How much more in tax deductions from goodwill amortization would GTE get than WorldCom given the proposed structures? How much do you estimate is the present value of these tax deductions?

of the Various Acquisition Or Cases in lax Strie Temas of October 16, 199 ffers for rs for MC rish Telecom offer tal consideration (Cash and Stock 30 45 cash plus 0.375 BT shares) Worldcom offer: onsideration (all Worldcom Stock) otal consWorldCom stock for each share of MCI stock, S1.50 1711 shares of WorldCom st kiorldcom stock valued at 535.4375 per share) GTE offer: $40.00 total consideration (100% Cash) about the deals' values that may not be apparent from So the case: BT deal valued at S26 billion. GTE deal valued at $28 billion. WorldCom deal valued at about $30 billion. , The shares that would be purchased do not tie to the total shares on WorldCom's financial statements, thus the deal values above don't tie to the per share amounts multiplied by the total MCI shares outstanding per the financial statements. Source: THE BATTLE FOR MCI: THE SHAREHOLDERS, Anatomy of a Bid: Less Fr May Mean More, New York Times By FLOYD NORRIS, 10/1697 (Section D: Page 1). 2009 Merle Erickson 4 Cases in Tax Strategi tTered the same of consideration Comparison of the Structures: i. Assuming that GTE offered the same amount of consideratio taking the GTE offer instead of the WorldCom offer? ti shareor of Mr questions #4 above. holders realize your estimates from tock, how much of a taxsavng or tax cost would MCI's shur ur estimates How much more in tax deductions from goodwill amortiz WorldCom given the proposed structures.? How much do you estim 2. ate is th is the pre se value of these tax deductions? Why do you think GTE proposed the structure that it did? 3. Why do you think that WorldCom proposed the structure it did? 4. . Why didn't WorldCom try to structure the transaction to get a "step-up" in P" in the tax bases of MCI's assets (given the large difference hetween the purchase price andte book value of equity of MCI)? 2009 Merle Erickan oration (the "Company"), entered into a Merger (the "Agreement") with British Telecome public limited company incorporated under the 1cation, Wales ("BT"), and Tadworth Corporation, a Del wholly-owned subsidiary of BT ("Tadworth") ha Company will merge with and into Tadworth (the suant t atAg result of the Merger, each outstanding shar stock, par value $.10 per share (other than November 3, 1996, MCI Communications e Compan asury of the Company or owned by BT or Tadworth held who shall have properly exercised their ri Delaware law), will be converted into the ri American Depositary Shares ("ADSs") of BT ordinary shares of 25 pence each of BT (with lieu of fractional ADss), and (ii) $6.00 in company will be named Concert plc and will operate rights to ae ny McT brand names in the United kingdom and thender the .for United states Federal income tax purposes, it i the Merger shall qualify as a reorganization under the ntende,j section 368 (a) of the Internal Revenue Code of 1986 "Code") and that this Agreement constitute a plan of reor thin the meaning of Section 1.368-2(9) of the income tax regulations promulgated under the Code (c) Tax Opinion. MCI shall have received the opinion of simDS Thacher & Bartlett, counsel to MCI, to the effect that, on basis of the facts, representations and assumptions set forth in such opinion, (i) the erger will be treated for Federal incon purposes as a reorganization within the meaning of Section 36 of the Code, (ii) each of MCI, BT and Merger Sub will be a that reorganization within the meaning of Section 363 (b) of the Code and (iii) no gain or loss will be recognized on the exc of shares of MCI Common Stock for the Merger Consideration, excep that gain, if any, shall be recognized to the extent of the Cash Conaideration received, which opinion shall be dated on or about the date that is two Business Days prior to the date the Proxy Statement/Prospectus is first mailed to stockholders of HCI and par ich shall not have been withdrawn or modified in any materia respect as of the Closing Date. The issuance of such opinion s be conditioned on receipt of representation letters from each and BT. The specific provisions of each such representation letter shall be in form and substance satisfactory to Sterling and Simpson Thacher & Bartlett, and each such representation letter shall be dated on or before the da opinion and shall not have been withdrawn or modified in material respect as of the Closing Date Cases in Tax Strategy 47 ucture Data from WorldCom's 424A filed ration "WorldCom"), hereby offers, upon the nying Letter of Transmittal (collectively, the value S.10 per share (the "MCI Common Stock"), of 1471997 biect to the conditions set forth in this Prospectu bjec su e accompanying Pospectus) Ofer") to excha orldCom (he "WorldCom shares of common stock, par value S.01 n Common Stock") for each outstanding share (each, a S.10 which the outstanding shares of Class A common f common stock, par ration, a Delaware corporation ("MCI") (including the Wor n Stock into mlour share, of MCI (the "Class A Common Stock") would be a o ae.10 p in accordance with the provisions of MCI's Restated automatically cons at of Incorp upon the tender of such shares pursuant to the Cert together wiuielv, the "Rights") issued pursuant to a Rights Agreement, daed s ofSended (he "MCI Rights Agreement"), validly tendered on or priort the Expiraro to the Expiration Date and not properly withdrawn will be tled topatio "Exchange Ratio" means the quotient (rounded to the nearest ber 30, 1994, between MCI and Mellon Bank, N.A. as R s amended piration Date not properly withdrawn. The holder of each Share validljy en to receive that number of shares of WorldCom Common Stock equal to the Exchange H10,00) determined pric WorldCom Average Price ) on each or the twenty consecutive trading da ed by dividing $41.50 by the average of the high and low sales om Common Stock as reported on The Nasdaq National Market (the WorldC with the third trading day immediately preceding the Expiration Date; provided, market value of $41.50 if the WorldCom Average Price is between $40.00 and and, conversely, if the WorldCom Average Price is less than $34.00, each Share Ratio shall not be less than 1.0375 nor greater than 1.2206 Share will be exchanged for WorldCom Common Stock having a that the Exchange ly, each S34.00. If the WorldCom Average Price is greater than $40.00, each Share will be exchanged for WorldCom Common Stock having a market value of more than $41.50 will be exchanged for WorldCom Common Stock having a market value of less than S41.50. Cash will be paid in lieu of any fractional shares of WorldCom Common ,the closing price of WorldCom Common Stock as reported Stock. On on The Nasdaq National Market was S .Based on a WorldCom Average Price equal to that amount, each Share would be exchanged for WorldCom Common Stock having a market value of S .The actual WorldCom Average Price and Exchange Ratio will be calculated as of the third trading day immediately prior to the Expiration Date, as described above, and a press release will be issued announcing the xchange Ratio prior to the opening of the second trading day prior to xpiration Date (as it may be extended from time to time). Unless the erwise requires and unless the Rights are redeemed, invalidated or e acquisition of Shares pursuant to the Offer and the Merger applicable to the ereinafiter defined), all references to the Shares shall include the associated Rights. 2009 Merle Erickson FEDERAL INCOME TAX CONSEQUENCES. The om holders of Shares, while the Revised BT Acquisition Proposai holders of Shares being taxed on gain from the exchan cash received. In the opinon of Bryan Cave LLP, special c exchanges of Shares for WorldCom Common Stock Olfer is structured to be tx- would result in pursuant to the Offer and the Merger, as described below, should be treated for federal inco exchanges pursuant to a plan of reorganization within the 68(a) of the Intemal Revenue Code of 1986, as amended (the "CSo15ection Consequently, no gain or loss should be recognized b such exchanges, except with respect to the receipt of cash shares of WorldCom Common Stock. See "Certain Federal Incom According to the Original BT/MCI Proxy Statement/Pros stockholder exchanging Shares for Concert ADSs and cash would re measured by the excess, if any. of (i) the sum of the a fair market value of the Concert ADSs received over (ii) such stockth basis in the Shares, which realized gain will be taxable to the ext cash received. ACCORDINGLY, EVEN IF THE MARKET VAL ACQUISITION PROPOSAL WERE EQUAL TO THE MARKET MCI STOCKHOLDERS WOULD RETAIN MORE VALUE UN OF ITS TAX-FREE NATURE spectus, a MCI alize mount in cash and the OF THE REVISED B VALUE OF THEOFFER, UNDERTHE OFFER BECAL VALUE OF COMBINED COMPANY'S STOCK FOLLOWING THE TRANS above, the Offer provides a substantial premium to holders of Shares the Revised BT Acquisition Proposal. However, MCI stockholders should also consider the prospects of the combined company that would result from each proposed transaction in assessing the likely value of each prospective combined company's stock after a combination with MCI. WorldCom believes that MCI stockholders would be better positioned to realize higher retums in the future through ownership of a WorldCom/MCI combined entity than through ownership ofa BTMCI combined entity. The Offer and the Merger are expected to be accretive to WorldCom's earnings by as much as 22% synergies of approximately S2.5 billion in the first year SACTON, AsmW compared to in the first year after closing with , growing to roximately S5 billion in the fifth year. These synergies are expected to app result from better utilization of the combined network and other operational savings. Because WorldCom has already established extensive domestic local network facilities, a WorldCom combination with MCI is e significantly higher synergies than possible under the Revised BT Acquisition Proposal. See "-Synergies" and "Cautionary Statement Regarding Forward-Looking Statements" below d to achieve 2009 Mere Ericsso Cases in Tax Strategy 49 RS MCI SHAREHOLDERS A SUPERIOR EALWITH GREATER POTENTIAL VALLI HIGHER PRICE AND VALUETh hareont her proportion of Worldcom than they would a The WorldCom proposal produces a significantly higher the BT proposal. supportin ers will receive a better performing stock and wiproposal MCcantly higher sal. By supporting WorldCom's MCI of WorldCom than they would oacombined ceive a betteir ficant nl BT-MCI entity closing stock prices on September 30, 1997, w Basedonl 12 per share premium to the value in the orldCom's offer kt of BT's acquisition proposal - that's a $9 billion oremium to the proposed BT acquisition. BT's acquisition proposal, WorldCom's offer is structured Un to be totally tax-free to MCI shareholders. WorldCom's transaction can close on essentially the same ti frame as BTs acquisition of MCI. me NG STOCK: WorldCom is dedicated to the creation of shareholder strongest track record in the industry for stock performance. BEST PERFORMING has the strongest track record WorldCom has provided investors with a total compound annual return of 55.8%, compared to 4.3% for MCI and 9.4% for BT, since the beginning of 1990. UUnder WorldCom's offer, MCI shareholders will receive a stock with greater value today that is better positioned to realize higher returns in the future. EAR MORE SyNERGIES: Our proposal offers greater identifiable synergy benefits than the BT proposal, as described in greater detail in the enclosed materials o By 1999, synergies in a WorldCom-MCI merger are expected to reach at least $2.5 billion; by 1999, synergies in a BT acquisition of MCI are estimated at only $400 million. o Over five years, WorldCom-MCI's synergies are expected to total at least S15 bilion, compared to $2.4 billion for BT's proposed acquisition O 2009 Merle Erickson 50 Caves in Tav Srategi MCI Financial Statement Data MCI COMMUNICATIONS CORPORATION AND Su BALANCE SHEETS June 30. 1997 December 31, 199,6 (In millions) ASSETS CURRENT ASSETS S 55 Cash and cash equivalents Marketable securities Receivables, net of allowance for $ 187 161 uncollectibles of $306 and $273 million 3,670 3,480 Other assets TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT, net OTHER ASSETS 4,665 13,286 4,716 12,174 Noncurrent marketable securities Other assets and deferred charges, net Investment in affiliates Investment in News Corp Investment in DBS Goodwill, net TOTAL OTHER ASSETS 884 662 ,350 980 678 690 1,350 893 300 TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Accrued telecommunications expense Other accrued liabilities Long-term debt due within one year $ 975 2,134 1,807 $ 992 2,045 1,806 03 TOTAL CURRENT LIABILITIES 6.846 5,046 NONCURRENT LIABILITIES Long-term debt Deferred taxes and other 3,259 046 4,798 723 TOTAL NONCURRENT LIABILITIES Trust PREFERRED SECURITIES 5,305 750 6,521 750 STOCKHOLDERS' EQUITY Class A common stock, Common stock 593 million shares Additional paid in capital Retained earnings Treasury stock, 60 6,373 5,789 886) 50 60 6.410 5,231 TOTAL STOCKHOLDERS' EQUITY 10.66 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY FORM 10-K For the fiscal year ended December 3,1997 MCI COMMUNICATIONS CORPORATION CONSOLIDATED INCOME STATEMENTS MCI Communications Corporation and Subsidiaries Year ended December 31, 1 5 1 199 1 2395 8 (In millions, except per share amounts) $19,653 S18,494 815,265 OPERATING EXPENSES Cost of services Sales, operations and general 9, 489 5,028 1,664 10,956 S,940 2, 082 7,B33 4,426 1, 826 Depreciation including asset write-downs TOTAL OPERATING EXPENSES INCOME FROM OPERATIONS 18, 978 675 235 18 14,14 16,161 ,118 2.313 l196) Interest expense (149) Interest income Equity in income (losses) of affiliated companies (187) Other expense, net (32) 147 (156 (144 2 151 (15) 897 1,990 299 349 INCOME BEFORE INCOME TAXES O 753 1 5 Income tax provision Distributions on subsidiary Trust preferred securities $548 5 1, 202 249 NET INCOME 2.44 terin .il inceam.. Laxrxt. thn conreparay. 293 1397 Year ended 35% 3b Statutory federal ncome tax rate StaLe and local income taxe et o federal income tax effecL 2. 10 Nondeductible amortization Nontaxable dividends R&D tax credits other 1n) L2) 39% 38 38 Effective income tax rate In 1997, 1996, and 1995, the company recorded a tax benefit of $44 million million, and $25 million, respectively deductions related , $60 , to additional paid-in capital tor tax to common stock transactions with its employee benefit plans At December 31, 1997, for federal income tax purposes the company had $179 million no expiration date. In compan net op subject to limitation due to change oeship control Minimum Tax (AMT) credit carryforwards available that had addition, the company had available $576 million of U.s of Alternative through 2012, $121 million which were erating loss carryforwards expiring Canadian net operating loss carryforwards expiring thrugh 2004 and Canadian ret operat an indefinite 1ife of U.K. net operating loss carryforwards which had 35 581 550 929 Deferred income tax aseet 3.621 1,9711 (2,343) Deferred income tax liability 512,0401 $1,321) (1,414) Net deferred income Lax liability S 11,577) l these amounts are: $i, 885) (77) The componenta o $(2, 373) Communications syatem Cuatomer discounta Allowance tor uncollectibles Reorganization and realignment expensea Domestic equity investmenta Alternative minimum and general (22) 61 3 8 34 62 228 104 41 296 61 321 business tax credit: Net operating lose carryforward Capital losses carryforward other, net 96 332 335 1, 040) S(1, 321) Net deferred income tax liability believee that it is more likely than not that it will realize the asset and accordingly, no valuation allowance has been The company deferred income tax recorded in the three yeare ended December 31, 1997 Goodwill Goodwii represents the excess of the coat to acquire aubsidiaries over the estimated fair market value of the net assets acquired . These amounts are amortized uaing the atraight -1ine method over ve ranging from 10 to 40 years The company periodically evaluates the realizability of goodwill based upon projected undiscounted caeh flows and operating income or other valuation techniques for each subsidiary having a material goodwili balance. The company believes that no impairment of godwill existed at December 31, 1997 for ach aument of goodril exLaca Accumulated amortization a sociated with goodwill at December 31, 1997 and 1996 was $321 million and $247 million, reapectively NTEINCOME TAX:s The componenta of the total incone tax provieion are December 31 In millions) Current Federal State and local $387 S182 Current income tax provision Federal State and local Deferred income tax provision Total income tax provision $753 A reconeiliation of the statutory tederal income tax rate to the company effective income tax rate is: Year ended December 31, Statutory federal income tax rate 1997 1995 35 State and local income taxes, net 35% of federal income tax effect Nondeductible amortization Nontaxable dividends R&D tax credits Effective income tax rate In 1997, 1996, and 1995, the company recorded a tax benetit of $44 million, $60 deductions related to common stock transactions with its employee benefit plans million, and $25 million, respectively, to additional paid-in capital for tax At December 31.1997, for federal income tax purposes, the company had$179 million of Alternative Minimum Tax (AMT) credit carryforwards available that had no expiration date. In addition, the company had avai.l able $576 million of U.s net operating loss carryforwards expiring through 2012. $121 million which were subject to limitation due to change in ownership control, $159 million of Canadian net operating 1oss cyorwards expiring through 2004 and $53 mi1lion oF U.K. net operating l5 which had an indefinite 2ife. Deferred income tax 11ability Net deferred income tax liability nta of these amounte are A]lowance for uncollectibles Reorganization and realigriment expenses Domestie equity investment 3 Alternative minimum and general Net operating loss carryforward Capital losses carryforward Net deferred income tax liability income tax asset and, accordi ire subsidiaries over the income or other valuation 1 Accumulated amortization associat.ed with goodwill at. December 31. 1997 and 1996 of the Various Acquisition Or Cases in lax Strie Temas of October 16, 199 ffers for rs for MC rish Telecom offer tal consideration (Cash and Stock 30 45 cash plus 0.375 BT shares) Worldcom offer: onsideration (all Worldcom Stock) otal consWorldCom stock for each share of MCI stock, S1.50 1711 shares of WorldCom st kiorldcom stock valued at 535.4375 per share) GTE offer: $40.00 total consideration (100% Cash) about the deals' values that may not be apparent from So the case: BT deal valued at S26 billion. GTE deal valued at $28 billion. WorldCom deal valued at about $30 billion. , The shares that would be purchased do not tie to the total shares on WorldCom's financial statements, thus the deal values above don't tie to the per share amounts multiplied by the total MCI shares outstanding per the financial statements. Source: THE BATTLE FOR MCI: THE SHAREHOLDERS, Anatomy of a Bid: Less Fr May Mean More, New York Times By FLOYD NORRIS, 10/1697 (Section D: Page 1). 2009 Merle Erickson 4 Cases in Tax Strategi tTered the same of consideration Comparison of the Structures: i. Assuming that GTE offered the same amount of consideratio taking the GTE offer instead of the WorldCom offer? ti shareor of Mr questions #4 above. holders realize your estimates from tock, how much of a taxsavng or tax cost would MCI's shur ur estimates How much more in tax deductions from goodwill amortiz WorldCom given the proposed structures.? How much do you estim 2. ate is th is the pre se value of these tax deductions? Why do you think GTE proposed the structure that it did? 3. Why do you think that WorldCom proposed the structure it did? 4. . Why didn't WorldCom try to structure the transaction to get a "step-up" in P" in the tax bases of MCI's assets (given the large difference hetween the purchase price andte book value of equity of MCI)? 2009 Merle Erickan oration (the "Company"), entered into a Merger (the "Agreement") with British Telecome public limited company incorporated under the 1cation, Wales ("BT"), and Tadworth Corporation, a Del wholly-owned subsidiary of BT ("Tadworth") ha Company will merge with and into Tadworth (the suant t atAg result of the Merger, each outstanding shar stock, par value $.10 per share (other than November 3, 1996, MCI Communications e Compan asury of the Company or owned by BT or Tadworth held who shall have properly exercised their ri Delaware law), will be converted into the ri American Depositary Shares ("ADSs") of BT ordinary shares of 25 pence each of BT (with lieu of fractional ADss), and (ii) $6.00 in company will be named Concert plc and will operate rights to ae ny McT brand names in the United kingdom and thender the .for United states Federal income tax purposes, it i the Merger shall qualify as a reorganization under the ntende,j section 368 (a) of the Internal Revenue Code of 1986 "Code") and that this Agreement constitute a plan of reor thin the meaning of Section 1.368-2(9) of the income tax regulations promulgated under the Code (c) Tax Opinion. MCI shall have received the opinion of simDS Thacher & Bartlett, counsel to MCI, to the effect that, on basis of the facts, representations and assumptions set forth in such opinion, (i) the erger will be treated for Federal incon purposes as a reorganization within the meaning of Section 36 of the Code, (ii) each of MCI, BT and Merger Sub will be a that reorganization within the meaning of Section 363 (b) of the Code and (iii) no gain or loss will be recognized on the exc of shares of MCI Common Stock for the Merger Consideration, excep that gain, if any, shall be recognized to the extent of the Cash Conaideration received, which opinion shall be dated on or about the date that is two Business Days prior to the date the Proxy Statement/Prospectus is first mailed to stockholders of HCI and par ich shall not have been withdrawn or modified in any materia respect as of the Closing Date. The issuance of such opinion s be conditioned on receipt of representation letters from each and BT. The specific provisions of each such representation letter shall be in form and substance satisfactory to Sterling and Simpson Thacher & Bartlett, and each such representation letter shall be dated on or before the da opinion and shall not have been withdrawn or modified in material respect as of the Closing Date Cases in Tax Strategy 47 ucture Data from WorldCom's 424A filed ration "WorldCom"), hereby offers, upon the nying Letter of Transmittal (collectively, the value S.10 per share (the "MCI Common Stock"), of 1471997 biect to the conditions set forth in this Prospectu bjec su e accompanying Pospectus) Ofer") to excha orldCom (he "WorldCom shares of common stock, par value S.01 n Common Stock") for each outstanding share (each, a S.10 which the outstanding shares of Class A common f common stock, par ration, a Delaware corporation ("MCI") (including the Wor n Stock into mlour share, of MCI (the "Class A Common Stock") would be a o ae.10 p in accordance with the provisions of MCI's Restated automatically cons at of Incorp upon the tender of such shares pursuant to the Cert together wiuielv, the "Rights") issued pursuant to a Rights Agreement, daed s ofSended (he "MCI Rights Agreement"), validly tendered on or priort the Expiraro to the Expiration Date and not properly withdrawn will be tled topatio "Exchange Ratio" means the quotient (rounded to the nearest ber 30, 1994, between MCI and Mellon Bank, N.A. as R s amended piration Date not properly withdrawn. The holder of each Share validljy en to receive that number of shares of WorldCom Common Stock equal to the Exchange H10,00) determined pric WorldCom Average Price ) on each or the twenty consecutive trading da ed by dividing $41.50 by the average of the high and low sales om Common Stock as reported on The Nasdaq National Market (the WorldC with the third trading day immediately preceding the Expiration Date; provided, market value of $41.50 if the WorldCom Average Price is between $40.00 and and, conversely, if the WorldCom Average Price is less than $34.00, each Share Ratio shall not be less than 1.0375 nor greater than 1.2206 Share will be exchanged for WorldCom Common Stock having a that the Exchange ly, each S34.00. If the WorldCom Average Price is greater than $40.00, each Share will be exchanged for WorldCom Common Stock having a market value of more than $41.50 will be exchanged for WorldCom Common Stock having a market value of less than S41.50. Cash will be paid in lieu of any fractional shares of WorldCom Common ,the closing price of WorldCom Common Stock as reported Stock. On on The Nasdaq National Market was S .Based on a WorldCom Average Price equal to that amount, each Share would be exchanged for WorldCom Common Stock having a market value of S .The actual WorldCom Average Price and Exchange Ratio will be calculated as of the third trading day immediately prior to the Expiration Date, as described above, and a press release will be issued announcing the xchange Ratio prior to the opening of the second trading day prior to xpiration Date (as it may be extended from time to time). Unless the erwise requires and unless the Rights are redeemed, invalidated or e acquisition of Shares pursuant to the Offer and the Merger applicable to the ereinafiter defined), all references to the Shares shall include the associated Rights. 2009 Merle Erickson FEDERAL INCOME TAX CONSEQUENCES. The om holders of Shares, while the Revised BT Acquisition Proposai holders of Shares being taxed on gain from the exchan cash received. In the opinon of Bryan Cave LLP, special c exchanges of Shares for WorldCom Common Stock Olfer is structured to be tx- would result in pursuant to the Offer and the Merger, as described below, should be treated for federal inco exchanges pursuant to a plan of reorganization within the 68(a) of the Intemal Revenue Code of 1986, as amended (the "CSo15ection Consequently, no gain or loss should be recognized b such exchanges, except with respect to the receipt of cash shares of WorldCom Common Stock. See "Certain Federal Incom According to the Original BT/MCI Proxy Statement/Pros stockholder exchanging Shares for Concert ADSs and cash would re measured by the excess, if any. of (i) the sum of the a fair market value of the Concert ADSs received over (ii) such stockth basis in the Shares, which realized gain will be taxable to the ext cash received. ACCORDINGLY, EVEN IF THE MARKET VAL ACQUISITION PROPOSAL WERE EQUAL TO THE MARKET MCI STOCKHOLDERS WOULD RETAIN MORE VALUE UN OF ITS TAX-FREE NATURE spectus, a MCI alize mount in cash and the OF THE REVISED B VALUE OF THEOFFER, UNDERTHE OFFER BECAL VALUE OF COMBINED COMPANY'S STOCK FOLLOWING THE TRANS above, the Offer provides a substantial premium to holders of Shares the Revised BT Acquisition Proposal. However, MCI stockholders should also consider the prospects of the combined company that would result from each proposed transaction in assessing the likely value of each prospective combined company's stock after a combination with MCI. WorldCom believes that MCI stockholders would be better positioned to realize higher retums in the future through ownership of a WorldCom/MCI combined entity than through ownership ofa BTMCI combined entity. The Offer and the Merger are expected to be accretive to WorldCom's earnings by as much as 22% synergies of approximately S2.5 billion in the first year SACTON, AsmW compared to in the first year after closing with , growing to roximately S5 billion in the fifth year. These synergies are expected to app result from better utilization of the combined network and other operational savings. Because WorldCom has already established extensive domestic local network facilities, a WorldCom combination with MCI is e significantly higher synergies than possible under the Revised BT Acquisition Proposal. See "-Synergies" and "Cautionary Statement Regarding Forward-Looking Statements" below d to achieve 2009 Mere Ericsso Cases in Tax Strategy 49 RS MCI SHAREHOLDERS A SUPERIOR EALWITH GREATER POTENTIAL VALLI HIGHER PRICE AND VALUETh hareont her proportion of Worldcom than they would a The WorldCom proposal produces a significantly higher the BT proposal. supportin ers will receive a better performing stock and wiproposal MCcantly higher sal. By supporting WorldCom's MCI of WorldCom than they would oacombined ceive a betteir ficant nl BT-MCI entity closing stock prices on September 30, 1997, w Basedonl 12 per share premium to the value in the orldCom's offer kt of BT's acquisition proposal - that's a $9 billion oremium to the proposed BT acquisition. BT's acquisition proposal, WorldCom's offer is structured Un to be totally tax-free to MCI shareholders. WorldCom's transaction can close on essentially the same ti frame as BTs acquisition of MCI. me NG STOCK: WorldCom is dedicated to the creation of shareholder strongest track record in the industry for stock performance. BEST PERFORMING has the strongest track record WorldCom has provided investors with a total compound annual return of 55.8%, compared to 4.3% for MCI and 9.4% for BT, since the beginning of 1990. UUnder WorldCom's offer, MCI shareholders will receive a stock with greater value today that is better positioned to realize higher returns in the future. EAR MORE SyNERGIES: Our proposal offers greater identifiable synergy benefits than the BT proposal, as described in greater detail in the enclosed materials o By 1999, synergies in a WorldCom-MCI merger are expected to reach at least $2.5 billion; by 1999, synergies in a BT acquisition of MCI are estimated at only $400 million. o Over five years, WorldCom-MCI's synergies are expected to total at least S15 bilion, compared to $2.4 billion for BT's proposed acquisition O 2009 Merle Erickson 50 Caves in Tav Srategi MCI Financial Statement Data MCI COMMUNICATIONS CORPORATION AND Su BALANCE SHEETS June 30. 1997 December 31, 199,6 (In millions) ASSETS CURRENT ASSETS S 55 Cash and cash equivalents Marketable securities Receivables, net of allowance for $ 187 161 uncollectibles of $306 and $273 million 3,670 3,480 Other assets TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT, net OTHER ASSETS 4,665 13,286 4,716 12,174 Noncurrent marketable securities Other assets and deferred charges, net Investment in affiliates Investment in News Corp Investment in DBS Goodwill, net TOTAL OTHER ASSETS 884 662 ,350 980 678 690 1,350 893 300 TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable Accrued telecommunications expense Other accrued liabilities Long-term debt due within one year $ 975 2,134 1,807 $ 992 2,045 1,806 03 TOTAL CURRENT LIABILITIES 6.846 5,046 NONCURRENT LIABILITIES Long-term debt Deferred taxes and other 3,259 046 4,798 723 TOTAL NONCURRENT LIABILITIES Trust PREFERRED SECURITIES 5,305 750 6,521 750 STOCKHOLDERS' EQUITY Class A common stock, Common stock 593 million shares Additional paid in capital Retained earnings Treasury stock, 60 6,373 5,789 886) 50 60 6.410 5,231 TOTAL STOCKHOLDERS' EQUITY 10.66 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY FORM 10-K For the fiscal year ended December 3,1997 MCI COMMUNICATIONS CORPORATION CONSOLIDATED INCOME STATEMENTS MCI Communications Corporation and Subsidiaries Year ended December 31, 1 5 1 199 1 2395 8 (In millions, except per share amounts) $19,653 S18,494 815,265 OPERATING EXPENSES Cost of services Sales, operations and general 9, 489 5,028 1,664 10,956 S,940 2, 082 7,B33 4,426 1, 826 Depreciation including asset write-downs TOTAL OPERATING EXPENSES INCOME FROM OPERATIONS 18, 978 675 235 18 14,14 16,161 ,118 2.313 l196) Interest expense (149) Interest income Equity in income (losses) of affiliated companies (187) Other expense, net (32) 147 (156 (144 2 151 (15) 897 1,990 299 349 INCOME BEFORE INCOME TAXES O 753 1 5 Income tax provision Distributions on subsidiary Trust preferred securities $548 5 1, 202 249 NET INCOME 2.44 terin .il inceam.. Laxrxt. thn conreparay. 293 1397 Year ended 35% 3b Statutory federal ncome tax rate StaLe and local income taxe et o federal income tax effecL 2. 10 Nondeductible amortization Nontaxable dividends R&D tax credits other 1n) L2) 39% 38 38 Effective income tax rate In 1997, 1996, and 1995, the company recorded a tax benefit of $44 million million, and $25 million, respectively deductions related , $60 , to additional paid-in capital tor tax to common stock transactions with its employee benefit plans At December 31, 1997, for federal income tax purposes the company had $179 million no expiration date. In compan net op subject to limitation due to change oeship control Minimum Tax (AMT) credit carryforwards available that had addition, the company had available $576 million of U.s of Alternative through 2012, $121 million which were erating loss carryforwards expiring Canadian net operating loss carryforwards expiring thrugh 2004 and Canadian ret operat an indefinite 1ife of U.K. net operating loss carryforwards which had 35 581 550 929 Deferred income tax aseet 3.621 1,9711 (2,343) Deferred income tax liability 512,0401 $1,321) (1,414) Net deferred income Lax liability S 11,577) l these amounts are: $i, 885) (77) The componenta o $(2, 373) Communications syatem Cuatomer discounta Allowance tor uncollectibles Reorganization and realignment expensea Domestic equity investmenta Alternative minimum and general (22) 61 3 8 34 62 228 104 41 296 61 321 business tax credit: Net operating lose carryforward Capital losses carryforward other, net 96 332 335 1, 040) S(1, 321) Net deferred income tax liability believee that it is more likely than not that it will realize the asset and accordingly, no valuation allowance has been The company deferred income tax recorded in the three yeare ended December 31, 1997 Goodwill Goodwii represents the excess of the coat to acquire aubsidiaries over the estimated fair market value of the net assets acquired . These amounts are amortized uaing the atraight -1ine method over ve ranging from 10 to 40 years The company periodically evaluates the realizability of goodwill based upon projected undiscounted caeh flows and operating income or other valuation techniques for each subsidiary having a material goodwili balance. The company believes that no impairment of godwill existed at December 31, 1997 for ach aument of goodril exLaca Accumulated amortization a sociated with goodwill at December 31, 1997 and 1996 was $321 million and $247 million, reapectively NTEINCOME TAX:s The componenta of the total incone tax provieion are December 31 In millions) Current Federal State and local $387 S182 Current income tax provision Federal State and local Deferred income tax provision Total income tax provision $753 A reconeiliation of the statutory tederal income tax rate to the company effective income tax rate is: Year ended December 31, Statutory federal income tax rate 1997 1995 35 State and local income taxes, net 35% of federal income tax effect Nondeductible amortization Nontaxable dividends R&D tax credits Effective income tax rate In 1997, 1996, and 1995, the company recorded a tax benetit of $44 million, $60 deductions related to common stock transactions with its employee benefit plans million, and $25 million, respectively, to additional paid-in capital for tax At December 31.1997, for federal income tax purposes, the company had$179 million of Alternative Minimum Tax (AMT) credit carryforwards available that had no expiration date. In addition, the company had avai.l able $576 million of U.s net operating loss carryforwards expiring through 2012. $121 million which were subject to limitation due to change in ownership control, $159 million of Canadian net operating 1oss cyorwards expiring through 2004 and $53 mi1lion oF U.K. net operating l5 which had an indefinite 2ife. Deferred income tax 11ability Net deferred income tax liability nta of these amounte are A]lowance for uncollectibles Reorganization and realigriment expenses Domestie equity investment 3 Alternative minimum and general Net operating loss carryforward Capital losses carryforward Net deferred income tax liability income tax asset and, accordi ire subsidiaries over the income or other valuation 1 Accumulated amortization associat.ed with goodwill at. December 31. 1997 and 1996