Verizon | Investor Relations | Investor News

Industry-leading first-quarter record of 1.4 million total net customer additions (1.2 million retail net additions), up 66.5 percent from last year’s quarter; customers total nearly 39 million; lowest churn in industry; record-high revenue growth of 21.2 percent and operating income margin of 19.5 percent

• Broadband DSL (digital subscriber lines):

Company-record 345,000 net additions; nearly 2.7 million total lines

• Long-Distance:

13.3 percent growth in revenues; 1.0 million net lines added in quarter; 17.6 million total lines

• Total Company:

3.9 percent growth in operating revenues; 43 cents in fully diluted earnings per share, or 58 cents per share before special items (non-GAAP measure); operating income margin of 14.6 percent, or adjusted operating income margin of 20.4 percent excluding pension/other post-retirement benefit (OPEB) expense (non-GAAP measure)

• Total Debt:

$44.5 billion; $8.8 billion reduction over 12 months

(Notes: Growth percentages cited above compare first-quarter 2004 with first-quarter 2003. 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.)

Driven by its highest year-over-year revenue growth in three years, Verizon Communications Inc. (NYSE:VZ) today reported first-quarter 2004 earnings per share of 43 cents, or 58 cents per share before special and non-recurring items.

For the quarter, Verizon’s reported earnings were $1.2 billion. Earnings for the quarter were $1.6 billion before a net of 15 cents per share in special and non-recurring items, primarily for previously announced pension settlements associated with a voluntary separation plan under which more than 21,000 employees left the payroll in the fourth quarter 2003.

REVENUE GROWTH

Consolidated operating revenues increased 3.9 percent in the first quarter 2004 to $17.1 billion, compared with $16.5 billion in the first quarter 2003. This was Verizon’s highest reported quarterly growth rate since the first quarter 2001.

Verizon Wireless was the main driver of this increase, posting total revenue growth of 21.2 percent, to $6.2 billion in the first quarter 2004, up $1.1 billion compared with $5.1 billion in the first quarter 2003.

Domestic Telecom revenues decreased 3.3 percent to $9.6 billion in the first quarter 2004, compared with the first quarter 2003. Verizon’s overall top-line growth was supported by increases in wireline long-distance and broadband. Long-distance revenues increased 13.3 percent, from $0.9 billion in first-quarter 2003 to $1.0 billion in first-quarter 2004, as Verizon added a net of 1.0 million long-distance lines in the quarter, for a total of 17.6 million long-distance lines. In the first quarter, Verizon also added a company-record net of 345,000 DSL lines, for a total of 2.7 million DSL lines.

‘STRONG START’

“This is a strong start to the year. In the first quarter, Verizon extended its leadership position by accelerating organic growth, while maintaining solid margins,” said Ivan Seidenberg, Verizon chairman and CEO. “While Domestic Telecom revenues were down, we recognize that this is part of the evolution of our business model, and we are on track with where we want to be. It’s significant that new growth businesses, such as wireless, data, long-distance and broadband, now account for more than half of our revenues.”

“When we set our 2004 expectations, we asked investors to measure us on results from our long-term investments in technologies that support higher-growth revenue streams,” Seidenberg added. “Today, we see those results in Verizon Wireless’ outstanding operational and financial performance, in new growth in broadband customers, and in revenues from long-distance, our large-business Enterprise segment, and other new and bundled services.”

MARGINS INCREASE SEQUENTIALLY

Verizon Wireless’ operating income margin rose sequentially, from 18.5 percent in the fourth quarter 2003 to 19.5 percent in the first quarter 2004.

Domestic Telecom’s operating income margin rose from 15.4 percent in the fourth quarter 2003 to 15.5 percent in the first quarter 2004. Excluding net pension and OPEB expenses of $1 million in the fourth quarter 2003 and $214 million in the first quarter 2004, Domestic Telecom’s operating income margin would have increased from 15.4 percent to 17.7 percent sequentially (non-GAAP measures).

On a consolidated basis, operating income margin also rose sequentially. Verizon reported a negative operating income margin in the fourth quarter 2003, compared with 14.6 percent in the current quarter.

Verizon’s operating income margin -- adjusted to exclude special and non-recurring items as well as, for purposes of this calculation, net pension and OPEB expenses of $22 million in the fourth quarter 2003 and $275 million in the current quarter -- rose from 18.3 percent to 20.4 percent over the same period. Consistent with past practice, Verizon believes that excluding these effects enhances comparability and provides a better picture of operating cost management.

LEADING THE WIRELESS SECTOR

For the seventh consecutive quarter, Verizon Wireless delivered double-digit, year-over-year revenue increases. Service revenues, the largest component of total revenues, grew 18.0 percent to $5.5 billion, from $4.7 billion in the first quarter 2003.

Verizon Wireless added 1.4 million net customers in the first quarter, its highest first-quarter increase. Customers totaled 38.9 million at the end of the quarter, a 16.8 percent increase over the previous year’s first quarter. Overall in the first quarter, Verizon Wireless continued to outperform the industry and its own consistently strong preceding quarters, delivering record revenue growth, profitability, efficiency and low churn.

EXPENSE ITEMS

Reported operating expenses increased to $14.6 billion in the first quarter 2004, compared with $12.8 billion in the first quarter 2003. This year’s quarterly expenses included $728 million ($446 million after-tax) for the pension settlements cited above.

Verizon had previously estimated settlements related to the voluntary separation plan to total $0.7 billion to $0.9 billion, after taxes, mostly in the first quarter of 2004 although continuing throughout the year. Due to favorable offsets such as an improved return on pension plan assets and lower than expected lump-sum payouts, the company now expects total after-tax charges associated with the voluntary separation plan may be less than the lower end of this range.

Operating expenses, adjusted for special and non-recurring items, were $13.9 billion in the first quarter 2004, up 8.8 percent from the first quarter 2003. This increase was driven primarily by the previously announced impact of OPEB costs, net of reduced pension income, as well as by costs associated with Verizon Wireless, DSL and other growth businesses. In the first quarter 2003, expenses included an $80 million net pension and OPEB expense credit while, as noted above, in the first quarter 2004 expenses increased by $275 million for these items.

CONTINUED DEBT REDUCTION AND SPECIAL ITEMS

Total debt at the end of the first quarter was $44.5 billion, a reduction of more than $0.9 billion since year-end 2003 and a reduction of $8.8 bill