Cost Reductions Drive fourth Quarter Operating Income of $434 million
Revenue Stabilizes in Enterprise, Commercial segments
Cash, Cash Equivalents and Marketable Securities Total $5.5 Billion
ASHBURN, Va., Feb. 25 /PRNewswire-FirstCall/ -- MCI, Inc. (Nasdaq: MCIP)
today reported results for the fourth quarter and full-year ended December 31,
2004.
Revenues in the fourth quarter were $5.0 billion, a decline of 2 percent
sequentially and 10 percent year-over-year. Enterprise Markets revenue
increased 1 percent sequentially, Commercial Markets revenue was flat
sequentially and Mass Markets revenue was down 9 percent sequentially.
Operating expenses totaled $4.5 billion in the quarter, down 8 percent
sequentially (excluding pre-tax impairment charges of $3.5 billion) and down
23 percent year-over-year. Access costs decreased 1 percent sequentially and
declined 13 percent year-over-year. Selling, general and administrative costs
fell 16 percent sequentially and 36 percent year-over-year. Included in
operating expenses for the fourth quarter were $24 million of severance and
reorganization costs.
Operating income for the fourth quarter of 2004 was $434 million, compared
to an operating loss of $3.4 billion, (or operating income of $121 million
excluding pre-tax impairment charges of $3.5 billion) in the third quarter of
2004 and an operating loss of $332 million in the fourth quarter of 2003.
Operating income before depreciation and amortization and gains on
property dispositions would have been $774 million in the fourth quarter of
2004. In the fourth quarter of 2003, MCI's operating income before
depreciation and amortization and a loss on property dispositions would have
been $293 million. Excluding the pre-tax impact of $3.5 billion of impairment
charges, the comparable result in the third quarter of 2004 would have been
$621 million.
Fourth quarter operating results were favorably impacted by approximately
$270 million relating to certain unusual transactions including favorable
settlements of bankruptcy-related matters, and changes in accounting
estimates. Without the impact of these items, our operating income for the
fourth quarter would have been $164 million.
Fourth quarter results also included $415 million of income tax expense.
The expense relates to changes in estimates regarding our tax contingencies
and the tax impacts of changes in foreign and state tax provisions.
Net loss for the fourth quarter of 2004 was $32 million, or $.10 cents per
basic and diluted share. MCI reported net income of $22.2 billion in the
fourth quarter of 2003, reflecting the financial impact of reorganization
activities, and reported a net loss of $3.4 billion in the third quarter of
2004.
"Improvements in our financial performance in the face of difficult
industry conditions illustrates that our IP-leadership strategy is gaining
momentum," said Michael D. Capellas, MCI president and chief executive
officer. "As we deliver new IP products and services to market, we expect
this trend to accelerate."
During the quarter, MCI continued to execute on its IP leadership
strategy, by introducing several new IP-based products and innovations to
market. MCI launched Enhanced Smart Backup for Hosting customers; a managed
data protection service aimed at strengthening business continuity. MCI also
announced a relationship with Oracle to enhance MCI's database management and
optimization services for its Enterprise Hosting customers. The Company
introduced a trio of new Internet DSL services, began offering standardized
Local Area Networking management services to benefit companies of all sizes,
and expanded Wireless IP Relay services for business customers.
Results
($millions)
Quarter Ended
12/31/04 12/31/03 9/30/04
Revenues $4,974 $5,546 $5,076
Cost of sales and services 3,154 3,617 3,209
S, G & A 1,046 1,636 1,246
Depreciation + Amortization 341 596 493
(Gain) loss on property
dispositions (1) 29 7
Impairment charges -- -- 3,513
Operating income (loss) $434 $(332) $(3,392)
Segment Results
MCI's operations are organized into three distinct business units defined
by their respective customer base: Enterprise Markets, U.S. Sales & Service,
and International & Wholesale Markets. The quarterly operating results of
these business segments follow:
Enterprise Markets
Enterprise Markets, which includes the company's most complex, high-end
accounts in business and government, provides local-to-global business data,
Internet, voice services and managed network services.
($millions)
Quarter Ended
12/31/04 12/31/03 9/30/04
Revenues $1,207 $1,241 $1,192
Cost of sales and services 735 789 719
S, G &A 214 299 238
Depreciation + Amortization 56 169 127
Loss on property disposition 2 7 3
Impairment charges -- -- 870
Operating income (loss) $200 $(23) $(765)
In the fourth quarter, Enterprise Markets generated $1.2 billion of
revenue, up 1 percent sequentially and down 3 percent year-over-year.
During the fourth quarter, Ryder extended its existing agreement with MCI
to include MCI IP VPN Broadband and Enterprise Managed Firewall to provide
fast Internet access to nearly 700 remote locations with secure connections to
Ryder's headquarters. MCI also announced during the quarter that it is
helping the Gallup Organization to attract new Internet users to its Web site,
by providing the streaming solution behind The Gallup Poll Daily Briefing - a
free daily news Webcast.
MCI also expanded its government market business during the fourth quarter
with the addition of several significant network management contract awards.
These awards included the highly sought after Department of Defense
Transoceanic Optical Transport-Atlantic (TOT-A) contract. The TOT-A will
provide the Department of Defense with robust, flexible OC-192 optical
transport connections between the Continental United States Germany and the
UK.
U.S. Sales and Service
U.S. S&S is comprised of Commercial Markets, which includes small, medium
and large business customers in the United States; Mass Markets, which
includes consumer and very small business customers; consumer calling cards,
and SkyTel.
($millions)
Quarter Ended
12/31/04 12/31/03 9/30/04
Revenues $2,120 $2,493 $2,238
Cost of sales and services 1,140 1,380 1,184
S, G & A 607 948 726
Depreciation + Amortization 181 195 227
(Gain) loss on property
dispositions
(2) 12 2
Impairment charges -- -- 1,627
Operating income (loss) $194 $(42) $(1,528)
During the quarter, US S&S generated $2.1 billion of revenue, down 5
percent sequentially and 15 percent year-over-year.
Commercial Markets generated approximately $1 billion of revenues in the
fourth quarter, flat sequentially and down 6 percent year-over-year.
In the fourth quarter, Mass Markets generated revenue of $1.2 billion,
down 9 percent sequentially and 21 percent year-over-year. Mass Markets
revenue declines were driven primarily by a decrease in long distance
subscriber counts attributed to the ongoing impact of "Do Not Call"
regulations, heavy RBOC competition, and reduced advertising.
MCI signed several new commercial customers during the fourth quarter,
including Lyondell Chemical Company and Transeastern Homes. A common theme
among customers was consolidation of providers and purchase of converged
solutions like Private IP to carry voice, video and data on a single global
network For example, Transeastern Homes, one of the fastest growing
homebuilders in the U.S., is overhauling its existing communications
infrastructure in favor of a new MCI-powered platform to achieve more control
and better performance from its network.
International & Wholesale Markets
MCI's International & Wholesale segment serves the Europe, Middle East and
Africa (EMEA), Latin America and Asia Pacific regions, as well as wholesale
customers.
($millions)
Quarter Ended
12/31/04 12/31/03 9/30/04
Revenues $1,647 $1,812 $1,646
Cost of sales and services 1,279 1,448 1,306
S, G & A 225 389 282
Depreciation + Amortization 104 232 139
(Gain) loss on property
dispositions (1) 10 2
Impairment charges -- -- 1,016
Operating income (loss) $40 $(267) $(1,099)
Fourth quarter revenue of $1.6 billion was flat sequentially and down 9
percent year-over-year, including the benefit of foreign exchange. The
segment had an operating income of $40 million during the fourth quarter
compared to a loss of $267 million a year earlier.
International Markets generated $951 million of revenue in the quarter, up
4 percent sequentially and 5 percent year-over-year.
Wholesale Markets segment revenue fell to $696 million, down 4 percent
sequentially and 23 percent year-over-year. Wholesale revenue declines year
over year are the result of pricing pressures, over-capacity, continued
industry bankruptcies, and the elimination of certain incentive discounts.
In the fourth quarter, corporations headquartered outside the U.S.
continued to turn to MCI International to support their migration to IP-based
networking and communications services. These included, New Yorker, one of
the leading businesses in the fashion industry, which turned to MCI for an
Internet access network solution to connect all of its 380 stores across
Europe -- to date, more than 60 of these sites have already been implemented.
Companies also looked to MCI for integrated multi-service solutions like the
Danish international pharmaceuticals firm Lundbeck, which signed an agreement
for MCI's MPLS-based Private IP, Internet access and Internet co-location
hosting services.
In addition to New Yorker of Germany, MCI International further expanded
its presence in the retail sector as more customers leverage the
accessibility, performance and security of IP services to increase the
productivity and efficiency of their business operations. For example, ICI
Paints, an international paint and coatings provider, chose to expand its
relationship with MCI through a new DSL broadband access network agreement for
the company's 130 retail stores throughout Canada.
2004 Results
For the full year 2004, revenues totaled $20.7 billion, down 15 percent
from 2003 revenues of $24.3 billion. Operating loss was $3.2 billion.
Operating income before $1.9 billion of depreciation and amortization, a $1
million gain on property dispositions and $3.5 billion of impairment charges
would have been $2.2 billion in 2004. In 2003, operating income was $0.7
billion; operating income before $2.3 billion of depreciation and
amortization, and a $43 million loss on property dispositions would have been
$3.0 billion.
Balance Sheet
On September 30, 2004, cash, cash equivalents and marketable securities
totaled $5.6 billion. During the fourth quarter, MCI paid $167 million in
bankruptcy claims, invested $332 million in property plant and equipment, and
disbursed $127 million as a return of capital dividend. On December 31, 2004,
cash, cash equivalents and marketable securities totaled $5.5 billion.
Total debt of approximately $5.9 billion included $268 million of
capitalized leases. MCI issued approximately $5.7 billion of senior notes on
April 20, 2004. During the fourth quarter, MCI Senior notes were assigned
initial credit ratings by Moody's and Standard and Poor's, which triggered a
reset of the interest rates. In accordance with the indentures, the interest
rates on the notes increased 100 basis points effective December 15, 2004.
2005 Guidance
Based on the existing regulatory environment and assuming no significant
acquisitions or divestitures, MCI expects to generate revenues of $18 billion
to $19 billion in 2005, down 10 percent to 14 percent from 2004. The revenue
decline primarily reflects a change in Mass Markets revenues as recent
regulatory changes impact our ability to serve the consumer market on a
profitable basis.
MCI expects to generate operating income before depreciation and
amortization (estimated at $1.4 billion to $1.5 billion) of $1.8 billion to
$2.0 billion in 2005. MCI's plans indicate that incremental revenue and
profits from new services will boost second half revenues and operating
profitability over first half levels.
Capital expenditures of approximately $1.0 billion are planned in 2005, as
MCI accelerates new product and service offerings in Private IP, security,
hosting and network management. MCI will continue to invest in Ultra Long
Haul technology, and continue the expansion of its MPLS node structure.
Conference Call
Management will host a conference call to discuss today's results at 8:30
a.m. EST. 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
accessible at the website.
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 the industry's most expansive
global IP backbone, based on the number of company-owned points of presence,
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 press release includes certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, including
statements as to expected 2005 results. These statements are based on
management's current expectations and are subject to uncertainty and changes
in circumstances. Actual results may differ materially from these
expectations. Factors that may cause actual results to differ materially from
management's expectations include economic uncertainty; the effects of
vigorous competition, including price compression and the impact of changes to
the competitive environment due to consolidation and regulatory changes; ; the
impact of technological change on our business, alternative technologies, and
dependence on availability of transmission facilities; risks of international
business; regulatory risks in the United States and internationally;
contingent liabilities; uncertainties regarding the collectibility of
receivables; risks associated with debt service requirements and our financial
leverage; uncertainties associated with the success of acquisitions; and the
ongoing war on terrorism. More detailed information about those factors is
contained in the Company's filings with the Securities and Exchange
Commission, including its 10-K under "Risk Factors."
Non-GAAP Information
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.
MCI, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Data)
Successor Predecessor
Company Company
Year Ended December 31,
2004 2003
Revenues $20,690 $24,266
Operating expenses:
Access costs 10,719 11,997
Costs of services and products
(excluding depreciation and
amortization included below of
$1,436 and $1,938 in 2004 and 2003,
respectively) 2,506 2,771
Selling, general and administrative 5,220 6,479
Depreciation and amortization 1,924 2,316
(Gain) loss on property dispositions (1) 43
Impairment charges related to
property, plant and equipment 2,775 --
Impairment charges related to
intangible assets 738 --
Total operating expenses 23,881 23,606
Operating (loss) income (3,191) 660
Other income (expense), net:
Interest expense (contractual
interest of $2,425 in 2003) (402) (105)
Miscellaneous income, net 85 136
Reorganization items, net -- 22,087
(Loss) income from continuing
operations before income taxes,
minority interests and cumulative
effect of a change in accounting
principle (3,508) 22,778
Income tax expense 407 313
Minority interests, net of tax -- (4)
(Loss) income from continuing
operations before cumulative effect
of a change in accounting principle (3,915) 22,469
Net income (loss) from discontinued
operations 26 (43)
(Loss) income before cumulative
effect of a change in accounting
principle (3,889) 22,426
Cumulative effect of a change in
accounting principle -- (215)
Net (loss) income $(3,889) $22,211
Basic and diluted (loss) income per
share:
Continuing operations $(12.20)
Discontinued operations 0.08
Loss per share $(12.12)
Basic and diluted shares used in
calculation 320.8
MCI, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Data)
Successor Predecessor
Company Company
For the Three-Month Period Ended
December September December
31, 2004 30, 2004 31, 2003
Revenues $4,974 $5,076 $5,546
Operating expenses:
Access costs 2,563 2,580 2,930
Costs of services and products 591 629 687
Selling, general and administrative 1,046 1,246 1,636
Depreciation and amortization 341 493 596
(Gain) loss on property dispositions (1) 7 29
Impairment charges related to
property, plant and equipment -- 2,775 --
Impairment charges related to
intangible assets -- 738 --
Total operating expenses 4,540 8,468 5,878
Operating income (loss) 434 (3,392) (332)
Other income (expense), net:
Interest expense (103) (104) (25)
Miscellaneous income, net 25 35 108
Reorganization items, net -- -- 22,557
Income (loss) from continuing
operations before income taxes and
minority interests 356 (3,461) 22,308
Income tax expense (benefit) 415 (61) 61
Minority interests, net of tax -- -- 2
(Loss) income from continuing
operations (59) (3,400) 22,245
Net income (loss) from discontinued
operations 27 2 (39)
Net (loss) income $(32) $(3,398) $22,206
Basic and diluted (loss) income per
share:
Continuing operations $(0.18) $(10.66)
Discontinued operations 0.08 0.01
Loss per share $(0.10) $(10.65)
Basic and diluted shares used in
calculation 319.1 319.1
MCI, INC. AND SUBSIDIARIES
UNAUDITED SEGMENT RESULTS
For the Year Ended December 31, 2004 and 2003
(In Millions)
Year Ended December 31, 2004
(Successor Company)
U.S. International
Sales &
Enterprise & Wholesale
Markets Service Markets Total
Revenues:
Voice $1,830 $6,728 $4,105 $12,663
Data 2,316 1,610 1,446 5,372
Internet 665 738 1,252 2,655
Total revenues 4,811 9,076 6,803 20,690
Costs of sales and services 2,950 4,910 5,365 13,225
Selling, general and administrative
expenses 1,028 3,007 1,185 5,220
Depreciation and amortization expenses 460 841 623 1,924
Loss (gain) on property dispositions 3 (3) (1) (1)
Impairment charges 870 1,627 1,016 3,513
Operating loss $(500) $(1,306) $(1,385) $(3,191)
Year Ended December 31, 2003
(Predecessor Company)
U.S. International
Sales &
Enterprise & Wholesale
Markets Service Markets Total
Revenues:
Voice $1,893 $8,354 $4,387 $14,634
Data 2,577 2,012 1,892 6,481
Internet 859 749 1,543 3,151
Total revenues 5,329 11,115 7,822 24,266
Costs of sales and services 3,201 5,755 5,812 14,768
Selling, general and administrative
expenses 1,123 3,887 1,469 6,479
Depreciation and amortization expenses 649 821 846 2,316
Loss on property dispositions 15 16 12 43
Operating income (loss) $341 $636 $(317) $660
SOURCE MCI, Inc.
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Related links:
http://www.mci.com
CONTACT:
Media, Brad Burns or Peter Lucht,
+1-800-644-NEWS, or Investors, Susan Watson, +1-703-886-5282, all
of MCI, Inc.
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