<PAGE>
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______
Commission file number: 0-11258
_______________________________
WorldCom, Inc.
(f/k/a MCI WORLDCOM, Inc.)
(Exact name of registrant as specified in its charter)
_______________________________
Georgia 58-1521612
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
500 Clinton Center Drive, Clinton, Mississippi 39056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code : (601) 460-5600
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
--- ---
The number of outstanding shares of the registrant's Common Stock, par
value $.01 per share, was 2,872,889,576, net of treasury shares, on July 31,
2000.
--------------------------------------------------------------------------------
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999.............................. 3
Consolidated Statements of Operations for the
three and six months ended June 30, 2000 and June 30, 1999....... 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and June 30, 1999................. 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 22
Item 2. Changes in Securities and Use of Proceeds........................ 22
Item 3. Defaults Upon Senior Securities.................................. 22
Item 4. Submission of Matters to a Vote of Securities Holders............ 22
Item 5. Other Information................................................ 23
Item 6. Exhibits and Reports on Form 8-K................................. 23
Signature................................................................. 25
Exhibit Index............................................................. 26
2
<PAGE>
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited. In Millions, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 664 $ 876
Accounts receivable, net of allowance for bad debts of $1,285 in 2000
and $1,122 in 1999 7,009 5,746
Deferred tax asset 2,609 2,565
Other current assets 1,787 1,137
------- -------
Total current assets 12,069 10,324
------- -------
Property and equipment:
Transmission equipment 17,226 14,689
Communications equipment 6,250 6,218
Furniture, fixtures and other 8,629 7,424
Construction in progress 6,811 5,397
------- -------
38,916 33,728
Accumulated depreciation (6,104) (5,110)
------- -------
32,812 28,618
------- -------
Goodwill and other intangible assets 46,970 47,308
Other assets 5,522 4,822
------- -------
$97,373 $91,072
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt and current maturities of long-term debt $ 2,597 $ 5,015
Accounts payable 2,165 2,557
Accrued line costs 3,472 3,721
Other current liabilities 5,814 5,916
------- -------
Total current liabilities 14,048 17,209
------- -------
Long-term liabilities, less current portion:
Long-term debt 18,705 13,128
Deferred tax liability 5,894 4,877
Other liabilities 1,035 1,223
------- -------
Total long-term liabilities 25,634 19,228
------- -------
Commitments and contingencies
Minority interests 2,691 2,599
Company obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely junior subordinated deferrable interest debentures of the
Company and other redeemable preferred securities 798 798
Shareholders' investment:
Series B preferred stock, par value $.01 per share; authorized, issued and
outstanding: 10,851,092 shares in 2000 and 11,096,887 shares in 1999 (liquidation
preference of $1.00 per share plus unpaid dividends) - -
Series C preferred stock, par value $.01 per share; authorized: 3,750,000 shares;
issued and outstanding: none in 2000 and 3,750,000 shares in 1999 (liquidation - -
preference of $50 per share)
Preferred stock, par value $.01 per share; authorized: 31,155,008 shares
in 2000 and 1999; none issued - -
Common stock, par value $.01 per share; authorized: 5,000,000,000 shares; issued
and outstanding: 2,876,179,318 shares in 2000 and 2,849,743,843 shares in 1999 29 28
Additional paid-in capital 52,611 52,108
Retained earnings (deficit) 1,631 (928)
Unrealized holding gain on marketable equity securities 678 575
Cumulative foreign currency translation adjustment (562) (360)
Treasury stock, at cost, 6,765,316 shares in 2000 and 1999 (185) (185)
------- -------
Total shareholders' investment 54,202 51,238
------- -------
$97,373 $91,072
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited. In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues $10,193 $9,065 $20,171 $18,187
------- ------ ------- -------
Operating expenses:
Line costs 4,152 3,956 8,244 8,093
Selling, general and administrative 2,442 2,241 4,741 4,615
Depreciation and amortization 1,186 1,086 2,333 2,187
------- ------ ------- -------
Total 7,780 7,283 15,318 14,895
------- ------ ------- -------
Operating income 2,413 1,782 4,853 3,292
Other income (expense):
Interest expense (236) (248) (454) (520)
Miscellaneous 109 48 220 22
------- ------ ------- -------
Income before income taxes and minority interests 2,286 1,582 4,619 2,794
Provision for income taxes 930 654 1,883 1,201
------- ------ ------- -------
Income before minority interests 1,356 928 2,736 1,593
Minority interests (65) (45) (144) 20
------- ------ ------- -------
Net income 1,291 883 2,592 1,613
Distributions on subsidiary trust and other mandatorily
redeemable preferred securities 16 15 32 31
Preferred dividend requirement - 3 1 5
------- ------ ------- -------
Net income applicable to common shareholders $ 1,275 $ 865 $ 2,559 $ 1,577
======= ====== ======= =======
Earnings per common share:
Net income applicable to common shareholders:
Basic $ 0.45 $ 0.31 $ 0.90 $ 0.56
======= ====== ======= =======
Diluted $ 0.44 $ 0.30 $ 0.88 $ 0.54
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited. In Millions)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,592 $ 1,613
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 144 (20)
Depreciation and amortization 2,333 2,187
Provision for losses on accounts receivable 548 458
Provision for deferred income taxes 1,144 953
Change in assets and liabilities, net of effect of
business combinations:
Accounts receivable (1,782) (1,236)
Other current assets (488) (212)
Accrued line costs (339) 238
Accounts payable and other current liabilities (95) 452
Other (194) 124
------- -------
Net cash provided by operating activities 3,863 4,557
------- -------
Cash flows from investing activities:
Capital expenditures (5,197) (3,702)
Acquisitions and related costs (14) (450)
Increase in intangible assets (681) (297)
Proceeds from disposition of marketable securities and other long-term assets 391 1,486
Increase in other assets (780) (1,341)
Decrease in other liabilities (696) (118)
------- -------
Net cash used in investing activities (6,977) (4,422)
------- -------
Cash flows from financing activities:
Principal borrowings (repayments) on debt, net 2,765 (1,730)
Common stock issuance 431 734
Distributions on subsidiary trust mandatorily redeemable preferred securities (32) (31)
Dividends paid on preferred stock (1) (5)
Redemption of Series C preferred stock (190) -
Other (73) -
------- -------
Net cash provided by (used in) financing activities 2,900 (1,032)
Effect of exchange rate changes on cash 2 (214)
------- -------
Net decrease in cash and cash equivalents (212) (1,111)
Cash and cash equivalents at beginning of period 876 1,727
------- -------
Cash and cash equivalents at end of period $ 664 $ 616
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
WORLDCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) General
-----------
References herein to the "Company" or "WorldCom" refer to WorldCom, Inc., a
Georgia corporation, and its subsidiaries. Prior to May 1, 2000, the Company
was named MCI WORLDCOM, Inc.
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, 1999 (the "Form 10-K").
The results for the three and six-month periods ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
(B) Business Combinations
-------------------------
On October 5, 1999, WorldCom announced that it had entered into an Agreement and
Plan of Merger dated as of October 4, 1999, which was amended and restated on
March 8, 2000 (the "Sprint Merger Agreement"), between WorldCom and Sprint
Corporation ("Sprint"). On July 13, 2000, WorldCom and Sprint announced that
they had agreed to terminate the Sprint Merger Agreement, effective immediately.
(C) Earnings Per Share
----------------------
The following is a reconciliation of the numerators and the denominators of the
basic and diluted earnings per share computations for the three and six months
ended June 30, 2000 and 1999 (in millions, except per share data):
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic
-----
Net income $1,291 $ 883 $2,592 $1,613
Distributions on subsidiary trust and other mandatorily
redeemable preferred securities 16 15 32 31
Preferred dividend requirement - 3 1 5
------ ------ ------ ------
Net income applicable to common shareholders $1,275 $ 865 $2,559 $1,577
====== ====== ====== ======
Weighted average shares outstanding 2,865 2,816 2,859 2,805
====== ====== ====== ======
Basic earnings per share $ 0.45 $ 0.31 $ 0.90 $ 0.56
====== ====== ====== ======
Diluted
-------
Net income applicable to common shareholders $1,275 $ 865 $2,559 $1,577
====== ====== ====== ======
Weighted average shares outstanding 2,865 2,816 2,859 2,805
Common stock equivalents 55 113 60 112
Common stock issuable upon conversion of preferred stock 2 1 2 1
------ ------ ------ ------
Diluted shares outstanding 2,922 2,930 2,921 2,918
====== ====== ====== ======
Diluted earnings per share $ 0.44 $ 0.30 $ 0.88 $ 0.54
====== ====== ====== ======
</TABLE>
6
<PAGE>
(D) Supplemental Disclosure of Cash Flow Information
----------------------------------------------------
Interest paid by the Company during the six months ended June 30, 2000 and 1999,
amounted to $388 million and $573 million, respectively. Income taxes paid
during the six months ended June 30, 2000 and 1999, totaled $43 million and $51
million, respectively. In conjunction with business combinations during the six
months ended June 30, 2000 and 1999, assumed assets and liabilities were as
follows (in millions):
2000 1999
----- -----
Fair value of assets acquired $ - $ 64
Excess of cost over net tangible
assets acquired 29 912
Liabilities assumed (15) (298)
Common stock issued - (228)
----- -----
Net cash paid $ 14 $ 450
===== =====
(E) Comprehensive Income
------------------------
The following table reflects the calculation of comprehensive income for
WorldCom for the three and six months ended June 30, 2000 and 1999 (in
millions):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income applicable to common shareholders $1,275 $ 865 $2,559 $1,577
------ ------ ------ ------
Other comprehensive income (loss):
Foreign currency translation losses (238) (25) (202) (305)
Unrealized holding gains (losses):
Unrealized holding gains (losses) during the period (120) 291 381 536
Reclassification adjustment for gains included in
net income (132) (15) (215) (15)
------ ------ ------ ------
Other comprehensive income (loss) before tax (490) 251 (36) 216
Income tax benefit (expense) 94 (104) (63) (196)
------ ------ ------ ------
Other comprehensive income (loss) (396) 147 (99) 20
------ ------ ------ ------
Comprehensive income applicable to common shareholders $ 879 $1,012 $2,460 $1,597
====== ====== ====== ======
</TABLE>
(F) Segment Information
-----------------------
Based on its organizational structure, the Company operates in eight reportable
segments: Commercial voice and data, Internet, International operations,
Embratel Participacoes S.A. ("Embratel"), Wholesale, Consumer, Operations and
technology and Other. The Company's reportable segments represent business
units that primarily offer similar products and services; however, the business
units are managed separately due to the type and class of customer as well as
the geographic dispersion of their operations. The Commercial voice and data
segment includes voice, data and other types of domestic communications services
for commercial customers. The Internet segment provides Internet services.
International operations provide voice, data, Internet and other similar types
of communications services to customers primarily in Europe and the Asia Pacific
region. Embratel provides communications services in Brazil. Wholesale
includes voice and data domestic communications services for wholesale
customers. Consumer includes domestic voice communications services for
consumer customers. Operations and technology includes network operations,
information services, engineering and technology, and customer service. Other
includes primarily the operations of MCI Systemhouse Corp. and SHL Systemhouse
Co. (collectively, "SHL") and other non-communications services. In April 1999,
SHL was sold to Electronic Data Systems Corporation ("EDS"). Previously, the
Company had defined six reportable segments. However, during the second quarter
of 2000, the Company began evaluating opportunities to separate the wholesale
and consumer operations into separate companies
7
<PAGE>
or tracking stocks. Based on this change in focus and on the class of customers
that these units represent, the Company determined to classify these units as
separate segments. All prior periods have been restated to reflect this change.
The Company's chief operating decision maker utilizes revenue information in
assessing performance and making overall operating decisions and resource
allocations. Communications services are generally provided utilizing the
Company's network facilities, which do not make a distinction between the types
of services. As a result, the Company does not allocate line costs or assets by
segment. Profit and loss information is reported only on a consolidated basis
to the chief operating decision maker and the Company's Board of Directors.
Information about the Company's segments for the three and six months ended June
30, 2000 and 1999, is as follows (in millions):
<TABLE>
<CAPTION>
Revenues From External Customers
---------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------ ------- -------
Commercial voice and data $ 4,649 $4,100 $ 9,162 $ 8,151
Internet 1,172 836 2,276 1,594
International operations 608 420 1,145 777
Wholesale 920 1,061 1,895 2,075
Consumer 2,006 1,841 4,027 3,694
Operations and technology - - - -
Other - 120 - 523
Corporate - - - -
------- ------ ------- -------
Total before Embratel 9,355 8,378 18,505 16,814
Embratel 877 716 1,740 1,402
Elimination of intersegment revenues (39) (29) (74) (29)
------- ------ ------- -------
Total $10,193 $9,065 $20,171 $18,187
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Selling, General and Administrative Expenses
--------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------ ------ ------ ------
Commercial voice and data $ 562 $ 500 $1,040 $1,046
Internet 232 179 441 352
International operations 164 101 306 217
Wholesale 34 38 73 77
Consumer 586 588 1,233 1,173
Operations and technology 516 569 1,062 1,132
Other - 41 - 170
Corporate 50 46 98 95
Corporate - Sprint merger costs 93 - 93 -
------ ------ ------ ------
Total before Embratel 2,237 2,062 4,346 4,262
Embratel 214 179 413 353
Elimination of intersegment expenses (9) - (18) -
------ ------ ------ ------
Total $2,442 $2,241 $4,741 $4,615
====== ====== ====== ======
</TABLE>
8
<PAGE>
The following is a reconciliation of the segment information to income before
income taxes and minority interests for the three and six months ended June 30,
2000 and 1999 (in millions):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- -----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------ ------- -------
Revenues $10,193 $9,065 $20,171 $18,187
Operating expenses 7,780 7,283 15,318 14,895
------- ------ ------- -------
Operating income 2,413 1,782 4,853 3,292
Other income (expense):
Interest expense (236) (248) (454) (520)
Miscellaneous 109 48 220 22
------- ------ ------- -------
Income before income taxes
and minority interests $ 2,286 $1,582 $ 4,619 $ 2,794
======= ====== ======= =======
</TABLE>
(G) Long-term debt
-------------------
On May 24, 2000, the Company completed a public debt offering of $5.0 billion
principal amount of debt securities. The net proceeds of $4.95 billion were
used to pay down commercial paper obligations. The public debt offering
consisted of $1.5 billion of Floating Rate Notes Due 2001 (the "Floating Rate
Notes"), which mature on November 26, 2001, $1.0 billion of 7.875% Notes Due
2003 (the "Notes Due 2003"), which mature on May 15, 2003, $1.25 billion of
8.000% Notes Due 2006 (the "Notes Due 2006"), which mature on May 15, 2006 and
$1.25 billion of 8.250% Notes Due 2010 (the "Notes Due 2010"), which mature on
May 15, 2010 (collectively, with the Floating Rate Notes, the Notes Due 2003,
the Notes Due 2006 and Notes Due 2010, the "Notes"). The Floating Rate Notes
bear interest payable quarterly on the 24th day of February, May, August and
November, beginning August 24, 2000. The Notes Due 2003, the Notes Due 2006 and
the Notes Due 2010 bear interest payable semiannually in arrears on May 15 and
November 15 of each year, commencing on November 15, 2000.
The Notes Due 2006 and the Notes Due 2010 are redeemable, as a whole or in part,
at the option of the Company, at any time or from time to time, at respective
redemption prices equal to the greater of (i) 100% of the principal amount of
the Notes to be redeemed or (ii) the sum of the present values of the Remaining
Scheduled Payments (as defined therein) discounted at the Treasury Rate (as
defined therein) plus (a) 25 basis points for the Notes Due 2006, and (b) 30
basis points for the Notes Due 2010.
The Company is required, subject to certain exceptions and limitations set forth
in the Notes, to pay such additional amounts (the "Additional Amounts") to the
beneficial owner of any Note who is a Non-U.S. Holder (as defined in the Notes)
in order that every net payment of principal and interest on such Note and any
other amounts payable on the Note, after withholding for certain U.S. taxes,
will not be less than the amount provided for in such Note to be then due and
payable. The Notes are also subject to redemption, at the Company's option,
subject to certain conditions specified in the Notes, in the event the Company
has or will become obligated or there is a substantial probability the Company
will or may be required to pay such Additional Amounts.
Additionally, on June 12, 2000, the Company completed a public debt offering of
$60 million principal amount of debt securities. The net proceeds of $59.9
million were used for general corporate purposes. The public debt offering
consisted of $60 million of Floating Rate Notes Due 2002 (the "2002 Floating
Rate Notes"), which mature on June 11, 2002. The 2002 Floating Rate Notes bear
interest payable quarterly on the 11th day of March, June, September and
December, beginning September 11, 2000.
9
<PAGE>
The following table sets forth the outstanding debt of the Company as of June
30, 2000 (in millions):
<TABLE>
<CAPTION>
Excluding
Embratel Embratel Consolidated
--------------- ---------------- -------------------
<S> <C> <C> <C>
Commercial paper and credit facilities $ 566 $ - $ 566
Floating rate notes due 2000 through 2002 2,560 - 2,560
7.875% - 8.25% Notes Due 2003-2010 3,500 - 3,500
6.13% - 6.95% Notes Due 2001-2028 6,100 - 6,100
7.13% - 7.75% Notes Due 2004-2027 2,000 - 2,000
8.88% - 9.38% Senior Notes Due 2004-2006 672 - 672
7.13% - 8.25% Senior Debentures due 2023-2027 1,437 - 1,437
6.13% - 7.50% Senior Notes Due 2004-2012 1,938 - 1,938
15% note payable due August 2000 - 439 439
Capital lease obligations (maturing through 2002) 442 - 442
Other debt (maturing through 2008) 443 1,205 1,648
------- ------ -------
19,658 1,644 21,302
Short-term debt and current maturities of long-term debt 1,718 879 2,597
------- ------ -------
$17,940 $ 765 $18,705
======= ====== =======
</TABLE>
(H) Contingencies
------------------
The Company is involved in legal and regulatory proceedings generally incidental
to its business and has included loss contingencies in other current liabilities
and other liabilities for certain of these matters. In some instances, rulings
by federal and state regulatory authorities may result in increased operating
costs to the Company. Except as described herein, and while the results of
these various legal and regulatory matters contain an element of uncertainty,
WorldCom believes that the probable outcome of these matters should not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
General. WorldCom is subject to varying degrees of federal, state, local and
international regulation. In the United States, the Company's subsidiaries are
most heavily regulated by the states, especially for the provision of local
exchange services. The Company must be certified separately in each state to
offer local exchange and intrastate long distance services. No state, however,
subjects WorldCom to price cap or rate of return regulation, nor is the Company
currently required to obtain Federal Communications Commission ("FCC")
authorization for installation or operation of its network facilities used for
domestic services, other than licenses for specific multichannel multipoint
distribution service ("MMDS"), wireless communications service ("WCS"),
terrestrial microwave and satellite earth station facilities that utilize radio
frequency spectrum. FCC approval is required, however, for the installation and
operation of its international facilities and services. WorldCom is subject to
varying degrees of regulation in the foreign jurisdictions in which it conducts
business, including authorization for the installation and operation of network
facilities. Although the trend in federal, state and international regulation
appears to favor increased competition, no assurance can be given that changes
in current or future regulations adopted by the FCC, state or foreign regulators
or legislative initiatives in the United States or abroad would not have a
material adverse effect on WorldCom.
In implementing the Telecommunications Act of 1996 (the "Telecom Act"), the FCC
established nationwide rules designed to encourage new entrants to participate
in the local services markets through interconnection with the incumbent local
exchange carriers ("ILECs"), resale of ILECs' retail services and use of
individual and combinations of unbundled network elements. Appeals of the FCC
order adopting those rules have been in litigation since August 1996. On
November 5, 1999, the FCC implemented a remand, from the U.S. Supreme Court, of
the FCC's original unbundling rules. The FCC required two additional network
elements, as well as most of the previously identified elements, to be made
available to new entrants. That order is subject to various reconsideration
petitions at the FCC and has been appealed by the ILECs to the United States
Court of Appeals for the District of Columbia Circuit. The court is holding the
case in abeyance pending reconsideration at the FCC. On July 18, 2000, the
United States Court of Appeals for the Eighth Circuit again invalidated the
FCC's pricing rules. Among other things, the court held that
10
<PAGE>
the FCC's requirement that rates for unbundled network elements be based on the
most efficient technology and network configuration available, using existing
wire center locations, violated the plain meaning of the Telecom Act. The
court, however, upheld the use of a forward-looking cost methodology. The court
remanded the pricing rules to the FCC for further proceedings. WorldCom is
considering whether to seek review by the U.S. Supreme Court.
On May 21, 1999, the United States Court of Appeals for the District of Columbia
Circuit reversed and remanded to the FCC its decision to adjust its price cap
regulation of ILECs to require access charges to fall 6.5% per year adjusted for
inflation. That court stayed the effect of its decision pending a further order
by the FCC justifying or modifying its decision in response to the court's
opinion. On May 31, 2000, the FCC implemented a new plan for access charge
reform and universal service, which is discussed below. On June 2, 2000, the
FCC reported to the court that its May 31, 2000 order had responded to the
court's remand instructions by adopting these new rules for access rates. On
July 11, 2000, the court lifted the stay of its price cap decision in light of
the FCC's new rules.
On November 4, 1999, the FCC's Pricing Flexibility Order, which allowed price-
cap regulated ILECs to offer customer specific pricing in contract tariffs, took
effect. Price-cap regulated ILECs can now offer access arrangements with
contract-type pricing in competition with long distance carriers and other
competitive access providers, who have previously been able to offer such
pricing for access arrangements. As ILECs experience increasing competition in
the local services market, the FCC will grant increased pricing flexibility and
relax tariffing requirements for access services. The FCC is also conducting a
proceeding to consider additional pricing flexibility for a wider range of
access services. The Company has appealed the Pricing Flexibility Order to the
United States Court of Appeals for the District of Columbia Circuit.
On July 30, 1999, the United States Court of Appeals for the Fifth Circuit
issued a decision reversing in part the May 1997 FCC universal service decision.
Among other things, the court held that the FCC may collect universal service
contributions from interstate carriers based on only interstate revenues, and
that the FCC could not force the ILECs to recover their universal service
contributions through interstate access charges. On June 6, 2000, the U.S.
Supreme Court granted the petition for certiorari filed by GTE Corporation
("GTE") seeking review of the Fifth Circuit's decision that the FCC's forward-
looking methodology for funding universal services does not result in an
unconstitutional taking of the ILECs' property. The U.S. Supreme Court denied
petitions for certiorari filed by various parties, including WorldCom,
challenging certain other aspects of this decision. On November 1, 1999, the
FCC implemented the Fifth Circuit's decision. AT&T has appealed this FCC order
to the United States Court of Appeals for the Fifth Circuit, and WorldCom has
intervened in support of AT&T. Pending reconsideration petitions seek
retroactive treatment for implementation of the remand order. On November 2,
1999, the FCC released two additional universal service orders, which provide
for federal support for non-rural high cost areas. Both orders were appealed to
the United States Court of Appeals for the Tenth Circuit.
In August 1998, in response to petitions filed by several ILECs under the guise
of Section 706 of the Telecom Act, the FCC issued its Advanced Services Order.
This order clarifies that the interconnection, unbundling, and resale
requirements of Section 251(c) of the Telecom Act, and the interLATA
restrictions of Section 271 of the Telecom Act, apply fully to so-called
"advanced telecommunications services," such as Digital Subscriber Line ("DSL")
technology. US West Communications Group ("US West") appealed this order to the
United States Court of Appeals for the District of Columbia Circuit. At the
request of the FCC, the court remanded the case for further administrative
proceedings, and on December 23, 1999, the FCC issued its Order on Remand. In
that order, the FCC reaffirmed its earlier decision that ILECs are subject to
the obligations of Section 251(c) of the Telecom Act in connection with the
offering of advanced telecommunications services such as DSL. The order
reserved ruling on whether such obligations extend to traffic jointly carried by
an ILEC and a competitive local exchange carrier ("CLEC") to an Internet service
provider ("ISP") where the ISP self-provides the transport component of its
Internet access service. The Order on Remand also found that DSL-based advanced
services that are used to connect ISPs to their subscribers to facilitate
Internet-bound traffic typically constitute exchange access service. On January
3, 2000, the Company filed a petition for review of this aspect of the Order on
Remand with the United States Court of Appeals for the District of Columbia
Circuit. Oral argument is scheduled for February 21, 2001.
In February 1999, the FCC sought public comments on its tentative conclusion
that loop spectrum standards should be set in a competitively neutral process.
In November 1999, the FCC concluded that ILECs should be required to share
primary telephone lines with CLECs, and identified the high frequency portion of
the loop as a network
11
<PAGE>
element. In February 2000, US West and the United States Telephone Association
appealed this order to the United States Court of Appeals for the District of
Columbia Circuit. The court is holding the case in abeyance pending
reconsideration at the FCC.
On February 26, 1999, the FCC issued a Declaratory Ruling and Notice of Proposed
Rulemaking regarding the regulatory treatment of calls to ISPs. Prior to the
FCC's order, approximately thirty Public Utility Commissions ("PUCs") issued
orders unanimously finding that carriers, including WorldCom, are entitled to
collect reciprocal compensation for completing calls to ISPs under the terms of
their interconnection agreements with ILECs. Many of these PUC decisions have
been appealed by the ILECs and, since the FCC's order, many have filed new cases
at the PUCs or in court. Moreover, WorldCom appealed the FCC's order to the
United States Court of Appeals for the District of Columbia Circuit. On March
24, 2000, the court vacated the FCC's order and remanded the case to the FCC for
further proceedings, which are currently pending. On May 15, 2000, legislation
was introduced in the U.S. House of Representatives that would exclude dial-up
Internet traffic from the reciprocal compensation provisions of the Telecom Act.
WorldCom cannot predict the outcome of the cases filed by the ILECs, the FCC's
rulemaking proceeding, the FCC's proceedings on remand, or the congressional
legislation, nor can it predict whether or not the result(s) will have a
material adverse impact upon its consolidated financial position or future
results of operations.
Several bills have been introduced during the 106th Congress that would exclude
the transmission of data services or high-speed Internet access from the Telecom
Act's bar on the transmission of in-region interLATA services by the Bell
operating companies ("BOCs"). These bills would also make it more difficult for
competitors to resell the high-speed Internet access services of the ILECs or to
lease a portion of the network components used for the provision of such
services.
In 1996 and 1997, the FCC issued orders that would require non-dominant
telecommunications carriers to eliminate interstate service tariffs, except in
limited circumstances. These orders were stayed pending judicial review. On
April 28, 2000, the United States Court of Appeals for the District of Columbia
Circuit issued a decision upholding the FCC's orders and thereafter lifted the
stay. The parties to this appeal, including WorldCom, are considering whether
to seek further judicial review. As written, the FCC's orders will prevent
WorldCom from relying on its federal tariff to limit liability or to establish
its interstate rates for customers. Accordingly, WorldCom would need to develop
a new means to establish contractual relationships with its customers.
BOCs must file an application conforming to the requirements of Section 271 of
the Telecom Act for each state in their service area in order to offer in-region
long distance service in that state. To be granted by the FCC, an application
must demonstrate, among other things, that the BOC has met a 14-point
competitive checklist to open its local network to competition and demonstrate
that its application is in the public interest. Since enactment of the Telecom
Act, the FCC has rejected five Section 271 applications filed by BOCs and
granted two; Bell Atlantic Corporation's application for New York was granted on
December 21, 1999, and SBC Communications, Inc.'s application for Texas was
granted on June 30, 2000. No other Section 271 applications are pending before
the FCC at this time, but other applications may be filed this year. WorldCom
cannot predict the outcome of this proceeding or whether or not the results will
have a material adverse impact on its consolidated financial position or future
results of operations.
On May 31, 2000, the FCC adopted further access charge and universal service
reform. In response to a proposal made by the Coalition for Affordable Local and
Long Distance Services ("CALLS"), a group of regional Bell operating companies
("RBOCs"), GTE and two long distance companies, the FCC reduced access charges
paid by long distance companies to local exchange carriers by approximately $3.2
billion annually. The proposal, which will allow charges imposed on end user
customers by local exchange carriers to increase over time, also created a new
$650 million universal service fund. Several parties have appealed various
aspects of the CALLS order.
International. In February 1997, the United States entered into a World Trade
Organization Agreement (the "WTO Agreement") that is designed to have the effect
of liberalizing the provision of switched voice telephone and other
telecommunications services in scores of foreign countries over the next several
years. The WTO Agreement became effective in February 1998. In light of the
United States commitments to the WTO Agreement, the FCC implemented new rules in
February 1998 that liberalize existing policies regarding (1) the services that
may be provided by foreign affiliated United States international common
carriers, including carriers controlled or more than
12
<PAGE>
25 percent owned by foreign carriers that have market power in their home
markets, and (2) the provision of alternative traffic routing. The new rules
make it much easier for foreign affiliated carriers to enter the United States
market for the provision of international services.
In August 1997, the FCC adopted mandatory settlement rate benchmarks. These
benchmarks are intended to reduce the rates that United States carriers pay
foreign carriers to terminate traffic in their home countries. The FCC will
also prohibit a United States carrier affiliated with a foreign carrier from
providing facilities-based service to the foreign carrier's home market until
and unless the foreign carrier has implemented a settlement rate at or below the
benchmark. The FCC also adopted new rules that will liberalize the provision of
switched services over private lines to World Trade Organization member
countries. These rules allow such services on routes where 50% or more of
United States billed traffic is being terminated in the foreign country at or
below the applicable settlement rate benchmark or where the foreign country's
rules concerning provision of international switched services over private lines
are deemed equivalent to United States rules. On January 12, 1999, the FCC's
benchmark rules were upheld in their entirety by the United States Court of
Appeals for the District of Columbia Circuit. On March 11, 1999, the District
of Columbia Circuit denied petitions for rehearing of the case.
In April 1999, the FCC modified its rules to permit United States international
carriers to exchange international public switched voice traffic on many routes
to and from the United States outside of the traditional settlement rate and
proportionate return regimes.
On June 3, 1999, the FCC enforced the benchmark rates on two non-compliant
routes. Settlement rates have fallen to the benchmarks or below on many other
routes.
Although the FCC's new policies and implementation of the WTO Agreement may
result in lower settlement payments by WorldCom to terminate international
traffic, there is a risk that the payments that WorldCom will receive from
inbound international traffic may decrease to an even greater degree. The
implementation of the WTO Agreement may also make it easier for foreign carriers
with market power in their home markets to offer United States and foreign
customers end-to-end services to the disadvantage of WorldCom. The Company may
continue to face substantial obstacles in obtaining from foreign governments and
foreign carriers the authority and facilities to provide such end-to-end
services.
Embratel. The 1996 General Telecommunications Law (the "General Law") provides
a framework for telecommunications regulation for Embratel. Article 8 of the
General Law created Agencia Nacional de Telecomunicacoes ("Anatel") to implement
the General Law through development of regulations and to enforce such
regulations. According to the General Law, companies wishing to offer
telecommunications services to consumers are required to apply to Anatel for a
concession or an authorization. Concessions are granted for the provision of
services under the public regime (the "Public Regime") and authorizations are
granted for the provision of services under the private regime (the "Private
Regime"). Service providers subject to the Public Regime (concessionaires) are
subject to obligations concerning network expansion and continuity of service
provision and are subject to rate regulation. These obligations and the tariff
conditions are provided in the General Law and in each company's concession
contract. The network expansion obligations are also provided in the Plano
Geral de Universalizacao ("General Plan on Universal Service").
The only services provided under the Public Regime are the switched fixed
telephone services ("SFTS") -local and national and international long distance
- provided by Embratel and the three regional Telebras holding companies
("Teles"). All other telecommunications companies, including other companies
providing SFTS, operate in the Private Regime and, although they are not subject
to the Public Regime, individual authorizations may contain certain specific
expansion and continuity obligations.
The main restriction imposed on carriers by the General Plan on Universal
Service is that, until December 31, 2003, the three Teles are prohibited from
offering inter-regional and international long distance service, while Embratel
is prohibited from offering local services. These companies can start providing
those services two years sooner if they meet their network expansion obligations
by December 31, 2001.
13
<PAGE>
Embratel and the three Teles were granted their concessions at no fee, until
2005. After 2005, the concessions may be renewed for a period of 20 years, upon
the payment, every two years, of a fee equal to 2% of annual net revenues
calculated based on the provision of SFTS in the prior year, excluding taxes and
social contributions.
Embratel also offers a number of ancillary telecommunications services pursuant
to authorizations granted in the Private Regime. Such services include the
provision of dedicated analog and digital lines, packet switched network
services, circuit switched network services, mobile marine telecommunications,
telex and telegraph, radio signal satellite retransmission and television signal
satellite retransmission. Some of these services are subject to some specific
continuity obligations and rate conditions.
All providers of telecommunications services are subject to quality and
modernization obligations provided in the Plan Geral de Qualidade ("General Plan
on Quality").
Litigation. On November 4, 1996, and thereafter, and on August 25, 1997, and
thereafter, MCI Communications Corporation ("MCI") and all of its directors were
named as defendants in a total of 15 complaints filed in the Court of Chancery
in the State of Delaware. British Telecommunications plc ("BT") was named as a
defendant in 13 of the complaints. The complaints were brought by alleged
stockholders of MCI, individually and purportedly as class actions on behalf of
all other stockholders of MCI. In general, the complaints allege that MCI's
directors breached their fiduciary duty in connection with the MCI BT Merger
Agreement, dated November 3, 1996 (the "MCI BT Merger Agreement"), that BT aided
and abetted those breaches of duty, that BT owes fiduciary duties to the other
stockholders of MCI and that BT breached those duties in connection with the MCI
BT Merger Agreement. The complaints seek damages and injunctive and other
relief.
One of the purported stockholder class actions pending in Delaware Chancery
Court has been amended, one of the purported class actions has been dismissed
with prejudice, and plaintiffs in four of the other purported stockholder class
actions have moved to amend their complaints to name WorldCom and a WorldCom
subsidiary as additional defendants. These plaintiffs generally allege that the
defendants breached their fiduciary duties to stockholders in connection with
the MCI merger and the agreement to pay a termination fee to WorldCom. They
further allege discrimination in favor of BT in connection with the MCI merger.
The plaintiffs seek, inter alia, damages and injunctive relief prohibiting the
consummation of the MCI merger and the payment of the inducement fee to BT.
Three complaints were filed in the U.S. District Court for the District of
Columbia, as class actions on behalf of purchasers of MCI shares. The three
cases were consolidated on April 1, 1998. On or about May 8, 1998, the
plaintiffs in all three cases filed a consolidated amended complaint alleging,
on behalf of purchasers of MCI's shares between July 11, 1997 and August 21,
1997, inclusive, that MCI and certain of its officers and directors failed to
disclose material information about MCI, including that MCI was renegotiating
the terms of the MCI BT Merger Agreement. The consolidated amended complaint
seeks damages and other relief. The Company and the other defendants have moved
to dismiss the consolidated amended complaint.
At least nine class action complaints have been filed that arise out of the
FCC's decision in Halprin, Temple, Goodman and Sugrue v. MCI Telecommunications
-------------------------------------------------------------
Corp., and allege that WorldCom has improperly charged "pre-subscribed"
-----
customers "non-subscriber" or so-called "casual" rates for certain direct-dialed
calls. Plaintiffs further challenge WorldCom's credit policies for this "non-
subscriber" traffic. Plaintiffs assert that WorldCom's conduct violates the
Communications Act and various state laws; the complaint seeks rebates to all
affected customers as well as punitive damages and other relief. In response to
a motion filed by WorldCom, the Judicial Panel on Multi-District Litigation
consolidated these matters in the United States District Court for the Southern
District of Illinois. The parties have entered into a memorandum of
understanding to settle these cases, pursuant to which the Company would pay $88
million for the benefit of the Settlement Class. Judicial approval of the
tentative settlement is required. The Company's appeal of the FCC's Halprin
-------
decision to the United States Court of Appeals for the District of Columbia
Circuit is stayed pending judicial review of the proposed settlement.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and Results of
Operations 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,
estimated costs to complete or possible future revenues from in-process research
and development programs, the likelihood of successful completion of such
programs, and the outcome of Euro conversion efforts, as well as any statements
preceded by, followed by, or that include the words "intends," "estimates,"
"believes," "expects," "anticipates," "should," "could," or similar expressions;
and other statements contained herein regarding matters that are not historical
facts.
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 (the "Cautionary Statements")
include, without limitation: (1) possible effects of the Company's recent
announcement regarding the consideration of opportunities to separate the
wholesale and consumer operations into separate companies or tracking stocks;
(2) the effects of vigorous competition in the markets in which the Company
operates; (3) the impact of technological change on the Company's business, new
entrants and alternative technologies, and dependence on availability of
transmission facilities; (4) uncertainties associated with the success of other
acquisitions and the integration thereof; (5) risks of international business;
(6) regulatory risks, including the impact of the Telecom Act; (7) contingent
liabilities; (8) the impact of competitive services and pricing; (9) risks
associated with Euro conversion efforts; (10) risks associated with debt service
requirements and interest rate fluctuations; (11) the Company's degree of
financial leverage; and (12) other risks referenced from time to time in the
Company's filings with the SEC, including the Form 10-K. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements. 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.
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three and six months ended June 30,
2000 and 1999. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and consolidated financial statements and notes thereto contained
herein and in the Form 10-K.
Unless otherwise defined, capitalized terms used herein have the meanings
assigned to them in the Notes to Consolidated Financial Statements contained
herein.
Results of Operations
The following table sets forth for the periods indicated the Company's
statements of operations as a percentage of its revenues for the three and six
months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ -----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----- ----- ----- -----
Revenues........................................................ 100.0% 100.0% 100.0% 100.0%
Line costs...................................................... 40.7 43.6 40.9 44.5
Selling, general and administrative............................. 24.0 24.7 23.5 25.4
Depreciation and amortization................................... 11.6 12.0 11.6 12.0
----- ----- ----- -----
Operating income................................................ 23.7 19.7 24.0 18.1
Other income (expense):
Interest expense............................................. (2.3) (2.7) (2.2) (2.8)
Miscellaneous................................................ 1.0 0.4 1.1 0.1
----- ----- ----- -----
Income before income taxes and minority interests............... 22.4 17.4 22.9 15.4
Provision for income taxes...................................... 9.1 7.2 9.3 6.6
----- ----- ----- -----
Income before minority interests................................ 13.3 10.2 13.6 8.8
Minority interests.............................................. (0.6) (0.5) (0.7) 0.1
----- ----- ----- -----
Net income...................................................... 12.7 9.7 12.9 8.9
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- --------------------
2000 1999 2000 1999
----- ---- ----- ----
<S> <C> <C> <C> <C>
Distributions on subsidiary trust and other mandatorily
redeemable preferred securities.............................. 0.2 0.2 0.2 0.2
Preferred dividend requirement.................................. - - - -
---- ---- ---- ---
Net income applicable to common shareholders.................... 12.5% 9.5% 12.7% 8.7%
==== ==== ==== ===
</TABLE>
Three and six months ended June 30, 2000 vs.
Three and six months ended June 30, 1999
Revenues for the three months ended June 30, 2000, increased 12.4% to $10.2
billion as compared to $9.1 billion for the three months ended June 30, 1999.
For the six months ended June 30, 2000, revenues increased 10.9% to $20.2
billion versus $18.2 billion for the same period in the prior year. The
increase in total revenues is attributable to internal growth of the Company.
The Company is exploring opportunities to separate the Company's wholesale and
consumer operations into separate companies or tracking stocks. This would allow
WorldCom to enhance its effectiveness in targeting commercial customers.
Therefore, the revenues reported below for the three and six months ended June
30, 2000 and 1999 reflect this classification change (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -----------------------------
Percent Percent
2000 1999 Change 2000 1999 Change
------- ------ ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Voice $ 2,752 $2,645 4.0% $ 5,474 $ 5,314 3.0%
Data 1,897 1,455 30.4% 3,688 2,837 30.0%
Internet 1,172 836 40.2% 2,276 1,594 42.8%
International 1,446 1,107 30.6% 2,811 2,150 30.7%
------- ------ ---- ------- ------- ----
Commercial services 7,267 6,043 20.3% 14,249 11,895 19.8%
Wholesale and consumer revenues 2,926 2,902 0.8% 5,922 5,769 2.7%
------- ------ ---- ------- ------- ----
Communications services 10,193 8,945 14.0% 20,171 17,664 14.2%
Other - 120 N/A - 523 N/A
------- ------ ---- ------- ------- ----
Total $10,193 $9,065 12.4% $20,171 $18,187 10.9%
======= ====== ==== ======= ======= ====
</TABLE>
Communications services revenues for the three months ended June 30, 2000
increased 14.0% to $10.2 billion as compared to $8.9 billion for the three
months ended June 30, 1999. For the six months ended June 30, 2000,
communications services revenues increased 14.2% to $20.2 billion versus $17.7
billion for the same period in the prior year. Excluding WorldCom's interest in
the Brazilian telecommunications company, Embratel, communications services
revenues were $9.4 billion and $18.5 billion, respectively, for the three and
six months ended June 30, 2000 or a 13.3% and 13.6%, respectively, increase from
the prior year periods.
Commercial services revenues, which includes the revenues generated from
commercial voice, data, International and Internet, for the three months ended
June 30, 2000 increased 20.3% to $7.3 billion as compared to $6.0 billion for
the three months ended June 30, 1999. For the six months ended June 30, 2000,
commercial services revenues increased 19.8% to $14.2 billion versus $11.9
billion for the same period in the prior year.
Commercial voice revenues for the three and six months ended June 30, 2000
increased 4.0% and 3.0%, respectively, over the prior year periods, driven by
gains in traffic of 10.6% and 8.3%, respectively, as a result of customers
purchasing "all-distance" voice services from the Company. These increases were
driven almost equally by demand for both local and long distance services.
Access charge reforms along with declining network costs have facilitated the
reduction in pricing. Voice revenues include both long distance and local
domestic commercial switched revenues.
Data revenues for the three and six months ended June 30, 2000, increased 30.4%
and 30.0%, respectively, over the same periods of the prior year. Data includes
both long distance and local commercial dedicated bandwidth sales. The revenue
growth for data services was driven by steady growth in private line customers,
new customer applications and upgrades within existing customer base of frame
relay services and increased demand in
16
<PAGE>
asynchronous transfer mode ("ATM") services. The Company continues to experience
strong demand for capacity increases across the product set as businesses move
more of their mission critical applications to their networks. As of June 30,
2000, the Company's domestic local voice grade equivalents ("VGEs"), which
measure the capacity of local private line data circuits, had increased 98% to
46.8 million VGEs versus the prior year amount.
Internet revenues for the three and six months ended June 30, 2000 increased
40.2% and 42.8%, respectively, over the prior year amounts. Growth was driven
by demand for dedicated circuits as more and more business customers migrated
their data networks and applications to Internet-based technologies with greater
amounts of bandwidth. Dedicated revenue growth for the three and six months
ended June 30, 2000 was 68.8% and 64.2%, respectively, from the prior period
amounts. Dial revenue growth for the three and six months ended June 30, 2000
was 12.8% and 22.2%, respectively, from the prior period amounts due to contract
repricings.
The Company is upgrading its domestic Internet backbone to OC-192c speeds, or 10
gigabits per second, in response to the increasing backbone transport
requirements of both its commercial and wholesale accounts. The Company is also
implementing Multi Protocol Label Switching ("MPLS") technology along with the
deployment of OC-192c. MPLS technology allows packet prioritization to improve
latency. The Company's dial access network has grown 86.0% to over 2.3 million
modems as of June 30, 2000, compared with the same period in the prior year.
Additionally, Internet connect hours increased 62.0% to 1.6 billion hours for
the three months ended June 30, 2000 versus the second quarter of 1999.
International revenues - those revenues originating outside of the United States
- for the three months ended June 30, 2000 were $1.4 billion, an increase of
30.6% as compared with $1.1 billion for the same period of the prior year. For
the six month period ended June 30, 2000, international revenues increased 30.7%
to $2.8 billion versus $2.2 billion for the same period of the prior year.
Excluding Embratel, international revenues for the three and six months ended
June 30, 2000 increased 44.8% and 47.4%, respectively, over the prior period
amounts. The increase is attributable to additional sales force and network
infrastructure established to pursue international opportunities. During the
second quarter of 2000 the Company continued to extend the reach of its end-to-
end networks, adding nearly 2,000 buildings for a total of 13,000 buildings
connected on the network.
Wholesale and consumer revenues for the three and six month periods ended June
30, 2000 increased 0.8% and 2.7%, respectively, over the same periods in the
prior year. The wholesale market continues to be extremely price competitive as
declines in minute rates have outpaced increases in traffic. The wholesale
market decreases were offset by increases in consumer revenues as the Company's
partner marketing programs helped to drive Dial-1 product gains.
Other revenues which, prior to April 1999, primarily consisted of the operations
of SHL, were zero for the three and six month periods ended June 30, 2000 and
$120 million and $523 million, respectively, for the prior year periods. In
April 1999, the Company completed the sale of SHL to EDS for $1.6 billion.
Line costs. Line costs as a percentage of revenues for the second quarter of
2000 were 40.7% as compared to 43.6% reported for the same period of the prior
year. On a year-to-date basis, line costs as a percentage of revenues decreased
to 40.9% as compared to 44.5% reported for the same period of the prior year.
The overall improvements are a result of more traffic and revenues that have no
associated access charges, declining access and settlement costs, improved
interconnection terms in Europe and network efficiencies associated with the MCI
merger and sale of SHL. These improvements were somewhat offset in the second
quarter of 2000 by contract repricing in the Internet business.
The principal components of line costs are access charges and transport charges.
Regulators have historically permitted access charges to be set at levels that
are well above ILECs' costs. As a result, access charges have been a source of
universal service subsidies that enable local exchange rates to be set at levels
that are affordable. WorldCom has actively participated in a variety of state
and federal regulatory proceedings with the goal of bringing
17
<PAGE>
access charges to cost-based levels and to fund universal service using explicit
subsidies funded in a competitively neutral manner. WorldCom cannot predict the
outcome of these proceedings or whether or not the result(s) will have a
material adverse impact on its consolidated financial position or results of
operations. However, the Company's goal is to manage 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.
Selling, general and administrative. Selling, general and administrative
expenses for the second quarter of 2000 were $2.4 billion or 24.0% of revenues
as compared to $2.2 billion or 24.7% of revenues for the second quarter of 1999.
On a year-to-date basis, selling, general and administrative expenses as a
percentage of revenues decreased to 23.5% as compared to 25.4% for the same
period of the prior year. Selling, general and administrative expenses for the
three and six month periods ended June 30, 2000 include a $93 million pre-tax
one-time charge associated with the termination of the Sprint Merger Agreement,
including regulatory, legal, accounting and investment banking fees and other
costs. Excluding this charge, selling, general and administrative expenses as a
percentage of revenues were 23.0% for both the three and six month periods ended
June 30, 2000. The improvement in selling, general and administrative expenses
is a result of a better mix of revenues, having scale in the Company's networks
and the Company's ability to leverage certain staff areas such as information
technology and engineering groups over a larger base of revenues.
Depreciation and amortization. Depreciation and amortization expense for the
second quarter of 2000 increased to $1.2 billion or 11.6% of revenues from $1.1
billion or 12.0% of revenues for the comparable quarter of 1999. On a year-to-
date basis, this expense increased to $2.3 billion or 11.6% of revenues from
$2.2 billion or 12.0% of revenues for the comparable 1999 period. These
increases reflect increased amortization and depreciation from 1999 acquisitions
as well as additional depreciation related to capital expenditures. As a
percentage of revenues, these costs decreased due to the higher revenue base.
Interest expense. Interest expense in the second quarter of 2000 was $236
million or 2.3% of revenues, as compared to $248 million or 2.7% of revenues
reported in the second quarter of 1999. For the six months ended June 30, 2000,
interest expense was $454 million or 2.2% of revenues as compared to $520
million or 2.8% of revenues for the first six months of 1999. For the three
months ended June 30, 2000 and 1999, weighted average annual interest rates on
the Company's long-term debt were 7.33% and 7.30%, respectively, while weighted
average levels of borrowings were $20.9 billion and $19.9 billion, respectively.
For the six months ended June 30, 2000 and 1999, weighted average annual
interest rates on the Company's long-term debt were 7.27% and 7.23%,
respectively, while weighted average levels of borrowings were $19.9 billion and
$20.2 billion, respectively. Interest expense for the three and six months ended
June 30, 2000 was favorably impacted by increased construction activity and the
associated capitalization, offset by higher weighted average levels of
borrowings and higher interest rates on the Company's variable rate debt and
2000 public debt offerings. Interest expense for the six months ended June 30,
2000 was also favorably impacted as a result of SHL sale proceeds, investment
sale proceeds and proceeds from the increase in the Company's receivables
purchase program in the third quarter of 1999 used to repay indebtedness under
the Company's credit facilities and commercial paper program.
Miscellaneous income and expense. Miscellaneous income for the second quarter
of 2000 was $109 million or 1.0% of revenues as compared to $48 million or 0.4%
of revenues for the second quarter of 1999. For the six months ended June 30,
2000, miscellaneous income was $220 million or 1.1% of revenues as compared to
$22 million or 0.1% of revenues for the first six months of 1999. Miscellaneous
income includes investment income, equity in income and losses of affiliated
companies, the effects of fluctuations in exchange rates for transactions
denominated in foreign currencies, gains and losses on the sale of assets and
other non-operating items.
Net income applicable to common shareholders. For the quarter ended June 30,
2000, the Company reported net income applicable to common shareholders of $1.3
billion as compared to $865 million reported in the second quarter of 1999.
Diluted income per common share was $0.44 compared to income per share of $0.30
for the comparable 1999 period. For the six months ended June 30, 2000, the
Company reported net income applicable to common shareholders of $2.6 billion as
compared to $1.6 billion for the six months ended June 30, 1999. Diluted income
per common share was $0.88 compared to income per common share of $0.54 for the
comparable 1999 period.
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<PAGE>
Liquidity and Capital Resources
As of June 30, 2000, the Company's total debt was $21.3 billion, an increase of
$3.2 billion from December 31, 1999. Additionally, at June 30, 2000, the
Company had available liquidity of $10.8 billion under its Credit Facilities and
commercial paper program (which are described below) and from available cash.
On May 24, 2000, the Company completed a public debt offering of $5.0 billion
principal amount of debt securities. The net proceeds of $4.95 billion were
used to pay down commercial paper obligations. The public debt offering
consisted of $1.5 billion of Floating Rate Notes Due 2001 (the "Floating Rate
Notes"), which mature on November 26, 2001, $1.0 billion of 7.875% Notes Due
2003 (the "Notes Due 2003"), which mature on May 15, 2003, $1.25 billion of
8.000% Notes Due 2006 (the "Notes Due 2006"), which mature on May 15, 2006 and
$1.25 billion of 8.250% Notes Due 2010 (the "Notes Due 2010"), which mature on
May 15, 2010 (collectively, with the Floating Rate Notes, the Notes Due 2003,
the Notes Due 2006 and the Notes Due 2010, the "Notes"). The Floating Rate
Notes bear interest payable quarterly on the 24th day of February, May, August,
and November, beginning August 24, 2000. The Notes Due 2003, the Notes Due 2006
and the Notes Due 2010 bear interest payable semiannually in arrears on May 15
and November 15 of each year, commencing on November 15, 2000.
The Notes Due 2006 and the Notes Due 2010 are redeemable, as a whole or in part,
at the option of the Company, at any time or from time to time, at respective
redemption prices equal to the greater of (i) 100% of the principal amount of
the Notes to be redeemed or (ii) the sum of the present values of the Remaining
Scheduled Payments (as defined therein) discounted at the Treasury Rate (as
defined therein) plus (a) 25 basis points for the Notes Due 2006, and (b) 30
basis points for the Notes Due 2010.
The Company is required, subject to certain exceptions and limitations set forth
in the Notes, to pay such additional amounts (the "Additional Amounts") to the
beneficial owner of any Note who is a Non-U.S. Holder (as defined in the Notes)
in order that every net payment of principal and interest on such Note and any
other amounts payable on the Note, after withholding for certain U.S. taxes,
will not be less than the amount provided for in such Note to be then due and
payable. The Notes are also subject to redemption, at the Company's option,
subject to certain conditions specified in the Notes, in the event the Company
has or will become obligated or there is a substantial probability the Company
will or may be required to pay such Additional Amounts.
Additionally, on June 12, 2000, the Company completed a public debt offering of
$60 million principal amount of debt securities. The net proceeds of $59.9
million were used for general corporate purposes. The public debt offering
consisted of $60 million of Floating Rate Notes Due 2002 (the "2002 Floating
Rate Notes"), which mature on June 11, 2002. The 2002 Floating Rate Notes bear
interest payable quarterly on the 11th day of March, June, September and
December, beginning September 11, 2000.
On August 3, 2000, WorldCom extended its existing $7 billion 364-Day Revolving
Credit and Term Loan Agreement for a successive 364-day term pursuant to a First
Amendment and Renewal of the Amended and Restated 364-Day Revolving Credit and
Term Loan Agreement ("Facility C Loans"). The Facility C Loans together with
the $3.75 billion Amended and Restated Facility A Revolving Credit Agreement
dated August 6, 1998 ("Facility A Loans"), provide WorldCom with aggregate
credit facilities of $10.75 billion (the "Credit Facilities"). The Credit
Facilities provide liquidity support for the Company's commercial paper program
and will be used for other general corporate purposes. The Facility A Loans
mature on June 30, 2002. The Facility C Loans mature on August 2, 2001;
provided, however, that the Company may elect at such time to convert up to $4
billion of the principal debt outstanding under the Facility C Loans from
revolving loans to term loans with a maturity date no later than one year after
the conversion. The Credit Facilities bear interest payable in varying periods,
depending on the interest period, not to exceed six months, or with respect to
any Eurodollar Rate borrowing, 12 months if available to all lenders, at rates
selected by the Company under the terms of the Credit Facilities, including a
Base Rate or Eurodollar Rate, plus the applicable margin. The applicable margin
for the Eurodollar Rate borrowing varies from 0.35% to 0.75% as to Facility A
Loans and from 0.225% to 0.45% as to Facility C Loans, in each case based upon
the better of certain debt ratings. The Credit Facilities are unsecured but
include a negative pledge of the assets of the Company and certain of its
subsidiaries (subject to certain exceptions). The Credit Facilities require
compliance with a financial covenant based on the ratio of total debt to total
capitalization, calculated on a consolidated basis. The Credit Facilities
require compliance with certain operating covenants which limit, among other
things, the incurrence of additional indebtedness by the Company and certain of
its subsidiaries, sales of assets and mergers and dissolutions,
19
<PAGE>
and which covenants do not restrict distributions to shareholders, provided the
Company is not in default under the Credit Facilities. At August 3, 2000, the
Company was in compliance with these covenants. The Facility A Loans and the
Facility C Loans are subject to annual commitment fees not to exceed 0.25% and
0.15%, respectively, of any unborrowed portion of the facilities.
In January 2000, each share of WorldCom Series C Preferred Stock was redeemed by
the Company for $50.75 in cash, or approximately $190 million in the aggregate.
The funds required to pay all amounts under the redemption were obtained by
WorldCom from available liquidity under the Company's Credit Facilities and
commercial paper program.
In the first quarter of 2000, $200 million of senior notes with an interest rate
of 7.13% matured. The funds utilized to repay these senior notes were obtained
from available liquidity under the Company's Credit Facilities and commercial
paper program.
In the third quarter of 1999, the Company amended its $500 million receivables
purchase agreement to $2.0 billion. As of June 30, 2000, the purchaser owned an
undivided interest in a $3.9 billion pool of receivables, which includes the
$2.0 billion sold.
For the six months ended June 30, 2000, the Company's cash flow from operations
was $3.9 billion versus $4.6 billion for the comparable 1999 period. The
Company's improved operating results were more than offset by a $608 million
first half of 2000 increase in accounts receivable at Embratel primarily due to
Embratel's direct billing of customers and the implementation of this new
billing system during the first half of 2000. Additionally, there were decreases
in other current liabilities of $1.1 billion versus the prior year period.
Cash used in investing activities for the six months ended June 30, 2000,
totaled $7.0 billion. Primary capital expenditures include purchases of
switching, transmission, communications and other equipment. The Company
anticipates that approximately $4.2 billion will be spent during the remainder
of 2000 for transmission and communications equipment, construction and other
capital expenditures without regard to Embratel.
Increases in interest rates on WorldCom's variable rate debt would have an
adverse effect upon WorldCom's reported net income and cash flow. The Company
believes that it will generate sufficient cash flow to service WorldCom's debt
and capital requirements; however, economic downturns, increased interest rates
and other adverse developments, including factors beyond WorldCom's control,
could impair its ability to service its indebtedness. In addition, the cash
flow required to service WorldCom's debt may reduce its ability to fund internal
growth, additional acquisitions and capital improvements.
The development of the businesses of WorldCom and the installation and expansion
of its domestic and international networks will continue to require significant
capital expenditures. Failure to have access to sufficient funds for capital
expenditures on acceptable terms or the failure to achieve capital expenditure
synergies may require WorldCom to delay or abandon some of its plans, which
could have a material adverse effect on the success of WorldCom. The Company
has historically utilized a combination of cash flow from operations and debt to
finance capital expenditures and a mixture of cash flow, debt and stock to
finance acquisitions. Additionally, the Company expects to experience increased
capital intensity due to network expansion as noted above and believes that
funding needs in excess of internally generated cash flow and Credit Facilities
and commercial paper program will be met by accessing the debt markets. The
Company has filed a shelf registration statement on Form S-3 with the SEC for
the sale, from time to time, of one or more series of unsecured debt securities
having a remaining aggregate value of approximately $9.9 billion. The shelf
registration statement offers the Company flexibility, as the market permits, to
access the public debt markets. No assurance can be given that any public
financing will be available on terms acceptable to the Company.
Absent significant capital requirements for acquisitions, the Company believes
that cash flow from operations and available liquidity, including the Company's
Credit Facilities and commercial paper program and available cash will be
sufficient to meet the Company's capital needs for the next twelve months.
However, under existing credit conditions, the Company believes that funding
needs in excess of internally generated cash flow and availability under the
Company's Credit Facilities and commercial paper program could be met by
accessing debt markets.
20
<PAGE>
Recently Issued Accounting Standards
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements"; ("SAB 101"). In June 2000, the SEC issued
an amendment to SAB 101 which allows registrants to wait until the fourth
quarter of their fiscal year beginning after December 15, 1999 to implement SAB
101. SAB 101 provides guidance on the recognition, presentation and disclosure
of revenue in financial statements filed with the SEC. The deferral of
telecommunications service activation fees and certain related costs are
specifically addressed in SAB 101. WorldCom is currently assessing the impact
of SAB 101 on its consolidated results of operations or financial position and
there can be no assurance as to the effect on the Company's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. This statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires a company to formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. This statement is currently effective for fiscal years beginning
after June 15, 2000 and cannot be applied retroactively, although earlier
adoption is encouraged. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the Company's election, before January 1, 1998). The Company believes
that the adoption of this standard will not have a material effect on the
Company's consolidated results of operations or financial position.
Euro Conversion
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("Euro"). The transition period for the introduction of
the Euro will be between January 1, 1999 to July 1, 2002. All of the final
rules and regulations have not yet been identified by the European Commission
with regard to the Euro. The Company is currently evaluating methods to address
the many issues involved with the introduction of the Euro, including the
conversion of information technology systems, recalculating currency risk,
recalibrating derivatives and other financial instruments, strategies concerning
continuity of contracts, and impacts on the processes for preparing taxation and
accounting records. At this time, the Company has not yet determined the cost
related to addressing this issue, and there can be no assurance as to the effect
of the Euro on the consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations and changes in market values of investments.
The Company's policy is to manage interest rates through the use of a
combination of fixed and variable rate debt. Currently, the Company does not use
derivative financial instruments to manage its interest rate risk. The Company
has minimal cash flow exposure due to general interest rate changes for its
fixed rate, long-term debt obligations. The Company does not believe a
hypothetical 10% adverse rate change in the Company's variable rate debt
obligations would be material to the Company's results of operations.
The Company is exposed to foreign exchange rate risk primarily due to the
Company's international operations holding approximately $1.3 billion in U.S.
dollar denominated debt, and approximately $291 million of indebtedness indexed
in other currencies including the French Franc, Deutsche Mark, Japanese Yen and
Brazilian real as of June 30, 2000. The potential immediate loss to the Company
that would result from a hypothetical 10% change in foreign currency exchange
rates based on these positions would be approximately $39 million (after
elimination of minority interests).
The Company is also subject to risk from changes in foreign exchange rates for
its international operations which use a foreign currency as their functional
currency and are translated into U.S. dollars. Additionally, the Company has
21
<PAGE>
designated the note payable in local currency installments, resulting from the
Embratel investment, as a hedge of its investment in Embratel. As of June 30,
2000, the Company recorded the change in value of the note as a reduction to the
note payable with the offset through foreign currency translation adjustment in
shareholders' investment.
The Company believes its market risk exposure with regard to its marketable
equity securities is limited to changes in quoted market prices for such
securities. Based upon the composition of the Company's marketable equity
securities at June 30, 2000, the Company does not believe a hypothetical 10%
adverse change in quoted market prices would be material to net income.
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, 1999, except as may be reflected in the discussion under Note H of
the Notes to Consolidated Financial Statements in Part I, Item 1,
above, which is hereby incorporated by reference herein.
Item 2. Changes in Securities and Use of Proceeds
In May 2000, in connection with its acquisition of the remaining shares
of Mtel Latin America, Inc., the Company issued 346,410 shares of
WorldCom common stock to Newbridge Latin America, L.P. In connection
with this transaction, the Company relied on an exemption from
registration contained in Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
On April 28, 2000, the Company held a Special Meeting of Shareholders
for the purpose of considering and voting upon a proposal to approve
the merger agreement between WorldCom and Sprint and the transactions
contemplated thereby. The tabulation of the voting is as follows:
For 1,777,724,237
Against 23,006,600
Abstentions and Broker non-votes 11,961,477
On June 1, 2000, the Company held the 2000 Annual Meeting of Shareholders for
the purposes of:
1. electing a Board of fourteen (14) directors; and
2. considering and acting upon a shareholder proposal on Shareholder
Rights Plans.
22
<PAGE>
The tabulation of the voting is as follows:
<TABLE>
<CAPTION>
Against or Abstentions or
Election of Directors: For Withheld Broker Non-Votes
--------------------- --- ---------- ----------------
<S> <C> <C> <C>
Clifford L. Alexander, Jr. 2,309,501,376 18,233,709 0
James C. Allen 2,309,994,093 17,740,992 0
Judith Areen 2,309,843,440 17,891,645 0
Carl J. Aycock 2,309,318,590 18,416,495 0
Max E. Bobbitt 2,310,050,413 17,684,672 0
Bernard J. Ebbers 2,309,900,821 17,834,264 0
Francesco Galesi 2,309,322,558 18,412,527 0
Stiles A. Kellett, Jr. 2,309,907,064 17,828,021 0
Gordon S. Macklin 2,309,084,628 18,650,457 0
John A. Porter 2,309,771,645 17,963,440 0
Bert C. Roberts, Jr. 2,309,754,755 17,980,330 0
John W. Sidgmore 2,310,202,164 17,532,921 0
Scott D. Sullivan 2,309,900,284 17,834,801 0
Lawrence C. Tucker 2,309,723,980 18,011,105 0
Shareholder proposal on
Shareholder Rights Plans 872,432,261 746,894,723 708,408,101
</TABLE>
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
(i) Current Report on Form 8-K-1 dated April 11, 2000 (filed
April 11, 2000), reporting under item 5, Other Events,
information related to the Sprint Merger Agreement and
business operations of Sprint.
(ii) Current Report on Form 8-K-2 dated April 11, 2000 (filed
April 11, 2000), reporting under item 7(a), Financial
Statements of Business Acquired, information related to
the financial results of Sprint for the periods ended
December 31, 1999 and under item 7(b), Pro Forma Financial
Information, the pro forma condensed combined financial
statements of WorldCom as of and for the year ended
December 31, 1999.
(iii) Current Report on Form 8-K dated May 16, 2000 (filed May
16, 2000), reporting under item 7(a), Financial Statements
of Business Acquired, information related to the financial
results of Sprint for the quarter ended March 31, 2000 and
under item 7(b), Pro Forma Financial Information, the pro
forma condensed combined financial statements of WorldCom
as of and for the three month period ended March 31, 2000.
(iv) Current Report on Form 8-K dated May 19, 2000 (filed May
22, 2000), reporting under item 5, Other Events,
information related to the Company's public debt offering
of $5.0 billion principal amount of debt securities.
23
<PAGE>
(v) Current Report on Form 8-K dated May 31, 2000 (filed June
12, 2000), reporting under item 5, Other Events,
information related to the Company's public debt offering
of $60 million principal amount of debt securities.
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-Q to be signed on its behalf
by Scott D. Sullivan, thereunto duly authorized to sign on behalf of the
registrant and as the principal financial officer thereof.
WorldCom, Inc.
By:/s/ Scott D. Sullivan
--------------------------------------
Scott D. Sullivan
Chief Financial Officer
Dated: August 14, 2000.
25
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1.1 Underwriting Agreement dated May 19, 2000, between WorldCom, Inc.
("WorldCom") and Salomon Smith Barney Inc. and the other firms
named therein, acting severally on behalf of themselves as Managers
and Underwriters and on behalf of the other several Underwriters,
if any, named in the Terms Agreement (incorporated herein by
reference to Exhibit 1.1 to the Company's Current Report on Form
8-K dated May 19, 2000 (filed May 22, 2000) (File No. 0-11258))
1.2 Terms Agreement, dated May 19, 2000, between WorldCom, and Salomon
Smith Barney Inc. and the other firms named therein, acting
severally on behalf of themselves as Managers and Underwriters and
on behalf of the other several Underwriters named therein
(incorporated herein by reference to Exhibit 1.2 to the Company's
Current Report on Form 8-K dated May 19, 2000 (filed May 22, 2000)
(File No. 0-11258))
4.1 Second Amended and Restated Articles of Incorporation of WorldCom,
Inc. (including preferred stock designations), as amended as of May
1, 2000 (incorporated herein by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2000 (File No. 0-11258))
4.2 Restated Bylaws of WorldCom, Inc. (incorporated herein by reference
to Exhibit 3.2 to the Company's Current Report on Form 8-K dated
September 14, 1998 (filed September 29, 1998) (File No. 0-11258))
4.3 Rights Agreement dated as of August 25, 1996, between the Company
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 Rights Certificate as Exhibit B and the Summary of
Preferred Stock Purchase Rights as Exhibit C (incorporated herein
by reference to Exhibit 4 to the Current Report on Form 8-K dated
August 26, 1996 (as amended on Form 8-K/A filed August 31, 1996)
filed by the Company with the Securities and Exchange Commission on
August 26, 1996 (as amended on Form 8-K/A filed on August 31, 1996)
(File No. 0-11258))
4.4 Amendment No. 1 to Rights Agreement dated as of May 22, 1997, by
and between WorldCom, Inc. and The Bank of New York, as Rights
Agent (incorporated herein by reference to Exhibit 4.2 of the
Company's Current Report on Form 8-K dated May 22, 1997 (filed June
5, 1997) (File No. 0-11258))
4.5 Form of Floating Rate Note Due 2001 (incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report on Form
8-K dated May 19, 2000 (filed May 22, 2000) (File No. 0-11258))
4.6 Form of 7.875% Note Due 2003 (incorporated herein by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K dated May
19, 2000 (filed May 22, 2000) (File No. 0-11258))
4.7 Form of 8.000% Notes Due 2006 (incorporated herein by reference to
Exhibit 4.3 to the Company's Current Report on Form 8-K dated May
19, 2000 (filed May 22, 2000) (File No. 0-11258))
4.8 Form of 8.25% Notes Due 2010 (incorporated herein by reference to
Exhibit 4.4 to the Company's Current Report on Form 8-K dated May
19, 2000 (filed May 22, 2000) (File No. 0-11258))
4.9 Indenture dated as of May 15, 2000 by and between WorldCom and
Chase Manhattan Trust Company, National Association (incorporated
herein by reference to Exhibit 4.1 to WorldCom's Registration
Statement on Form S-3 (File No. 333-34578))
10.1 Amended and Restated Facility A Revolving Credit Agreement among
WorldCom, NationsBank, N.A., NationsBanc Montgomery Securities LLC,
Bank of America NT & SA, Barclays Bank PLC, The Chase Manhattan
Bank, Citibank, N.A., Morgan Guaranty Trust Company of New York,
and Royal Bank of Canada and the lenders named therein dated as of
August 6, 1998 (incorporated
26
<PAGE>
herein by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K dated August 6, 1998 (filed August 7, 1998) (File No.
0-011258)) *
10.2 Amended and Restated 364-Day Revolving Credit and Term Loan
Agreement among the Company and Bank of America, N.A.,
Administrative Agent; Bank of America Securities, LLC, Sole Lead
Arranger and Book Manager; Barclays Bank PLC, The Chase Manhattan
Bank, Citibank, N.A., Morgan Guaranty Trust Company of New York,
and Royal Bank of Canada, Co-Syndication Agents; and the lenders
named therein dated as of August 5, 1999 (incorporated herein by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1999) (File No.
0-11258))*
10.3 First Amendment and Renewal of the Amended and Restated 364-Day
Revolving Credit and Term Loan Agreement entered into as of August
3, 2000, among the Company, certain Purchasing Lenders named
therein, certain Increasing Lenders as named therein, Bank of
America, N.A., as a Lender and as Administrative Agent for itself
and the Accepting Lenders (as therein defined) with Banc of America
Securities, LLC, as the Sole Lead Arranger and Book Manager. *
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges
27.1 Financial Data Schedule - for the six months ended June 30, 2000
27.2 Restated Financial Date Schedule - for the six months ended June
30, 1999
* The registrant hereby agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the SEC upon request.
27
