Strong Operational Results Highlight Second-Quarter Financial Performance at Verizon Communications

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  • 1.1 million Verizon Wireless net retail customer additions; 723,000 overall net additions for a total of 30.3 million customers, an 8.5 percent increase year-over-year

  • 800,000 net long-distance customer additions, a 51 percent increase year-over-year, for a total of 9.0 million customers

  • 150,000 new net digital subscriber lines (DSL), a nearly 80 percent increase year-over-year, for a total of 1.5 million customers

  • Continued strong profitability in wireless -- operating cash flow margin at nearly 39 percent

  • 5.3 percent reduction in Domestic Telecom cash expenses -- sixth consecutive quarterly decrease

  • $3.3 billion reduction in net debt, including $2.1 billion reduction in commercial paper, compared to prior quarter

  • $6.0 billion improvement in free cash flow in first half, compared to prior year


  • Revenues of 0 to minus 1 percent; Earnings Per Share (EPS), $3.05 to $3.09; capital expenditures, $13 to $13.5 billion

NEW YORK -- Verizon Communications Inc. (NYSE:VZ) today announced diluted EPS of 77 cents, before non-recurring charges, for the second quarter of 2002. The addition of 1.1 million Verizon Wireless net retail customers, and the net addition of 800,000 long-distance customers and 150,000 DSL lines highlighted quarterly operational results.

Reported earnings, detailed below, include $4.2 billion in non-recurring after-tax charges for the second quarter, primarily for investment-related write-downs and severance charges. More than $2.4 billion relates to Verizon's interest in Genuity Inc. Last week Verizon announced that it will not reintegrate Genuity into the company.

Excluding non-recurring charges, total second-quarter operating expenses declined 1.3 percent, to $12.8 billion from $13.0 billion. Second-quarter operating revenues declined 1.8 percent, to $16.8 billion from $17.1 billion, bolstered by an 8.1 percent increase in Verizon Wireless revenue to $4.7 billion from $4.4 billion. Total revenues and operating expenses reflect Verizon operations on a comparable basis, including the consolidation of Telecomunicaciones de Puerto Rico, Inc. (PRTC) and the deconsolidation of CTI Holdings S.A. beginning this year.

'Operational Excellence and Execution'

"The solid foundation that Verizon has built on operational excellence and execution continues to withstand these turbulent times," said Chief Executive Officer Ivan Seidenberg. "Our focus on fundamentals has led to the addition of two million new retail accounts in three key growth businesses in the second quarter alone.

"Despite the persistent effects of the economic downturn, which are reflected in our non-recurring charges and revised guidance, we once again improved metrics for customer retention, cost control and customer service. This past quarter we also delivered product innovations to our customers, such as the wireless services we now offer through the marketing alliances we have formed with Microsoft."

Seidenberg added, "In the quarter, we continued to successfully strengthen our cash flow and improve our debt position. Both operationally and financially, we are deriving extraordinary value from our mergers. Innovative operational and marketing approaches have become institutionalized across Verizon, enabling us to offer customers more products in more ways."

Free cash flow (cash from operating activities less capital expenditures and dividends) improved by $6.0 billion for the first half of 2002 compared to the first half of 2001.

In the second quarter, Verizon reduced net debt (total debt less cash on hand) by $3.3 billion, to $58.6 billion from $61.9 billion at the end of the first quarter. This is a $4.7 billion reduction from year-end 2001. Verizon also reduced commercial paper by $2.1 billion in the quarter, to $8.5 billion. This is a $4.3 billion reduction from year-end 2001. At the end of the second quarter the company held $2.2 billion in cash investments, which is being used to repay commercial paper as it comes due.

Two Years of Customer Growth

Verizon's second-quarter results mark the second anniversary of the company formed by the merger of Bell Atlantic and GTE. In two years, the company has more than doubled its long-distance customer base, from nearly 4.1 million to 9.0 million at the end of the second quarter. Verizon is currently the fourth-largest long-distance company in the U.S., and its 800,000 net customer additions in the second quarter is a 51 percent year-over-year increase.

As announced earlier this week, Verizon Wireless, the largest U.S. wireless company, added a net of 723,000 customers in the second quarter, growing its customer total to 30.3 million, an 8.5 percent year-over-year increase.

While Verizon Wireless added 1.1 million net retail customers in the quarter, it experienced a net loss of 378,000 wholesale subscribers. The company closed the quarter with 1.4 million wholesale customers, including 310,000 WorldCom Inc. resale customers. On July 21, Verizon Wireless and WorldCom entered into a referral agreement to facilitate some of these customers contracting directly with Verizon Wireless.

Quarterly operating cash flow for Verizon Wireless increased 8 percent to $1.7 billion. The company's operating cash flow margin was 38.7 percent in the quarter.

Also in the second quarter, Verizon added 150,000 DSL lines for a total of 1.5 million, a nearly 80 percent year-over-year increase, as the company continues on course to its end-of-year target of 1.8 to 2 million lines.

Cash expenses for Verizon's largest business unit, Domestic Telecom, have decreased over the prior-year period for six consecutive quarters. In the second quarter 2002, the unit's cash expenses on a comparable basis were down 5.3 percent to $5.6 billion from $5.9 billion in the second quarter 2001. Revenues decreased 4.4 percent, to $10.5 billion, in the same period.

Updated 2002 Guidance

Verizon has updated 2002 guidance as follows:

  • Comparable revenues of 0 to minus 1 percent, revised from 0 to 1 percent growth.

  • EPS before non-recurring charges of $3.05 to $3.09, revised from $3.12 to $3.17.

  • Capital expenditures of $13 to $13.5 billion, revised from $14 to $15 billion.

Reported Results

For the second quarter 2002, Verizon reported a consolidated loss of $2.1 billion, or 78 cents per diluted share, compared to a consolidated loss of $1.0 billion, or 38 cents per share, in the second quarter 2001.

The $4.2 billion in after-tax charges total $1.55 per diluted share. In addition to Genuity, after-tax charges include $862 million to reflect the current market value of Verizon's investments in Telus Corp., Cable & Wireless plc and others; $475 million related to severance activities; and other one-time charges, including $183 million related to WorldCom exposure and $114 million for settlement of the NorthPoint lawsuit.

Reported second-quarter operating revenues declined 0.4 percent to $16.8 billion, from $16.9 billion in the second quarter 2001.

Second-Quarter Highlights

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

Domestic Telecom:

  • More than 45 percent of Verizon's 9.0 million long-distance customers come from states where the service was most recently introduced -- New York, Massachusetts, Pennsylvania, Connecticut, Rhode Island and Vermont. Market share is approximately 30 percent in New York and Massachusetts. Verizon now has 2.5 million customers in New York, 830,000 in Massachusetts and 710,000 in Pennsylvania.

  • In June, Verizon received Federal Communications Commission (FCC) approval to sell long distance in Maine and New Jersey, and sales in both states began earlier this month. Verizon now offers long-distance service in 44 states and to more than 80 percent of its local phone customers across the country.

  • The FCC is currently reviewing Verizon long-distance applications in New Hampshire and Delaware. Verizon is targeting the completion of the FCC filings in all former Bell Atlantic jurisdictions by year-end.

  • In results released this month, Verizon Long Distance ranked highest in customer satisfaction among consumers who spend more than $50 per month on long distance, according to the annual J.D. Power and Associates Residential Long Distance Customer Satisfaction Study.

  • For the third consecutive quarter, Verizon saw a net "win back" in customers for intraLATA (short-haul) long-distance services in the former Bell Atlantic territory, as the company won back a net of 477,000 customers from competitors in the second quarter.

  • The do-it-yourself installation rate for high-speed DSL Internet access is nearly 100 percent, as a sales campaign during the quarter offered consumers new do-it-yourself installation kits. The average order-to-installation interval for DSL is down to five days and continues to decrease, down from more than 15 days a year ago.

  • Verizon continued market trials of service bundles, which combine local, long-distance, wireless and DSL services at a discounted rate. Successful second-quarter rollouts of DSL bundles began in New York, Massachusetts and Pennsylvania.

  • Domestic access line equivalents increased nearly 8 percent to 135.1 million, compared to the second quarter 2001.

  • Data Services revenues grew to $1.9 billion in the quarter, driven by 7.5 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) expanded its network coverage into downtown Los Angeles. Also in the quarter, ESG introduced several services, including Global SiteWatch, enhancements to Managed Voice Services and a service package tailored to the hotel industry.

Verizon Wireless:

  • Continuing the high-quality profile of its base, the company added 1.1 million net new retail customers during the quarter, up 34 percent from the second quarter 2001. Total retail customers grew to 28.9 million of the company's total 30.3 million customers, up 12 percent year-over-year. Retail customers represent more than 95 percent of total customers and 98 percent of total revenue.

  • Demand was strong, with retail gross additions of 2.8 million, up 12 percent over the second quarter 2001. Gross additions from company-owned distribution channels were up 15 percent over the second quarter 2001.

  • Retail churn was 2.0 percent, down from 2.2 percent the prior year, and down from 2.3 percent in the first quarter. Retail contract churn was 1.7 percent, down from 2.0 percent. Total churn, including retail and wholesale, was 2.3 percent, flat compared to the prior year.

  • Service revenue for the quarter grew more than 7 percent to $4.4 billion, while total revenue increased 8 percent to $4.7 billion. The company continued to lead the industry in low-cost structure, with cash-expense-per-subscriber decreasing 2 percent to under $30. Service revenue-per-subscriber decreased by 1 percent to just under $49.

  • The company's 25 million digital customers now comprise more than 83 percent of its customer base, and account for more than 95 percent of busy-hour usage.

  • Verizon Wireless' previously announced acquisition of Price Communications' wireless properties, including approximately 500,000 customers, has been approved by Price's shareholders and is expected to close early in August.

  • During the quarter, the company continued the momentum of its pricing, messaging and data innovations deployed earlier this year. In June, the company added groundbreaking flat-rate pricing options for its national 1X Express Network, the first and only coast-to-coast next-generation wireless data network in the country. Demand for Express Network's high-speed access is building, with new 1X devices introduced in the second quarter.

  • The company also launched a strategic alliance with Microsoft for co-developed and jointly marketed wireless data offerings, by the leading wireless carrier and the leading portal destination, aimed at the enterprise and consumer markets.

  • In June, the company became the first carrier to offer downloadable services to consumers nationwide using QUALCOMM Inc.'s BREW* (Binary Runtime Environment for Wireless) platform. Customers can download applications for games, entertainment, ring tones, navigation, productivity and operating systems to BREW-capable devices. Two-way text messaging also continued to grow dramatically in the quarter, doubling first-quarter volume.


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

  • Second-quarter revenue was $754 million and operating income was $143 million, with operating cash flow margins of over 37 percent and operating cash flow of $280 million.

  • The number of proportionate international wireless customers served by Verizon investments increased by 780,000 to 8.7 million, a nearly 10 percent increase over second quarter 2001.

  • Total proportionate revenues were $1.4 billion in the second quarter 2002, an increase of $51 million, or nearly 4 percent, compared to prior year.

Information Services:

  • Revenues from Verizon's directory publishing and electronic commerce operations of $936 million for the second quarter decreased 4.9 percent primarily due to the impact of changes in publication dates. If the effect of the timing of publications were excluded, the revenue growth would have been 3.5 percent over the second quarter of 2001.

  • Revenues from, Verizon's Internet directory service, grew 81.6 percent over the second quarter of 2001 as Information Services continues to strengthen its leadership position in online directory services. achieved 1 billion searches in May 2002, just six years after the site was launched.

  • Information Services continued to increase its global electronic reach with the launching of the French-language electronic directory service in Canada and Spanish-language in the Dominican Republic in the second quarter.

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 135.1 million access line equivalents and 30.3 million Verizon Wireless customers. Verizon is also the largest directory publisher in the world. With more than $67 billion in annual revenues and approximately 241,000 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


* BREW is a trademark of QUALCOMM Inc.

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; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final results of federal and state regulatory proceedings concerning our provision of retail and wholesale services and judicial review of those results; the effects of competition in our markets; our ability to satisfy regulatory merger conditions and obtain combined company revenue enhancements and cost savings; 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; 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.

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