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VERIZON COMMUNICATIONS INC Annual Report, Year Ended Dec 31, 2003

Filing Date
Filed March 12, 2004
Period End
December 31, 2003
Security
VZ
In the record · 2016–202610-K1110-Q328-K201

VZ filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 201 current reports (8-K) between 2016 and 2026.

  1. FY2018 annual report10-K · Feb ’19Feb ’19
  2. Leadership change8-K · Dec ’21Dec ’21
  3. Leadership change8-K · Dec ’25Dec ’25

01—Abstract

Summary

Summary of the 10-K filed March 12, 2004. Cited figures are marked; the original filing is the authoritative source.

Verizon Communications' 10-K for fiscal 2003 (filed March 12, 2004) shows a company generating strong operating cash flow of $22.5 billiona while absorbing heavy one-time charges.

Consolidated revenues were essentially flat at $67.75 billionb (up 0.7%), but operating income fell to $7.5 billion from $15.0 billion, driven largely by a $5.5 billion severance and pension charge tied to a voluntary separation plan of more than 25,000 employees, a $2.7 billion cumulative-effect charge from switching directory revenue recognition to the amortization method, and a $957 million pretax loss on the sale of Iusacell. Reported net income was $3.08 billion ($1.11 diluted EPS), down from $4.08 billion ($1.49) in 2002, though 2002 itself included large investment write-downs. The underlying business shows a clear mix shift.

Domestic Wireless (Verizon Wireless, 55% owned with Vodafone holding 45%) grew revenue 15.5% to $22.5 billionc, adding 5.0 million net customers to reach 37.5 million, while Domestic Telecom revenue fell 3.0% as access lines and local services eroded from competition, UNE pricing rules and wireless substitution. Management reduced the Domestic Telecom workforce by about 14% and cut debt, with total debt repayments of $7.4 billion in 2003. Long-term debt declined to $39.4 billion from $44.0 billion.

Capital spending is guided to $12 to $13 billiond for 2004, and the board authorized a new buyback of up to 80 million shares. The dividend was held at $1.54 per share annually.

Investors should weigh the Verizon Wireless growth and cost-cutting against continuing wireline erosion and regulatory risk. The filing also flags a pending Vodafone put option of up to $20 billion on its wireless stake between 2003 and 2007, a potential 4 to 6 cent per share 2004 earnings hit from the FCC's UNE/EEL order, and a $240 million Hicksville environmental charge.

02—Key points

Key Highlights

  1. Consolidated operating revenues were $67.75 billion, up 0.7% from $67.30 billion, as Domestic Wireless growth offset a 3.0% decline at Domestic Telecom.
  2. Operating income fell 50% to $7.49 billion, reflecting $5.5 billion in severance, pension and benefit charges from a voluntary separation plan covering more than 25,000 employees.
  3. Domestic Wireless revenue rose 15.5% to $22.49 billion, with 5.0 million net customer additions to 37.5 million subscribers and monthly churn improving to 1.8% from 2.3%.
  4. Net income was $3.08 billion ($1.11 diluted EPS), versus $4.08 billion ($1.49) in 2002, which included large investment-related charges; 2003 also included a $2.7 billion directory accounting change charge offset by a $3.5 billion SFAS 143 gain.
  5. Operating cash flow was $22.5 billion, funding $11.9 billion of capital expenditures and $4.2 billion of dividends, while debt was reduced to $39.4 billion of long-term debt from $44.0 billion.
  6. Management guides 2004 capital spending to $12 to $13 billion and a 2004 net pension and postretirement expense of $0.18 to $0.22 per diluted share.
  7. Verizon Wireless carries contingent exposure: Vodafone may put up to $20 billion of its 45% stake to Verizon Wireless between 2003 and 2007, with $10 billion exercisable in the June 10 to August 9, 2004 window.

03—Questions

Frequently Asked Questions

  1. Why did Verizon's operating income drop so sharply in 2003?

    Operating income fell to $7.49 billion from $15.00 billion mainly because of about $5.5 billion in severance, pension and benefit charges, largely from a fourth-quarter 2003 voluntary separation plan that more than 21,000 employees accepted. The 2002 results also included a $2.5 billion pretax gain on the sale of 1.27 million access lines, which did not recur. Excluding special items, the company's underlying revenue was roughly stable.

  2. How is Verizon Wireless performing and how much of Verizon does it represent?

    Domestic Wireless is the growth engine. Revenue grew 15.5% to $22.5 billion in 2003, with average revenue per customer rising 1.0% to $48.85 and churn improving to 1.8%. Verizon owns 55% of the joint venture and Vodafone owns 45%, so a portion of the segment's income is attributed to minority interest, which totaled $1.58 billion in 2003.

  3. What are the main risks to Verizon's wireline business?

    Domestic Telecom revenue declined 3.0% in 2003. Drivers include access line losses (switched access lines down 4.2%), wireless substitution, regulatory pricing rules for unbundled network elements and falling network access revenue. The FCC's 2003 UNE order may cut 2004 earnings by an estimated 4 to 6 cents per diluted share, and the D.C. Circuit's March 2, 2004 ruling partly reversed that order, adding further uncertainty.

  4. Did Verizon's balance sheet and shareholder returns improve in 2003?

    Yes, on balance. Verizon repaid $7.4 billion of debt in 2003 and cut long-term debt to $39.4 billion, and its debt-to-total-capital ratio improved to 57.6% from 62.0%. The quarterly dividend stayed at $0.385 per share ($1.54 annually). On January 22, 2004, the board authorized a new repurchase of up to 80 million shares through February 2006.

04—Continue

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