================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: January 29, 2003
(Date of earliest event reported)
VERIZON COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
Delaware 1-8606 23-2259884
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification No.)
incorporation)
1095 Avenue of the Americas,
New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 395-2121
Not applicable
(Former name or former address, if changed since last report)
================================================================================
Item 9. Regulation FD Disclosure.
Set forth below is a press release issued by Verizon Communications Inc. on
January 29, 2003 announcing earnings for the fourth quarter of 2002 and the year
ended December 31, 2002, and providing its financial outlook for 2003.
NEWS RELEASE [VERIZON LOGO]
FOR IMMEDIATE RELEASE MEDIA CONTACTS:
JAN. 29, 2003 PETER THONIS
212-395-2355
peter.thonis@verizon.com
BOB VARETTONI
212-395-7726
robert.a.varettoni@verizon.com
VERIZON COMMUNICATIONS REPORTS STRONG YEARLY
OPERATIONAL GROWTH AND GIVES OUTLOOK FOR 2003
FOURTH-QUARTER HIGHLIGHTS
o 964,000 Verizon Wireless net customer additions, excluding acquisitions;
32.5 million total customers
o 566,000 long-distance net customer additions, for a total of 10.4 million
-- making Verizon the U.S.'s third largest long-distance carrier for
consumers
o 148,000 new net digital subscriber lines (DSL), for a total of 1.8 million
lines
2002 HIGHLIGHTS
o Met or exceeded year-end targets for revenue growth, diluted EPS (earnings
per share), capital expenditures, debt management, and long-distance and
DSL customers
o Total debt reduced by $10.2 billion, to $54.1 billion from $64.3 billion, a
15.9 percent decrease
o Net debt (total debt less cash and cash equivalents) reduced by $10.7
billion, to $52.6 billion from $63.3 billion, a 16.9 percent decrease;
commercial paper reduced 83.6 percent, to $2.1 billion from $12.8 billion
o $4.8 billion in free cash flow (cash from operating activities less capital
expenditures of $12.0 billion, capitalized non-network software and
dividends)
2003 GUIDANCE
o EPS of $2.70 to $2.80, after offsets from reduced pension income, reduced
income from 2002 access line sales, and expensing stock options
o Comparable revenue growth of 0 to 2 percent
o Capital expenditures (including capitalized non-network software) of $12.5
to $13.5 billion
o Net debt of $49 to $51 billion
Verizon News Release, page 2
NEW YORK -- Verizon Communications Inc. (NYSE:VZ) today announced
fourth-quarter 2002 diluted EPS of 83 cents, or 79 cents before special items,
on the strength of comparable quarterly revenue growth and expense reduction,
and continued strong sales of wireless, long-distance, DSL and bundled product
offerings.
For the fourth quarter, Verizon's reported earnings were $2.3 billion,
or 83 cents per share, including a net of $99 million, or 4 cents per share, in
special items. Nearly $1.2 billion in gains, primarily associated with $1.1
billion in tax benefits, were largely offset by after-tax charges totaling $1.1
billion, including $604 million primarily for pension and benefit costs related
to prior force reductions, $292 million for costs related to the bankruptcy of
Genuity Inc., $129 million for merger transition costs, and $42 million in other
items. This is the final quarter that Verizon will incur transition costs.
Reported operating revenues were $17.2 billion, and operations and
support expenses were $11.0 billion in the fourth quarter 2002. Revenues,
operating expenses and statistics described on a comparable basis exclude
special gains and charges and the effects of the sale of 1.27 million switched
access lines during third quarter 2002, and include the consolidation of
Telecomunicaciones de Puerto Rico, Inc. (PRTC) and the deconsolidation of CTI
Holdings S.A. beginning in 2002.
Fourth-quarter operating revenues, on a comparable basis, increased 1.5
percent to $17.2 billion from $17.0 billion, including a double-digit increase
for the second consecutive quarter in Verizon Wireless revenues, which grew 16.3
percent to $5.2 billion, from $4.4 billion in the fourth quarter of 2001.
Fourth-quarter operations and support expenses, on a comparable basis, declined
3.5 percent to $9.6 billion, from $9.9 billion in fourth quarter 2001.
Also today, Verizon Wireless will withdraw its registration statement
for an initial public offering of equity securities, filed with the Securities
and Exchange Commission, given the ongoing strong cash flow at Verizon Wireless
and the lack of significant funding requirements that need to be addressed.
A YEAR OF GREAT PROGRESS
Chief Executive Officer Ivan Seidenberg said, "We achieved great
progress in 2002. Our business model proved strong enough to carry us through a
very difficult economic environment and allowed us to anticipate and adapt to
the unprecedented technological changes in our
Verizon News Release, page 3
industry. Throughout the year, we have focused on execution, generating cash
flow and maintaining operational excellence, and we delivered on our financial
and operational targets. While conserving capital, we met customer demands
through product and packaging innovations and by using advanced technology to
efficiently provide more capabilities through our world-class wireline and
wireless networks."
Seidenberg added, "Our wireless, long-distance and DSL businesses
continue to position Verizon well in growth markets. We have built an excellent
foundation for 2003. Our continuing product innovation, combined with the
quality of our customer service and the sophistication, scope and reliability of
our networks, has Verizon poised for more customer growth in the year ahead."
In the fourth quarter, Verizon saw gains in EBITDA margins on a
comparable basis. (EBITDA is determined by adding depreciation and amortization
to operating income; EBITDA margin is calculated by dividing EBITDA by total
operating revenues, or service revenues for Verizon Wireless.) Verizon's
consolidated EBITDA margin was 44.4 percent in the quarter, a 290 basis-point
improvement over fourth quarter 2001. Verizon Wireless' EBITDA margin was 40.1
percent, a 520 basis-point improvement over the prior year's quarter. The EBITDA
margin at Verizon's largest business unit, Domestic Telecom, was 45.1 percent in
the quarter, a 270 basis-point improvement over fourth quarter 2001.
This also marked the eighth consecutive quarter that Domestic Telecom
has reduced its operations and support expenses over the prior-year period. On a
comparable basis with the fourth quarter 2001, these expenses decreased by 7.1
percent, to $5.5 billion, in the fourth quarter 2002. Year-over-year on a
comparable basis, these expenses were reduced by $1.3 billion in 2002.
CUSTOMER GROWTH
Operationally in the fourth quarter, Verizon Wireless added 964,000
customers on a net basis, 34.8 percent more than in the prior year's quarter.
Verizon added 566,000 long-distance customers on a net basis to become the
nation's third-largest provider of consumer long-distance service, with 10.4
million customers. Net additions of DSL lines exceeded 148,000 in the quarter,
for a year-end total of 1.8 million lines and a year-over-year increase of 50
percent.
Verizon News Release, page 4
For the year, the total number of customers increased by 3.1 million,
including acquisitions, for Verizon Wireless and 3 million for Verizon long
distance. Nearly 570,000 customers subscribe to the Verizon "Veriations" package
plans that were introduced less than six months ago. These plans bundle local
services with various combinations of long distance, wireless and Internet
access in a discounted package available on one bill.
YEAR-END FINANCIALS: STRONG CASH MANAGEMENT
Verizon's 2002 earnings, before special items, were $8.4 billion, or
$3.05 a share, compared to $8.2 billion, or $3.00 a share, in 2001. On a
comparable basis, operating revenues were flat for the year, at $67.0 billion,
while operating expenses declined 1.4 percent to $51.2 billion, from $51.9
billion in 2001.
Total debt decreased 15.9 percent to $54.1 billion at year-end 2002,
compared to $64.3 billion at year-end 2001. Verizon reduced commercial paper by
$10.7 billion in 2002, to $2.1 billion at year-end 2002 compared to $12.8
billion at year-end 2001. Net debt was $52.6 billion at year-end 2002, which was
at a lower level than the company's guidance.
Free cash flow improved by $7.8 billion for the year, aided by improved
cash from operations and by reductions in capital expenditures, which totaled
$12.0 billion in 2002 compared to $17.4 billion in 2001.
At year-end 2002, Verizon recorded a balance sheet adjustment for
additional minimum liability (AML), in accordance with FAS 87 accounting rules.
AML is the difference between the funded status and the accrued benefit
obligation for each pension plan, determined on a plan-by-plan basis. Verizon's
adjustment increased its employee benefit liabilities by $1.3 billion. This
non-cash adjustment was recorded as an after-tax reduction in shareowners'
investment of approximately $811 million.
Seidenberg said, "We produced strong cash-management results in 2002,
and we expect to continue this trend in 2003. Our guidance reflects a view that
while the effects of the economic downturn may persist, we will be in a position
to further reduce debt and operating expense. At the same time, we expect to
stabilize revenue declines in certain markets, use our new nationwide
long-distance capabilities to make inroads into the business market, and grow
revenues in consumer markets through continued product and packaging innovation
for wireline, wireless, long-distance and DSL services."
Verizon News Release, page 5
2003 GUIDANCE
Revenue growth, on a comparable basis, is anticipated to be 0 to 2
percent in 2003.
The company anticipates that operational growth will contribute from 6
to 18 cents in EPS -- offset 41 to 43 cents by reduced pension income of 30 to
32 cents, reduced income from 2002 access line sales of 9 cents, and an
accounting change of 2 cents to expense stock options. This results in a 2003
EPS target of $2.70 to $2.80, compared to last year's $3.05.
Capital expenditures, including capitalized non-network software, are
targeted in the $12.5 to $13.5 billion range, compared to $13.1 billion in
equivalent expenditures in 2002.
The company expects to once again generate significant free cash flow,
which will continue to be utilized in its debt reduction program. Year-end net
debt is targeted to decline to approximately $49 to $51 billion.
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
Effective Jan. 1, 2003, Verizon has adopted new accounting rules (SFAS
143) for recognizing the costs of legal obligations associated with the
retirement of fixed assets. Verizon has not yet finalized the impact of adopting
SFAS 143 but expects to record a one-time net income benefit of approximately $2
billion in the first quarter 2003 and an ongoing annual net income benefit of
approximately 1 to 2 cents per share.
REPORTED RESULTS FOR 2002
For the year, reported earnings were $4.1 billion, or $1.49 a share,
including a net charge of $4.3 billion, or $1.56 a share. This net charge
includes special gains of $4.0 billion related to the sales of assets and tax
benefits. These gains were more than offset by charges, including $5.7 billion
in investment-related items associated with Genuity, CANTV in Venezuela and
other interests; $1.3 billion related to severance, pension and benefit costs;
nearly $0.5 billion for the cumulative effects of an accounting change; merger
transition costs of $0.3 billion; and other items totaling $0.5 billion.
Reported operating revenues and operations and support expenses were
$67.6 billion and $42.0 billion, respectively, for the year.
Verizon News Release, page 6
BUSINESS SEGMENT HIGHLIGHTS
Following are fourth-quarter and year-end 2002 highlights from
Verizon's four business segments.
DOMESTIC TELECOM:
Current and prior periods exclude the 1.27 million switched access
lines sold during the third quarter of 2002.
o More than half of Verizon's 10.4 million long-distance customers are in
states in the former Bell Atlantic territory, and long-distance market
share among consumers is more than 35 percent in New York and
Massachusetts. Verizon has 2.7 million long-distance customers in New York
and Connecticut, nearly 1 million customers in both Massachusetts and
Pennsylvania, and nearly 500,000 customers in New Jersey.
o ONE-BILL service, which provides Verizon local, long-distance and wireless
charges on a single monthly bill, is now available in 20 of the 29 states
where Verizon provides wireline services, with more than 150,000 customers
enrolled in the service.
o In November, Verizon's Enterprise Services Group launched its Enterprise
Advance initiative to interconnect the company's local networks and provide
large business and government customers with advanced communications
services. Initial sales were generated based on the new regional
availability of frame relay and SONET (Synchronous Optical Network)
services that provide reliable high-speed transport.
o Data services revenues grew to more than $1.85 billion in the quarter,
driven by nearly 7 percent quarterly growth over the same period last year
for data transport services and 9.2 percent growth for the year. Annual
data revenue reached nearly $7.3 billion.
o In the network services market, special access revenues increased 9.5
percent in the quarter, to $1.38 billion. For the year, special access
revenues grew 11.6 percent, to $5.5 billion.
o Domestic access line equivalents increased 4.5 percent to 135.8 million,
compared to the fourth quarter 2001.
VERIZON WIRELESS:
o Verizon Wireless continued its focus on quality, profitable growth. The
company's strong fourth-quarter performance was due to its continued low
churn, low-cost structure, increasing average revenue per user (ARPU) and
strong demand for Verizon Wireless branded products.
Verizon News Release, page 7
o Retail net adds in the quarter were 929,000, up 18.4 percent over the
fourth quarter 2001. The company also added 6,000 new customers from
property acquisitions and 35,000 from reseller operations. The company's
retail customer base grew 14.7 percent year-over-year to 31.4 million of
the company's 32.5 million total customers.
o Monthly service revenue per subscriber increased to more than $49 for the
quarter, up 6 percent over the prior year's quarter.
o The company continued to lead the industry in low-cost structure as cash
expense per subscriber decreased more than 2 percent for the quarter and 1
percent for the year. EBITDA margin increased for the quarter and the year,
to 40.1 percent and 39.1 percent, respectively.
o Retail churn for both the quarter and for 2002 continued to decrease
year-over-year. Including post-pay and pre-pay, retail churn was 2.1
percent in the quarter and for the year. Churn in the retail post-pay
segment, which is 91 percent of the company's base, was even lower -- at
1.8 percent for the fourth quarter and the year. Total churn, including
retail and resellers, was 2.1 percent in the quarter, and 2.3 percent for
the year.
o Quarterly EBITDA increased more than 34 percent to $1.9 billion, while
EBITDA for the year was up more than 15 percent to $6.9 billion. Service
revenues for the quarter grew almost 17 percent to $4.7 billion, with total
revenues up more than 16 percent to $5.2 billion. For the year, service
revenues and total revenues each grew nearly 11 percent to $17.7 billion
and $19.3 billion, respectively.
o Coupled with this growth, the company reduced its capital expenditures in
2002 to $4.4 billion from $5.0 billion in 2001, excluding capitalized
non-network software.
o The company continued to invest in its premier network to preserve quality
and gain new efficiencies. Network usage increased more than 45 percent in
2002 over 2001, while efficiency as measured by percentage of capital
expenditures to revenue, capital expenditures per minutes of use and cost
per minutes of use continued to improve.
o Demand for the company's data and text services continued to increase in
the quarter. The company also launched more data-friendly devices with
color screens, 1X speeds, and Get It Now capability for downloading games,
entertainment and other applications. Text messaging continued to grow
dramatically, with the number of billed messages increasing more than 43
percent over the prior quarter.
o Product innovation in the fourth quarter included a suite of services for
corporate customers that enables them to receive alerts from and access and
navigate their corporate e-mail and voice mail using their wireless phones
and voice commands.
Verizon News Release, page 8
INTERNATIONAL:
Reflects deconsolidation of CTI to the equity method and consolidation
of PRTC in both the current and prior periods.
o Fourth-quarter revenues were $731 million, bringing full-year revenues to
$3.0 billion, compared to $813 million and $3.2 billion in the fourth
quarter and full-year 2001, respectively. The revenue decline reflects weak
economic conditions and declining foreign exchange rates. Operating income
improved 6.6 percent in the quarter, to $146 million, due primarily to cost
reductions driven by improved productivity.
o The number of proportionate wireless customers in Verizon's core Americas
properties grew by 12.8 percent to 3.0 million, compared to the prior year.
Total proportionate wireless customers served by Verizon's International
investments is now 8.7 million, compared to 8.9 million in 2001. Adjusted
for assets sold during 2002, total proportionate wireless subscribers grew
12 percent.
o During 2002, International successfully implemented roaming agreements that
enable customers of Verizon affiliates in Canada, Mexico and Puerto Rico to
have seamless roaming services on the Verizon Wireless network when they
are in the United States.
o During the fourth quarter, Verizon sold its 5.4 percent interest in Cable &
Wireless plc. The transaction, which is part of the company's continuing
efforts to sell non-strategic assets, resulted in proceeds of approximately
$281 million. The impact of this sale has been removed from Verizon's
International segment results and from Verizon's income before
non-recurring items.
INFORMATION SERVICES:
o Fourth-quarter revenues from Verizon's directory publishing and electronic
commerce operations of $1.4 billion decreased 3.8 percent primarily due to
the impact of changes in publication dates. Revenues for 2002 of $4.3
billion were down slightly compared to 2001, reflecting the sale of certain
wireline properties and related directories as well as reduced affiliate
revenue.
o Revenues from SuperPages.com, Verizon's domestic Internet directory
service, grew 43.3 percent and 63.7 percent over the fourth quarter and the
year, respectively, as Information Services continues to be the dominant
leader in online directory services. SuperPages.com yellow pages searches
grew 28.7 percent and 82.4 percent over the fourth quarter and the year,
respectively.
Verizon News Release, page 9
Verizon Communications (NYSE:VZ) is one of the world's leading
providers of communications services. Verizon companies are the largest
providers of wireline and wireless communications in the United States, with
135.8 million access line equivalents and 32.5 million Verizon Wireless
customers. Verizon is also the largest directory publisher in the world. With
more than $67 billion in annual revenues and 229,500 employees, Verizon's global
presence extends to 33 countries in the Americas, Europe, Asia and the Pacific.
For more information on Verizon, visit www.verizon.com.
####
VERIZON'S ONLINE NEWS CENTER: Verizon news releases, executive speeches and
biographies, media contacts and other information are available at Verizon's
News Center on the World Wide Web at www.verizon.com/news. To receive news
releases by e-mail, visit the News Center and register for customized automatic
delivery of Verizon news releases.
NOTE: This press release contains statements about expected future events and
financial results that are forward-looking and subject to risks and
uncertainties. For those statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. The following important factors could affect future results
and could cause those results to differ materially from those expressed in the
forward-looking statements: the duration and extent of the current economic
downturn; materially adverse changes in economic or labor conditions in the
markets served by us or by companies in which we have substantial investments;
material changes in available technology; technology substitution; an adverse
change in the ratings afforded our debt securities by nationally accredited
ratings organizations; the final results of federal and state regulatory
proceedings concerning our provision of retail and wholesale services and
judicial review of those results; the effects of competition in our markets; our
ability to satisfy regulatory merger conditions; the ability of Verizon Wireless
to continue to obtain sufficient spectrum resources; our ability to recover
insurance proceeds relating to equipment losses and other adverse financial
impacts resulting from the terrorist attacks on Sept. 11, 2001; and changes in
our accounting assumptions that regulatory agencies, including the SEC, may
require or that result from changes in the accounting rules or their
application, which could result in an impact on earnings.
VERIZON COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 % Change 12/31/02 12/31/01 % Change
--------- ------------ ------------ -------- ------------- ------------- --------
OPERATING REVENUES $ 17,214 $ 17,011 1.2 $ 67,625 $ 67,190 .6
Operations and support expense 11,001 12,714 (13.5) 41,952 41,651 .7
Depreciation and amortization expense 3,427 3,495 (1.9) 13,423 13,657 (1.7)
Sales of assets, net -- 355 (100.0) (2,747) 350 *
-------- -------- -------- --------
OPERATING INCOME 2,786 447 * 14,997 11,532 30.0
Income (loss) from unconsolidated businesses 12 (1,736) * (4,414) (5,042) (12.5)
Other income and (expense), net 34 181 (81.2) 140 449 (68.8)
Interest expense (822) (742) 10.8 (3,237) (3,369) (3.9)
Minority interest (342) (89) * (1,270) (622) *
Mark-to-market adjustment - financial instruments 14 (16) * (14) (182) (92.3)
Benefit (provision) for income taxes 608 (71) * (1,618) (2,176) (25.6)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 2,290 (2,026) * 4,584 590 *
Extraordinary item, net of tax -- (11) (100.0) (9) (19) (52.6)
Cumulative effect of accounting change -- -- -- (496) (182) *
-------- -------- -------- --------
NET INCOME (LOSS) $ 2,290 $ (2,037) * $ 4,079 $ 389 *
======== ======== ======== ========
DILUTED EARNINGS PER SHARE (1) $ .83 $ (.75) * $ 1.49 $ .14 *
Weighted average number of common
shares-assuming dilution (in millions) 2,772 2,716 2,745 2,730
FOOTNOTE:
(1) Diluted Earnings per Share include the dilutive effect of shares issuable
under our stock-based compensation plans and exchangeable equity interests,
which represent the only potential dilution. There is no impact of dilutive
securities in the fourth quarter of 2001, since a net loss from continuing
operations was reported.
* Not meaningful
VERIZON COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF INCOME BEFORE NON-RECURRING ITEMS
(dollars in millions, except per share amounts)
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 % Change 12/31/02 12/31/01 % Change
--------- ------------ ------------ -------- ------------- ------------- --------
OPERATING REVENUES (1)
Domestic Telecom $ 10,027 $ 10,296 (2.6) $ 40,712 $ 42,081 (3.3)
Domestic Wireless 5,166 4,443 16.3 19,260 17,393 10.7
International 731 813 (10.1) 2,962 3,172 (6.6)
Information Services 1,374 1,428 (3.8) 4,287 4,313 (.6)
Other (84) (14) * (219) 69 *
-------- -------- -------- --------
TOTAL OPERATING REVENUES 17,214 16,966 1.5 67,002 67,028 .0
-------- -------- -------- --------
OPERATING EXPENSES (1)
Operations and support expense 9,570 9,921 (3.5) 37,749 38,187 (1.1)
Depreciation and amortization expense 3,426 3,519 (2.6) 13,422 13,686 (1.9)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 12,996 13,440 (3.3) 51,171 51,873 (1.4)
-------- -------- -------- --------
OPERATING INCOME 4,218 3,526 19.6 15,831 15,155 4.5
Operating income impact of operations sold (1) -- 165 (100.0) 382 584 (34.6)
Income from unconsolidated businesses 151 197 (23.4) 732 674 8.6
Other income and (expense), net 34 176 (80.7) 140 441 (68.3)
Interest expense (822) (722) 13.9 (3,237) (3,299) (1.9)
Minority interest (358) (162) * (1,333) (891) 49.6
Provision for income taxes (1,032) (1,087) (5.1) (4,152) (4,474) (7.2)
-------- -------- -------- --------
ADJUSTED NET INCOME $ 2,191 $ 2,093 4.7 $ 8,363 $ 8,190 2.1
======== ======== ======== ========
DILUTED ADJUSTED EARNINGS PER SHARE (2) $ .79 $ .77 2.6 $ 3.05 $ 3.00 1.7
Weighted average number of common
shares-assuming dilution (in millions) 2,772 2,734 2,745 2,730
FOOTNOTES:
(1) Certain reclassifications of prior period amounts have been made, where
appropriate, to reflect comparable operating results excluding significant
operations sold, the previously announced Domestic Telecom access lines, as
follows:
Revenues $ -- $ 243 $ 623 $ 997
Expenses $ -- $ 78 $ 241 $ 413
Also, reflects the deconsolidation of CTI to the equity method and the
consolidation of PRTC in both current and prior years.
(2) Prior year depreciation and amortization includes amortization of $.04 per
diluted share for the quarter and $.14 per diluted share year-to-date
related to intangible assets that are no longer being amortized, as
required by SFAS 142.
* Not meaningful
VERIZON COMMUNICATIONS INC.
EARNINGS RECONCILIATIONS
(dollars in millions, except per share amounts)
3 Mos. Ended 12/31/02 3 Mos. Ended 12/31/01 12 Mos. Ended 12/31/02 12 Mos. Ended 12/31/01
Unaudited Net Income Diluted EPS Net Income Diluted EPS Net Income Diluted EPS Net Income Diluted EPS
--------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
REPORTED EARNINGS (LOSS) $ 2,290 $ .83 $ (2,037) $ (.75) $ 4,079 $ 1.49 $ 389 $ .14
Non-recurring items:
Mark-to-market
adjustment
- financial
instruments (13) -- 15 .01 15 .01 179 .07
Sales of assets and
investments, net (1) -- -- 229 .08 (1,895) (.69) 226 .08
Transition costs 129 .05 184 .07 288 .10 578 .21
Severance, pension
and benefit charges 604 .22 1,001 .37 1,264 .46 1,001 .37
Cumulative effect of
accounting change -- -- -- -- 496 .18 182 .07
International
restructuring -- -- 26 .01 -- -- 26 .01
Investment-related
charges / (gains)
CANTV -- -- -- -- 1,400 .51 -- --
MFN -- -- -- -- 436 .16 1,136 .42
CTI -- -- 637 .23 190 .07 637 .23
Genuity 292 .11 1,251 .46 2,735 1.00 1,251 .46
Telus -- -- -- -- 430 .16 -- --
C&W (45) (.02) 90 .03 230 .08 952 .35
Other -- -- 591 .22 231 .08 1,519 .56
NorthPoint settlement -- -- -- -- 114 .04 -- --
Tax benefits (1,121) (.40) -- -- (2,104) (.77) -- --
Other special
items (2) 55 .02 106 .04 454 .17 114 .04
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
EARNINGS BEFORE NON-
RECURRING ITEMS (3) $ 2,191 $ .79 $ 2,093 $ .77 $ 8,363 $ 3.05 $ 8,190 $ 3.00
========== =========== ========== =========== ========== =========== ========== ===========
FOOTNOTES:
(1) Year-to-date includes $229 million related to the third quarter 2002 sale
of TCNZ securities.
(2) Year-to-date 2002 includes $183 million related to WorldCom financial
exposure.
(3) Totals for Diluted EPS do not add for all periods due to rounding in EPS
calculations.
VERIZON COMMUNICATIONS INC.
SELECTED FINANCIAL AND OPERATING STATISTICS
(dollars in millions, except per share amounts)
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 12/31/02 12/31/01
--------- ------------ ------------ ------------- -------------
Debt ratio-end of period 62.4% 66.4% 62.4% 66.4%
Book value per common share $ 11.89 $ 11.98 $ 11.89 $ 11.98
Cash dividends declared per common share $ .385 $ .385 $ 1.54 $ 1.54
Common shares outstanding (in millions)
End of period 2,743 2,716 2,743 2,716
Capital expenditures
Domestic Telecom $ 2,254 $ 3,010 $ 6,977 $ 11,480
Domestic Wireless 1,373 1,664 4,354 5,006
International 209 180 532 704
Information Services 15 24 69 93
Other 25 16 52 88
-------- -------- -------- --------
Total $ 3,876 $ 4,894 $ 11,984 $ 17,371
-------- -------- -------- --------
Total employees (1) 229,497 250,309 229,497 250,309
======== ======== ======== ========
FOOTNOTE:
(1) Prior period adjusted to reflect a comparable figure.
VERIZON COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
Unaudited 12/31/02 12/31/01 $ Change
--------- ----------- ----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 1,438 $ 979 $ 459
Short-term investments 2,042 1,991 51
Accounts receivable, net 12,598 14,254 (1,656)
Inventories 1,502 1,968 (466)
Net assets held for sale -- 1,199 (1,199)
Prepaid expenses and other 3,341 2,796 545
----------- ----------- -----------
Total current assets 20,921 23,187 (2,266)
----------- ----------- -----------
Plant, property and equipment 178,028 169,586 8,442
Less accumulated depreciation 103,532 95,167 8,365
----------- ----------- -----------
74,496 74,419 77
----------- ----------- -----------
Investments in unconsolidated businesses 4,988 10,202 (5,214)
Intangible assets 46,739 44,262 2,477
Other assets 20,324 18,725 1,599
----------- ----------- -----------
TOTAL ASSETS $ 167,468 $ 170,795 $ (3,327)
=========== =========== ===========
LIABILITIES AND SHAREOWNERS' INVESTMENT
Current liabilities
Debt maturing within one year $ 9,288 $ 18,669 $ (9,381)
Accounts payable and accrued liabilities 12,745 13,947 (1,202)
Other 5,014 5,404 (390)
----------- ----------- -----------
Total current liabilities 27,047 38,020 (10,973)
----------- ----------- -----------
Long-term debt 44,791 45,657 (866)
Employee benefit obligations 15,390 11,898 3,492
Deferred income taxes 19,468 16,543 2,925
Other liabilities 4,015 3,989 26
Minority interest 24,141 22,149 1,992
Shareowners' investment
Common stock 275 275 --
Contributed capital 24,685 24,676 9
Reinvested earnings 10,536 10,704 (168)
Accumulated other comprehensive loss (2,110) (1,187) (923)
----------- ----------- -----------
33,386 34,468 (1,082)
Less common stock in treasury, at cost 218 1,182 (964)
Less deferred compensation -
employee stock ownership plans and other 552 747 (195)
----------- ----------- -----------
Total shareowners' investment 32,616 32,539 77
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT $ 167,468 $ 170,795 $ (3,327)
=========== =========== ===========
VERIZON COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 $ Change
--------- ------------- ------------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income before extraordinary item and cumulative effect
of accounting change $ 4,584 $ 590 $ 3,994
Adjustments to reconcile income before extraordinary
item and cumulative effect of accounting change to net cash
provided by operating activities:
Depreciation and amortization 13,423 13,657 (234)
Sales of assets, net (2,747) 350 (3,097)
Mark-to-market adjustment - financial instruments 14 182 (168)
Employee retirement benefits (501) (1,327) 826
Deferred income taxes 1,722 1,065 657
Provision for uncollectible accounts 2,905 1,952 953
Loss from unconsolidated businesses 4,414 5,042 (628)
Changes in current assets and liabilities, net of
effects from acquisition/disposition of businesses (1,800) (2,402) 602
Other, net 86 664 (578)
-------- -------- --------
Net cash provided by operating activities 22,100 19,773 2,327
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (11,984) (17,371) 5,387
Acquisitions, net of cash acquired, and investments (1,093) (3,142) 2,049
Proceeds from disposition of businesses 4,638 415 4,223
Proceeds from spectrum payment refund 1,740 -- 1,740
Net change in short-term investments (168) (407) 239
Other, net 39 (1,121) 1,160
-------- -------- --------
Net cash used in investing activities (6,828) (21,626) 14,798
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 7,882 14,199 (6,317)
Repayments of long-term borrowings and capital lease obligations (8,460) (7,589) (871)
Decrease in short-term obligations,
excluding current maturities (11,024) (546) (10,478)
Dividends paid (4,200) (4,168) (32)
Proceeds from sale of common stock 915 501 414
Other, net 74 (322) 396
-------- -------- --------
Net cash provided by (used in) financing activities (14,813) 2,075 (16,888)
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 459 222 237
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 979 757 222
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,438 $ 979 $ 459
======== ======== ========
VERIZON COMMUNICATIONS INC.
DOMESTIC TELECOM - SELECTED FINANCIAL RESULTS
(dollars in millions)
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 % Change 12/31/02 12/31/01 % Change
--------- ------------ ------------ -------- ------------- ------------- --------
OPERATING REVENUES
Local services $ 4,906 $ 5,277 (7.0) $ 20,271 $ 21,438 (5.4)
Network access services 3,341 3,210 4.1 13,295 12,968 2.5
Long distance services 777 784 (.9) 3,170 3,070 3.3
Other services 1,003 1,025 (2.1) 3,976 4,605 (13.7)
-------- -------- -------- --------
TOTAL OPERATING REVENUES 10,027 10,296 (2.6) 40,712 42,081 (3.3)
-------- -------- -------- --------
OPERATING EXPENSES
Operations and support 5,506 5,928 (7.1) 22,297 23,599 (5.5)
Depreciation and amortization 2,359 2,373 (.6) 9,433 9,248 2.0
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 7,865 8,301 (5.3) 31,730 32,847 (3.4)
-------- -------- -------- --------
OPERATING INCOME $ 2,162 $ 1,995 8.4 $ 8,982 $ 9,234 (2.7)
OPERATING INCOME MARGIN 21.6% 19.4% 22.1% 21.9%
EBITDA $ 4,521 $ 4,368 3.5 $ 18,415 $ 18,482 (.4)
EBITDA MARGIN 45.1% 42.4% 45.2% 43.9%
FOOTNOTES:
The segment financial results above are adjusted to exclude the effects of
non-recurring items. The company's chief decision makers exclude these items in
assessing business unit performance, primarily due to their non-operational
nature.
Intercompany and intersegment transactions have not been eliminated.
EBITDA is determined by adding depreciation and amortization to operating
income. EBITDA margin is calculated by dividing EBITDA by total operating
revenues.
Certain reclassifications of prior period amounts have been made, where
appropriate, to reflect comparable operating results.
VERIZON COMMUNICATIONS INC.
DOMESTIC TELECOM - SELECTED OPERATING STATISTICS
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 % Change 12/31/02 12/31/01 % Change
--------- ------------ ------------ -------- ------------- ------------- --------
Switched access lines in service (000)
Residence 37,460 38,542 (2.8) 37,460 38,542 (2.8)
Business 19,992 21,092 (5.2) 19,992 21,092 (5.2)
Public 522 591 (11.7) 522 591 (11.7)
-------- -------- -------- --------
Total 57,974 60,225 (3.7) 57,974 60,225 (3.7)
Special DS0 equivalents 77,823 69,769 11.5 77,823 69,769 11.5
-------- -------- -------- --------
Total voice grade equivalents (000) 135,797 129,994 4.5 135,797 129,994 4.5
-------- -------- -------- --------
Resale & UNE-P lines (000) 4,235 3,659 15.7 4,235 3,659 15.7
Minutes of use from Carriers and CLECs
(in millions) 62,111 69,227 (10.3) 256,806 280,401 (8.4)
Long distance subscribers (excl. Verizon
CLEC) (000) 10,404 7,443 39.8 10,404 7,443 39.8
High capacity and digital data revenues
($ in millions)
Data transport $ 1,665 $ 1,557 6.9 $ 6,616 $ 6,058 9.2
Data solutions 188 203 (7.4) 680 725 (6.2)
-------- -------- -------- --------
Total revenues $ 1,853 $ 1,760 5.3 $ 7,296 $ 6,783 7.6
-------- -------- -------- --------
FOOTNOTE:
Certain reclassifications of prior period amounts have been made, where
appropriate, to reflect comparable operating results.
VERIZON COMMUNICATIONS INC.
VERIZON WIRELESS - SELECTED OPERATING RESULTS
(dollars in millions)
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 % Change 12/31/02 12/31/01 % Change
--------- ------------ ------------ -------- ------------- ------------- --------
REVENUES
Service revenues $ 4,713 $ 4,031 16.9 $ 17,747 $ 16,011 10.8
Equipment and other 453 412 10.0 1,513 1,382 9.5
-------- -------- -------- --------
TOTAL REVENUES 5,166 4,443 16.3 19,260 17,393 10.7
-------- -------- -------- --------
OPERATING EXPENSES
Operations and support 3,278 3,035 8.0 12,327 11,379 8.3
Depreciation and amortization 899 960 (6.4) 3,293 3,709 (11.2)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 4,177 3,995 4.6 15,620 15,088 3.5
-------- -------- -------- --------
OPERATING INCOME $ 989 $ 448 120.8 $ 3,640 $ 2,305 57.9
EBITDA $ 1,888 $ 1,408 34.1 $ 6,933 $ 6,014 15.3
EBITDA MARGIN 40.1% 34.9% 39.1% 37.6%
SELECTED OPERATING STATISTICS
Subscribers (000) 32,491 29,398 10.5 32,491 29,398 10.5
Penetration 14.3% 13.3% 14.3% 13.3%
Subscriber net adds in period* (000) 970 715 35.7 3,093 2,793 10.7
Total churn rate, including prepaid 2.1% 2.7% 2.3% 2.5%
FOOTNOTES:
The segment financial results above are adjusted to exclude the effects of
non-recurring items. The company's chief decision makers exclude these items in
assessing business unit performance, primarily due to their non-operational
nature.
Intercompany and intersegment transactions have not been eliminated.
Prior year depreciation and amortization includes amortization related to
intangible assets that are no longer being amortized, as required by SFAS 142.
EBITDA is determined by adding depreciation and amortization to operating
income. EBITDA margin is calculated by dividing EBITDA by service revenues.
* Includes acquisition of 6,000 subscribers in fourth quarter 2002, 411,000
subscribers in the third quarter of 2002 and 68,000 subscribers in the
first quarter of 2002.
VERIZON COMMUNICATIONS INC.
INTERNATIONAL - SELECTED FINANCIAL RESULTS
(dollars in millions)
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 % Change 12/31/02 12/31/01 % Change
--------- ------------ ------------ -------- ------------- ------------- --------
OPERATING REVENUES $ 731 $ 813 (10.1) $ 2,962 $ 3,172 (6.6)
OPERATING EXPENSES
Operations and support 458 536 (14.6) 1,823 2,013 (9.4)
Depreciation and amortization 127 140 (9.3) 532 535 (.6)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 585 676 (13.5) 2,355 2,548 (7.6)
-------- -------- -------- --------
OPERATING INCOME $ 146 $ 137 6.6 $ 607 $ 624 (2.7)
EBITDA $ 273 $ 277 (1.4) $ 1,139 $ 1,159 (1.7)
EBITDA MARGIN 37.3% 34.1% 38.5% 36.5%
INCOME FROM UNCONSOLIDATED BUSINESSES $ 184 $ 202 (8.9) $ 861 $ 754 14.2
PROPORTIONATE INFORMATION
Revenues $ 1,349 $ 1,454 (7.2) $ 5,498 $ 5,530 (.6)
Operating income $ 268 $ 334 (19.8) $ 1,248 $ 1,350 (7.6)
Operating cash flow $ 486 $ 574 (15.3) $ 2,168 $ 2,275 (4.7)
Access lines (000) 3,241 3,247 (.2) 3,241 3,247 (.2)
Wireless subscribers (000) 8,704 8,865 (1.8) 8,704 8,865 (1.8)
FOOTNOTES:
The segment financial results above are adjusted to exclude the effects of
non-recurring items. The company's chief decision makers exclude these items in
assessing business unit performance, primarily due to their non-operational
nature.
Intercompany and intersegment transactions have not been eliminated.
Certain reclassifications of prior period amounts have been made, where
appropriate, to reflect comparable operating results. Also, reflects the
deconsolidation of CTI to the equity method and the consolidation of PRTC in
both current and prior years.
EBITDA is determined by adding depreciation and amortization to operating
income. EBITDA margin is calculated by dividing EBITDA by operating revenues.
VERIZON COMMUNICATIONS INC.
INFORMATION SERVICES - SELECTED FINANCIAL RESULTS
(dollars in millions)
3 Mos. Ended 3 Mos. Ended 12 Mos. Ended 12 Mos. Ended
Unaudited 12/31/02 12/31/01 % Change 12/31/02 12/31/01 % Change
--------- ------------ ------------ -------- ------------- ------------- --------
OPERATING REVENUES $ 1,374 $ 1,428 (3.8) $ 4,287 $ 4,313 (.6)
OPERATING EXPENSES
Operations and support 607 607 -- 2,099 1,961 7.0
Depreciation and amortization 22 17 29.4 74 79 (6.3)
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 629 624 .8 2,173 2,040 6.5
-------- -------- -------- --------
OPERATING INCOME $ 745 $ 804 (7.3) $ 2,114 $ 2,273 (7.0)
EBITDA $ 767 $ 821 (6.6) $ 2,188 $ 2,352 (7.0)
EBITDA MARGIN 55.8% 57.5% 51.0% 54.5%
FOOTNOTES:
The segment financial results above are adjusted to exclude the effects of
non-recurring items. The company's chief decision makers exclude these items in
assessing business unit performance, primarily due to their non-operational
nature.
Intercompany and intersegment transactions have not been eliminated.
EBITDA is determined by adding depreciation and amortization to operating
income. EBITDA margin is calculated by dividing EBITDA by operating revenues.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Verizon Communications Inc.
------------------------------------
(Registrant)
Date: January 29, 2003 /s/ John F. Killian
---------------------------- ------------------------------------
John F. Killian
Senior Vice President and Controller