ASHBURN, Va. -- MCI, Inc. (Nasdaq: MCIP - News) 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."

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.

MCI Inc.