NEW YORK, NY — FIRST-QUARTER HIGHLIGHTS
- $1.41 in fully diluted earnings per share (EPS), compared with a loss of 18 cents per share in the first quarter 2002
- 833,000 Verizon Wireless net customer additions; total customers now exceed 33.3 million
- 14.8 percent total revenue growth for Verizon Wireless, compared with first quarter 2002
- 710,000 net additional long-distance lines in the quarter
- 160,000 net additional digital subscriber lines (DSL) in the quarter
- Net debt (total debt less cash and cash equivalents) reduced by $2.7 billion since year-end 2002 to $49.9 billion -- a 5.1 percent decrease since year-end and a 19.3 percent decrease since first quarter 2002
- $2.3 billion in free cash flow (cash from operating activities less capital expenditures and dividends)
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.
- In the first quarter, Verizon received final Federal Communications Commission approval to offer long-distance services throughout the U.S., capping a seven-year effort. The company launched service offerings last week in Maryland and Washington, D.C. Verizon has surpassed Sprint as the nation's third largest long-distance carrier for consumers, and earlier this month Verizon announced that more than 1 million small and medium-sized businesses now use Verizon long-distance service.
- More than 55 percent of Verizon's 13.2 million long-distance lines are in states in the former Bell Atlantic territory. Verizon's nationwide base of long-distance lines has increased nearly 37 percent year-over-year.
- Approximately 63 percent of Verizon's 57.5 million access lines are qualified to receive DSL service. As previously announced, the company expects to qualify 80 percent of access lines by year-end through the continued deployment of DSL technology.
- Since late last year, Verizon has won 194 contracts for Enterprise Advance services, as the company's Enterprise Solutions Group has geared up sales efforts and has a growing sales funnel following the last of Verizon's long-distance approvals. New regional data services are now available to the enterprise market of Fortune 1000 corporations, governments, and finance, education and healthcare entities.
- Access line equivalents increased 3.9 percent to 136.6 million, compared with the first quarter 2002, driven by 10.4 percent growth in digital capacity equivalents.
- In the first quarter, Verizon Wireless continued its record of strong profitability and strong customer growth, while reaching a new low in customer churn.
- Total customers grew 12.6 percent year-over-year to 33.3 million. Of the company's 833,000 net additions in the quarter, 755,000 were from retail operations, up 97 percent over the first quarter 2002; 6,000 were from property acquisitions; and 72,000 were from reseller operations. The company's retail customer base grew 15.6 percent year-over-year to 32.1 million of the company's 33.3 million total customers.
- Churn continued to decrease to the lowest levels in the company's history. Total churn, including retail and reseller, was 2.1 percent. Churn in the retail post-pay segment, which is more than 90 percent of the company's base, was 1.65 percent for the first quarter.
- Monthly service revenue per subscriber increased to more than $47 for the quarter, up 3 percent over the prior year's quarter.
- The company's low cost structure continued to lead the industry, as cash expense per subscriber increased only 3.4 percent during the quarter even with acquisition costs associated with the high volume of new subscribers. EBITDA margin remained strong at 38.2 percent. (EBITDA is determined by adding depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by Verizon Wireless' service revenues.)
- Quarterly EBITDA increased 14.5 percent over the prior-year quarter to $1.8 billion. Service revenues for the quarter grew 15.0 percent to $4.7 billion, with total revenues up 14.8 percent to $5.1 billion.
- More than 85 percent of the company's national network, the most extensive in the country, is now equipped with 1XRTT technology, providing higher data speeds and improved spectrum efficiency to accommodate growth in overall usage as well as in popular data services. Complementing this deployment, the majority of devices the company sells are 1X-ready.
- Demand for the company's data and text services continued to build in the quarter. Text messaging leads the pack, reaching more than 200 million billed text messages a month, as the company launched enhanced text services including TXT International and TXT Communities chat groups. Get It NowSM, the company's BREW-based downloadable services -- including ringtones, games and content from leading providers, such as Sony Pictures and Paramount Pictures -- grew to about 2 million downloads a month.
- The company announced plans to launch, during the third quarter, a wireless broadband service called 1xEV-DO in Washington, D.C., and San Diego, as well as its own branded wireless Wi-Fi service for high-speed data connections between the Verizon Wireless wide area network and hundreds of hotels, airports and other "hot spots" nationwide.
- For business customers, the company launched Wireless Office, a suite of services for mobile professionals that encompasses voice tools, Internet/intranet access, personal information management, e-mail and customized solutions for the latest devices, from PDAs (personal digital assistants) to laptops to the Blackberry, on the company's national 1XRTT Express Network.
- In the first quarter, revenues of $700 million from Verizon's directory publishing and electronic commerce operations decreased 12.8 percent from the prior year's quarter, primarily due to the impact of changes in timing of publication dates.
- Verizon Information Services' electronic products, including SuperPages.comTM, continue to achieve strong growth as demonstrated by a 51.4 percent increase in revenue and a 39 percent increase in searches over first quarter 2002.
- In the first quarter, revenues were $621 million, compared with $708 million in the first quarter 2002. The revenue decline was largely the result of declining foreign exchange rates, particularly in the Dominican Republic and Mexico.
- First-quarter income from unconsolidated businesses grew $38 million to $214 million, compared with first quarter 2002. The increase reflects continued operational growth in Verizon's equity investments.
- Verizon International business units continued to leverage relationships with Verizon Wireless by implementing innovative pricing plans, such as one-rate roaming; deploying high-speed 1XRTT wireless data services; and continuing procurement efficiencies.
- Verizon continued to benefit from strong International wireless subscriber growth, as the total number of wireless subscribers served by Verizon's International investments increased by more than 3 million compared with first quarter 2002, reaching 33.4 million subscribers, a 10.2 percent growth rate.
NOTE: The financial tables associated with this news release can be found on Verizon's Investor Web site at www.verizon.com/investor.
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.
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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.####