Filings of Forms 10-K and 10-Q Bring Company Current with SEC
ASHBURN, Va., April 29, 2004 - MCI, Inc. (MCIAV.PK) has filed its annual report on Form 10-K for the year ended December 31, 2003, as well as quarterly reports on Form 10-Q for the first three quarters of the fiscal year.
The Company reported revenue for 2003 of $27.3 billion, compared to $32.2 billion in 2002. Results include revenue from Embratel Participacoes, S. A., a telecommunications provider in Brazil. When Embratel's revenue is excluded from both years, MCI's revenue declined 14.7 percent to $24.4 billion from $28.6 billion in 2002. MCI announced in March 2004 that it intends to sell its financial stake in Embratel.
Operating income for 2003 totaled $908 million, compared to a loss of $4.2 billion in 2002. Excluding Embratel, operating income was $677 million in 2003, compared to an operating loss of $4.3 billion a year earlier. The operating loss in 2002 included impairment charges on property, plant and equipment of $4.6 billion, in addition to goodwill and intangible asset impairment charges of $400 million.
Fresh Start Accounting
On April 20, 2004, the Company emerged from bankruptcy. MCI implemented Fresh Start accounting to its financial statements effective December 31, 2003, in accordance with generally accepted accounting principles (GAAP). Accordingly, the company adjusted its balance sheet to a new basis of accounting. The most important mechanics of this process include adjusting asset values, liabilities and shareholders' equity for the effects of the Company's plan of reorganization.
This process also impacted the 2003 income statement and resulted in a $22.1 billion gain on the line item "Reorganization Items, net." This gain is composed primarily of the discharge of debt obligations, offset partially by the amounts of new debt and stock issued to settle the claims of creditors, as well as other reorganization items. Among the reorganization expenses were $562 million of restructuring costs and $125 million of legal and accounting fees associated with the bankruptcy.
Including these adjustments, net income was $22.2 billion in 2003, compared to a loss of $9.2 billion in 2002.
MCI reported cash and equivalents of $6.2 billion and long term debt of $7.4 billion as of December 31, 2003, reflecting the issuance of new debt upon MCI's emergence from bankruptcy. Net of its Embratel interest, MCI's cash and debt on its December 31, 2003, balance sheet were $5.6 billion and $5.8 billion, respectively.
"In 2003 we made tremendous strides in improving MCI's financial health and strengthening technological leadership," said Bob Blakely, executive vice president and Chief Financial Officer. "MCI is now current with our filings with the SEC, and we expect future filings to be made on a current basis."
Operating Results
In 2003, results continued to be affected by an adverse industry environment characterized by excess network capacity, rapid technological change and pricing pressure. In addition, the Company's bankruptcy filing and the events preceding it made it more difficult to attract new business customers and to expand existing business. Despite these challenges, MCI improved its leadership in service quality and maintained the highest levels of customer satisfaction and retention throughout the period.
Revenue contributions by business segment follow:
| Year Ended December 31, | |||
| (millions) | 2003 | 2002 | % Change |
| Business Markets | $14,125 | $17,466 | (19.1%) |
| Mass Markets | 6,375 | 7,483 | (14.8%) |
| International | 3,860 | 3,637 | 6.1% |
| Total before Embratel | 24,360 | 28,586 | (14.8%) |
| Embratel | 2,955 | 3,603 | (18.0%) |
| Total | $27,315 | $32,189 | (15.1%) |
Business Markets revenue reflected the benefit of new products and services targeted toward global enterprise and government customers, offset by continuing price competition in the Small and Medium Business market. International revenue gains were driven by increased contributions from the Europe, Middle East and Africa region, and included the favorable effect of foreign currency exchange.
Mass Markets' revenue decline was driven by the negative impact of "Do Not Call" legislation, as well as continuing wireless substitution and ongoing price competition.
The reorganization process provided an opportunity to restructure and reduce operating expenses. The total of access costs, costs of services and products and selling, general and administrative expenses declined by 15 percent to $23.8 billion in 2003, compared to $28.1 billion in 2002, reflecting changes in volume as well as lower personnel costs. The change in operating expenses includes a 21 percent drop in selling, general and administrative expenses due to staffing reductions and improvements in bad debt expense that were partially offset by additional professional services fees incurred in support of MCI's financial restatement efforts.
Restatement activities impacted depreciation and amortization expense. As a result of these adjustments, depreciation and amortization expense totaled $2.6 billion in 2003.
About MCI
MCI, Inc. (MCIAV.PK) 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 markets. For more information, go to www.mci.com.
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