NEW YORK — Verizon Communications (NYSE:VZ), the national communications company formed through the merger of Bell Atlantic Corp. and GTE Corp., announced second quarter financial results today reflecting strong performance in data, wireless, long distance and international markets as well as in core communications.
On a combined basis, Verizon's reported net income for the quarter was $4.9 billion, or $1.79 per share, compared with $1.9 billion, or 70 cents per share, in second quarter 1999. Verizon's combined earnings per share (EPS) for the current quarter, adjusted for one-time events and excluding Genuity, were 81 cents. Included in these results are pension settlement gains totaling 9 cents per share. Excluding those gains, combined results were 72 cents per share, which represents a 7.5 percent increase over 67 cents in second quarter 1999.
Combined adjusted net income for the quarter was $2.0 billion, compared to $1.9 billion in second quarter 1999.
Verizon Communications also set financial targets for future periods today and published historical information that provides a basis for comparison of future results. In addition, Verizon announced a strategic combination with Northpoint Communications that strengthens its ability to compete in broadband markets nationwide. Two other news releases issued this morning describe the targets and the new broadband combination.
Second quarter highlights include:
- 878,500 New York long distance customers, doubling the number added in first quarter and bringing the total number of Verizon long distance customers to nearly 4.5 million.
- Additions of 71,000 DSL (Digital Subscriber Line) subscribers, bringing the total to approximately 220,000, a 47 percent increase from the end of first quarter 2000.
- Approximately 800,000 new Verizon Wireless customers, about 22 percent more than in second quarter 1999 for a total of 25.6 million.
- Data revenue growth, excluding Genuity, of nearly 32 percent year-over-year.
- 14.5 percent growth in voice grade equivalents, bringing total Verizon VGEs past the 100 million mark.
- A wholesale business providing nearly 2.9 million switched access lines and 541,500 unbundled loops.
- Strong International growth, with approximately 6.7 million proportionate international wireless customers at the end of the quarter, up 58 percent year-over-year.
- Operating income growth of 9.0 percent, reflecting 10.4 percent operating income growth in Telecom, 21.8 percent at Verizon Wireless, and 43.4 percent in International.
- Approximately $2 billion in cash proceeds from the previously announced disposition of wireline and wireless properties, including sales of more than 460,000 non-strategic access lines at an average of $3,400 per line.
Adjusted revenues for the quarter increased 7.4 percent over second quarter 1999 to $16.6 billion. Revenue comparisons reflect contributions from the Vodafone AirTouch and PrimeCo Personal Communications properties in both periods, and exclude revenues from Genuity (Nasdaq:GENU), GTE's Internetworking business, which was deconsolidated from Verizon in June 2000 as a condition of merger approval. Verizon retains a 9.5 percent ownership interest in Genuity, with an option to convert that interest into as much as 80 percent once Verizon has gained approval to offer long distance in 95 percent of the access lines over the former Bell Atlantic states, and is able to operate Genuity consistent with federal long distance requirements.
"In their last quarter as separate companies, GTE and Bell Atlantic achieved solid growth in their operations and brought strong operating momentum to our single enterprise," said Verizon Chairman and co-CEO Charles R. Lee. "With our merger finally completed, we now have the best set of assets in the industry on which to build value as a national and global communications provider."
Verizon President and co-CEO Ivan Seidenberg said, "Our new company has already begun to realize the potential of a national footprint, as our wireless results indicate. Last week we passed the one million mark for New York long distance customers and the 250,000 mark for DSL lines, and we're on track to reach our year-end target of 500,000 DSL lines. Furthermore, our combinations with OnePoint and Northpoint will take us a long way toward achieving national scale in our broadband operations and putting another piece of 'the bundle' in place."
Reported net income for the quarter was $4.9 billion, or $1.79 per share, compared with $1.9 billion, or 70 cents per share, in second quarter 1999.
Reported results for the quarter include gains totaling approximately $4.5 billion after taxes, or $1.63 per share, from sales and swaps of wireline and wireless assets; non-cash gains resulting from the restructuring of Cable & Wireless Communications (CWC), of which Bell Atlantic owned 18.6 percent, and acquisition of its assets by Cable & Wireless plc and NTL, Inc.; and a "mark to market" accounting adjustment related to notes issued by Bell Atlantic in 1998 that are exchangeable into shares of Cable & Wireless and NTL.
Second quarter results also reflect charges totaling approximately $1.6 billion after taxes, or 60 cents per share, related to the Bell Atlantic-GTE merger and the Bell Atlantic-Vodafone AirTouch wireless combination.
Reported results include net losses of Genuity, which had the net effect of raising adjusted net income by $153 million, or 6 cents per share in second quarter 2000. This adjustment was made because Genuity results will not be reported by Verizon as of July 1, 2000.
The net after-tax effect of all gains, charges and pro forma adjustments in second quarter 2000, including pension settlement gains of 9 cents per share, was a gain of $2.9 billion, or $1.07 per share.
Charges and pro forma adjustments in second quarter 1999 totaled $69 million after taxes, or 3 cents per share, including pension settlement gains of $102 million, or 4 cents per share.
Verizon expects to record charges through 2003 totaling approximately $2 billion before taxes for merger transition costs, including the costs of systems integration, branding, real estate consolidation and relocation. Verizon will exclude these charges from adjusted earnings.
Demand from both businesses and consumers for data services continued to drive Telecom revenue growth, with data revenues increasing almost 32 percent over second quarter 1999 to nearly $1.5 billion. Data sales of Verizon's high-bandwidth packet-switched and special access services, as well as network integration services, accounted for almost 70 percent of Telecom's revenue growth for the quarter, helping to increase total group revenue 4.8 percent to $11.2 billion. For the first half of the year, Telecom revenues grew 4.6 percent to $22.1 billion.
Verizon ended the quarter with more than 100 million voice grade equivalents in service, as customers increasingly choose high-capacity, high-speed transport services for their communications needs. The number of voice-grade equivalents (access lines plus data circuits as measured in 64 kilobit/second units) in service jumped 14.5 percent. Switched access lines in service totaled 64.5 million, up 2.6 percent. Access minutes of use increased 2.5 percent.
Verizon sold 71,000 digital subscriber line (DSL) lines in the second quarter, increasing the number of DSL lines in service by nearly 50 percent since the first quarter of this year, to approximately 220,000. Verizon ended the quarter with 1,712 wire centers ready to sell DSL services, with almost 29 million qualified residence and business access lines and nearly 14 million households qualified for the high-bandwidth Internet access service. Verizon is currently installing approximately 2,500 DSL lines a day -- double its June rate -- and aims to have 500,000 DSL lines in service by the end of the year.
Verizon's long-distance unit also continued its strong growth, and ended the quarter with 4.5 million customers, up 46 percent over second quarter 1999. In New York, where Verizon began offering long distance service in January, Verizon added more than 450,000 new subscribers - more than in the first quarter - and tallied 878,500 subscribers at the end of the quarter, including some 36,000 businesses.
More than 150,000 of these subscribers came back to Verizon from other carriers for regional toll calling as well as long distance, demonstrating customers' interest in buying bundled services from a single provider. The long distance unit attracted customers at all usage levels in New York, and its international calling plans generated strong international revenues from the state's diverse customer base. Average long distance revenue per customer was in line with industry trends, and its churn rate was below the industry average.
In the large business market:
- Revenues from Verizon's Data Solutions Group and data revenues from its Strategic Markets and Telecommunication Sales and Services units increased 18 percent over second quarter 1999 to $195 million, bringing revenues for the first half of the year to $360 million, up 27 percent.
- The number of special "DS0" circuits in service (digital, high-bandwidth and packet-switched services as measured in voice-grade equivalents) increased to 35.7 million, up almost 45 percent over second quarter 1999.
In retail markets:
- Sales of packages, which combine Caller ID, Home Voice Mail and other features with basic services, increased almost 26 percent over second quarter 1999. Over 11.7 million, or nearly 30 percent, of Verizon's consumers subscribed to Caller ID at the end of the quarter, and the number of Home Voice Mail subscribers grew to 4.8 million.
- Verizon Select Services, Verizon's CLEC, ended the quarter with almost 760,000 bundles of services sold, nearly three times the number in second quarter 1999.
In network services markets:
- At the end of the quarter, Verizon was providing other carriers with nearly 2.9 million wholesale switched access lines and 541,500 unbundled loops.
- Special access revenues for the quarter increased 36.5 percent to $973 million.
Total Telecom expenses increased 3 percent over second quarter 1999, with cash expenses up 1.9 percent.
Verizon Wireless launched operations on April 3, combining Bell Atlantic's and Vodafone AirTouch's U.S. cellular, paging and PCS businesses, and adding GTE's wireless assets following completion of the Bell Atlantic-GTE merger. Results are estimates and have been restated and adjusted to reflect Verizon Wireless as if it had existed in second quarter 1999 as well as in second quarter 2000.
Verizon Wireless added approximately 800,000 new customers in second quarter 2000 -- 22 percent more than in second quarter 1999 -- and ended the period with 25.6 million customers, 14.7 percent more than a year ago. Revenues were $4.0 billion, up 19 percent from $3.3 billion in second quarter 1999. Excluding transition costs, operating income grew 21.8 percent to $442 million and operating cash flow rose 10.8 percent to $1.3 billion, with operating cash flow margin of 38.8 percent.
Highlights of the quarter include:
- Some 300,000 customers opted for one of Verizon Wireless' new national SingleRate plans since their introduction on April 4. Approximately 70 percent of national SingleRate subscribers are taking plans at $50 a month or higher. In early July, the company introduced these plans in former GTE Wireless markets.
- More than 40 percent of Verizon Wireless customers are digital subscribers, and 65 percent of total busy-hour usage is digital. Historically, digital customers have averaged almost three times the minutes of use of analog customers.
During the quarter, Verizon Wireless began a trial of the first high-speed, third- generation (3G) wireless data calls. The peak transmission rate of 144 kilobits per second is more than twice that available on 56 kb/s dial-up modems. Verizon Wireless announced agreements during the quarter with Lucent Technologies and Nortel Networks for infrastructure that will enable Verizon Wireless to increase coverage and capacity in key markets and offer 3G mobile Internet. Verizon Wireless will invest approximately $4 billion in its network this year to accelerate the buildout of its nationwide, CDMA-based digital wireless network.
Immediately following the close of the quarter, Verizon Wireless launched a new national data service, Mobile Web. With a simple, intuitive format, Mobile Web makes it easy for users to select and customize -- on their handsets or their desktops, at the www.MyVZW.com Web site - Web-based information such as that provided by E*TRADE Group and BarPoint.com, with which Verizon Wireless signed agreements during the quarter.
Revenue growth from consolidated international operations grew 10.2 percent over second quarter 1999 to $518 million, with proportionate international revenues exceeding $1.5 billion and increasing 11.1 percent. First-half consolidated revenues exceeded $1 billion, up 12.9 percent, with proportionate revenues up 16.9 percent to just over $3 billion. Worldwide demand for wireless services was the primary contributor to international revenue growth, as the number of proportionate wireless customers increased 58.2 percent to 6.7 million.
Consolidated operating income increased 43.4 percent over second quarter 1999, with operating cash flow growing 33.3 percent. Six-month operating income grew 22.5 percent, with operating cash flow increasing 22.2 percent.
Verizon's Information Services group generated $1.1 billion in revenues in the second quarter, unchanged from second quarter 1999, with operating income of $561 million, $32 million higher than in the prior-year period.
Verizon Communications (NYSE:VZ), formed by the merger of Bell Atlantic and GTE, 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 more than 100 million access line equivalents and 25.6 million wireless customers. A Fortune 10 company with more than 260,000 employees and approximately $60 billion in 1999 revenues, Verizon's global presence extends to 40 countries in the Americas, Europe, Asia and the Pacific. For more information on Verizon, visit www.verizon.com.
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: materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; material changes in available technology; the final outcome of federal, state, and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, universal service, and unbundled network element and resale rates; the extent, timing, success, and overall effects of competition from others in the local telephone and toll service markets; the timing and profitability of our entry into the in-region long distance market; our ability to combine former Bell Atlantic and GTE operations, satisfy regulatory conditions and obtain revenue enhancements and cost savings following the merger; the profitability of our entry into the nationwide broadband access market, including the impact of our transaction with Northpoint Communications; the ability of Verizon Wireless to combine operations and obtain revenue enhancements and cost savings; and our ability to convert our ownership interest in Genuity Inc. into a controlling interest consistent with regulatory conditions, and Genuity's ensuing profitability.