8-KOther Events

VERIZON COMMUNICATIONS INC 8-K Report (Jul 1, 2003)

Filed July 1, 2003For Securities:VZ

Summary

Verizon Communications Inc. (VZ) filed an 8-K on July 1, 2003, detailing two significant accounting changes impacting its financial reporting. The company has revised its revenue and expense recognition method for its directory business from the publication-date method to the amortization method, which is more common in the industry. This change is retroactive to January 1, 2003, and will result in a one-time, non-cash charge of approximately $2.7 billion pre-tax ($1.6 billion after-tax). While this shifts the timing of revenue and expense recognition over the 12-month life of a directory, it does not impact cash flows. The change is expected to increase first-quarter 2003 revenues, operating expenses, and net income. Furthermore, Verizon has reclassified its 39.4% interest in Grupo Iusacell S.A. de C.V. as a discontinued operation, following its decision to sell this stake. This reclassification is in accordance with accounting standards for the disposal of long-lived assets. Verizon recorded a one-time charge of approximately $1.0 billion pre-tax ($0.9 billion after-tax) in the second quarter to write off its investment in Iusacell. Prior and current period financial information for Iusacell will be reported separately as discontinued operations. These changes, alongside reconciliations for non-GAAP financial information, provide updated financial transparency for investors.

Key Highlights

  • 1Verizon is changing its accounting method for directory revenues and expenses to the amortization method, aligning with industry standards.
  • 2This accounting change is retroactive to January 1, 2003, and will impact first-quarter financial results.
  • 3A significant one-time, non-cash charge of approximately $2.7 billion pre-tax ($1.6 billion after-tax) will be recorded for the cumulative effect of the directory accounting change.
  • 4The company is reclassifying its 39.4% interest in Grupo Iusacell S.A. de C.V. as a discontinued operation following a decision to sell the stake.
  • 5A one-time charge of approximately $1.0 billion pre-tax ($0.9 billion after-tax) was recorded in the second quarter to write off the Iusacell investment.
  • 6The filing includes reconciliations of non-GAAP financial information as required by SEC Regulation G.
  • 7The directory accounting change affects the timing of revenue and expense recognition but not cash flows.

Frequently Asked Questions

The primary impact is a shift in the timing of revenue and expense recognition for directory services, moving from recognizing them upon distribution to recognizing them over the 12-month life of the directory. This results in a one-time, non-cash charge of approximately $2.7 billion pre-tax to account for the cumulative effect of this change, but it does not affect cash flows.

Verizon is reclassifying its 39.4% interest in Grupo Iusacell S.A. de C.V. as a discontinued operation because the company has decided to sell this stake. This accounting treatment reflects the planned disposal of a significant long-lived asset.

Verizon recorded a one-time charge of approximately $1.0 billion pre-tax ($0.9 billion after-tax) in the second quarter to write off its investment in Iusacell. Financial results related to Iusacell will be reported as a discontinued operation in current and prior periods.

The directory accounting change will increase first-quarter 2003 net income by approximately $143 million (5 cents per diluted share) due to the new amortization method. However, this is offset by the significant cumulative effect charge recorded for the change itself.