Verizon Reports Solid First-Quarter Adjusted EPS Of 72 Cents in Challenging Economic Environment -- 2002 Outlook Updated


  • 8.2 million long-distance customers, with 800,000 customer additions in the quarter for a nearly 60 percent increase year-over-year.

  • 1.35 million digital subscriber lines (DSL) with approximately 150,000 net additions in the quarter, representing an 88 percent increase year-over-year.

  • 29.6 million domestic wireless customers -- 452,000 retail net additions (including wireless property acquisitions) in quarter offset by resellers for a net gain of 186,000.

  • 10.4 percent increase in data transport revenues.

  • 6.4 percent reduction in Domestic Telecom cash expenses.

  • $3.5 billion improvement in free cash flow.


  • Revenue growth, 0 to 1 percent; Earnings Per Share (EPS), $3.12 to $3.17; capital expenditures, $14 to $15 billion.

NEW YORK -- Verizon Communications Inc. (NYSE:VZ) today reported adjusted diluted earnings per share of 72 cents for the first quarter 2002, as long-distance and DSL customer growth, increased profitability in wireless and continued excellent cost controls combined to help mitigate the effects of the economic downturn. The company also revised guidance based on what it sees as a more sustained impact of the economy in 2002.

Reported results, which incorporate the net after-tax effect of gains and charges, are detailed below and include $2.5 billion in charges for goodwill, investments and other items. Verizon announced on April 9 that it expected to report these charges today.

First-quarter adjusted operating revenues of $16.4 billion and first-quarter adjusted operating expenses of $12.5 billion both declined 0.6 percent -- from $16.5 billion and $12.6 billion, respectively -- compared to the prior-year period. Adjusted results reflect operations on a comparable basis of Telecomunicaciones de Puerto Rico, Inc. (PRTC), which was consolidated during the quarter, and CTI Holdings, which was deconsolidated during the quarter.

'Long-Term Strength'

Verizon CEO Ivan Seidenberg said, "Due to the long-term strength of our business model, Verizon is uniquely positioned to mitigate the effects of technology substitution and competition that have produced an ongoing, anticipated shift in our traditional revenue base. Our investments in long distance, DSL and wireless are fueling customer growth and retention, and repositioning our sources of revenue for the future.

"We are also continuing to focus on product introductions and innovation, such as our recent, aggressive deployment of the Verizon Wireless Express Network, based on next-generation 1XRTT technology. Meanwhile, merger synergies have given us the advantage of being able to maintain our margins through sustainable cost-control measures," Seidenberg said.

Verizon said as it looks to the remainder of 2002, the length and depth of the economic slowdown will continue to have an overlay across all its businesses. The company does not anticipate any meaningful effects from an economic turnaround until 2003, and it has updated financial guidance accordingly.

Seidenberg said, "As the economy continues to be challenging, our focus will remain on the business fundamentals within our control. We have institutionalized cost reduction and productivity gains, and we continue to strengthen our cash flows by divesting non-strategic assets, re-aligning our debt portfolio and effectively managing our capital expense budget."

Verizon's debt-portfolio strategy includes a reduction in its overall debt and reduced levels of commercial paper. During the past quarter, Verizon reduced overall debt by $1.4 billion to $62.9 billion from $64.3 billion at year-end 2001. Verizon also reduced commercial paper by $2.2 billion in the quarter, to $10.6 billion from $12.8 billion. Free cash flow (cash from operating activities, less capital expenditures and dividends) improved by $3.5 billion, primarily driven by lower capital spending in the first quarter 2002.

Further improvement in the debt profile will occur upon return, expected soon, of $1.5 billion of the company's deposit from the Federal Communications Commission (FCC) in connection with the disputed NextWave wireless licenses and upon completion of previously announced wireline property sales, expected in the second half of 2002.

For the fourth consecutive quarter, Verizon's largest business unit, Domestic Telecom, decreased its adjusted cash expenses over the prior-year period. In the first quarter, the unit's adjusted cash expenses were down 6.4 percent to $5.6 billion from $6.0 billion in the first quarter 2001. Domestic Telecom's expense-control and productivity initiatives, such as capturing attrition and reductions in overtime expenses, produced an equivalent headcount reduction of 12,000 in the first quarter.

Updated 2002 Guidance

Verizon has updated guidance as follows:

  • Comparable adjusted revenue growth of 0 to 1 percent, revised from 3 to 5 percent.

  • EPS of $3.12 to $3.17, revised from $3.20 to $3.30.

  • Capital expenditures of $14 to $15 billion, revised from $15 to $16 billion.

Year-end total-customer targets are unchanged for long distance (10 million plus) and DSL (1.8 to 2 million customers).

Reported Results

For the first quarter 2002, Verizon reported a consolidated loss of $0.5 billion, or 18 cents per diluted share, compared to consolidated net income of $1.6 billion, or 58 cents per share, in the first quarter 2001.

Results for the first quarter 2002 include net charges totaling $2.5 billion, or 90 cents per diluted share. These charges include $0.5 billion for goodwill and other intangible assets, as required by Statement of Financial Accounting Standards (FAS) No. 142. They also included charges totaling $2.0 billion to reflect the current market values of investments, primarily a $1.4 billion charge related to CANTV in Venezuela, and charges related to CTI in Argentina and Metromedia Fiber Network (MFN) in the U.S. Both CTI and MFN have been completely written down. The asset sales and other items include a gain on the previously announced sale of TSI Telecommunication Services, partially offset by costs associated with the exit of the video business, and merger transition costs.

Reported first-quarter operating revenues rose to $16.4 billion, up 0.7 percent compared to the first quarter 2001.

Following are first-quarter highlights from Verizon's four business segments.

First-Quarter Highlights

Domestic Telecom:

  • Verizon, the nation's fourth largest long-distance company, added more than 800,000 new long-distance customers in the first quarter, for a total of 8.2 million customers. This represents an increase of 3.0 million customers year-over-year, or nearly 60 percent.

  • More than 45 percent of Verizon's long-distance customers come from states where the service was most recently introduced -- New York, Massachusetts, Pennsylvania, Connecticut and Rhode Island. Verizon now has 2.4 million customers in New York, 731,000 in Massachusetts and 512,000 in Pennsylvania.

  • Verizon received FCC approval to sell long distance in Vermont on April 17 and will begin offering service in the state on April 30. The company currently has applications at the FCC for New Jersey and Maine, with FCC decisions expected during the second quarter. Including Vermont, Verizon offers long distance in 42 states and is targeting the completion of the FCC filing process in all former Bell Atlantic jurisdictions by year-end.

  • Verizon added 150,000 new DSL lines, for a total of 1.35 million lines -- an 88 percent year-over-year increase. At the same time, customer service levels continue to show improvement.

  • Sales of packages of wireline services increased by nearly 1.7 million year-over-year, with over half of Verizon's new lines installed with packages. Premium packages were introduced in Verizon's western states in the first quarter.

  • Verizon's new ONE-BILL service, which bundles Verizon wireline and wireless charges on a single monthly bill, was expanded to New Jersey and Connecticut in the first quarter, after successful launches in New York and Massachusetts. Meanwhile, the company has begun trials to test bundling of local, long-distance, wireless and Internet services on one bill with a discount.

  • Domestic access line equivalents increased 11 percent to 133.8 million, compared to the first quarter 2001.

  • On March 22, the FCC approved pricing flexibility for Verizon's special-access rates in 20 metropolitan areas. Approximately $1.6 billion of the company's annual $4.8 billion in special-access revenues are no longer subject to price caps or productivity-factor reductions.

  • Data Services revenues grew to more than $1.8 billion, driven by 10.4 percent quarterly growth for Data Transport Services over the same period last year.

  • In the enterprise (large-business) market, Verizon's Enterprise Solutions Group (ESG) in February won a competitive bid to provide the U.S. General Services Administration with local communications services to federal agencies and offices in the Norfolk, Va., area.

Verizon Wireless:

  • During the first quarter 2002, Verizon Wireless continued to report strong results in several key performance metrics, including profitability, cost structure and churn. Operating cash flow margin was a strong 38 percent for the quarter.

  • The company also continued to preserve the high-quality profile of its customer base. Total retail customers grew to 27.8 million in the first quarter, an 11 percent increase year-over-year. Total customers grew to 29.6 million, a 9 percent increase year-over-year. Retail customers, who generally have higher service revenue and greater loyalty, now comprise 94 percent of the subscriber base, up from 92 percent for the first quarter 2001. Retail subscribers account for 98 percent of service revenue.

  • The company added 452,000 retail subscribers, including 68,000 subscribers added through the Dobson Cellular and Alabama Wireless property acquisitions, compared to 451,000 retail subscribers added during the first quarter last year. The retail subscriber growth was offset by the loss of 266,000 reseller customers, compared to a gain of 67,000 reseller subscribers during the first quarter last year. As a result, combined net adds in the first quarter were 186,000, compared to 518,000 last year.

  • Total company churn, including both retail and resellers, was 2.6 percent. Total retail churn was 2.3 percent for the quarter, down from 2.8 percent in the year-earlier period. Post-paid retail churn was 2.0 percent, down from 2.2 percent in the first quarter 2001.

  • Verizon Wireless continues to have the most digital customers of any U.S. wireless carrier, with 24 million digital customers, or 80 percent of its subscriber base.

  • Service revenues for the quarter grew nearly 9 percent to $4.1 billion, with total revenues up more than 8 percent to $4.4 billion. Service-revenue-per-subscriber decreased by less than 1 percent to $46 in the first quarter, while cash-expense-per-subscriber decreased almost 2 percent to $28. Operating cash flow increased more than 10 percent to $1.6 billion.

  • During the quarter, the company introduced pricing, messaging and data innovations to position it for long-term growth. In February, the company launched America's Choice pricing to increase the company's profitability and competitive advantage of having the largest built-out footprint. The company is seeing high demand for America's Choice among retail customers, with 66 percent of new contract customers choosing these plans.

  • Text messaging continues to gain in popularity, with messaging traffic during the first quarter increasing 86 percent over the prior quarter. The company this month introduced inter-carrier text messaging, which is expected to enhance the popularity and growth of two-way SMS (Short Messaging Services).

  • The company continued to aggressively build out its 1XRTT 3G Network, the first and only sizeable next-generation wireless network in the country. More than one-third of the Verizon Wireless network, an area covering a population of 74 million, now is converted to 1XRTT technology, which provides consistent data speeds of 40 to 60 kilobits per second, with bursts up to 144 kbps. This Express Network is available to customers in major markets around the country, including New York; Boston; Washington, D.C.; Dallas; Chicago; San Francisco; and Portland, Ore.


Reflects deconsolidation of CTI to the equity method and consolidation of PRTC in both the current and prior periods.

  • Revenues from consolidated international operations grew $24 million over first quarter 2001 to $751 million. Total proportionate revenues were $1.4 billion in the first quarter 2002, an increase of $63 million compared to prior year.

  • First-quarter operating income was $117 million, with operating cash flow of $253 million.

  • The number of proportionate international wireless customers served by Verizon investments increased by 1.7 million to 9.4 million, a 22.1 percent increase over 2001.

  • In March, Verizon Global Solutions announced the launch of high-speed international private line and frame relay services over its managed global network. ESG is marketing the services as part of the business unit's long-distance offering to large multinational corporations and government customers. In the first quarter, a number of large businesses and organizations have signed agreements for these services.

Information Services:

  • Revenues from Verizon's directory publishing and electronic commerce operations were $803 million in the first quarter, an increase of 1.8 percent from first quarter 2001. Revenues from SuperPages.com, Verizon's Internet directory service, grew 83.8 percent over first quarter 2001 as Information Services continues to strengthen its leadership position in online directory services.

  • Operating income of $354 million increased 0.6 percent from the first quarter 2001.

NOTE: The financial tables associated with this news release can be found on Verizon's Investor Web site.

Verizon Communications (NYSE:VZ) is one of the world's leading providers of communications services. Verizon companies are the largest providers of wireline and wireless communications in the United States, with 133.8 million access line equivalents and approximately 29.6 million wireless customers. Verizon is also the largest directory publisher in the world. With more than $67 billion in annual revenues and nearly 248,000 employees, Verizon's global presence extends to more than 40 countries in the Americas, Europe, Asia and the Pacific. For more information on Verizon, visit www.verizon.com.


NOTE: This press release 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: the duration and extent of the current economic downturn; materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; material changes in available technology; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final outcome of federal, state, and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, and unbundled network element and resale rates; the extent, timing, success, and overall effects of competition from others in the local telephone and toll service markets; the timing and profitability of our entry and expansion in the national long-distance market; our ability to satisfy regulatory merger conditions and obtain combined company revenue enhancements and cost savings; the profitability of our broadband operations; the ability of Verizon Wireless to achieve revenue enhancements and cost savings, and obtain sufficient spectrum resources; the outcome of litigation concerning the FCC NextWave spectrum auction; the continuing financial needs of Genuity Inc., our ability to convert our ownership interest in Genuity into a controlling interest consistent with regulatory conditions, and Genuity's ensuing profitability; our ability to recover insurance proceeds relating to equipment losses and other adverse financial impacts resulting from the terrorist attacks on Sept. 11, 2001; and changes in our accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings.