<PAGE> 1
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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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number: 0-11258
------------------------------
WorldCom, Inc.
(Exact name of registrant as specified in its charter)
------------------------------
Georgia 58-1521612
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 East Amite Street, Jackson, Mississippi 39201-2702
(Address of principal executive offices) (Zip Code)
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 194,456,924 on April 30, 1996.
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<PAGE> 2
FORM 10-Q
Index
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995. . . . . . . . . . . . . . .3
Consolidated Statements of Operations
for the three months ended March 31, 1996
and March 31, 1995. . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and
March 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements. . . . . . . . . . . .7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . .9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Securities Holders . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 14
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Per Share Data)
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,708 $ 41,679
Accounts receivable, net of allowance for bad debts of $61,212 in 1996 and
$57,980 in 1995 591,544 528,763
Income taxes receivable 19,820 17,499
Deferred tax asset 6,030 16,899
Other current assets 112,244 49,992
------------ ------------
Total current assets 749,346 654,832
------------ ------------
Property and equipment:
Transmission equipment 1,462,940 1,376,242
Communications equipment 418,205 401,454
Furniture, fixtures and other 283,921 278,716
------------ ------------
2,165,066 2,056,412
Less - accumulated depreciation (531,487) (487,080)
------------ ------------
1,633,579 1,569,332
------------ ------------
Excess of cost over net tangible assets acquired, net of accumulated amortization 4,319,792 4,292,752
Other assets 114,225 117,655
------------ ------------
$ 6,816,942 $ 6,634,571
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt and current maturities of long-term debt $ 1,184,711 $ 1,112,853
Accounts payable 150,031 137,342
Accrued line costs 437,094 391,604
Other current liabilities 342,319 337,013
------------ ------------
Total current liabilities 2,114,155 1,978,812
------------ ------------
Long-term liabilities, less current portion:
Long-term debt 2,194,357 2,278,428
Deferred income taxes payable 47,536 26,172
Other liabilities 165,599 163,873
------------ ------------
Total long-term liabilities 2,407,492 2,468,473
------------ ------------
<PAGE> 4
Commitments and contingencies
Shareholders' investment:
Series 2 preferred stock, par value $.01 per share; authorized, issued and
outstanding: 1,244,048 shares in 1996 and 1995 (liquidation preference
of $31,101) 12 12
Preferred stock, par value $.01 per share; authorized: 48,755,952 shares in
1996 and 1995; none issued -- --
Common stock, par value $.01 per share; authorized: 500,000,000 shares;
issued and outstanding: 194,218,964 shares in 1996 and 193,242,639 shares
in 1995 1,941 1,932
Additional paid-in capital 1,921,317 1,898,310
Retained earnings 372,025 287,032
------------ ------------
Total shareholders' investment 2,295,295 2,187,286
------------ ------------
$ 6,816,942 $ 6,634,571
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 5
<TABLE>
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<CAPTION>
For the Three Months
Ended March 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 1,026,186 $ 865,035
------------ ------------
Operating expenses:
Line costs 558,189 479,835
Selling, general and administrative 189,223 160,248
Depreciation and amortization 83,711 74,414
------------ ------------
Total 831,123 714,497
------------ ------------
Operating income 195,063 150,538
Other income (expense):
Interest expense (57,026) (62,308)
Miscellaneous 2,126 234
------------ ------------
Income before income taxes 140,163 88,464
Provision for income taxes 54,663 34,501
------------ ------------
Net income 85,500 53,963
Preferred dividend requirement 505 6,939
------------ ------------
Net income applicable to common shareholders $ 84,995 $ 47,024
============ ============
Earnings per common share:
Primary $ 0.43 $ 0.28
============ ============
Fully diluted $ 0.42 $ 0.28
============ ============
Weighted average shares outstanding:
Primary 197,519 166,773
Fully diluted 205,844 198,277
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 6
<TABLE>
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<CAPTION>
For the Three Months
Ended March 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 85,500 $ 53,963
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 83,711 74,414
Provision for losses on accounts receivable 13,529 12,208
Provision for deferred income taxes 41,891 19,063
Change in assets and liabilities, net of effect of business combinations:
Accounts receivable (77,529) 15,434
Income taxes, net 5,948 12,672
Other current assets (62,314) 1,636
Accrued line costs 23,490 (15,715)
Accounts payable and other current liabilities 14,926 (95,695)
Other (986) 1,730
------------ ------------
Net cash provided by operating activities 128,166 79,710
------------ ------------
Cash flows from investing activities:
Capital expenditures (110,547) (52,339)
Acquisitions and related costs (550) (2,639,179)
Increase in intangible assets (23,722) (3,353)
Proceeds from disposition of other assets 4,069 --
Increase in other assets (6,222) (7,715)
Decrease in other liabilities (15,193) (2,886)
Proceeds from sale of property and equipment -- 13,611
Other -- 1,000
------------ ------------
Net cash used in investing activities (152,165) (2,690,861)
------------ ------------
Cash flows from financing activities:
Borrowings -- 2,733,050
Principal payments on debt (12,213) (124,523)
Common stock issuance 14,746 5,579
Dividends paid on preferred stock (505) (6,939)
------------ ------------
Net cash provided by financing activities 2,028 2,607,167
------------ ------------
Net decrease in cash and cash equivalents (21,971) (3,984)
Cash and cash equivalents at beginning of period 41,679 19,259
------------ ------------
Cash and cash equivalents at end of period $ 19,708 $ 15,275
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 7
WORLDCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) 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, 1995.
The results for the three month period ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
(B) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ----------------------------------------------------
Interest paid by the Company during the three months ended March 31, 1996 and
1995 amounted to $62.0 million and $49.7 million, respectively. Income taxes
paid during the three months ended March 31, 1996 and 1995 were $6.8 million
and $2.8 million, respectively. In conjunction with business combinations
during the three months ended March 31, 1996 and 1995, assumed assets and
liabilities were as follows (in thousands):
For the Three Months
Ended March 31,
--------------------------
1996 1995
------------ ------------
Fair value of assets acquired $ 595 $ 838,646
Excess of cost over net tangible assets acquired 26,237 2,137,865
Liabilities assumed (26,282) (324,482)
Common stock issued -- (12,850)
------------ ------------
$ 550 $ 2,639,179
============ ============
Acquisition and related costs for the three months ended March 31, 1996 reflect
additional costs related to the acquisitions in 1995.
(C) 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
<PAGE> 8
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
of 1994 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.
Other. On February 8, 1996, President Clinton signed legislation that: will,
without limitation, permit the Bell Operating Companies (the "BOCs") to provide
domestic and international long distance services upon a finding by the Federal
Communications Commission (the "FCC") that the petitioning BOC has 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;
removes existing barriers to entry into local service markets; significantly
changes the manner in which carrier-to-carrier arrangements are regulated at
the federal and state level; establishes procedures to revise universal service
standards; and establishes penalties for unauthorized switching of customers.
The Company cannot predict the effect such legislation will have on the Company
or the industry. However, the Company believes that it is positioned to take
advantage of business opportunities in the rapidly changing telecommunications
market.
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.
<PAGE> 9
(D) 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,
1995 and for the three months ended March 31, 1995 and 1996, which ratios are
based on the historical consolidated financial statements of WorldCom.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ --------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed
charges and preferred stock
dividends 2.53:1 1.40:1 4.14:1 0.13:1 2.31:1 2.11:1 3.11:1
Deficiency of earnings to combined
fixed charges and preferred stock
dividends (in thousands) -- -- -- $(78,008) -- -- --
</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.
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 months ended March 31, 1996
and 1995.
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
<PAGE> 10
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.
On February 8, 1996, President Clinton signed legislation, that: will, without
limitation, permit the BOCs to provide domestic and international long distance
services upon a finding by the FCC that the petitioning BOC has 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;
removes existing barriers to entry into local service markets; significantly
changes the manner in which carrier-to-carrier arrangements are regulated at
the federal and state level; establishes procedures to revise universal service
standards; and establishes penalties for unauthorized switching of customers.
The enactment of this legislation has made it possible for the Company to form
business associations to provide long distance telecommunications services with
certain LECs and the Company expects to pursue resale of local service in those
markets where it is both economically and technically feasible. While the
effects of this legislation on the Company and the industry remain uncertain,
the Company believes that it is positioned to take advantage of business
opportunities in the rapidly changing telecommunications marketplace.
In the first quarter of 1996, the Company signed agreements to provide long
distance telecommunications services to GTE Long Distance, Ameritech
Communications, Inc. and Southwestern Bell Mobile Systems, Inc. WorldCom also
entered into an agreement to become a major provider of data telecommunications
services for Electronic Data Systems Corporation, a global information services
company.
Additionally, in response to the changing regulatory environment, WorldCom has
filed applications with public utility commissions in several states to offer
customers a full range of local telephone exchange services, an important
capability that will serve as a complement to the Company's national and
international service offerings. To date, WorldCom has received permission to
provide local service on a resale basis in California, Connecticut, Florida,
Illinois and Texas, and WorldCom has applications pending in other states.
<PAGE> 11
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.
For the Three Months
Ended March 31,
--------------------------
1996 1995
------------ ------------
Revenues . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Line costs . . . . . . . . . . . . . . . . . . . . 54.4 55.5
Selling, general and administrative. . . . . . . . 18.4 18.5
Depreciation and amortization. . . . . . . . . . . 8.2 8.6
------------ ------------
Operating income . . . . . . . . . . . . . . . . . 19.0 17.4
Other income (expense):
Interest expense. . . . . . . . . . . . . . . (5.6) (7.2)
Miscellaneous . . . . . . . . . . . . . . . . 0.2 0.0
------------ ------------
Income before income taxes . . . . . . . . . . . . 13.7 10.2
Provision for income taxes . . . . . . . . . . . . 5.3 4.0
------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . 8.3 6.2
Preferred dividend requirement . . . . . . . . . . 0.0 0.8
------------ ------------
Net income applicable to common shareholders . . . 8.3% 5.4%
============ ============
Revenues for the three months ended March 31, 1996 increased 19% to $1.03
billion on 5.60 billion revenue minutes as compared to $865.0 million on 4.57
billion revenue minutes for the three months ended March 31, 1995. The
increase in total revenues and minutes is attributable to internal growth of
the Company.
The Company's first quarter switched retail and wholesale revenue, excluding
operator services traffic, increased 22% over 1995 results, while traffic
growth from these businesses equaled 24%. Private line revenues for the three
months ended March 31, 1996, also reflected positive growth, with an increase
of 26% over the 1995 results.
Line costs as a percentage of revenues decreased to 54.4% during the first
quarter of 1996 as compared to 55.5% 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
recent acquisitions into the Company's operations.
Selling, general and administrative expenses for the first quarter of 1996
increased to $189.2 million or 18.4% of revenues as compared to $160.2 million
or 18.5% of revenues for the first quarter of 1995. The increase in selling,
general and administrative expenses results from the Company's expanding
operations, primarily through internal growth. The decrease in expense as a
percentage of revenues reflects the assimilation of recent acquisitions into
the Company's strategy of cost control.
<PAGE> 12
Depreciation and amortization expense for the first quarter of 1996 increased
to $83.7 million or 8.2% of revenues from $74.4 million or 8.6% of revenues for
the first quarter of 1995. This increase reflects additional depreciation
related to capital expenditures. The reduction in the percentage is due to a
relatively stable dollar of amortization on a higher revenue base.
Interest expense in the first quarter of 1996 was $57.0 million or 5.6% of
revenues, as compared to $62.3 million or 7.2% of revenues in the first quarter
of 1995. The decrease in interest expense is attributable to lower interest
rates in effect on the Company's long-term debt. For the three months ended
March 31, 1996 and 1995, weighted average annual interest rates were 6.5% and
7.3%, respectively, while weighted average annual levels of borrowing were
$3.47 billion and $3.35 billion, respectively.
Net income applicable to common shareholders was $85.0 million for the first
quarter of 1996 versus $47.0 million in the comparable 1995 period. Fully
diluted earnings per share increased 50% to $.42 compared with $.28 a year ago.
Primary earnings per share was $.43 for the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's total debt was $3.38 billion, down $12.2
million from December 31, 1995 and the Company had access to an additional
$284.2 million under its long-term credit facilities. One facility (the "Term
Principal Debt") of the credit facilities, which totals $1.25 billion, matures
in a single installment on December 31, 1996. Another 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. In addition, these credit
facilities restrict the payment of cash dividends and otherwise limit the
Company's financial flexibility.
The Company anticipates refinancing the $1.25 billion Term Principal Debt
maturing December 31, 1996 and other existing bank debt with an amended
revolving commercial bank credit facility. The Company is currently in the
syndication process for a $3.75 billion revolving facility with no reduction of
principal balances for five years, improved pricing spreads and increased
availability. The Company anticipates closing the facility prior to the end of
the second quarter. No assurance can be given that the Company will achieve
successful syndication of its refinancing 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 is committed to a priority plan of accelerating
operating cash flow to reduce debt. Additional capital availability may be
generated through a combination of commercial bank debt and public market debt.
Successful execution of the refinancings and the priority plan would provide
continued compliance with required operating ratio covenants, improved interest
rate spread pricing, 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.
Borrowings under the Company's credit facilities bear interest at rates that
fluctuate with prevailing short-term interest rates. To protect against the
effect of rising interest rates, the Company has entered into financial hedging
agreements with various financial institutions in connection with requirements
under the credit facilities. The hedging agreements establish capped fixed
<PAGE> 13
rates of interest ranging from 7.43% to 8.3125% on an aggregate notional value
of $1.7 billion and mature in 1997. If interest rates do not reach this cap,
the Company's interest rate remains variable.
For the three months ended March 31, 1996, the Company's cash flow from
operations was $128.2 million, increasing from $79.7 million in the comparable
period for 1995. The increase in cash flow from operations was primarily
attributable to internal growth.
The Company's existing $300.0 million receivables purchase agreement generated
additional proceeds of $4.6 million in the first quarter of 1996. The Company
used these proceeds to reduce outstanding debt under the Company's credit
facilities. As of March 31, 1996, the purchaser owned an undivided interest in
a $744.4 million pool of receivables which includes the $300.0 million sold.
Cash used in investing activities in the three months ended March 31, 1996
totaled $152.2 million and included $108.8 million for normal capital
expenditures and an additional $9.7 million for additional city pair network
construction. Primary capital expenditures include purchases of switching,
transmission, communication and other equipment. The Company's current
budgeted capital expenditures for 1996 approximate $400.0 million. In addition
to this amount, the Company has additional city pair network construction
opportunities which could approximate $650.0 million to $800.0 million over the
next two years.
As a result of the Company signing agreements to provide long distance
telecommunications services to certain LECs, management is currently evaluating
the impact that the increased traffic volumes will have on the Company's
network. As part of this evaluation, the Company plans to expand and upgrade
its existing network switching, transmission and other communications
equipment. Also, management is evaluating the impact that these events will
have on the estimated useful lives of certain network facilities. Due to the
upgrading of certain facilities, management is currently identifying which
assets will be removed prior to their estimated useful life and determining
whether there is an impairment to the carrying amount of those assets.
Included in cash flows from financing activities are payments of $0.5 million
for preferred dividend requirements. In May 1996, the Company announced that
the Series 2 Preferred Stock would be redeemed by the Company on June 5, 1996.
The conversion value of the Series 2 Preferred Stock is significantly higher
than the redemption price and therefore the Company expects that all holders of
the Series 2 Preferred Stock will elect to convert their shares to common stock
prior to the redemption. The remaining dividend requirement to be paid in the
second quarter of 1996 is not expected to exceed $0.4 million. After June 5,
1996, the Company will have no further dividend requirements.
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 1996.
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material changes in the legal proceedings reported
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, filed on March 30, 1996 except as may be reflected
in the discussion under Note C 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.
None
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
None
<PAGE> 15
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
Chief Financial Officer
Dated: May 15, 1996
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------------------------------------------------------------
3(i) Amended and Restated Articles of Incorporation of the Company
(including preferred stock designations) as of September 15, 1993,
as amended by Articles of Amendment dated May 26, 1994, as amended
by Articles of Amendment dated May 25, 1995 (incorporated herein
by reference to Exhibit 4.1 to the Annual Report on Form 10-K
filed by the Company for the year ended December 31, 1995).
3(ii) 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
12.1 Statement regarding computation of ratio of earnings to combined
fixed charges and preferred stock dividends
27.1 Financial Data Schedule
<PAGE> 1
Exhibit 11.1
WORLDCOM, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
For the Three Months Ended
March 31,
--------------------------
1996 1995
------------ ------------
Primary:
Weighted average shares outstanding 193,783 160,396
Common stock equivalents 3,736 6,377
------------ ------------
197,519 166,773
============ ============
Fully diluted:
Weighted average shares outstanding 193,783 160,396
Common stock equivalents 4,293 6,636
Common stock issuable upon conversion of:
5% convertible notes 5,135 5,135
Series 1 preferred stock -- 21,877
Series 2 preferred stock 2,633 4,233
------------ ------------
205,844 198,277
============ ============
Income applicable to common shareholders $ 84,995 $ 47,024
Add back:
Interest on 5% convertible notes, net of taxes 1,491 1,491
Series 1 preferred dividend requirement -- 6,126
Series 2 preferred dividend requirement 505 813
------------ ------------
Net income applicable to common shareholders $ 86,991 $ 55,454
============ ============
Earnings per share:
Primary $ 0.43 $ 0.28
Fully diluted $ 0.42 $ 0.28
<PAGE> 1
<TABLE>
Exhibit 12.1
WORLDCOM, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
(In Thousands of Dollars)
<CAPTION>
For the Three Months
Year Ended December 31, Ended March 31,
------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income (loss) from
continuing operations $ 65,646 $ 20,401 $198,237 $(76,108) $405,596 $ 81,525 $139,658
Fixed charges, net of capitalized
interest 38,116 38,720 58,999 87,455 300,094 73,425 62,698
-------- -------- -------- --------- -------- --------- ---------
Earnings $103,762 $ 59,121 $257,236 $ 11,347 $705,690 $154,950 $202,356
======== ======== ======== ========= ======== ========= =========
Fixed charges:
Interest cost $ 34,495 $ 33,815 $ 38,657 $ 49,203 $253,945 $ 62,308 $ 59,304
Amortization of financing costs 1,018 1,464 1,792 2,086 2,811 710 713
Interest factor of rent expense 5,503 4,833 9,967 10,300 15,030 3,468 4,454
Preferred dividend requirements -- 2,112 11,683 27,766 33,191 6,939 505
-------- -------- -------- --------- -------- --------- ---------
Fixed charges $ 41,016 $ 42,224 $ 62,099 $ 89,355 $304,977 $ 73,425 $ 64,976
======== ======== ======== ========= ======== ========= =========
Deficiency of earnings to fixed
charges $ -- $ -- $ -- $(78,008) $ -- $ -- $ --
======== ======== ======== ========= ======== ========= =========
Ratio of earnings to combined fixed
charges and preferred stock
dividends 2.53:1 1.40:1 4.14:1 0.13:1 2.31:1 2.11:1 3.11:1
======== ======== ======== ========= ======== ========= =========
<FN>
See notes to computation of ratio of earnings to combined fixed charges and preferred stock dividends.
</TABLE>
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 Williams
Telecommunications Group, Inc. for approximately $2.5 billion in cash which
was accounted for as a purchase.
(2) As a result of the mergers with IDB Communications Group, Inc. (the "IDB
Merger") and Advanced Telecommunications Corporation (the "ATC Merger"),
the Company initiated plans to reorganize and restructure its management
<PAGE> 2
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 Communications Group,
Inc.'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.
(4) In the third quarter of 1995, Metromedia Company ("Metromedia") converted
its Series 1 Preferred Stock into 21,876,976 shares of WorldCom common
stock and exercised warrants to acquire 3,106,976 shares of WorldCom common
stock and immediately sold its position of 30,849,548 shares of WorldCom
common stock in a public offering. In connection with the preferred stock
conversion, WorldCom 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).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLDCOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000723527
<NAME> WORLDCOM, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 19,708
<SECURITIES> 0
<RECEIVABLES> 652,756
<ALLOWANCES> 61,212
<INVENTORY> 0
<CURRENT-ASSETS> 749,346
<PP&E> 2,165,066
<DEPRECIATION> (531,487)
<TOTAL-ASSETS> 6,816,942
<CURRENT-LIABILITIES> 2,114,155
<BONDS> 2,194,357
0
12
<COMMON> 1,941
<OTHER-SE> 2,293,342
<TOTAL-LIABILITY-AND-EQUITY> 6,816,942
<SALES> 1,026,186
<TOTAL-REVENUES> 1,026,186
<CGS> 558,189
<TOTAL-COSTS> 831,123
<OTHER-EXPENSES> (2,126)
<LOSS-PROVISION> 13,529
<INTEREST-EXPENSE> 57,026
<INCOME-PRETAX> 140,163
<INCOME-TAX> 54,663
<INCOME-CONTINUING> 85,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,995
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.42
</TABLE>
