Verizon Reports Strong 4Q and 2004 Results, Driven by Wireless Revenue Growth, Solid Cash Flows and Margins

Verizon Reports Strong 4Q and 2004 Results, Driven by Wireless Revenue Growth, Solid Cash Flows and Margins 4Q Revenues Increase 6.2% to Record $18.3 Billion; 2004 Revenues of $71.3 Billion Include 23% Growth in Wireless 2004 HIGHLIGHTS Earnings per Share * Fourth quarter: $1.08 in diluted earnings per share, or 64 cents per share before special items (non-GAAP measure) * Full year: $2.79 in earnings per share, or $2.51 per share before special items (non-GAAP) Wireless * Fourth quarter: 1.7 million net customer additions, up 13.5 percent from last year's quarter and the highest quarterly increase for the third consecutive quarter; total revenues up 22.7 percent; record-low churn (customer turnover) of 1.43 percent; average monthly revenue per customer up 3 percent to $50.32 * Full year: Record 6.3 million total net customer additions, up 25.1 percent from 2003; total revenues up 23.0 percent; cash flows from operating activities (CFFO) increased $2.0 billion from 2003; data services revenues more than double 2003's total; record operating income margin of 21.1 percent Wireline * Fourth quarter: 306,000 net additions of broadband DSL (digital subscriber lines); total data revenues up 9.2 percent from last year's quarter; stable revenues and margins; average monthly revenue per residential customer up 4 percent to nearly $50; total Enterprise (large business) revenues up 4.9 percent * Full year: 3.6 million total DSL lines, up 53.5 percent year-over-year; $4.2 billion in revenues from all long-distance services, up 10.4 percent; Enterprise revenues of approximately $6 billion, up 1.9 percent; data revenues of $7.8 billion, up 7.4 percent Other Highlights * Total debt: $39.3 billion at year-end 2004, a $6.1 billion decrease from year-end 2003 * Capital expenditures: $13.3 billion in 2004, compared with $11.9 billion in 2003; 2005 capital spending expected to increase approximately 10 percent over 2004; increases driven by investments for wireless and fiber-optic broadband growth initiatives Notes: See the schedules accompanying this news release and http://www.verizon.com/investor for reconciliations to generally accepted accounting principles (GAAP) for the non-GAAP financial measures included in this announcement. Discontinued operations in the quarterly periods presented include the operations of Verizon Information Services Canada, following a third-quarter 2004 agreement to sell this business. Fourth quarter and year- to-date 2004 also include the gain on the sale. NEW YORK, Jan. 27 /PRNewswire/ -- Verizon Communications Inc. (NYSE:VZ) today reported strong fourth-quarter and year-end 2004 results as quarterly revenues increased 6.2 percent, driven by a 10th consecutive quarter of double-digit, year-over-year revenue increases for wireless services. Wireless contributed $27.7 billion to the corporation's $71.3 billion total revenues in 2004. For the fourth quarter 2004, Verizon reported earnings of $3.0 billion, or $1.08 per diluted share, compared with a loss of $1.5 billion, or 53 cents per share, in the fourth quarter 2003. Reported earnings in the fourth quarter 2004 included non-recurring gains from sales of non-strategic assets and tax benefits, while the fourth quarter 2003 loss included non-recurring expenses from a voluntary separation plan and environmental remediation costs. Before special items, earnings were 64 cents per share in the fourth quarter 2004 and 58 cents per share in the fourth quarter 2003. For the year, Verizon reported earnings of $7.8 billion, or $2.79 per share, compared with $3.1 billion, or $1.12 per share, in 2003. Before special items, earnings were $7.0 billion ($2.51 per share) in 2004, and $7.3 billion ($2.60 per share) in 2003. Quarterly consolidated operating revenues reached a company-record $18.3 billion in the fourth quarter 2004, increasing 6.2 percent compared with $17.2 billion in the fourth quarter 2003. Annual consolidated operating revenues were $71.3 billion in 2004, increasing 5.7 percent compared with $67.5 billion in 2003 -- Verizon's strongest annual revenue growth in three years. Verizon Wireless contributed more than 40 percent of Verizon's total revenues in the fourth quarter 2004, compared with less than 35 percent in the fourth quarter 2003. Wireless revenues were $7.3 billion in the fourth quarter 2004, a 22.7 percent increase compared with $6.0 billion in the fourth quarter 2003. Full-year 2004 wireless revenues were $27.7 billion, an increase of $5.2 billion, or 23.0 percent, compared with 2003. Overall, Verizon's growth businesses -- wireless, long-distance, broadband, data and Enterprise services -- accounted for 55.2 percent of fourth-quarter 2004 revenues, compared with 49.3 percent of fourth-quarter 2003 revenues. Over the past year, revenues from these businesses have grown by 19.0 percent. Operating revenues for Domestic Telecom, the company's U.S. wireline business segment, were $9.7 billion in the fourth quarter 2004, a 2.4 percent decrease compared with the fourth quarter 2003. For the year, wireline operating revenues were $38.6 billion, a 2.7 percent decrease compared with 2003. 'Strong Fundamentals' "Building on our excellent fourth-quarter and full-year results, our business fundamentals as we enter 2005 are the strongest they've been in years," said Ivan Seidenberg, Verizon chairman and CEO. "In 2004, we changed our growth profile by divesting non-strategic assets, by extending our industry leadership in wireless, and by gaining momentum in broadband, long-distance and Enterprise markets. Our wireline business has maintained stable margins, and Verizon Information Services and International have continued to contribute significant revenue, income and cash flow. As we move forward, we are realizing value from our diversified asset base, and we are investing in growth areas as we build tomorrow's networks to provide customers with continuous service enhancements and product innovations." Sustained Wireless Growth Verizon Wireless added 1.7 million net new customers, the largest quarterly customer increase in the history of the company, which was formed in April 2000. For the year, Verizon Wireless added 6.3 million net new customers, as its total number of customers grew 16.8 percent year-over-year to 43.8 million, including 41.8 million retail customers. Total churn reached record-low levels for the quarter and the year. Total churn was 1.43 percent for the fourth quarter and 1.50 percent for the year. Churn among retail post-pay customers -- or 92 percent of the company's customers -- was 1.2 percent for the quarter and 1.3 percent for the year. Continued Solid Margins On a consolidated basis, Verizon's operating income margin was 18.4 percent in the fourth quarter 2004, compared with negative margins due to the reported loss in the fourth quarter 2003. When adjusted to exclude the special and non-recurring items described later in this release as well as net pension and OPEB (other post-retirement benefit) impact, Verizon's consolidated operating income margin would have been 20.3 percent in the fourth quarter 2004 and 18.3 percent in the fourth quarter 2003 (non-GAAP measures). Operating income margin for the wireline segment was 15.2 percent in the fourth quarter 2004, compared with 15.4 percent in the fourth quarter 2003. When adjusted to exclude the items listed above, wireline's operating income margin would have been 17.3 percent in the fourth quarter 2004 and 15.4 percent in the fourth quarter 2003 (non-GAAP measures). Consistent with past practice, Verizon believes that excluding the impact of special and non-recurring items and net pension and OPEB expenses or credits enhances comparability, providing a better picture of operating cost management. Verizon Wireless' operating income margin was 18.7 percent in the fourth quarter 2004, compared with 18.5 percent in the fourth quarter 2003, and a record 21.1 percent for full-year 2004, compared with 18.2 percent for 2003. Wireless' EBITDA margin was 39.5 percent in the fourth quarter 2004, compared with 39.7 percent in the fourth quarter 2003. (EBITDA -- or earnings before interest, taxes, depreciation and amortization -- is a non-GAAP measure that adds depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by Wireless' service revenues.) Fourth-quarter 2004 EBITDA margin was impacted by expenses attributable to Verizon Wireless' long-term employee incentive plan, which have increased as the value of Verizon Wireless has increased. Verizon Wireless' 2004 EBITDA margin of 42.3 percent was its highest-ever margin for a full year. Wireline Broadband and Data Growth Verizon added a net of 306,000 broadband DSL lines in the fourth quarter 2004 for a total of 3.6 million DSL lines in service, representing 1.2 million net additions over the past year -- a growth rate of 53.5 percent. Revenues from DSL contributed to total wireline data revenues of $2.0 billion in the fourth quarter 2004, a 9.2 percent increase compared with $1.9 billion in data revenues in the fourth quarter 2003. For the year, data revenues of $7.8 billion grew 7.4 percent compared with 2003 and now represent more than 20 percent of total wireline revenues. Even as strong DSL customer and revenue growth continue, Verizon has begun deploying FiOS next-generation, fiber-optic-based broadband services. FiOS services currently have more than 20 percent market penetration in Keller, Texas, Verizon's first market, after the first four and a half months of sales. In another wireline growth area, revenues from long-distance services, including regional toll services, were $1.1 billion in the fourth quarter 2004, a 5.8 percent increase compared with $1.0 billion in the fourth quarter 2003. On an annual basis, these revenues totaled $4.2 billion in 2004, a 10.4 percent increase compared with 2003. Debt Reduction and Cash Management Verizon's total debt decreased $6.1 billion last year, to $39.3 billion at year-end 2004 from $45.4 billion at year-end 2003 -- reaching a previously announced target of debt levels in relation to corporate earnings before interest, taxes, depreciation and amortization. CFFO was $21.8 billion in 2004, compared with $22.5 billion in 2003. The change is primarily due to 2004 severance payments related to the 21,000- employee voluntary separation plan in the fourth quarter 2003, offset by strong cash flow. In 2004, net cash used in investing activities was $10.3 billion, and net cash used in financing activities was $9.9 billion. On a segment level, wireline's CFFO was $11.8 billion in 2004, compared with $12.3 billion in 2003. Verizon Wireless' CFFO was $9.5 billion in 2004, compared with $7.5 billion in 2003. Free cash flow (non-GAAP, cash from operating activities less capital expenditures and dividends) was $4.3 billion in 2004, compared with $6.4 billion in 2003. Impacts on cash flow in 2004 included severance payments associated with the voluntary separation plan, as well as increased capital investments compared with 2003 to fund wireless and fiber-optic broadband growth initiatives. Capital expenditures in 2004 totaled $13.3 billion, compared with $11.9 billion in 2003. In 2005, overall capital spending is expected to increase approximately 10 percent over 2004, driven by focused investments in growth markets. Expense Items In the fourth quarter 2004, reported operating expenses decreased 23.0 percent compared with the fourth quarter 2003, to $14.9 billion. When adjusted for special and non-recurring items, operating expenses were $14.8 billion in the fourth quarter 2004, an increase of 5.1 percent from comparable expenses in the fourth quarter 2003 (non-GAAP measure). Expenses for the fourth quarter 2003 included special items associated with the voluntary separation plan, environmental remediation costs and leasing operations costs, partially offset by net gains on sales of investments. Special Items Verizon's reported fourth-quarter 2004 earnings of $3.0 billion, or $1.08 per share, principally included these special items: net gains of $1.0 billion, or 36 cents per share, from the sales of Verizon Information Services Canada and Verizon's investment stake in TELUS Corp.; and tax benefits of $0.2 billion, or 8 cents per share, from previous investment-related losses. Verizon's reported year-end 2004 earnings of $7.8 billion, or $2.79 per share, also included $0.5 billion, or 18 cents per share, in previously reported severance-related charges, partially offset by a $43 million, or 2 cents per share, gain on the sale of an investment. Verizon's reported year-end 2003 earnings of $3.1 billion, or $1.12 per share, included net charges of $4.2 billion. These net charges included gains of $0.5 billion related to accounting changes and to 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 interest in Grupo Iusacell, a Mexican wireless business; and $0.4 billion related to environmental remediation, leasing operations and other charges. Earnings per share calculations in all periods are impacted by a recent accounting change that increases the net income and number of shares in the diluted earnings per share calculations. This accounting change decreased 2004 diluted earnings per share by 1 cent and 2003 diluted earnings per share by 2 cents. Business Segment Highlights Following are fourth-quarter 2004 and full-year highlights from Verizon's four business segments. Wireline: * Wireline operating revenues of $9.7 billion in the fourth quarter 2004 were up slightly compared with the third quarter 2004, marking the third consecutive quarter of sequential operating revenue increases. This was supported by a 2.5 percent increase in business revenues, to $3.0 billion, comparing fourth quarter 2004 with third quarter 2004. For the year, wholesale revenues were up 1.4 percent -- including growth in key areas such as SONET services -- contributing $8.9 billion to total revenues of $38.6 billion. Business revenues were flat at $11.7 billion, and consumer revenues declined 2.5 percent to $15.5 billion. * Wireline cash expenses, excluding net pension and OPEB expenses (non- GAAP), were $5.7 billion in the fourth quarter 2004, a 5.7 percent decrease from the fourth quarter 2003. Fourth-quarter 2004 wage and salary expenses decreased by more than $200 million year-over-year due to the voluntary separation program and a fourth-quarter 2003 lump-sum labor contract payment. Savings helped fund increases in sales and marketing expenses and other operating costs in wireline growth areas. * Approximately 56 percent of Verizon residential customers have purchased local services in combination with either Verizon long-distance or Verizon DSL, or both. This compares with 43 percent in the fourth quarter 2003. * The average revenue per month per Verizon residential wireline customer rose to nearly $50 in the fourth quarter 2004, a 4 percent increase compared with the fourth quarter 2003. * Approximately 4.4 million Verizon Freedom packages were in service to residential and business customers by year-end 2004. Verizon Freedom plans help retain and win back customers by offering local services with various combinations of long-distance, wireless and Internet access, available on one bill. * The company had 17.7 million long-distance lines in service as of year- end 2004, an increase of 342,000 lines from end of the third quarter 2004. * Resale and Unbundled Network Element-Platform (UNE-P) lines totaled 6.6 million at the end of the fourth quarter 2004, up from 5.8 million at the end of the fourth quarter 2003 and down from 6.7 million at the end of the third quarter 2004. UNE-P lines decreased by 93,000 from the third to the fourth quarter in 2004. The company had 53.0 million switched wireline access lines in service as of year-end 2004. * Enterprise revenues totaled approximately $6 billion in 2004, increasing 4.9 percent in the fourth quarter 2004 and 1.9 percent in the full year, compared with the same periods in 2003. * Verizon's Enterprise Solutions Group ended 2004 with more than 750 Enterprise Advance sales, meeting its year-end target of $250 million in Enterprise Advance revenues. Year-over-year trends were positive, and sales in the fourth quarter 2004 included a multi-year $138 million contract extension with Virginia Tech for NetworkVirginia broadband services connecting approximately 1,500 schools, libraries, clinics, research institutions and public service organizations throughout the commonwealth. Wireless: * Retail gross additions increased 5.7 percent over the fourth quarter 2003. Retail net additions increased 14.7 percent, to 1.6 million of the company's 1.7 million total net additions. * Service revenues for the quarter were $6.5 billion, up 20.5 percent. For the year, service revenues were $24.4 billion, up 20.0 percent. The company does not include taxes and regulatory fees in service revenues. Average service revenue per customer increased 3 percent in the quarter and nearly 3 percent for the full year, to $50.32 and $50.22, respectively. * Verizon Wireless continued its industry-leading cost management. In 2004, cash expense per customer declined 2.5 percent to its lowest-ever expense level for a full year, which is especially noteworthy given the record-high volume of new customers. * Data services usage continued to climb, contributing $1.1 billion in revenues in 2004, more than double the data revenues in 2003. In the fourth quarter, $359 million, or 5.6 percent, of all service revenues came from data services, continuing the upward trend from 3.2 percent in the prior year's quarter. The company has 16.6 million data customers -- more than one-third of all its customers. * Contributing to wireless data revenues, 3 billion text messages were exchanged during the quarter. Additionally, there were 32.6 million picture messages and 30.2 million downloads of Get It Now's more than 500 games, exclusive content and other applications. * As previously announced, the company next week will launch V CAST, the nation's first 3G (third-generation) consumer multimedia services, delivering high-quality video, 3D games and music to 3G handsets. At the same time, the company also will introduce three cutting-edge 3G handsets. * 3G services are made possible by the company's significantly-expanded (3G) EV-DO network, the largest and fastest wide-area broadband network in the nation, reaching 75 million Americans and growing. Already riding on this 3G network is the company's BroadbandAccess service for business customers, giving them broadband-speed remote access from laptops and PDAs when out of the office. Information Services: * Verizon Information Services (VIS) revenues of $890 million decreased 4.6 percent for the fourth quarter 2004 compared with the fourth quarter 2003, primarily due to reduced domestic print advertising revenues. For the year, VIS' revenues of $3.6 billion decreased 5.6 percent in 2004 from 2003, primarily due to reduced domestic print advertising revenues and the elimination of revenues from the 2003 sale of European operations. * VIS' domestic online directory and search service, SuperPages.com, continued to achieve strong growth in 2004, as demonstrated by a 22 percent increase in revenues and a 49 percent increase in searches over 2003. * Verizon sold the Verizon Information Services Canada directory operations to an affiliate of Bain Capital, a private investment firm, for $1.6 billion. The sale closed in the fourth quarter 2004, generating an after-tax gain of $516 million. As noted earlier, this gain and prior-period results for this unit are excluded from Information Services segment results. International: * Fourth-quarter revenues were $544 million, bringing full-year revenues to $2.0 billion, compared with $477 million and $1.9 billion in the fourth quarter and full-year 2003, respectively. The fourth-quarter increase of 14.0 percent was primarily driven by Verizon's 100 percent- owned affiliate in the Dominican Republic and reflects operational growth as well as foreign exchange rate improvement. The full-year increase of 3.3 percent reflects operational growth at Verizon Dominicana, as well as a prior-year revenue adjustment in Puerto Rico, partially offset by unfavorable foreign exchange rates in the Dominican Republic. * Fourth-quarter segment income was $338 million, bringing full-year segment income to $1.2 billion, compared with $341 million and $1.4 billion in the fourth quarter and full-year 2003, respectively. The decrease for the full-year primarily resulted from additional Italian tax benefits in 2003 from a reorganization at Vodafone Omnitel, lower asset sales and unfavorable foreign exchange rates, partially offset by operational growth at Verizon Dominicana and the prior-year revenue and expense adjustments in Puerto Rico. * During the fourth quarter, Verizon sold its 20.5 percent interest in TELUS and 24.5 percent interest in EuroTel Bratislava, a Slovak wireless provider. These transactions reflect International's continuing efforts to realign its portfolio and focus primarily on the Caribbean and Latin American region, as well as on Verizon's 23.1 percent investment in Vodafone Omnitel. With more than $71 billion in annual revenues, Verizon Communications Inc. (NYSE:VZ) is one of the world's leading providers of communications services. Verizon has a diverse work force of more than 210,000 in four business units: Domestic Telecom serves customers based in 29 states with wireline telecommunications services, including broadband, nationwide long-distance and other services. Verizon Wireless owns and operates the nation's most reliable wireless network, serving 43.8 million voice and data customers across the United States. Information Services operates directory publishing businesses and provides electronic commerce services. International includes wireline and wireless operations and investments, primarily in the Americas and Europe. For more information, visit http://www.verizon.com/. VERIZON'S ONLINE NEWS CENTER: Verizon news releases, executive speeches and biographies, media contacts, high quality video and images, and other information are available at Verizon's News Center on the World Wide Web at http://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: 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; the timing, scope and financial impacts of our deployment of fiber-to-the-premises broadband technology; 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. Verizon Communications Inc. Consolidated Statements of Income (dollars in millions, except per share amounts) 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended Ended Ended % % Unaudited 12/31/04 12/31/03 Change 12/31/04 12/31/03 Change Operating Revenues $18,263 $17,198 6.2 $71,283 $67,468 5.7 Operating Expenses Cost of services and sales 6,064 5,852 3.6 23,168 21,701 6.8 Selling, general & administrative expense 5,281 10,071 (47.6) 21,088 24,894 (15.3) Depreciation and amortization expense 3,565 3,445 3.5 13,910 13,607 2.2 Sales of businesses, net - - - - (141) (100.0) Total Operating Expenses 14,910 19,368 (23.0) 58,166 60,061 (3.2) Operating Income (Loss) 3,353 (2,170) * 13,117 7,407 77.1 Equity in earnings of unconsolidated businesses 1,056 605 74.5 1,691 1,278 32.3 Income from other unconsolidated businesses 1 172 (99.4) 75 331 (77.3) Other income and (expense), net 42 15 180.0 22 37 (40.5) Interest expense (575) (665) (13.5) (2,384) (2,797) (14.8) Minority interest (574) (451) 27.3 (2,409) (1,583) 52.2 Income (Loss) Before Provision for Income Taxes, Discontinued Operations and Cumulative Effect of Accounting Change 3,303 (2,494) * 10,112 4,673 116.4 Income tax benefit (provision) (786) 1,023 * (2,851) (1,213) 135.0 Income (Loss) Before Discontinued Operations and Cumulative Effect of Accounting Change 2,517 (1,471) * 7,261 3,460 109.9 Discontinued Operations(1) Income (loss) from operations 1,027 22 * 1,116 (869) * Provision for income taxes (505) (9) * (546) (17) * Income (loss) on discontinued operations 522 13 * 570 (886) * Cumulative Effect of Accounting Change, Net of Tax - - - - 503 (100.0) Net Income (Loss) $3,039 $(1,458) * $7,831 $3,077 154.5 Basic Earnings (Loss) per Share $1.10 $(.53) * $2.83 $1.12 152.7 Weighted average number of common shares (in millions) 2,770 2,765 2,770 2,756 Diluted Earnings (Loss) per Share(2) $1.08 $(.53) * $2.79 $1.12 149.1 Weighted average number of common shares-assuming dilution (in millions) 2,823 2,765 2,831 2,832 Footnotes: (1) Discontinued Operations in all periods includes the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004. The fourth quarter and year-to-date 2004 also include the gain on the sale of Verizon Information Services Canada of $516 million, net of tax. The year-to-date 2003 period also includes Iusacell losses. (2) Diluted Earnings per Share include (i) income related to share dilution (exchangeable equity interests and zero coupon convertible debt) of $14 million and $68 million for the fourth quarter and year- to-date 2004, respectively, and $82 million for the year-to-date 2003, and (ii) the dilutive effect of shares issuable under our stock- based compensation plans, exchangeable equity interests and zero coupon convertible debt, which represent the only potential dilution. There is no impact of dilutive securities in the fourth quarter of 2003, since a net loss from continuing operations was reported. * Not meaningful Verizon Communications Inc. Consolidated Statements of Income Before Special Items (dollars in millions, except per share amounts) 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended Ended Ended % % Unaudited 12/31/04 12/31/03 Change 12/31/04 12/31/03 Change Operating Revenues Domestic Telecom $9,668 $9,905 (2.4) $38,551 $39,602 (2.7) Domestic Wireless 7,342 5,984 22.7 27,662 22,489 23.0 Information Services 890 933 (4.6) 3,615 3,830 (5.6) International 544 477 14.0 2,014 1,949 3.3 Other (181) (101) 79.2 (559) (402) 39.1 Total Operating Revenues 18,263 17,198 6.2 71,283 67,468 5.7 Operating Expenses Cost of services and sales 6,064 5,751 5.4 23,168 21,600 7.3 Selling, general & administrative expense 5,158 4,878 5.7 20,264 18,676 8.5 Depreciation and amortization expense 3,565 3,445 3.5 13,910 13,607 2.2 Sales of businesses, net - - - - (141) (100.0) Total Operating Expenses 14,787 14,074 5.1 57,342 53,742 6.7 Operating Income 3,476 3,124 11.3 13,941 13,726 1.6 Equity in earnings of unconsolidated businesses 269 257 4.7 904 930 (2.8) Income (loss) from other unconsolidated businesses 1 (4) (125.0) 32 155 (79.4) Other income and (expense), net 42 15 180.0 77 98 (21.4) Interest expense (575) (665) (13.5) (2,384) (2,797) (14.8) Minority interest (574) (451) 27.3 (2,409) (1,583) 52.2 Income Before Provision for Income Taxes and Discontinued Operations 2,639 2,276 15.9 10,161 10,529 (3.5) Provision for income taxes (842) (694) 21.3 (3,180) (3,296) (3.5) Income Before Discontinued Operations 1,797 1,582 13.6 6,981 7,233 (3.5) Discontinued Operations(1) Income from operations 10 22 (54.5) 99 89 11.2 Provision for income taxes (4) (9) (55.6) (45) (43) 4.7 Income on discontinued operations 6 13 (53.8) 54 46 17.4 Net Income Before Special Items $1,803 $1,595 13.0 $7,035 $7,279 (3.4) Basic Earnings per Share $.65 $.58 12.1 $2.54 $2.64 (3.8) Weighted average number of common shares (in millions) 2,770 2,765 2,770 2,756 Diluted Adjusted Earnings per Share(2) $.64 $.58 10.3 $2.51 $2.60 (3.5) Weighted average number of common shares-assuming dilution (in millions) 2,823 2,765 2,831 2,832 Footnotes: (1) Discontinued Operations in all periods includes the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004. The year-to- date 2003 period also includes Iusacell losses. (2) Diluted Earnings per Share include (i) income related to share dilution (exchangeable equity interests and zero coupon convertible debt) of $14 million and $68 million for the fourth quarter and year- to-date 2004, respectively, and $82 million for the year-to-date 2003, and (ii) the dilutive effect of shares issuable under our stock-based compensation plans, exchangeable equity interests and zero coupon convertible debt, which represent the only potential dilution. There is no impact of dilutive securities in the fourth quarter of 2003, since a net loss from continuing operations was reported. Verizon Communications Inc. Consolidated Statements of Income - Reconciliations (dollars in millions, except per share amounts) Special and Non-Recurring Items 3 Mos. 3 Mos. Severance, Sales of Ended Ended Pension Businesses 12/31/04 12/31/04 and and Before Reported Benefit Investments, Tax Special (GAAP) Changes Net Benefits Items Operating Revenues $18,263 $- $- $- $18,263 Operating Expenses Cost of services and sales 6,064 - - - 6,064 Selling, general & administrative expense 5,281 (23) (100) - 5,158 Depreciation and amortization expense 3,565 - - - 3,565 Total Operating Expenses 14,910 (23) (100) - 14,787 Operating Income 3,353 23 100 - 3,476 Equity in earnings of unconsolidated businesses 1,056 - (787) - 269 Income from other unconsolidated businesses 1 - - - 1 Other income and (expense), net 42 - - - 42 Interest expense (575) - - - (575) Minority interest (574) - - - (574) Income Before Provision for Income Taxes and Discontinued Operations 3,303 23 (687) - 2,639 Provision for income taxes (786) (9) 187 (234) (842) Income Before Discontinued Operations 2,517 14 (500) (234) 1,797 Discontinued Operations Income from operations 1,027 - (1,017) - 10 Provision for income taxes (505) - 501 - (4) Income on discontinued operations 522 - (516) - 6 Net Income $3,039 $14 $(1,016) $(234) $1,803 Basic Earnings per Common Share(1) $1.10 $.01 $(.37) $(.08) $.65 Diluted Earnings per Common Share(1) $1.08 $- $(.36) $(.08) $.64 Special and Non-Recurring Items 3 Mos. 3 Mos. Severance, Ended Ended Pension 12/31/03 12/31/03 and Other Sales of Before Reported Benefit Special Investments, Special (GAAP) Changes Items Net Items Operating Revenues $17,198 $- $- $- $17,198 Operating Expenses Cost of services and sales 5,852 (101) - - 5,751 Selling, general & administrative expense 10,071 (4,594) (299) (300) 4,878 Depreciation and amortization expense 3,445 - - - 3,445 Sales of businesses, net - - - - - Total Operating Expenses 19,368 (4,695) (299) (300) 14,074 Operating Income (Loss) (2,170) 4,695 299 300 3,124 Equity in earnings of unconsolidated businesses 605 - - (348) 257 Income (loss) from other unconsolidated businesses 172 - - (176) (4) Other income and (expense), net 15 - - - 15 Interest expense (665) - - - (665) Minority interest (451) - - - (451) Income (Loss) Before Provision for Income Taxes and Discontinued Operations (2,494) 4,695 299 (224) 2,276 Income tax benefit (provision) 1,023 (1,813) (84) 180 (694) Income (Loss) Before Discontinued Operations (1,471) 2,882 215 (44) 1,582 Discontinued Operations Income from operations 22 - - - 22 Provision for income taxes (9) - - - (9) Income on discontinued operations 13 - - - 13 Net Income (Loss) $(1,458) $2,882 $215 $(44) $1,595 Basic Earnings (Loss) per Common Share(1) $(.53) $1.04 $.08 $(.02) $.58 Diluted Earnings (Loss) per Common Share(1) $(.53) $1.04 $.08 $(.02) $.58 Footnote: (1) EPS totals may not add across due to rounding. Note: See http://www.verizon.com/investor for a reconciliation of other non-GAAP measures included in this Quarterly Bulletin. Verizon Communications Inc. Consolidated Statements of Income - Reconciliations (dollars in millions, except per share amounts) Special and Non-Recurring Items 12 Mos. 12 Mos. Severance, Sales of Ended Ended Pension Businesses 12/31/04 12/31/04 and and Other Before Reported Benefit Investments, Tax Special Special Unaudited (GAAP) Charges Net Benefits Items Items Operating Revenues $71,283 $- $- $- $- $71,283 Operating Expenses Cost of services and sales 23,168 - - - - 23,168 Selling, general & administrative expense 21,088 (815) (100) - 91 20,264 Depreciation and amortization expense 13,910 - - - - 13,910 Total Operating Expenses 58,166 (815) (100) - 91 57,342 Operating Income 13,117 815 100 - (91) 13,941 Equity in earnings of unconsolidated businesses 1,691 - (787) - - 904 Income from other unconsolidated businesses 75 - (43) - - 32 Other income and (expense), net 22 - - - 55 77 Interest expense (2,384) - - - - (2,384) Minority interest (2,409) - - - - (2,409) Income Before Provision for Income Taxes and Discontinued Operations 10,112 815 (730) - (36) 10,161 Provision for income taxes (2,851) (316) 187 (234) 34 (3,180) Income Before Discontinued Operations 7,261 499 (543) (234) (2) 6,981 Discontinued Operations Income from operations 1,116 - (1,017) - - 99 Provision for income taxes (546) - 501 - - (45) Income on discontinued operations 570 - (516) - - 54 Net Income $7,831 $499 $(1,059) $(234) $(2) $7,035 Basic Earnings per Common Share(1) $2.83 $.18 $(.38) $(.08) $- $2.54 Diluted Earnings per Common Share(1) $2.79 $.18 $(.37) $(.08) $- $2.51 Special and Non-Recurring Items 12 Mos. Severance, Lease Ended Pension Impairment 12/31/03 and and Other Reported Iusacell Benefit Special Unaudited (GAAP) Charge Charges Charges Operating Revenues $67,468 $- $- $- Operating Expenses Cost of services and sales 21,701 - (101) - Selling, general & administrative expense 24,894 - (5,422) (496) Depreciation and amortization expense 13,607 - - - Sales of businesses, net (141) - - - Total Operating Expenses 60,061 - (5,523) (496) Operating Income 7,407 - 5,523 496 Equity in earnings of unconsolidated businesses 1,278 - - - Income from other unconsolidated businesses 331 - - - Other income and (expense), net 37 - - 61 Interest expense (2,797) - - - Minority interest (1,583) - - - Income Before Provision for Income Taxes, Discontinued Operations and Cumulative Effect of Accounting Change 4,673 - 5,523 557 Provision for income taxes (1,213) - (2,125) (138) Income Before Discontinued Operations and Cumulative Effect of Accounting Change 3,460 - 3,398 419 Discontinued Operations Income (loss) from operations (869) 957 1 - Provision for income taxes (17) (26) - - Income (loss) on discontinued operations (886) 931 1 - Cumulative Effect of Accounting Change, Net of Tax 503 - - - Net Income $3,077 $931 $3,399 $419 Basic Earnings per Common Share(1) $1.12 $.34 $1.23 $.15 Diluted Earnings per Common Share(1) $1.12 $.33 $1.20 $.15 Special and Non-Recurring Items 12 Mos. Ended Cumulative 12/31/03 Effect of Sales of Before Accounting Investments, Special Unaudited Change Net Items Operating Revenues $- $- $67,468 Operating Expenses Cost of services and sales - - 21,600 Selling, general & administrative expense - (300) 18,676 Depreciation and amortization expense - - 13,607 Sales of businesses, net - - (141) Total Operating Expenses - (300) 53,742 Operating Income - 300 13,726 Equity in earnings of unconsolidated businesses - (348) 930 Income from other unconsolidated businesses - (176) 155 Other income and (expense), net - - 98 Interest expense - - (2,797) Minority interest - - (1,583) Income Before Provision for Income Taxes, Discontinued Operations and Cumulative Effect of Accounting Change - (224) 10,529 Provision for income taxes - 180 (3,296) Income Before Discontinued Operations and Cumulative Effect of Accounting Change - (44) 7,233 Discontinued Operations Income (loss) from operations - - 89 Provision for income taxes - - (43) Income (loss) on discontinued operations - - 46 Cumulative Effect of Accounting Change, Net of Tax (503) - - Net Income $(503) $(44) $7,279 Basic Earnings per Common Share(1) $(.18) $(.02) $2.64 Diluted Earnings per Common Share(1) $(.18) $(.02) $2.60 Footnote: (1) EPS totals may not add across due to rounding. Note: See http://www.verizon.com/investor for a reconciliation of other non-GAAP measures included in this Quarterly Bulletin. Verizon Communications Inc. Selected Financial and Operating Statistics (dollars in millions, except per share amounts) 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended Ended Ended Unaudited 12/31/04 12/31/03 12/31/04 12/31/03 Debt to debt and shareowners' equity ratio-end of period 51.1% 57.6% 51.1% 57.6% Book value per common share $13.56 $12.09 $13.56 $12.09 Cash dividends declared per common share $.385 $.385 $1.54 $1.54 Common shares outstanding (in millions) End of period 2,770 2,768 2,770 2,768 Capital expenditures (including capitalized software) Domestic Telecom $2,415 $2,055 $7,118 $6,820 Domestic Wireless 1,512 1,511 5,633 4,590 Information Services 38 27 87 74 International 187 136 382 358 Other 30 11 39 32 Total $4,182 $3,740 $13,259 $11,874 Total employees (1) 210,396 201,779 210,396 201,779 Footnote: (1) Prior period adjusted to reflect comparable figure. Verizon Communications Inc. Consolidated Balance Sheets (dollars in millions) Unaudited 12/31/04 12/31/03 $ Change Assets Current assets Cash and cash equivalents $2,290 $669 $1,621 Short-term investments 2,257 2,172 85 Accounts receivable, net 9,801 9,854 (53) Inventories 1,535 1,262 273 Assets of discontinued operations - 705 (705) Assets held for sale 950 - 950 Prepaid expenses and other 2,646 4,233 (1,587) Total current assets 19,479 18,895 584 Plant, property and equipment 185,522 180,940 4,582 Less accumulated depreciation 111,398 105,638 5,760 74,124 75,302 (1,178) Investments in unconsolidated businesses 5,855 5,789 66 Wireless licenses 42,090 40,907 1,183 Goodwill 837 835 2 Other intangible assets, net 4,521 4,702 (181) Other assets 19,052 19,538 (486) Total Assets $165,958 $165,968 $(10) Liabilities and Shareowners' Investment Current liabilities Debt maturing within one year $3,593 $5,967 $(2,374) Accounts payable and accrued liabilities 13,177 14,652 (1,475) Liabilities of discontinued operations - 76 (76) Liabilities related to assets held for sale 525 - 525 Other 5,834 5,885 (51) Total current liabilities 23,129 26,580 (3,451) Long-term debt 35,674 39,413 (3,739) Employee benefit obligations 17,941 16,754 1,187 Deferred income taxes 22,532 21,704 828 Other liabilities 4,069 3,703 366 Minority interest 25,053 24,348 705 Shareowners' investment Common stock 277 277 - Contributed capital 25,404 25,363 41 Reinvested earnings 12,984 9,409 3,575 Accumulated other comprehensive loss (1,053) (1,250) 197 Common stock in treasury, at cost (142) (115) (27) Deferred compensation - employee stock ownership plans and other 90 (218) 308 Total shareowners' investment 37,560 33,466 4,094 Total Liabilities and Shareowners' Investment $165,958 $165,968 $(10) Verizon Communications Inc. Condensed Consolidated Statements of Cash Flows (dollars in millions) 12 Mos. 12 Mos. Ended Ended Unaudited 12/31/04 12/31/03 $ Change Cash Flows From Operating Activities Income before discontinued operations and cumulative effect of accounting change $7,261 $3,460 $3,801 Adjustments to reconcile income before discontinued operations and cumulative effect of accounting change to net cash provided by operating activities: Depreciation and amortization expense 13,910 13,607 303 Sales of businesses, net - (141) 141 Employee retirement benefits 1,999 3,048 (1,049) Deferred income taxes 1,842 826 1,016 Provision for uncollectible accounts 1,181 1,789 (608) Income from unconsolidated businesses (1,766) (1,609) (157) Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses (3,243) 1,740 (4,983) Other, net 636 (253) 889 Net cash provided by operating activities 21,820 22,467 (647) Cash Flows From Investing Activities Capital expenditures (including capitalized software) (13,259) (11,874) (1,385) Acquisitions, net of cash acquired, and investments (1,196) (1,162) (34) Proceeds from disposition of businesses 1,720 229 1,491 Net change in short-term investments (100) (120) 20 Other, net 2,492 691 1,801 Net cash used in investing activities (10,343) (12,236) 1,893 Cash Flows From Financing Activities Proceeds from long-term borrowings 514 4,653 (4,139) Repayments of long-term borrowings and capital lease obligations (5,198) (10,759) 5,561 Decrease in short-term obligations, excluding current maturities (783) (1,330) 547 Dividends paid (4,262) (4,239) (23) Proceeds from sale of common stock 320 839 (519) Purchase of common stock for treasury (370) - (370) Other, net (77) (123) 46 Net cash used in financing activities (9,856) (10,959) 1,103 Increase (decrease) in cash and cash equivalents 1,621 (728) 2,349 Cash and cash equivalents, beginning of period 669 1,397 (728) Cash and cash equivalents, end of period $2,290 $669 $1,621 Verizon Communications Inc. Domestic Telecom - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended % Ended Ended % Unaudited 12/31/04 12/31/03 Change 12/31/04 12/31/03 Change Operating Revenues Local services $4,557 $4,825 (5.6) $18,522 $19,454 (4.8) Network access services 3,064 3,073 (.3) 12,235 12,719 (3.8) Long distance services 1,064 1,006 5.8 4,182 3,788 10.4 Other services 983 1,001 (1.8) 3,612 3,641 (.8) Total Operating Revenues 9,668 9,905 (2.4) 38,551 39,602 (2.7) Operating Expenses Cost of services and sales 3,854 3,893 (1.0) 15,019 14,708 2.1 Selling, general & administrative expense 2,082 2,195 (5.1) 8,781 8,517 3.1 Depreciation and amortization expense 2,258 2,290 (1.4) 8,939 9,217 (3.0) Total Operating Expenses 8,194 8,378 (2.2) 32,739 32,442 .9 Operating Income $1,474 $1,527 (3.5) $5,812 $7,160 (18.8) Operating Income Margin 15.2% 15.4% 15.1% 18.1% Segment Income $725 $710 2.1 $2,747 $3,335 (17.6) Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items.The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated. Verizon Communications Inc. Domestic Telecom - Selected Operating Statistics 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended % Ended Ended % Unaudited 12/31/04 12/31/03 Change 12/31/04 12/31/03 Change Switched access lines in service (000) Residence 34,160 36,089 (5.3) 34,160 36,089 (5.3) Business 18,392 18,990 (3.1) 18,392 18,990 (3.1) Public 427 462 (7.6) 427 462 (7.6) Total 52,979 55,541 (4.6) 52,979 55,541 (4.6) Special DS0 equivalents 91,688 84,806 8.1 91,688 84,806 8.1 Total voice grade equivalents (000) 144,667 140,347 3.1 144,667 140,347 3.1 Resale & UNE-P lines (000) 6,578 5,762 14.2 6,578 5,762 14.2 Minutes of use from Carriers and CLECs (in millions) 53,932 58,357 (7.6) 224,793 238,365 (5.7) Long distance lines (1) (000) 17,655 15,318 15.3 17,655 15,318 15.3 DSL lines (000) 3,559 2,319 53.5 3,559 2,319 53.5 High capacity and digital data revenues ($ in millions) Data transport $1,823 $1,632 11.7 $7,025 $6,546 7.3 Data solutions 219 238 (8.0) 771 716 7.7 Total revenues $2,042 $1,870 9.2 $7,796 $7,262 7.4 Footnote: (1) Includes cumulative long distance line adjustments of 1,318,000 lines in the fourth quarter of 2003. As previously disclosed, these adjustments pertain to an overstatement of long distance lines discovered in the second quarter of 2004. Verizon Communications Inc. Verizon Wireless - - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended Ended Ended % % Unaudited 12/31/04 12/31/03 Change 12/31/04 12/31/03 Change Revenues Service revenues $6,467 $5,366 20.5 $24,400 $20,336 20.0 Equipment and other 875 618 41.6 3,262 2,153 51.5 Total Revenues 7,342 5,984 22.7 27,662 22,489 23.0 Operating Expenses Cost of services and sales 2,128 1,739 22.4 7,747 6,460 19.9 Selling, general & administrative expense 2,658 2,115 25.7 9,591 8,057 19.0 Depreciation and amortization expense 1,181 1,025 15.2 4,486 3,888 15.4 Total Operating Expenses 5,967 4,879 22.3 21,824 18,405 18.6 Operating Income $1,375 $1,105 24.4 $5,838 $4,084 42.9 Operating Income Margin 18.7% 18.5% 21.1% 18.2% Segment Income $396 $307 29.0 $1,645 $1,083 51.9 Selected Operating Statistics Subscribers (000) 43,816 37,522 16.8 43,816 37,522 16.8 Penetration 18.0% 16.0% 18.0% 16.0% Subscriber net adds in period(1) (000) 1,698 1,496 13.5 6,294 5,031 25.1 Total churn rate, including prepaid 1.4% 1.7% 1.5% 1.8% Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated. (1) Includes acquisition of 6,000 subscribers in the first quarter of 2003 and 4,000 subscribers in the fourth quarter of 2004. Verizon Communications Inc. Information Services - - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended % Ended Ended % Unaudited 12/31/04 12/31/03 Change 12/31/04 12/31/03 Change Operating Revenues $890 $933 (4.6) $3,615 $3,830 (5.6) Operating Expenses Cost of services and sales 149 121 23.1 546 559 (2.3) Selling, general & administrative expense 339 398 (14.8) 1,331 1,400 (4.9) Depreciation and amortization expense 22 21 4.8 87 79 10.1 Sales of businesses, net - - - - (141) (100.0) Total Operating Expenses 510 540 (5.6) 1,964 1,897 3.5 Operating Income $380 $393 (3.3) $1,651 $1,933 14.6) Operating Income Margin 42.7% 42.1% 45.7% 50.5% Segment Income $232 $234 (.9) $998 $1,157 (13.7) Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated. Information Services results in all periods exclude the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004. The fourth quarter and year-to-date 2004 also exclude the gain on the sale of Verizon Information Services Canada of $516 million, net of tax. Verizon Communications Inc. International - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 12 Mos. 12 Mos. Ended Ended % Ended Ended % Unaudited 12/31/04 12/31/03 Change 12/31/04 12/31/03 Change Operating Revenues $544 $477 14.0 $2,014 $1,949 3.3 Operating Expenses Cost of services and sales 170 152 11.8 626 574 9.1 Selling, general & administrative expense 120 118 1.7 471 691 (31.8) Depreciation and amortization expense 87 94 (7.4) 324 346 (6.4) Total Operating Expenses 377 364 3.6 1,421 1,611 (11.8) Operating Income $167 $113 47.8 $593 $338 75.4 Operating Income Margin 30.7% 23.7% 29.4% 17.3% Equity in Earnings of Unconsolidated Businesses $305 $302 1.0 $1,031 $1,091 (5.5) Income from Other Unconsolidated Businesses $- $- - $31 $169 (81.7) Segment Income $338 $341 (.9) $1,225 $1,392 (12.0) Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated. Source: Verizon Communications Inc. CONTACT: Media, Peter Thonis, +1-212-395-2355, peter.thonis@verizon.com, or Bob Varettoni, +1-212-395-7726, robert.a.varettoni@verizon.com, both of Verizon Communications Inc. Web site: http://www.verizon.com/ http://www.verizon.com/investor http://www.verizon.com/news Company News On-Call: http://www.prnewswire.com/comp/618232.html ------- Profile: International Entertainment