10-Q/APeriod: Q1 FY2002

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

Filed May 31, 2002For Securities:VZ

Summary

Verizon Communications Inc. reported a net loss of $501 million ($0.18 per share) for the first quarter of 2002, a significant decrease from the net income of $1,572 million ($0.58 per share) reported in the same period of 2001. This downturn was largely driven by substantial investment-related charges, including significant write-downs for investments in CANTV, MFN, and CTI, totaling $2,026 million after tax. Additionally, the adoption of SFAS No. 142 resulted in a one-time cumulative charge of $496 million. Despite the net loss, the company's core operations showed resilience. Total operating revenues increased slightly to $16.375 billion from $16.266 billion in the prior year, with notable growth in the Domestic Wireless segment (up 8.1%) driven by subscriber increases, and the International segment (up 42.5%) due to the consolidation of TELPRI. Domestic Telecom revenues saw a decline, primarily in local services, though network access and long-distance services showed growth. The company also generated a strong increase in cash flow from operating activities, up to $4.478 billion from $3.102 billion in the prior year, while significantly reducing capital expenditures year-over-year.

Key Highlights

  • 1Net loss of $501 million ($0.18/share) in Q1 2002, a significant decline from a net income of $1,572 million ($0.58/share) in Q1 2001.
  • 2Substantial investment-related charges of $2,026 million after-tax impacted Q1 2002 results, primarily due to write-downs in CANTV, MFN, and CTI.
  • 3Adoption of SFAS No. 142 led to a one-time cumulative effect charge of $496 million after-tax.
  • 4Total operating revenues saw a modest increase to $16.375 billion from $16.266 billion, driven by growth in Domestic Wireless and International segments.
  • 5Domestic Wireless segment revenue increased by 8.1% due to a 9% subscriber increase.
  • 6Operating cash flow significantly improved to $4.478 billion from $3.102 billion in the prior year.
  • 7Capital expenditures were reduced by approximately $2.1 billion year-over-year, from $6.454 billion to $2.020 billion used in investing activities.

Frequently Asked Questions

The primary driver for the substantial decrease in net income was a series of significant investment-related charges totaling $2,026 million after tax, stemming from other-than-temporary declines in the market value of investments in CANTV, MFN, and CTI. Additionally, the adoption of SFAS No. 142 resulted in a one-time cumulative effect of an accounting change charge of $496 million after tax.

Overall operating revenues showed a slight increase, reaching $16.375 billion compared to $16.266 billion in the prior year. The Domestic Wireless segment performed strongly with an 8.1% revenue increase due to subscriber growth. The International segment also saw significant revenue growth of 42.5%, largely due to the consolidation of TELPRI. However, the Domestic Telecom segment experienced a revenue decline, primarily in local services, though other areas like network access and long-distance services showed improvement.

The adoption of SFAS No. 142, effective January 1, 2002, eliminated the amortization of goodwill and indefinite-lived intangible assets. This transition resulted in a one-time cumulative effect of an accounting change charge of $496 million after tax. Going forward, these assets will be tested annually for impairment rather than amortized.

Verizon demonstrated a strong improvement in operating cash flow, increasing to $4.478 billion from $3.102 billion in the first quarter of 2001. Concurrently, the company significantly reduced its investing activities, with total capital expenditures decreasing from $6.454 billion to $2.020 billion. This suggests a strategic focus on cash generation and more disciplined capital deployment.