Verizon Communications Reports Solid Quarterly Results Bolstered by Demand for Wireless, LD, DSL and Bundles
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NEW YORK - Verizon Communications Inc. (NYSE:VZ) today announced first-quarter 2003 fully diluted EPS of $1.41, or 63 cents before special and non-recurring items, as the corporation reported continued strong demand for wireless, long-distance and DSL services, as well as for bundled product offerings.
For the quarter, Verizon's reported earnings were $3.9 billion, or $1.41 per share, including a one-time gain of $2.1 billion, or 77 cents per share, associated with the previously announced adoption of new accounting rules on asset retirement obligations (SFAS No. 143), effective
Jan. 1. Excluding this one adjustment, Verizon's earnings were $1.8 billion, or 63 cents per share.
For the first quarter 2003, reported revenues were $16.3 billion, a 0.9 percent decrease from the first quarter 2002. However, the prior year's quarterly revenues included $241 million generated by 1.27 million switched access lines that Verizon has since sold. On a comparable basis, revenues increased 0.6 percent to $16.3 billion in the first quarter 2003, from $16.2 billion in the first quarter 2002.
Consolidated operating revenues included a double-digit, year-over-year increase for the third consecutive quarter in Verizon Wireless revenues, which grew 14.8 percent to $5.1 billion, from $4.4 billion in the first quarter of 2002.
Reported operating expenses decreased 1.1 percent to $12.8 billion in the first quarter 2003, compared with $12.9 billion in the first quarter 2002. However, the prior year's quarterly expenses included $413 million in special and non-recurring items.
On a comparable basis, operating expenses were $12.8 billion in the first quarter 2003, up 2.2 percent from $12.5 billion in the first quarter 2002. This increase was driven by significantly lower net pension and other post-retirement benefit income. The prior year's quarterly expenses included a $330 million net expense credit associated with pensions and post-retirement benefits, compared with only an $80 million net expense credit for first quarter 2003.
Verizon's operational earnings -- which in addition to the special and non-recurring items exclude pension and other post-retirement income, and income from the access lines Verizon sold in 2002 -- were 62 cents per share in the first quarter 2003, compared with 61 cents per share in the first quarter 2002.
The schedules accompanying this news release provide reconciliations to generally accepted accounting principles (GAAP) for all non-GAAP financial measures mentioned in this announcement.
Improving Competitive Position
Chief Executive Officer Ivan Seidenberg said, "In a struggling industry, Verizon is continuously improving its competitive position. We continue to generate strong cash flows, improve our balance sheet and create value from our advanced networks. This steady progress is the result of our diversified revenue base, our discipline in controlling costs, our service improvements, Wireless' continued solid revenue and customer growth, and the introduction of innovative product bundles that have retained and grown our customer base."
Future Growth Prospects
"Looking ahead we see new opportunities, especially in the large business market, from our newly acquired capability to provide long-distance services nationwide and from new wireless data offerings targeting this segment," Seidenberg said. "We also see a next phase of industry growth fueled by the combination of Verizon's broadband network services with attractive new product offerings, such as those being developed through our partnership with Microsoft's MSN service and which we expect to introduce shortly."
Increased Cash Flow
Verizon's first-quarter free cash flow was $2.3 billion, compared with $0.8 billion in the first quarter 2002. Capital expenditures in the first quarter 2003 were $2.5 billion, a 4.7 percent decrease from $2.6 billion in first quarter 2002. Cash flow from operations was $5.8 billion in the first quarter 2003, a 29.8 percent increase from $4.5 billion in first quarter 2002.
In first quarter 2003, net debt was reduced 19.3 percent to $49.9 billion, from
$61.9 billion in first quarter 2002.
Growth in Key Markets
Building on the momentum of last year, Verizon continued to grow its customer base in key markets. In the first quarter 2003, Verizon Wireless added 833,000 customers on a net basis, fueled by strong new-customer growth and industry-leading customer retention. The nation's leading wireless carrier now has more than 33.3 million customers.
In long distance and DSL, Verizon saw growth rates similar to recent past quarters. Beginning this year, in order to better match other disclosed per-line metrics and reported volumes to revenues, the company has changed the methodology for reporting operational results in these categories. DSL results are now reported on the basis of lines billed, rather than lines provisioned, and long-distance results are now reported on the basis of lines, rather than customers. This decreases previously reported overall DSL totals and increases previously reported overall long-distance totals.
The company added a net of 710,000 long-distance lines and 160,000 DSL lines in the first quarter 2003. Overall, Verizon had 13.2 million long-distance lines in service and 1.83 million DSL lines in service as of the end of the first quarter.
In addition, Verizon Freedom plans continue to retain customers, bolster long-distance and DSL sales, and win back customers from competitors. Verizon Freedom plans introduced last summer offer local services with various combinations of long distance, wireless and Internet access in a discounted bundle available on one bill.
Newer Verizon Freedom plans, available since late January, offer a flat rate for unlimited local and long-distance calling. Unlimited calling plans are currently available in seven states and the District of Columbia and will be introduced in all other markets later this year.
Reported Results Comparison
As noted above, reported earnings were $3.9 billion, or $1.41 per share, for the first quarter 2003, including a $2.1 billion after-tax gain from the adoption of SFAS No. 143. This compares with a reported loss of $0.5 billion, or 18 cents per share, in the first quarter 2002. Special and non-recurring items impacting the 2002 period primarily included investment-related charges, the cumulative effect of an accounting change related to intangible assets (SFAS No. 142) and merger transition costs -- partially offset by net gains on sales of assets.
Beginning this reporting period, Verizon's consolidated and segment operating expenses now include separate line items for selling, general and administrative expenses, and for cost of services and sales.
Verizon reiterated its 2003 guidance of 0 to 2 percent comparable revenue growth, capital expenditures of $12.5 to $13.5 billion, and year-end net debt of $49 to $51 billion. Full-year earnings guidance is $2.70 to $2.80 per share.
Business Segment Highlights
Following are first-quarter 2003 highlights from Verizon's four business segments.
Current and prior periods exclude the effects of access lines sold in 2002.
32.1 million of the company's 33.3 million total customers.
NOTE: The financial tables associated with this news release can be found on Verizon's Investor Web site.
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.