10-QPeriod: Q1 FY2002

VERIZON COMMUNICATIONS INC Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 15, 2002For Securities:VZ

Summary

Verizon Communications Inc. (VZ) reported its first-quarter 2002 results, showing a slight increase in revenue year-over-year but a significant drop in net income. While total operating revenues reached $16.375 billion, up 0.7% from $16.266 billion in the prior year's first quarter, the company posted a net loss of $501 million, a sharp decline from a net income of $1.572 billion in Q1 2001. This loss was largely driven by substantial "special items," most notably significant investment-related charges totaling $2.026 billion after-tax, primarily related to impairments in CANTV, Metromedia Fiber Network, and CTI. The adoption of SFAS No. 142 also resulted in a $496 million cumulative effect charge for goodwill and intangible asset reclassification. Despite these considerable headwinds, the Domestic Wireless segment showed robust growth, with revenues up 8.1% due to a 9% increase in subscribers, and the Domestic Telecom segment saw growth in network access and long-distance services, albeit offset by declines in local services. Management highlighted efforts to control costs, particularly within the Domestic Telecom segment, and the strategic repositioning of certain assets. The company's balance sheet shows total assets of $171.3 billion, with a significant portion in plant, property, and equipment, and substantial intangible assets. Cash flow from operations improved year-over-year, providing $4.478 billion, which was used to fund capital expenditures, reduce debt, and pay dividends. The company also provided forward-looking guidance, with expected capital expenditures of $14 billion to $15 billion for the full year 2002, and noted ongoing legal and regulatory matters, including the critical FCC NextWave spectrum auction dispute.

Key Highlights

  • 1Reported a net loss of $501 million for Q1 2002, a significant decrease from a net income of $1.572 billion in Q1 2001, primarily due to substantial investment write-downs and accounting changes.
  • 2Total operating revenues saw a modest increase of 0.7% to $16.375 billion, compared to $16.266 billion in the prior year's quarter.
  • 3Domestic Wireless segment revenue grew by 8.1% driven by a 9% increase in subscribers, reaching 29.6 million.
  • 4Significant investment-related charges of $2.026 billion after-tax were recorded due to impairments in CANTV, Metromedia Fiber Network, and CTI.
  • 5Adopted SFAS No. 142 (Goodwill and Other Intangible Assets), resulting in a $496 million cumulative effect charge and ceasing amortization of goodwill and indefinite-lived intangibles.
  • 6Cash flow from operating activities increased to $4.478 billion, up from $3.102 billion in the prior year's quarter.
  • 7Capital expenditures for the full year 2002 are projected to be between $14 billion and $15 billion.

Frequently Asked Questions

The significant drop in net income was primarily caused by substantial 'special items,' including $2.026 billion in investment-related charges due to impairments in CANTV, Metromedia Fiber Network, and CTI. Additionally, a $496 million charge was recognized as a cumulative effect of adopting SFAS No. 142, which changed the accounting for goodwill and intangible assets.

The Domestic Wireless segment demonstrated strong performance, with operating revenues increasing by 8.1% year-over-year to $4.374 billion. This growth was driven by a 9% increase in subscribers, reaching 29.6 million, and a lower average monthly churn rate.

Verizon Communications expects capital expenditures for the full year 2002 to be in the range of $14 billion to $15 billion, primarily focused on network expansion and modernization.

Verizon Wireless is involved in a dispute over the FCC's 1.9 GHz spectrum auction. While the FCC returned $1.479 billion of Verizon Wireless's $1.822 million payment, the matter is ongoing, with Verizon Wireless filing petitions in court seeking a declaration that the auction is void and seeking monetary damages. The U.S. Supreme Court has agreed to hear the appeal of the D.C. Circuit's decision that initially favored NextWave.