MCIP Mci (MM)

EPS of $0.82 per diluted share ASHBURN, Va., Nov. 3 /PRNewswire-FirstCall/ -- MCI, Inc. (NASDAQ:MCIP) today reported its results for the third quarter ended September 30, 2005. MCI generated net income of $271 million, or $0.82 per diluted share, in the third quarter as new products and cost reduction initiatives launched in 2004 continued to yield benefits; also, the Company incurred and recorded a $164 million tax reduction in the quarter. In last year's quarter, the Company reported a net loss of $3.4 billion, or $10.65 per share, largely reflecting impairment charges of $3.5 billion. In the second quarter of 2005, MCI reported net income of $64 million, or $0.19 per diluted share. Revenues for the third quarter were $4.5 billion, down 5 percent sequentially and 12 percent year-over-year. Operating expenses fell to $4.3 billion, down 7 percent sequentially and 49 percent year-over-year (as the prior year included a $3.5 billion impairment charge). MCI incurred $67 million of severance, reorganization and merger related costs during the quarter, which were more than offset by gains on bankruptcy settlements, and lower depreciation and amortization expense. The Company recognized depreciation and amortization expense of $305 million in the third quarter of 2005, $325 million in the second quarter of 2005, and $493 million in the third quarter of 2004. Operating income was $159 million in the third quarter, compared to operating income of $61 million in the second quarter of 2005 and an operating loss of $3.4 billion in the year-earlier third quarter. MCI's third quarter net income was positively impacted by reductions made to the Company's deferred tax liabilities resulting from tax settlements reached in the quarter. "In the third quarter we continued to deliver on our strategy, launching new IP-based products and delivering industry-leading customer service," said Michael D. Capellas, MCI president and CEO. "With all U.S. federal and international regulatory approvals complete, we remain on track to close our merger with Verizon later this year or early in 2006." For the first nine months of 2005, revenues were $13.9 billion, down 11 percent year-over-year. Operating income was $335 million, compared to an operating loss of $3.6 billion in 2004, which included impairment charges of $3.5 billion. Operating income in the first three quarters of 2005 included $958 million of depreciation and amortization expense, compared to $1.6 billion in 2004. Net income for the first nine months of 2005 was $333 million or $1.01 per diluted share, compared to a net loss of $3.9 billion in the nine months of 2004, or $12.00 per share. Consolidated Results ($Millions) Quarter Ended 9/30/05 9/30/04 6/30/05 Revenues $ 4,468 $ 5,076 $ 4,683 Cost of sales and services 2,971 3,209 3,128 S, G & A 1,033 1,253 1,169 Depreciation and amortization 305 493 325 Impairment charges - 3,513 - Operating income (loss) 159 (3,392) 61 Other expense, net (48) (69) (18) Income (loss) from continuing operations before income taxes 111 (3,461) 43 Income tax benefit (164) (61) (24) Income (loss) from continuing operations 275 (3,400) 67 (Loss) income from discontinued ops (4) 2 (3) Net income (loss) $ 271 $ (3,398) $ 64 Basic EPS $0.84 $ (10.65) $ 0.20 Diluted EPS $0.82 $ (10.65) $ 0.19 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 sophisticated, 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 9/30/05 9/30/04 6/30/05 Revenues $ 1,146 $ 1,182 $ 1,166 Cost of sales and services 738 712 759 S, G & A 259 238 274 Depreciation and amortization 73 127 78 Impairment charges - 870 - Operating income (loss) $76 $ (765) $ 55 In the third quarter of 2005, Enterprise Markets generated $1.1 billion of revenues, down 2 percent sequentially and down 3 percent year-over-year. Enterprise revenues were slightly lower sequentially as a decline in traditional voice business was partially offset by continuing growth momentum in Private IP and managed network services. Operating income was $76 million in the third quarter of 2005, compared to an operating loss of $765 million a year earlier and operating income of $55 million in the second quarter of 2005. Results improved as the Company continues to generate strong volumes and provide new services to its global and large government customers. US Sales & Service US Sales & Service (USS&S) is comprised of Commercial Accounts, which includes small to large business customers based in the United States, plus Mass Markets, which includes consumer and small business customers, and SkyTel. ($Millions) Quarter Ended 9/30/05 9/30/04 6/30/05 Revenues $ 1,886 $ 2,221 $ 1,970 Cost of sales and services 1,138 1,174 1,184 S, G & A 538 728 597 Depreciation and amortization 134 228 140 Impairment charges - 1,627 - Operating income (loss) $ 76 $ (1,536) $ 49 In the third quarter of 2005, USS&S generated $1.9 billion of revenues, down 4 percent sequentially and 15 percent compared to the year-earlier quarter due to pricing pressure in the commercial channel partially offset by increased Internet revenues from Private IP and VoIP services. Mass Markets revenues fell to $1.0 billion, down 5 percent sequentially and 22 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 $76 million in the third quarter of 2005, compared to an operating loss of $1.5 billion a year ago and operating income of $49 million in the second quarter of 2005. Results improved significantly from the prior year due to lower marketing costs, strategic sales mix and receivables management. International & Wholesale Markets MCI's International & Wholesale Markets segment serves customers in 140 countries around the world, as well as wholesale customers in the United States. ($Millions) Quarter Ended 9/30/05 9/30/04 6/30/05 Revenues $ 1,436 $ 1,673 $ 1,547 Cost of sales and services 1,095 1,323 1,185 S, G & A 236 287 298 Depreciation and amortization 98 138 107 Impairment charges - 1,016 - Operating income (loss) $ 7 $ (1,091) $ (43) During the third quarter of 2005, International & Wholesale Markets contributed revenues of $1.4 billion, down 7 percent sequentially and 14 percent year-over-year. International accounts generated revenues of $754 million, down 13 percent sequentially and 19 percent compared to the third quarter of 2004. Wholesale revenues were $682 million, flat compared to the second quarter, and 8 percent lower than last year's third quarter. MCI's International group continues to focus on improving profitability through the provision of new, on-net value-added services, cost controls and facilities optimization. In 2005, the International group also implemented a new pricing strategy intended to improve profitability and shed less profitable business. Wholesale revenues were flat sequentially and fell 8 percent year-over- year. Compared to the third quarter of 2004, data and Internet revenues declined reflecting the industry shift from dial-up to broadband. Balance Sheet At June 30, 2005, cash, cash equivalents and marketable securities totaled approximately $5.3 billion. During the third quarter, MCI paid $41 million in bankruptcy claims, completed an asset purchase from Totality Corporation for $71 million, and invested $327 million in property, plant and equipment. At September 30, 2005, cash, cash equivalents and marketable securities totaled $5.4 billion. On October 27, 2005, MCI disbursed approximately $1.8 billion, or $5.60 per MCI common share, as a special cash dividend in accordance with its merger agreement with Verizon. Total debt of approximately $5.9 billion included $245 million of capitalized leases. The Company incurred interest expense of $109 million in the quarter and earned $49 million of interest income on its portfolio of cash and marketable securities. On November 1, MCI paid $219 million in semi-annual interest on its outstanding notes. Merger Update On October 27, 2005, the Department of Justice cleared the Company's merger with Verizon subject to a proposed consent decree. The Federal Communications Commission also approved the merger on October 31, 2005. Although additional approvals are required from some state jurisdictions prior to closing and other closing conditions remain to be satisfied, the Company expects to close the merger later this year or early in 2006. Conference Call Management will host a conference call to discuss today's results at 8:30 am 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 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 industry's most expansive 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, visit 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 and excluding costs related to our pending merger with Verizon. 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Nine-Month Periods Ended September 30, 2005 and 2004 (In Millions, Except Per Share Data) Three-Month Nine-Month Period Period Ended September 30, Ended September 30, 2005 2004 2005 2004 Revenues $4,468 $5,076 $13,940 $15,716 Operating expenses: Access costs 2,369 2,580 7,425 8,156 Costs of services and products 602 629 1,827 1,915 Selling, general and administrative 1,033 1,253 3,395 4,174 Depreciation and amortization 305 493 958 1,583 Impairment charges related to property, plant and equipment - 2,775 - 2,775 Impairment charges related to intangible assets - 738 - 738 Total operating expenses 4,309 8,468 13,605 19,341 Operating income (loss) 159 (3,392) 335 (3,625) Other (expense) income, net: Interest expense (109) (104) (345) (299) Miscellaneous income, net 61 35 192 60 Income (loss) from continuing operations before income taxes 111 (3,461) 182 (3,864) Income tax benefit (164) (61) (69) (8) Income (loss) from continuing operations 275 (3,400) 251 (3,856) (Loss) income from discontinued operations, net of tax (4) 2 82 (1) Net income (loss) $271 $(3,398) $333 $(3,857) Basic income (loss) per share: Continuing operations $0.85 $(10.66) $0.78 $(12.00) Discontinued operations (0.01) 0.01 0.26 - Basic income (loss) per share $0.84 $(10.65) $1.04 $(12.00) Diluted income (loss) per share: Continuing operations $0.83 $(10.66) $0.76 $(12.00) Discontinued operations (0.01) 0.01 0.25 - Diluted income (loss) per share $0.82 $(10.65) $1.01 $(12.00) Basic shares used in calculation 322.8 319.1 321.6 321.4 Diluted shares used in calculation 329.8 319.1 329.0 321.4 MCI, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three-Month Periods Ended September 30, 2005 and June 30, 2005 (In Millions, Except Per Share Data) Three-Month Period Ended September 30, June 30, 2005 2005 Revenues $4,468 $4,683 Operating expenses: Access costs 2,369 2,512 Costs of services and products 602 616 Selling, general and administrative 1,033 1,169 Depreciation and amortization 305 325 Total operating expenses 4,309 4,622 Operating income 159 61 Other (expense) income, net: Interest expense (109) (116) Miscellaneous income, net 61 98 Income from continuing operations before income taxes 111 43 Income tax benefit (164) (24) Income from continuing operations 275 67 Loss from discontinued operations, net of tax (4) (3) Net income $271 $64 Basic income (loss) per share: Continuing operations $0.85 $0.21 Discontinued operations (0.01) (0.01) Basic income per share $0.84 $0.20 Diluted income (loss) per share: Continuing operations $0.83 $0.20 Discontinued operations (0.01) (0.01) Diluted income per share $0.82 $0.19 Basic shares used in calculation 322.8 321.3 Diluted shares used in calculation 329.8 329.4 MCI, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS As of September 30, 2005 and December 31, 2004 (In Millions, Except Share Data) As of As of September 30, December 31, 2005 2004 ASSETS Current assets: Cash and cash equivalents $4,297 $4,449 Marketable securities 1,077 1,055 Accounts receivable, net of allowance for doubtful accounts of $525 for 2005 and $729 for 2004 2,474 2,855 Other current assets 544 724 Assets held for sale - 10 Total current assets 8,392 9,093 Property, plant and equipment, net of accumulated depreciation of $1,382 for 2005 and $512 for 2004 6,122 6,259 Investments 21 116 Intangible assets, net of accumulated amortization of $181 for 2005 and $59 for 2004 1,001 991 Other assets 604 601 $16,140 $17,060 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $523 $784 Accrued access costs 1,243 1,491 Current portion of long-term debt 23 24 Accrued interest 211 93 Deferred income taxes 438 598 Other current liabilities 2,638 3,198 Liabilities of assets held for sale - 15 Total current liabilities 5,076 6,203 Long-term debt, excluding current portion 5,887 5,909 Other liabilities 671 718 Commitments and contingencies Shareholders' equity: MCI common stock, par value $0.01 per share; authorized: 3,000,000,000 shares; issued and outstanding: 327,923,027 shares for 2005 and 319,557,905 shares for 2004 3 3 Additional paid-in capital 8,331 8,365 Deferred stock-based compensation (131) (114) Accumulated deficit (3,669) (4,002) Accumulated other comprehensive loss (28) (22) Total shareholders' equity 4,506 4,230 $16,140 $17,060 MCI, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine-Month Periods Ended September 30, 2005 and 2004 (In Millions) Nine-Month Period Ended September 30, 2005 2004 OPERATING ACTIVITIES Net income (loss) $333 $(3,857) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 958 1,583 Impairment charges related to property, plant and equipment and intangible assets - 3,513 Net realized gain on sale of investments (30) (5) Gain on disposal of discontinued operations (82) (9) Bad debt provision 250 514 Deferred income tax benefit (159) (98) Amortization of debt discount - 114 Stock-based compensation expense 47 23 Other 9 (17) Changes in assets and liabilities: Accounts receivable 139 300 Other current assets 51 92 Non current assets 10 38 Accounts payable and accrued access costs (450) (935) Other current liabilities (310) (843) Other liabilities (2) 11 Net cash provided by operating activities 764 424 INVESTING ACTIVITIES Additions to property, plant and equipment (870) (650) Proceeds from sale of property, plant and equipment and intangible assets 75 39 Purchases of marketable securities (1,938) - Proceeds from sale of marketable securities and investments 1,934 9 Proceeds from sale of an equity investment and assets held for sale 186 581 Cash paid for acquisitions, net of cash received (189) (13) Other 8 - Net cash used in investing activities (794) (34) FINANCING ACTIVITIES Principal repayments on debt (24) (38) Dividends paid on common stock (130) (127) Cash restricted for letters of credit 3 (141) Other 29 (59) Net cash used in financing activities (122) (365) Net change in cash and cash equivalents (152) 25 Net change in cash and cash equivalents from discontinued operations - (615) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,449 6,178 CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,297 $5,588 MCI, INC. AND SUBSIDIARIES SEGMENT RESULTS For the Three-Month Periods Ended September 30, 2005, June 30, 2005, and September 30, 2004 (In Millions) Three-Month Period Ended September 30, 2005 International U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $418 $1,340 $843 $2,601 Data 549 320 327 1,196 Internet 179 226 266 671 Total revenues 1,146 1,886 1,436 4,468 Costs of sales and services 738 1,138 1,095 2,971 Selling, general and administrative expenses 259 538 236 1,033 Depreciation and amortization expenses 73 134 98 305 Operating income $76 $76 $7 $159 Three-Month Period Ended June 30, 2005 International 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 September 30, 2004 International U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $449 $1,661 $1,006 $3,116 Data 576 378 353 1,307 Internet 157 182 314 653 Total revenues 1,182 2,221 1,673 5,076 Costs of sales and services 712 1,174 1,323 3,209 Selling, general and administrative expenses 238 728 287 1,253 Depreciation and amortization expenses 127 228 138 493 Impairment charges 870 1,627 1,016 3,513 Operating loss $(765) $(1,536) $(1,091) $(3,392) MCI, INC. AND SUBSIDIARIES SEGMENT RESULTS For the Nine-Month Periods Ended September 30, 2005 and 2004 (In Millions) Nine-Month Period Ended September 30, 2005 International U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $1,317 $4,256 $2,733 $8,306 Data 1,642 1,013 1,001 3,656 Internet 510 637 831 1,978 Total revenues 3,469 5,906 4,565 13,940 Costs of sales and services 2,251 3,489 3,512 9,252 Selling, general and administrative expenses 804 1,760 831 3,395 Depreciation and amortization expenses 229 420 309 958 Operating income (loss) $185 $237 $(87) $335 Nine-Month Period Ended September 30, 2004 International U.S. & Enterprise Sales & Wholesale Markets Service Markets Total Revenues: Voice $1,363 $5,146 $3,165 $9,674 Data 1,716 1,211 1,112 4,039 Internet 494 547 962 2,003 Total revenues 3,573 6,904 5,239 15,716 Costs of sales and services 2,204 3,733 4,134 10,071 Selling, general and administrative expenses 804 2,398 972 4,174 Depreciation and amortization expenses 404 664 515 1,583 Impairment charges 870 1,627 1,016 3,513 Operating loss $(709) $(1,518) $(1,398) $(3,625) DATASOURCE: MCI, Inc. CONTACT: Media, Brad Burns or Peter Lucht, 1-800-644-NEWS, or Investors, Susan Watson, +1-703-886-5282 Web site: http://www.mci.com/

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