Verizon Quarter 1 2005 Results

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Verizon Communications reported first-quarter 2005 earnings of $1.8 billion, or 63 cents per diluted share, as quarterly revenues increased 6.6 percent, driven by the fifth consecutive quarter of more than 20 percent total revenue growth year-over-year at Verizon Wireless. The $1.8 billion in reported first-quarter 2005 earnings compares with $1.2 billion, or 43 cents per share, in the first quarter 2004. Verizon's 63 cents per share in first-quarter 2005 earnings increased 8.6 percent compared with 58 cents per share in the first quarter 2004, when 2004 results are adjusted for special items, primarily for pension settlements associated with a voluntary separation plan (non-GAAP measure). No special items or adjustments are included in first-quarter 2005 results.

Consolidated revenues of $18.2 billion in the first quarter 2005 increased 6.6 percent, or $1.1 billion, compared with the first quarter 2004. Verizon Wireless contributed $7.4 billion, or 40.8 percent, of first-quarter 2005 consolidated revenues. This compares with wireless revenues of $6.2 billion, or 36.1 percent of consolidated revenues, in the first quarter 2004. Total wireless revenues have increased by more than 10 percent year-over-year for 11 consecutive quarters, including the 20 percent-plus year-over-year increases for the past five quarters.

Operating revenues for Domestic Telecom, the company's U.S. wireline business segment, were $9.5 billion in the first quarter 2005, a 1.2 percent decrease compared with $9.6 billion in the first quarter 2004. This is the segment's lowest rate of revenue decline in nearly four years.

Verizon Wireless added 1.64 million net new customers, the largest first-quarter customer increase in the history of the company. Wireless has added more than 6.5 million net new customers over the past year and now has a total of 45.5 million customers nationwide. Customer turnover reached record-low levels for the second consecutive quarter. The total churn rate, a key measure of customer loyalty, was 1.33 percent for the first quarter 2005, down from 1.60 percent in the first quarter 2004 and 1.43 percent in the fourth quarter 2004. Churn among retail post-pay customers -- representing 92 percent of the company's customer base -- was a record 1.11 percent for the first quarter 2005, compared with 1.35 percent for the first quarter 2004.

Verizon added a net of 385,000 wireline broadband connections in the first quarter 2005 for a total of 3.9 million broadband connections -- a growth rate of 48 percent compared with first quarter 2004. Wireline broadband connections include both DSL lines and new FiOS next-generation, fiber-optic-based services. DSL net additions in the first quarter 2005 were the highest quarterly total in Verizon's history, representing the vast majority of the 385,000 total.

Revenues from wireline broadband services contributed to total wireline data revenues of $2.1 billion in the first quarter 2005, an 11.6 percent increase compared with $1.9 billion in the first quarter 2004. Revenues from wireline long-distance services, including regional toll services, were $1.1 billion in the first quarter 2005, an 8.3 percent increase compared with $1.0 billion in the first quarter 2004. The number of Verizon long-distance lines in service rose to more than
18 million, an 11.6 percent increase compared with the first quarter 2004.

In the first quarter 2005, operating expenses increased 1.4 percent to $14.8 billion, compared with first-quarter 2004 operating expenses of $14.6 billion. On a comparable basis, first-quarter 2005 expenses increased 6.7 percent over first-quarter 2004 expenses adjusted to exclude the non-recurring pension settlements noted earlier (non-GAAP measure).

Verizon's total debt at the end of the first quarter 2005 declined to $39.2 billion, compared with $39.3 billion at year-end 2004 and $44.5 billion at the end of the first quarter 2004. Cash Flows From Operating Activities (CFFO) were $3.9 billion in the first quarter 2005, compared with $4.0 billion in the first quarter 2004. There were significant non-recurring cash outflows in both periods, including pension contributions and taxes on prior-year investment sales in the first quarter 2005 and severance payments in the first quarter 2004.

In the first quarter 2005, net cash used in investing activities was $4.3 billion, and net cash used in financing activities was $1.2 billion. Included in first-quarter 2005 investing activities were $3.6 billion in capital expenditures, which were $953 million higher than in the first quarter 2004 due to increased infrastructure investments to support broadband wireline and wireless growth and operational efficiency initiatives.

On a segment level, Domestic Telecom's CFFO was $2.0 billion in the first quarter 2005, a 1.0 percent decrease compared with the first quarter 2004. Wireless CFFO was $3.0 billion in the first quarter 2005, a 32.4 percent increase compared with the first quarter 2004.

Following are first-quarter 2005 highlights from Verizon's four business segments.

Wireless:
. Retail gross additions increased 6.5 percent over the first quarter 2004. Retail net additions increased 31.3 percent, to 1.58 million of the company's 1.64 million total net additions. (Retail and total net additions include 32,000 customers from acquisitions.)

. Service revenues (which do not include taxes and regulatory fees) were $6.6 billion in the first quarter 2005, up 19.2 percent compared with the first quarter 2004. Average monthly service revenue per customer increased 2.1 percent in the first quarter 2005 to $49.03.

. Verizon Wireless continued its industry-leading cost management. In the first quarter 2005, cash expense per customer increased only 2.0 percent year-over-year as the company added a high volume of new customers. This contributed to operating income margin of 20.8 percent in the first quarter 2005, compared with 19.5 percent in the first quarter 2004.

. Data services usage continued to climb, contributing $416 million in revenues in the first quarter 2005. The company had 17.8 million data customers -- a 53 percent increase compared with a year ago.

. Contributing to wireless data revenues, 3.6 billion text messages were exchanged during the quarter. Additionally, there were 41.4 million picture messages and 34.1 million downloads of Get It Now's more than 500 games, exclusive content and other applications.

. Also contributing to data revenue were sales of broadband 3G (third-generation) services to business and consumers, which are exceeding company expectations. During the quarter, the company launched V CAST, the nation's first 3G consumer multimedia service, delivering high-quality video, movies, 3D games and music clips to 3G handsets. The company continues to add new V CAST video from leading content providers, such as Sesame Street, ESPN, CNN and AccuWeather, to its wide array of 300 daily updated videos. BroadbandAccess service for business customers, providing broadband-speed remote access from laptops and PDAs, continues to grow as the company introduced new 3G PC cards and devices in the first quarter.

. These broadband services are made possible by the company's (3G) EV-DO network, the largest and fastest wide-area broadband network in the nation. This network reached 75 million Americans at year-end and is growing steadily.

. As part of its long-standing strategy of continual network enhancements, the company recently strengthened its spectrum position substantially with the closing of the purchase of several key spectrum licenses, including licenses from NextWave and Qwest, and its participation in the FCC's Auction 58, which ended in February.

. Verizon Wireless was again recognized as a great place to work when in February the company was ranked 14th in Training magazine's "top 100 training organizations in America." This is the fourth consecutive year the magazine has recognized Verizon Wireless for training and development of employees.

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