<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 6, 1998
WORLDCOM, INC.
(Exact Name of Registrant as Specified in its Charter)
Georgia 0-11258 58-1521612
(State or Other (Commission File (IRS Employer
Jurisdiction of Number) (Identification Number)
Incorporation)
515 East Amite Street
Jackson, Mississippi 39201-2702
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (601) 360-8600
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<PAGE> 2
ITEM 5. OTHER EVENTS.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 8-K may be deemed to include or incorporate by reference
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "PSLRA") that involve risk and uncertainty,
including, without limitation, statements contained under "The MCI/WorldCom
Merger" and "Pro Forma Condensed Combined Financial Statements." Such statements
may include, but are not limited to, the following:
(i) certain statements, including possible or assumed results of operations
of WorldCom, Inc. ("WorldCom" or the "Company") or MCI Communications
Corporation ("MCI") and the combined companies ("MCI/WorldCom"), forecasts,
projections and descriptions of anticipated cost savings or other synergies,
possible charges related to the allocation of a portion of the purchase price
for MCI to in-process research and development projects of MCI or to certain
exit costs relating to integrating the operations of MCI, the markets for
WorldCom's or MCI's services and products, anticipated capital expenditures,
regulatory developments, competition or the effects of the pending MCI/WorldCom
merger (the "MCI/WorldCom Merger"), or the recently completed acquisitions by
WorldCom of CompuServe Corporation (the "CompuServe Merger") and Brooks Fiber
Properties, Inc. (the "BFP Merger") and the transactions with America Online,
Inc. (the "AOL Transaction"), as well as assumptions regarding the foregoing;
(ii) any statements preceded by, followed by or that include the words
"intend," "expect," "project," "estimate," "predict," "anticipate," "should,"
"believe" and similar expressions; and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, future
events and actual results, performance and achievements could differ materially
from those set forth in, contemplated by or underlying the forward-looking
statements. Important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include, without
limitation, the Company's 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 Securities and Exchange Commission,
including the Company's Form 10-K for the year ended December 31, 1997.
Investors are cautioned not to place undue reliance on such statements, which
speak only as of the date thereof.
The independent public accountants have not examined or compiled any such
forward-looking statements or any forecasts or other projections referred to
herein and, accordingly, do not provide any assurance with respect to such
statements.
The cautionary statements contained or referred to in this section should
be considered in connection with any subsequent written or oral forward-looking
statements that may be issued by WorldCom or persons acting on its behalf.
The Company does not undertake any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
(1) On October 1, 1997, WorldCom announced its intention to commence an exchange
offer to acquire all of the outstanding shares of MCI common stock, par value
$.10 per share ("MCI Common Stock"), for $41.50 of WorldCom Common Stock,
subject to adjustment in certain circumstances as set forth in materials filed
by WorldCom with the Securities and Exchange Commission (the "Commission"). On
November 9, 1997, WorldCom entered into an Agreement and Plan of Merger (the
"MCI/WorldCom Merger Agreement") with MCI and MCI Merger Sub, providing for the
merger (the "MCI/WorldCom Merger"), with MCI Merger Sub surviving as a wholly
owned subsidiary of WorldCom. As a result of the MCI/WorldCom Merger, the
separate corporate existence of MCI will cease, and MCI Merger Sub (which will
be renamed "MCI Communications Corporation") will succeed to all the rights and
be responsible for all the obligations of MCI in accordance with the Delaware
General Corporation Law. Subject to the terms and conditions of the MCI/WorldCom
Merger Agreement, each share of MCI Common Stock outstanding immediately prior
to the effective time of the MCI/WorldCom Merger (the "MCI/WorldCom Effective
Time"), other than shares owned by WorldCom or held by MCI, will be converted
into the right to receive that number of shares of WorldCom Common Stock equal
to the MCI Exchange Ratio (as defined below), and each share of MCI Class A
common stock, par value $.10 per share ("MCI Class A Common Stock"), outstanding
immediately prior to the MCI/WorldCom Effective Time will be converted into the
right to receive $51.00 in cash, without interest thereon. The "MCI Exchange
Ratio" means the quotient (rounded to the nearest 1/10,000) determined by
dividing $51.00 by the average of the high and low sales prices of WorldCom
Common Stock (the "MCI/WorldCom Average Price") as reported on The Nasdaq
National Market on each of the 20 consecutive trading days ending with the third
trading day immediately preceding the MCI/WorldCom Effective Time; provided,
however, that the MCI Exchange Ratio will not be less than 1.2439 or greater
than 1.7586. Cash will be paid in lieu of the issuance of any fractional share
of WorldCom Common Stock in the MCI/WorldCom Merger.
Based on the number of shares of MCI Common Stock outstanding as of
March 31, 1998 and assumed MCI Exchange Ratios of 1.2439 and 1.7586,
approximately 731,890,172 shares and 1,034,731,133 shares, respectively, of
WorldCom Common Stock would be issued in the MCI/WorldCom Merger. In addition,
as of March 31, 1998, outstanding options to purchase shares of MCI Common
Stock would be converted in the MCI/WorldCom Merger to options to acquire an
aggregate of approximately 103,019,687 shares and 145,647,095 shares,
respectively, of WorldCom Common Stock, and the exercise price would be
adjusted to reflect the MCI Exchange Ratio, so that, on exercise, the holders
would receive, in the aggregate, the same number of shares of WorldCom Common
Stock as they would have received had they exercised prior to the MCI/WorldCom
Merger, at the same exercise price.
The MCI/WorldCom Merger was approved by the MCI stockholders and the
WorldCom shareholders at separate meetings held on March 11, 1998. The
MCI/WorldCom Merger was subsequently conditionally approved by the U.S.
Department of Justice and the European Commission, subject to the divestiture
of MCI's Internet services business. See Item 5(2) below. In addition, the
MCI/WorldCom Merger is also subject to approvals from the Federal Communications
Commission ("FCC") and certain state government bodies. WorldCom anticipates
that the MCI/WorldCom Merger will close in the third quarter of 1998.
In May 1998, GTE Corporation and three of its subsidiaries filed suit
in the U.S. District Court for the District of Columbia against WorldCom and MCI
seeking to enjoin the MCI/WorldCom Merger on the grounds that it violates U.S.
antitrust laws. WorldCom believes that the complaint is without merit, although
there can be no assurance as to the ultimate result of the suit.
2
<PAGE> 3
Termination of the MCI/WorldCom Merger Agreement by MCI or WorldCom
under certain conditions will require MCI to pay WorldCom $750 million as a
termination fee and to reimburse WorldCom the $450 million alternative
transaction fee paid by WorldCom to British Telecommunications plc ("BT").
Further, termination of the MCI/WorldCom Merger Agreement by MCI or WorldCom
under certain conditions, would require WorldCom to pay MCI $1.635 billion as a
termination fee.
Pursuant to an agreement (the "BT Agreement") among MCI, WorldCom and
BT, the prior merger agreement between BT and MCI (the "BT/MCI Merger
Agreement") was terminated, and WorldCom agreed to pay BT an alternative
transaction fee of $450 million and expenses of $15 million payable to BT in
accordance with the BT/MCI Merger Agreement. These fees were paid on November
12, 1997. WorldCom also agreed to pay to BT an additional payment of $250
million in the event that WorldCom is required to make the $1.635 billion
payment to MCI in accordance with the MCI/WorldCom Merger Agreement.
WorldCom is in the process of developing its plan to integrate the
operations of MCI which may include certain exit and restructuring costs. As a
result of this plan, a charge, which may be material but which cannot now be
quantified, is expected to be recognized in the period in which such a
restructuring occurs. In addition, WorldCom is conducting asset valuation
studies of MCI's tangible and identifiable intangible assets, including
in-process research and development projects, for the purpose of allocating the
purchase price to the net assets acquired. A preliminary estimate of the
one-time charge for purchased in-process research and development projects of
MCI is between $6 and $7 billion. This discussion of possible future charges or
allocations constitute "forward looking statements" within the meaning of
federal securities laws subject to risks and uncertainties. Important factors
that could cause actual results to differ materially from such statement
include, without limitation, the preliminary nature of such estimates and the
need to complete asset valuation studies.
The pro forma financial statements set forth under Item 7 are the same
as those contained in WorldCom's Form 8-K/A-3 dated November 9, 1997 (filed May
28, 1998), except that additional information regarding such preliminary
estimate of the one-time charge for purchased in-process research and
development projects is contained herein.
The foregoing description of the MCI/WorldCom Merger Agreement and the
BT Agreement and the transactions contemplated thereby does not purport to be
complete and is qualified in its entirety by reference to such agreements,
copies of which are incorporated by reference as exhibits to the WorldCom Annual
Report on Form 10-K for the year ended December 31, 1997, which is incorporated
by reference herein. Additional information regarding such agreements and the
transactions contemplated thereby (as of January 22, 1998) is also contained in
portions of WorldCom's Proxy Statement/Prospectus dated January 22, 1998 under
the captions "The MCI/WorldCom Merger - Interests of Certain Persons in the
Transaction," "Other Terms of the MCI/WorldCom Merger Agreement," "The BT
Agreement" and "Certain Regulatory Filings and Approvals" included in WorldCom's
Registration Statement on Form S-4, as amended (No. 333-36901), which portions
are hereby incorporated by reference herein.
(2) On July 15, 1998, MCI announced that it had entered into a letter agreement
(the "Letter Agreement") with Cable and Wireless plc ("Cable & Wireless") to
sell its Internet backbone facilities and wholesale and retail Internet business
(the "iMCI Business") for $1.75 billion in cash. The sale of the iMCI Business
includes all associated traffic, revenue and backbone facilities. Cable &
Wireless will acquire the following Internet assets: MCI's U.S. nationwide
Internet backbone, MCI's dedicated access customers, MCI's Internet service
provider customers, MCI's dial-up business and MCI's web hosting and managed
firewall services. In connection with the transaction, MCI has agreed to
provide Cable & Wireless underlying transport service for Cable & Wireless's
Internet backbone for up to five years. MCI and Cable & Wireless have also
agreed to non-competition agreements for transitioning accounts of 24 and 18
months for wholesale and dedicated access retail customers, respectively. In
addition, approximately 1,000 MCI employees - in engineering, sales, customer
service, marketing, operations and administrative support - may be transferred
to Cable & Wireless. The sale of the iMCI Business to Cable & Wireless is
contingent upon receipt of U.S. Department of Justice and European Commission
approval of the sale and the final regulatory approval of the MCI/WorldCom
Merger. The Letter Agreement will terminate if such governmental approvals are
not received by December 31, 1998.
MCI's agreement with Cable & Wireless has no immediate impact on MCI's
Internet customers. They will continue to receive Internet service from MCI
until the close of the MCI/WorldCom Merger when the agreement with Cable &
Wireless becomes effective. At that time, they will become Cable & Wireless
Internet customers. Subject to the terms of the Letter Agreement, MCI/WorldCom
will offer a full suite of Internet services upon completion of the MCI/WorldCom
Merger.
(3) On July 29, 1998 MCI announced that through its wholly owned Brazilian
subsidiary, Startel Participacoes Ltda ("Startel"), it had won the tender for
51.79 percent of the voting shares of Embratel Participacoes S.A. ("Embratel")
the long distance company of Brazil. Certain portions of the press release
related to this transaction are attached hereto as Exhibit 99.4 and are
incorporated herein by reference.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following pro forma financial information and exhibits are filed
herewith in accordance with Item 601 of Regulation S-K:
(a) Financial Statements.
The historical financial statements of WorldCom and related
notes as of December 31, 1997 and for each of the years in the three-year period
ended December 31, 1997 are contained in WorldCom's Current Report on Form 8-K
dated May 28, 1998 and the historical financial statements of WorldCom and
related notes as of March 31, 1998 and for the three months ended March 31, 1998
and 1997 are contained in WorldCom's Quarterly Report on Form 10-Q for the three
months ended March 31, 1998, which reports are incorporated by reference herein.
The historical financial statements of MCI and related notes as of December 31,
1997 and March 31, 1998 and for each of the years in the three-year period ended
December 31, 1997 and for the three months ended March 31, 1998 and 1997 are
contained in WorldCom's Current Report on Form 8-K/A-3 filed May 28, 1998, which
is incorporated by reference herein.
(b) Pro Forma Information.
The pro forma financial information required by this item are
contained in the financial statements and footnotes thereto listed in the Index
on page F-1.
3
<PAGE> 4
(c) Exhibit Index
Exhibit No. Description
----------- -----------
99.1 Certain portions of MCI's Press release dated July 30, 1998
(incorporated herein by reference to Exhibit 99.1 to
WorldCom's Form 8-K dated August 4, 1998 (filed August 4,
1998)).
99.2 Certain portions of WorldCom's press release dated July 23,
1998 (incorporated herein by reference to Exhibit 99.1 to
WorldCom's Form 8-K dated July 23, 1998 (filed July 24,
1998)).
99.3 Portions of WorldCom's Proxy Statement/Prospectus dated
January 22, 1998 under the captions "The MCI/WorldCom Merger
- Interests of Certain Persons in the Transaction," "Other
Terms of the MCI/WorldCom Merger Agreement," "The BT
Agreement" and "Certain Regulatory Filings and Approvals"
contained in WorldCom's Registration Statement on Form S-4,
as amended (No. 333-36901), which portions are hereby
incorporated by reference herein.
99.4 Certain portions of MCI's press release dated July 29, 1998.
4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WORLDCOM, INC.
By: /s/ SCOTT D. SULLIVAN
-----------------------------
Scott D. Sullivan
Chief Financial Officer
August 6, 1998
5
<PAGE> 6
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pro Forma Financial Statements Page Numbers
- ------------------------------ ------------
<S> <C>
WorldCom, Inc. - For the three months ended March 31, 1998 and
for the fiscal year ended December 31, 1997:
Pro Forma Condensed Combined Financial Statements F-2
Pro Forma Condensed Combined Balance Sheet as of March 31, 1998 F-3
Pro Forma Condensed Combined Statement of Operations for the
three months ended March 31, 1998 F-4
Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1997 F-5
Notes to Pro Forma Condensed Combined Financial Statements F-6
</TABLE>
F-1
<PAGE> 7
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1998 and unaudited Pro Forma Condensed Combined Statement of
Operations for the three months ended March 31, 1998, and for the year ended
December 31, 1997, illustrate the effect of the MCI/WorldCom Merger as if the
MCI/WorldCom Merger had occurred on March 31, 1998, for the Pro Forma Condensed
Combined Balance Sheet and as of the earliest date presented for the Pro Forma
Condensed Combined Statement of Operations. No adjustment has been included in
the pro forma amounts for any anticipated cost savings or other synergies, or
for the sale of the iMCI Business to Cable & Wireless pursuant to the Letter
Agreement. See Item 5(2) above, or for MCI's purchase of an investment in
Embratel. See Item 5(3) above.
Pursuant to the terms of the MCI/WorldCom Merger Agreement, each share of
MCI Common Stock will be converted into the right to receive that number of
shares of WorldCom Common Stock equal to the MCI Exchange Ratio. The holder of
MCI Class A Common Stock will be entitled to receive $51.00 per share in cash
for each of the MCI Class A Common Stock shares it owns, or approximately $7
billion in the aggregate. The Pro Forma Condensed Combined Financial Statements
have been prepared assuming the MCI/WorldCom Average Price to be $33.13,
resulting in an assumed MCI Exchange Ratio of 1.5396. The actual MCI Exchange
Ratio may vary as described herein. See Item 5(1) above. The MCI/WorldCom Merger
will be accounted for as a purchase under generally accepted accounting
principles.
These Pro Forma Condensed Combined Financial Statements should be read in
conjunction with the historical financial statements of WorldCom and MCI. The
historical financial statements of WorldCom and related notes as of December 31,
1997 and for each of the years in the three-year period ended December 31, 1997
are contained in WorldCom's Current Report on Form 8-K dated May 28, 1998 and
the historical financial statements of WorldCom and related notes as of March
31, 1998 and for the three months ended March 31, 1998 and 1997 are contained in
WorldCom's Quarterly Report on Form 10-Q for the three months ended March 31,
1998. The historical financial statements of MCI and related notes as of
December 31, 1997 and March 31, 1998 and for each of the years in the three-year
period ended December 31, 1997 and for the three months ended March 31, 1998 and
1997 are contained in WorldCom's Current Report on Form 8-K/A-3 filed May 28,
1998, which is incorporated by reference herein.
Information regarding WorldCom's results for the three months ended June
30, 1998 is contained in WorldCom's Current Report on Form 8-K dated July 23,
1998 (filed July 24, 1998). Information regarding MCI's results for the three
months ended June 30, 1998 is contained in WorldCom's Current Report on Form 8-K
dated August 4, 1998 (filed August 4, 1998).
The Pro Forma Condensed Combined Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above nor do
they purport to indicate results which may be attained in the future.
F-2
<PAGE> 8
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET(1)
AS OF MARCH 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets.......................... $ 2,183 $ 5,128 $ 6,936 (4) $ 7,311
(6,936)(3)
Property, plant and equipment, net...... 7,732 13,944 (2,700)(3) 18,976
Goodwill and other intangibles, net..... 14,718 2,327 28,366 (3) 45,411
Other assets............................ 1,282 4,066 (77)(5) 5,271
------- ------- ------- -------
Total assets.................. $25,915 $25,465 $25,589 $76,969
======= ======= ======= =======
Current liabilities..................... $ 2,310 $ 7,237 $ -- $ 9,547
Long-term debt.......................... 8,332 3,615 6,936 (4) 18,883
Other liabilities....................... 451 2,101 (1,015)(3) 1,537
Mandatorily redeemable preferred
stock................................. -- 750 -- 750
Shareholders' equity:
Class A common stock.................. -- 14 (14)(5) --
Common stock.......................... 10 60 (60)(5) 20
10 (6)
Paid in capital....................... 16,951 6,350 (6,350)(5) 48,371
31,420 (6)
Retained earnings (deficit)........... (2,189) 5,446 (5,446)(5) (2,189)
Other................................. 50 (108) 108 (5) 50
------- ------- ------- -------
Total shareholders' equity.... 14,822 11,762 19,668 46,252
------- ------- ------- -------
Total liabilities and
shareholders' equity........ $25,915 $25,465 $25,589 $76,969
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 9
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (1)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues..................................... $2,350 $5,288 $(204)(7) $7,434
Operating expenses:
Line costs................................. 1,147 2,883 (204)(7) 3,826
Selling, general and administrative........ 478 1,504 -- 1,982
Depreciation and amortization.............. 299 690 181 (8) 1,032
(138)(9)
Brooks Fiber merger costs.................. 69 -- -- 69
Charge for in-process research and
development.............................. 429 -- -- 429
------ ------- ----- ------
Operating income (loss)...................... (72) 211 (43) 96
Other income (expense):
Interest expense........................... (102) (52) (114)(10) (268)
Other...................................... 12 19 -- 31
------ ------- ----- ------
Income (loss) before income taxes............ (162) 178 (157) (141)
Provision for income taxes................... 118 62 9 (11) 189
------ ------- ----- ------
Income (loss) from continuing operations..... (280) 116 (166) (330)
Preferred dividend requirements.............. 7 15 -- 22
------ ------- ----- ------
Net income (loss) applicable to common
shareholders............................... $ (287) $ 101 $(166) $ (352)
====== ======= ===== ======
Number of shares issued and outstanding:
Basic...................................... 1,012 715 1,903
====== ======= ======
Diluted.................................... 1,012 732 1,903
====== ======= ======
Earnings per share(12)
Basic...................................... $(0.28) $ 0.14 $(0.18)
Diluted.................................... $(0.28) $ 0.14 $(0.18)
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 10
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (1)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues.................................. $7,476 $19,653 $(380)(7) $26,749
Operating expenses:
Line costs.............................. 3,857 10,956 (380)(7) 14,433
Selling, general and administrative..... 1,626 5,940 -- 7,566
Depreciation and amortization........... 976 2,082 722 (8) 3,230
(550)(9)
------- ------- ----- -------
Operating income ......................... 1,017 675 (172) 1,520
Other income (expense):
Interest expense........................ (395) (235) (454)(10) (1,084)
Other................................... 41 (141) -- (100)
------- ------- ----- -------
Income (loss) before income taxes......... 663 299 (626) 336
Provision for income taxes................ 416 90 36 (11) 542
------- ------- ----- -------
Income (loss) from continuing
operations.............................. 247 209 (662) (206)
Preferred dividend requirements........... 26 60 -- 86
------- ------- ----- -------
Net income (loss) applicable to common
shareholders............................ $ 221 $ 149 $(662) $ (292)
======= ======= ===== =======
Number of shares issued and outstanding:
Basic................................... 966 693 1,824
======= ======= =======
Diluted................................. 997 707 1,824
======= ======= =======
Earnings per share(12)
Basic................................... $ 0.23 $ 0.22 $ (0.16)
Diluted................................. $ 0.22 $ 0.21 $ (0.16)
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 11
NOTES TO PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. The unaudited pro forma financial data do not give effect to any
restructuring costs, nor any potential cost savings or other synergies that
could result from the MCI/WorldCom Merger or for the sale of the iMCI Business
or purchase of an investment in Embratel. WorldCom is in the process of
developing its plan to integrate the operations of MCI which may include certain
exit and restructuring costs. As a result of this plan, a charge, which may be
material but which cannot now be quantified, is expected to be recognized in the
period in which such a restructuring occurs. Furthermore, the pro forma
financial data do not reflect any expense of intangible assets attributable to
the value of any in-process research and development projects of MCI at the time
of the MCI/WorldCom Merger. However, WorldCom is conducting asset valuation
studies of MCI's tangible and identifiable intangible assets, including
in-process research and development projects, for the purpose of allocating the
purchase price to the net assets acquired. A preliminary estimate of the
one-time charge for purchased in-process research and development projects of
MCI is between $6 and $7 billion. The pro forma data are not necessarily
indicative of the operating results or financial position that would have
occurred had the MCI/WorldCom Merger been consummated at the dates indicated,
nor necessarily indicative of future operating results or financial position.
This discussion of possible future charges or allocations constitute "forward
looking statements" within the meaning of the PSLRA and is subject to risks and
uncertainties. Important factors that could cause actual results to differ
materially from such statement include, without limitation, the preliminary
nature of such estimates and the need to complete asset valuation studies.
2. These columns represent historical results of operations and financial
position.
3. This adjustment reflects the excess of consideration over net assets
acquired. The following is a calculation (in millions except per share data):
<TABLE>
<S> <C>
MCI Common Stock outstanding at March 31, 1998.............. 588
Shares issuable (treasury stock method) upon exercise of MCI
options................................................... 30
--------
MCI Common Stock assumed outstanding at March 31, 1998...... 618
MCI Exchange Ratio per share................................ 1.5396
--------
WorldCom Common Stock assumed to be issuable................ 951
WorldCom per share closing price on November 7, 1997........ $ 33.13
--------
Sub-total................................................... $ 31,507
Payment to MCI Class A Common Stockholder................... 6,936
Inducement fee and other estimated transaction costs........ 510
--------
Total consideration......................................... 38,953
Preliminary purchase accounting adjustments:
Fair value adjustment to property, plant and equipment...... 2,700
Deferred tax impact of fair value adjustment................ (1,015)
--------
40,638
Historical net book value of MCI net assets acquired........ (11,762)
--------
Excess of consideration over net assets acquired............ 28,876
Inducement fee and other transaction cost reflected in
WorldCom historical....................................... (510)
--------
$ 28,366
========
</TABLE>
The total consideration will be allocated to the assets and liabilities of
MCI based on their estimated fair value. A preliminary allocation of the
purchase price has been presented in the pro forma condensed combined financial
statements in which the historical MCI property, plant and equipment has been
adjusted to its estimated fair value based upon its depreciated replacement
cost. The impact of this fair value adjustment has also been reflected in pro
forma deferred tax balances. The excess of consideration
F-6
<PAGE> 12
over the historical book value of MCI net assets acquired has been
preliminarily allocated to goodwill and other intangible assets. A final
allocation of the purchase price to the MCI assets acquired and liabilities
assumed is dependent upon certain valuations and studies that have not
progressed to a stage where there is sufficient information to make such an
allocation in the accompanying pro forma financial information. These
valuations are expected to be completed around the effective time of the
MCI/WorldCom Merger. WorldCom's management believes the consideration in excess
of the historical book value of MCI's net assets acquired, primarily comprises
goodwill, certain in-process research and development projects and other
intangible assets. In-process research and development projects may include
projects for which technological feasibility has not been established and the
technology has no future alternative use. To the extent that a portion of the
purchase price is allocated to such in-process research and development
projects, a charge, which, based upon preliminary estimates, may approximate $6
to $7 billion, would be recognized as an expense in the period in which the
MCI/WorldCom Merger occurs. (See Note 1). Such a charge would reduce goodwill
by a similar amount. The effect of such a charge on the Pro Forma condensed
combined statement of operations would be a reduction of amortization expense,
with a corresponding increase to earnings, of approximately $150 million to
$175 million on an annual basis. A change of $500 million in the allocation of
the purchase price to in-process research and development projects of MCI would
affect amortization expense by $12.5 million annually. This discussion of
possible future charges or allocations constitute "forward looking statements"
within the meaning of the PSLRA and is subject to risks and uncertainties.
Important factors that could cause actual results to differ materially from
such statement include, without limitation, the preliminary nature of such
estimates and the need to complete asset valuation studies.
4. This adjustment represents additional borrowings of $6.9 billion for the
purpose of financing the cash payment to the holder of the MCI Class A Common
Stock. Estimated transaction costs of $510 million (which includes a $465
million inducement fee paid to BT) were paid in 1997 and are reflected in the
WorldCom historical column.
5. These adjustments represent the elimination of MCI's stockholders'
equity accounts and investment in WorldCom Common Stock.
6. These adjustments represent the issuance of approximately 951 million
shares of WorldCom Common Stock in connection with the MCI/WorldCom Merger at
an assumed MCI Exchange Ratio of 1.5396 shares of WorldCom Common Stock for each
share of MCI Common Stock outstanding. The actual MCI Exchange Ratio may vary as
described herein.
7. These estimated adjustments eliminate the revenues and corresponding
line costs attributable to the intercompany transactions between WorldCom and
MCI.
8. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the MCI/WorldCom Merger. For
purposes of the Pro Forma Condensed Combined Financial Statements, the excess
consideration has been amortized over an estimated life of 40 years. WorldCom
management expects that amounts allocated to goodwill and trade names will be
amortized over 40 years while other intangible assets may be amortized over
shorter periods consequently reducing net income reported by MCI WorldCom. A
final determination of the lives attributable to the intangible assets has not
yet been made (See Note 1). As discussed in Note 3, a portion of the excess
consideration may be allocated to certain in-process research and development
projects. To the extent amounts are allocated to certain in-process research
and development projects, goodwill and pro forma amortization expense would be
ratably reduced.
9. This entry reflects the adjustment to depreciation expense for the
effect of the fair value adjustment of MCI's property, plant and equipment based
on a preliminary evaluation of depreciated replacement cost (See Note 3).
10. These adjustments represent the recognition of interest expense on the
additional borrowings of WorldCom to finance the cash payment to the holder of
the MCI Class A Common Stock and transaction costs (see Note 4). The interest
expense was calculated based on WorldCom's incremental borrowing rate of 6.1%. A
change of 1/8% in the incremental rate would affect interest expense by $2.3
million and $9.3 million for the three months ended March 31, 1998 and for the
year ended December 31, 1997, respectively.
11. These entries represent the tax effect of the pro forma adjustments.
12. Pro forma per share data are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the MCI/WorldCom
Merger occurred on the earliest date presented.
F-7
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
99.1 Certain portions of MCI's Press release dated July 30, 1998
(incorporated herein by reference to Exhibit 99.1 to
WorldCom's Form 8-K dated August 4, 1998 (filed August 4,
1998)).
99.2 Certain portions of WorldCom's press release dated July 23,
1998 (incorporated herein by reference to Exhibit 99.1 to
WorldCom's Form 8-K dated July 23, 1998 (filed July 24,
1998)).
99.3 Portions of WorldCom's Proxy Statement/Prospectus dated
January 22, 1998 under the captions "The MCI/WorldCom Merger
- Interests of Certain Persons in the Transaction," "Other
Terms of the MCI/WorldCom Merger Agreement," "The BT
Agreement" and "Certain Regulatory Filings and Approvals"
contained in WorldCom's Registration Statement on Form S-4,
as amended (No. 333-36901), which portions are hereby
incorporated by reference herein.
99.4 Certain portions of MCI's press release dated July 29, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 99.4
[MCI LETTERHEAD]
INVESTOR CALLS: MIKE KRAFT
(202) 887-2028
MEDIA CALLS: MANUEL WERNICKY OR JANE LEVENE
(202) 887-3000
MCI WINS BID FOR BRAZIL LONG DISTANCE OPERATOR EMBRATEL
IN WORLD'S LARGEST PRIVATIZATION
RIO DE JANEIRO - JULY 29, 1998 - MCI, through its wholly owned Brazilian
subsidiary Startel, today won the tender for 51.79 percent of the voting shares
of Embratel, the long distance company of Brazil. Of the Telebras companies
privatized by the Brazilian government today at the Rio de Janeiro Stock
Exchange, Embratel has the only nationwide and international network and is
directly connected to tens of thousands of business customers.
Embratel provides interstate long distance and international telecommunications
services, as well as over 40 other communications services, including leased
high-speed data, satellite, Internet, frame and packet-switched services.
Embratel is an ideal fit for MCI's and WorldCom's international growth strategy
and extends the companies' local-to-global approach. Embratel's wholly-owned
nationwide and international network meshes well with MCI's and WorldCom's
global initiatives and complements the companies' plans with Telefonica.
The offer of US$2.3 billion (R$2.65 billion) was within MCI's valuation of the
company. Forty percent of the bid price is payable within the next five days,
with the balance due in two annual installments.
-MORE-
<PAGE> 2
PAGE 2
Brazil is the world's fifth largest country, the ninth largest economy, nearly
twice the size of Mexico and almost five times the size of Argentina. Brazil is
Latin America's largest communications market representing almost half of the
entire communications market in Latin America. In 1997, Brazil's communications
market was valued at US$15 billion and had 16 million fixed telephone lines
growing at an annual rate of 17 percent.
MCI has over 50 years of presence in Brazil with offices in Rio de Janeiro and
Sao Paulo. In December 1996, MCI Systemhouse purchased a one-third interest in
Proceda, one of Brazil's leading international systems integration and
outsourcing companies. Today, MCI has offices in 21 countries in the region and
direct company investments in Mexico, Belize and Venezuela, in addition to
Brazil. MCI is the second largest carrier of international telephone traffic
from the U.S. to Latin America. The company's global network includes ownership
in the major cable routes from the U.S. to Latin America and 16 satellite earth
stations in the region. MCI is also the largest owner of the Pan American Cable
System now under construction--the largest ever fiber optic cable linking the
U.S. with Central and South America.
MCI, headquartered in Washington, D.C., is a leading provider of local-to-global
communication services to business, government and residential users. The
company's fast-growing portfolio of advanced data and IT services accounts for a
quarter of MCI's approximately $20 billion in annual revenue. MCI operates one
of the world's largest and most advanced digital networks, connecting local
markets in the U.S. to hundreds of locations worldwide. MCI has agreed to merge
with WorldCom, one of the world's fastest growing communications companies. The
merger will create MCI WorldCom, a company uniquely positioned in the U.S. local
and long distance markets as well as the global data and Internet markets.
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