UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ending September 30, 2003
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 001-10415
MCI, Inc.
(Successor by merger to WorldCom, Inc.)
(Exact name of registrant as specified in its charter)
| Delaware | 20-0533283 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 22001 Loudoun County Parkway, Ashburn, Virginia |
20147 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (703) 886-5600
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 ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
As of April 20, 2004, there were 314,856,250 shares of MCI common stock outstanding.
| Page | ||||
| PART I | ||||
| FINANCIAL INFORMATION | ||||
| Item 1. | ||||
| Condensed consolidated statements of operations for the three and nine-month periods ended September 30, 2003 and 2002 | 3 | |||
| Condensed consolidated balance sheets as of September 30, 2003 and December 31, 2002 |
4 | |||
| Condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2003 and 2002 | 5 | |||
| 6 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 | ||
| Item 3. | 46 | |||
| Item 4. | 47 | |||
| PART II | ||||
| OTHER INFORMATION | ||||
| Item 1. | 51 | |||
| Item 2. | 52 | |||
| Item 3. | 52 | |||
| Item 4. | 53 | |||
| Item 5. | 53 | |||
| Item 6. | 53 | |||
| Signature | 55 | |||
2
(Successor by merger to WorldCom, Inc.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions)
| Predecessor Company |
||||||||||||||||
| Three-Month Period Ended September 30, |
Nine-Month Period Ended September 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Revenues |
$ | 6,780 | $ | 8,011 | $ | 20,908 | $ | 24,979 | ||||||||
| Operating expenses: |
||||||||||||||||
| Access costs |
3,266 | 3,618 | 9,811 | 11,152 | ||||||||||||
| Costs of services and products |
845 | 1,060 | 2,601 | 3,428 | ||||||||||||
| Selling, general and administrative |
1,803 | 2,044 | 5,362 | 7,182 | ||||||||||||
| Depreciation and amortization |
686 | 729 | 1,954 | 2,606 | ||||||||||||
| Unclassified, net |
— | (76 | ) | — | 108 | |||||||||||
| Property, plant and equipment impairment charges |
— | 74 | — | 4,599 | ||||||||||||
| Goodwill and intangibles impairment charges |
— | — | — | 400 | ||||||||||||
| Total |
6,600 | 7,449 | 19,728 | 29,475 | ||||||||||||
| Operating income (loss) |
180 | 562 | 1,180 | (4,496 | ) | |||||||||||
| Other income (expense), net |
||||||||||||||||
| Interest expense (contractual interest of $601 and $1,824 for the three and nine-month periods ended September 30, 2003 and $562 and $1,757 for the three and nine-month periods ended September 30, 2002) |
(48 | ) | (174 | ) | (134 | ) | (1,283 | ) | ||||||||
| Miscellaneous income (expense), net (includes a $2,250 SEC fine in 2002) |
39 | (495 | ) | 125 | (2,984 | ) | ||||||||||
| Reorganization items, net |
(110 | ) | (227 | ) | (471 | ) | (227 | ) | ||||||||
| Income (loss) from continuing operations before income taxes, minority interests and cumulative effects of changes in accounting principles |
61 | (334 | ) | 700 | (8,990 | ) | ||||||||||
| Income tax expense (benefit) |
89 | (80 | ) | 330 | (130 | ) | ||||||||||
| Minority interests, net of tax |
20 | (218 | ) | 139 | (289 | ) | ||||||||||
| Income (loss) from continuing operations before cumulative effects of changes in accounting principles |
(48 | ) | (36 | ) | 231 | (8,571 | ) | |||||||||
| Net (loss) income from discontinued operations |
(7 | ) | 25 | (11 | ) | (229 | ) | |||||||||
| Income (loss) before cumulative effects of changes in accounting principles |
(55 | ) | (11 | ) | 220 | (8,800 | ) | |||||||||
| Cumulative effects of changes in accounting principles |
— | — | (215 | ) | (32 | ) | ||||||||||
| Net income (loss) |
(55 | ) | (11 | ) | 5 | (8,832 | ) | |||||||||
| Distributions on preferred securities (contractual distributions of $8 and $24 for the three and nine-month periods ended September 30, 2003 and $9 and $26 for the three and nine-month period ended September 30, 2002) |
— | 2 | — | 20 | ||||||||||||
| Net (loss) income attributable to common shareholders |
$ | (55 | ) | $ | (13 | ) | $ | 5 | $ | (8,852 | ) | |||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
(Successor by merger to WorldCom, Inc.)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share Data)
| Predecessor Company |
||||||||
| September 30, 2003 |
December 31, 2002 |
|||||||
| ASSETS | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 5,491 | $ | 2,820 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $1,730 for 2003 and $1,817 for 2002 |
4,322 | 5,611 | ||||||
| Other current assets |
1,124 | 1,218 | ||||||
| Assets held for sale |
176 | — | ||||||
| Total current assets |
11,113 | 9,649 | ||||||
| Property, plant and equipment, net |
12,780 | 14,190 | ||||||
| Intangible assets, net |
1,342 | 1,514 | ||||||
| Deferred taxes |
617 | 505 | ||||||
| Other assets |
611 | 904 | ||||||
| $ | 26,463 | $ | 26,762 | |||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Liabilities not subject to compromise |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 958 | $ | 1,080 | ||||
| Accrued line costs |
2,020 | 2,068 | ||||||
| Current portion of long-term debt |
535 | 885 | ||||||
| Accrued interest |
27 | 35 | ||||||
| Other current liabilities |
3,597 | 3,354 | ||||||
| Liabilities related to assets held for sale |
23 | — | ||||||
| Total current liabilities |
7,160 | 7,422 | ||||||
| Long-term debt, excluding current portion |
1,222 | 1,046 | ||||||
| Other liabilities |
1,031 | 694 | ||||||
| Liabilities subject to compromise |
36,953 | 37,154 | ||||||
| Commitments and contingencies (Note 8) |
||||||||
| Minority interests not subject to compromise |
1,156 | 837 | ||||||
| Minority interests subject to compromise |
||||||||
| Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company guaranteed debentures |
750 | 750 | ||||||
| Mandatorily redeemable preferred stock issued by subsidiaries |
— | 660 | ||||||
| Preferred stock subject to compromise—Series D, E, and F Junior Convertible Preferred Stock ($436 and $494 aggregate liquidation preference, for 2003 and 2002, including $1 of accrued and unpaid dividends for 2003 and 2002) |
436 | 494 | ||||||
| Shareholders’ deficit | ||||||||
| Preferred Stock, par value $.01 per share: authorized 50,000,000 in 2003 and 2002; issued and outstanding: none in 2003 and 2002 |
— | — | ||||||
| Common stock: |
||||||||
| WorldCom group common stock, par value $.01 per share; authorized: 4,850,000,000 at September 30, 2003 and December 31, 2002; issued and outstanding: 2,977,561,915 at September 30, 2003 and 2,975,109,694 at December 31, 2002 |
30 | 30 | ||||||
| MCI group common stock, par value $.01 per share; authorized: 150,000,000 at September 30, 2003 and December 31, 2002; issued and outstanding: 119,004,216 at September 30, 2003 and 118,877,925 at December 31, 2002 |
1 | 1 | ||||||
| Additional paid-in capital |
56,444 | 56,384 | ||||||
| Accumulated deficit |
(78,162 | ) | (78,167 | ) | ||||
| Treasury stock, at cost: 6,765,316 shares of WorldCom group common stock and 270,611 shares of MCI group common stock at September 30, 2003 and December 31, 2002 |
(185 | ) | (185 | ) | ||||
| Accumulated other comprehensive loss |
(373 | ) | (358 | ) | ||||
| Total shareholders’ deficit |
(22,245 | ) | (22,295 | ) | ||||
| $ | 26,463 | $ | 26,762 | |||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
(Successor by merger to WorldCom, Inc.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
| Predecessor Company |
||||||||
| Nine-Month Period Ended September 30, |
||||||||
| 2003 |
2002 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net income (loss) |
$ | 5 | $ | (8,832 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used) in operating activities: |
||||||||
| Depreciation and amortization |
1,954 | 2,606 | ||||||
| Loss on impairment of long-lived assets, goodwill and intangibles |
— | 4,999 | ||||||
| Cumulative effects of changes in accounting principles |
215 | 32 | ||||||
| Minority interest, net of tax |
139 | (289 | ) | |||||
| Bad debt provision |
765 | 1,146 | ||||||
| Reserve for employee loan |
— | 336 | ||||||
| (Gain) Loss on sale of property, plant, and equipment |
14 | 106 | ||||||
| Deferred tax provision |
(129 | ) | 144 | |||||
| Non cash reorganization items |
312 | 171 | ||||||
| Other |
20 | 37 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(315 | ) | (3,242 | ) | ||||
| Other current assets |
(52 | ) | 164 | |||||
| Non current assets |
204 | 350 | ||||||
| Accounts payable and accrued access costs |
(172 | ) | (297 | ) | ||||
| Other liabilities |
82 | 1,649 | ||||||
| Other |
— | (60 | ) | |||||
| Net cash provided by (used) in operating activities |
3,042 | (980 | ) | |||||
| INVESTING ACTIVITIES |
||||||||
| Additions to property, plant and equipment |
(501 | ) | (1,472 | ) | ||||
| Proceeds from sale of property, plant and equipment |
247 | 36 | ||||||
| Proceeds from sale of investments |
40 | 792 | ||||||
| Proceeds from disposition of assets |
— | 53 | ||||||
| Net cash used in investing activities |
(214 | ) | ||||||