10-QPeriod: Q2 FY2000

VERIZON COMMUNICATIONS INC Quarterly Report for Q2 Ended Jun 30, 2000

Filed August 14, 2000For Securities:VZ

Summary

Verizon Communications Inc. (VZ), operating as Bell Atlantic Corporation for reporting purposes at the time, filed its Q2 2000 10-Q report on August 14, 2000. The most significant event during this period was the completion of the merger with GTE Corporation on June 30, 2000, forming Verizon. This merger, accounted for under the pooling-of-interests method, required restating prior periods' financial statements to reflect the combined entity. The company reported substantial increases in operating revenues and net income compared to the prior year, driven by strong growth across its segments, particularly the newly formed Verizon Wireless, and significant gains from asset sales, notably wireline and wireless properties. While the reported net income shows a significant jump, a substantial portion is attributable to non-operational items such as gains on asset sales and a mark-to-market adjustment for exchangeable notes. The company also incurred considerable merger-related and severance costs. Investors should note the impact of these one-time items and focus on the underlying operational performance trends across the Domestic Telecom, Domestic Wireless, International, and Information Services segments. The balance sheet reflects the significant increase in intangible assets and debt resulting from the merger and wireless joint venture formation.

Key Highlights

  • 1Completed the significant merger with GTE Corporation on June 30, 2000, creating the combined entity Verizon and restating historical financials using the pooling-of-interests method.
  • 2Reported a substantial increase in operating revenues to $16.8 billion for the quarter, up 15.7% year-over-year, driven by the formation of Verizon Wireless and growth in data and international services.
  • 3Net income for the quarter was $4.9 billion ($1.79 diluted EPS), a significant increase from $1.9 billion ($0.70 diluted EPS) in the prior year, boosted by a $2.5 billion pre-tax gain on asset sales and a $1.1 billion mark-to-market adjustment on exchangeable notes.
  • 4Incurred $1.6 billion in merger-related and severance costs during the quarter, impacting reported earnings but excluded from segment performance metrics.
  • 5The balance sheet shows significant growth in intangible assets (from $8.6 billion to $41.0 billion) and long-term debt (from $32.4 billion to $33.3 billion) reflecting the merger and wireless joint venture.
  • 6Domestic Telecom segment revenues grew 4.8% year-over-year, with local services up 3.9% and network access services up 1.2%, indicating stable core business performance.
  • 7Domestic Wireless segment revenues more than doubled, increasing 115.4% year-over-year to $3.9 billion, primarily due to the formation of Verizon Wireless and subscriber growth.

Frequently Asked Questions

The primary driver for the significant increase in revenue and net income was the completion of the merger with GTE Corporation on June 30, 2000, which created the combined entity Verizon. The merger significantly expanded the company's scale and scope. Additionally, substantial gains from the sale of assets, particularly wireline and wireless properties, and a mark-to-market adjustment on exchangeable notes significantly boosted net income. The formation of Verizon Wireless also contributed to revenue growth.

The merger resulted in substantial merger-related and severance costs totaling $1.6 billion, which are included in the consolidated results but excluded from segment performance metrics. Conversely, the company recognized significant gains from asset sales (approximately $2.5 billion pre-tax) and a mark-to-market adjustment on exchangeable notes ($1.1 billion pre-tax), which positively impacted net income but are considered non-operational.

The merger with GTE had a significant impact on Verizon's balance sheet. Most notably, intangible assets increased dramatically from $8.6 billion at year-end 1999 to $41.0 billion as of June 30, 2000, largely due to goodwill from the business combination. Long-term debt also saw an increase, and minority interest rose substantially due to the formation of the wireless joint venture.

The Domestic Telecom segment showed steady growth, with revenues increasing by 4.8% year-over-year, driven by increases in local services and network access. The Domestic Wireless segment experienced explosive growth, with revenues more than doubling (up 115.4%) due to the formation of Verizon Wireless and significant subscriber additions. This indicates a strong performance in the core telecom business and robust expansion in the wireless sector.