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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 September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-11258
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WorldCom, Inc.
(Exact name of registrant as specified in its charter)
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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
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The number of outstanding shares of the registrant's Common Stock, par
value $.01 per share, was 409,245,881 on October 31, 1996.
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FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 . . . . . . . . 3
Consolidated Statements of Operations
for the three and nine months ended September 30, 1996
and September 30, 1995 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1996 and
September 30, 1995 . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 15
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote
of Securities Holders . . . . . . . . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</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>
September 30, December 31,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,845 $ 41,525
Accounts receivable, net of allowance for bad debts of $66,338 in 1996
and $59,055 in 1995 670,140 532,571
Income taxes receivable 38,055 17,499
Deferred tax asset 22,959 16,899
Other current assets 75,915 50,792
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Total current assets 825,914 659,286
----------- -----------
Property and equipment:
Transmission equipment 1,564,327 1,376,242
Communications equipment 306,749 401,454
Furniture, fixtures and other 259,978 279,705
----------- -----------
2,131,054 2,057,401
Less - accumulated depreciation (365,507) (487,370)
----------- -----------
1,765,547 1,570,031
----------- -----------
Excess of cost over net tangible assets acquired, net of accumulated amortization 4,012,234 4,292,752
Other assets 251,271 117,655
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$ 6,854,966 $ 6,639,724
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt and current maturities of long-term debt $ 1,071 $ 1,113,670
Accounts payable 165,309 140,932
Accrued line costs 421,093 391,604
Other current liabilities 314,237 337,814
----------- -----------
Total current liabilities 901,710 1,984,020
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Long-term liabilities, less current portion:
Long-term debt 3,276,641 2,278,791
Deferred income taxes payable 83,348 26,172
Other liabilities 150,925 163,873
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Total long-term liabilities 3,510,914 2,468,836
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Commitments and contingencies
Shareholders' investment:
Series 2 preferred stock, par value $.01 per share; authorized, issued and
outstanding: none in 1996 and 1,244,048 shares in 1995 (liquidation preference
of $31,101 in 1995) -- 12
Preferred stock, par value $.01 per share; authorized: 50,000,000 shares in
1996 and 48,755,952 shares in 1995; none issued -- --
Common stock, par value $.01 per share; authorized: 750,000,000 shares; issued
and outstanding: 408,408,243 shares in 1996 and 386,485,278 shares in 1995 4,084 3,876
Additional paid-in capital 2,184,633 1,900,809
Unrealized holding gain on marketable securities 44,922 --
Retained earnings 208,703 282,171
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Total shareholders' investment 2,442,342 2,186,868
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$ 6,854,966 $ 6,639,724
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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 Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,131,519 $ 938,884 $ 3,235,552 $ 2,706,060
----------- ----------- ----------- -----------
Operating expenses:
Line costs 618,089 511,827 1,763,421 1,489,330
Selling, general and administrative 208,348 169,908 597,558 496,222
Depreciation and amortization 73,021 79,850 228,489 231,458
Provision to reduce carrying value of certain assets -- -- 402,000 --
----------- ----------- ----------- -----------
Total 899,458 761,585 2,991,468 2,217,010
----------- ----------- ----------- -----------
Operating income 232,061 177,299 244,084 489,050
Other income (expense):
Interest expense (55,014) (62,556) (167,946) (189,431)
Miscellaneous 1,725 3,752 5,810 7,125
----------- ----------- ----------- -----------
Income before taxes and extraordinary items 178,772 118,495 81,948 306,744
Provision for income taxes 69,721 46,424 129,843 120,446
----------- ----------- ----------- -----------
Income (loss) before extraordinary items 109,051 72,071 (47,895) 186,298
Extraordinary items (net of income taxes of $15,621 in 1996) -- -- (24,434) --
----------- ----------- ----------- -----------
Net income (loss) 109,051 72,071 (72,329) 186,298
----------- ----------- ----------- -----------
Preferred dividend requirement -- 3,811 860 17,686
Special dividend payment to Series 1 preferred shareholder -- 15,000 -- 15,000
----------- ----------- ----------- -----------
Net income (loss) applicable to common shareholders $ 109,051 $ 53,260 $ (73,189) $ 153,612
=========== =========== =========== ===========
Earnings (loss) per common share -
Net income (loss) applicable to common shareholders before
extraordinary items:
Primary $ 0.27 $ 0.15 $ (0.12) $ 0.44
Fully diluted 0.27 0.14 (0.12) 0.44
Extraordinary items $ -- $ -- $ (0.06) $ --
Net income (loss) applicable to common shareholders:
Primary $ 0.27 $ 0.15 $ (0.18) $ 0.44
Fully diluted 0.27 0.14 (0.18) 0.44
Net income applicable to common shareholders before
non-recurring charges and extraordinary items:
Primary $ 0.27 $ 0.18 $ 0.73 $ 0.48
Fully diluted 0.27 0.18 0.73 0.48
Weighted average shares outstanding:
Primary 415,189 390,028 393,869 385,034
Fully diluted 415,195 405,922 393,869 401,052
</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 Nine Months
Ended September 30,
--------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (72,329) $ 186,298
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary items 24,434 --
Provision to reduce carrying value of certain assets 402,000 --
Depreciation and amortization 228,489 231,458
Provision for losses on accounts receivable 42,422 29,852
Provision for deferred income taxes 101,079 47,293
Change in assets and liabilities, net of effect of
business combinations:
Accounts receivable (170,669) (41,146)
Income taxes, net 12,718 66,526
Other current assets (46,416) (522)
Accrued line costs 7,489 49,882
Shareholder litigation reserve -- (75,000)
Accounts payable and other current liabilities (15,800) (125,111)
Other (16,673) (6,349)
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Net cash provided by operating activities 496,744 363,181
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Cash flows from investing activities:
Capital expenditures (415,343) (288,019)
Acquisitions and related costs (18,535) (2,713,765)
Increase in intangible assets (71,240) (6,350)
Increase in other assets (106,866) (19,489)
Decrease in other liabilities (39,784) (21,468)
Proceeds from sale of long-term assets 21,962 28,153
Other -- 1,000
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Net cash used in investing activities (629,806) (3,019,938)
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Cash flows from financing activities:
Borrowings 95,500 2,717,650
Principal payments on debt (19,174) (127,438)
Common stock issuance 35,191 90,646
Dividends paid on preferred stock (860) (32,686)
Other (275) --
----------- -----------
Net cash provided by financing activities 110,382 2,648,172
----------- -----------
Net decrease in cash and cash equivalents (22,680) (8,585)
Cash and cash equivalents at beginning of period 41,525 19,770
----------- -----------
Cash and cash equivalents at end of period $ 18,845 $ 11,185
=========== ===========
</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) 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 nine month period ended September 30, 1996, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
In the third quarter of 1996, the Company acquired Choice Communications, Inc.
("Choice"), a cellular resale company. This transaction was accounted for as a
pooling-of-interests and, accordingly, the WorldCom financial statements for
periods prior to the Choice acquisition have been restated to include the
results of Choice for all periods presented.
(B) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid by the Company during the nine months ended September 30, 1996
and 1995 amounted to $170.8 million and $165.4 million, respectively. Income
taxes paid during the nine months ended September 30, 1996 and 1995 were $16.0
million and $7.4 million, respectively. In conjunction with business
combinations during the nine months ended September 30, 1996 and 1995, assumed
assets and liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1996 1995
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<S> <C> <C>
Fair value of assets acquired $ 12,065 $ 829,806
Excess of cost over net tangible assets acquired 60,698 2,199,415
Liabilities assumed (30,877) (302,606)
Common stock issued (23,351) (12,850)
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Net cash paid $ 18,535 $ 2,713,765
========= ===========
</TABLE>
(C) UNREALIZED HOLDING GAIN ON MARKETABLE SECURITIES
In the third quarter of 1996, one of the Company's equity investments became
publicly traded. This investment, previously recorded at cost, has been
classified as an available for sale security under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FASB 115"). Accordingly, this investment is recorded at
its fair value of approximately $75 million at September 30, 1996, and is
included in other assets in the accompanying consolidated financial statements.
The unrealized holding gain on this marketable equity security is included as a
component of shareholders' investment at September 30, 1996.
(D) LONG-TERM DEBT
On June 28, 1996, WorldCom replaced its then existing $3.41 billion credit
facilities (the "Previous Facilities") with a new $3.75 billion revolving
credit facility (the "Credit Facility"). Borrowings under the Credit Facility
were used to refinance the Previous Facilities and will be used to finance
capital expenditures and provide additional working capital. As a result of
the refinancing, WorldCom recorded an extraordinary charge of $4.2 million, net
of $2.7 million in taxes, related to the charge-off of the unamortized portion
of costs associated with the refinanced debt.
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The Credit Facility has a five-year term and bears interest, payable quarterly,
at variable rates selected by the Company under the terms of the Credit
Facility including a Base Rate or the London Interbank Offering Rate ("LIBOR"),
plus applicable margin. The applicable margin for LIBOR rate borrowings varies
from 0.35% to 0.875% based upon a specified financial test. The Credit
Facility is unsecured and requires compliance with certain financial and other
operating covenants which limit, among other things, the incurrence of
additional indebtedness by WorldCom and restricts the payment of cash dividends
to WorldCom's shareholders. The Credit Facility is also subject to an annual
commitment fee not to exceed 0.25% of any unborrowed portion of the Credit
Facility.
On July 15, 1996, WorldCom announced that it had exercised its option to redeem
on August 16, 1996, all of the outstanding IDB WorldCom, Inc. 5% Convertible
Subordinated Notes due 2003 (the "Notes"), at a price equal to 103.5% of the
principal amount, plus accrued and unpaid interest. Prior to such redemption
date, substantially all of the holders of the Notes elected to convert their
notes into WorldCom common stock, resulting in the issuance of approximately
10.3 million shares of WorldCom common stock.
(E) STOCK SPLIT
On May 23, 1996, the Board of Directors authorized a 2-for-1 stock split in the
form of a 100% stock dividend which was distributed on July 3, 1996 to
shareholders of record on June 6, 1996. All per share data and numbers of
common shares have been retroactively restated to reflect the stock split.
(F) PREFERRED STOCK
In connection with the announcement in May 1996, that the Company would redeem
its Series 2 Preferred Stock on June 5, 1996, all of the remaining outstanding
Series 2 Preferred Stock (1,244,048 shares) was converted into 5,266,160 shares
of common stock of the Company in the second quarter of 1996.
(G) SHAREHOLDER RIGHTS PLAN
On August 25, 1996, the Board of Directors of WorldCom declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock, par value $.01 per share, of the Company (the "Common Stock").
The dividend distribution was paid on September 6, 1996 to the shareholders of
record on that date. Each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series 3 Junior Participating
Preferred Stock, par value $.01 per share (the "Preferred Stock") of the
Company at a price of $160.00 per one one-thousandth of a share of Preferred
Stock (the "Purchase Price"), subject to adjustment.
The Rights generally will be exercisable only after the close of business on
the tenth business day following the date of public announcement or the date on
which the Company first has notice or determines that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, 15% or more of the outstanding shares of voting
stock of the Company without the prior express written consent of the Company,
or the close of business on the tenth business day following the commencement
of a tender offer or exchange offer, without the prior written consent of the
Company, by a person which, upon consummation, would result in such party's
control of 15% or more of the Company's voting stock. The Rights will expire,
if not previously exercised, exchanged or redeemed, on September 6, 2006.
If any person or group acquires 15% or more of the Company's outstanding voting
stock without prior written consent of the Board of Directors, each Right,
except those held by such persons, would entitle each holder of a Right to
acquire such number of shares of the Company's Common Stock as shall equal the
result obtained by multiplying the then current Purchase Price by the number of
one one-thousandths of a share of Preferred Stock for which a Right is then
exercisable and dividing that product by 50% of the then current per-share
market price of Common Stock.
If any person or group acquires more than 15% but less than 50% of the
outstanding Common Stock without prior written consent of the Board of
Directors, each Right, except those held by such persons, may be exchanged by
the Board of Directors for one share of Common Stock.
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If the Company were acquired in a merger or other business combination
transaction where the Company is not the surviving corporation or where Common
Stock is exchanged or changed or 50% or more of the Company's assets or
earnings power is sold in one or several transactions without the prior written
consent of the Board of Directors, each Right would entitle the holders thereof
(except for the Acquiring Person) to receive such number of shares of the
acquiring company's common stock as shall be equal to the result obtained by
multiplying the then current Purchase Price by the number one one-thousandths
of a share of Preferred Stock for which a Right is then exercisable and
dividing that product by 50% of the then current market price per share of the
common stock of the acquiring company on the date of such merger or other
business combination transaction.
At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of the Company may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of the Rights will be to receive the
Redemption Price.
(H) PROVISION TO REDUCE THE CARRYING VALUE OF CERTAIN ASSETS
In the second quarter of 1996, the Company incurred non-cash charges related to
a write-down in the carrying value of certain assets, including goodwill and
equipment. Because of events resulting from the passage of the
Telecommunications Act of 1996 (the "Telecom Act"), and changes in
circumstances impacting certain non-core operations, management estimates of
the Company's fair value of operating assets within its core and non-core
businesses resulted in a non-cash charge of $344 million after-tax or $.87 per
share. On a pre-tax basis, the write-down was $402 million and included $139
million for network facilities and $263 million for non-core businesses,
primarily operator services goodwill. Fair value of the non-core business was
determined by estimating the present value of future cash flows to be generated
from those operations while the majority of the network facilities were
recorded at net salvage value due to anticipated early disposal.
In connection with the signing of agreements to provide long distance
telecommunications services to certain local exchange carriers, and after the
successful assimilation of recent facilities-based acquisitions, WorldCom
evaluated the impact that the increased traffic volumes would have on the
Company's network. This review resulted in the Company's current plans to
expand and upgrade its existing network switching, transmission and other
communications equipment. This capital project directly affected the estimated
useful lives of certain network facilities which will result in replacement of
these facilities prior to June 30, 1997.
Additionally, due to the decreasing emphasis on operator services, including
non-renewal of existing long-term contracts, management adjusted the fair value
of this non-core business based upon its projections of future cash flow.
Operator services now comprises less than 3% of WorldCom's consolidated
revenues.
(I) EXTRAORDINARY ITEMS
In the second quarter of 1996, the Company recorded extraordinary items
totaling $24.4 million, net of income tax benefit of $15.6 million. The items
consisted of $4.2 million in connection with the Company's debt refinancing, as
discussed in Note D and $20.2 million related to a write-off of deferred
international costs. Previously, a portion of the outbound call fee due the
foreign carrier was deferred and accounted for as a cost attributable to the
revenue associated with the inbound call. Currently, the outbound call fee due
the foreign carrier is expensed as incurred.
(J) 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 National Association of
Securities Dealers 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 (the "U.S.
Attorney's Office") issued grand jury subpoenas to IDB and WorldCom in 1994 and
1995 seeking documents relating to IDB's first quarter of 1994 results, the
resignation of Deloitte &
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Touche LLP as IDB's auditors, trading in IDB securities and other matters. In
October, 1996, the U.S. Attorney's Office entered into an agreement with
WorldCom not to criminally prosecute IDB with respect to IDB's financial
reporting on or before January 1, 1995 (including but not limited to the
resignation of Deloitte & Touche LLP), trading in IDB securities, misuse of
IDB's assets, attempts to obstruct the proceedings of the SEC and other
matters. The agreement does not cover potential violations of the federal tax
code and is expressly contingent upon the cooperation of IDB and WorldCom with
the U.S. Attorney's Office, the Federal Bureau of Investigation and any other
federal law enforcement agency, including the SEC.
OTHER. On February 8, 1996, President Clinton signed the Telecom Act, which
permits, without limitation, the Bell Operating Companies (the "BOCs") to
provide domestic and international long distance services to customers located
outside of the BOC's home regions; permits a petitioning BOC to provide
domestic and international long distance service to customers within its home
region upon a finding by the Federal Communications Commission (the "FCC") that
a 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; and removes existing barriers to
entry into local service markets. Additionally, there are significant changes
in: the manner in which carrier-to-carrier arrangements are regulated at the
federal and state level; procedures to revise universal service standards; and,
penalties for unauthorized switching of customers. The FCC has instituted
proceedings addressing the implementation of this legislation.
On August 1, 1996, the FCC announced its intention to conduct a proceeding in
the fall of 1996 leading to the reform of access charges. Such charges are a
principal component of the Company's line cost expense. The Company cannot
predict whether or not the result of such a proceeding will have a material
impact upon the Company.
On August 8, 1996 the FCC released its First Report and Order in the Matter of
Implementation of the Local Competition Provisions in the Telecom Act (the "FCC
Interconnect Order"). In the FCC Interconnect Order, the FCC established
nationwide rules designed to encourage new entrants to participate in the local
service markets through interconnection with the incumbent local exchange
carriers ("ILEC"), resale of the ILEC's retail services and unbundled network
elements. These rules set the groundwork for the statutory criteria governing
BOC entry into the long distance market. The Company cannot predict the effect
such legislation or the implementing regulations will have on the Company or
the industry. Motions to stay implementation of the FCC Interconnect Order
have been filed with the FCC and federal courts of appeal. Appeals
challenging, among other things, the validity of the FCC Interconnect Order
have been filed in several federal courts of appeal and assigned to the Eighth
Circuit Court of Appeals for disposition. The Eighth Circuit Court of Appeals
has stayed the pricing provisions of the FCC Interconnect Order. The Circuit
Justice of the Supreme Court has declined to review the propriety of the stay.
The Company cannot predict either the outcome of these challenges and appeals
or the eventual effect on its business or the industry in general.
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.
(K) CONCENTRATION OF CREDIT RISK
A portion of the Company's revenues is derived from services provided to others
in the telecommunications industry, mainly resellers of long distance
telecommunications service. As a result, the Company has some concentration of
credit risk among its customer base. The Company performs ongoing credit
evaluations of its larger customers' financial condition and, at times,
requires collateral from its customers to support its receivables, usually in
the form of assignment of its customers' receivables to the Company in the
event of nonpayment.
(L) MERGER AGREEMENT
As of August 25, 1996, WorldCom executed an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which a wholly owned subsidiary of the Company
will be merged with and into MFS Communications Company, Inc. ("MFS"), a
Delaware corporation (the "Merger"). Pursuant to the Merger Agreement, (i)
each share of common stock of MFS will be converted into and represent the
right to receive 2.1 shares of Common Stock of the Company, (ii) each share of
Series A 8% Cumulative Convertible
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Preferred Stock, par value $.01 per share, of MFS will be converted into and
represent the right to receive one (1) share of Series A 8% Cumulative
Convertible Preferred Stock, par value $.01 per share, of the Company, and
(iii) each share of Series B Convertible Preferred Stock, par value $.01 per
share, of MFS will be converted into and represent the right to receive one (1)
share of Series B Convertible Preferred Stock, par value $.01 per share, of the
Company. The transaction is subject to customary closing conditions and
shareholder and regulatory approval.
On August 25, 1996, the Company and MFS entered into an agreement pursuant to
which, in the event the Merger Agreement is terminated under certain specified
circumstances, the party terminating the Merger Agreement will be entitled to
receive from the other party certain telecommunications services.
On August 25, 1996, pursuant to Stock Option Agreements, dated as of August 25,
1996, between the Company and MFS (the "Option Agreements"), the Company
granted an option to MFS to purchase up to 81,224,137 or approximately 19.9% of
the currently outstanding shares of Common Stock of the Company with an
exercise price of $26.375 per share and MFS granted an option to WorldCom to
purchase up to 43,953,073 or approximately 19.9% of the currently outstanding
shares of common stock of MFS with an exercise price of $55.3875 per share,
which options become exercisable upon the occurrence of certain events.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report on Form 10-Q may be deemed to include forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that involve risk and uncertainty, including financial, regulatory environment
and trend projections. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its expectations
will be achieved. The important factors that could cause actual results to
differ materially from those in the forward looking statements herein include,
without limitation, the Company's high degree of financial leverage, risks
associated with debt service requirements and interest rate fluctuations, risks
associated with acquisitions and the integration thereof, risks of
international business, dependence on availability of transmission facilities,
regulation risks including the impact of the Telecom Act, contingent
liabilities, and the impact of competitive services and pricing, as well as
other risks referenced from time to time in the Company's filings with the SEC.
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three and nine months ended
September 30, 1996 and 1995, and should be read in conjunction with the
consolidated financial statements and notes thereto.
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 economies of scale
in line cost expenditures and to control and maintain selling, general and
administrative overhead costs. 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.
Page 10
<PAGE> 11
On February 8, 1996, President Clinton signed the Telecom Act which permits,
without limitation, the BOCs to provide domestic and international long
distance services to customers located outside of the BOC's home regions;
permits a petitioning BOC to provide domestic and international long distance
service to customers within its home region upon a finding by the FCC that a
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; and removes existing barriers to
entry into local service markets. Additionally, there are significant changes
in: the manner in which carrier-to-carrier arrangements are regulated at the
federal and state level; procedures to revise universal service standards; and,
penalties for unauthorized switching of customers. The FCC has instituted
proceedings addressing the implementation of this legislation.
On August 1, 1996, the FCC announced its intention to conduct a proceeding in
the fall of 1996 leading to the reform of access charges. Such charges are a
principal component of the Company's line cost expense. The Company cannot
predict whether or not the result of such a proceeding will have a material
impact upon the Company.
In the FCC Interconnect Order, which was released on August 8, 1996, the FCC
established nationwide rules designed to encourage new entrants to participate
in the local service markets through interconnection with the ILEC, resale of
the ILEC's retail services and unbundled network elements. These rules set the
groundwork for the statutory criteria governing BOC entry into the long
distance market. The Company cannot predict the effect such legislation or the
implementing regulations will have on the Company or the industry. Motions to
stay implementation of the FCC Interconnect Order have been filed with the FCC
and federal courts of appeal. Appeals challenging, among other things, the
validity of the FCC Interconnect Order have been filed in several federal
courts of appeal and assigned to the Eighth Circuit Court of Appeals for
disposition. The Eighth Circuit Court of Appeals has stayed the pricing
provisions of the FCC Interconnect Order. The Circuit Justice of the Supreme
Court has declined to review the propriety of the stay. The Company cannot
predict either the outcome of these challenges and appeals or the eventual
effect on its business or the industry in general.
As of August 25, 1996, WorldCom executed the Merger Agreement, pursuant to
which a wholly owned subsidiary of the Company will be merged with and into
MFS. Pursuant to the Merger Agreement, (i) each share of common stock of MFS
will be converted into and represent the right to receive 2.1 shares of Common
Stock of the Company, (ii) each share of Series A 8% Cumulative Convertible
Preferred Stock, par value $.01 per share, of MFS will be converted into and
represent the right to receive one (1) share of Series A 8% Cumulative
Convertible Preferred Stock, par value $.01 per share, of the Company, and
(iii) each share of Series B Convertible Preferred Stock, par value $.01 per
share, of MFS will be converted into and represent the right to receive one (1)
share of Series B Convertible Preferred Stock, par value $.01 per share, of the
Company. The transaction is subject to customary closing conditions and
shareholder and regulatory approval.
The combination of WorldCom, MFS and UUNET Technologies, Inc., which recently
merged with MFS, will bring together the leading growth companies from four key
telecom industry segments: long distance, local, Internet and international.
The Merger would (1) enhance the combined entity's opportunities for future
growth, (2) create a stronger competitor in the changing long distance and
local telecommunications industry, (3) allow provision of end-to-end bundled
long distance and local and internet services over a global network and (4)
provide the opportunity for significant cost savings for the combined
organization.
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.
Page 11
<PAGE> 12
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Line costs . . . . . . . . . . . . . . . . . . . . . . . . . 54.6 54.5 54.5 55.0
Selling, general and administrative . . . . . . . . . . . . . 18.4 18.1 18.5 18.3
Depreciation and amortization . . . . . . . . . . . . . . . . 6.5 8.5 7.1 8.6
Provision to reduce carrying value of certain assets . . . . - - 12.4 -
----- ----- ----- -----
Operating income . . . . . . . . . . . . . . . . . . . . . . 20.5 18.9 7.5 18.1
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . (4.9) (6.7) (5.2) (7.0)
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 0.2 0.4 0.2 0.3
----- ----- ----- -----
Income before income taxes and extraordinary items . . . . . 15.8 12.6 2.5 11.4
Provision for income taxes . . . . . . . . . . . . . . . . . 6.2 4.9 4.0 4.5
----- ----- ----- -----
Net income (loss) before extraordinary items . . . . . . . . 9.6 7.7 (1.5) 6.9
Extraordinary items, net of taxes . . . . . . . . . . . . . . - - (0.8) -
Preferred dividend requirement . . . . . . . . . . . . . . . - 0.4 - 0.7
Special dividend payment to Series 1 preferred shareholder . - 1.6 - 0.5
----- ----- ----- -----
Net income (loss) applicable to common shareholders . . . . . 9.6% 5.7% (2.3)% 5.7%
===== ===== ===== =====
</TABLE>
Revenues for the three months ended September 30, 1996 increased 20.5% to $1.13
billion on 6.12 billion revenue minutes as compared to $938.9 million on 5.0
billion revenue minutes for the three months ended September 30, 1995. For the
nine months ended September 30, 1996, revenues increased 19.6% to $3.24 billion
on 17.41 billion revenue minutes versus $2.71 billion on 14.26 billion revenue
minutes. The increase in total revenues and minutes is primarily attributable
to internal growth of the Company.
In the third quarter of 1996, the Company acquired Choice Communications, Inc.
("Choice"), a cellular resale company. The transaction was accounted for as a
pooling-of-interests and, accordingly, all prior period amounts have been
restated to include the results of Choice.
Third quarter revenues for Choice increased 79% to $9.5 million on 21.1 million
revenue minutes as compared to $5.3 million on 12.0 million revenue minutes for
the comparable 1995 period. For the nine months ended September 30, 1996,
revenues for Choice increased 104% to $25.6 million on 56.5 million revenue
minutes versus $12.7 million on 20.7 million revenue minutes for the nine
months ended September 30, 1995.
The Company's third quarter switched retail and wholesale revenue, excluding
operator services and cellular traffic, increased 21.7% over 1995 results,
while traffic growth from these businesses approximated 22.8%. Private line
revenues for the three months ended September 30, 1996, also reflected growth,
with an increase of 29.8% over the 1995 results.
Line costs as a percentage of revenues increased to 54.6% during the third
quarter of 1996 as compared to 54.5% for the same period in the prior year. On
a year-to-date basis, line costs as a percentage of revenues decreased to 54.5%
in 1996 from 55.0% in 1995. These changes are attributable to changes in the
product mix, and for the nine month period, 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 third quarter of 1996
increased to $208.3 million or 18.4% of revenues as compared to $169.9 million
or 18.1% of revenues for the third quarter of 1995. On a year-to-date basis,
these expenses increased to $597.6 million or 18.5% of revenues from $496.2
million or 18.3% of revenues for the nine months ended September 30, 1995. The
increase in selling, general and administrative expenses results from the
Company's expanding operations, primarily through internal growth.
Depreciation and amortization expense for the third quarter of 1996 decreased
to $73.0 million or 6.5% of revenues from $79.9 million or 8.5% of revenues for
the third quarter of 1995. This decrease reflects the reduction in
depreciation and amortization
Page 12
<PAGE> 13
associated with the second quarter 1996 write-down in the carrying value of
goodwill and equipment. On a year-to-date basis, this expense decreased to
$228.5 million or 7.1% of revenues versus $231.5 million or 8.6% of revenues
for the comparable 1995 period. This decrease reflects the reduction in
depreciation and amortization associated with the second quarter write-downs
offset by 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.
In the second quarter of 1996, the Company incurred non-cash charges related to
a write-down in the carrying value of certain assets, including goodwill and
equipment. Because of events resulting from the passage of the Telecom Act,
and changes in circumstances impacting certain non-core operations, management
estimates of the Company's fair value of operating assets within its core and
non-core businesses resulted in a non-cash charge of $344 million after-tax or
$.87 per share. On a pre-tax basis, the write-down was $402 million and
included $139 million for network facilities and $263 million for non-core
businesses, primarily operator services goodwill.
Interest expense in the third quarter of 1996 was $55.0 million or 4.9% of
revenues, as compared to $62.6 million or 6.7% of revenues in the third quarter
of 1995. For the nine months ended September 30, 1996, interest expense was
$167.9 million or 5.2% of revenues, as compared to $189.4 million or 7.0% of
revenues for the first nine months of 1995. The decrease in interest expense
is attributable to lower interest rates in effect on the Company's long-term
debt. For the nine months ended September 30, 1996 and 1995, weighted average
annual interest rates were 6.29% and 7.26%, respectively, while weighted
average annual levels of borrowing were $3.47 billion and $3.45 billion,
respectively.
In the second quarter of 1996, the Company recorded extraordinary items
totaling $24.4 million, net of income tax benefit of $15.6 million. The items
included $4.2 million in connection with the Company's debt refinancing, and
$20.2 million related to a write-off of deferred international costs.
Previously, a portion of the outbound call fee due the foreign carrier was
deferred and accounted for as a cost attributable to the revenue associated
with the inbound call. Currently, the outbound call fee due the foreign
carrier is expensed as incurred.
In the third quarter of 1995, Metromedia Company converted its Series 1
Preferred Stock into 43.8 million shares of WorldCom common stock and exercised
warrants to acquire 6.2 million shares of WorldCom common stock and immediately
sold its position of 61.7 million 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).
For the third quarter ended September 30, 1996, net income increased 60% to
$109.1 million compared with $68.3 million, before the special preferred stock
dividend payment in the 1995 third quarter. Fully diluted earnings per common
share increased 50% to $0.27 compared with $0.18, before the one-time payment,
a year ago.
For the nine months ended September 30, 1996, net income, before non-cash
charges, increased 75% to $294.8 million compared with $168.6 million before
the special dividend payment in the 1995 nine-month period. Fully diluted
earnings per common share, before the non-cash charges increased 52% to $0.73
compared with $0.48 a year ago. Including the non- cash, after-tax charges,
the Company reported a net loss of $73.2 million or $0.18 per share for the
first nine months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 1996, WorldCom replaced its then existing $3.41 billion credit
facilities (the "Previous Facilities") with a new $3.75 billion revolving
credit facility (the "Credit Facility"). Borrowings under the Credit Facility
were used to refinance the Previous Facilities and will be used to finance
capital expenditures and provide additional working capital. As a result of
the refinancing, WorldCom recorded an extraordinary charge of $4.2 million, net
of $2.7 million in taxes, related to the charge-off of the unamortized portion
of costs associated with the refinanced debt.
The Credit Facility has a five-year term and bears interest, payable quarterly,
at variable rates selected by the Company under the terms of the Credit
Facility including a Base Rate or the LIBOR, plus applicable margin. The
applicable margin for LIBOR rate
Page 13
<PAGE> 14
borrowings varies from 0.35% to 0.875% based upon a specified financial test.
The Credit Facility is unsecured and requires compliance with certain financial
and other operating covenants which limit, among other things, the incurrence
of additional indebtedness by WorldCom and restricts the payment of cash
dividends to WorldCom's shareholders. The Credit Facility is also subject to
an annual commitment fee not to exceed 0.25% of any unborrowed portion of the
Credit Facility.
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 priority plan would provide continued compliance
with required operating ratio covenants and 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 Credit Facility 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
Facility. The hedging agreements establish capped fixed 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 nine months ended September 30, 1996, the Company's cash flow from
operations was $496.7 million, increasing from $363.2 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 September 30, 1996, the purchaser owned an undivided
interest in a $700.9 million pool of receivables which includes the $300.0
million sold.
Cash used in investing activities in the nine months ended September 30, 1996
totaled $629.8 million and included $293.0 million for normal capital
expenditures and an additional $122.3 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 approximates $400.0 million. In
addition to this amount, the Company has additional city pair network
construction opportunities which could approximate $700.0 million to $800.0
million over the next two years.
Included in cash flows from financing activities are payments of $0.9 million
for preferred dividend requirements. In connection with the announcement in
May 1996, that the Company would redeem its Series 2 Preferred Stock on June 5,
1996, all of the remaining outstanding Series 2 Preferred Stock (1,244,048
shares) was converted into 5,266,160 shares of common stock of the Company in
the second quarter of 1996. The fully diluted common shares outstanding were
unaffected by the conversion and the Company has no further dividend
requirements.
On July 15, 1996, WorldCom announced that it had exercised its option to redeem
on August 16, 1996, all of the outstanding IDB WorldCom, Inc. 5% Convertible
Subordinated Notes due 2003 (the "Notes"). Prior to the redemption date,
substantially all of the holders of the Notes elected to convert their Notes
into WorldCom common stock, resulting in the issuance of approximately 10.3
million shares of WorldCom common stock. The fully diluted common shares
outstanding were unaffected by the conversion, and the Company has no further
cash interest requirement related to the Notes.
Absent significant capital requirements for other acquisitions, the Company
believes that cash flow from operations and funds available under the Credit
Facility will be adequate to meet the Company's capital needs for the remainder
of 1996.
Page 14
<PAGE> 15
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 J 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
Current Report on Form 8-K dated August 25, 1996 (filed August 26,
1996), reporting under Item 5, Other Events, information relative to
the Company's execution of an Agreement and Plan of Merger, pursuant
to which a wholly owned subsidiary of the Company will be merged with
and into MFS Communications Company, Inc.
Current Report on Form 8-K dated July 23, 1996 (filed August 26,
1996), as amended on Form 8 K/A dated August 25, 1996 (filed August
30, 1996), reporting under Item 5, Other Events, information relative
to the Company's Shareholders' Rights agreement.
Page 15
<PAGE> 16
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
----------------------------------
Chief Financial Officer
Dated: November 12, 1996
Page 16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of August 25, 1996,
among WorldCom, HIJ Corp., a Delaware corporation and a wholly
owned subsidiary of WorldCom and MFS Communications Company,
Inc., a Delaware corporation (incorporated herein by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated August 25, 1996 (filed August 26, 1996))*
2.2 Stock Option Agreement, dated as of August 25, 1996, between
WorldCom, Inc. and MFS Communications Company, Inc.
(incorporated herein by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated August 25, 1996
(filed August 26, 1996))
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) Articles of Amendment to the Amended and Restated Articles of
Incorporation dated May 23, 1996 (incorporated herein by
reference to Exhibit 3(ii) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996)
3(iii) Bylaws of the Company, as amended (incorporated herein by
reference to Exhibit 3(iii) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996)
4.1 Rights Agreement, dated as of August 25, 1996 between
WorldCom, Inc. and The Bank of New York which includes the
form of Certificate of Designations, setting forth the terms
of the Series 3 Junior Participating Preferred Stock, par
value $.01 per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Preferred Stock
Purchase Rights as Exhibit C. Pursuant to the Rights
Agreement, printed Right Certificates will not be mailed until
as soon as practicable after the earlier of the tenth day
after public announcement that a person or group (except for
certain exempted persons or groups) has acquired beneficial
ownership of 15% or more of the outstanding shares of Common
Stock or the tenth business day (or such later date as may be
determined by action of the Board of Directors) after a person
commences, or announces its intention to commence, a tender
offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or
more of the outstanding shares of Common Stock (incorporated
herein by reference Exhibit 4 to the Company's Current Report
on Form 8-K/A dated August 25, 1996 (filed August 30, 1996))
10.1 Agreement, dated as of August 25, 1996, between WorldCom, Inc.
and MFS Communications Company, Inc. (incorporated herein by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated August 25, 1996 (filed August 26, 1996))
</TABLE>
Page 17
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.2 Amended and Restated Credit Agreement among the Company,
Nations Bank of Texas, N.A. (Managing Agent and
Administrative Agent), Bank of America Illinois, The Bank of
New York, The Bank of Nova Scotia, Canadian Imperial Bank of
Commerce, Chemical Bank, Credit Lyonnais New York Branch,
First Union National Bank of North Carolina, The Industrial
Bank of Japan, Limited, Atlanta Agency, The First National
Bank of Chicago, The Long-Term Credit Bank of Japan, Limited,
New York Branch, Toronto Dominion (Texas), Inc., and Wachovia
Bank of Georgia N.A., (Agents) and the Lenders named therein
(Lenders) dated as of June 28, 1996 (incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996)
10.3 WorldCom, Inc. Third Amended and Restated 1990 Stock Option
Plan (incorporated herein by reference to Exhibit A to the
Company's Proxy Statement dated April 22, 1996 used in
connection with the Company's 1996 Annual Meeting of
Shareholders) (Compensatory Plan)
10.4 WorldCom, Inc. Special Performance Bonus Plan (incorporated by
reference to Exhibit B to the Company's Proxy Statement dated
April 22, 1996 used in connection with the Company's 1996
Annual Meeting of Shareholders) (Compensatory Plan)
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
99.1 Stock Option Agreement, dated as of August 25, 1996, between
WorldCom, Inc. and MFS Communications Company, Inc.
(incorporated herein by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated August 25, 1996
(filed August 26, 1996))
</TABLE>
- --------------------------
* The Registrant hereby agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the Securities and Exchange
Commissipn upon request.
Page 18
<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 Nine Months Ended
--------------------------- -------------------------
September 30, September 30,
--------------------------- -------------------------
1996 1995 1996 1995
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 402,881 353,288 393,869 333,450
Common stock equivalents 7,724 8,984 -- 11,030
Common shares issuable upon conversion of:
Series 1 preferred stock -- 25,206 -- 37,572
Series 2 preferred stock -- 2,550 -- 2,982
5% convertible notes 4,584 -- -- --
--------- --------- --------- ---------
415,189 390,028 393,869 385,034
========= ========= ========= =========
Income (loss) applicable to common shareholders
before extraordinary items $ 109,051 $ 53,260 $ (48,755) $ 153,612
Extraordinary items -- -- (24,434) --
--------- --------- --------- ---------
Income (loss) applicable to common shareholders $ 109,051 $ 53,260 $ (73,189) $ 153,612
Add back:
Dividend paid on Series 1 preferred stock conversions -- 3,062 -- 15,312
Dividend paid on Series 2 preferred stock conversions -- 243 -- 858
Interest paid on 5% convertible notes conversions, net of taxes 1,489 -- -- --
--------- --------- --------- ---------
Net income (loss) applicable to common shareholders 110,540 56,565 (73,189) 169,782
One-time dividend payment on Series1 preferred stock conversion -- 15,000 -- 15,000
--------- --------- --------- ---------
Net income (loss) applicable to common shareholders before one-time dividend $ 110,540 $ 71,565 $ (73,189) $ 184,782
========= ========= ========= =========
Primary earnings (loss) per share:
Before one-time dividend payment to Series 1 preferred shareholder $ 0.27 $ 0.18 $ (0.18) $ 0.48
========= ========= ========= =========
Applicable to common shareholders before extraordinary items $ 0.27 $ 0.15 $ (0.12) $ 0.44
========= ========= ========= =========
Extraordinary items $ -- $ -- $ (0.06) $ --
========= ========= ========= =========
Applicable to common shareholders $ 0.27 $ 0.15 $ (0.18) $ 0.44
========= ========= ========= =========
Fully diluted:
Weighted average shares outstanding 402,881 353,288 393,869 333,450
Common stock equivalents 7,730 9,342 -- 11,512
Common stock issuable upon conversion of:
5% convertible notes 4,584 10,270 -- 10,270
Series 1 preferred stock -- 25,206 -- 37,572
Series 2 preferred stock -- 7,816 -- 8,248
--------- --------- --------- ---------
415,195 405,922 393,869 401,052
========= ========= ========= =========
Income (loss) applicable to common shareholders
before extraordinary items $ 109,051 $ 53,260 $ (48,755) $ 153,612
Extraordinary items -- -- (24,434) --
Add back:
Interest on 5% convertible notes, net of taxes 1,489 1,491 -- 4,472
Series 1 preferred dividend requirement -- 3,062 -- 15,312
Series 2 preferred dividend requirement -- 749 -- 2,374
--------- --------- --------- ---------
Income (loss) applicable to common shareholders $ 110,540 $ 58,562 $ (73,189) $ 175,770
One-time dividend payment on Series 1 preferred stock conversion -- 15,000 -- 15,000
--------- --------- --------- ---------
Net income (loss) applicable to common shareholders before one-time dividend $ 110,540 $ 73,562 $ (73,189) $ 190,770
========= ========= ========= =========
Fully diluted earnings per share:
Before one-time dividend payment to Series 1 preferred shareholder $ 0.27 $ 0.18 $ (0.18) $ 0.48
========= ========= ========= =========
Applicable to common shareholders before extraordinary items $ 0.27 $ 0.14 $ (0.12) $ 0.44
========= ========= ========= =========
Extraordinary items $ -- $ -- $ (0.06) $ --
========= ========= ========= =========
Applicable to common shareholders $ 0.27 $ 0.14 $ (0.18) $ 0.44
========= ========= ========= =========
</TABLE>
<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>
<MULTIPLIER> 1,000
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0
0
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