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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 0-11258
--------------------
WorldCom, Inc.
(F/K/A LDDS COMMUNICATIONS, INC.)
(Exact name of registrant as specified in its charter)
--------------------
<TABLE>
<S> <C>
Georgia 58-1521612
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
515 East Amite Street, Jackson, Mississippi 39201-2702
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code : (601) 360-8600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
The number of outstanding shares of the registrant's Common Stock, par
value $.01 per share, was 165,310,179 on July 31, 1995.
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FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
for the three and six month periods ended June 30, 1995
and June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for
the six months ended June 30, 1995 and
June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote
of Securities Holders . . . . . . . . . . . . . . . . . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,700 $ 19,259
Short-term investments - 1,000
Accounts receivable, net of allowance for bad debts of $52,074 in 1995
and $52,949 in 1994 456,556 470,175
Deferred tax asset 92,652 62,687
Other current assets 31,885 36,305
------------ ------------
Total current assets 615,793 589,426
------------ ------------
Property and equipment:
Transmission equipment 1,221,937 388,941
Communications equipment 372,420 371,998
Furniture, fixtures and other 285,828 183,326
------------ ------------
1,880,185 944,265
Less - accumulated depreciation (394,692) (317,598)
------------ ------------
1,485,493 626,667
------------ ------------
Excess of cost over net tangible assets acquired, net of accumulated amortization 4,188,481 2,070,709
Line installation costs, net of accumulated amortization 32,735 28,768
Deferred income taxes 14,120 14,120
Other assets 100,066 100,502
------------ ------------
$ 6,436,688 $ 3,430,192
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt and current maturities of long-term debt $ 3,958 $ 5,996
Accounts payable 176,230 138,101
Accrued line costs 327,957 258,053
Accrued restructuring costs 8,092 25,837
Shareholder litigation reserve - 75,000
Income taxes payable 50,982 11,940
Other current liabilities 270,931 195,728
------------ ------------
Total current liabilities 838,150 710,655
------------ ------------
Long-term liabilities, less current portion:
Long-term debt 3,412,302 788,005
Deferred income taxes payable 58,687 -
Other liabilities 138,093 104,362
------------ ------------
Total long-term liabilities 3,609,082 892,367
------------ ------------
Commitments and contingencies
Shareholders' investment:
Series 1 preferred stock, par value $.01 per share; authorized: 10,896,785 shares;
issued and outstanding: 10,896,785 shares in 1995 and 1994 (liquidation
preference of $544,839) 109 109
Series 2 preferred stock, par value $.01 per share; authorized: 2,000,000 shares;
issued and outstanding: 2,000,000 shares in 1995 and 1994 (liquidation
preference of $50,000) 20 20
Preferred stock, 1995 and 1994: par value $.01 per share; authorized: 37,103,215
shares; none issued - -
Common stock, par value $.01 per share; authorized: 500,000,000 shares; issued
and outstanding: 165,015,226 shares in 1995 and 159,643,312 in 1994 1,650 1,596
Additional paid-in capital 1,833,211 1,772,882
Retained earnings 154,466 52,563
------------ ------------
Total shareholders' investment 1,989,456 1,827,170
------------ ------------
$ 6,436,688 $ 3,430,192
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</TABLE>
The accompanying notes are an integral part of these Statements
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WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------------
1995 1994 1995 1994
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 894,719 $ 555,318 $ 1,759,754 $ 1,079,213
--------- --------- ------------ ------------
Operating expenses:
Line costs 492,543 357,077 972,378 677,071
Selling, general and administrative 162,321 100,175 322,569 190,618
Depreciation and amortization 77,100 41,318 151,514 78,463
--------- --------- ------------ ------------
Total 731,964 498,570 1,446,461 946,152
--------- --------- ------------ ------------
Operating income 162,755 56,748 313,293 133,061
Other income (expense):
Interest expense (64,558) (11,901) (126,866) (21,520)
Miscellaneous 3,139 840 3,373 3,208
--------- --------- ------------ ------------
Income before income taxes 101,336 45,687 189,800 114,749
Provision for income taxes 39,521 25,875 74,022 54,846
--------- --------- ------------ ------------
Net income 61,815 19,812 115,778 59,903
--------- --------- ------------ ------------
Preferred dividend requirement 6,936 6,952 13,875 13,890
--------- --------- ------------ ------------
Net income applicable to common shareholders $ 54,879 $ 12,860 $ 101,903 $ 46,013
========= ========= ============ ============
Earnings per common share -
Net income:
Primary $ 0.33 $ 0.08 $ 0.61 $ 0.28
Fully diluted $ 0.32 $ 0.08 $ 0.60 $ 0.28
</TABLE>
The accompanying notes are an integral part of these Statements
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WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 115,778 $ 59,903
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 89,725 47,996
Amortization 61,789 30,467
Provision for losses on accounts receivable 21,113 14,306
Provision for deferred income taxes 28,722 21,600
Change in assets and liabilities, net of effect of
business combinations:
Accounts receivable 27,808 (121,517)
Other current assets 6,810 3,027
Accounts payable and other current liabilities (31,108) (30,472)
Shareholder litigation reserve (75,000) -
Other (2,715) (1,470)
------------ ------------
Net cash provided by operating activities 242,922 23,840
------------ ------------
Cash flows from investing activities:
Capital expenditures (181,196) (72,245)
Sale of short-term investments, net 1,000 1,517
Acquisitions and related costs (2,689,372) (26,497)
Increase in intangible assets (3,653) (2,140)
Increase in other assets (2,341) (12,396)
Decrease in other liabilities (13,671) (694)
Payment for line installation costs (11,570) (3,622)
Proceeds from disposition of long-term assets 17,406 -
------------ ------------
Net cash used in investing activities (2,883,397) (116,077)
------------ ------------
Cash flows from financing activities:
Borrowings 2,748,208 47,000
Principal payments on debt (125,948) (10,669)
Common stock issuance 47,531 31,368
Dividends paid on preferred stock (13,875) (13,890)
------------ ------------
Net cash provided by financing activities 2,655,916 53,809
------------ ------------
Net increase (decrease) in cash and cash equivalents 15,441 (38,428)
Cash and cash equivalents at beginning of period 19,259 60,780
------------ ------------
Cash and cash equivalents at end of period $ 34,700 $ 22,352
============ ============
</TABLE>
The accompanying notes are an integral part of these Statements
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WORLDCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) NAME CHANGE
At the annual meeting of shareholders held May 25, 1995, shareholders of LDDS
Communications, Inc. voted to change the name of the company to WorldCom, Inc.
("WorldCom" or the "Company") effective immediately. The change was made to
appropriately express the Company's image, direction and capabilities as a
major participant in the worldwide telecommunications market.
(B) GENERAL
The financial statements included herein are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission ("SEC") regulations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements reflect all adjustments (of a
normal and recurring nature) which are necessary to present fairly the
financial position, results of operations and cash flows for the interim
periods. These financial statements should be read in conjunction with the
Annual Report of the Company on Form 10-K for the year ended December 31, 1994.
The results for the three and six month periods ended June 30, 1995, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995.
(C) BUSINESS COMBINATIONS
On January 5, 1995, the Company completed the acquisition 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. 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 a new credit facility
entered into on December 21, 1994.
The following unaudited pro forma combined results of operations for the
Company assume that the WilTel Acquisition was completed on January 1, 1994 (in
thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, 1994
-------------------
<S> <C>
Revenues $1,457,324
Net income applicable to common shareholders 10,675
Earnings per common share 0.06
</TABLE>
These pro forma amounts represent the historical operating results of WilTel
combined with those of the Company with appropriate adjustments which give
effect to interest expense and amortization. These pro forma amounts are not
necessarily indicative of operating results which would have occurred if the
WilTel Acquisition had been operated by current management during the periods
presented because these amounts do not reflect full network optimization and
the synergistic effect on operating, selling, general and administrative
expenses.
(D) EARNINGS PER COMMON SHARE
Earnings per share were calculated based on the following number of common
shares and common equivalent shares outstanding (in thousands):
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary 168,811 163,758 167,792 164,287
Fully diluted 200,342 163,749 199,310 164,358
</TABLE>
(E) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid by the Company during the six months ended June 30, 1995 and 1994
amounted to $94.9 million and $20.8 million, respectively. Income taxes paid
during the six months ended June 30, 1995 and 1994 were $5.5 million and $6.4
million, respectively. In conjunction with business combinations during the
six months ended June 30, 1995 and 1994 (see Note C), assumed assets and
liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Fair value of assets acquired $ 837,380 $ -
Excess of cost over net tangible assets acquired 2,173,537 27,882
Liabilities assumed (308,695) (733)
Common stock issued (12,850) (652)
---------- ------------
$2,689,372 $ 26,497
========== ============
</TABLE>
Acquisition and related costs for the six months ended June 30, 1994 reflect
additional costs related to the acquisitions in 1993.
(F) CONTINGENCIES
IDB RELATED INVESTIGATIONS. On June 9, 1994, the SEC issued a formal order of
investigation concerning certain matters, including IDB Communication Group,
Inc.'s ("IDB") financial position, books and records and internal controls and
trading in IDB securities on the basis of non-public information. The SEC has
issued subpoenas to WorldCom, IDB and others, including certain former officers
of IDB, in connection with its investigation. The NASD 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 first quarter
results, the Deloitte & Touche LLP 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 has issued a grand jury subpoena to
WorldCom arising out of the same investigation seeking certain documents
relating to IDB.
AT&T PATENTS. AT&T has written the Company claiming that certain of the
Company's long distance services (including certain 800 services, operator
services and calling card services) make unauthorized use of AT&T patents.
Similar claims have been asserted against other long distance carriers. AT&T
has stated that it will enforce its patent rights and requested that the
Company and other carriers enter into patent license agreements. The Company
has had discussions with AT&T and is currently evaluating AT&T's claims. The
Company is not yet in a position to predict whether this matter will lead to
litigation. In a related development, MCI has brought suit against AT&T
alleging that certain of these same patents are invalid under the patent laws
or unenforceable due to representations made by AT&T to the District Court at
the time of the 1982 AT&T divestiture decree. AT&T has counterclaimed against
MCI alleging patent infringement. The Company could be adversely affected if,
as a result of litigation or otherwise, it was required to pay substantial
patent royalties to AT&T. However, the ultimate outcome of this issue, or the
amount of any such patent royalties which might be required, cannot be
determined at this time.
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OTHER. The Company is involved in other legal and regulatory proceedings
generally incidental to its business. In some instances, rulings by regulatory
authorities in some states may result in increased operating costs to the
Company.
While the results of these various legal and regulatory matters contain an
element of uncertainty, the Company believes that the probable outcome of any
of the legal or regulatory matters, or all of them combined, should not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
ITEM 2. 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 three and six months ended June
30, 1995 and 1994 after giving effect to the Company's merger with IDB on
December 30, 1994 (the "IDB Merger"), which was accounted for as a
pooling-of-interests.
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.
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
interexchange carriers ("IXCs") for accessing the local networks of the local
exchange carriers ("LECs") in order to originate and terminate calls and
payments made to foreign telephone administrations 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 local access and transport
areas.
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.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995 vs.
Three Months Ended June 30, 1994:
Revenues for the three months ended June 30, 1995 were $894.7 million on 4.70
billion revenue minutes as compared to $555.3 million on 2.68 billion revenue
minutes for the three months ended June 30, 1994. The increase in total
revenues of 61.1% was primarily due to the inclusion of revenues from the
WilTel Acquisition and internal growth.
Line costs as a percentage of revenues decreased to 55.1% during the second
quarter of 1995 as compared to 64.3% for the same period in the prior year.
This decrease is attributable to changes in the product mix, network
efficiencies resulting from the WilTel Acquisition and the IDB Merger, and rate
reductions resulting from favorable contract negotiations.
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Selling, general and administrative expenses increased to $162.3 million in the
second quarter of 1995 from $100.2 million in the second quarter of 1994; and
as a percentage of revenues, these expenses increased to 18.1% in 1995 from
18.0% in 1994. The increase in selling, general and administrative expenses
results from the Company's expanding operations, primarily through the WilTel
Acquisition and internal growth.
Depreciation and amortization expense increased to $77.1 million in the second
quarter of 1995 from $41.3 million in the second quarter of 1994. Such expense
as a percentage of revenues increased to 8.6% in the 1995 period from 7.4% in
the 1994 period. This increase reflects depreciation and amortization of the
additional property and equipment and goodwill from the WilTel Acquisition.
Interest expense in the second quarter of 1995 was $64.6 million or 7.2% of
revenues, as compared to $11.9 million or 2.1% of revenues in the second
quarter of 1994. The increase in the absolute level of interest expense was
due primarily to an increase in the average debt outstanding by the Company to
finance the WilTel Acquisition.
Miscellaneous income increased to $3.1 million in the second quarter of 1995
from $0.8 million in the second quarter of 1994 primarily due to a one time
gain realized on the sale of marketable securities offset by equity investee
losses of approximately $1.5 million.
Net income applicable to common shareholders increased to $54.9 million in the
second quarter of 1995 from $12.9 million in the comparable period in 1994.
Earnings per common share increased to $0.33 per share from $0.08 per share in
the comparable 1994 period.
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 than leasing similar capacity from
other providers at a higher cost.
Selling, general and administrative expenses 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
selling, general and administrative 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.
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 shareholders 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
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percentage increase primarily due to additional shares of the Company's common
stock outstanding as the result of acquisitions and the exercise of stock
options and warrants.
LIQUIDITY AND CAPITAL RESOURCES
On January 5, 1995, in conjunction with the WilTel Acquisition, the Company
utilized its $3.41 billion long-term credit facilities and all debt under the
Company's previous credit facilities and the $123.0 million in senior notes was
repaid. 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 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 $24.6 million, payable on a
quarterly basis. 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 WilTel's 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 facility and provide
additional working capital. As of June 30, 1995, the
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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 shareholder 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.
Absent significant capital requirements for other acquisitions, the Company
believes that cash flow from operations and funds available under the credit
facilities will 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 ("FASB") 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. WorldCom has not determined what effect this statement will have on
the Company's consolidated results of operations or financial position.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material changes in the litigation reported in the
Company's Annual Report on Form 10-K for the year ended December 31,
1994, filed on March 30, 1995 except as may be reflected in the
discussion under Note F of the Notes to Consolidated Financial
Statements in Part I, Item 1, above.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
On May 25, 1995, the Company held the Annual Meeting of Shareholders
for the purposes of:
1. electing a Board of twelve (12) directors; and
2. considering and acting upon a proposal to amend the Company's
Amended and Restated Articles of Incorporation to change the
Company's name to "WorldCom, Inc." from "LDDS Communications,
Inc."
Page 11
<PAGE> 12
The tabulation of the voting is as follows:
<TABLE>
<CAPTION>
AGAINST OR
FOR WITHHELD ABSTENTIONS
=====================================================
<S> <C> <C> <C>
ELECTION OF COMMON STOCK DIRECTORS: (1)
Carl J. Aycock 120,960,246 1,151,941 0
Max E. Bobbitt 120,960,247 1,151,940 0
Bernard J. Ebbers 120,960,246 1,151,941 0
Francesco Galesi 120,960,246 1,151,941 0
Stiles A. Kellett, Jr. 120,960,247 1,151,940 0
Gregory A. LeVert 120,959,457 1,152,730 0
John A. Porter 120,960,247 1,151,940 0
Lawrence C. Tucker 120,960,247 1,151,939 0
Roy A. Wilkens 120,959,257 1,152,930 0
ELECTION OF PREFERRED STOCK DIRECTORS: (2)
Silvia Kessel 10,896,785 0 0
John W. Kluge 10,896,785 0 0
Stuart Subotnick 10,896,785 0 0
NAME CHANGE (3) 142,402,115 1,354,290 232,758
</TABLE>
- --------------------
(1) Shares including 4,106,094 equivalent shares for the Series 2
preferred stock (out of 4,233,087 total equivalent Series 2 shares).
(2) Shares voted by the holder of Series 1 preferred stock (10,896,785
Series 1 preferred shares)
(3) Shares including 21,876,976 equivalent shares for the Series 1
preferred stock and 4,106,094 equivalent shares for the Series 2
preferred stock (out of 4,233,087 total equivalent Series 2 shares).
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
During the second quarter of 1995, the Company filed the following
reports on Form 8-K:
(i) Current Report on Form 8-K/A dated August 22, 1994 (filed April
19, 1995), reporting information required to be reported under
item 7(a), Financial Statements of Business Acquired and under
item 7(b) Pro Forma financial information, the following
financial statements:
Page 12
<PAGE> 13
WilTel Network Services - for the fiscal years ended December 31, 1994
and 1993:
Report of Independent Auditors
Combined Balance Sheets
Combined Statements of Income
Combined Statements of Stockholder's Equity
Combined Statements of Cash Flows
Notes to Combined Financial Statements
LDDS Communications, Inc. - for the fiscal year ended December 31, 1994:
Pro Forma Combining Financial Statements
Pro Forma Combining Balance Sheet as of December 31, 1994
Pro Forma Combining Statement of Operations for the fiscal year
ended December 31, 1994
Notes to Pro Forma Combining Financial Statements
Page 13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report on Form 10-Q to be signed on its
behalf by Scott D. Sullivan, thereunto duly authorized to sign on behalf of the
registrant and as the principal financial officer thereof.
WORLDCOM, INC.
By: /s/ Scott D. Sullivan
------------------------------------
Scott D. Sullivan, Treasurer and
Chief Financial Officer
Dated: August 11, 1995
Page 14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ -----------
<S> <C>
3(i) Amended and Restated Articles of Incorporation of the Company (including
preferred stock designations) as of September 15, 1993 (incorporated
herein by reference to Exhibit 3(i) to Amendment No. 1 to the Company's
Registration Statement on Form S-3 (File No. 33-67340)), as amended
by Articles of Amendment dated May 26, 1994 (incorporated herein
by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q
filed by the Company (File No. 1-10415) for the quarter ended June 30, 1994).
3(ii) Articles of Amendment to the Amended and Restated Articles of Incorporation
dated May 25, 1995.
3(iii) Bylaws of the Company (incorporated herein by reference to Exhibit 3(ii) to
Amendment No. 1 to the Company's Registration Statement on Form S-3
(File No. 33-67340))
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
Page 15
<PAGE> 1
Exhibit 3(ii)
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LDDS COMMUNICATIONS, INC.
1.
The name of the corporation is "LDDS Communications, Inc."
(the "Corporation").
2.
Effective the date hereof, Article One of the Corporation's
Amended and Restated Articles of Incorporation is amended, in its entirety, to
read as follows:
ONE
The name of this corporation is WorldCom, Inc. This
corporation is referred to hereinafter as the "Corporation."
3.
All other provisions of the Amended and Restated Articles of
Incorporation, as previously amended, shall remain in full force and effect.
4.
The foregoing amendment was proposed by the Board of Directors
of the Corporation and was duly approved and adopted by the shareholders of the
Corporation in accordance with the provisions of Section 14-2-1003 of the
Georgia Business Corporation Code this 25th day of May, 1995.
IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment to be executed and attested by its duly authorized officers this
25th day of May, 1995.
LDDS COMMUNICATIONS, INC.
By: /s/ Bernard J. Ebbers
------------------------------------
Bernard J. Ebbers, President
[CORPORATE SEAL]
ATTEST:
By: /s/ Scott D. Sullivan
------------------------------------
Scott D. Sullivan, Ass't. Secretary
<PAGE> 1
Exhibit 11.1
WORLDCOM, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 163,135 156,179 161,766 155,673
Common stock equivalents 5,676 7,579 6,026 8,614
---------- ---------- ---------- ----------
168,811 163,758 167,792 164,287
========== ========== ========== ==========
Fully diluted:
Weighted average shares outstanding 163,135 156,179 161,766 155,673
Common stock equivalents 5,962 7,570 6,299 8,685
Common stock issuable upon
conversion of:
5% convertible notes 5,135 N/A 5,135 N/A
Series 1 preferred stock 21,877 N/A 21,877 N/A
Series 2 preferred stock 4,233 N/A 4,233 N/A
---------- ---------- ---------- ----------
200,342 163,749 199,310 164,358
========== ========== ========== ==========
Income applicable to common shareholders $ 54,879 $ 12,860 $ 101,903 $ 46,013
Add back:
Interest on 5% convertible notes,
net of taxes 1,491 N/A 2,982 N/A
Series 1 preferred dividend
requirement 6,124 N/A 12,250 N/A
Series 2 preferred dividend
requirement 812 N/A 1,625 N/A
---------- ---------- ---------- ----------
Net income applicable to common
shareholders $ 63,306 $ 12,860 $ 118,760 $ 46,013
========== ========== ========== ==========
Earnings per share:
Primary $ 0.33 $ 0.08 $ 0.61 $ 0.28
Fully diluted 0.32 0.08 0.60 0.28
</TABLE>
Note: For the three months and six months ended June 30, 1994, conversion
of the convertible notes and convertible preferred stock was not assumed
because the effect is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLDCOM, INC. (F/K/A LDDS COMMUNICATIONS, INC.) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 34,700
<SECURITIES> 0
<RECEIVABLES> 508,630
<ALLOWANCES> 52,074
<INVENTORY> 0
<CURRENT-ASSETS> 615,793
<PP&E> 1,880,185
<DEPRECIATION> 394,692
<TOTAL-ASSETS> 6,436,688
<CURRENT-LIABILITIES> 838,150
<BONDS> 3,412,302
<COMMON> 1,650
0
129
<OTHER-SE> 1,987,677
<TOTAL-LIABILITY-AND-EQUITY> 6,436,688
<SALES> 1,759,754
<TOTAL-REVENUES> 1,759,754
<CGS> 972,378
<TOTAL-COSTS> 1,446,461
<OTHER-EXPENSES> (3,373)
<LOSS-PROVISION> 21,113
<INTEREST-EXPENSE> 126,866
<INCOME-PRETAX> 189,800
<INCOME-TAX> 74,022
<INCOME-CONTINUING> 115,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,903
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.60
</TABLE>
