10-QPeriod: Q1 FY2003

VERIZON COMMUNICATIONS INC Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 12, 2003For Securities:VZ

Summary

Verizon Communications Inc. reported a significant turnaround in its financial performance for the first quarter of 2003, with a net income of $3.908 billion, a substantial improvement from a net loss of $501 million in the same period of the previous year. This dramatic shift was largely driven by a one-time gain of $2.15 billion related to the adoption of a new accounting standard for asset retirement obligations, which effectively reversed previously accrued costs exceeding salvage value. Excluding this accounting adjustment, operating income remained stable at approximately $3.5 billion, indicating ongoing operational performance. Total operating revenues saw a slight decrease of 0.9% to $16.279 billion, primarily due to declines in the Domestic Telecom and Information Services segments, partially offset by strong growth in the Domestic Wireless segment. The company highlighted robust subscriber growth and increased average revenue per user in its wireless operations, a key growth driver. Despite revenue challenges in some areas, Verizon demonstrated effective cost management, with a notable reduction in selling, general, and administrative expenses. The company also maintained its quarterly dividend of $0.385 per share.

Key Highlights

  • 1Net income surged to $3.908 billion from a net loss of $501 million year-over-year, heavily influenced by a $2.15 billion gain from adopting SFAS No. 143.
  • 2Operating revenues decreased slightly by 0.9% to $16.279 billion, with Domestic Telecom revenues down 3.0% and Information Services down 12.8%, while Domestic Wireless revenues grew by 14.8%.
  • 3Domestic Wireless segment showed strong performance with a 14.8% revenue increase, driven by a 12.6% rise in subscribers and a 3.0% increase in average revenue per user to $47.
  • 4Selling, general, and administrative expenses decreased by 14.0% to $4.253 billion, reflecting effective cost containment measures and favorable impacts from the prior year's non-recurring charges.
  • 5Cash flow from operations significantly increased to $5.812 billion from $4.478 billion, supported by income tax refunds and working capital management.
  • 6The company declared a consistent quarterly dividend of $0.385 per share.
  • 7Total assets grew to $172.053 billion from $167.468 billion, with cash and cash equivalents substantially increasing to $4.135 billion from $1.438 billion.

Frequently Asked Questions

The significant increase in net income was largely due to a one-time cumulative effect of an accounting change related to the adoption of SFAS No. 143, 'Accounting for Asset Retirement Obligations.' This resulted in a gain of approximately $3,499 million pre-tax ($2,150 million after-tax), which boosted net income substantially. Excluding this accounting adjustment, the company's operational performance shows greater stability.

The Domestic Telecom segment's revenues decreased by 3.0% to $9.941 billion. Key factors impacting revenue include declines in local service revenues due to lower demand and mandated price reductions on unbundled network elements, as well as a decrease in network access revenues due to declining switched minutes of use. However, long distance service revenues showed growth of 14.3% driven by subscriber expansion.

The Domestic Wireless segment experienced robust growth with revenues up 14.8% to $5.086 billion. This growth is attributed to a significant increase in subscribers (up 12.6% year-over-year) and an improvement in average service revenue per subscriber per month, which rose 3.0% to $47. This indicates successful subscriber acquisition and increased revenue generation from existing customers.

Verizon expects total capital expenditures for 2003 to be approximately $12.5 billion to $13.5 billion, primarily focused on network expansion and modernization. The company continues its debt reduction efforts and reported its debt-to-equity ratio improved to 60.2% from 67.0% year-over-year. Significant debt maturities, including exchangeable notes, were addressed in early 2003.