Earnings Per Share:
- Fourth quarter: 53 cent fully diluted per share loss, or 58 cent fully diluted earnings per share (EPS) before special items (non-GAAP measure)
- Year-end: $1.11 in EPS, or $2.62 EPS before special items (non-GAAP)
- Fourth quarter: up 0.7 percent, or 2.6 percent with consistent directory accounting treatment (non-GAAP)
- Year-end: up 0.7 percent, or 1.7 percent in comparable growth as well as consistent directory accounting treatment (non-GAAP)
- Fourth quarter: a record 1.5 million total net customer additions (1.4 million retail net additions), up 54.2 percent from last year's quarter; revenue growth of 14.6 percent; record-low retail and total churn; strong operating income margins
- Year-end: a record 5.0 million total net customer additions, (4.6 million retail net additions); 37.5 million total customers; total revenues of $22.5 billion, up 15.5 percent over 2002
- More than $2 billion in annual long-distance revenues, with in-region retail market penetration of 41 percent; 16.6 million total long-distance lines
- 2.3 million total DSL (digital subscriber lines); 203,000 fourth-quarter net additions
- Nearly 1,200 contracts with large businesses for Enterprise Advance services
- Capital expenditures of $11.9 billion, compared with $13.1 billion in 2002
- Free cash flow (non-GAAP, cash from operating activities less capital expenditures and dividends) of $6.4 billion, up 31.4 percent compared with $4.8 billion in 2002
- Total debt of $45.4 billion, compared with $53.3 billion at year-end 2002; Net debt (non-GAAP, gross debt less cash and cash equivalents) of $44.7 billion, compared with $51.8 billion at year-end 2002.
Note: See the schedules accompanying this news release and www.verizon.com/investor for reconciliations to generally accepted accounting principles (GAAP) for the non-GAAP financial measures mentioned in this announcement.
NEW YORK - Verizon Communications Inc. (NYSE:VZ) today announced fourth-quarter and year-end 2003 results highlighted by customer gains in wireless, long-distance and broadband, continued solid cash flow, and overall revenue growth.
For the fourth quarter 2003, Verizon reported a loss of $1.5 billion (53 cents in fully diluted EPS) that includes $3.1 billion in special items, primarily $2.9 billion in previously announced costs associated with a voluntary separation plan under which more than 21,000 employees left the payroll in the quarter. Excluding special items, Verizon earned $1.6 billion in the quarter, or 58 cents per share.
For the year, Verizon reported earnings of $3.1 billion ($1.11 per share), or $7.3 billion ($2.62 per share) before special items.
Strength of Business Model
"In 2003, Verizon once again demonstrated the strength of its business model," said Chairman and CEO Ivan Seidenberg. "We have been successful at increasing our revenues, our customer base and our cash flow at the same time we have been transforming our cost structure, our operational efficiency, and our mix of products and services.
"We are winning customers in markets new to Verizon, such as nationwide long-distance and sophisticated data services to large businesses. In wireless, we are widening our industry lead. In broadband, we have aggressively added customers in DSL while setting a stake in the ground for new growth in 2004. Verizon has a unique leadership role to play in the new broadband and wireless era of communications."
Fourth-Quarter Financial Results
Verizon's fourth-quarter 2003 operating revenues were $17.3 billion, up 0.7 percent from the prior year's quarter, driven by Verizon Wireless' sixth consecutive quarter of double-digit, year-over-year revenue increases. Wireless service revenue grew 13.9 percent, to $5.4 billion, from $4.7 billion in the fourth quarter 2002. Total Verizon Wireless revenue, which includes equipment and other revenue, grew 14.6 percent to $6.0 billion, from $5.2 billion in the fourth quarter 2002.
Beginning in 2003, results from Verizon's directory publishing unit have been reported using the amortization method of accounting (see Information Services section below). Applying consistent accounting treatment to directory revenues, Verizon's consolidated revenues increased 2.6 percent in the fourth quarter 2003, compared with the fourth quarter 2002.
Total operating expenses were $19.4 billion in the fourth quarter 2003 and include special items as well as costs, such as a 3 percent lump-sum payment, associated with contract agreements covering most of Verizon's unionized workforce.
Fourth-quarter special items included a $2.9 billion severance, pension and benefit charge for the voluntary separation plan, and $0.2 billion for other charges associated with environmental remediation programs and leasing operations partially offset by net gains from sales of investments.
Year-End Financial Results
For the year, operating revenues totaled $67.8 billion in 2003, a 0.7 percent increase from 2002 on a reported basis and a 1.6 percent increase on a comparable basis. Revenues, operating expenses and statistics described on a comparable basis exclude the effects of 1.27 million switched access lines that were sold during 2002. Applying consistent accounting treatment to directory revenues, Verizon's comparable revenues increased 1.7 percent in 2003, compared with 2002.
Reported 2003 earnings of $3.1 billion included net charges of $4.2 billion. These net charges include special gains of $0.5 billion related to accounting changes and the net proceeds from sales of investments. These gains were more than offset by charges, including $3.4 billion related to severance, pension and benefit costs; $0.9 billion related to Verizon's decision to sell its consolidated interest in Mexican wireless carrier Grupo Iusacell; and $0.4 billion in other special items.
Reported operating expenses were $60.3 billion in 2003.
Debt Reduction and Cash Flow Gains
Total debt decreased 14.8 percent to $45.4 billion at year-end 2003, compared with $53.3 billion at year-end 2002. Net debt was $44.7 billion at year-end 2003, compared with $51.8 billion at year-end 2002.
Net cash provided by operating activities was $22.5 billion in 2003, compared with $22.1 billion in 2002, and capital expenditures totaled $11.9 billion in 2003, compared with $13.1 billion in 2002. With $4.2 billion in dividends paid in both years, free cash flow was $6.4 billion in 2003, compared with $4.8 billion in 2002.
Verizon Wireless added nearly 1.5 million net subscribers in the fourth quarter and 5.0 million net subscribers for the year, the highest quarterly and annual net adds in the company's history. Customers totaled 37.5 million at year-end, up 15.5 percent over year-end 2002. In addition to its record net subscribers, Verizon Wireless sustained all-around strong performance for the quarter and for the year in revenue growth, profitability, record low churn and efficiency gains.
Verizon's revenue from interLATA long-distance services totaled more than $2 billion in 2003, as the company added a net of 736,000 long-distance lines in the fourth quarter 2003. Verizon ended the year with more than 16.6 million long-distance lines -- a net gain of about 4.2 million lines, or 33.3 percent, compared with the 12.5 million lines in service at year-end 2002.
Verizon also added a net of 203,000 DSL lines in the fourth quarter 2003, the company's largest quarterly gain in DSL lines in two years. Verizon ended the year with more than 2.3 million DSL lines, representing a net of 649,000 additional DSL lines since year-end 2002, a growth rate of 38.9 percent.
In the fourth quarter, Verizon continued to roll out Verizon Freedom plans, which help retain and win back customers by offering local services with various combinations of long-distance, wireless and Internet access in a discounted bundle available on one bill. In 2003, the company launched Verizon Freedom plans in 17 consumer markets, covering more than 85 percent of the company's consumer access-line base, and in eight business markets, covering more than 69 percent of the company's business access-line base.
As of year-end, Verizon had entered into nearly 1,200 contracts with large business customers for Enterprise Advance services.
Further details about Verizon's 2004 financial and operational outlook will be announced in a news release later today.
Business Segment Highlights
Following are fourth-quarter and year-end 2003 highlights from Verizon's four business segments.
(Note: Current and prior periods exclude the effects of access lines sold in 2002.)
- Operating revenues for all long-distance services increased 29.5 percent to $1.0 billion in the fourth quarter 2003, compared with $0.8 billion in the fourth quarter 2002. For the year, these revenues increased 19.5 percent to $3.8 billion in 2003, compared with $3.2 billion in 2002. Revenues in this category include intraLATA toll as well as interLATA long-distance.
- Approximately 41 percent of Verizon's local wireline customers have chosen Verizon as their long-distance carrier.
- As of year-end, approximately 48 percent of Verizon residential customers have purchased local services in combination with either Verizon long-distance or Verizon DSL, or both.
- The average revenue per month per Verizon wireline customer increased nearly 7 percent in the fourth quarter 2003, compared with the fourth quarter 2002.
- Total revenues for high-capacity and data services were $1.9 billion in the fourth quarter, slightly higher than fourth quarter 2002 and driven by growth in revenues from DSL.
- By year-end, approximately 80 percent of Verizon's 55.5 million access lines qualified for DSL service -- meeting the company's target.
- Continuing a focus on cash management and financial controls, Domestic Telecom's expenses for uncollectible accounts decreased 51 percent and days sales outstanding decreased from 68 to 61, comparing the fourth quarter 2003 with the fourth quarter 2002. For the year, cash from operating activities, net of capital expenditures (non-GAAP, segment free cash flow) increased by 55 percent to $5.5 billion, comparing 2003 with 2002.
- Primarily as a result of the voluntary separation plan in the fourth quarter, the number of employees in the Domestic Telecom business unit was reduced by more than 22,500 in 2003.
- In 2003, Verizon's Enterprise Solutions Group built out its fiber-optic network to serve 34 major business markets nationwide, offering advanced data services to local and long-distance Enterprise customers.
- In the fourth quarter 2003, Verizon took another step forward in its plan to begin deploying fiber-to-the-premises systems this year by completing the selection of equipment manufacturers and suppliers for the project. The company has also unveiled plans for leadership in the emerging broadband industry, announcing that it will accelerate the evolution of its nationwide wireline network to packet-switching technology.
- Verizon Wireless' retail customer base grew nearly 15 percent year-over-year and represented 36.0 million of the company's 37.5 million total customers at the end of the fourth quarter. Retail gross additions were up 10 percent over the fourth quarter 2002, while retail net additions were up 48.5 percent -- totaling approximately 1.4 million of the company's 1.5 million net additions.
- Record-low churn for the quarter and the year drove record net-add performance. The quarter's churn performance was even more impressive given the introduction of local number portability in November. Retail churn and total churn, which includes wholesale, were 1.7 percent for the quarter. Churn in the retail post-pay segment, which is 91 percent of the company's base, was 1.3 percent for the quarter. The company sustained these customer loyalty levels throughout 2003, with total churn of 1.8 percent for the year.
- Average monthly service revenue per subscriber was $49 for the fourth quarter and for the year. Service revenue for the quarter was $5.4 billion, up 13.9 percent. Service revenue for the year was $20.3 billion, up 14.6 percent.
- The company continued its industry-leading low-cost structure, as cash expense per subscriber decreased slightly over the prior-year quarter and over the prior sequential quarter. For the year, cash expense per subscriber increased less than 1 percent, a particularly significant achievement given the record volume of new subscribers.
- Quarterly operating income margin remained strong at 18.5 percent. Quarterly operating income increased 11.7 percent year-over-year to $1.1 billion. Similarly strong, operating income margin for the year was 18.2 percent, on annual operating income of $4.1 billion. Segment free cash flow was $2.9 billion in 2003, a 39 percent increase compared with 2002.
- Demand for the company's growing family of data services continued to build during the fourth quarter, with data services accounting for more than 3 percent of the fourth quarter's total service revenue. Data services delivered more than 2 percent of total service revenue in 2003, up from 1 percent in 2002.
- Text messaging grew to more than 550 million text messages a month; Get It Now® BREW-based downloadable ringtones, games and exclusive content grew to 5 million downloads a month; and picture messaging grew to 3 million picture messages a month. Driving this growth, approximately one-fifth of all customers now have color handsets, and more than 50 percent have 1X-enabled phones. New devices and applications launched during the quarter included the Microsoft® Windows MobileTM- based Samsung i600 Smartphone, and Mobile IM service with access to MSN Messenger, AOL IM and, soon, Yahoo! Messenger.
- In a major announcement earlier this month, the company said it will immediately begin expanding its BroadbandAccess third-generation EV-DO network nationally, with service expected to be available in many cities this summer. BroadbandAccess, the fastest wireless wide-area data connection available with average user speeds of 300-500 kbps, is already offered in San Diego and Washington, D.C. The company plans to spend $1 billion over the next two years, in addition to its ongoing annual capital program, to deploy EV-DO nationally.
(Note: Effective Jan. 1, 2003, Verizon changed its accounting for recognizing directory revenues and direct expenses from the publication-date method to the amortization method. The publication-date method recognizes revenues and expenses when directories are distributed. Under the amortization method, which is increasingly becoming the industry standard, revenues and expenses are recognized over the life of the directory, which is usually 12 months. This change results in a more even distribution of revenue and expenses throughout the year, and does not impact cash flow. As required by GAAP, the previous year's results have not been adjusted for this change.)
- Verizon Information Services (VIS) revenue decreased 26 percent and 4 percent over the fourth quarter and the year, respectively, primarily due to the change from the publication-date method to the amortization method of accounting and the elimination of revenue related to sales of businesses. Excluding the effects of these items, revenues were essentially flat for both presented periods.
- VIS' domestic Internet directory, SuperPages.comTM, continues to achieve strong growth as demonstrated by a 33 percent increase in revenue and a 36 percent increase in searches over 2002.
- Segment free cash flow was $1.1 billion in 2003, a 10 percent increase compared with 2002.
A Fortune 10 company, Verizon Communications (NYSE:VZ) is one of the world's leading providers of communications services, with approximately $68 billion in annual revenues. Verizon companies are the largest providers of wireline and wireless communications in the United States. Verizon is also the largest directory publisher in the world, as measured by directory titles and circulation. Verizon's international presence includes wireline and wireless communications operations and investments, primarily in the Americas and Europe. For more information, 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 and industry conditions and labor matters, including workforce levels and labor negotiations, and any resulting financial and/or operational impact, 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; 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.