Verizon Announces Accounting Change for Directories And the Effect of Decision to Sell Stake in Grupo Iusacell
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NEW YORK -- Verizon Communications Inc. (NYSE:VZ) today announced details of second-quarter charges primarily driven by an accounting change in its directory business and by the effect of its recent decision to sell its consolidated interest in Grupo Iusacell. Verizon's full-year 2003 guidance for adjusted revenue growth and adjusted earnings per share (EPS) remains unchanged.
Accounting for Directories
Verizon has changed its method for recognizing revenues and expenses, resulting in an after-tax, non-cash charge to earnings of approximately $1.6 billion, or 59 cents in fully diluted EPS, retroactive to Jan. 1, 2003, in accordance with generally accepted accounting principles. This reflects the cumulative effect of the change related to expenses and revenue from prior-year directory publications.
Because this change is retroactive, it will impact first-quarter 2003 financial results. In addition, because of this change, quarterly earnings results are expected to be more evenly distributed throughout the year.
The directory accounting change will result in different revenue and expense recognition due to the adoption of the amortization method of accounting instead of the publication-date method. The publication-date method recognizes revenues and expenses when directories are distributed. Under the amortization method -- which is increasingly becoming the industry standard -- revenues and expenses are recognized over the life of the directory, which is usually 12 months.
This accounting change affects the timing of the recognition of revenues and expenses but does not affect the timing of cash flows. It also does not affect full-year earnings for Verizon Information Services, the Verizon business segment responsible for directory publishing.
As a result of the directory accounting change, the previously reported first-quarter 2003 revenues and operating expenses of Verizon and its Information Services segment will be increased by $321 million and $89 million, respectively, and net income will increase by $143 million, or 5 cents per diluted share. Verizon's first-quarter 2003 diluted EPS is reduced from $1.41 to 87 cents.
Effect of Decision to Sell Iusacell Stake
As a result of Verizon's recent decision to sell its consolidated interest in Grupo Iusacell, the company also announced that it is reporting its 39.4 percent investment as a discontinued operation in accordance with FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As such, Verizon expects to record a second-quarter after-tax charge to earnings of $0.9 billion, or 33 cents per diluted share.
Prior-period financial results will be reclassified to reflect reporting the company's investment in Grupo Iusacell as a discontinued operation.
Verizon also anticipates recording second-quarter after-tax charges to earnings of approximately $0.4 billion to $0.5 billion, or 14 cents to 19 cents per diluted share, related to severance, the early redemption of debt, and impairments of long-lived assets primarily due to consolidation and integration of facilities.
Historical financial information reflecting these changes will be available at a later date on Verizon's Investor Relations Web site at www.verizon.com/investor.
Verizon's second-quarter results are scheduled to be announced on July 29.
A Fortune 10 company, 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 136.6 million access line equivalents and 33.3 million Verizon Wireless customers. Verizon is the third-largest long-distance carrier for U.S. consumers, with 13.2 million long-distance lines, and the company is also the largest directory publisher in the world, as measured by directory titles and circulation. With approximately $67 billion in annual revenues and 227,000 employees, Verizon's global presence extends to 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 or labor 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; the ability of Verizon Wireless to continue to obtain sufficient spectrum resources; 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.