MCIP Mci (MM)

EPS of $0.19 per share ASHBURN, Va., Aug. 9 /PRNewswire-FirstCall/ -- MCI, Inc. (NASDAQ:MCIP) today reported its results for the second quarter ended June 30, 2005. The Company returned to profitability in the second quarter, generating net income of $64 million or $0.20 and $0.19 per basic and diluted share, respectively, compared to a net loss of $2 million or $.01 per basic and diluted share in the first quarter. In the second quarter of 2004, MCI reported a net loss of $71 million or $0.22 per basic and diluted share. Revenues for the second quarter were $4.7 billion, down 2 percent sequentially and 10 percent year-over-year. Operating expenses fell to $4.6 billion, down 11 percent year-over-year and 1 percent sequentially; reflecting the benefits of last year's restructuring efforts, a reduction in severance expense, lower bad debt expense and ongoing efficiencies in selling, general and administrative expenses, as well as lower depreciation and amortization expense. Operating income was $61 million in the second quarter, compared to operating income of $115 million in the first quarter of 2005 and $37 million in the year-earlier second quarter. The Company recognized depreciation and amortization expense of $325 million in the second quarter of 2005, $328 million in the first quarter of 2005 and $569 million in the second quarter of 2004. "In the second quarter, we continued to launch next generation products and services, improve customer service and realize results from our cost reduction initiatives," said Michael D. Capellas, MCI president and chief executive officer. "In the second half of the year, we will remain focused on executing in the marketplace and moving toward a timely completion of our merger with Verizon." For the first half of 2005, revenues were $9.5 billion, down 11 percent year-over-year. Operating income was $176 million, compared to an operating loss of $233 million in 2004. Operating income in the first half of 2005 included $653 million of depreciation and amortization expense, compared to $1.1 billion in 2004. Net income for the first six months of 2005 was $62 million or $0.19 per basic and diluted share, compared to a net loss of $459 million in the first half of 2004. Year-to-date, merger-related expenses totaled $29 million, severance expense was $40 million and reorganization costs were $16 million, for a total of $85 million. Consolidated Results ($Millions) Quarter Ended 6/30/05 6/30/04 3/31/05 Revenues $ 4,683 $ 5,222 $ 4,789 Costs of sales and service 3,128 3,298 3,153 S, G & A 1,169 1,318 1,193 Depreciation and amortization 325 569 328 Operating income 61 37 115 Other expense, net (18) (78) (87) Income (loss) before taxes from continuing operations before income tax 43 (41) 28 Income tax (benefit) expense (24) 29 119 Income (loss) from continuing operations 67 (70) (91) (Loss) income from discontinued operations (3) (1) 89 Net income (loss) $ 64 $ (71) $ (2) Basic EPS $0.20 $(0.22) $(0.01) Diluted EPS $0.19 $(0.22) $(0.01) Segment Results MCI's operations are organized into three distinct business units defined by their respective customer bases: Enterprise Markets, US Sales & Service and International & Wholesale Markets. The quarterly operating results of these business segments follow: Enterprise Markets Enterprise Markets, which includes the Company's most complex, high-end accounts in business and government, provide local-to-global business data, Internet and voice services, as well as managed network services and solutions. ($Millions) Quarter Ended 6/30/05 6/30/04 3/31/05 Revenues $ 1,166 $ 1,197 $ 1,157 Costs of sales and service 759 712 754 S, G & A 274 259 271 Depreciation and amortization 78 143 78 Operating income $ 55 $ 83 $ 54 In the second quarter, Enterprise Markets generated $1.2 billion of revenues, up 1 percent sequentially and down 3 percent year-over-year. Operating income was $55 million in the quarter, compared to operating income of $83 million a year earlier and $54 million in the first quarter of 2005. Enterprise Markets continued to focus on accelerating growth and gaining share in IP, Hosting, Security and Contact Center Services, and during the quarter invested in additional professional sales and technical training to support these initiatives. US Sales & Service US Sales & Service (USS&S) is comprised of Commercial Accounts, which serves small to large U.S.-based business customers, plus SkyTel; and Mass Markets, which serves consumer and small business customers. ($Millions) Quarter Ended 6/30/05 6/30/04 3/31/05 Revenues $1,970 $ 2,302 $ 2,050 Costs of sales and service 1,184 1,228 1,167 S, G & A 597 767 625 Depreciation and amortization 140 231 146 Operating income $ 49 $ 76 $ 112 During the second quarter, USS&S generated revenues of $2.0 billion, down 4 percent sequentially and 14 percent compared to the year-earlier quarter. Commercial accounts contributed $923 million to revenues, down 1 percent sequentially and 8 percent year-over-year. Mass Markets revenue fell to $1.0 billion, down 6 percent sequentially and 19 percent year-over-year, reflecting the company's reduced emphasis on customer acquisition related to market and regulatory changes. Operating income from US Sales & Service was $49 million in the second quarter of 2005, down 36 percent compared to a year ago and down 56 percent sequentially. In the Commercial Accounts business, results reflected competitive pricing in major product groups as well as investments in training and development. This decline was partially offset by improvement in the Mass Markets business, which reduced marketing costs and improved bad debt performance related to changes in marketing activities and customer churn, respectively. International & Wholesale Markets MCI's International & Wholesale Markets segment serves customers in 164 countries around the world, as well as wholesale customers in the United States. ($Millions) Quarter Ended 6/30/05 6/30/04 3/31/05 Revenues $ 1,547 $ 1,723 $ 1,582 Costs of sales and service 1,185 1,358 1,232 S, G & A 298 292 297 Depreciation and amortization 107 195 104 Operating loss $ (43) $ (122) $ (51) During the second quarter, International & Wholesale Markets contributed revenues of $1.5 billion, down 2 percent sequentially and 10 percent year- over-year. International accounts generated revenues of $862 million, down 5 percent sequentially and 2 percent compared to the second quarter of 2004. Wholesale Markets revenue was $685 million, up slightly compared to the first quarter, but 18 percent lower than last year's second quarter. Segment operating loss was $43 million, compared to an operating loss of $51 million in the first quarter of 2005 and an operating loss of $122 million in last year's second quarter. MCI's International group continues to focus on improving profitability through cost controls, improved collection efforts and facilities optimization. Operating profit declined sequentially, reflecting lower revenues, as the Company proactively raised rates, particularly for fixed-to- mobile wholesale services in Europe and fixed-to-fixed on selected routes. Data revenues were almost flat sequentially and Internet revenues declined slightly as customer acquisition activity and new strategic products offset downward pressure on rates. Wholesale revenues grew approximately 1 percent sequentially and operating loss improved in the second quarter, reflecting higher volumes in voice, higher average rates for data services and a decline in Internet revenue driven by the migration from dial-up to broadband access. Balance Sheet At March 31, 2005, cash, cash equivalents and marketable securities were approximately $5.4 billion. During the second quarter, MCI paid $143 million in bankruptcy claims and invested $315 million in property, plant and equipment. At June 30, 2005, cash, cash equivalents and marketable securities totaled $5.3 billion. Total debt of approximately $5.9 billion included $250 million of capitalized leases. The Company incurred interest expense of $116 million in the quarter and earned $44 million of interest income on its portfolio of cash and marketable securities. In addition, MCI recognized a pre-tax gain of $32 million on the sale of a portion of its interest in an affiliate in Mexico. Conference Call Management will host a conference call to discuss today's results at 8:30 am EDT. Investors are invited to access a live audio feed at the company's website, http://www.mci.com/. An audio archive of the discussion will be available on the website for a minimum of 30 days. About MCI MCI, Inc. (NASDAQ:MCIP) is a leading global communications provider, delivering innovative, cost-effective, advanced communications connectivity to businesses, governments and consumers. With one of the most expansive global IP backbones and wholly-owned data networks, MCI develops the converged communications products and services that are the foundation for commerce and communications in today's market. For more information, go to http://www.mci.com/. Forward-Looking Statements This document contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: a significant change in the timing of, or the imposition of any government conditions to, the closing of the previously announced proposed transaction between MCI and Verizon; actual and contingent liabilities; and the extent and timing of our ability to obtain revenue enhancements and cost savings following the previously announced proposed transaction between MCI and Verizon. Additional factors that may affect the future results of MCI and Verizon are set forth in their respective filings with the Securities and Exchange Commission, which are available at http://investor.verizon.com/SEC/ and http://www.mci.com/about/investor_relations/sec/. This release references certain financial measures which are deemed to be non-GAAP. The Company believes that the inclusion of these measures is important because it provides readers of the report a different view of its operating results. In particular, MCI presents information about operating income, excluding certain various non-cash items, including depreciation and amortization, impairment charges and gains and losses on property dispositions. MCI presents this information to allow investors to determine its cash operating expenses, and because these expenses have varied significantly over time due to changes in MCI's balance sheet relating to fresh-start reporting and impairment. In connection with the previously announced proposed transaction between MCI and Verizon, Verizon filed, with the Securities and Exchange Commission ("SEC") on April 12, 2005, a proxy statement and prospectus on Form S-4 that contain important information about the previously announced proposed transaction between MCI and Verizon. These materials are not yet final and will be amended. Investors are urged to read the proxy statement and prospectus filed, and any other relevant materials filed by MCI or Verizon because they contain, or will contain, important information about MCI, Verizon and the previously announced proposed transaction between MCI and Verizon. The preliminary materials filed on April 12, 2005, the definitive versions of these materials and other relevant materials (when they become available) and any other documents filed by MCI or Verizon with the SEC, may be obtained for free at the SEC's website at http://www.sec.gov/. Investors may also obtain free copies of these documents at http://www.mci.com/about/investor_relations, or by request to MCI, Inc., Investor Relations, 22001 Loudoun County Parkway, Ashburn, VA 20147. Free copies of Verizon's filings are available at http://www.verizon.com/investor, or by request to Verizon Communications Inc., Investor Relations, 1095 Avenue of the Americas, 36th Floor, New York, NY 10036. Investors are urged to read the proxy statement and prospectus and the other relevant materials when such other materials become available before making any voting or investment decision with respect to the previously announced proposed transaction between MCI and Verizon. MCI, Verizon, and their respective directors, executive officers, and other employees may be deemed to be participants in the solicitation of proxies from MCI shareowners with respect to the previously announced proposed transaction between MCI and Verizon. Information about MCI's directors and executive officers is available in MCI's proxy statement for its 2005 annual meeting of shareholders, dated April 20, 2005. Information about Verizon's directors and executive officers is available in Verizon's proxy statement for its 2005 annual meeting of shareholders, dated March 21, 2005. Additional information about the interests of potential participants will be included in the registration statement and proxy statement and other materials filed with the SEC. MCI, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six-Month Periods Ended June 30, 2005 and 2004 (In Millions, Except Per Share Data) Three-Month Period Six-Month Period Ended June 30, Ended June 30, 2005 2004 2005 2004 Revenues $4,683 $5,222 $9,472 $10,640 Operating expenses: Access costs 2,512 2,674 5,056 5,576 Costs of services and products 616 624 1,225 1,286 Selling, general and administrative 1,169 1,318 2,362 2,921 Depreciation and amortization 325 569 653 1,090 Total operating expenses 4,622 5,185 9,296 10,873 Operating income (loss) 61 37 176 (233) Other (expense) income, net: Interest expense (116) (95) (236) (195) Miscellaneous income, net 98 17 131 25 Income (loss) from continuing operations before income taxes 43 (41) 71 (403) Income tax (benefit) expense (24) 29 95 53 Income (loss) from continuing operations 67 (70) (24) (456) (Loss) income from discontinued operations, net of tax (3) (1) 86 (3) Net income (loss) $64 $(71) $62 $(459) Basic income (loss) per share: Continuing operations $0.21 $(0.22) $(0.07) $(1.41) Discontinued operations (0.01) 0.00 0.26 (0.01) Basic income (loss) per share $0.20 $(0.22) $0.19 $(1.42) Diluted income (loss) per share: Continuing operations $0.20 $(0.22) $(0.07) $(1.41) Discontinued operations (0.01) 0.00 0.26 (0.01) Diluted income (loss) per share $0.19 $(0.22) $0.19 $(1.42) Basic shares used in calculation 321.3 318.9 321.1 322.6 Diluted shares used in calculation 329.4 318.9 328.5 322.6 MCI, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three-Month Periods Ended June 30, 2005 and March 31, 2005 (In Millions, Except Per Share Data) Three-Month Period Ended June 30, March 31, 2005 2005 Revenues $4,683 $4,789 Operating expenses: Access costs 2,512 2,544 Costs of services and products 616 609 Selling, general and administrative 1,169 1,193 Depreciation and amortization 325 328 Total operating expenses 4,622 4,674 Operating income 61 115 Other (expense) income, net: Interest expense (116) (120) Miscellaneous income, net 98 33 Income from continuing operations before income taxes 43 28 Income tax (benefit) expense (24) 119 Income (loss) from continuing operations 67 (91) (Loss) income from discontinued operations, net of tax (3) 89 Net income (loss) $64 $(2) Basic income (loss) per share: Continuing operations $0.21 $(0.28) Discontinued operations (0.01) 0.27 Basic income (loss) per share $0.20 $(0.01) Diluted income (loss) per share: Continuing operations $0.20 $(0.28) Discontinued operations (0.01) 0.27 Diluted income (loss) per share $0.19 $(0.01) Basic shares used in calculation 321.3 320.8 Diluted shares used in calculation 329.4 320.8 MCI, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS As of June 30, 2005 and December 31, 2004 (In Millions, Except Share Data) As of As of June 30, December 31, 2005 2004 ASSETS Current assets: Cash and cash equivalents $4,089 $4,449 Marketable securities 1,244 1,055 Accounts receivable, net of allowance for doubtful accounts of $577 for 2005 and $729 for 2004 2,586 2,855 Other current assets 690 724 Assets held for sale - 10 Total current assets 8,609 9,093 Property, plant and equipment, net of accumulated depreciation of $1,101 for 2005 and $512 for 2004 6,119 6,259 Investments 19 116 Intangible assets, net of accumulated amortization of $140 for 2005 and $59 for 2004 982 991 Other assets 608 601 $16,337 $17,060 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $614 $784 Accrued access costs 1,202 1,491 Current portion of long-term debt 22 24 Accrued interest 110 93 Other current liabilities 3,615 3,796 Liabilities of assets held for sale - 15 Total current liabilities 5,563 6,203 Long-term debt, excluding current portion 5,893 5,909 Other liabilities 674 718 Commitments and contingencies Shareholders' equity: MCI common stock, par value $0.01 per share; authorized: 3,000,000,000 shares; issued and outstanding: 325,459,235 shares for 2005 and 319,557,905 shares for 2004 3 3 Additional paid-in capital 8,324 8,365 Deferred stock-based compensation (152) (114) Accumulated deficit (3,940) (4,002) Accumulated other comprehensive loss (28) (22) Total shareholders' equity 4,207 4,230 $16,337 $17,060 MCI, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six-Month Periods Ended June 30, 2005 and 2004 (In Millions) Six-Month Period Ended June 30, 2005 2004 OPERATING ACTIVITIES Net income (loss) $62 $(459) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 653 1,090 Net realized gain on sale of investments (32) - Gain on disposal of discontinued operations (86) - Bad debt provision 206 362 Amortization of debt discount - 114 Other 61 16 Changes in assets and liabilities: Accounts receivable 67 361 Other current assets 38 35 Non current assets 12 (51) Accounts payable and accrued access costs (416) (514) Other current liabilities (227) (773) Other liabilities 5 (25) Net cash provided by operating activities 343 156 INVESTING ACTIVITIES Additions to property, plant and equipment (543) (416) Proceeds from sale of property, plant and equipment and intangible assets 70 13 Purchases of marketable securities (1,861) - Proceeds from sale of marketable securities and investments 1,691 - Proceeds from sale of equity investment and assets held for sale 181 179 Cash paid for acquisitions, net of cash received (118) - Deposit on sale of Embratel - 50 Other 4 - Net cash used in investing activities (576) (174) FINANCING ACTIVITIES Principal repayments on debt (18) (24) Dividends paid on common stock (130) - Cash restricted for letters of credit 3 (120) Other 18 - Net cash used in financing activities (127) (144) Net change in cash and cash equivalents (360) (162) Net change in cash and cash equivalents from discontinued operations - (607) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,449 6,178 CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,089 $5,409 MCI, INC. AND SUBSIDIARIES SEGMENT RESULTS For the Three-Month Periods Ended June 30, 2005, March 31, 2005, and June 30, 2004 (In Millions) Three-Month Period Ended June 30, 2005 Inter- national U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $446 $1,420 $936 $2,802 Data 547 330 337 1,214 Internet 173 220 274 667 Total revenues 1,166 1,970 1,547 4,683 Costs of sales and services 759 1,184 1,185 3,128 Selling, general and administrative expenses 274 597 298 1,169 Depreciation and amortization expenses 78 140 107 325 Operating income (loss) $55 $49 $(43) $61 Three-Month Period Ended March 31, 2005 Inter- national U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $453 $1,496 $954 $2,903 Data 546 363 337 1,246 Internet 158 191 291 640 Total revenues 1,157 2,050 1,582 4,789 Costs of sales and services 754 1,167 1,232 3,153 Selling, general and administrative expenses 271 625 297 1,193 Depreciation and amortization expenses 78 146 104 328 Operating income (loss) $54 $112 $(51) $115 Three-Month Period Ended June 30, 2004 Inter- national U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $457 $1,705 $1,029 $3,191 Data 577 415 377 1,369 Internet 163 182 317 662 Total revenues 1,197 2,302 1,723 5,222 Costs of sales and services 712 1,228 1,358 3,298 Selling, general and administrative expenses 259 767 292 1,318 Depreciation and amortization expenses 143 231 195 569 Operating income (loss) $83 $76 $(122) $37 MCI, INC. AND SUBSIDIARIES SEGMENT RESULTS For the Six-Month Periods Ended June 30, 2005 and June 30, 2004 (In Millions) Six-Month Period Ended June 30, 2005 Inter- national U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $899 $2,916 $1,890 $5,705 Data 1,093 693 674 2,460 Internet 331 411 565 1,307 Total revenues 2,323 4,020 3,129 9,472 Costs of sales and services 1,513 2,351 2,417 6,281 Selling, general and administrative expenses 545 1,222 595 2,362 Depreciation and amortization expenses 156 286 211 653 Operating income (loss) $109 $161 $(94) $176 Six-Month Period Ended June 30, 2004 Inter- national U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $914 $3,485 $2,159 $6,558 Data 1,140 833 759 2,732 Internet 337 365 648 1,350 Total revenues 2,391 4,683 3,566 10,640 Costs of sales and services 1,492 2,559 2,811 6,862 Selling, general and administrative expenses 566 1,670 685 2,921 Depreciation and amortization expenses 277 436 377 1,090 Operating income (loss) $56 $18 $(307) $(233) DATASOURCE: MCI, Inc. CONTACT: Media - Brad Burns, or Peter Lucht, 1-800-644-NEWS, or Investors - Susan Watson, +1-703-886-5282, all for MCI, Inc. Web site: http://www.mci.com/

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