Mci (NASDAQ:MCIP)
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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/