<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 1996
MFS COMMUNICATIONS COMPANY, INC.
(Exact name of registrant as specified in charter)
Delaware 0-21594 47-0714388
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
11808 Miracle Hills Drive, Omaha, Nebraska 68154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 402-231-3000
3555 Farnam Street, Omaha, Nebraska 68131
(Former name or former address, if changed from last
report)
<PAGE>2
Item 5. Other Events
On August 1, 1996, MFS Communications Company, Inc. (MFS)
reported second quarter revenue of $229.7 million, an increase of 64 percent,
as compared with $140.0 million for the same period last year. Year-to-date,
the Company reported revenue of $416.0 million, a 61 percent increase
over the $258.4 million in revenue for the comparable period in 1995.
Further information relating to the results for the second quarter is
contained in the MFS press release of August 1, 1996, which is filed as an
exhibit to this Report and incorporated herein by reference.
Except for historical information contained in this report, the
matters discussed in this report are forward looking statements that involve
risks and uncertainties, including the impact of competitive services and
pricing, the successful and timely integration of UUNET Technologies, Inc.
with the Company, and the other risks detailed from time to time in the
Company's SEC reports, including the report on Form 10-K for the year ended
December 31, 1995. Actual results, events and performance may differ
materially.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired: None.
(b) Pro Forma financial information: None.
(c) Exhibits:
99.1 Press Release of MFS Communications Company, Inc.,
dated August 1, 1996.
<PAGE>3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MFS COMMUNICATIONS COMPANY, INC.
/s/ Terrence J. Ferguson
Terrence J. Ferguson
Senior Vice President, Secretary and
General Counsel
August 1, 1996
<PAGE>4
EXHIBIT INDEX
Exhibit Page
10.1 Press Release of MFS Communications Company, Inc., dated August
1, 1996
<PAGE>1
Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
Contacts:
News Media: Josh Howell, Investors:Gary Brandt
(402) 231-3405 (402) 231-3432
or Steve Ingish,
(402) 231-3423
MFS COMMUNICATIONS REPORTS RESULTS FOR SECOND QUARTER 1996
UUNET Merger Pending
Omaha, Neb., August 1, 1996--MFS Communications Company, Inc.
(MFS) today reported second quarter revenue of $229.7 million, an
increase of 64 percent, as compared with $140.0 million for the same
period last year. Year-to-date, the Company reported revenue of $416.0
million, a 61 percent increase over the $258.4 million in revenue for the
comparable period in 1995. -more-
<PAGE>2
MFS 2ND QUARTER RESULTS/Page 2
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Second Quarter Six Months
Revenue ($ millions) 1996 1995 Change 1996 1995 Change
---- ---- ------ ---- ---- ------
Telecommunications $188.4 $117.1 61% $354.0 $220.9 60%
Services
Network Systems
Integration 41.3 22.9 80% 62.0 37.5 66%
---- ---- --- ---- ---- ---
Total $229.7 $140.0 64% $416.0 $258.4 61%
====== ====== === ====== ====== ===
</TABLE>
Pending UUNET Merger
MFS and UUNET Technologies, Inc. announced a merger agreement on April
30. The merger is expected to close on or about August 12, 1996 following
approval by both Companies' shareholders.
The merger will create a single source provider for a full range
of Internet, voice, data and video services for business and government
customers. The Companies believe that the combination of UUNET's industry
leadership as an Internet Service Provider and MFS' international
high-bandwidth network platform, uniquely position the merged Company to
benefit from the accelerating shift to Internet-based communications.
Second quarter revenue for the combined Company would be
approximately $285 million and EBITDA (as defined in Table 2) would be a loss
of approximately $12 million.
Commenting on the pending merger, James Q. Crowe, chairman and
chief executive officer of MFS, said: "With over a billion dollars in annual
revenue and steadily improving operating results, we are particularly excited
-more-
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MFS 2ND QUARTER RESULTS/Page 3
about the prospects for the combined Company. The Company is well positioned
to address the fundamental technological and regulatory changes taking place in
the telecommunications market."
Telecommunications Services
For the second quarter, Telecommunications Services' revenue was up
61 percent to $188.4 million as compared with $117.1 million for the same
period last year. The year-over-year increase was internally generated
with gains across all Telecommunications Services offerings.
The Telecommunications Services organization comprises four
key elements, including MFS Telecom Companies, MFS Intelenet Companies,
MFS International and MFS Global Network Services.
Global Network Services manages the Company's facilities,
global switching platform and international network, and its operating
expenses are allocated across the service companies.
<TABLE>
<S> <C> <C>
Telecommunications
Services ($ millions)
1996
Second Quarter
Revenue EBITDA
Telecom Companies $68.6 $11.4
Intelenet Companies 84.6 (22.3)
International Companies 35.2 (7.8)
---- -----
Telecommunications Services $188.4 ($18.7)
-more-
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MFS 2ND QUARTER RESULTS/Page 4
The Telecom Companies serve the needs of large businesses
and government customers by providing dedicated circuits for
critical telecommunications needs and high speed data communications. For
the second quarter, the Telecom Companies recorded $68.6 million in revenue.
Sequentially, this was a 9 percent gain over the first quarter results. Revenue
gains were, in part, due to increased demand for Internet-related
services. To date, the Telecom Companies -- with the most mature service
offerings -- represent the highest margin contributor to the
Telecommunications Services segment.
MFS' base competitive access operations -- defined as those
services offered over the 14 networks in operation at the beginning of 1994 --
generated $22.3 million of EBITDA on revenues of $42.1 million, resulting in
a margin of 53.0 percent.
The Intelenet Companies serve the needs of medium and small
businesses by offering integrated local and long distance telecommunications
services -- one-stop shopping -- and shared tenant services. For the second
quarter, the Intelenet Companies recorded $84.6 million in revenue. The
Intelenet Companies continue to incur significant up front investment
associated with market expansion and co-carrier implementation. MFS has
accelerated these expenditures in the aftermath of the enactment of the
Telecommunications Act of 1996. Going forward, the Company plans to
selectively allocate resources to those markets which have full
-more-
<PAGE>5
MFS 2ND QUARTER RESULTS/Page 5
interconnection agreements in place with the incumbent monopoly phone company.
MFS International provides business communications services within
and between a number of international business centers, primarily in Western
Europe. For the second quarter, MFS International revenues were $35.2
million. Sequentially, this represents a 52 percent gain over the first
quarter results due to continuing strong sales in the U.K. and a growing
presence in Continental Europe. Crowe commented, "The extremely rapid growth
in international sales is evidence of the strong demand for high quality
services from our multinational business customers."
Network Systems Integration
Network Systems Integration quarterly sales to third parties
increased 80 percent to $41.3 million as compared with $22.9 million the prior
year. This increase is due to a number of new contracts, including a contract
with Northern Telecom Inc. to provide design and construction services for a
wireless Personal Communications System for Sprint Spectrum.
Revenue for this segment is project-oriented and typically
fluctuates quarter-to-quarter depending on the timing of individual contract
completion.
Backlog of third party contracts for this segment was
-more-
<PAGE>6
MFS 2ND QUARTER RESULTS/Page 6
$202 million at June 30, 1996, up 44 percent from $140 million at June 30,
1995.
Annualized Monthly Recurring Revenue
At the end of June 1996, annualized monthly recurring revenue
for Telecommunications Services was approximately $795 million, up 57
percent compared with $505 million at the end of June 1995.
Operating Results
On a consolidated basis, EBITDA losses were $18.5 million for
the second quarter and $37.9 million for the first six months of 1996. These
losses were the result of significant investment to further develop and expand
service offerings within Telecommunications Services. Year-over-year
improvements in EBITDA of $8.4 million and $16.5 million for the quarter and
first six months, respectively, are the result of revenue increasing more
rapidly than operating costs.
The loss per share of $0.79 for the second quarter and $1.54 for
1996 year-to-date also reflects the increased depreciation and net interest
expense related to the accelerated network expansion program.
Crowe said: "Our ability to increase revenue at such a rapid pace is
due, in no small part, to the up front investment we have made in operating
infrastructure. As we grow revenue, both internally and through acquisition,
we
-more-
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MFS 2ND QUARTER RESULTS/Page 7
expect to see continuing improvements in overall financial results."
Accounting for Stock-Based Compensation
As described last quarter, the Company recently introduced
certain changes to its stock-based compensation plan including a new option
program for key executive employees which ultimately will have value to the
employee only if the Company's stock price outperforms the S&P 500 Index.
This program, along with other stock-based compensation programs, has
been valued using methodologies prescribed by SFAS 123 beginning with
grants on or after January 1, 1996.
The effect of adopting SFAS 123 on non cash operating expenses
is dependent upon the number of options granted and their fair market value at
the time of the grant. The non cash charge to operating results in the
second quarter and six months year-to-date, was $3.5 million and $6.9
million, respectively -- or $0.02 and $0.05 on a per share basis for the
second quarter and year-to-date, respectively.
Capital Expenditures and Network Expansion
For the second quarter 1996, capital expenditures were
approximately $175 million, an increase of 13 percent as compared with $155
million in second quarter 1995. The increase was due to an accelerated pace of
network deployment and to success-based capital expended to provide
-more-
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MFS 2ND QUARTER RESULTS/Page 8
service to new customers.
During the past year, the number of circuits in service increased
75 percent, fiber miles increased 67 percent, buildings served increased
133 percent and network route miles increased 32 percent.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Network Statistics 6/30/96 6/30/95 Change
- - ------------------ ------- ------- ------
Circuits in Service 3,917,586 2,241,601 75%
Fiber Miles 227,032 136,060 67%
Buildings Connected 8,600 3,698 133%
Route Miles 3,573 2,702 32%
Switches Installed 19 12 58%
</TABLE>
Public Equity Offering
In July, the Company raised $1.3 billion through a public offering
of its common stock. The Company intends to use substantially all of the net
proceeds from this offering to fund the initial capital expenditures related to
the initiatives announced by the Company on May 7, 1996. These initiatives
will expand the Company's international network platform including
intercity, undersea and local fiber infrastructure and further position the
Company to expand its Internet-related business.
Regulatory Environment
The signing of the Telecommunications Act of 1996 in February
has significantly altered the regulatory framework under which MFS operates.
Following the signing of the Telecommunications Act by
-more-
<PAGE>9
MFS 2ND QUARTER RESULTS/Page 9
President Clinton, MFS initiated negotiations to institute or improve
network interconnection along the lines mandated in the new legislation.
Comprehensive agreements have been signed with Ameritech, NYNEX,
Bell Atlantic and SBC Communications, excluding terms for unbundled loops with
NYNEX, Bell Atlantic and SBC Communications. Requests for arbitration were
filed to resolve these unbundled loop rates and the Company filed for full
arbitration with US West and Bell South. In addition, the Company has
signed an interim agreement with Pacific Telesis.
Internationally, the United Kingdom opened its market to
competition for international calling, freeing up the final segment of the
former regulated monopoly for competition.
Outlook
Commenting on the outlook for MFS, Crowe said: "Clearly the strength
of the second quarter results -- for both MFS and UUNET -- and the progress we
have made toward implementation of the Telecommunications Act of 1996 are
cause for optimism for our employees and shareholders."
Except for the historical information contained herein, the
matters discussed in this news release are forward looking statements that
involve risks and uncertainties including the impact of competitive services
and pricing, the successful and timely integration of UUNET Technologies,
-more-
<PAGE>10
MFS 2ND QUARTER RESULTS/Page 10
Inc. with the Company, and the other risks detailed from time to time in the
Company's SEC reports, including the report on Form 10-K for the year ended
December 31, 1995.
MFS is a leading provider of communication services for business.
The Company provides one-stop shopping for integrated local and long
distance services as well as a wide range of high quality voice, data and
other enhanced services and systems specifically designed to meet the
requirements of business and government customers. MFS currently has
all-fiber optic networks in operation or development in 52 metropolitan
markets in the U.S. and abroad. MFS is headquartered in Omaha, Nebraska,
USA. It's World Wide Web address is http://www.mfst.com. MFS' common stock
is traded on the Nasdaq National Market under the symbol MFST.
-30-
(Two tables follow.)
<PAGE>11
Table 1 MFS COMMUNICATIONS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
- - ------------------------------- ---- ---- ---- ----
Revenue $229,706 $140,005 $416,022 $258,345
Costs and expenses:
Operating expenses 217,911 139,135 392,084 259,017
Depreciation and amortization 47,979 31,648 92,588 60,721
General and
administrative expenses 33,862 27,783 68,754 53,724
------ ------ ------ ------
299,752 198,566 553,426 373,462
- - ------------------------------- ------- ------- ------- -------
Loss from operations (70,046) (58,561) (137,404) (115,117)
Other income (expense):
Interest income 5,147 3,520 10,791 6,812
Interest expense, net (26,854) (9,123) (50,480) (18,751)
Other (843) (564) (1,627) (1,480)
Total other income (expense) (22,550) (6,167) (41,316) (13,419)
Loss before income taxes (92,596) (64,728) (178,720) (128,536)
Income tax expense (100) (100) (200) (200)
----- ----- ----- -----
Net loss (92,696) (64,828) (178,920) (128,736)
Dividends on preferred stock (7,460) - (14,532) -
------- ------- -------- ----
Net loss applicable to
common stockholders $(100,156) $(64,828) $(193,452) $(128,736)
========= ======== ========= =========
Per share data (adjusted for 2-for-1 stock split)
Net loss per common share
before non cash stock-based
compensation expense and
preferred dividend $(0.71) $(0.50) $(1.37) $(1.00)
Non cash stock-based
compensation expense
per share (0.02) - (0.05) -
Preferred dividend
per share (0.06) - (0.12) -
------ ------- ------ ----
Net loss per share applicable
to common stockholders $ (0.79) $ (0.50) $ (1.54) $ (1.00)
======== ======== ======== ========
Weighted average common stock
shares outstanding 126,176,000 128,960,000 125,596,000 128,845,000
=========== =========== =========== ===========
<PAGE>12
Table 2 MFS COMMUNICATIONS COMPANY, INC.
RESULTS OF OPERATIONS
(Unaudited)
(dollars in thousands)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
- - ------------------------------- ---- ---- ---- ----
Revenue:
Telecommunications
services $188,403 $117,079 $353,993 $220,867
Network systems
integration services 41,303 22,926 62,029 37,478
------ ------ ------ ------
Total $229,706 $140,005 $416,022 $258,345
======== ======= ======== =======
Loss from operations:
Telecommunications
services $(69,371) $(57,432) $(135,365) $(112,781)
Network systems
integration services (675) (1,129) (2,039) (2,336)
----- ------- ------- -------
Total $(70,046) $(58,561) $(137,404) $(115,117)
======== ======== ========= =========
EBITDA: *
Telecommunications
services $(18,722) $(26,325) $(37,560) $(53,197)
Network systems
integration services 199 (588) (371) (1,199)
------ ------ ----- -------
Total $(18,523) $(26,913) $(37,931) $(54,396)
======== ======== ======== ========
- - ------------------------------------------------------------------------
* EBITDA, or earnings before interest, income taxes, depreciation, amortization,
non cash stock-based compensation and other non operating income or expenses, is
a standard telecommunications industry measure of operating cash flow.
</TABLE>
