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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to __________________
Commission file number 0-21602
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
Second Amended and Restated LCI International, Inc. Employee
Stock Purchase Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
LCI International, Inc.
8180 Greensboro Drive
Suite 800
McLean, Virginia 22102
1-800-296-0220
Page 1 of 12 Pages
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REQUIRED INFORMATION
The following financial statements for the Second Amended and Restated LCI
International, Inc. Employee Stock Purchase Plan are being filed herewith:
<TABLE>
<CAPTION>
Description Page No.
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<S> <C>
Report of Independent Public Accountants 5
Statements of Financial Condition as of December 31, 1997 and 1996 6
Statements of Income and Other Changes in Plan Equity for the
years ended December 31, 1997, 1996 and 1995 7
Notes to Financial Statements 8
Financial Statement Schedules: Schedules I, II and III are not
applicable
The following exhibit is being filed herewith:
</TABLE>
Exhibit No. Description
- ----------- -------------------------------------------------------------
1 Consent of Independent Public Accountants
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SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
SECOND AMENDED AND RESTATED LCI INTERNATIONAL,
INC. EMPLOYEE STOCK PURCHASE PLAN
(Name of Plan)
Date: March 30, 1998 By: /s/Joseph A. Lawrence
-----------------------
Joseph A. Lawrence
Executive Vice President and Chief
Financial Officer
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SECOND AMENDED AND RESTATED LCI INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
ANNUAL REPORT ON FORM 11-K
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Description Page No.
- ----------- -----------
<S> <C>
Report of Independent Public Accountants 5
Statements of Financial Condition as of December 31, 1997 and 1996 6
Statements of Income and Other Changes in Plan Equity for the years ended
December 31, 1997, 1996 and 1995 7
Notes to Financial Statements 8
Financial Statement Schedules: Schedules I, II and III are
not applicable
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
Second Amended and Restated LCI International, Inc.
Employee Stock Purchase Plan:
We have audited the accompanying statements of financial condition of the SECOND
AMENDED AND RESTATED LCI INTERNATIONAL, INC. EMPLOYEE STOCK PURCHASE PLAN (the
Plan) as of December 31, 1997 and 1996, and the related statements of income and
other changes in plan equity for the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Plan
administrator. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Plan as of December 31,
1997 and 1996, and the income and other changes in plan equity for the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington D.C.,
March 17, 1998
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SECOND AMENDED AND RESTATED LCI INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
ASSETS:
Common stock of LCI International, Inc., at market value
(422,726 and 370,144 shares, respectively) $12,998,825 $8,004,364
Receivables 284,469 210,181
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Total assets $13,283,294 $8,214,545
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TOTAL PLAN EQUITY $13,283,294 $8,214,545
============= ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
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SECOND AMENDED AND RESTATED LCI INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF INCOME AND OTHER CHANGES IN PLAN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
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<S> <C> <C> <C>
ADDITIONS ATTRIBUTED TO:
Net unrealized appreciation (depreciation) in the
market value of Common Stock of LCI International, Inc. $ 3,568,800 $ (182,837) $1,507,587
Contributions from participants 4,978,036 4,283,663 2,343,034
------------- ------------ ------------
Total additions 8,546,836 4,100,826 3,850,621
WITHDRAWALS AND TERMINATIONS (3,478,087) (2,049,432) (997,706)
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Net increase in plan equity 5,068,749 2,051,394 2,852,915
PLAN EQUITY, beginning of year 8,214,545 6,163,151 3,310,236
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PLAN EQUITY, end of year $13,283,294 $8,214,545 $6,163,151
============= ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
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SECOND AMENDED AND RESTATED LCI INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) DESCRIPTION OF THE PLAN
The following description of the Second Amended and Restated LCI
International, Inc. Employee Stock Purchase Plan (the Second Amended
Plan or the Plan) is provided for general information purposes only.
More complete information regarding the Plan's provisions may be
found in the Plan document.
General
The Second Amended Plan formerly known as the Amended and Restated LCI
International, Inc. Employee Stock Purchase Plan (the Amended Plan),
is an employee stock purchase plan which allows for participation by
all eligible employees of LCI International, Inc. and its subsidiaries
(the Company) within the meaning of Section 423 of the Internal
Revenue Code of 1986 (Code). The Second Amended Plan was effective
November 17, 1997. The Amended Plan was established effective August
13, 1995. The Plan was originally established May 12, 1993.
The purpose of the Plan is to provide eligible employees who wish to
become stockholders of the Company or who wish to increase their stock
holdings of the Company, with an opportunity to purchase shares of the
Company's Common Stock, $.01 par value per share (Common Stock). Funds
used to purchase shares under the Plan are withheld from employee
compensation (as defined by the Plan) through payroll deductions. The
Common Stock is held by Fifth Third Bank (the Custodian). The
Custodian holds all of the Plan assets and executes all of the Plan's
transactions.
The Plan is administered by the Stock Purchase Plan Committee (the
Committee), which was established by the Board of Directors of the
Company. All administrative expenses are paid by the Company. Under
the Second Amended Plan, 1,800,000 shares of Common Stock are reserved
for issuance pursuant to the terms of the Plan. The Plan is not
subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA).
Amendments
In August 1997, the Board of Directors of the Company approved the
Second Amended Plan, which is a continuation of the Amended Plan. On
November 17, 1997 the Second Amended Plan became effective and will
have a term of no more than 27 months. Under the Second Amended Plan,
a change to a participant's payroll deduction may be made one time per
calendar year during the offering term and will not affect that
participant's Base Option Price. In addition, the plan
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allows for increases or decreases in a participant's payroll
deduction to reflect changes in eligible compensation, if the
participant chooses a specific percentage as their payroll deduction.
All other terms of the Amended Plan were retained.
Eligibility
Any full-time employee of the Company who has been continuously
employed for a period of ninety days or more may participate in the
Plan. Also, any part-time employee whose customary employment terms
are for more than twenty-hours per week and for five months or more in
any calendar year may participate in the Plan. An employee may enroll
in the plan on the first trading day of any month after the
eligibility requirements have been satisfied. No employee having a 5%
or greater ownership interest in the Company may participate in the
Plan.
As of December 31, 1997 and 1996, there were 1,657 and 1,255
employees, respectively, participating in the Plan. On December 22,
1997, the Company acquired USLD Communications Corp. (USLD), in a
stock-for-stock merger that was accounted for as a pooling of
interests. All employees of USLD are eligible to participate in the
Plan on January 1, 1998.
Contributions
Participants can authorize a biweekly payroll deduction of up to 15%
of eligible compensation per pay period. Participant deductions are
subject to a maximum deduction per employee of $25,000 per year to be
applied to the purchase of shares. The maximum number of shares an
employee may purchase during an offering period is 20,000 shares. All
amounts obtained from payroll deductions under the Plan are used to
purchase shares of the Company's Common Stock. The purchase price for
a share of Common Stock purchased under the Plan is the lower of: (a)
the participant's Base Option Price, or (b) 85% of the Fair Market
Value (FMV) of the Common Stock at the purchase date. The purchase
date for shares of the Company's Common Stock is the last trading date
of each month. On November 17, 1997, the Base Option Price for all
participants in the Plan on that date was reset under the Second
Amended Plan to $21.78, representing 85% of the FMV of a share of
Common Stock on November 17, 1997, the first day of trading under the
Second Amended Plan. The Base Option Price for participants entering
the Plan after November 17, 1997 is the greater of 85% of the FMV of a
share of Common Stock on the date the participant was originally
eligible to enroll in the Plan, or 85% of the FMV of a share of Common
Stock on the participant's Plan entry date.
The Base Option Price for all participants may be adjusted at the
discretion of the Committee at the midpoint of the interval between
the effective date of the offering and the end of the offering (the
Revaluation Date), provided the offering has a period of at least
fifteen months. The adjusted Base Option Price for all participants
would be 85% of the average of the FMV of a share of Common Stock
during a period of twenty trading days ending one month before the
Revaluation Date. If the adjusted Base Option Price results in a lower
price than a participant's initial Base Option Price, then that
participant's Base Option Price remains unchanged.
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Distribution
The shares of the Company's Common Stock allocated to participants'
accounts are held in trust by the Custodian until such shares become
fully distributable to the participants or the participant's
beneficiary in the event of:
- Retirement,
- Total disability prior to retirement,
- Death while an employee,
- Termination of employment,
- Reaching or exceeding Plan maximums,
- Discontinuance of the Plan, or
- Upon a request by the participant for Stock Certificates.
Distribution of shares are recognized on the settlement date.
Administrative Fees
The Company pays administrative fees of $2.50 per participant per
quarter. Such expenses were paid by the Company for all three years
presented.
(2) SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting
The financial statements are prepared using the accrual basis of
accounting. Unrealized appreciation/depreciation of assets is
determined as the difference between the excess of market value over
cost at year-end and the excess of market value over cost at the
beginning of the Plan year.
Investments
Investments as of December 31, 1997 and 1996 are valued at fair market
value, as measured by the New York Stock Exchange (NYSE). As of
December 31, 1997 and 1996, there were 422,726 and 370,144 shares in
the Plan, respectively, at a market value of $30.75 and $21.63 per
share, respectively.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from such estimates.
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(3) INCOME TAX STATUS
The Plan is an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986 (IRC) and is not subject to income
taxes. Employees are responsible for the income tax consequences
arising from ownership of Common Stock purchased through the Plan.
Gains or losses on sales of Common Stock purchased by a participant
pursuant to the Plan must be reported to the Internal Revenue Service
by the participant in the year of sale. Gains and losses may be
characterized as ordinary or capital as defined by the IRC.
(4) PLAN TERMINATION
The Plan and all rights of participants will terminate (i) on the date
as of which participants have exercised options to purchase a number
of shares equal to or greater than the number of shares then subject
to the Plan or (ii) if earlier, the date as of which the Committee or
the Board of Directors of the Company terminates the Plan. The Board
of Directors, with the consent of shareholders, may elect to extend
another offer or, authorize additional shares for this purpose. Upon
termination of the Plan, the entire account of each participant will
be distributed as soon as practicable.
(5) NET UNREALIZED APPRECIATION
<TABLE>
<CAPTION>
December 31 Net Change
------------------------------- in
1997 1996 1997
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<S> <C> <C> <C>
Investment in common stock of LCI International, Inc., at
market value $12,998,825 $8,004,364 $4,994,461
Investment in common stock of LCI International, Inc., at
cost 6,132,170 4,706,509 1,425,661
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Net unrealized appreciation in market value $ 6,866,655 $3,297,855 $3,568,800
============= ============ ============
</TABLE>
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(6) WITHDRAWAL REQUESTS
The cost of shares to be distributed to participants due to withdrawal
requests or terminations at December 31, 1997 and 1996 were $366,588
and $83,978, respectively. In accordance with generally accepted
accounting principles, these amounts are not reflected as liabilities
in the accompanying statements of financial condition.
(7) SUBSEQUENT EVENT
On March 8, 1998, the Company entered into a merger agreement with
Qwest Communications International, Inc. (Qwest) and a subsidiary of
Qwest pursuant to which the Company will become a wholly owned
subsidiary of Qwest. Under the merger agreement, the Company is
required to take such action as is necessary to cause the ending date
of the then current offering period under the Employee Stock Purchase
Plan to be prior to the consummation of the merger; provided that such
change in the offering period shall be conditioned upon the
consummation of the merger. The merger is subject to the majority vote
of the outstanding shares of Qwest and the Company and to other
customary conditions such as the receipt of regulatory approvals. The
majority shareholder of Qwest has entered into an agreement to vote in
favor of the merger. There can be no assurances that the conditions to
closing of the merger will be met.
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EXHIBIT 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated March 17, 1998, included in this Form 11-K, into
the Company's previously filed Form S-8 Registration Statements File No.
33-64838 and No. 33-94120.
ARTHUR ANDERSEN LLP
Washington D.C.,
March 30, 1998
