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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): July 12, 1999
MCI 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)
500 Clinton Center Drive
Clinton, Mississippi 39056
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (601) 460-5600
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired
The audited financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 of
MCI Communications Corporation, including the report of independent
auditors, were previously reported in MCI WORLDCOM, Inc.'s Current
Report on Form 8-K/A-3 dated November 9, 1997 (filed May 28, 1998).
(b) Pro forma financial information
MCI WORLDCOM, Inc. hereby files pro forma financial information listed
in the Index on page F-1 herein and incorporated by reference herein.
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SIGNATURE
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.
Dated: July 12, 1999
MCI WORLDCOM, INC.
By: /s/ Scott D. Sullivan
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Scott D. Sullivan
Chief Financial Officer
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INDEX TO FINANCIAL STATEMENT AND OTHER INFORMATION
<TABLE>
<CAPTION>
Financial Statement Page Numbers
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<S> <C>
Pro Forma Condensed Combined Financial Statement F-2
Pro Forma Condensed Combined Statement of Operations for the
Year ended December 31, 1998 F-4
Notes to Pro Forma Condensed Combined Financial Statement F-5
</TABLE>
F-1
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PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT
References herein to the "Company" or "MCI WorldCom" refer to MCI WORLDCOM,
Inc., a Georgia corporation, and its subsidiaries, which prior to September 14,
1998, was named WorldCom, Inc. ("WorldCom").
On September 14, 1998, the Company acquired MCI Communications Corporation
("MCI"), pursuant to the merger (the "MCI Merger") of MCI with and into TC
Investments Corp. ("Acquisition Subsidiary"), a wholly owned subsidiary of the
Company. Upon consummation of the MCI Merger, the Acquisition Subsidiary was
renamed MCI Communications Corporation. Through the MCI Merger, the Company
acquired one of the world's largest and most advanced digital networks,
connecting local markets in the United States to more than 280 countries and
locations worldwide.
As a result of the MCI Merger, each outstanding share of MCI common stock was
converted into the right to receive 1.2439 shares of MCI WorldCom common stock,
par value $.01 per share (the "Common Stock" or "MCI WorldCom Common Stock"), or
approximately 755 million MCI WorldCom common shares in the aggregate, and each
share of MCI Class A common stock outstanding (all of which were held by British
Telecommunications plc ("BT")) was converted into the right to receive $51.00 in
cash or approximately $7 billion in the aggregate. The funds paid to BT were
obtained by the Company from (i) available cash as a result of the Company's
$6.1 billion public debt offering in August 1998; (ii) the sale of MCI's
Internet backbone facilities and wholesale and retail Internet business (the
"iMCI Business") to Cable and Wireless plc ("Cable & Wireless") for $1.75
billion in cash on September 14, 1998; (iii) the sale of MCI's 24.9% equity
stake in Concert Communications Services ("Concert") to BT for $1 billion in
cash on September 14, 1998; and (iv) availability under the Company's commercial
paper program and credit facilities.
Upon effectiveness of the MCI Merger, the then outstanding and unexercised
options exercisable for shares of MCI common stock were converted into options
exercisable for an aggregate of approximately 83 million shares of MCI WorldCom
Common Stock having the same terms and conditions as the MCI options, except
that the exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 1.2439. The MCI Merger was accounted
for as a purchase.
The following unaudited Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1998, illustrates the effect of the MCI Merger as if
the MCI Merger had occurred as of January 1, 1998. No adjustments have been
included in the pro forma amounts for any anticipated cost savings or other
synergies.
F-2
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PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT (CONTINUED)
This Pro Forma Condensed Combined Financial Statement should be read in
conjunction with the historical financial statements of MCI WorldCom and MCI.
The historical financial statements of MCI WorldCom and related notes as of
December 31, 1998 and for each of the years in the three-year period ended
December 31, 1998 are contained in MCI WorldCom's Annual Report on Form 10-K,
which report is incorporated by reference herein. The historical financial
statements of MCI and related notes as of December 31, 1997 and for each of the
years in the two-year period ended December 31, 1997 are contained in MCI
WorldCom's Current Report on Form 8-K/A-3 dated November 9, 1997 (filed May 28,
1998), which report is incorporated by reference herein.
The Pro Forma Condensed Combined Financial Statement is presented for
comparative purposes only and is not intended to be indicative of actual results
had the transactions occurred as of the date indicated above nor does it
purport to indicate results which may be attained in the future.
F-3
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PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (1)
For the Year Ended December 31, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WorldCom
MCI WorldCom MCI Historical (2) Pro Forma Pro Forma
Historical (2) 1/1/98 - 9/14/98 Adjustments Combined
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<S> <C> <C> <C> <C>
Revenues $ 17,678 $ 15,109 $ (819) (3) $ 31,968
Operating expenses:
Line costs 8,416 7,793 (819) (3) 15,390
Selling, general and administrative 4,312 4,538 -- 8,850
Depreciation and amortization 2,200 1,876 605 (4) 4,263
(418) (5)
In-process research and development and other charges 3,725 -- -- 3,725
-------- -------- ------ --------
Operating income (loss) (975) 902 (187) (260)
Other income (expense):
Interest expense (637) (193) (319) (6) (1,149)
Other 41 81 -- 122
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Income (loss) before income taxes and minority interests (1,571) 790 (506) (1,287)
Provision for income taxes 876 277 (96) (7) 1,057
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Income (loss) before minority interests (2,447) 513 (410) (2,344)
Minority interests (93) (33) -- (126)
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Income (loss) from continuing operations (2,540) 480 (410) (2,470)
Distributions on subsidiary trust preferred securities 18 42 -- 60
Preferred dividend requirements 13 -- -- 13
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Net income (loss) applicable to common shareholders $ (2,571) $ 438 $ (410) $ (2,543)
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Number of shares issued and outstanding:
Basic 1,274 1,795
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Diluted 1,274 1,795
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Earnings (loss) per share (8)
Basic $ (2.02) $ (1.42)
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Diluted $ (2.02) $ (1.42)
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</TABLE>
F-4
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NOTES TO PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENT
1. The unaudited pro forma financial data do not give effect to any potential
cost savings or other synergies that could result from the MCI Merger. In
connection with the MCI Merger, the Company allocated $3.1 billion of the
purchase price to in-process research and development ("IPR&D") projects of
MCI. The pro forma data is not necessarily indicative of the operating
results that would have occurred had the MCI Merger been consummated at the
date indicated, nor necessarily indicative of future operating results.
2. These columns represent historical results of operations. The MCI
historical column for the year ended December 31, 1998 includes MCI's
results of operations through September 14, 1998, the date of the MCI
Merger. The results of operations for MCI since September 14, 1998 are
included in the MCI WorldCom historical column.
3. These adjustments eliminate the revenues and corresponding line costs
attributable to the intercompany transactions between WorldCom and MCI, as
well as the elimination of the iMCI Business.
4. This entry reflects the adjustment to depreciation and amortization for the
effect of the excess of the purchase price over net assets acquired in the
MCI Merger. The purchase price in the MCI Merger was allocated based on
estimated fair values at the date of acquisition. This resulted in an
excess of purchase price over net asset acquired of which $3.1 billion was
allocated to IPR&D and $1.7 billion to developed technology, which will be
depreciated over 10 years on a straight-line basis. The remaining excess of
$29.7 billion, as of December 31, 1998, has been allocated to goodwill and
tradename, which are being amortized over 40 years on a straight-line
basis.
The initial purchase price allocations for the MCI Merger are based on
current estimates. The Company will make final purchase price allocations
based upon final values for certain assets and liabilities and plans for
exiting certain activities of MCI. As a result, the final purchase price
allocations may differ from the present estimates.
5. 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 an evaluation of depreciated replacement cost.
6. This adjustment represents the recognition of interest expense on the
additional borrowings of MCI WorldCom to finance the cash payment of
approximately $7 billion to the holder of the MCI Class A Common Stock and
transaction costs of $500 million (which includes a $465 million inducement
fee paid to BT). The interest expense was calculated based on MCI
WorldCom's incremental borrowing rate of 6.0% under its credit facilities
at December 31, 1998. A change of 1/8% in the incremental rate would affect
interest expense by $9.3 million for the year ended December 31, 1998.
7. Income tax expense has been adjusted to reflect an estimated combined tax
rate of 47%.
8. Pro forma per share data are based on the number of MCI WorldCom common
and common equivalent shares that would have been outstanding had the MCI
Merger occurred at the date indicated.
F-5
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
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<S> <C>
2.1 Agreement and Plan of Merger by and among WorldCom,
TC Investments Corp. and MCI dated as of November 9,
1997 (filed as Annex I to the Joint Proxy
Statement/Prospectus dated January 22, 1998 included
in WorldCom's Registration Statement on Form S-4,
Registration No. 333-36901 and incorporated herein by
reference)*
2.2 Agreement by and among BT, MCI and WorldCom dated as
of November 9, 1997 (incorporated herein by reference
to Exhibit 99.1 of WorldCom's Current Report on Form
8-K dated November 9, 1997 (filed November 12, 1997)
(File No. 0-11258))*
</TABLE>
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* The registrant hereby undertakes to furnish supplementally a copy of
any omitted schedule to this Agreement to the Securities and Exchange
Commission upon request.
