, by and among the Company,
Williams and WTG Holdings, Inc. The WilTel Acquisition is being accounted for as
a purchase for financial reporting purposes. The funds paid to Williams were
obtained by the Company under new credit facilities entered into on December 21,
1994. See Note 4 of Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
The Company's long distance revenues are derived principally from the
number of minutes of use billed by the Company. Minutes billed are those
conversation minutes during which a call is actually connected at the Company's
switch (except for minutes during which the customer receives a busy signal or
the call is unanswered at its destination). The Company's profitability is
dependent upon, among other things, its ability to achieve line costs that are
less than its revenues. The principal components of line costs are access
charges and transport charges. Access charges are expenses incurred by all IXCs
for accessing the local networks of the LECs in order to originate and terminate
calls and payments made to PTTs to complete calls made from the U.S. by the
Company's customers. Transport charges are the expenses incurred in transmitting
calls between or within LATAs.
The most significant portion of the Company's line costs is access charges
which are highly regulated. The FCC regulates international communications
services and interstate telephone service and certain states, through the
appropriate regulatory agency, regulate intrastate telephone service.
Accordingly, the Company cannot predict what effect continued regulation and
increased competition between LECs and other IXCs will have on future access
charges. However, the Company believes that it will be able to continue to
reduce transport costs through effective utilization of its network, favorable
contracts with carriers and network efficiencies made possible as a result of
expansion of the Company's customer base by acquisitions and internal growth.
S-15
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the Company's
statement of operations as a percentage of its operating revenues.
<TABLE>
<CAPTION>
FOR SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
----------------- -----------------------------
1995 1994 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Line costs................................. 55.3 62.7 65.2 59.8 58.3
Selling, general and administrative........ 18.3 17.7 19.5 16.7 20.0
Depreciation and amortization.............. 8.6 7.3 7.4 6.9 7.1
Direct merger costs, restructuring and
other charges............................ -- -- 4.8 0.4 9.2
----- ----- ----- ----- -----
Operating income........................... 17.8 12.3 3.1 16.2 5.5
Other income (expense):
Interest expense......................... (7.2) (2.0) (2.1) (2.4) (3.2)
Stockholder litigation settlement........ -- -- (3.4) -- --
Miscellaneous............................ 0.2 0.3 0.2 0.5 0.1
----- ----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item....................... 10.8 10.6 (2.2) 14.2 2.4
Provision for income taxes................. 4.2 5.1 3.3 5.8 1.5
----- ----- ----- ----- -----
Net income (loss) before extraordinary
item..................................... 6.6 5.6 (5.5) 8.4 0.9
Extraordinary item......................... -- -- -- (0.5) (0.6)
----- ----- ----- ----- -----
Net income (loss).......................... 6.6 5.6 (5.5) 7.9 0.3
Preferred dividend requirement............. 0.8 1.3 1.3 0.8 0.2
----- ----- ----- ----- -----
Net income (loss) applicable to common
shareholders............................. 5.8% 4.3% (6.8)% 7.1% --%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 VS.
SIX MONTHS ENDED JUNE 30, 1994:
Revenues for the six months ended June 30, 1995 were $1.76 billion on 9.27
billion revenue minutes as compared to $1.08 billion on 5.24 billion revenue
minutes for the six months ended June 30, 1994. The increase in total revenues
of 63.1% was primarily due to the inclusion of revenues from the WilTel
Acquisition and internal growth.
Line costs as a percentage of revenues decreased to 55.3% during the first
six months of 1995 as compared to 62.7% for the same period in the prior year.
This decrease is attributable to changes in the product mix, rate reductions
resulting from favorable contract negotiations and synergies and economies of
scale resulting from network efficiencies achieved from the assimilation of the
IDB Merger and the WilTel Acquisition into the Company's operations.
Additionally, through the WilTel Acquisition, the Company has been able to
achieve further network efficiencies associated with owning the WilTel
nationwide fiber optic cable network rather then leasing similar capacity from
other providers at a higher cost.
Selling, general and administrative expenses ("SG&A") increased to $322.6
million or 18.3% of revenues in the first six months of 1995 as compared to
$190.6 million or 17.7% of revenues for the same period in the prior year. The
increase in SG&A expenses results from the Company's expanding operations,
primarily through the WilTel Acquisition and internal growth.
Depreciation and amortization expense increased to $151.5 million or 8.6%
of revenues in the first six months of 1995 from $78.5 million or 7.3% of
revenues in the first six months of 1994. This increase reflects depreciation
and amortization of the additional property and equipment and goodwill from the
WilTel Acquisition.
S-16
<PAGE> 17
Interest expense for the first half of 1995 was $126.9 million or 7.2% of
revenues as compared to $21.5 million or 2.0% of revenues for the same period in
1994. The increase in absolute level of interest expense was due primarily to an
increase in the average debt outstanding by the Company to finance the WilTel
Acquisition.
Net income applicable to common stockholders increased 121.5% to $101.9
million in the first six months of 1995 from $46.0 million in the comparable
period in 1994. Earnings per common share increased 117.9% to $0.61 from $0.28
in the first six months of 1994. The percentage increase in earnings per common
share was not as large as the net income percentage increase primarily due to
additional shares of the Company's Common Stock outstanding as the result of
recent acquisitions and the exercise of stock options and warrants.
YEAR ENDED DECEMBER 31, 1994 VS.
YEAR ENDED DECEMBER 31, 1993:
Revenues increased by 50.6% to $2.2 billion on 10.76 billion revenue
minutes in 1994 from $1.5 billion on 6.94 billion revenue minutes in 1993. The
overall increase in total revenues was primarily attributable to the inclusion
of a full year's revenues from the 1993 acquisitions of Dial-Net, MCC, Resurgens
and TRT (as hereinafter defined) and internal growth. See Note 2 of Notes to
Consolidated Financial Statements, which is incorporated herein by reference.
Line costs increased from $881.5 million in 1993 to $1.4 billion in 1994.
This increase is due to increased traffic volumes, partially offset by network
efficiencies and rate reductions resulting from favorable contract negotiations.
As a percentage of revenues, line costs increased to 65.2% in 1994 from 59.8% in
1993. This increase is attributable to the change in product mix including
increased international traffic, which carries higher line costs. Additionally,
IDB's margins decreased in 1994 as IDB was unable to deliver all of its inbound
traffic over its existing facilities and had to use other carriers at a higher
cost to deliver this overflow traffic. Also in 1994, IDB's carrier revenue as a
proportion of total international traffic increased and these rates are
typically lower than rates charged to commercial customers. Certain of these IDB
carrier contracts provided either a break even or negative margin to the Company
and accordingly, service to these customers was discontinued in December 1994.
In 1995, the Company anticipates that line costs as a percentage of
revenues will decline as the result of synergies and economies of scale
resulting from network efficiencies achieved from the assimilation of recent
acquisitions, primarily the IDB Merger and the WilTel Acquisition, into the
Company's operations.
SG&A expenses increased to $432.4 million in 1994 from $246.1 million in
1993, and as a percentage of revenues, these expenses increased to 19.5% in 1994
from 16.7% in 1993. The increase in SG&A as a percentage of revenues is
attributable to various IDB-related one-time adjustments which were recorded in
1994. These adjustments included $40.9 million to adjust the provision for
doubtful accounts receivable, $8.0 million in accounting and legal expenses
incurred in connection with the resignation of IDB's prior auditors and $29.4
million related to various investment write-downs and other balance sheet
accruals.
In 1994, the Company determined that adjustments to certain assets of IDB
Broadcast were appropriate to properly reflect estimated net realizable values.
Accordingly, the Company recorded adjustments of $48.5 million, to reduce the
carrying value of these broadcast assets (primarily intangible assets and
property and equipment) to the Company's best estimate of the net realizable
value. See Note 3 of Notes to Consolidated Financial Statements, which is
incorporated herein by reference. Although the Company continues to offer IDB
Broadcast services, such services are not a part of the Company's core business
operations. Accordingly, subsequent to December 31, 1994, the Company sold its
simulcasting operations and entered into an agreement to outsource the
management of the remaining IDB Broadcast operations.
As a result of the IDB Merger, the Company initiated plans to reorganize
and restructure its management and operational organization and facilities.
Accordingly, the Company charged to operations in 1994, the estimated costs of
the IDB Merger and restructuring of $15.0 million and $43.7 million,
respectively. In 1993, plans were approved to reduce IDB's cost structure and to
improve productivity. Such plans included a
S-17
<PAGE> 18
reduction in the number of employees and the disposition of certain assets. In
connection with this plan, $5.9 million was charged to operations in 1993. See
Note 3 of Notes to Consolidated Financial Statements, which is incorporated
herein by reference.
Depreciation and amortization expense, which includes depreciation of the
Company's call transmission facilities increased to $163.8 million from $101.9
million in 1993 or 7.4% and 6.9% of revenues in 1994 and 1993, respectively. The
increase in such expenses was due primarily to depreciation and amortization of
the additional property and equipment, customer bases and goodwill resulting
from acquisitions by the Company during 1993. In 1995, the Company expects
depreciation and amortization expense as a percentage of revenues to increase as
a result of the WilTel Acquisition.
Interest expense in 1994 was $47.3 million or 2.1% of revenues, as compared
to $35.6 million or 2.4% of revenues in 1993. This decrease as a percentage of
revenues was a result of several factors, including the Company's prepayment of
long-term debt with funds obtained through the public offering of IDB common
stock in May 1993 and the issuance by IDB in August 1993 of $195.5 million of 5%
convertible subordinated notes due 2003. Additionally, as some of the Company's
acquisitions were funded by a combination of stock and debt, the percentage has
not grown as rapidly as the percentage of revenues. For each of the years ended
December 31, 1994 and 1993, weighted average annual interest rates were 6.2%.
Weighted average annual interest rates remained essentially unchanged due to the
issuance of the 5% convertible subordinated notes during a period in which the
market experienced higher prevailing interest rates. For the years ended
December 31, 1994 and 1993, weighted average annual levels of debt were $795.8
million and $621.4 million, respectively. See Note 4 of Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
In the third quarter of 1994, the Company recorded a $76.0 million charge
which represents an estimated stockholder litigation settlement of $75.0 million
and $1.0 million in related legal costs. See Note 7 of Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
The Company recorded a provision for income taxes of $73.8 million on a
pretax loss of $48.3 million in 1994. Although the Company generated a
consolidated pre-tax loss in 1994, permanent items aggregating approximately
$113.0 million contributed to an overall situation of taxable income. Also,
because the current year net operating loss ("NOL") generated by IDB prior to
the IDB Merger may be offset only by future taxable income generated at the IDB
level of the Company's operations, the Company believed that only a portion of
the current year NOL could be benefitted under a "more likely than not"
scenario. Accordingly, the Company placed a valuation allowance on the deferred
tax asset attributable to approximately $90.0 million of the NOL.
The Company believes the IDB Merger and the WilTel Acquisition will result
in decreased operating costs to the consolidated organization through
realization of the economies of scale resulting from network and operational
efficiencies. The combination of the Company, one of the four largest domestic
carriers (based on 1993 revenues), with IDB, one of the four largest
international carriers (based on 1993 revenues), has enhanced the Company's
current position as one of the largest long distance telecommunications
companies in the industry, serving customers domestically and internationally.
The WilTel Acquisition is expected to create additional efficiencies and growth
opportunities for the combined operations of the Company and IDB. These
opportunities include network efficiencies associated with owning the WilTel
nationwide fiber optic cable network rather than leasing similar capacity from
other providers at a higher cost, and marketing growth opportunities associated
with providing more services to customers. In addition, the increased volume of
long distance traffic is expected to permit the greater use of lower rate
fixed-cost or larger capacity facilities, greater volume discounts on usage
sensitive facilities and greater utilization of owned and leased network
capacity. However, no assurance can be given that the Company will be able to
successfully integrate the operations of IDB or WilTel or obtain the expected
networking and other operating efficiencies or growth opportunities.
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YEAR ENDED DECEMBER 31, 1993 VS.
YEAR ENDED DECEMBER 31, 1992:
Revenues increased by 55.5% to $1.5 billion on 6.94 billion revenue minutes
in 1993 from $948.1 million on 4.87 billion revenue minutes in 1992. The overall
increase in total revenues was primarily due to the inclusion of the 1993
acquisitions, the inclusion of a full year's revenues from the 1992 acquisitions
and internal growth. See Note 2 of Notes to Consolidated Financial Statements,
which is incorporated herein by reference.
Line costs as a percentage of revenues increased to 59.8% in 1993 from
58.3% in 1992 primarily due to changes in the product mix and price decreases
during the year.
SG&A expenses increased to $246.1 million in 1993 from $189.4 million in
1992 and, as a percentage of revenues, these expenses declined to 16.7% from
20.0%, respectively. The increase in total expenses reflects the increase in
revenue base. The decrease in expense as a percent of revenues reflects
economies of scale and the assimilation of acquisitions into the Company's
strategy of cost control.
Depreciation and amortization expense, which includes depreciation of the
Company's call transmission facilities, increased to $101.9 million in 1993 from
$67.0 million in 1992. Such expense as a percentage of revenues did not change
significantly, decreasing from 7.1% in 1992 to 6.9% in 1993. The increase in
such expenses was due primarily to depreciation and amortization of the
additional property and equipment, customer bases and goodwill resulting from
acquisitions by the Company during 1993 and 1992.
As a result of the ATC Merger, the Company restructured its management and
operational organization and facilities. Accordingly, the Company charged to
operations the estimated costs of the ATC Merger and restructuring of $7.3
million and $31.2 million, respectively. In addition, the Company determined to
resolve certain legal, regulatory and administrative matters which were
outstanding prior to the ATC Merger and reflected the estimated cost of $48.6
million to resolve such matters in 1992 operations. See Note 3 of the Notes to
Consolidated Financial Statements, which is incorporated herein by reference.
Interest expense in 1993 was $35.6 million or 2.4% of revenues, as compared
to $30.3 million or 3.2% of revenues in 1992. This decrease in interest as a
percentage of revenues was a result of several factors, including the Company's
prepayment of long-term debt with funds obtained through the offering of IDB
common stock in May 1993 and the issuance by IDB in August 1993 of $195.5
million of 5% convertible subordinated notes due 2003. Moreover, as some of the
Company's acquisitions were funded by a combination of stock and debt, the
percentage of debt has not grown as rapidly as the percentage of revenue. Also,
lower interest rates were in effect on the Company's long-term debt, reflecting
lower prevailing interest rates in the market generally.
Miscellaneous income increased from $0.8 million in 1992 to $6.6 million in
1993 primarily due to finance charges. During 1993 the Company changed its
credit and collection policy to provide for the charging of late fees on all
past due accounts. Prior to 1993, ATC customers were not allocated finance
charges.
The effective income tax rate for 1993 was 40.8% of income before tax
versus a rate of 62.9% in 1992. The unusual rate in 1992 resulted from the
combination of low pretax earnings and the non-deductible amortization expense
attributable to certain of the intangible costs incurred by the Company in its
numerous business combinations. The 1993 rate includes the effect of an increase
in the statutory federal income tax rate. See Note 9 of Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
In the third quarter of 1993, IDB repaid certain debt amounts which
resulted in an extraordinary charge of $7.9 million, net of income tax benefit
of $5.6 million, representing payment of debt redemption premiums and the
write-off of unamortized debt issuance costs. See Note 4 of Notes to
Consolidated Financial Statements, which is incorporated herein by reference.
In December 1992, the Company restructured and refinanced substantially all
of its credit facilities. As part of such refinancing, the Company incurred
prepayment penalties and wrote off the unamortized issue costs attributable to
its prior facilities, resulting in an extraordinary item of $5.8 million, net of
related income tax benefit. See Note 4 of Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
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<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
In December 1994, the Company entered into a new credit facility to finance
the WilTel Acquisition, refinance the Company's existing credit facilities and
provide additional working capital. The credit facility is comprised of a $2.16
billion, six-year reducing revolving credit facility (the "Revolving Facility
Commitment") and a $1.25 billion, two-year term facility (the "Term Principal
Debt"). The maximum principal amount permitted to be outstanding under the
Revolving Facility Commitment will be reduced at the end of each fiscal quarter,
commencing September 30, 1996, in varying amounts, and the outstanding balance
must be paid in full on December 31, 2000. The Term Principal Debt matures in a
single installment on December 31, 1996. The Revolving Facility Commitment and
the Term Principal Debt bear interest, payable quarterly, at a rate per annum
equal to the lesser of: a Base Rate plus applicable margin, the London Interbank
Offering Rate ("LIBOR") plus applicable margin, any Competitive Bid Rate or the
Money Market Rate. The applicable margin varies from 0% to 3/8% for Base Rate
Borrowings and 1/2% to 1 1/2% for LIBOR Rate Borrowings from time to time based
upon the lower of a specified financial test or the Company's long-term debt
rating. The credit facility is unsecured and requires compliance with certain
financial and other operating covenants which require the maintenance of certain
minimum operating ratios and which limit, among other things, the incurrence of
additional indebtedness by the Company and restrict the payment of cash
dividends to the Company's stockholders.
On January 5, 1995, in conjunction with the WilTel Acquisition, the Company
utilized its $3.41 billion long-term credit facilities and repaid all debt under
the Company's previous credit facilities and the $123.0 million in senior notes.
Total additional borrowings for the six months ended June 30, 1995 were $2.7
billion. At June 30, 1995, the Company had access to an additional $203.5
million under its long-term credit facilities. For the six months ended June 30,
1995, the weighted average interest rate under the credit facilities was 7.4%.
On February 24, 1995, the Company entered into financial hedging agreements
with various financial institutions, in connection with the credit facilities.
The hedging agreements establish fixed rates of interest ranging from 8.25% to
8.3125% on an aggregate notional value of $1.7 billion. These contracts range in
duration from one to two years with $845.4 million maturing in each of the years
ending 1996 and 1997.
The Company believes that the combined operations of WorldCom, IDB and
WilTel will generate sufficient cash flow to service the Company's debt under
the new credit facilities; however, economic downturns, increased interest rates
and other adverse developments, including factors beyond the Company's control,
could impair its ability to service its indebtedness. In addition, the cash flow
required to service WorldCom's debt will reduce its liquidity, which in turn may
reduce its ability to fund internal growth, additional acquisitions and capital
improvements.
The Company anticipates it will need to refinance a portion of the $1.25
billion term principal debt under the credit facilities prior to December 1996,
thereby requiring the Company to seek financing alternatives such as public or
private debt or equity offerings, or refinancing with the existing or new
lenders. The Company is committed to a priority plan of accelerating operating
cash flow to reduce debt. The Company anticipates that the remaining debt
balances will be refinanced with a combination of commercial bank debt and
public market debt. Successful execution of this priority plan would provide
continued compliance with required operating ratio covenants and would eliminate
any type of equity financing other than equity issued in connection with
acquisitions. No assurance can be given that the Company will achieve its
priority plan or that any refinancing will be available on terms acceptable to
WorldCom.
The Company has historically utilized cash flow from operations to finance
capital expenditures and a mixture of cash flow, debt and stock to finance
acquisitions. The Company will continue to analyze potential acquisitions
utilizing primarily equity financing until the additional leverage from the
WilTel Acquisition is reduced.
For the six months ended June 30, 1995, the Company's cash flow from
operations was $242.9 million, increasing from $23.8 million in the comparable
period for 1994. The increase in cash flow from operations
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<PAGE> 21
was primarily attributable to cash flow from acquired operations, internal
growth and the sale of the Company's receivables as noted below.
Cash used in investing activities in the six months ended June 30, 1995
totaled $2.88 billion and included $2.69 billion for acquisitions and related
costs and $181.2 million for capital expenditures. Primary capital expenditures
include purchases of switching, transmission, communication and other equipment.
Total capital expenditures for 1995 are anticipated to total approximately
$310.0 million.
Included in cash flows from financing activities are payments of $13.9
million for preferred dividend requirements. The Company's Series 1 Preferred
Stock has a total annual dividend requirement of $24.5 million, payable on a
quarterly basis. In connection with the offering and the conversion of the
Series 1 Preferred Stock, the Company's annual dividend requirement of $24.5
million will be eliminated. Furthermore, upon conversion of the Series 1
Preferred Stock, the Company will make a one-time, non-recurring payment of
$15.0 million on the Series 1 Preferred Stock, representing a discount to the
minimum remaining nominal dividends payable by the Company on the Series 1
Preferred Stock prior to the September 15, 1996 optional call date of
approximately $26.6 million (annual dividends plus accrued dividends to such
call date). Additionally, the Company's Series 2 Preferred Stock has an annual
dividend requirement of $3.2 million, payable on a quarterly basis. The Company
believes that no event will occur during the remainder of 1995 to interfere with
its ability to satisfy these dividend requirements.
During 1995, the Company amended its existing $80.0 million receivables
purchase agreement to include certain additional receivables and received
additional proceeds of $185.0 million. The Company used these proceeds to reduce
the outstanding debt under the Company's credit facilities and provide
additional working capital. As of June 30, 1995, the purchaser owned a 97.8%
undivided interest in a $384.0 million pool of receivables which includes the
$265.0 million sold. The aggregate purchase limit under this agreement was
$280.0 million at June 30, 1995.
In April 1995, an additional $75.0 million was borrowed against the
Company's long-term credit facilities to pay the IDB stockholder litigation
settlement liability which had been recognized by the Company during the third
quarter of 1994.
In May 1995, Metromedia Company exercised its right to purchase 3.1 million
shares of the Company's common stock under purchase warrants. Proceeds from this
exercise of $30.7 million were used to reduce the outstanding debt under the
Company's credit facilities. Additionally, in connection with the Offering, the
Company will receive approximately $33.7 million in proceeds from the exercise
of the Metromedia Warrants for 3.1 million shares of WorldCom Common Stock,
which proceeds will be used to retire certain of the Company's existing bank
debt.
Absent significant capital requirements for other acquisitions, the Company
believes that cash flow from operations and funds available under the credit
facilities should be adequate to meet the Company's capital needs for the
remainder of 1995.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." This statement establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. This statement is
effective for financial statements for fiscal years beginning after December 15,
1995. The Company has not determined what effect this statement will have on the
Company's consolidated results of operations or financial position.
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<PAGE> 22
BUSINESS
GENERAL
WorldCom, Inc., a Georgia corporation which conducts business under the
name "LDDS WorldCom" (previously defined as the "Company" or "WorldCom"), is one
of the four largest long distance telecommunications companies in the United
States based on 1994 revenues. The Company provides long distance
telecommunications services through its network of fiber optic cables, digital
microwave and fixed and transportable satellite earth stations to business and
residential customers, with service to points throughout the nation and is a
full service provider of international telecommunications services as well as
specialized broadcasting services. The products and services provided by
WorldCom include: switched and dedicated long distance products, 800 services,
calling cards, operator services, private lines, frame relays, debit cards,
conference calling, advanced billing systems, facsimile and data connections,
television and radio transmission and mobile satellite communications.
WorldCom was organized in 1983. Its operations have grown as a result of
management's emphasis on a four-point growth strategy, which includes internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of certain
third tier long distance carriers with larger market shares, and international
expansion. On September 15, 1993, a three-way merger occurred whereby (i)
Metromedia Communications Corporation, a Delaware corporation ("MCC"), merged
(the "M/R Merger") with and into Resurgens Communications Group, Inc., a Georgia
corporation ("Resurgens"), and (ii) LDDS Communications, Inc., a Tennessee
corporation ("LDDS-TN"), merged (the "LDDS Merger," and collectively with the
M/R Merger, the "Prior Mergers") with and into Resurgens.
At the time of the Prior Mergers, the name of Resurgens, the legal
survivor, was changed to LDDS Communications, Inc. (previously defined as
"LDDS") and the separate corporate existences of LDDS-TN and MCC terminated. For
accounting purposes, however, LDDS-TN was the survivor because the former
stockholders of LDDS-TN acquired majority ownership of LDDS. On May 25, 1995,
LDDS changed its name to WorldCom, Inc. Accordingly, unless otherwise indicated,
all historical information presented herein reflects the operations of LDDS-TN.
Information in this document has also been revised to reflect the stock splits
of the WorldCom Common Stock. See Note 1 of Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
BUSINESS COMBINATIONS
The Company's continued emphasis on acquisitions has taken the Company from
a small regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically and
internationally.
On January 5, 1995, WorldCom completed the acquisition of Williams
Telecommunications Group, Inc., a subsidiary of The Williams Companies, Inc.,
for approximately $2.5 billion in cash (previously defined as the "WilTel
Acquisition"). Through this purchase, the Company acquired a nationwide common
carrier network of approximately 11,000 miles of fiber optic cable and digital
microwave facilities. The WilTel Acquisition was effected pursuant to a Stock
Purchase Agreement dated as of August 22, 1994, by and among WorldCom, Williams
and WTG Holdings, Inc. The WilTel Acquisition is being accounted for as a
purchase for financial reporting purposes. The funds paid to Williams were
obtained by WorldCom under a new credit facility entered into on December 21,
1994. See Note 4 of Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged
with IDB Communications Group, Inc., a Delaware corporation (previously defined
as "IDB"). IDB operates a domestic and international communications network
providing international and private line and public switched long distance
telecommunications services, facsimile and data connections, television and
radio transmission services and mobile satellite communications capabilities. As
a result of this merger (previously defined as the "IDB Merger"), each share of
common stock of IDB was converted into the right to receive 0.476879 shares
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<PAGE> 23
of WorldCom Common Stock resulting in the issuance of approximately 35,881,000
shares of WorldCom Common Stock. In addition, WorldCom assumed, on a
subordinated basis, jointly and severally with IDB, the obligations of IDB to
pay the principal of and interest on $195.5 million 5% convertible subordinated
notes due 2003, issued by IDB. The IDB Merger was accounted for as a
pooling-of-interests and accordingly, the WorldCom financial statements for the
periods prior to the IDB Merger have been restated to include the results of IDB
for all periods presented.
In 1993, upon effectiveness of the Prior Mergers, each share of the
outstanding common stock of LDDS-TN was converted into the right to receive
0.9595 shares of WorldCom Common Stock. The 500,000 shares of LDDS-TN Series B
6.5% Cumulative Senior Perpetual Convertible Preferred Stock outstanding were
converted into 2,000,000 shares of LDDS Series 2 6.5% Cumulative Senior
Perpetual Convertible Preferred Stock having a liquidation value of $25 per
share and a conversion price of $11.81171 per share. As a result of the
consummation of the Prior Mergers, the Selling Stockholder, the sole stockholder
of MCC, received 2,758,620 shares of the WorldCom Common Stock, 10,896,785
shares of LDDS Series 1 $2.25 Cumulative Senior Perpetual Convertible Preferred
Stock having a liquidation value of $50 per share and a conversion price of
$24.9046875 per share, warrants to purchase 5,000,400 shares of the WorldCom
Common Stock at an average price of $8.35 per share, and $150.0 million in cash.
The common stock of Resurgens was unchanged in the Prior Mergers.
On December 4, 1992, LDDS-TN, through a wholly-owned subsidiary, merged
with Advanced Telecommunications Corporation (previously defined as "ATC"). As a
result of this merger (previously defined as the "ATC Merger"), each share of
common stock of ATC was converted into the right to receive 0.83 shares of
common stock of LDDS-TN. The ATC Merger was accounted for under the pooling-of-
interests method.
The following table sets forth certain data concerning the Company's
acquisitions, during the past five years, of companies with annual revenues
exceeding $50.0 million, other than the WilTel Acquisition, the IDB Merger and
the ATC Merger.
<TABLE>
<CAPTION>
REVENUES FOR FISCAL YEAR
PRECEDING ACQUISITION
NAME ACQUISITION DATE (IN THOUSANDS)
------------------------------------------------- ---------------- ------------------------
<S> <C> <C>
MidAmerican Communications Corporation........... July 1991 $ 75,924
AmeriCall and First Phone ("AmeriCall").......... February 1992 65,028
World Communications, Inc........................ December 1992 90,602
Dial-Net, Inc. ("Dial-Net")...................... March 1993 69,328
Metromedia Communications Corporation............ September 1993 368,532
Resurgens Communications Group, Inc.............. September 1993 151,963
TRT Communications, Inc. ("TRT")................. September 1993 175,057
</TABLE>
In addition to the acquisitions reflected in the above table, WorldCom and
its predecessors have completed a number of other acquisitions involving
companies each with annual revenues of less than $50.0 million.
COMPANY STRATEGY
The Company follows a four-point growth strategy, consisting of internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of certain
third tier long distance carriers with larger market shares and international
expansion.
A decentralized management system allows regional managers responsibility
and authority for the development of area customers. Regional management directs
resources toward attracting new accounts as well as expanding product usage by
current customers.
A predominant share of the Company's total revenues is derived from
commercial customers. Commercial customers typically use higher volumes of
telecommunications services than residential customers and
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<PAGE> 24
concentrate that usage on weekdays during business hours when rates are highest.
Consequently, commercial customers, on average, generate higher revenues per
account than residential customers.
The Company anticipates that it will continue to experience growth both
internally and through selective acquisitions. During 1995, the Company will
complete the assimilation of recent acquisitions and will also continue to
pursue new services and the expansion of present product lines. The Company's
management continues to explore opportunities for further acquisitions within
its existing service areas as well as international markets.
SERVICES
General. The Company is one of the largest U.S. based long distance
telecommunications companies in the industry, based on revenues, and serves its
customers domestically and internationally. The products and services provided
by the Company include switched and dedicated long distance products, 800
services, calling cards, operator services, private lines, frame relays, debit
cards, conference calling, advanced billing systems, facsimile and data
connections, television and radio transmission and mobile satellite
communications.
Domestic Long Distance. There are several ways in which a customer can
access the Company's network. In areas where equal access has been made
available, a customer who has selected the Company as its IXC can utilize the
Company's network for inter-LATA long distance calls through "one plus" dialing
of the desired call destination. Equal access customers can access the Company's
network only for inter-LATA long distance calls, because under equal access, all
intra-LATA calls are routed through the LEC.
Customers in areas without equal access or customers in equal access areas
who do not select the Company as their IXC can utilize the Company's network for
all their long distance calls through three methods of "dial-up access." They
can dial a local telephone number to access the Company's computerized switching
equipment and then enter a personal authorization code and the area code and
telephone number of the desired call destination. Alternatively, customers can
access the Company's network by using its automatic dialers, which eliminate the
need for the customer to dial the local access number and personal authorization
code, effectively giving the customer "one plus" dialing. Customers may also
access the Company's network by dialing 10 plus the three digit Carrier
Identification Number belonging to the Company and the area code and telephone
number of the desired call location. Regardless of the method used, dial-up
customers can access the Company's network for all of their long distance calls,
both intra-LATA and inter-LATA.
High-volume customers can access the WorldCom network through the use of
high-capacity dedicated circuits.
The Company provides each of its customers a detailed monthly call report
and invoice for services setting forth the date, number called, duration of call
and time and charges for each call. The Company also offers specialized billing
services which include a variety of custom features, including account coding
which permits identification of long distance calls in a single account by
caller or project.
Customer bills are primarily prepared by Electronic Data Systems
Corporation ("EDS"), through a facilities management agreement under which EDS
performs most of the Company's data processing functions. See Note 6 of Notes to
Consolidated Financial Statements, which is incorporated herein by reference.
International Long Distance. The Company offers international private line
and public switched long distance telecommunications services to government and
commercial organizations worldwide. The Company has over 200 operating
agreements in foreign countries, thereby making the Company a leading
participant in the international telecommunications market.
Through these operating agreements, international long distance traffic is
both delivered and received. Under these agreements, foreign carriers are
obligated to adhere to the policy of the FCC whereby traffic from the foreign
country is routed to international carriers of which the Company is one, in the
same proportion as traffic carried into the foreign country.
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<PAGE> 25
The Company provides permanent and temporary domestic and international
private line services to customers for a number of applications. These
applications generally involve establishing private, international
point-to-point communications links for customers who need special services,
such as heavy data and voice usage, lower cost and greater security. The Company
has private line operating agreements with 160 foreign countries and is the
carrier for many of the world's most critical communications links, including
the Washington-Moscow hotline, the nuclear risk reduction circuit and launch
control circuits for the NASA Space Program. The Company also provides
international private line services for a range of financial, airline,
commercial and governmental communications networks.
The Company also offers public switched international telecommunications
services worldwide and provides direct services to approximately 60 foreign
countries. The Company sells telecommunications services to both corporate
customers and to domestic long distance carriers that lack transmission
facilities to locations served by the Company or need more transmission
capacity. Accessing the Company's international switching center via permanent
domestic connections or via dial-up access code, customers can make
international telephone calls.
Such operations are subject to certain risks such as changes in foreign
government regulations and telecommunications standards, licensing requirements,
tariffs or taxes and other trade barriers and political and economic
instability. In addition, the Company's revenues and costs of sales are
sensitive to changes in international settlement rates.
In accordance with the provisions of the Cuban Democracy Act, approved by
the U.S. Congress, the Company (including IDB and WilTel) is one of four U.S.
providers of long distance service to Cuba. The long distance service of AT&T,
MCI, Sprint and WorldCom is pursuant to operating agreements with the Cuban
telephone authority. WorldCom has received authority under Section 214 of the
Communications Act to acquire voice grade satellite circuits for the provision
of International Message Telephone Service and Private Line Service between the
United States and Cuba, which is a matter of public record. This information is
accurate as of the date hereof. Current information concerning the Company's
business dealings with the government of Cuba or with any person or affiliate
located in Cuba may be obtained from the Florida Department of Banking and
Finance at Capitol Building, Suite 2102, Tallahassee, Florida, 32399-0350 (904)
488-0286.
Other Services. WorldCom provides its billing and collection and operator
services to other IXCs. Due to the time and expense associated with the
negotiation of billing and collection agreements, many IXCs choose not to
establish operator services or to obtain billing and collection agreements.
Using WorldCom's operator services enables IXCs to retain revenues by carrying
operator assisted traffic over their own networks.
In addition, the Company offers a broad range of related services which
enhance customer convenience, add value and provide additional revenue sources.
Advanced "800" service offers features for caller and customer convenience,
including a variety of call routing and call blocking options, customer
reconfiguration, termination overflow to switched or dedicated lines, Dialed
Number Identification Service (DNIS) and real-time Automatic Number
Identification (ANI), and flexible after-hours call handling services. The
Company's OnLine travel card offers worldwide calling services, caller-friendly
voice mail with message waiting signal, message storage and delivery, conference
calling, personal greetings, speed dialing, customer deactivation and
reactivation of cards, customer card and private-label card options.
The Company through its broadcast operations, provides radio and television
broadcast transmission services for major network, cable, syndication,
pay-per-view, sports and special event programmers. Services are provided
domestically and internationally on a full-time or occasional-use basis using
C-band and Ku-band technology, and include uplink and downlink services, tape
playback, scrambling and resale of satellite transponder time. The Company also
provides point-to-multipoint transmissions, or program distribution, in which,
for example, the Company transmits a data signal to a network of small antennas
or transmits the radio or television programming of a network or program
syndicator to its affiliated stations. For point-to-multipoint transmission,
satellites generally are superior to other technologies because they disperse a
signal throughout a large geographic area for cost-effective transmission.
Satellites also permit signal transmission from remote sites where no other
communications facilities are available and are used particularly for television
signals that
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<PAGE> 26
cannot be transmitted through conventional phone lines. Although the Company
offers the aforementioned broadcast services, such services are not a part of
the Company's core business operations. Accordingly, subsequent to December 31,
1994, the Company sold its simulcasting operations and entered into an agreement
to outsource the management of the remaining broadcast operations.
The Company also designs, installs and integrates "turnkey" transmission
facilities and communications networks primarily for international customers.
Services provided include fixed customer premise earth stations, network
management systems, system integration consulting and project management.
TRANSMISSION FACILITIES
Domestically, the Company owns one of four nationwide networks, consisting
of more than 15,000 miles of fiber optic cable and microwave equipment with
access to an additional 40,000 miles of fiber optic network through lease
agreements with other carriers. In January 1995, the Company acquired the
majority of this network through the purchase of WilTel, which owns a network of
approximately 11,000 miles of fiber optic cable and digital microwave facilities
with access to approximately 30,000 miles of additional fiber optic network
through lease agreements with other carriers.
Internationally, the Company owns fiber optic facilities on most major
international cable systems in the Pacific and Atlantic Ocean regions, providing
fiber optic cable connections between the United States and the Pacific Rim and
the United States and Europe. WorldCom also owns fiber optic cable for services
to the former Soviet Union and to Latin America.
Additionally, the Company owns 22 international gateway earth stations and
approximately 50 domestic earth stations, which enable WorldCom to provide
radio, television, private line and public switched telecommunications services
to and from locations throughout the world. WorldCom also owns fixed earth
stations located in 33 metropolitan areas, including seven international gateway
earth stations in San Francisco and Washington D.C., which serve as central
collection points for domestic traffic and connect the network with
international satellites.
The Company's ability to generate profits is largely dependent upon its
ability to optimize the different types of transmission facilities used to
process and complete calls. These facilities are complemented by a highly
efficient least cost routing plan which is accomplished through state-of-the-art
digital switching technology and dynamic network routing software. Calls can be
routed over fixed cost transmission facilities or variable cost transmission
facilities. Fixed cost facilities, including the Company's owned networks are
typically most cost effective for routes that carry high volumes of traffic. The
Company's expansion has been to contiguous geographic areas which has enabled
the Company to concentrate a significant portion of its traffic over fixed cost
transmission facilities and thereby achieve an overall lower network cost. In
addition, a variety of lease agreements for fixed and variable cost (usage
sensitive) services ensure maximum diversity in processing calls.
NETWORK SWITCHING
The Company owns or leases computerized network switching equipment that
routes all of its customers' long distance calls. The Company presently
maintains approximately 50 digital switching centers. The Company's
state-of-the-art digital switching equipment is fully interconnected with
digital transmission lines. The Company has upgraded its entire network with the
addition of SS7 common channel signalling, which increases efficiencies by
eliminating connect time delays and provides "look ahead" routing. In addition
to networking, the Company's switching equipment verifies customers'
pre-assigned authorization codes, records billing data and monitors system
quality and performance.
In addition to the switching centers, the Company has a number of other
offices which are known as points of presence. These points of presence allow
the Company to concentrate customers' traffic at locations where the Company has
not installed switching equipment. The traffic is carried to switching centers
over the Company's digital transmission network.
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RATES AND CHARGES
Long Distance. The Company charges customers on the basis of minutes or
partial minutes of usage at rates that vary with the distance, duration and time
of day of the call. The rates charged are not affected by the particular
transmission facilities selected by the Company's network switching centers for
transmission of the call. Additional discounts are available to customers who
generate higher volumes of monthly usage.
Domestic business services are billed in six-second increments; others are
billed in partial minutes rounded to the next minute. Long distance services are
billed in arrears, with monthly billing statements itemizing date, time,
duration and charges; private line services are billed monthly in advance, with
the invoice indicating the number of circuits and applicable rates.
The Company's rates are generally designed to be competitive with those
charged by other long distance carriers. The rates offered by the Company may be
adjusted in the future if other IXCs continue to adjust their rates.
Operator Assisted Long Distance. The Company has billing and collection
services agreements with each of the RBOCs and BOCs, as well as all major
independent telephone companies, under which these companies bill the callers
for operator assisted telephone calls processed and transmitted by the Company.
Since January 1990, the Company has maintained access through a third party to
the billing validation data bases of credit card issuers, the RBOCs and certain
LECs. These data bases enable the Company to verify the validity of charge cards
used by callers to pay for operator assisted long distance telephone calls.
Validation reduces the Company's unbillable and uncollectible call expense
because the operator can verify the validity of credit card numbers and collect
or third party billing instructions before transmitting the call, which save
network expenses.
MARKETING AND SALES
WorldCom markets its long distance services primarily through a direct
sales force of approximately 1,700 employees worldwide which are targeted at
specific geographic markets. WorldCom markets its operator assisted services
through telemarkets and trade shows. WorldCom's sales force also provides
advanced sales specialization for the data and international marketplaces,
including domestic and international private line services.
In each of its geographic markets, the Company employs full service support
teams that provide its customers with prompt and personal attention. A customer
service representative is assigned to each customer account whose monthly
business exceeds $750. With offices nationwide, WorldCom's localized management,
sales and customer support are designed to engender a high degree of customer
loyalty and service quality.
COMPETITION
The Company faces intense competition in providing both domestic and
international long distance telecommunications services. Domestically, WorldCom
competes for interLATA services with other national and regional IXCs, including
AT&T, MCI and Sprint; with respect to intraLATA long distance services, with
AT&T, MCI, Sprint, the LECs and other IXCs, where permissible; and with respect
to operator service, with AT&T and other operator service providers.
Internationally, the Company competes for services with other IXCs, including
AT&T, MCI and Sprint. Certain of these companies have substantially greater
market share and financial resources than WorldCom, and some of them are the
source of communications capacity used by WorldCom to provide its own services.
For most of the Company's communications services, the factors critical to
a customer's choice of a service provider are cost, ease of use, speed of
installation, quality, reputation and, in some cases, geography and network
size. WorldCom's objective is to be one of the most responsive service
providers, particularly when providing customized communications services.
WorldCom's array of communications facilities and international relationships,
together with its extensive engineering and operations capability, provide
WorldCom with considerable flexibility in tailoring cost-effective
communications services to meet its customers' requirements. This network allows
WorldCom to implement complex permanent and temporary
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communications circuits to and from virtually any location in the world.
WorldCom relies on its decentralized management structure and the local
orientation of its operations and personnel to distinguish itself from larger,
less personalized operations. In addition, WorldCom's understanding of
international telecommunications technical and regulatory issues has often
allowed WorldCom to provide prompt solutions to the diverse communications needs
of multinational corporations, government entities and other organizations.
WorldCom expects to encounter continued competition from major domestic and
international communications companies, including AT&T, MCI and Sprint. In
addition, the Company may be subject to additional competition due to the
development of new technologies and increased availability of domestic and
international transmission capacity. The telecommunications industry is in a
period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity for
services similar to those provided by the Company. The Company cannot predict
which of many possible future product and service offerings will be important to
maintain its competitive position or what expenditures will be required to
develop and provide such products and services.
REGULATION
The Company operates in a highly regulated industry. The FCC regulates
international communications services and interstate telephone service, and
certain states, through the appropriate regulatory agency, regulate intrastate
telephone service. In addition, the Company is subject to regulation in various
foreign countries in connection with certain overseas business activities.
The regulation of the telecommunications industry is changing rapidly and
the regulatory environment varies substantially from state to state. There can
be no assurance that future regulatory changes will not have a material adverse
impact on WorldCom. Recent developments include, without limitation,
consideration by Congress of legislation that would modify the AT&T Divestiture
Decree restrictions on the provision of long distance services by the BOCs
between LATAs as defined in the AT&T Divestiture Decree (as discussed below),
consideration by the Justice Department and courts of related BOC requests for
waiver of the AT&T Divestiture Decree to permit them to provide significant
interLATA services (such as service outside their respective regions, and in
other circumstances) or for the elimination of the AT&T Divestiture Decree
altogether; FCC and PUC action changing access rates charged by LECs and making
other related changes to access and interconnection policies, certain of which
could have adverse consequences for the Company; related FCC and state
regulatory proceedings considering additional deregulation of LEC access
pricing; a pending FCC rulemaking on "billed party preference" that could affect
WorldCom's provision of operator services; and various legislative and
regulatory proceedings that would result in new local exchange competition.
Both the United States Senate and House of Representatives have passed
bills that, if enacted into legislation, would permit the BOCs to provide
domestic and international long distance services upon a finding by the FCC that
the petitioning BOC had satisfied certain criteria for opening up its local
exchange network to competition and that its provision of long distance services
would further the public interest. Both bills are scheduled to be considered by
a House-Senate conference committee shortly. Although the outcome of pending
legislation cannot be predicted, both the House and Senate bills passed with
sufficient votes to override a Presidential veto.
FCC Regulation. As a non-dominant IXC, the Company is not required to
obtain a certificate of public convenience and necessity from the FCC for its
domestic interexchange services. The FCC retains general regulatory jurisdiction
over the sale of interstate telecommunications services by IXCs, including the
requirement that calls be charged on a nondiscriminatory, just and reasonable
basis. In mid-1993, the FCC adopted rules that required nondominant IXCs to file
tariffs containing either actual rates or a reasonable range of rates. The
Company filed tariffs that on a service specific basis contained either actual
rates or a range of rates. In early 1995, an appellate court held that tariffs
could only contain actual rates, and vacated the FCC's rules authorizing range
of rate filings. The Company is in the process of making tariff modifications to
specify actual rates for its services. The Company does not believe that the
requirement of specifying actual
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rates in its tariffs with respect to the sale of interstate telecommunications
services will have a material adverse effect on the Company's consolidated
results of operations or financial position.
The Company, or one of its operating subsidiaries, could be subject to
complaints seeking damages, assessment of monetary forfeitures and/or injunctive
relief filed by any party claiming to be injured by the Company's past practices
that relied upon the FCC's tariff filing policies and rules. At this time, the
Company cannot predict either the likelihood of the filing of other such
complaints or the likelihood that such complainants would prevail in any
complaint proceeding.
Transmissions from earth stations to all satellites, transmissions from
microwave and other transmitters, reception from international satellites, and
transmission of international traffic by any means, including operator assisted
long distance service, satellite and undersea cable, must be pursuant to license
or other authorizations issued by the FCC. The Company, or an affiliate of the
Company, has operating authority or has made other suitable arrangements to
transmit and/or receive signals from all locations where it currently offers
satellite transmission and/or reception service.
Although the Company has never had a license application denied by the FCC,
there can be no assurance that it will receive all authorizations or licenses
necessary for new communications services or that delays in the licensing
process will not adversely affect the Company's business. Domestic radio
licenses issued by the FCC are for limited periods not to exceed 10 years. The
Company must seek renewal of such licenses prior to their expiration. The
Company knows of no facts that would result in the denial of any such renewals.
WorldCom monitors compliance with federal, state and local regulations governing
the discharge and disposal of hazardous and environmentally sensitive materials,
including the emission of electromagnetic radiation. WorldCom believes that it
is in compliance with such regulations, however, there can be no assurance that
any such discharge, disposal or emission might not expose WorldCom to claims or
actions that could have a material adverse effect on the Company's consolidated
results of operations or financial position.
In conjunction with its approval of the transfer of control of IDB to the
Company, the FCC indicated that a protest filed by Comsat Corporation raised
sufficient question that there might have been a prior unauthorized transfer of
control of IDB Mobile Communications, Inc. ("IDB Mobile"), an affiliate of IDB,
to Teleglobe Inc., a Canadian corporation ("Teleglobe"), for it to initiate an
investigation into IDB and Teleglobe's ownership and control of IDB Mobile. The
Company is cooperating with the investigation. Although the Company cannot
predict the outcome of the investigation, it believes that it will not result in
a material adverse effect upon the Company's consolidated results of operations
or financial position.
In October 1988, Judge Harold Greene, who oversees compliance with the AT&T
Divestiture Decree ordered the RBOCs to provide for equal access to the BOC
owned pay telephone long distance markets. The opinion accompanying the federal
court order mandating presubscription of public pay telephones envisions that
presubscription will be an interim measure pending perfection of a technical
system permitting all "0 plus" calls from public payphones to be automatically
routed to the billed party's presubscribed OSP. If implemented, "billed party
preference" could route some previously presubscribed public traffic away from
the Company. However, the technical and economic barriers to implementation of a
"billed party preference" system are such that the RBOCs have been unable and
unwilling to effect its implementation to date. A rulemaking proceeding is
currently being conducted by the FCC on "billed party preference" to determine
whether such a system will be required or if appropriate alternatives to "billed
party preference" exist. The Company cannot predict the outcome of this
proceeding. The Company is unaware of any other regulatory proceedings related
to operator services that could have a material adverse effect upon its
consolidated results of operations or financial position.
Alien Ownership. If the FCC finds the public interest will be served, the
Communications Act permits the FCC to refuse common carrier radio (including
microwave) and certain other licenses to an entity directly or indirectly
controlled by a corporation of which more than 25 percent of the capital stock
is owned by aliens or more than one-fourth of whose directors or any officers
are aliens, or to revoke a license granted to such entity. The Communications
Act also prohibits any entity more than 20 percent of whose capital stock is
owned by aliens or whose directors or officers are aliens from receiving or
holding a license in the common carrier radio (including microwave) and certain
other services. Through examination of a recent list of the
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record owners of the Company's Common Stock, the Company is not aware of alien
ownership of its stock that would cause it to be in violation of the
Communications Act.
The FCC is conducting a rulemaking proceeding in which it has proposed
guidelines for the public interest analysis statutorily required when a common
carrier holding company proposes to exceed the 25 percent alien ownership
benchmark described in the preceding paragraph. Under the FCC's proposal, an
important element (but not the only element) in the public interest
determination would be whether the primary market(s) of the foreign countr(ies)
in which the alien is a citizen or conducts substantial business offer effective
market access to U.S. citizens to provide common carrier services. In addition,
legislation currently pending before Congress would liberalize the statutory
alien ownership restrictions. The results of the FCC's rulemaking proceeding, as
well as whether and to what extent alien ownership reform legislation will be
enacted, cannot be predicted at this time.
State Regulation. The Company's intrastate long distance telecommunications
operations are subject to various state laws and regulations including, in many
jurisdictions, certification requirements. Generally, the Company must obtain
and maintain certificates of public convenience and necessity from regulatory
authorities in most states in which it offers intrastate long distance services.
In most of these jurisdictions the Company must also file and obtain prior
regulatory approval of tariffs for its intrastate offerings. The Company
provides intrastate services in 45 states. The Company has applied for a
certificate of public convenience and necessity in three additional states. Upon
grant of those applications, the Company will be authorized to provide
intrastate services in each of the 48 contiguous states.
EMPLOYEES
As of June 30, 1995, the Company employed approximately 7,400 persons.
Substantially all of the Company's employees are not represented by any labor
union.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the purchase, ownership and disposition of WorldCom Common Stock
by a holder that, for United States Federal income tax purposes, is not a
"United States person" (a "Non-United States Holder"). For purposes of this
discussion, a "United States person" means a citizen or resident of the United
States; a corporation, partnership, or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof; or an estate or trust whose income is includible in gross
income for United States Federal income tax purposes regardless of its source.
This discussion does not purport to be a complete analysis of the purchase,
ownership and disposition of the WorldCom Common Stock, and does not address all
of the tax considerations that may be relevant to particular investors in light
of their individual circumstances or to holders subject to special treatment
under United States Federal income tax laws, including financial institutions,
tax-exempt organizations and insurance companies. In addition, this discussion
does not address the application or effect of any state, local, foreign or other
tax laws. This discussion is based upon the United States Federal income tax law
now in effect, all of which is subject to change, possibly with retroactive
effect. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE WORLDCOM COMMON STOCK.
Dividends. Dividends paid on the WorldCom Common Stock to a Non-United
States Holder will generally be subject to withholding of United States Federal
income tax at the rate of 30% unless the dividend is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder, in which case the dividend will be subject to the United States
Federal income tax on net income that applies to United States persons generally
(and, with respect to corporate holders and under certain circumstances, the
branch profits tax). Non-United States Holders should consult any applicable
income tax treaties, which may provide for a lower rate of withholding or other
rules different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in
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order to claim treaty benefits or otherwise claim a reduction of, or exemption
from, the withholding obligations pursuant to the above described rules.
Gain on Disposition. A Non-United States Holder will generally not be
subject to United States Federal income tax on gain recognized on a sale or
other disposition of WorldCom Common Stock unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder or (ii) in the case of a Non-United States Holder
who is a nonresident alien individual and holds the WorldCom Common Stock as a
capital asset, such holder is present in the United States for 183 or more days
in the taxable year and certain other requirements are met. Gain that is
effectively connected with the conduct of a trade or business within the United
States by the Non-United States Holder will be subject to the United States
Federal income tax on net income that applies to United States persons generally
(and, with respect to corporate holders and under certain circumstances, the
branch profits tax) but will not be subject to withholding. Non-United States
Holders should consult applicable treaties, which may provide for different
rules.
Federal Estate Taxes. WorldCom Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as specially defined for United
States Federal estate tax purposes) of the United States at the date of death
will be included in such individual's estate for United States Federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding. Under temporary United States
Treasury regulations, United States information reporting requirements and
backup withholding tax will generally not apply to dividends paid on the
WorldCom Common Stock to a Non-United States Holder at an address outside the
United States. Payments by a United States office of a broker of the proceeds of
a sale of the WorldCom Common Stock are subject to both backup withholding at a
rate of 31% and information reporting unless the holder certifies its Non-United
States Holder status under penalties of perjury or otherwise establishes an
exemption. Information reporting requirements (but not backup withholding) will
also apply to payments of the proceeds of sales of the WorldCom Common Stock by
foreign offices of United States brokers, or foreign brokers with certain types
of relationships to the United States, unless the broker has documentary
evidence in its records that the holder is a Non-United States Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, the
underwriters named below (the "Underwriters") have severally agreed to purchase
from the Selling Stockholder 30,855,983 shares of WorldCom Common Stock. The
number of Common Shares that each Underwriter has agreed to purchase is set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
-------------------------------------------------------------- -------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........... 27,405,983
Lehman Brothers............................................... 460,000
Bear, Stearns & Co. Inc. ..................................... 460,000
Deutsche Morgan Grenfell/C.J. Lawrence Inc. .................. 460,000
Lazard Freres & Co. LLC....................................... 460,000
Advest, Inc. ................................................. 230,000
First Manhattan Co............................................ 230,000
Furman Selz Incorporated...................................... 230,000
Ladenburg, Thalmann & Co. Inc. ............................... 230,000
Legg Mason Wood Walker Incorporated........................... 230,000
The Robinson-Humphrey Company, Inc. .......................... 230,000
Tucker Anthony Incorporated................................... 230,000
----------
Total............................................... 30,855,983
==========
</TABLE>
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The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Shares offered hereby
are subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all the Common
Shares offered hereby if any are taken.
The Underwriters have advised the Selling Stockholder that the Underwriters
propose to offer the Common Shares directly to the public initially at the
public offering price set forth on the cover page of this Prospectus Supplement
and to certain dealers at such price less a concession not in excess of $0.63.
Any Underwriter may allow, and such dealers may reallow, a discount not in
excess of $0.10 to any other Underwriter and to certain other dealers. After the
initial public offering of the Common Shares, the public offering price and
other selling terms may be changed by the Underwriters.
The Company, on behalf of itself and its subsidiaries, and the Selling
Stockholder have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments the Underwriters may be required to make in respect thereof.
GLOSSARY
ACCESS CHARGES -- Expenses incurred by an IXC and paid to LECs for accessing the
local networks of the LECs in order to originate and terminate long distance
calls.
AT&T -- AT&T COMMUNICATIONS, INC. -- An IXC wholly-owned by American Telephone
and Telegraph Company which provides interexchange services and facilities on a
nationwide and international basis.
AT&T DIVESTITURE DECREE -- Entered on August 24, 1982, by the United States
District Court for the District of Columbia. The AT&T Divestiture Decree, among
other things, ordered AT&T to divest its wholly-owned BOCs from its Long Lines
Division and manufacturing operations and generally prohibited BOCs from
providing long distance telephone service between LATAs.
BOC -- BELL SYSTEM OPERATING COMPANY -- A local exchange carrier owned by any of
the seven Regional Bell Operating Companies, which are holding companies
established following the AT&T Divestiture Decree to serve as parent companies
for the BOCs.
EQUAL ACCESS -- Connection provided by a LEC permitting a customer to be
automatically connected to the IXC of the customer's choice when the customer
dials "1".
FCC -- Federal Communications Commission.
INBOUND "800" SERVICE -- A service that assesses long distance telephone charges
to the called party.
IXC -- INTEREXCHANGE CARRIER -- A long distance carrier providing services
between local exchanges.
LATAS -- LOCAL ACCESS AND TRANSPORT AREAS -- The approximately 200 geographic
areas defined pursuant to the AT&T Divestiture Decree between which the BOCs are
generally prohibited from providing long distance service.
LEC -- LOCAL EXCHANGE CARRIER -- A company providing local telephone services.
Each BOC is a LEC.
LINE COSTS -- Primarily includes the sum of access charges and transport
charges.
LOCAL EXCHANGE -- A geographic area generally determined by a PUC, in which
calls generally are transmitted without toll charges to the calling or called
party.
MCI -- MCI TELECOMMUNICATIONS CORPORATION -- An IXC which provides interexchange
services on a nationwide and international basis.
NETWORK SWITCHING CENTER -- A location where installed switching equipment
routes long distance calls and records information with respect to calls such as
the length of the call and the telephone numbers of the calling and called
parties.
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OSP -- OPERATOR SERVICE PROVIDER -- Any common carrier or other person providing
any automatic or live assistance to a consumer to arrange for billing or
completion, or both, of a telephone call initiated from an aggregator location,
other than by means of automatic completion of the call with billing to the
originating telephone or completion through an access code used by the consumer
with billing to a previously established account.
PTT -- POST TELEPHONE AND TELEGRAPH ADMINISTRATION -- The PTTs, usually
controlled by their governments, provide telephone and telecommunications
services in most foreign countries.
PUC -- PUBLIC UTILITY COMMISSION -- A state regulatory body empowered to
establish and enforce rules and regulations governing public utility companies
and others, such as the Company in many of its state jurisdictions (sometimes
referred to as Public Service Commissions, or PSCs).
RBOC -- REGIONAL BELL OPERATING COMPANY -- Any of seven regional Bell holding
companies which the AT&T Divestiture Decree established to serve as parent
companies for the BOCs.
SPRINT -- SPRINT CORPORATION -- An IXC which provides interexchange services on
a nationwide and international basis.
SUBSCRIBERS -- Commercial and residential customers for which an IXC provides
direct dial long distance telephone service. For operator assisted long distance
telephone service, "Subscribers" refer to owners of pay telephones, owners of
premises on which pay telephones are located, and multi-telephone facilities
such as hotels and hospitals with which an OSP contracts to process and transmit
operator assisted long distance telephone calls.
TARIFF -- The schedule of rates and regulations set by communications common
carriers and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing provision
of a specific communications service or facility, which functions in lieu of a
contract between the Subscriber or user and the supplier or carrier.
TRANSPORT CHARGES -- Expenses paid to facilities-based carriers for transmission
of calls between or within LATAs.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus Supplement and the accompanying Prospectus incorporate
documents by reference which are not presented herein or delivered herewith, as
indicated below. The Company will provide without charge to each person to whom
a copy of this Prospectus Supplement and the accompanying Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the documents referred to below which are incorporated herein by reference
(other than exhibits to such documents unless they are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to Scott D. Sullivan, Treasurer and Chief Financial Officer, WorldCom, Inc., 515
East Amite Street, Jackson, Mississippi 39201-2702; telephone number (601)
360-8600.
The following documents filed with the Commission by the Company (formerly
Resurgens Communications Group, Inc. ("Resurgens")) under File No. 0-11258
(formerly File No. 1-10415) pursuant to the Exchange Act are incorporated herein
by reference: (1) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (the "1994 Form 10-K"); (2) the Company's Report by
Issuer of Securities Quoted on NASDAQ on Form 10-C dated May 25, 1995, the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995
and June 30 1995, and the Company's Current Report on Form 8-K dated August 14,
1995 (filed August 14, 1995) (the "August Form 8-K"); (3) audited financial
statements as of December 31, 1994 and 1993 and for each of the three years in
the period ended December 31, 1994 of the network services operations of
Williams Telecommunications Group, Inc. ("WilTel"), including WilTel, Inc.,
WilTel Undersea Cable, Inc. and WilTel International Inc., which are
wholly-owned subsidiaries of WilTel (collectively "WilTel Network Services"),
included in the Company's Current Report on Form 8-K dated August 22, 1994
(filed September 8, 1994) (as amended by Current Reports on Form 8-K/A filed
November 17, 1994, November 28, 1994 and April 19, 1995); and (4) the
description of the Company's (formerly Resurgens') Common Stock as contained in
Item 1 of Resurgens' Registration Statement on Form 8-A dated December 12, 1989,
as updated by the descriptions contained in Amendment No. 2 of Resurgens'
Registration Statement on Form S-4 (File No. 33-62746), as declared effective by
the Commission on August 11, 1993, which includes the Joint Proxy
Statement/Prospectus (the "1993 Joint Proxy Statement/Prospectus") with respect
to Resurgens' Annual Meeting of Shareholders held
on September 14, 1993, under the following captions: "Proposals No. 1 and
2 -- The Proposed Mergers -- Description of the Series 1 Preferred Stock,"
"-- Description of the Series 2 Preferred Stock," "-- Special Redemption
Provisions," "Information Regarding Resurgens -- Description of Resurgens
Capital Stock," and "-- Amendments to Resurgens' Restated Articles of
Incorporation -- LDDS Merger Agreement" and the August Form 8-K. Any other
financial statements filed with the Commission prior to the filing of the 1994
Form 10-K shall not be deemed to be incorporated herein by reference.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this
Prospectus Supplement and accompanying Prospectus and prior to the termination
of the offering of the Common Shares offered hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such documents. See "Available Information." Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus Supplement
and the accompanying Prospectus to the extent that a statement contained herein
or in any subsequently filed document incorporated or deemed to be incorporated
herein by reference, which statement is also incorporated herein by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement and the accompanying Prospectus.
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PROSPECTUS
LDDS COMMUNICATIONS, INC.
(FORMERLY RESURGENS COMMUNICATIONS GROUP, INC.)
10,896,785 SHARES OF SERIES 1 $2.25 CUMULATIVE SENIOR
PERPETUAL CONVERTIBLE PREFERRED STOCK
14,817,998 SHARES OF COMMON STOCK
The 10,896,785 shares (the "Preferred Shares") of Series 1 $2.25 Cumulative
Senior Perpetual Convertible Preferred Stock (the "Series 1 Preferred Stock")
and the 14,817,998 shares (the "Common Shares") of Common Stock (the "Common
Stock") of LDDS Communications, Inc., which conducts business under the name
"LDDS Metromedia Communications" (the "Company"), formerly Resurgens
Communications Group, Inc. ("Resurgens"), offered hereby are being offered for
the account of Metromedia Company (the "Selling Stockholder"). The Company will
not receive any proceeds from the sale of such securities. See "Selling
Stockholder."
The Selling Stockholder may sell the Common Shares offered hereby from time
to time through the NASDAQ National Market System, or such other national
securities exchange or automated interdealer quotation system on which shares of
Common Stock are then listed, through negotiated transactions or otherwise at
market prices prevailing at the time of the sale or at negotiated prices. The
Selling Stockholder may sell the Preferred Shares offered hereby from time to
time on such national securities exchange or automated interdealer quotation
system on which shares of Series 1 Preferred Stock are then listed, through
negotiated transactions or otherwise at market prices prevailing at the time of
the sale or at negotiated prices. The Selling Stockholder directly, or through
agents designated from time to time, or through dealers or underwriters also to
be designated, may sell the Preferred Shares or the Common Shares from time to
time on terms to be determined at the time of sale. To the extent required, the
purchase price, the public offering price, the names of any such agent, dealer
or underwriter, and any applicable commission of discount with respect to a
particular offering will be set forth in an accompanying Prospectus Supplement.
As of the date of this Prospectus, no agreements have been reached for the sale
of the Preferred Shares or the Common Shares or the amount of any compensation
to be paid to broker-dealers in connection therewith. The Company has agreed to
bear all expenses in connection with the registration and sale of the Preferred
Shares and the Common Shares being offered by the Selling Stockholder, other
than commissions, concessions or discounts to brokers or dealers and fees and
expenses of counsel or other advisors to the Selling Stockholder. See "Plan of
Distribution."
The Common Stock of the Company is quoted currently on the NASDAQ National
Market System under the trading symbol "LDDS." Prior to September 15, 1993, the
Common Stock of the Company was listed on the American Stock Exchange. On
September 13, 1993, the last reported sale price of the Common Stock on the
American Stock Exchange was $44 1/4 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 15, 1993
<PAGE> 36
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO PURCHASE
ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALES HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................................. 2
Incorporation of Certain Documents by Reference........................................ 2
The Company............................................................................ 4
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.............. 5
Selling Stockholder.................................................................... 5
Plan of Distribution................................................................... 6
Legal Matters.......................................................................... 7
Experts................................................................................ 7
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621-2511 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549.
Additional information regarding the Company, the Preferred Shares and the
Common Shares offered hereby is contained in the Registration Statement (of
which this Prospectus forms a part) and the exhibits relating thereto filed by
the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act.") For further information pertaining to the Company, the
Preferred Shares and the Common Shares offered hereby, reference is made to the
Registration Statement and the exhibits thereto, which may be inspected without
charge at, and copies thereof may be obtained at prescribed rates from, the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents filed by the
Company with the Commission which are not presented herein or delivered
herewith, as indicated below. The Company will provide without charge to each
person to whom a copy of this Prospectus has been delivered, on the written or
oral request of such person, a copy of any or all of the documents referred to
below which are incorporated in this Prospectus by reference (other than
exhibits to such documents unless they are specifically incorporated by
reference into such documents). Requests for such copies should be directed to
Charles T. Cannada, Chief Financial Officer, LDDS Communications, Inc., 515 East
Amite Street, Jackson, Mississippi 39201-2702; telephone number (601) 360-8600.
2
<PAGE> 37
The following documents filed by the Company (formerly Resurgens
Communications Group, Inc.) with the Commission pursuant to the Exchange Act
under File No. 1-10415 hereby are incorporated by reference into this
Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended June 30,
1992, which was filed under cover of Form 8 on October 10, 1992 and amended
under cover of Form 8 on October 27, 1992 and Form 10-K/As on July 13, 1993
and August 4, 1993.
(b) Quarterly Report on Form 10-Q for the quarters ended September 30,
1992, December 31, 1992 and March 31, 1993, each of which was amended by
Form 10-Q/A on July 13, 1993.
(c) Current Reports on Form 8-K dated February 4, 1992 (filed on
February 11, 1992), August 12, 1992 (filed on August 20, 1992), August 19,
1992 (filed on August 20, 1992), September 2, 1992 (filed on September 16,
1992), October 23, 1992 (filed on October 26, 1992), January 18, 1993
(filed on January 27, 1993), February 25, 1993 (filed on March 4, 1993),
March 26, 1993 (filed on April 6, 1993), May 14, 1993 (filed on May 24,
1993), July 13, 1993 (filed on July 16, 1993) and September 13, 1992 (filed
on September 14, 1993).
(d) The description of the Company's Common Stock as contained in Item
1 of the Company's Registration Statement on Form 8-A dated December 12,
1989, and any amendment or report filed for the purpose of updating such
description.
Also incorporated by reference into this Prospectus is the following
document filed by the Company with the Commission pursuant to the Securities
Act:
Amendment No. 2 to the Registration Statement on Form S-4 (File No.
33-62746), as declared effective by the Commission on August 11, 1993, which
includes the Joint Proxy Statement/Prospectus with respect to the Company's
Annual Meeting of Shareholders held on September 14, 1993, (the "Joint Proxy
Statement/Prospectus"), but excluding the material set forth under the following
captions:
"Summary Information -- Opinion of Resurgens' Financial Advisors" and
"-- Opinion of LDDS' Financial Advisor"
"Proposals No. 1 and 2 -- The Proposed Merger -- Opinions of Financial
Advisors -- Resurgens-M/R Merger," "-- Resurgens-LDDS Merger" and "LDDS"
"Appendix C -- Fairness Opinion of J. C. Bradford & Co."
"Appendix D -- Fairness Opinion of Donaldson, Lufkin & Jenrette
Securities Corporation"
"Appendix E -- Fairness Opinion of Breckenridge Securities Corp."
All documents filed by the Company pursuant to Sections 13(a), 13(c) 14 or
15(d) of the Exchange Act on or after the date of this Prospectus and prior to
the termination of the offering of the Preferred Shares and the Common Shares
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
3
<PAGE> 38
THE COMPANY
The Company (formerly Resurgens Communications Group, Inc.), doing business
as LDDS Metromedia Communications under a limited license, is the surviving
corporation of two successive mergers with Metromedia Communications
Corporation, a Delaware corporation ("MCC"), and LDDS Communications, Inc., a
Tennessee corporation ("LDDS"). On January 18, 1993, Resurgens and MCC entered
into an Agreement and Plan of Merger, which agreement was subsequently amended
on March 26, 1993 and May 14, 1993 (the "M/R Merger Agreement"). The M/R Merger
Agreement provided for the merger of MCC with and into Resurgens (the "M/R
Merger"), with Resurgens being the surviving corporation of the M/R Merger ("M/R
Corp."). Additionally, on May 14, 1993, Resurgens, MCC and LDDS entered into an
Agreement and Plan of Merger, which was subsequently amended on August 4, 1993
(the "LDDS Merger Agreement'). The LDDS Merger Agreement provided for the merger
of LDDS with and into M/R Corp. (the "LDDS Merger"), with M/R Corp., renamed
"LDDS Communications, Inc.", being the surviving corporation of the LDDS Merger.
On September 14, 1993, the Resurgens shareholders approved the M/R Merger
Agreement and the LDDS Merger Agreement at Resurgens' Annual Meeting of
Shareholders. Additionally, on September 14, 1993, the LDDS shareholders
approved the LDDS Merger at a Special Meeting of Shareholders. On September 15,
1993, the M/R Merger was effected through the issuance of common stock, warrants
and a demand note, and the LDDS Merger was effected through the issuance of
Common Stock and voting perpetual preferred stock, including the Preferred
Shares. See "Selling Stockholder."
Upon consummation of the M/R Merger and the LDDS Merger, the Company, as
the surviving corporation, assumed all of the business and operations of
Resurgens, LDDS and MCC and offers long distance telecommunications services
throughout the continental United States. The pro forma income statement of the
Company for the fiscal year ended December 31, 1992 reflects revenues of $1.4
billion, operating income of $211.0 million before amortization and depreciation
of $128.8 million and restructuring and other charges of $79.8 million, and a
net loss of $69.5 million before an extraordinary item of $5.8 million, which
amounts include the pre-acquisition results of companies acquired by LDDS since
the beginning of its current fiscal year.
A description of the M/R Merger and the LDDS Merger is more fully described
in the Company's Current Report on Form 8-K dated May 14, 1993 (filed with the
Commission on May 24, 1993) and the Joint Proxy Statement/Prospectus, with
respect to the shareholders' meetings held in connection with the mergers. All
or portions of such documents are incorporated by reference into this
Prospectus, and copies are available upon request to the Company (see
"Incorporation of Certain Documents by Reference").
As of September 15, 1993, there were approximately 58,716,234 shares of
Common Stock outstanding. The Company was organized under the laws of the State
of Georgia in June 1983. The Company's executive offices are located at 515 East
Amite Street, Jackson, Mississippi 39201-2702. The Company's telephone number is
(601) 360-8600.
4
<PAGE> 39
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends for each of the five years ended December
31, 1992 and for the six months ended June 30, 1993, which ratios are based on
the historical consolidated financial statements of LDDS. The table also sets
forth the pro forma combined data for the year ended December 31, 1992 and the
six months ended June 30, 1993, which data give effect to the LDDS Merger as if
it occurred on January 1, 1992. The LDDS Merger was accounted for as a purchase
transaction. For accounting purposes only, LDDS is deemed to be the surviving
corporation of the LDDS Merger. The pro forma combined data are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the date indicated above nor do they
purport to indicate results which may be attained in the future.
<TABLE>
<CAPTION>
LDDS HISTORICAL PRO FORMA COMBINED
------------------------------------------- -----------------------
SIX SIX
MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED ENDED
------------------------------------------- JUNE 30, DECEMBER 31, JUNE 30,
1992 1991 1990 1989 1988 1993 1992 1993
------- ------ ------ ------ ------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends............ 0.92:1 2.27:1 2.38:1 2.12:1 2.55:1 3.34:1 0.22:1 1.39:1
Deficiency of Earnings to
Combined Fixed Charges and
Preferred Stock Dividends
(in thousands)............. $(2,300) -- -- -- -- -- $(69,749) --
</TABLE>
For the purpose of computing the ratio of earnings to combined fixed
charges and preferred stock dividends, earnings consist of income (loss) from
continuing operations and fixed charges and preferred stock dividends, and fixed
charges consist of interest (including capitalized interest, but excluding
amortization amounts previously capitalized) on all indebtedness, amortization
of debt discount and expense and that portion of rental expense which the
Company believes to be representative of interest. A statement setting forth the
unaudited computations of the consolidated ratio of earnings to combined fixed
charges and preferred stock dividends is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
SELLING STOCKHOLDER
The Selling Stockholder is Metromedia Company, a Delaware general
partnership whose general partners are Stuart Subotnick and a trust affiliated
with John W. Kluge. All of the Preferred Shares and the Common Shares offered
hereby are being offered for the account of Metromedia Company, the Selling
Stockholder. The Company will not receive any of the proceeds from the sales of
such securities.
The Selling Stockholder was the sole shareholder of MCC and at the
effective time of the M/R Merger received (i) 13,958,571 shares of
newly-authorized Class A common stock, par value $.01 per share of M/R Corp.
(the "Class A Common Stock"), (ii) warrants to purchase an aggregate of
2,500,200 shares of Class A Common Stock (the "Metromedia Warrants"), consisting
of currently exercisable warrants to purchase 1,250,100 shares of Class A Common
Stock at $15.50 per share which may be exercised at any time on or prior to May
12, 1995 and currently exercisable warrants to purchase 1,250,100 shares of
Class A Common Stock at $17.90 per share which may be exercised at any time on
or prior to May 12, 1997 and (iii) a $150,000,000 demand note of M/R Corp. (the
"Demand Note").
Each outstanding share of the Class A Common Stock was convertible into one
share of Common Stock. Immediately following the M/R Merger and immediately
prior to the LDDS Merger, the Selling Stockholder converted 1,379,310 shares of
the Class A Common Stock into 1,379,310 shares of Common Stock all of which
shares are offered hereby.
5
<PAGE> 40
At the effective time of the LDDS Merger, the Selling Stockholder received
10,896,785 shares of Series 1 Preferred Stock (the "Preferred Shares") in
exchange for its shares of Class A Common Stock outstanding immediately prior to
the LDDS effective time, which number was determined by multiplying the
aggregate number of shares of Class A Common Stock outstanding immediately prior
to the LDDS effective time by $43.3125, the average last sale price for the
Common Stock on the American Stock Exchange for the 20 consecutive trading days
immediately prior to the trading day immediately prior to the LDDS effective
time and dividing such product by 50 or the liquidation preference for the
Preferred Shares. The Preferred Shares are convertible at anytime into
10,938,488 shares of Common Stock. Additionally, at the effective time of the
LDDS Merger, the Demand Note was paid in full and the terms of the Metromedia
Warrants were amended to provide that the Metromedia Warrants are exercisable on
the same terms and conditions (including number of shares and exercise price)
for shares of Common Stock in lieu of shares of Class A Common Stock.
In summary, following the effective time of the LDDS Merger, the Selling
Stockholder beneficially owned (i) 10,896,785 Preferred Shares, which
constituted 100% of the outstanding shares of Series 1 Preferred Stock, and (ii)
14,821,433 Common Shares, or approximately 19.2% of the presently outstanding
shares of Common Stock (on a fully diluted basis), consisting of 10,938,488
Common Shares issuable upon the conversion of the Preferred Shares, 1,379,310
Common Shares received upon the conversion of certain shares of the Class A
Common Stock, and 2,503,635 Common Shares issuable upon the exercise of warrants
(the Metromedia Warrants and other warrants to purchase 3,435 shares of Common
Stock at an exercise price of $10.00 per share). If all of the Preferred Shares
and the Common Shares offered by the Selling Stockholder hereby are sold, the
Selling Stockholder will have no beneficial ownership of any shares of the
Company's capital stock.
PLAN OF DISTRIBUTION
The Preferred Shares and the Common Shares may be sold from time to time by
the Selling Stockholder, or by pledgees, donees, transferees or other successors
in interest. Such sales may be made through the NASDAQ National Market System,
with respect to the Common Shares, or such other national securities exchange or
automated interdealer quotation system on which shares of Common Stock or Series
1 Preferred Stock are then listed, through negotiated transactions or otherwise
at prices and at terms then prevailing or at prices related to the then current
market price or at negotiated prices. All sales of the Preferred Shares and the
Common Shares shall be effected by or through underwriters, brokers or dealers
and the Preferred Shares and the Common Shares may be sold by one or more of the
following: (a) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (b) purchases by an underwriter, a broker or a
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; and (c) through the writing of options on the Preferred
Shares and the Common Shares. If necessary, a supplemental prospectus which
describes the method of sale in greater detail may be filed by the Company with
the Commission pursuant to Rule 424(c) under the Securities Act under certain
circumstances. In effecting sales, underwriters, brokers or dealers engaged by
the Selling Stockholder and/or the purchasers of the Preferred Shares and the
Common Shares may arrange for other underwriters, brokers or dealers to
participate. Brokers or dealers will receive commissions, concessions or
discounts from the Selling Stockholder and/or the purchasers of the Preferred
Shares and the Common Shares in amounts to be negotiated immediately prior to
the sale. In addition, any of the Preferred Shares and the Common Shares covered
by this Prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus.
The Company has agreed to bear all expenses in connection with the
registration and sale of the Preferred Shares and the Common Shares, other than
commissions, concessions or discounts to brokers or dealers and fees and
expenses of counsel or other advisors to the Selling Stockholder.
The Selling Stockholder and any underwriter, broker or dealer who acts in
connection with the sale of the Preferred Shares and the Common Shares hereunder
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any compensation received by them and any profit on any
6
<PAGE> 41
resale of the Preferred Shares and the Common Shares as principals might be
deemed to be underwriting discounts and commissions under the Securities Act.
Pursuant to a Registration Rights Agreement, the Company has agreed to indemnify
the Selling Stockholder against certain liabilities, including liabilities under
the Securities Act as underwriters or otherwise.
LEGAL MATTERS
The legality of the Preferred Shares and the Common Shares offered hereby
has been passed upon for the Company by Long, Aldridge & Norman, Atlanta,
Georgia. Long, Aldridge & Norman beneficially owned 46,465 shares of Common
Stock at September 15, 1993.
EXPERTS
The consolidated financial statements and related schedules of the Company
at June 30, 1992 and 1991, and for each of the three fiscal years in the period
ended June 30, 1992 included or incorporated by reference, have been audited by
Ernst & Young, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and schedules of LDDS as of December
31, 1992 and 1991 and for each of the years in the three year period ended
December 31, 1992 have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference, in reliance upon the authority of such firm as
experts in accounting and auditing in giving said reports.
The consolidated financial statements and related schedules of MCC as of
December 31, 1992 and 1991 and for each of the years in the three year period
ended December 31, 1992 incorporated by reference herein, have been incorporated
by reference herein, in reliance upon the reports of KPMG Peat Marwick,
independent certified public accountants, incorporated herein by reference, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated balance sheets at December 31, 1990 and 1989 of Com
Systems, Inc. and the consolidated statements of operations, stockholders'
deficit and cash flows for each of the two years in the period ended December
31, 1990 incorporated by reference in the Company's Form 8-K dated February 4,
1992 have been incorporated by reference herein in reliance on the report, which
includes an explanatory paragraph as to Com Systems, Inc.'s ability to continue
as a going concern, of Coopers & Lybrand, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated financial statement of Com Systems, Inc. and subsidiaries
as of and for the year ended December 31, 1988 incorporated by reference in the
Company's Form 8-K dated February 4, 1992 have been audited by Grant Thornton,
independent certified public accountants, as indicated in their report thereon
which has been incorporated by reference herein, and have been so included in
reliance upon the authority of said firm as experts in accounting and auditing.
7
<PAGE> 42
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUPPLEMENT
Available Information................. S-2
Prospectus Supplement Summary......... S-3
Risk Factors.......................... S-6
Price Range of Common Stock and
Dividend Policy..................... S-11
Capitalization........................ S-12
Selected Consolidated Historical and
Pro Forma Financial Data............ S-13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-15
Business.............................. S-22
Certain United States Federal Income
Tax Considerations For Non-U.S.
Holders............................. S-30
Underwriting.......................... S-31
Glossary.............................. S-32
Incorporation of Certain Documents
by Reference........................ S-34
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents
by Reference........................ 2
The Company........................... 4
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends..................... 5
Selling Stockholder................... 5
Plan of Distribution.................. 6
Legal Matters......................... 7
Experts............................... 7
</TABLE>
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30,855,983 SHARES
[LOGO]
WORLDCOM, INC.
COMMON STOCK
------------------------
PROSPECTUS
SUPPLEMENT
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
AUGUST 18, 1995
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