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Filed Pursuant To Rule 424(b)(3)
Registration No. 33-69122
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 18, 1993)
WorldCom, Inc.
999,705 Shares of Series 2 6.50% Cumulative Senior
Perpetual Convertible Preferred Stock
2,115,919 Shares of Common Stock
All of the 999,705 shares (the "Preferred Shares") of Series 2 6.50%
Cumulative Senior Perpetual Convertible Preferred Stock (the "Series 2
Preferred Stock") and the 2,115,919 shares (the "Common Shares," collectively
with the Preferred Shares, the "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 The
1818 Fund, L.P. (the "Selling Shareholder"). The Common Shares represent
shares of WorldCom Common Stock issuable upon conversion of the Preferred
Shares. If all the Shares offered hereby are sold, the Selling Shareholder
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 Shares.
All expenses incurred in connection with this Offering are being borne by the
Company, other than any commissions or discounts paid or allowed by the Selling
Shareholder to underwriters, dealers, brokers or agents.
The Series 2 Preferred Stock is entitled to receive cumulative dividends at
the rate of $1.625 per share annually (6.5% of the liquidation preference (the
"Liquidation Preference") of $25 per share), payable quarterly. Unless
previously redeemed, the Series 2 Preferred Stock is convertible at the option
of the holder at any time into shares of WorldCom Common Stock at a conversion
price of $11.81171 per share of WorldCom Common Stock (2.116543 shares of
WorldCom Common Stock per share of Series 2 Preferred Stock), subject to
adjustment in certain conditions. The Series 2 Preferred Stock may be
redeemed, subject to certain restrictions and conditions, at the Company's sole
option, in whole or in part, in integral multiples of $10.0 million, on and
after June 5, 1996 at 108% of the Liquidation Preference, if redeemed during
the twelve-month period beginning June 5, 1996, and thereafter at prices
declining annually to 100% of the Liquidation Preference on or after June 5,
2002, together with accrued and unpaid dividends to the date of redemption.
Holders of the Series 2 Preferred Stock are entitled to cast votes on all
matters voted on by holders of WorldCom Common Stock on an as-if-converted
basis. The Company has the right to exchange the outstanding shares of Series
2 Preferred Stock, in integral multiples of $10.0 million, for 6.5% Convertible
Subordinated Notes due June 5, 1998. At any time on or after May 6, 1997, to
and including May 6, 2002, holders of 50% or more of the outstanding shares of
Series 2 Preferred Stock have the right to require the Company to exchange all
of the shares of Series 2 Preferred Stock for notes having a floating interest
rate or for WorldCom Common Stock, or any combination of the two, at the option
of the Company. In the event the Company fails to pay the required dividends
with respect to the Series 2 Preferred Stock for two quarterly dividend
periods, holders of Series 2 Preferred Stock shall elect a director to the
Company's Board of Directors to serve until such time as the dividends have
been paid in full or upon conversion or exchange of the Series 2 Preferred
Stock. See "Description of Capital Stock -- Description of Series 2 Preferred
Stock" in the accompanying Prospectus.
The Selling Shareholder directly, or through agents designated from time to
time, or through dealers or underwriters also to be designated, may sell the
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Shares from time to time on terms to be determined at the time of sale. To the
extent required, the purchase price, public offering price, the names of any
such agent, dealer or underwriter, and any applicable commission or discount
with respect to a particular offering will be set forth in an additional
Prospectus Supplement. The aggregate proceeds to the Selling Shareholder from
the sale of the Shares will be the purchase price thereof less the aggregate
agent's commission or underwriter's discount, if any, and other expenses of
distribution not borne by the Company. Sales of the Shares may also be made
through negotiated transactions or otherwise. The Selling Shareholder and the
brokers and dealers through which the sales of the Shares may be made may be
deemed to be "underwriters," as defined in the Securities Act of 1933, as
amended, and their commissions and discounts and other compensation may be
regarded as underwriters' compensation. See "Plan of Distribution" contained
in the accompanying Prospectus.
Prior to the offering, there has been no public market for the
Series 2 Preferred Stock, and there can be no assurance one will develop. 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 September 6, 1995 was $32.75 per
share.
See "Risk Factors" on page S-4 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.
The date of this Prospectus Supplement is September 7, 1995.
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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. 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.
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 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 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.
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TABLE OF CONTENTS
Supplement
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends . 12
Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Incorporation of Certain Documents By Reference . . . . . . . . . . . . . . 14
Prospectus
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation By Reference. . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . 5
Description of Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . 6
Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Plan Of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
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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 Shares offered hereby.
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 acquisition of the network services operations of
Williams Telecommunications Group, Inc. ("WilTel") 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 Communications Group, Inc. ("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.
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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 integration
with the Company's operations, or that the efficiencies and growth
opportunities anticipated as a result of 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
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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 plaintiffs
against IDB or 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
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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.
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 "Item 1 -- Business -- Transmission
Facilities" contained in the 1994 Form 10-K, which is hereby incorporated
herein by reference.
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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 restrictions (as
set forth in the AT&T Divestiture Decree entered into on August 24, 1982 by the
United States District Court for the District of Columbia (the "AT&T
Divestiture Decree")) on the provision of long distance services between the
approximately 200 geographic local access and transport areas ("LATAs") defined
in the AT&T Divestiture Decree, by the Bell System Operating Companies
("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 Federal Communication
Commission ("FCC") or Public Utility Commissions (the "PUCs") changing access
rates charged by local exchange carriers ("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 LECs 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 telecommunication 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
<PAGE> 10
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 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 "Item 1 -- Business -- Regulation" contained in the
1994 Form 10-K, which is hereby incorporated herein by reference.
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
interexchange carriers ("IXCs"), including AT&T Communications, Inc. ("AT&T"),
MCI Telecommunications Corporation ("MCI") and Sprint Corporation ("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 "Item 1 -- Business -- Competition" contained in the 1994 Form
10-K, which is hereby incorporated herein by reference.
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
<PAGE> 11
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
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
14, 1995 Form 8-K (as hereinafter defined), which are hereby incorporated
herein by reference.
RECENT DEVELOPMENTS
On August 23, 1995, Metromedia Company ("Metromedia") converted its
Series 1 $2.25 Cumulative Senior Perpetual Convertible Preferred Stock (the
"Series 1 Preferred Stock") of the Company into 21,876,976 shares of WorldCom
Common Stock and exercised warrants to acquire 3,106,976 shares of WorldCom
Common Stock and thereafter sold its position of 30,849,548 shares of WorldCom
Common Stock in a public offering. Accordingly, no shares of Series 1
Preferred Stock are outstanding as of the date hereof. In connection with the
preferred stock conversion, the Company made a one-time non-recurring payment
of $15.0 million to Metromedia representing a discount to the minimum nominal
dividends that would have been payable on the Series 1 Preferred Stock prior to
the September 15, 1996 optional call date of approximately $26.6 million (which
amount includes an annual dividend requirement of $24.5 million plus accrued
dividends to such call date). Metromedia offered the shares immediately
through an underwriting by Donaldson, Lufkin & Jenrette Securities Corporation,
as representative for the several underwriters, at a price of $30.25 per share.
The Company did not receive any proceeds from the sale of the shares, but did
receive approximately $33.7 million in proceeds from the exercise of the
warrants.
On May 25, 1995, the name of the Company was changed from LDDS
Communications, Inc. to WorldCom, Inc.
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
<PAGE> 12
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.
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.
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, 1994 and for the six months ended June 30, 1994 and 1995, which ratios are
based on the historical consolidated financial statements of WorldCom. The
table also sets forth the pro forma combined data for the year ended December
31, 1994, which data give effect to the acquisition of WilTel on January 5,
1995 for approximately $2.5 billion in cash (the "WilTel Acquisition") and the
financing thereof as if it occurred on January 1, 1994. The WilTel Acquisition
was accounted for as a purchase transaction. 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>
Historical Pro Forma Combined Historical
------------------------------------------------ ------------------ ------------------
Year Ended December 31, Year Ended Six Months Ended
December 31, June 30,
1990 1991 1992 1993 1994 1994 1994 1995
-------- -------- -------- -------- -------- ------------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Combined Fixed Charges and
Preferred Stock Dividends 2.45:1 2.53:1 1.40:1 4.14:1 0.13:1 0.45:1 3.43:1 2.14:1
Deficiency of Earnings to
Combined Fixed Charges and
Preferred Stock Dividends
(in thousands) N/A N/A N/A N/A (78,008) (153,203) N/A N/A
</TABLE>
<PAGE> 13
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.
Notes to Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
(1) On January 5, 1995, the Company completed the acquisition of WilTel for
approximately $2.5 billion in cash. The WilTel Acquisition is being
accounted for as a purchase.
(2) As a result of the IDB Merger and the merger with Advanced
Telecommunications Corporation (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. Also, during the fourth quarter of 1993, plans were
approved to reduce IDB's cost structure and to improve productivity.
Accordingly, in 1994, 1993 and 1992, the Company charged to operations the
estimated costs of such reorganization and restructuring activities,
including employee severance, physical facility abandonment and duplicate
service capacity. These costs totaled $43.7 million in 1994, $5.9 million
in 1993 and $79.8 million in 1992.
Also, during 1994 and 1992, the Company incurred direct merger costs of
$15.0 million and $7.3 million, respectively, related to the IDB Merger (in
1994) and the ATC Merger (in 1992). These costs include professional fees,
proxy solicitation costs, travel and related expenses and certain other
direct costs attributable to these mergers.
(3) In connection with certain debt refinancing, the Company recognized in 1993
and 1992 extraordinary items of approximately $7.9 million and $5.8
million, respectively, net of income taxes, consisting of unamortized debt
discount, unamortized issuance cost and prepayment fees.
SELLING SHAREHOLDER
The Selling Shareholder, which is a Delaware limited partnership, owns
999,705 shares, or approximately 50% of the 2,000,000 outstanding shares, of
Series 2 Preferred Stock. The general and managing partner of the Selling
Shareholder is Brown Brothers Harriman & Co., a New York partnership ("Brown
Brothers"), which has designated its partners T. Michael Long and Lawrence C.
Tucker the sole and exclusive partners having voting and investment power with
respect to the WorldCom Common Stock into which said Series 2 Preferred Stock
is convertible. Mr. Tucker is a director of the Company. As of the date
hereof, the 999,705 shares of Series 2 Preferred Stock are convertible into
2,115,919 shares of WorldCom Common Stock, representing approximately 1% of the
outstanding WorldCom Common Stock.
<PAGE> 14
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
Reports by Issuer of Securities Quoted on NASDAQ on Form 10-C dated May 25,
1995 and dated August 23, 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 Reports on Form 8-K dated August 14, 1995 (filed August 14, 1995) (the
"August 14, 1995 Form 8-K") and dated August 23, 1995 (filed August 29, 1995);
(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 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 the 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 14, 1995 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 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" contained herein and in
the accompanying Prospectus. 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
<PAGE> 15
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.
