Verizon Communications
2009 Annual Report
Financial Highlights
(as of December 31, 2009)
Consolidated
Revenues
(billions)
Operating Cash Flow
from Continuing
Operations
(billions)
Declared Dividends
per Share
Reported Diluted
Earnings per Share
$107.8
$31.6
$93.5 $97.4
$27.4 $27.6
$1.78
$1.67
$1.87
$2.26
$1.90
Adjusted Diluted
Earnings per Share
(non-GAAP)
$2.39
$2.54
$2.40
$2.40
$1.29
07
08
09
07
08
09
07
08
09
07
08
09
07
08
09
Corporate Highlights
> 14.5% growth in cash flow from operations
> 40.7% increase in free cash flow
> 5.9 million new wireless customers
> 31% growth in wireless data revenue
> 952,000 new FiOS customers
> 56.5% growth in FiOS revenue
> 3.8% total shareholder return
> 3.3% annual dividend increase
Note: Prior-period amounts have been reclassified to reflect comparable results.
See www.verizon.com/investor for reconciliations to generally accepted accounting principles (GAAP) for the non-GAAP financial measures included in this annual report. Verizon’s results for the periods
presented have been adjusted to reflect the spinoff of local exchange and related business assets in Maine, New Hampshire and Vermont in March 2008. These reclassifications were determined using spe-
cific information where available and allocations where data is not maintained on a state-specific basis within the Company’s books and records. Discontinued operations include Telecomunicaciones de
Puerto Rico Inc. (TELPRI), which was sold in the first quarter of 2007.
Corporate Highlights shown above are presented on a pro forma and adjusted basis. Intra- and inter-segment transactions have not been eliminated from the business group revenue totals cited in this
document. Pro forma information presents the combined operating results of Verizon and Alltel, with the results prior to the acquisition date adjusted to include the pro forma impact of: the elimination
of transactions between Verizon and Alltel; the adjustment of amortization of intangible assets and depreciation of fixed assets based on the preliminary purchase price allocation; the elimination of
merger expenses and management fees incurred by Alltel; and the adjustment of interest expense reflecting the assumption and partial redemption of Alltel’s debt and incremental borrowings incurred
by Verizon Wireless to complete the acquisition of Alltel.
In keeping with Verizon’s commitment to protect the environment, this report was printed on paper certified by the Forest Stewardship Council (FSC). By selecting FSC-certified paper, Verizon is helping to
make a difference by supporting responsible forest management practices.
Chairman’s Letter to
Shareowners
v e r i zo n co m m u n i c at i o n s i n c . 2 0 0 9 a n n ua l r e p o r t
Ivan Seidenberg
Chairman and Chief Executive Officer
Dear Shareowner,
Verizon is now ten years old. In this first decade of the 21st century,
we have transformed our historic franchise around the demands of
a new industry and a new kind of customer. We have built our
company around our belief that the better the network, the better
the performance of everything that rides on it, and we have pushed
ourselves to release the innovative power of our technology to
customers. Our people are animated by their passion for this
industry and our conviction that what we do is important to society.
We’ve had to sharpen our reflexes and quicken our pace to
compete at Internet speed – a challenge we face anew every day –
but overall, Verizon’s first ten years have proven our financial
strength, capacity for growth and ability to adapt to a rapidly
changing environment.
The past year has put those qualities to the test. Competition has intensified and the economy
has stagnated, taking their toll on our growth, profitability and stock price. Clearly, we have more
work to do to align our performance with the expectations of our investors and ourselves.
Despite these challenges, though, our 2009 results demonstrate our staying power and launch us
into 2010 from a position of strength and confidence.
Verizon’s strong cash flows, solid balance sheet and modest revenue growth carried us through
the most severe recession in recent memory. Pro forma adjusted revenues grew 1.5 percent to
$107.8 billion in 2009, while U.S. Gross Domestic Product fell by 2.4 percent. Operating cash flow was
$31.6 billion, up 14.5 percent, and free cash flow was 40.7 percent higher in 2009 than 2008.
1
Wireless
Revenue
(billions)
$62.1
$49.3
$43.9
07
08
09
Wireless Retail
Customers
(millions)
87.5
70.0
63.7
07
08
09
In September, our Board of Directors approved a 3.3 percent increase in our dividend, the third such
increase in as many years. At a time when private capital investments in the U.S. are at near-
historic lows, Verizon invested approximately $17 billion in infrastructure in 2009, which is critical
to our maintaining the network superiority that is the essence of our brand. Thanks to these
investments, we continued to add customers and grow revenues in broadband, wireless and
strategic business services.
Our 2009 performance shows the effects of the prolonged economic downturn. Adjusted
earnings before interest, taxes and depreciation declined by 0.9 percent for 2009 on a pro forma
basis, to $35.7 billion, and adjusted earnings per share from continuing operations for the year
declined by 5.5 percent, to $2.40 per share. While our strategic areas performed well, overall growth
slowed as persistent unemployment and delayed investment on the part of business customers
dampened volumes in long-distance and wholesale.
Still, with our stable revenues, strong balance sheet and good fundamentals, we are
weathering the economic storm reasonably well and continuing to press forward with our growth
agenda.
We made progress on several strategic initiatives to realign our assets around broadband and
wireless. Early in 2009 we completed our acquisition of Alltel, making us the largest wireless
company in the U.S. as measured by the total number of customers and revenues. We reached an
agreement to spin off some rural telephone assets to Frontier, a transaction we expect to complete
in the first half of 2010. And in keeping with our belief in high-quality networks, we continued to
build an advanced wireless and broadband infrastructure and deliver the innovative products,
services and applications that are driving our industry and transforming our society.
Verizon Wireless performed strongly again in 2009. We added 5.9 million customers to end the
year with 91.2 million customers, and we earned $62.1 billion in revenues, up 6.1 percent. (These
numbers are pro forma adjusted to reflect the Alltel acquisition.) Consumer Reports ranked us #1 in
customer satisfaction across all the markets they surveyed, a testament to our continued focus on
network excellence and customer service.
Data revenues grew 31 percent in 2009 on a pro forma basis and now account for almost 30
percent of service revenues, and with the proliferation of smart phones we have tremendous
headroom for growth. Looking ahead, we see wireless data traffic more than doubling every year
and mobile connections increasingly being embedded into the physical world, built into everything
we touch. Verizon Wireless currently operates the nation’s largest and most reliable third-
generation wireless data network, and we are moving forward with plans for a nationwide
fourth-generation network based on a global standard called LTE, for “Long-Term Evolution.” This
In Their Own Words
On financial performance:
On wireless transformation:
“I believe that our results show good operating and financial discipline
throughout the business. Our strong focus on managing costs and capital
spending allowed us to maximize free cash flow and return cash to
shareowners. Our Board’s decision to approve a dividend increase for the third
consecutive year demonstrates confidence in the strength of our cash flow
and balance sheet, as well as our commitment to reward shareowners while
continuing to invest for long-term growth.”
“Verizon’s fourth-generation (4G) network technology will dramatically enhance
wireless data speeds, opening a new world of devices, content and applications
that will ride on it. Expect to see mobile video-sharing, conferencing and
streaming all in higher definition than is possible today. There will be an
explosion of consumer electronics embedded with 4G. Moreover, 4G will have
the capacity to enable a whole new wireless grid of machine-to-machine
connections. The growth potential is extraordinary.”
- John Killian, EVP and CFO – Verizon
- Lowell McAdam, EVP and President and CEO – Verizon Wireless
Wireless
Data Revenue
(billions)
$16.0
$10.7
$7.4
07
08
09
Wireless Retail
Service ARPU
$51.57 $51.88 $51.00
07
08
09
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new LTE network will be up to 10 times faster and much more cost-efficient than today’s wireless
technology. Since acquiring prime spectrum for this build-out, we have selected technology
partners and conducted extensive tests of LTE in Boston and Seattle. We will begin to offer
commercial service later in 2010 and are in a great position to extend our leadership in the next
phase of growth in the wireless industry.
We are also priming the innovation pump for the coming explosion of smart devices,
multimedia applications and machine-to-machine communications. We started our own
innovation lab, opened our network to outside developers, and are working with partners such as
Qualcomm, Skype and Google to create new devices, applications and services, and we have joined
with China Mobile, Softbank Japan and Vodafone to create a Joint Innovation Laboratory to foster
application development worldwide. We expanded our portfolio of smart phones and devices, one
of which – the Motorola Droid smart phone, based on Google’s Android operating system – topped
Time’s list of the best new gadgets of 2009.
In broadband, the Internet is evolving from a text-based to a visual medium. We expect video
will grow from about half of Internet traffic today to as much as 75 percent over the next five years.
In anticipation of this trend, Verizon has spent several years redefining our consumer telecom
business around broadband and video by deploying an all-fiber network called FiOS that takes
high-capacity fiber all the way to customers’ homes – giving us the optimal platform for delivering
the high-definition, interactive digital experiences that customers have been waiting for.
Five years into this project, we now pass 15.4 million homes with this intelligent, ultra-
broadband network – including major markets such as New York, Washington, D.C., Philadelphia
and Pittsburgh – and we’re well on our way to our target of about 17 million. FiOS revenues grew
56.5 percent to $5.5 billion in 2009, which drove a 1.6 percent growth in consumer revenues –
extremely important as the traditional voice business is declining. We ended 2009 with 3.4 million
FiOS Internet and 2.9 million FiOS TV customers, and surveys by J.D. Power and PCMag.com
consistently rate FiOS as the #1 service in the marketplace.
To further differentiate our fiber platform, we are also introducing a steady stream of new
features such as photo-sharing, Facebook, Twitter and Caller ID on the FiOS TV screen and are
working with developers to encourage innovation for the home environment. As this ecosystem of
applications evolves, Verizon is well positioned to make the fiber-connected smart home a hub for
managing every phase of our customers’ digital lives – from media and entertainment to energy
management to home security, healthcare and more.
Not surprisingly, the economy took a toll on our business revenues in 2009. However, revenues
from strategic business services such as Internet Protocol (IP), consulting and managed services
On network superiority:
On operational efficiency:
“Our investment in intelligent network technology will support the growth
of the Internet well into the 21st century. The incredible speed and bandwidth
in our FiOS and global IP networks uniquely position Verizon to handle
the explosion of Internet and video traffic we’ll see in the years ahead. The
advanced services and solutions we’re able to offer on these intelligent
networks will enhance lives and empower businesses.”
- Fran Shammo, President – Verizon Telecom & Business
“We remain focused on transforming operations and driving process efficiencies
to reduce costs, improve service and enable growth. We’re using our scale to
standardize network, supply chain and major transactional functions to unify
the customer experience across our global operations. Last year we expanded
our FiOS and global IP networks in key growth markets; reduced our real
estate, supply chain and finance operational expenses; and expanded our
Environmental Sustainability Project to make our operations even more efficient.”
- Virginia Ruesterholz, President – Verizon Services Operations
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FiOS Internet
Customers
(millions)
3.4
2.5
1.5
07
08
09
FiOS TV
Customers
(millions)
2.9
1.9
0.9
07
08
09
grew by 4.3 percent. We continued to receive high marks for quality and innovation from leading
industry analysts such as Forrester, the Yankee Group and Gartner, and had numerous significant
customer wins such as the London Stock Exchange, Walmart and JetBlue.
Looking forward, long-term trends in the enterprise space are positive for companies like
Verizon that can help business customers use technology to work smarter and adapt to a virtual
world. Global Internet traffic is increasing at an annual rate of more than 40 percent. Demand for
network-based computing services is on the rise, and global enterprises are increasingly using
collaborative technologies such as videoconferencing and social networking to connect their
mobile workforces and make their operations more efficient and environmentally friendly.
We continue to expand our capacity to address these markets and be the electronic platform of
choice for commerce around the globe. Our IP network reaches 2,700 cities in 159 countries. We
operate 200 data centers around the world. We have turned up high-speed undersea cables to link
the world’s major markets and have deployed a highly secure mesh architecture to provide the
reliability and redundancy these networks require. We are upgrading our global backbone
networks with the first-ever commercial deployment of 100 gigabit per second speeds – giving us a
big head start in handling the explosion of video traffic in the years ahead. We entered the
burgeoning cloud computing market with a product called “computing-as-a-service” and enhanced
our portfolio of managed services to deliver the complete range of communication, information
technology, security and business solutions to business and government customers around the
world. We are also putting our decades of network management experience to work by developing
our vertical capabilities in high-growth segments like healthcare, smart grids, financial services
and security.
To summarize, our 2009 results demonstrated our operational excellence and financial
strength. Our challenge is to make our stock price reflect our belief in Verizon’s value and relevance
in an increasingly network-centric world.
The global economy is experiencing one of the most wrenching periods in memory, and as of
this writing we are not sure when employment and growth will return to normal levels. But
throughout this difficult period, Verizon has stayed the course, choosing to focus on those things
we believe build sustainable, long-term value: maintaining a strong balance sheet and dividend;
transforming our networks and product sets around the markets of the future; strengthening our
brand and culture; and leveraging a depth of expertise in serving customers that few companies
can match.
While we’re disappointed with the performance of our stock in 2009, the strength of Verizon
remains rock solid.
3-Year Total Return
Verizon
S&P 500
40%
0%
-40%
-80%
4.0%
-16.0%
12/31/06
6/30/07
12/31/07
6/30/08
12/31/08
6/30/09
12/31/09
Verizon Wireline
Strategic Services
Revenue
(billions)
$6.3
$6.0
$5.2
07
08
09
Capital Expenditures
(billions)
$17.5 $17.2 $17.0
07
08
09
v e r i zo n co m m u n i c at i o n s i n c . 2 0 0 9 a n n ua l r e p o r t
By remaining true to our core strategies and beliefs, we have entered 2010 in a good position to
benefit as the economy rebounds. Of course, even as the economy returns to “normal,” the larger
forces transforming our industry – technology change, competition, globalization and changing
customer behaviors – mean we’ll never return to an old definition of “normal” again. We know we
need to change the way we work to reflect these new realities. That’s why we are acting
aggressively to reduce our cost structure and improve productivity by reorganizing our wireline
business, reducing our force and using our technology and global scale to drive efficiencies
throughout our business.
We remain as confident as ever in the underlying value of what we’ve built, and our investors
can be assured that we are taking every action in our power to deliver on that promise and see
Verizon’s value reflected in our stock.
I would like to make special mention of two Verizon leaders who retired in 2009. From our
retired chief financial officer, Doreen Toben, we inherit a record of financial discipline, a strong
balance sheet and a passion for execution. Chief Operating Officer Denny Strigl, who retired last
December with 41 years of service, is truly one of the legendary figures of our industry. He built
Verizon Wireless into one of the most amazing growth companies in this or any industry. His work
ethic and high standards inspired generations of Verizon leaders and helped create a culture of
performance that is his lasting legacy to our company. All shareowners owe both these
extraordinary leaders a debt of thanks.
As always, I am grateful to our Board of Directors for their stewardship and leadership in
supporting the investments and strategies required for our long-term success. I also wish to thank
our employees for their efforts in a tough year. Once again, they have proven to be a force for good
in their communities and express our values in every interaction with customers. Whether it’s
digging out from historic snowstorms on the East Coast, springing into action with donations of
time and money after the earthquake in Haiti or simply doing the work, day in and day out, of
maintaining our customers’ vital human connections, our employees continue to demonstrate the
commitment to a higher purpose that characterizes all great companies.
In fact, if there’s a silver lining to the challenging times we’re living through, it’s that the value
of what we do has never been more apparent. In the face of a global recession, economies all over
the world are looking for ways to become smarter, more productive and more competitive. The key
to a smart economy is smart technology that can transform industries and change society. Our
industry is building the smart networks that will be the platform for growth, not just for us but for
America and the world – and Verizon is in the very center of this transformation, as we reinvent
ourselves around mobility, broadband and global connectivity.
That’s why I’ve never been more convinced about the future of our company.
There’s no question in my mind that Verizon is headed in the right direction. The challenge for
us in 2010 is to run faster. You can be assured that everyone at Verizon is approaching that
challenge with confidence in what we do, pride in our accomplishments and a determination to
extend the record of excellence we have built in the first decade of the 21st century into the next.
Ivan Seidenberg
Chairman and Chief Executive Officer
5
The Nation’s Largest and Most Reliable 3G Network
Today’s smart wireless devices are the glue holding our texting and
twittering society together; they’re essential tools for video and multimedia
applications like social networking, photo sharing, music streaming and
location-based services. Across the wireless industry, sales of smart phones
are growing by 30 percent a year, and it’s estimated they’ll account for one of
every three handset sales by 2011.
That’s why network reliability has never been more important. These
highly sophisticated devices require dependable connections, smooth video
streaming, uninterrupted downloads and fast file transfers. To provide the
best possible customer experience, Verizon invested more than $7 billion
last year to add new services and increase the capacity and coverage of our
national wireless network. In fact, when you compare Verizon’s 3G coverage
side-by-side with other carriers, we offer five times more 3G coverage than
our closest competitor.
In 2009 we continued to receive rave reviews for our wireless service.
For the sixth consecutive year, we led the industry in wireless phone service
satisfaction in the prestigious American Customer Satisfaction Index survey.
Our Droid smart phone from Motorola was named “Top Gadget of 2009” by
Time magazine, and Business Traveler magazine named Verizon the world’s
best wireless data service provider in their “Best in Business Travel” Awards.
In addition, Verizon had the “Highest Ranked Wireless Customer Service
Performance” in a 2010 study by J.D. Power and Associates.1
Verizon’s wireless network quality also provides device and application
developers the opportunity to extend the wireless experience into new
dimensions. Through our open development programs, we are working
with innovators to bring to market new wireless services and applications,
such as in-home sensors that manage energy use and healthcare products
that monitor blood pressure or remind you to take your prescriptions. We
anticipate the pace of innovation will accelerate even further as we make
the move to our 4G wireless technology beginning in 2010.
Our devices, network and service add up to a superior customer
experience. Our successful growth has been a result of innovating around
new products, services and applications that expand the market and excite
customers. We’ll continue to grow by doing what we do best: focusing on
our customers, providing superior value and innovating to deliver products
that are a central part of customers’ lives.
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Building the Premier 4G Network
The next great wave of wireless innovation begins with the fourth-
generation of wireless technology. 4G will integrate wireless broadband
deeper into the lives of our consumers and provide enhanced
connectivity between a wide variety of traditional and non-traditional
wireless devices. There will be a proliferation of consumer electronics –
from cameras and multi-player games, to household appliances
and health monitoring devices – all with direct mobile broadband
connections.
4G will also embed wireless broadband into the basic functions
of business and industry. There will be a surge of wireless devices that
communicate with each other – from motion detectors and inventory
trackers, to energy monitors and heat sensors – in every home, vehicle,
building, shipping container and supermarket shelf. The potential
growth of the machine-to-machine market is extraordinary.
Verizon is well positioned to lead our industry into the 4G era.
This year we’ll begin deploying the nation’s first 4G network based
on LTE (Long Term Evolution), the emerging global standard for
next-generation wireless services. We purchased a large amount of
wireless spectrum previously used for analog television broadcasts.
This valuable single-frequency spectrum footprint covers the entire
lower 48 states plus Hawaii, and will give Verizon customers nationwide
bandwidth and coverage, whenever and wherever they need it.
The performance and capabilities of LTE will be unmatched in the
marketplace, allowing customers to do things never before possible
in a wireless environment. The advantages include faster speeds,
lower latency, improved efficiency, better in-building penetration and
simplified worldwide roaming – just to name a few. We plan to launch
our 4G network in 25 to 30 markets in 2010 and cover virtually our
entire current nationwide 3G footprint by the end of 2013.
4G opens a whole new world of connectivity, extending beyond
the conventional wireless handset to new and advanced products and
solutions, innovative devices, and worldwide capabilities. Verizon’s 4G
network promises to offer an enhanced experience for our customers
and new growth opportunities for our shareowners.
7
7
The Nation’s Top-Rated Broadband Service
With the dramatic growth of advanced Internet applications and high-
definition television programming, consumers have become intense users
of bandwidth. In the highly competitive world of broadband, not all services
are created equal. Verizon’s innovative FiOS Internet and TV services travel
on fiber-optic cables all the way to our customers’ homes, providing content
quality and bandwidth capacity that are unsurpassed. In fact, J.D. Power
and Associates ranked Verizon “Highest in Customer Satisfaction Among
Residential Television (two years in a row) and High-Speed Internet Service
Providers in the East.” 2
FiOS was designed around today’s highly interactive digital lifestyle.
If you’ve ever sat in traffic while cars speed by the other way, then you
have an idea of how data traffic moves differently in both directions on
other broadband networks, where uploading a video takes far longer than
downloading it. Because of our unique network design, FiOS Internet gives
customers the fastest possible speeds for both downstream and upstream
content, meaning they can quickly upload photos and videos to family
and friends, experience sharp real-time videoconference connections with
co-workers or enjoy online interactive video games without delays. With
the introduction of our new symmetrical speeds of up to 35 megabits per
second in both directions, Verizon is taking interactive broadband to levels
that other providers can’t match.
Verizon’s FiOS TV service is also delivered over Verizon’s all-fiber-optic
network, providing industry-leading quality and reliability. Fiber delivers
amazingly sharp pictures and sound and has the capacity to transmit a
wide array of high-definition programming. The FiOS platform is capable of
integrating Internet and TV functions, which has fostered the development
of dynamic new on-screen TV widgets that enrich the entertainment
experience by bringing Web applications to the TV screen. Verizon’s
Facebook and Twitter widgets, for example, turn static TV into social TV by
letting customers connect with others while watching their favorite shows.
FiOS TV’s NFL RedZone and ESPN Fantasy Sports widgets convert a living
room into a virtual sports center, with instant access to statistics, scores,
news and real-time critical plays.
Verizon has built the foundation to provide the advanced broadband
services customers will want in the years ahead. As demand grows, our
network can be easily upgraded to provide additional capacity. This allows
us to plan for innovative services like 3-D video and Ultra High-Definition
programming that will require the immense bandwidth of an all-fiber
broadband network.
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Creating the Advanced Home Network
A “home network” used to be a computer connected to a printer. Today
consumers have dozens of digital devices in their homes, most of
which are capable of sharing media in some way. As more devices and
applications enter the market, consumers need to be able to access
their media at anytime, anywhere and on any device.
and MP3 players. Verizon’s Multi-Room DVR lets a customer use one set
top box to record programming and then watch it on up to six other
televisions in the home. Our sophisticated network technology also
enables the home network to fix itself and allows customers to use
self–diagnostic tools to improve performance.
This level of interconnectivity makes the home network look
more like a corporate network. Just like business customers need to
share data throughout their offices, consumers need to move their
photos, videos, music and movies between their digital devices.
Verizon’s FiOS service can simplify consumers’ lives by managing the
complexity of today’s home network and providing system diagnostics
from within our network.
FiOS customers can automatically discover connected devices,
whether they’re wired or wireless, and supervise the communications
among them. They can use their TVs to view pictures and videos stored
on their computers or access content directly from digital cameras
Best of all, FiOS has begun to deliver the long-awaited promise
of interactive TV. We started with small Internet applications called
widgets that run weather and traffic reports, headline news, even social
networking on the TV screen. To encourage more of these services,
we’re working with Internet and programming leaders to deliver more
advanced applications for the biggest, best and most under-utilized
screen in the house: the wide-screen high-definition TV.
Going forward, the home network can be used as a platform
to deliver and manage applications for home security, energy
management, back-up storage, medical monitoring, emergency
response services and a host of other practical services.
9
9
A Global Solutions and Consulting Partner
Technology has dramatically changed how businesses and governments
work. Today, customers, employees, partners and suppliers around the
world need access to widespread business information systems. This new
business model – which we call the extended enterprise – creates real
opportunities for companies to make better decisions, improve customer
service and get to market faster.
financial services, energy and utilities, government, healthcare and retail.
We offer everything from do-it-yourself to fully-managed solutions,
while our global sales consultants are experts at delivering integrated
solutions and professional services. We deliver a full range of local and
regional customer services – from account management to solution
implementation to ongoing service and support management.
With one of the world’s most connected IP networks, Verizon is a
global IT, security and communications solutions partner to businesses and
governments. Our broad range of strategic solutions, services and expertise
can help companies improve infrastructure and application performance,
secure their data and create a collaborative environment that connects their
employees and other key stakeholders around the globe.
We serve the world’s largest businesses and governments, including
96 percent of the Fortune 1000. We offer the solutions, services and
expertise necessary to solve complex business challenges, and our
experience helps customers succeed in industries such as education,
The quality and reliability of our global network, product portfolio and
customer service have not gone unnoticed. Verizon has been recognized
by leading industry analysts and customer surveys, including J.D. Power
and Associates, which ranked Verizon “Highest Customer Satisfaction With
Large Enterprise Business Phone and Business Data Service Providers.”3
Our goal is to help companies turn their extended enterprises into
unified and adaptive organizations that can respond faster to changing
situations, be more productive and efficient and take advantage of growth
opportunities as they arrive.
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Moving Up to the Cloud
As more commerce takes place on the global Web, enterprise custom-
ers need to connect their mobile workforces, secure their data, manage
network traffic, deliver services worldwide and innovate quickly. But they
don’t necessarily want to become a network company to do it. The solu-
tion is to tap into computing capacity and other resources only when
their businesses need them. Cloud computing is one way for businesses
to become more flexible, achieve greater efficiencies and control costs.
Cloud computing puts business applications, data and storage
capacity in the network where they can be accessed on-demand at any
time, by anyone in the enterprise, anywhere around the world. Remote
computers host and run applications such as e-mail, word processing
and data analysis programs, while virtual servers provide additional data
storage when needed. These Internet-based services allow companies
to be more efficient by reducing their investments in network hardware,
business software and employee training.
Verizon is already helping its customers realize the promise of
cloud computing. Our “Computing as a Service” solution enables
companies to employ only the resources they need, rather than incur
the expense of building and managing their own networks. We also offer
customers expert consulting services to help them make the transition
to this new way of managing the global enterprise.
Cloud computing is transforming the way businesses operate,
and the future holds even greater promise. Verizon will deliver a
full range of converged IP communications and IT solutions tailored to
key industries. This compelling cloud-based “everything-as-a-service”
model will be backed by our leading managed and professional services.
In this new era of computing, secure total solutions will be available
on-demand, giving our business customers increased flexibility
and efficiency. Verizon’s leadership will help drive growth in this evolving
industry for years to come.
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The Most Admired Telecommunications Company
Verizon is committed to putting our customers first by providing excellent
service and great communications experiences. We’re also a responsible
corporate citizen, using our broadband and wireless networks to help
make lives better. Our hard work and dedication are paying off – in the
most recent rankings of the “World’s Most Admired Companies” by Fortune
magazine, Verizon was named #1 in the global telecommunications sector,
according to our peers. Our goal is to tap the potential of our employees
and our networks to address social issues that are critical to the well-being
of the communities we serve.
Network Innovation
Verizon’s intelligent broadband networks are powerful engines of growth
and innovation that will continue to have a positive impact on many of
the issues facing our society. As broadband becomes deeply embedded
in the lives of our customers, more Americans will have access to quality
education and efficient healthcare. For people with disabilities and physical
challenges, broadband enables increased accessibility – for example, our
wireless service for the visually impaired converts text into speech. In 2009,
BusinessWeek ranked Verizon 30th on its list of Most Innovative Companies,
citing the high quality of our wireless network, the rollout of our FiOS fiber-
optic service and the upcoming launch of our 4G wireless network.
Empowering Employees
Verizon is committed to offering our employees an environment where
they can gain new skills and work in an exciting growth industry. We
provide progressive health and benefit packages and encourage a balance
between work and family life. As a result, Verizon is frequently recognized as
a great place to work. Working Mother magazine named Verizon one of the
“100 Best Companies for Working Mothers” nine years in a row, as well as
one of the “Best Companies for Multicultural Women” for the fourth straight
year. We’ve been listed on DiversityInc’s “Top 50 Companies for Diversity”
for nine consecutive years, and made Latina Style magazine’s Top 12
in its annual list of the best U.S. companies for Latina employees seven
years in a row. In addition, BusinessWeek magazine named Verizon to its list
of “Best Places to Launch a Career” for the last four years.
Partnering with Communities
Our philanthropic organization, The Verizon Foundation, is committed
to fueling positive social change in issues that impact our employees,
customers and communities. The Foundation’s educational Web site,
Thinkfinity.org, provides teachers, parents and students with the best
educational resources – at no charge – to enhance teacher effectiveness
and student achievement. Our HopeLine program focuses on the
prevention of domestic violence by enabling consumers and businesses
to donate their cell phones, batteries and accessories, with proceeds
going to nearly 350 organizations combating domestic violence. Finally,
our employees are deeply dedicated to volunteerism and generously
share their talents. Last year they donated over 700,000 hours to local
community-based groups across the country and around the world.
Protecting the Environment
Verizon is committed to reducing our impact on the environment by
conserving energy, recycling and developing greener products. We’re also
working to meet the environmental challenges of other industries by help-
ing them develop smart energy grids and smart transportation solutions,
and we’re enabling our customers to reduce their energy consumption
by using innovative broadband applications. As a result, we’re the only U.S.
telecommunications company included on the Dow Jones Sustainability
North America Index, which lists North America’s leading companies as
measured by governance, social and environmental performance.
Verizon’s 1.4 million-square-foot operations center in Basking Ridge, N.J.,
earned the U.S. EPA’s prestigious Energy Star rating for placing among
the top 25% of the most energy-efficient facilities in the U.S. Forty-six
Verizon facilities have earned Energy Star ratings so far. Last year Verizon
placed in the top third on CRO magazine’s “100 Best Corporate Citizens”
and was awarded a “Green Choice Award” for recycling and conservation
initiatives by Natural Health magazine.
To learn more about Verizon’s commitment to corporate responsibility,
visit us online at verizon.com/responsibility.
12
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
Selected Financial Data
2009
2008
(dollars in millions, except per share amounts)
2005
2006
2007
Results of Operations
Operating revenues
Operating income
Income before discontinued operations, extraordinary item
and cumulative effect of accounting change attributable
to Verizon
Per common share – basic
Per common share – diluted
Net income attributable to Verizon
Per common share – basic
Per common share – diluted
Cash dividends declared per common share
Net income attributable to noncontrolling interest
Financial Position
Total assets
Debt maturing within one year
Long-term debt
Employee benefit obligations
Noncontrolling interest
Equity attributable to Verizon
$ 107,808
14,027
$ 97,354
16,884
$ 93,469
15,578
$ 88,182
13,373
$ 69,518
12,581
3,651
1.29
1.29
3,651
1.29
1.29
1.87
6,707
6,428
2.26
2.26
6,428
2.26
2.26
1.78
6,155
5,510
1.90
1.90
5,521
1.91
1.90
1.67
5,053
5,480
1.88
1.88
6,197
2.13
2.12
1.62
4,038
6,027
2.18
2.16
7,397
2.67
2.65
1.62
3,001
$ 227,251
7,205
55,051
32,622
42,761
41,606
$ 202,352
4,993
46,959
32,512
37,199
41,706
$ 186,959
2,954
28,203
29,960
32,266
50,603
$ 188,804
7,715
28,646
30,779
28,310
48,562
$ 168,130
6,688
31,569
17,693
26,411
39,702
• Significant events affecting our historical earnings trends in 2007 through 2009 are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
• 2006 data includes sales of business, severance, pension and benefit charges, merger integration costs, as well as relocation charges and other items.
• 2005 data includes sales of business, severance, pension and benefit charges, lease impairment and other items.
Stock Performance Graph
Comparison of Five-Year Total Return Among Verizon, S&P 500 Telecommunications Services Index and S&P 500 Stock Index
Verizon
S&P 500 Telecom Services
S&P 500
s
r
a
l
l
o
D
$160
$140
$120
$100
$80
$60
$40
2004
2005
2006
2007
2008
2009
Data Points in Dollars
Verizon
S&P Telecom Services
S&P 500
2004
100.0
100.0
100.0
At December 31,
2005
77.9
94.7
104.9
2006
104.8
129.3
121.5
2007
128.0
144.7
128.1
2008
104.9
100.6
80.7
2009
108.9
109.6
102.1
The graph compares the cumulative total returns of Verizon, the S&P 500 Telecommunications Services Index, and the S&P 500 Stock Index over a five-year period, adjusted for the spin-off of
our local exchange and related business assets in Maine, New Hampshire and Vermont and our domestic yellow pages directories business. It assumes $100 was invested on December 31,
2004, with dividends reinvested.
13
Management’s Discussion and Analysis
of Financial Condition and results of Operations
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
Overview
Verizon Communications Inc. (Verizon, or the Company), is one of the
world’s leading providers of communications services. Our domestic
wireless business, operating as Verizon Wireless, provides wireless voice
and data products and services across the United States (U.S.) using one
of the most extensive and reliable wireless networks. Our wireline busi-
ness provides communications products and services, including voice,
broadband data and video services, network access, long distance and
other communications products and services, and also owns and oper-
ates one of the most expansive end-to-end global Internet Protocol (IP)
networks. Stressing diversity and commitment to the communities in
which we operate, we have a highly diverse workforce of approximately
222,900 employees.
In the sections that follow, we provide information about the important
aspects of our operations and investments, both at the consolidated and
segment levels, and discuss our results of operations, financial position
and sources and uses of cash. In addition, we highlight key trends and
uncertainties to the extent practicable. The content and organization of
the financial and non-financial data presented in these sections are con-
sistent with information used by our chief operating decision maker for,
among other purposes, evaluating performance and allocating resources.
We also monitor several key economic indicators as well as the state of
the economy in general, primarily in the United States where the majority
of our operations are located, in evaluating our operating results and
assessing the potential impacts of these trends on our businesses. While
most key economic indicators, including gross domestic product, affect
our operations to some degree, we historically have noted higher cor-
relations to non-farm employment, personal consumption expenditures
and capital spending, as well as more general economic indicators such
as inflationary or recessionary trends and housing starts.
Beginning in 2009, we changed the manner in which the Wireline seg-
ment reports Operating revenues to align our financial presentation
to the continued evolution of the wireline business. Accordingly, there
are four revenue-producing lines of business within the Wireline seg-
ment: Mass Markets, Global Enterprise, Global Wholesale and Other.
Mass Markets includes consumer and small business revenues. Global
Enterprise includes retail revenue from enterprise customers, both
domestic and international. Global Wholesale includes wholesale rev-
enues, both domestic and international, including switched and special
access revenues, local wholesale and wholesale services from our global
and IP networks. Other primarily includes operator services, payphone
services and revenues from the former MCI mass markets customer base.
In providing services to former MCI mass market customers, we princi-
pally use other carriers’ networks.
On May 13, 2009, we announced plans to spin off a newly formed sub-
sidiary of Verizon (Spinco) to our stockholders. Spinco will hold defined
assets and liabilities of the local exchange business and related lan-
dline activities of Verizon in Arizona, Idaho, Illinois, Indiana, Michigan,
Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West
Virginia and Wisconsin, and in portions of California bordering Arizona,
Nevada and Oregon, including Internet access and long distance ser-
vices and broadband video provided to designated customers in those
areas. Immediately following the spin-off, Spinco plans to merge with
Frontier Communications Corporation (Frontier) pursuant to a definitive
agreement with Frontier, and Frontier will be the surviving corporation.
Consummation of the transactions contemplated in the agreements is
subject to customary closing conditions. The merger will result in Frontier
acquiring approximately 4 million access lines and certain related busi-
nesses from Verizon, which collectively generated annual revenues of
14
approximately $4 billion for Verizon’s Wireline segment. The Company
does not currently have plans to divest its remaining switched or special
access lines.
Our results of operations, financial position and sources and uses of cash
in the current and future periods reflect our focus on the following stra-
tegic imperatives:
Revenue Growth – To generate revenue growth we are devoting our
resources to higher growth markets such as the wireless voice and data
markets, the broadband and video markets, and the provision of strategic
services to business markets, rather than to the traditional wireline voice
market. During 2009, consolidated revenue growth was 10.7% compared
to 2008, primarily due to the acquisition of Alltel Corporation (Alltel) in
January 2009 and higher revenues in growth markets partially offset by
lower revenue in the Wireline segment. We continue developing and
marketing innovative product bundles to include local, long distance,
wireless, broadband data and video services for consumer and gen-
eral business retail customers. We anticipate that these efforts will help
counter the effects of competition and technology substitution that have
resulted in access line losses, and will enable us to continue to grow con-
solidated revenues.
Market Share Gains – In our wireless business, our goal is to continue
to be the market leader in providing wireless voice and data commu-
nication services in the U.S. We are focused on providing the highest
network reliability and innovative products and services such as Mobile
Broadband and our Evolution-Data Optimized (EV-DO) service. We also
continue to expand our wireless data, messaging and multi-media offer-
ings for both consumer and business customers. With our acquisition of
Alltel, we became the largest wireless provider in the U.S. as measured
by the total number of customers and revenues. In our wireline business,
our goal is to become the leading broadband provider in every market in
which we operate. During 2009, as compared to 2008:
• Domestic Wireless total customers increased 26.6% to 91.2 million as of
December 31, 2009, primarily due to the acquisition of Alltel;
• average revenue per customer per month (ARPU) from service rev-
enues decreased by 1.6% to $50.77, primarily due to the inclusion of
customers acquired in connection with the acquisition of Alltel; and
• total data ARPU grew by 17.9% to $15.20 due to increased use of
Mobile Broadband, e-mail and messaging.
As of December 31, 2009, we passed 15.4 million premises with our high-
capacity fiber optics network operated under the FiOS service mark.
During 2009, at Wireline:
• total broadband and video revenues exceeded $6 billion;
• we added 547,000 net wireline broadband connections, including
952,000 net new FiOS Internet subscribers, for a total of 9.2 million
connections, including 3.4 million FiOS Internet subscribers; and
• we added approximately 943,000 net new FiOS TV subscribers, for a
total of 2.9 million FiOS TV subscribers.
With FiOS, we have created the opportunity to increase revenue per
customer as well as improve profitability as the traditional fixed-line
telephone business continues to decline due to customer migration to
wireless, cable and other newer technologies.
We are also focused on gaining market share in the enterprise business
through the deployment of strategic service offerings – including expan-
sion of our VoIP and international Ethernet capabilities, the introduction
of video and web-based conferencing capabilities, and enhancements to
our virtual private network portfolio. In 2009, revenues from total strategic
services grew 4.3% compared to 2008 led by sales of IP data services.
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Profitability Improvement – Our goal is to increase operating income
and margins. While our wireless, FiOS and IP services offerings continue
to positively impact operating results, economic and secular conditions
continue to affect parts of our wireline business, which we expect to con-
tinue into 2010. Specifically, business customers continue to be adversely
affected by the economy, including delaying decision-making regarding
spending on information technology and customer premises equipment.
The cumulative effect of unemployment is impacting usage volumes,
which is pressuring our margins. In addition, higher costs related to sever-
ance, pension and benefit charges and merger integration activities also
negatively impacted our operating results. However, we remain focused
on cost controls with the objective of reducing expenses to offset lower
revenue.
Operational Efficiency – While focusing resources on revenue growth
and market share gains, we are continually challenging our management
team to lower expenses, particularly through technology-assisted pro-
ductivity improvements, including self-service initiatives. The effect of
these and other efforts, such as real estate consolidation and call center
routing improvements, has led to changes in our cost structure with a
goal of maintaining and improving operating income margins. Through
our deployment of the FiOS network, we expect to realize savings annu-
ally in our ongoing operating expenses as a result of efficiencies gained
from fiber network facilities. As the deployment of the FiOS network con-
tinues and installation and automation improvements occur, average
costs per home connected have begun to decline. In addition, the inte-
gration of Alltel’s operations will continue, and we believe that the use
of the same technology platform is facilitating the integration of Alltel’s
operations with ours.
Customer Service – Our goal is to be the leading company in customer
service in every market we serve. We view superior product offerings and
customer service experiences as a competitive differentiator and a cata-
lyst to growing revenues and gaining market share. We are committed
to providing high-quality customer service and continually monitor cus-
tomer satisfaction in all facets of our business. We believe that we have
the most loyal customer base of any wireless service provider in the
United States, as measured by customer churn.
Performance-Based Culture – We embrace a culture of accountability,
based on individual and team objectives that are performance-based and
tied to Verizon’s strategic imperatives. Key objectives of our compensa-
tion programs are pay-for-performance and the alignment of executives’
and shareowners’ long-term interests. We also employ a highly diverse
workforce, since respect for diversity is an integral part of Verizon’s culture
and a critical element of our competitive success.
Trends
We expect that competition will continue to intensify with traditional,
non-traditional and emerging service providers seeking increased market
share. We believe that our networks differentiate us from our competi-
tors, enabling us to provide enhanced communications experiences to
our customers. We believe our focus on the fundamentals of running a
good business, including operating excellence and financial discipline,
gives us the ability to plan and manage through changing economic
conditions. We will continue to invest for growth, which we believe is the
key to creating value for our shareowners.
Customer and Operating Trends
We expect to achieve revenue and segment operating income growth
in our Domestic Wireless segment by continuing to attract and main-
tain the loyalty of high-quality retail postpaid customers, capitalizing on
customer demand for data services, and bringing our customers new
ways of using wireless services in their daily lives. We expect that future
customer growth may slow as a result of higher wireless market pen-
etration that is driving increased competition for customers within the
wireless industry on the basis of price, service quality and data service
offerings. We recently launched a simplified pricing structure for both
voice and data plans that we believe will drive increased penetration of
data bundles as well as attract and retain higher value customers, while
keeping our pricing within a reasonable competitive range versus our
competitors. Although we have experienced increases in our churn, the
rate at which customers disconnect individual lines of service, primarily
as a result of economic conditions, we expect that the combination of
improvements in economic conditions as well as these recent pricing
structure changes will result in higher customer retention. We expect
future growth opportunities will become more dependent on expanding
both the number and penetration of our wireless data offerings, offering
innovative wireless devices for both consumer and business customers,
and increasing the number of ways that our customers can connect with
our network and services
In recent years, we have experienced continuing access line losses in our
Wireline segment as customers have disconnected both primary and
secondary lines and switched to alternative technologies, such as wire-
less, VoIP and cable for voice and data services. We expect to continue
to experience access line losses as customers continue to switch to alter-
nate technologies.
Despite this challenging environment, we expect that aspects of our
business will continue to grow by providing superior network reliability
as we continue to offer innovative product bundles that include high-
speed Internet access, digital television and local and long distance voice
services and offering more robust IP products and services. Our FiOS
TV subscribers grew by 943,000 and 975,000 in 2009 and 2008, respec-
tively, and we achieved penetration rates of 24.5% and 20.8% for 2009
and 2008, respectively. We will continue to focus on cost efficiencies to
attempt to offset adverse impacts from unfavorable economic conditions
and secular changes.
Operating Revenue
We expect to experience service revenue growth in our Domestic Wireless
segment, primarily as a result of data revenue growth driven by increased
use of data services such as messaging, e-mail and Internet access.
However, during 2009, we began to experience sequential declines in
our overall wireless voice revenue, as any increases as a result of new
customer additions were offset by lower voice revenues per customer
due to factors such as the popularity of bundled plans and an increase
in the number of customers on our Family Share Plan as a result of cus-
tomers seeking to optimize the value they derive from our offerings.
We expect that our future service revenue growth will be substantially
derived from data revenue growth as we continue to expand our wire-
less data offerings on our third generation (3G), and starting in 2010, our
fourth generation (4G) wireless network and increase our sales and usage
of innovative wireless multimedia and smartphone devices, such as the
Motorola Droid. We also expect that recently announced changes in our
pricing structure will contribute to service revenue growth by increasing
data penetration and attracting customers. We believe the economic
conditions in 2009 adversely impacted our customers’ ability and desire
to maintain both wireline and wireless services.
As we continue the rollout of FiOS, we expect it to positively impact our
Mass Market revenues and subscriber base, but we expect to continue
to experience declining revenues in our Wireline segment primarily due
to access line losses as a result of wireless substitution, current economic
conditions and the transaction with Frontier described above.
15
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
COnSOliDAteD reSult S OF OperAtiOnS
In this section, we discuss our overall results of operations and highlight
items that are not included in our business segment results. We have
two reportable segments, which we operate and manage as strategic
business units and organize by products and services. Our segments are
Domestic Wireless and Wireline.
This section and the following “Segment Results of Operations” section
also highlight and describe those items of a non-recurring or non-oper-
ational nature separately to ensure consistency of presentation. In the
following section, we review the performance of our two reportable seg-
ments. We exclude the effects of certain items that management does
not consider in assessing segment performance, primarily because of
their non-recurring or non-operational nature as discussed below and in
the “Other Consolidated Results” and “Other Items” sections. We believe
that this presentation will assist readers in better understanding our
results of operations and trends from period to period.
Corporate, eliminations and other includes unallocated corporate
expenses, intersegment eliminations recorded in consolidation, the
results of other businesses such as our investments in unconsolidated
businesses, lease financing, and other adjustments and gains and losses
that are not allocated in assessing segment performance due to their
non-recurring or non-operational nature. Although such transactions
are excluded from the business segment results, they are included in
reported consolidated earnings. Gains and losses that are not individu-
ally significant are included in all segment results, since these items are
included in the chief operating decision maker’s assessment of segment
performance. Reclassifications of prior period amounts have been made
in accordance with the adoption of the accounting standard on non-
controlling interests in the consolidated financial statements and, where
appropriate, to reflect comparable operating results for the spin-off of
our local exchange and related business assets in Maine, New Hampshire
and Vermont which was completed on March 31, 2008.
Operating Costs and Expenses
Although our overall operating costs and expenses increased in 2009 as
a result of the acquisition of Alltel, we expect to realize further synergies
in 2010 as we continue the integration of Alltel’s operations. Additionally,
complementary technology standards will facilitate the continuing
integration of Alltel’s network operations, resulting in reduced costs to
operate our network. We expect to continue to achieve reduced adver-
tising expense as a result of completing the conversion of the retained
Alltel customers to the Verizon Wireless brand, and to eliminate duplicate
overhead, facility and headcount expenses. We anticipate that labor costs
will decrease in our Wireline segment as a result of headcount reductions
which will be partially offset by increased content costs for video in our
growth businesses. We also expect earnings will be negatively affected
by non-cash pension and retiree benefit costs in 2010.
Capital Expenditures
Our 2010 capital program includes capital to fund the introduction of
advanced networks and services, including FiOS and LTE, the continued
expansion of our core networks, including our IP and wireless EV-DO
networks, integration activities, maintenance and support for our legacy
voice networks and other expenditures. During 2009, we continued to
develop our wireless LTE network, which we intend to deploy in 25 to 30
markets in 2010 and to cover substantially all of the United States by the
end of 2013. The amount and the timing of the Company’s capital expen-
ditures within these broad categories can vary significantly as a result of
a variety of factors outside our control, including, for example, accelera-
tions or delays in obtaining franchises or material weather events. We are
not subject to any agreement that would constrain our ability to con-
trol our capital expenditures by requiring material capital expenditures
on a designated schedule or upon the occurrence of designated events.
Capital expenditures declined in 2009 compared to 2008. We believe that
we have sufficient discretion over the amount and timing of our capital
expenditures on a company-wide basis that we can reasonably expect
to have capital expenditures in the range of $16.8 billion to $17.2 billion
in 2010. Additionally, we plan to substantially complete the FiOS deploy-
ment program by the end of 2010.
Cash Flow from Operations
We create value for our shareowners by investing the cash flows gener-
ated by our business in opportunities and transactions that support our
strategic imperatives, thereby increasing customer satisfaction and usage
of our products and services. In addition, we use our cash flows to main-
tain and grow our dividend payout to shareowners. Verizon’s Board of
Directors increased the Company’s quarterly dividend 3.3% during 2009.
This is the third consecutive year in which we have raised our dividend,
reflecting the strength of our cash flow and balance sheet. Net cash pro-
vided by operating activities for the year ended December 31, 2009 of
$31.6 billion increased by $4.0 billion from $27.6 billion for the year ended
December 31, 2008.
Other
We do not currently expect that legislative efforts relating to climate
control will have a material adverse impact on our consolidated financial
results or financial condition. We believe there may be opportunities for
companies to increase their use of communications services, including
those we provide, in order to minimize the environmental impact of their
businesses.
16
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Consolidated Revenues
Years Ended December 31,
2009
2008
% Change
Domestic Wireless
Service revenue
Equipment and other
Total
Wireline
Mass Markets
Global Enterprise
Global Wholesale
Other
Total
Corporate, eliminations and other
Consolidated Revenues
nm – not meaningful
$
$
53,497
8,634
62,131
19,755
14,988
9,637
1,700
46,080
(403)
107,808
$
$
42,635
6,697
49,332
19,799
15,779
10,360
2,276
48,214
(192)
97,354
25.5
28.9
25.9
(0.2)
(5.0)
(7.0)
(25.3)
(4.4)
nm
10.7
2008
42,635
6,697
49,332
19,799
15,779
10,360
2,276
48,214
(192)
97,354
$
$
(dollars in millions)
% Change
2007
$
$
38,016
5,866
43,882
19,570
15,710
10,750
3,099
49,129
458
93,469
12.2
14.2
12.4
1.2
0.4
(3.6)
(26.6)
(1.9)
nm
4.2
2009 Compared to 2008
Consolidated revenues in 2009 increased by $10,454 million, or 10.7%,
compared to the similar period in 2008, primarily due to the inclusion
of the operating results of Alltel in our Wireless segment and higher
revenues in our growth markets. These revenue increases were partially
offset by declines in revenues at our Wireline segment due to switched
access line losses and decreased minutes of use (MOUs) in traditional
voice products.
Domestic Wireless’s revenues in 2009 increased by $12,799 million, or
25.9%, compared to the similar period in 2008, primarily due to the inclu-
sion of the operating results of Alltel and continued growth in service
revenue. Service revenue in 2009 increased $10,862 million, compared
to the similar period in 2008 primarily as a result of the 13.2 million net
new customers, after conforming adjustments, which we acquired in
connection with the acquisition of Alltel on January 9, 2009, as well as a
5.9 million, or 8.2%, increase in total customers from sources other than
acquisitions. Total data revenue was $16,014 million and accounted for
29.9% of service revenue in 2009, compared to $10,651 million and 25.0%,
respectively, during the similar period in 2008 because of increased use
of Mobile Broadband, e-mail, and messaging.
Domestic Wireless’s equipment and other revenue in 2009 increased by
$1,937 million, or 28.9%, compared to the similar period in 2008, primarily
due to an increase in gross customer additions as well as an increase in
the number of units sold to existing customers upgrading their wireless
devices. Other revenues increased primarily due to the inclusion of the
operating results of Alltel and an increase in our cost recovery rate.
Wireline’s revenues in 2009 decreased by $2,134 million, or 4.4%, com-
pared to the similar period in 2008. Mass Markets revenues in 2009
decreased $44 million, or 0.2%, compared to the similar period in 2008,
primarily due to continued decline of local exchange revenues principally
as a result of switched access line losses, partially offset by a continued
growth in FiOS services. Global Enterprise revenues in 2009 decreased by
$791 million, or 5.0%, compared to the similar period in 2008, primarily
due to lower long distance and traditional circuit-based data revenues,
and lower customer premise equipment combined with the negative
effects of movements in foreign exchange rates versus the U.S. dollar. This
decrease was offset partially by an increase in IP and security solutions
revenues. Global Wholesale revenues in 2009 decreased $723 million, or
7.0%, compared to the similar period in 2008, due to decreased MOUs in
traditional voice products and continued rate compression due to com-
petition in the marketplace.
2008 Compared to 2007
Consolidated revenues in 2008 increased by $3,885 million, or 4.2%, com-
pared to 2007. This increase was primarily the result of continued strong
growth at Domestic Wireless.
Domestic Wireless’s revenues in 2008 increased by $5,450 million, or
12.4%, compared to 2007 due to continued strong growth in service rev-
enue. Service revenues during 2008 increased $4,619 million, or 12.2%,
compared to 2007 primarily due to an increase in data revenue and a
6.3 million or 9.7% increase in total customers. Total data revenue was
$10,651 million and accounted for 25.0% of service revenue in 2008,
compared to $7,386 million and 19.4%, respectively, in 2007, as a result
of an increased number of customers using our data services, as well as
increased usage of our messaging services and non-messaging services,
such as Mobile Broadband, e-mail, data transport and newer location-
based data services such as VZ Navigator.
Equipment and other revenue in 2008 increased by $831 million, or 14.2%,
compared to 2007, primarily as a result of an increase in the number of
upgrades for data devices combined with higher average equipment rev-
enue per device for phones, partially offset by lower average equipment
revenue per device for data devices sold through our direct channel.
Wireline’s revenues in 2008 decreased by $915 million, or 1.9%, compared
to 2007, primarily driven by declines in Other and Global Wholesale rev-
enues partially offset by increases in Mass Markets and Global Enterprise
revenues.
Global Wholesale revenues during 2008 decreased by $390 million, or
3.6%, compared to 2007, due to declines in switched access revenues in
traditional voice products and local wholesale revenues, decreased MOUs
in traditional voice products and continued rate compression in the mar-
ketplace. This decrease was partially offset by an increase in special access
revenues. Mass Markets revenues during 2008 increased $229 million, or
1.2%, compared to 2007, primarily due to continued growth in FiOS ser-
vices, partially offset by a continued decline of local exchange revenues
principally as a result of switched access line losses. Global Enterprise
revenues increased $69 million, or 0.4%, during 2008 compared to 2007,
primarily due to an increase in IP and security solutions revenues partially
offset by lower long distance and traditional circuit-based data revenues,
combined with the negative effects of movements in foreign exchange
rates versus the U.S. dollar. Other revenue in 2008 decreased $823 mil-
lion, or 26.6%, compared to the similar period in 2007, primarily due to
the discontinuation of non-strategic product lines and reduced business
volumes, including former MCI mass markets customer losses.
17
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Consolidated Operating Expenses
Years Ended December 31,
Cost of services and sales
Selling, general and administrative expense
Depreciation and amortization expense
Consolidated Operating Expenses
2009
44,299
32,950
16,532
93,781
$
$
2008
% Change
$
$
39,007
26,898
14,565
80,470
13.6
22.5
13.5
16.5
2008
39,007
26,898
14,565
80,470
$
$
(dollars in millions)
% Change
2007
$
$
37,547
25,967
14,377
77,891
3.9
3.6
1.3
3.3
2009 Compared to 2008
Cost of Services and Sales
Cost of services and sales includes the following costs directly attribut-
able to a service or product: salaries and wages, benefits, materials and
supplies, contracted services, network access and transport costs, wire-
less equipment costs, customer provisioning costs, computer systems
support, costs to support our outsourcing contracts and technical facili-
ties and contributions to the universal service fund. Aggregate customer
care costs, which include billing and service provisioning, are allocated
between Cost of services and sales and Selling, general and administra-
tive expense.
Consolidated cost of services and sales during 2009 increased by $5,292
million, or 13.6%, compared to 2008, primarily due to higher wireless
network costs, including the effects of operating an expanded wire-
less network as a result of the acquisition of Alltel, and increased costs
of equipment. Additionally, we experienced increased costs associated
with our growth businesses including higher content and customer
acquisition costs. Also contributing to the increase were an increase in
the numbers of both data and phone equipment units sold as well as an
increase in the average cost per equipment unit. Partially offsetting these
increases were reduced roaming costs realized by moving more traffic
to our own network as a result of the acquisition of Alltel and declines
due in part to lower headcount and productivity improvements at our
Wireline segment.
Consolidated cost of services and sales during 2009 included $195 mil-
lion for merger integration and acquisition costs primarily related to the
Alltel acquisition, and $38 million for costs incurred related to preparing
the separation of the wireline facilities and operations in the markets to
be divested in the transaction with Frontier.
Consolidated cost of services and sales in 2009 and 2008 included $1,444
million and $65 million, respectively, for severance, pension and benefits
charges.
Consolidated cost of services and sales in 2008 include $24 million of
costs primarily associated with the integration of MCI into our wireline
business. Consolidated cost of services and sales expense during 2008
also included $16 million related to the spin-off of local exchange and
related business assets in Maine, New Hampshire and Vermont.
Selling, General and Administrative Expense
Selling, general and administrative expense includes salaries and wages
and benefits not directly attributable to a service or product, bad debt
charges, taxes other than income taxes, advertising and sales commis-
sion costs, customer billing, call center and information technology costs,
professional service fees and rent and utilities for administrative space.
Consolidated selling, general and administrative expense in 2009
increased by $6,052 million, or 22.5%, compared to 2008. This increase
was primarily due to increased wireless salary and benefits as a result of a
larger employee base after the acquisition of Alltel and higher sales com-
mission in our indirect channel in Domestic Wireless, partially offset by
the impact of cost reduction initiatives in our Wireline segment.
18
Consolidated selling, general and administrative expense in 2009 included
$2,602 million, for severance, pension and benefits charges. Consolidated
selling, general and administrative expense in 2009 also included $442
million, primarily for merger integration and acquisition costs related to
the acquisition of Alltel, as well as $415 million for costs incurred related
to our Wireline cost reduction initiatives and costs to enable the mar-
kets to be divested to operate on a stand-alone basis subsequent to the
closing of the transaction with Frontier.
Consolidated selling, general and administrative expense in 2008 included
$885 million for severance and severance-related costs as well as pen-
sion settlement losses. Consolidated selling, general and administrative
expense also included $150 million for merger integration costs, primarily
related to the former MCI system integration activities and $87 million
related to the spin-off of local exchange and related business assets in
Maine, New Hampshire and Vermont.
Depreciation and Amortization Expense
Depreciation and amortization expense in 2009 increased by $1,967
million, or 13.5%, compared to 2008. This increase was mainly driven by
depreciable property and equipment and finite-lived intangible assets
acquired from Alltel which are not being divested, as well as growth in
depreciable plant from capital spending partially offset by lower rates of
depreciation. Depreciation and amortization expense in 2009 included
$317 million of merger integration costs related to the Alltel acquisition.
2008 Compared to 2007
Cost of Services and Sales
Consolidated cost of services and sales in 2008 increased by $1,460 mil-
lion, or 3.9%, compared to 2007, primarily as a result of higher wireless
network costs and wireless equipment costs. The increase was partially
offset by the impact of productivity improvement initiatives and lower
cost of services and sales driven by a decline in switched access lines
in service and wholesale voice connections. The higher wireless network
costs in 2008 were primarily caused by increased network usage for voice
and data services, increased roaming, increased use of data services and
applications and increased payments related to network leases. Cost of
wireless equipment increased in 2008 compared to 2007 primarily as a
result of an increase in the number of equipment upgrades by customers,
combined with an increase in average equipment cost per device as a
result of an increase in the sale of higher-cost advanced wireless devices.
The increase in cost of services and sales was also impacted by unfavor-
able foreign exchange rates, higher utility costs and the inclusion of the
results of operations of a security services firm acquired on July 1, 2007.
Consolidated cost of services and sales in 2008 and 2007 included $24
million and $32 million, respectively, of costs primarily associated with
the integration of MCI into our wireline business. Consolidated cost of ser-
vices and sales in 2008 also included $16 million related to the spin-off of
local exchange and related business assets in Maine, New Hampshire and
Vermont and $65 million for severance, pension and benefits charges.
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Selling, General and Administrative Expense
Consolidated selling, general and administrative expense in 2008 increased
by $931 million, or 3.6%, compared to 2007. The increase resulted from an
increase in sales commission expense, bad debt expense and advertising
and promotions costs, partially offset by a decrease in salary and benefits
related expense and the impact of productivity initiatives.
Consolidated selling, general and administrative expense in 2008
included $885 million for severance, pension and benefits charges, $150
million for merger integration costs, primarily comprised of systems inte-
gration activities related to businesses acquired and $87 million related
to the spin-off of local exchange and related business assets in Maine,
New Hampshire and Vermont.
Consolidated selling, general and administrative expense in 2007
included charges of $772 million for severance and related expenses,
$146 million for merger integration costs, primarily comprised of sys-
tems integration activities related to businesses acquired and $84 million
related to the spin-off of local exchange and related business assets in
Maine, New Hampshire and Vermont. In addition, during 2007 we con-
tributed $100 million of the proceeds from the sale of our investment
in Telecomunicaciones de Puerto Rico, Inc. (TELPRI) to the Verizon
Foundation.
Depreciation and Amortization Expense
Depreciation and amortization expense in 2008 increased by $188 mil-
lion, or 1.3%, compared to 2007. The increase was primarily driven by
growth in depreciable assets.
Other Consolidated Results
Equity in Earnings of Unconsolidated Businesses
Years Ended December 31,
Vodafone Omnitel
Other
Total
nm – not meaningful
2009
621
(68)
553
$
$
2008
% Change
$
$
655
(88)
567
(5.2)
(22.7)
(2.5)
2008
655
(88)
567
$
$
(dollars in millions)
% Change
2007
$
$
597
(12)
585
9.7
nm
(3.1)
Equity in earnings of unconsolidated businesses in 2009 decreased by
$14 million compared to 2008. The decrease was primarily due to higher
income tax benefits recorded at Vodafone Omnitel N.V. (Vodafone
Omnitel) during 2008. Partially offsetting the decrease were higher earn-
ings at Vodafone Omnitel as well as the devaluation of the Euro versus
the U.S. dollar.
Equity in earnings of unconsolidated businesses in 2008 decreased by
$18 million compared to 2007. The decrease was primarily driven by the
gain on the sale of an international investment in 2007, partially offset by
higher earnings at Vodafone Omnitel in 2008.
Other Income and (Expense), Net
Years Ended December 31,
2009
2008
% Change
Interest income
Foreign exchange gains (losses), net
Other, net
Total
nm – not meaningful
$
$
75
–
15
90
$
$
362
(46)
(34)
282
(79.3)
(100.0)
nm
(68.1)
2008
362
(46)
(34)
282
$
$
(dollars in millions)
% Change
2007
$
$
168
14
29
211
nm
nm
nm
33.6
Other income and (expense), net in 2009 decreased by $192 million
compared to 2008. The decrease was primarily driven by lower interest
income, in part due to lower invested balances in the current year. The
$4.8 billion investment in Alltel debt obligations acquired in 2008 was
eliminated in consolidation beginning in January 2009, subsequent to
the close of the Alltel transaction.
Other income and (expense), net in 2008 increased by $71 million com-
pared to 2007. The increase was primarily attributable to higher interest
income, primarily from our investment in Alltel’s debt obligations. Partially
offsetting the increase were foreign exchange losses at our international
wireline operations and an impairment charge of $48 million recorded
during the fourth quarter of 2008 related to an other-than-temporary
decline in fair value of our investments in certain marketable securities.
19
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Interest Expense
Years Ended December 31,
Total interest costs on debt balances
Less capitalized interest costs
Total
Average debt outstanding
Effective interest rate
$
$
$
2009
4,029
927
3,102
64,039
6.29%
2008
% Change
57.0
24.1
70.5
$
$
$
2,566
747
1,819
41,064
6.25%
$
$
$
2008
2,566
747
1,819
41,064
6.25%
(dollars in millions)
% Change
2007
13.6
74.1
(0.5)
$
$
$
2,258
429
1,829
32,964
6.85%
Total interest costs on debt balances in 2009 increased by $1,463 million
compared to 2008, primarily due to the $23 billion increase in the average
debt levels. The increase in average debt outstanding compared to 2008
was primarily driven by borrowings to finance the acquisition of Alltel.
The increase in capitalized interest costs during 2009 primarily related
to capitalization of interest on wireless licenses under development for
commercial service primarily as a result of the spectrum acquired in the
700 MHz auction (see “Consolidated Financial Condition”).
Total interest costs on debt balances in 2008 increased by $308 million,
compared to 2007, due to an increase in the average debt level, partially
offset by lower interest rates compared to 2007. Interest expense in 2008
decreased $10 million compared to 2007 primarily due to higher capital-
ized interest costs. The increase in capitalized interest costs was related to
the development of wireless licenses. The increase in average debt out-
standing was primarily driven by the issuance of $8,000 million of fixed
rate notes with varying maturities, in the first half of 2008, and to a lesser
extent, the Verizon Wireless borrowings during the second half of 2008
(see “Consolidated Financial Condition”).
Provision for Income Taxes
Years Ended December 31,
Provision for income taxes
Effective income tax rate
$
2009
1,210
10.5%
2008
% Change
$
3,331
20.9%
(63.7)
$
2008
3,331
20.9%
(dollars in millions)
% Change
2007
$
3,982
27.4%
(16.3)
The effective income tax rate is calculated by dividing the provision
for income taxes by income before the provision for income taxes. Our
effective tax rate is significantly lower than the statutory federal income
tax rate for all years presented due to the inclusion of income attribut-
able to Vodafone Group Plc.’s (Vodafone) noncontrolling interest in the
Verizon Wireless partnership within our Income before the provision for
income taxes.
The effective income tax rate in 2009 decreased to 10.5% from 20.9% in
2008. The decrease was primarily driven by higher earnings attributable
to the noncontrolling interest.
The state and local income tax rate in 2009 was lower than 2008 due
to reductions in unrecognized tax benefits after statutes of limitations in
multiple jurisdictions lapsed and the impact of earnings attributable to
the noncontrolling interest.
The effective income tax rate in 2008 decreased to 20.9% from 27.4% in
2007. The decrease was primarily due to recording $610 million of for-
eign and domestic taxes and expenses in 2007 relating to our share of
Vodafone Omnitel’s distributable earnings. This expense, which increased
the effective tax rate by 3.9 percentage points in 2007 compared to 2008,
was primarily comprised of $300 million of Italian withholding taxes
and $260 million of U.S. federal income taxes. Verizon received net dis-
Discontinued Operations
On March 30, 2007, after receiving Federal Communications Commission
(FCC) approval, we completed the sale of our 52% interest in TELPRI and
received gross proceeds of approximately $980 million. The sale resulted
in a pretax gain of $120 million ($70 million after-tax, or $.02 per diluted
20
tributions from Vodafone Omnitel in April 2008 and December 2007 of
approximately $670 million and $2,100 million, respectively.
The state and local income tax rate in 2008 was higher than 2007 primarily
due to an increase in earnings at Verizon Wireless apportioned to states
with higher state income tax rates than the remainder of the Company’s
operations. This increase was partially offset by lower expenses recorded
for unrecognized tax benefits in 2008 compared to 2007.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate for each period is included in Note 13 to the consoli-
dated financial statements.
The Company projects its 2010 effective tax rate to be in the range of 18%
to 20% excluding the impact of integration and similar costs incurred in
connection with the Alltel acquisition, divestiture of Alltel overlapping
properties, and divestiture of access lines. As a global commercial enter-
prise, it is difficult to forecast the Company’s full-year effective tax rate
with any further precision due to the numerous factors that could occur
and impact the rate. Examples of these factors include possible changes
in federal, state and foreign income tax laws or rates, developments with
respect to open tax years and income tax audits requiring adjustments to
unrecognized tax benefits, acquisitions and dispositions, and changes in
operating results that would require increases or decreases to valuation
allowances. For 2010, excluding earnings attributable to the noncontrol-
ling interest in Verizon Wireless would result in a projected effective tax
rate of 33% to 35% attributable to Verizon.
share). Additionally, $100 million of the proceeds were contributed to the
Verizon Foundation.
We have classified the financial information of TELPRI as discontinued
operations in the consolidated financial statements for all periods pre-
sented through the date of the divestiture.
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Extraordinary Item
In January 2007, the Bolivarian Republic of Venezuela (the Republic)
declared its intent to nationalize certain companies, including CANTV. On
February 12, 2007, we entered into a Memorandum of Understanding
(MOU) with the Republic, which provided that the Republic offer to pur-
chase all of the equity securities of CANTV, including our 28.5% interest,
through public tender offers in Venezuela and the United States.
Under the terms of the MOU, the prices in the tender offers would be
adjusted downward to reflect any dividends declared and paid sub-
sequent to February 12, 2007. During 2007, the tender offers were
completed and Verizon received an aggregate amount of approximately
$572 million, which included $476 million from the tender offers as well
as $96 million of dividends declared and paid subsequent to the MOU.
During 2007, based upon our investment balance in CANTV, we recorded
an extraordinary loss of $131 million, including taxes of $38 million, or
$.05 per diluted share.
Net Income Attributable to Noncontrolling Interest
Years Ended December 31,
2009
2008
% Change
2008
(dollars in millions)
% Change
2007
Net income attributable
to noncontrolling interest
$
6,707
$
6,155
9.0
$
6,155
$
5,053
21.8
The increase in Net income attributable to noncontrolling interest in 2009 compared to 2008, and in 2008 compared to 2007, was due to the higher
earnings in our Domestic Wireless segment, which has a 45% noncontrolling interest attributable to Vodafone.
SegMent reSult S OF OperAtiOnS
We have two reportable segments, Domestic Wireless and Wireline, which we operate and manage as strategic business units and organize by prod-
ucts and services. We measure and evaluate our reportable segments based on segment operating income. The use of segment operating income is
consistent with the chief operating decision maker’s assessment of segment performance. You can find additional information about our segments in
Note 14 to the consolidated financial statements.
Domestic Wireless
Our Domestic Wireless segment, which includes the operations of Alltel subsequent to the completion of the acquisition, provides wireless voice
and data services and equipment sales across the U.S. This segment primarily represents the operations of the Verizon joint venture with Vodafone,
operating as Verizon Wireless. We own a 55% interest in the joint venture and Vodafone owns the remaining 45%. All financial results included in the
tables below reflect the consolidated results of Verizon Wireless.
Operating Revenue and Selected Operating Statistics
Years Ended December 31,
Service revenue
Equipment and other
Total Operating Revenue
Total customers ('000)
Retail customers ('000)
Total customer net additions (including
acquisitions and adjustments) ('000)
Retail customer net additions (including
acquisitions and adjustments) ('000)
Total churn rate
Retail postpaid churn rate
Service ARPU
Retail service ARPU
Total data ARPU
nm - not meaningful
$
$
$
2009
53,497
8,634
62,131
91,249
87,523
19,193
17,502
1.44%
1.09%
50.77
51.00
15.20
2008
% Change
$
$
$
42,635
6,697
49,332
72,056
70,021
6,349
6,286
1.25%
0.96%
51.59
51.88
12.89
25.5
28.9
25.9
26.6
25.0
nm
nm
15.2
13.5
(1.6)
(1.7)
17.9
$
$
$
2008
42,635
6,697
49,332
72,056
70,021
6,349
6,286
1.25%
0.96%
51.59
51.88
12.89
(dollars in millions, except ARPU)
% Change
2007
$
$
$
38,016
5,866
43,882
65,707
63,735
6,655
6,923
1.21%
0.91%
50.96
51.57
9.90
12.2
14.2
12.4
9.7
9.9
(4.6)
(9.2)
3.3
5.5
1.2
0.6
30.2
21
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Domestic Wireless’s total operating revenue during 2009 increased by
$12,799 million, or 25.9%, compared to 2008, primarily due to the inclu-
sion of the operating results of Alltel, as well as growth in our service
revenue from sources other than the acquisition of Alltel.
Service revenue
Service revenue in 2009 increased by $10,862 million, or 25.5%, compared
to 2008, primarily due to the inclusion of service revenue as a result of
the 13.2 million net new customers, after conforming adjustments, which
we acquired in connection with the acquisition of Alltel. Since January 1,
2009, service revenue also increased as a result of a 5.9 million, or 8.2%,
increase in total customers from sources other than customer acquisi-
tions, as well as continued growth from data services.
Excluding retail customer acquisitions, Domestic Wireless added 4.6 million
net retail customers during 2009, compared to approximately 5.8 million
in 2008. The decline in net retail customer additions for 2009 was due to
an increase in churn, compared to 2008, partially offset by an increase in
gross customer additions due to the expansion of our sales and distribu-
tion channels as a result of the acquisition of Alltel. Excluding customer
acquisitions, Domestic Wireless added approximately 5.9 million net total
customers in 2009, compared to approximately 5.8 million in 2008. The
increase in net total customer additions for 2009 was due to an increase in
gross customer additions from our reseller channels, primarily during the
fourth quarter of 2009, partially offset by the above mentioned changes
in net retail customer additions. The increases in our total and retail post-
paid churn rates were primarily a result of increased disconnections of
Mobile Broadband service and business share lines, which we believe are
primarily attributable to current economic conditions.
Total data revenue was $16,014 million and accounted for 29.9% of service
revenue in 2009, compared to $10,651 million and 25.0%, respectively, in
2008. Total data revenue continues to increase as a result of increased
use of Mobile Broadband, e-mail and messaging. We expect that data
revenue will continue to increase as a result of recent strong sales of 3G
smartphone devices and continued introductions of new data-capable
3G smartphone and multimedia devices.
The declines in service ARPU and retail service ARPU were due to the
inclusion of customers acquired in connection with the acquisition of
Alltel, as well as continued reductions in voice ARPU, partially offset by an
increase in total data ARPU. Total voice ARPU declined $3.13, or 8.1%, in
2009, compared to 2008, due to the on-going impact of bundled plans
and increases in the proportion of customers on our Family Share plans
as customers seek to optimize the value of our offerings. Total data ARPU
increased by $2.31, or 17.9%, in 2009, compared to 2008, as a result of the
increased usage of our data services.
Domestic Wireless’s total operating revenue increased by $5,450 mil-
lion, or 12.4%, in 2008 compared to 2007, primarily due to continued
strong growth in service revenue. Service revenue during 2008 increased
by $4,619 million, or 12.2%, compared to 2007, primarily caused by an
increase in data revenue in 2008 compared to 2007, and a 6.3 million or
9.7% increase in total customers in 2008.
Excluding retail customer acquisitions, Domestic Wireless added
approximately 5.8 million net retail customers during 2008, compared
to approximately 6.9 million during 2007. On the same basis, Domestic
Wireless added approximately 5.8 million net total customers during
2008, compared to approximately 6.6 million during 2007. The declines
in both net retail customer additions and net total customer additions in
2008 compared to 2007 were due to an increase in our churn, partially
offset by a slight increase in gross customer additions. The increases in
both total and retail postpaid churn rates were primarily a result of cus-
tomer-favorable policy changes which removed barriers to early contract
termination and an increase in the rate of disconnections for our Mobile
Broadband service.
Total data revenue was $10,651 million and accounted for 25.0% of ser-
vice revenue in 2008, compared to $7,386 million and 19.4%, respectively,
in 2007 as a result of the continued increase in the number of customers
using our data services, as well as increased usage of our messaging ser-
vices and non-messaging services, such as Mobile Broadband, e-mail, data
transport and newer location-based data services such as VZ Navigator.
The increases in service ARPU and retail service ARPU in 2008 compared
to 2007 were primarily due to an increase of 30.2% in total data ARPU
as a result of the increased usage of our data services, partially offset by
continued dilution of voice ARPU.
Customer acquisitions during 2008 included approximately 650,000 net
total customer additions, after conforming adjustments, acquired from
Rural Cellular Corporation (Rural Cellular). As a result of an exchange with
AT&T consummated on December 22, 2008, Domestic Wireless trans-
ferred a net of approximately 122,000 total customers.
Equipment and Other Revenue
Equipment and other revenue in 2009 increased by $1,937 million, or
28.9%, compared to 2008 primarily due to an increase in the number of
both data and phone equipment units sold, partially offset by a decrease
in the average revenue per unit. The increase in the number of equipment
units sold was a result of both the increase in gross customer additions
as well as an increase in the number of units sold to existing customers
upgrading their wireless devices. Other revenues increased primarily due
to the inclusion of the operating results of Alltel and an increase in our
cost recovery rate.
Equipment and other revenue in 2008 increased by $831 million, or 14.2%,
compared to 2007, primarily as a result of an increase in the number of
upgrades for data devices combined with higher average equipment
revenue per device for phone devices, partially offset by lower average
equipment revenue per device for data devices sold through our direct
channel, in part driven by promotions during 2008. Other revenue also
increased because of increased cost recovery surcharges and regula-
tory fees, as a result of the increase in customer base combined with an
increase in our cost recovery rate.
22
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Operating Expenses
Years Ended December 31,
Cost of services and sales
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
2009
19,749
17,847
7,030
44,626
$
$
2008
% Change
$
$
15,660
14,273
5,405
35,338
26.1
25.0
30.1
26.3
2008
15,660
14,273
5,405
35,338
$
$
(dollars in millions)
% Change
2007
$
$
13,456
13,477
5,154
32,087
16.4
5.9
4.9
10.1
Cost of Services and Sales
Cost of services and sales includes costs to operate the wireless network
as well as the cost of roaming and long distance, the cost of data services
and applications and the cost of equipment sales. Cost of services and
sales in 2009 increased by $4,089 million, or 26.1%, compared to 2008.
The increase was primarily due to higher wireless network costs, including
the effects of operating an expanded wireless network as a result of the
acquisition of Alltel. This increase includes network usage for voice and
data services, use of data services and applications such as e-mail and
messaging provided by third party vendors, operating lease expense
related to a larger number of cell sites, as well as salary and benefits as a
result of an increase in network-related headcount. These increases were
partially offset by a decrease in roaming costs that was realized primarily
by moving more traffic to our own network as a result of the acquisition
of Alltel. Cost of equipment increased by $2,382 million or 24.5% com-
pared to 2008, primarily due to the increase in the number of both data
and phone equipment units sold as well as an increase in the average
cost per equipment unit.
Cost of services and sales in 2008 increased by $2,204 million, or 16.4%,
compared to 2007 primarily due to higher wireless network costs as a
result of increased network usage for voice and data services, increased
use of data services and applications, such as messaging, e-mail and
VZ Navigator, increased data roaming as well as increased payments
related to network-related leases as a result of an increase in the number
of leased cell sites. Cost of equipment increased by $1,543 million or
18.9%, in 2008 compared to 2007, primarily attributable to an increase
in the number of equipment upgrades by customers combined with an
increase in average equipment cost per device as a result of an increase
in the sale of higher-cost advanced wireless devices.
Selling, General and Administrative Expense
Selling, general and administrative expense in 2009 increased by $3,574
million, or 25.0%, compared to 2008. This increase was primarily due
to a $1,052 million increase in salary and benefits as a result of a larger
employee base after the acquisition of Alltel, as well as a $997 million
increase in sales commission expense, primarily in our indirect channel
as a result of increases in both equipment upgrades leading to contract
renewals and gross customer additions, as well as an increase in the
average commission per unit. We also experienced increases in other
selling, general and administrative expenses primarily as a result of sup-
porting a larger customer base as a result of our acquisition of Alltel.
Selling, general and administrative expense in 2008 increased by $796
million, or 5.9%, compared to 2007 primarily caused by an increase in
sales commission expense of $302 million, primarily from an increase in
equipment upgrades in our indirect channel, as well as higher adver-
tising and promotion expense, bad debt expense and regulatory fees.
The increases in selling, general and administrative expense were par-
tially offset by a decrease in salary and benefits related expense.
Depreciation and Amortization Expense
Depreciation and amortization expense in 2009 increased by $1,625
million, or 30.1%, compared to 2008 primarily driven by depreciable
property and equipment and finite-lived intangible assets acquired from
Alltel which are not being divested, including its customer lists, as well as
growth in depreciable assets during 2009.
Depreciation and amortization expense increased by $251 million, or
4.9%, in 2008 compared to 2007, primarily caused by an increase in
depreciable assets.
Operating Income
Years Ended December 31,
2009
2008
% Change
2008
(dollars in millions)
% Change
2007
Operating Income
$
17,505
$
13,994
25.1
$
13,994
$
11,795
18.6
Operating income in 2009 increased by $3,511 or 25.1%, compared to
2008 and increased by $2,199 million, or 18.6%, in 2008 compared to
2007, as a result of the impact of factors described in connection with
operating revenue and operating expenses above.
Non-recurring or non-operational items not included in Domestic
Wireless’s operating income totaled $954 million in 2009 for merger inte-
gration and acquisition costs primarily related to the acquisition of Alltel.
23
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Wireline
The Wireline segment provides customers with communication products and services, including voice, broadband video and data, network access,
long distance, and other services, to residential and small business customers and carriers, as well as next-generation IP network services and com-
munications solutions to medium and large businesses and government customers globally.
The results of operations presented below exclude the local exchange and related business assets in Maine, New Hampshire and Vermont that were
spun-off on March 31, 2008.
Operating Revenues and Selected Operating Statistics
Years Ended December 31,
Mass Markets
Global Enterprise
Global Wholesale
Other
Total Operating Revenues
Switched access lines in service ('000)
Broadband connections ('000)
FiOS Internet subscribers ('000)
FiOS TV subscribers ('000)
$
$
2009
19,755
14,988
9,637
1,700
46,080
32,561
9,220
3,433
2,861
2008
% Change
$
$
19,799
15,779
10,360
2,276
48,214
36,161
8,673
2,481
1,918
(0.2)
(5.0)
(7.0)
(25.3)
(4.4)
(10.0)
6.3
38.4
49.2
$
$
2008
19,799
15,779
10,360
2,276
48,214
36,161
8,673
2,481
1,918
(dollars in millions)
% Change
2007
$
$
19,570
15,710
10,750
3,099
49,129
39,883
8,013
1,525
943
1.2
0.4
(3.6)
(26.6)
(1.9)
(9.3)
8.2
62.7
103.4
Mass Markets
Mass Markets revenue includes local exchange (basic service and end-
user access), long distance (including regional toll), broadband services
(including high-speed Internet and FiOS Internet) and FiOS TV services
for residential and small business subscribers.
Mass Markets revenue during 2009 decreased by $44 million, or 0.2%,
compared to 2008. The decrease was primarily driven by a decline in local
exchange revenues principally due to a 10.0% decline in switched access
lines as of December 31, 2009 compared to December 31, 2008, primarily
as a result of competition and technology substitution. The majority of
the decrease was sustained in the residential retail market, which experi-
enced an 11.0% access line loss primarily due to substituting traditional
landline services with wireless, VoIP, broadband and cable services. Also
contributing to the decrease was a decline of nearly 7.0% in small business
retail access lines, primarily reflecting economic conditions, competition
and a shift to both IP and high-speed circuits. Partially offsetting these
decreases was the expansion of FiOS services (Voice, Internet and TV).
As we continue to expand the number of premises eligible to order
FiOS services and extend our sales and marketing efforts to attract new
FiOS subscribers, we have continued to grow our subscriber base and
consistently improved penetration rates within our FiOS service areas.
Our bundled pricing strategy allows us to provide competitive offerings
to our customers and potential customers. Consequently, we added
547,000 net new broadband connections, including 952,000 net new
FiOS Internet subscribers in 2009. In addition, we added 943,000 net new
FiOS TV subscribers in 2009, for a total of 2,861,000 at December 31, 2009.
As of December 31, 2009, we achieved penetration rates of 28.1% and
24.5% for FiOS Internet and FiOS TV, respectively, compared to penetra-
tion rates of 24.9% and 20.8% for FiOS Internet and FiOS TV, respectively,
at December 31, 2008.
Our Mass Markets revenue in 2008 increased by $229 million, or 1.2%,
compared to 2007. This increase was primarily driven by continued
expansion of consumer and business FiOS services (Voice, Internet and
TV), which are typically sold in bundles, partially offset by lower demand
and usage of our basic local exchange and accompanying services,
attributable to consumer subscriber line losses driven by competition
and technology substitution, including wireless and VoIP.
24
We added 660,000 net new broadband connections, including 956,000
net new FiOS Internet connections, in 2008. We ended 2008 with
8,673,000 net broadband connections, including 2,481,000 net FiOS
Internet subscribers, representing an 8.2% increase in total broadband
connections compared to 8,013,000 connections at December 31, 2007.
In addition, we added approximately 975,000 net new FiOS TV sub-
scribers in 2008 and ended the year with a total of 1,918,000, an increase
of approximately 103.4%. As of December 31, 2008, for FiOS Internet and
FiOS TV, we achieved penetration rates of 24.9% and 20.8%, respectively,
across all markets where we have been selling these services.
Declines in switched access lines in service of 10.0% in 2009 and 9.3% in
2008 were mainly driven by the effects of competition and technology
substitution. Residential retail access lines declined as customers substi-
tuted wireless, VoIP, broadband and cable services for traditional voice
landline services. At the same time, small business retail access lines
declined primarily reflecting competition and a shift to high-speed
access lines.
Global Enterprise
Global Enterprise offers voice, data and Internet communications services
to medium and large business customers, multi-national corporations,
and state and federal government customers. In addition to traditional
voice and data services, Global Enterprise offers managed and advanced
products and solutions including IP services and value-added solutions
that make communications more secure, reliable and efficient. Global
Enterprise also provides managed network services for customers that
outsource all or portions of their communications and information pro-
cessing operations and data services such as private IP, private line, frame
relay and asynchronous transfer mode (ATM) services, both domestically
and internationally. In addition, Global Enterprise offers professional ser-
vices in more than 30 countries supporting a range of solutions including
network service, managing a move to IP-based unified communications
and providing application performance support.
Global Enterprise revenues during 2009 decreased by $791 million, or
5.0%, compared to 2008. The revenue decline was due to lower long
distance and traditional circuit based data revenues and lower customer
premises equipment revenue, combined with the negative effect of
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
movements in foreign exchange rates versus the U.S. dollar. The decline
in long distance revenue is driven by a 2.2% decline in MOUs compared
to 2008, due to continuing global economic conditions and competi-
tive rate pressures, which adversely impact our business customers.
Traditional circuit based services such as frame relay, private line and
ATM services declined compared to the similar period last year as our
customer base continues its migration to next generation IP services.
Customer premises equipment revenue decreased approximately 6.0%
compared to 2008 reflecting cautious investment decisions in the mar-
ketplace in response to the uncertain economic environment. Partially
offsetting these declines was an increase of 11.0% in IP and security
solutions revenues. Strategic services continues to be Global Enterprise’s
fastest growing suite of offerings, reflecting a 4.3% increase in revenue for
2009, compared to 2008.
Global Enterprise revenues in 2008 increased by $69 million, or 0.4%, com-
pared to 2007. The revenue increase was due to increases in customer
premise equipment revenue and security solutions revenue, partially
offset by revenue decline due to certain customers moving traffic off of
our network and lower long distance and traditional circuit based data
revenues combined with the negative effects of movements in foreign
exchange rates versus the U.S. dollar. The IP and service suite of products
continue to be Global Enterprise’s fastest growing and includes private IP,
IP, VPN, Managed Services, Web Hosting and VOIP.
Global Wholesale
Global Wholesale revenues are primarily earned from long distance and
other carriers who use our facilities to provide services to their customers.
Switched access revenues are generated from fixed and usage-based
charges paid by carriers for access to our local network, interexchange
wholesale traffic sold in the U.S., as well as internationally destined traffic
that originates in the U.S. Special access revenues are generated from car-
riers that buy dedicated local exchange capacity to support their private
networks. Wholesale services also include local wholesale revenues from
unbundled network elements and interconnection revenues from com-
petitive local exchange carriers and wireless carriers. A portion of Global
Wholesale revenues are generated by a few large telecommunication
companies, many of whom compete directly with us.
Global Wholesale revenues during 2009 decreased by $723 million, or
7.0%, compared to 2008, primarily due to decreased MOUs in traditional
voice products, and continued rate compression due to competition in
the marketplace. Switched access and interexchange wholesale MOUs
declined primarily as a result of wireless substitution and access line
losses. Wholesale lines declined by 19.7% in 2009 due to the continued
impact of competitors deemphasizing their local market initiatives
coupled with the impact of technology substitution as well as the con-
tinued level of economic pressure, as compared to an 18.8% decline in
2008. Changes in foreign exchange rates resulted in a revenue decline
of approximately 1.0% in 2009, compared to 2008. Continuing demand
for high-capacity, high-speed digital services was partially offset by lower
demand for older, low-speed data products and services. As of December
31, 2009, customer demand, as measured in DS1 and DS3 circuits, for
high-capacity and digital data services increased 2.2% compared to an
increase of 5.1% in 2008.
Global Wholesale revenues in 2008 decreased by $390 million, or 3.6%,
compared to 2007 due to declines in switched access revenues in tradi-
tional voice products and local wholesale revenues and continued rate
compression in the marketplace, partially offset by increases in special
access revenues. Switched MOUs declined in 2008, reflecting the impact
of access line losses and wireless substitution. Wholesale lines decreased
by 18.8% in 2008 due to the continued impact of competitors deempha-
sizing their local market initiatives coupled with the impact of technology
substitution compared to a 16.1% decline in 2007. Special access revenue
growth reflects continuing demand for high-capacity, high-speed dig-
ital services, partially offset by lower demand for older, low-speed data
products and services. As of December 31, 2008, customer demand, as
measured in DS1 and DS3 circuits, for high-capacity and digital data ser-
vices increased 5.1% compared to an increase of 8.2% in 2007.
The FCC regulates the rates charged to customers for interstate access
services. See “Other Factors That May Affect Future Results – Regulatory
and Competitive Trends – FCC Regulation” for additional information on
FCC rulemaking concerning federal access rates, universal service and
certain broadband services.
Other Revenues
Other revenues include such services as local exchange and long
distance services from former MCI mass market customers, operator ser-
vices, pay phone, card services and supply sales, as well as dial around
services including 10-10-987, 10-10-220, 1-800-COLLECT and prepaid
cards. Revenues from other services during 2009 decreased $576 million,
or 25.3%, compared to 2008, mainly due to the discontinuation of non-
strategic product lines and reduced business volumes, including former
MCI mass market customer losses.
Other revenues decreased by $823 million, or 26.6% in 2008, mainly due
to the discontinuation of non-strategic product lines and reduced busi-
ness volumes.
Operating Expenses
Years Ended December 31,
Cost of services and sales
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
$
$
2009
24,144
10,833
9,122
44,099
2008
% Change
$
$
24,274
11,047
9,031
44,352
(0.5)
(1.9)
1.0
(0.6)
2008
24,274
11,047
9,031
44,352
$
$
(dollars in millions)
% Change
2007
$
$
24,181
11,527
8,927
44,635
0.4
(4.2)
1.2
(0.6)
Cost of Services and Sales
Cost of services and sales includes costs directly attributable to a ser-
vice or product, including salaries and wages, benefits, materials and
supplies, contracted services, network access and transport costs, cus-
tomer provisioning costs, computer systems support, costs to support
our outsourcing contracts and technical facilities, contributions to the
universal service fund, and cost of products sold. Aggregate customer
care costs, which include billing and service provisioning, are allocated
between Cost of services and sales and Selling, general and administra-
tive expense.
Cost of services and sales in 2009 decreased by $130 million, or 0.5%,
compared to 2008. The decreases were primarily due to lower costs asso-
ciated with compensation, installation, repair and maintenance expenses
as a result of fewer access lines, lower headcount and productivity
improvements. Also contributing to the decreases were lower long dis-
tance MOUs and customer premise equipment costs, as well as favorable
foreign exchange movements. Partially offsetting these decreases were
higher content and customer acquisition costs associated with continued
subscriber growth. Our FiOS TV and FiOS Internet cost of acquisition per
addition also decreased in 2009, compared to 2008.
25
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Cost of services and sales in 2008 increased by $93 million, or 0.4%,
compared to 2007. These increases were primarily due to higher costs
associated with our growth businesses, primarily FiOS services, including
TV and Internet services, and IP services, partially offset by productivity
improvement initiatives, headcount reductions and lower switched
access lines in service as well as lower wholesale voice connections.
The increase in Cost of services and sales expense was also impacted by
unfavorable foreign exchange rate changes, higher utility costs and the
inclusion of the results of operations of a security services firm acquired
on July 1, 2007.
Selling, General and Administrative Expense
Selling, general and administrative expense includes salaries, wages
and benefits not directly attributable to a service or product, bad debt
charges, taxes other than income, advertising and sales commission
costs, customer billing, call center and information technology costs, pro-
fessional service fees and rent for administrative space.
Selling, general and administrative expense in 2009 decreased by $214
million, or 1.9%, compared to 2008. The decreases were primarily due
to the decline in compensation expense as a result of lower headcount
and cost reduction initiatives, as well as favorable foreign exchange
movements.
Selling, general and administrative expense in 2008 decreased by $480
million or 4.2%, compared to 2007. This decrease was primarily due to
declines in compensation expense, in part driven by headcount reduc-
tions, cost reduction initiatives, lower bad debt costs and gains on sales
of assets in 2008, partially offset by the inclusion of the results of opera-
tions of a security services firm acquired on July 1, 2007.
Depreciation and Amortization Expense
Depreciation and amortization expense in 2009 increased by $91 million,
or 1.0%, compared to 2008. The increase was driven by growth in depre-
ciable telephone plant from capital spending, partially offset by lower
rates of depreciation as a result of changes in the estimated useful lives
of certain asset classes.
Depreciation and amortization expense in 2008 increased by $104 million,
or 1.2%, compared to 2007, mainly driven by growth in depreciable tele-
phone plant and non-network software from additional capital spending,
partially offset by lower rates of depreciation as a result of changes in the
estimated useful lives of certain asset classes.
Operating Income
Years Ended December 31,
2009
2008
% Change
2008
(dollars in millions)
% Change
2007
Operating Income
$
1,981
$
3,862
(48.7)
$
3,862
$
4,494
(14.1)
Operating income in 2009 decreased by $1,881 million or 48.7% com-
pared to 2008, and decreased by $632 million, or 14.1% in 2008 compared
to 2007, due to the impact of the factors described in connection with
operating revenues and operating expenses described above.
Non-recurring or non-operational charges excluded from Wireline’s oper-
ating income were as follows:
Years Ended December 31,
Severance, pension and benefit charges
Access line spin-off and other charges
Merger integration costs
Impact of divested operations
2009
$ 3,299
51
–
–
$ 3,350
$
$
(dollars in millions)
2007
2008
852
34
151
(44)
993
$
$
699
31
177
(181)
726
26
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Other iteMS
Severance, Pension and Benefit Charges
Access Lines Spin-off and Other Charges
During 2009, we recorded pretax charges of $453 million ($287 mil-
lion after-tax, or $.10 per diluted share) for costs incurred related to our
Wireline cost reduction initiatives, as well as network, non-network soft-
ware and other activities to enable the markets to be divested to operate
on a stand-alone basis subsequent to the closing of the transaction with
Frontier, and professional advisory and legal fees in connection with this
transaction.
In 2008 and 2007, we recorded pretax charges of $103 million ($81 million
after-tax, or $.03 per diluted share) and $84 million ($80 million after-
tax, or $.03 per diluted share), respectively, for costs incurred related to
network, non-network software, and other activities to enable the opera-
tions in Maine, New Hampshire and Vermont to operate on a stand-alone
basis subsequent to the spin-off of our telephone access line operations
in those states, and professional advisory and legal fees in connection
with this transaction.
Investment Impairment Charges
During 2008, we recorded a pretax charge of $48 million ($31 million after-
tax, or $.01 per diluted share) related to an other-than-temporary decline
in the fair value of our investments in certain marketable securities.
International Taxes
In December 2007, Verizon received a net distribution from Vodafone
Omnitel of approximately $2,100 million and received an additional
$670 million net distribution in April 2008. During 2007, we recorded
$610 million ($.21 per diluted share) of foreign and domestic taxes
and expenses specifically relating to our share of Vodafone Omnitel’s
distributable earnings.
During 2009, we recorded net pretax severance, pension and benefits
charges of $4,046 million ($2,487 million after-tax, or $.88 per diluted
share). Included in the charges were net pretax settlement losses of
$1,183 million ($719 million after-tax) related to employees that received
lump-sum distributions, primarily resulting from our previous separation
plans, as prescribed payment thresholds were reached. Additionally, we
recorded net pretax pension and postretirement curtailment losses of
$1,810 million ($1,100 million after-tax) as workforce reductions caused
the elimination of a significant amount of future service requiring us to
recognize a portion of the prior service costs and actuarial losses. These
charges also included $1,053 million ($668 million after-tax) for workforce
reductions of approximately 17,600 employees, 4,200 of which occurred
in late 2009, with the remainder expected to occur in 2010.
During 2008, we recorded net pretax severance, pension and benefits
charges of $950 million ($588 million after-tax, or $.21 per diluted share).
This charge primarily included $586 million ($363 million after-tax) for
workforce reductions in connection with the separation of approximately
8,600 employees and related charges; 3,500 of whom were separated in
the second half of 2008 and the remainder in 2009. Also included are
net pretax pension settlements losses of $364 million ($225 million after-
tax) related to employees that received lump-sum distributions, primarily
resulting from our separation plans in which prescribed payment thresh-
olds were reached.
During the fourth quarter of 2007, we recorded net pretax charges of
$772 million ($477 million after-tax, or $.16 per diluted share) primarily
in connection with workforce reductions of 9,000 employees and related
charges, 4,000 of whom were separated in the fourth quarter of 2007 with
the remaining reductions occurring in 2008. In addition, we adjusted our
actuarial assumptions for severance to align with future expectations.
Merger Integration and Acquisition Costs
During 2009, we recorded pretax charges of $1,211 million ($380 million
attributable to Verizon after-tax, or $.13 per diluted share), for merger
integration activities primarily related to the Alltel acquisition including
trade name amortization, re-branding initiatives and handset conversion
costs. Additionally, the 2009 charges also included transaction fees and
costs associated with the acquisition, including fees related to the credit
facility that was entered into and utilized to complete the acquisition.
In 2008 and 2007, we recorded pretax charges of $174 million ($107 mil-
lion attributable to Verizon after-tax, or $.03 per diluted share) and $178
million ($112 million after-tax, or $.04 per diluted share), respectively, pri-
marily comprised of systems integration activities and other costs related
to re-branding initiatives, facility exit costs and advertising associated
with the MCI acquisition.
27
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
COnSOliDAteD FinAnCiAl C OnDitiOn
Years Ended December 31,
2009
(dollars in millions)
2007
2008
Cash Flows Provided By (Used In) Investing Activities
Cash Flows Provided By (Used In)
Operating Activities:
Continuing Operations
Discontinued Operations
Investing Activities:
Continuing Operations
Discontinued Operations
Financing Activities:
Continuing Operations
Discontinued Operations
Increase (Decrease) In Cash and
Cash Equivalents
$ 31,565
–
$ 27,557
–
$ 27,409
(570)
(23,331)
–
(31,579)
–
(16,865)
757
(16,007)
–
12,651
–
(12,797)
–
$ (7,773)
$
8,629
$
(2,066)
We use the net cash generated from our operations to fund network
expansion and modernization, repay external financing, pay dividends,
repurchase Verizon common stock from time to time and invest in new
businesses. While our current liabilities typically exceed current assets, our
sources of funds, primarily from operations and, to the extent necessary,
from external financing arrangements, are sufficient to meet ongoing
operating and investing requirements. We expect that our capital
spending requirements will continue to be financed primarily through
internally generated funds. Debt or equity financing may be needed to
fund additional development activities or to maintain our capital struc-
ture to ensure our financial flexibility.
We manage our capital structure to balance our cost of capital and the
need for financial flexibility. The mix of debt and equity is intended to allow
us to maintain ratings in the “A” category from the primary rating agen-
cies. Although conditions in the credit markets during recent years did
not have a significant impact on our ability to obtain financing, such con-
ditions, along with our need to finance acquisitions and our purchase of
licenses acquired in the 700 MHz auction, resulted in higher fixed interest
rates on borrowings than those we have paid in recent years. We believe
that we will continue to have the necessary access to capital markets.
Our available external financing arrangements include the issuance of
commercial paper, credit available under credit facilities and other bank
lines of credit, vendor financing arrangements, issuances of registered
debt or equity securities and privately-placed capital market securities.
We currently have a shelf registration available for the issuance of up to
$4.0 billion of additional unsecured debt or equity securities. We also issue
short-term debt through an active commercial paper program and have a
$5.3 billion credit facility to support such commercial paper issuances.
Cash Flows Provided By (Used In) Operating Activities
Our primary source of funds continues to be cash generated from opera-
tions. Net cash provided by operating activities – continuing operations
in 2009 increased by $4.0 billion, compared to the similar period in 2008,
primarily driven by higher operating cash flows at Domestic Wireless pri-
marily due to the acquisition of Alltel, as well as net distributions from
Vodafone Omnitel. Partially offsetting the increase in net cash provided
by operating activities were payments totaling $0.5 billion to settle the
acquired Alltel interest rate swaps.
Net cash provided by operating activities – continuing operations in 2008
increased $0.1 billion, compared to 2007, primarily due to higher earn-
ings, partially offset by lower dividends received from Vodafone Omnitel.
The net changes in cash flow from operating activities – discontinued
operations were primarily due to income taxes paid in 2007 related to the
disposition of Verizon Dominicana as well as the disposal of the discon-
tinued operations in the fourth quarter of 2006.
28
Capital Expenditures
Capital expenditures continue to be our primary use of capital resources
as they facilitate the introduction of new products and services, enhance
responsiveness to competitive challenges and increase the operating
efficiency and productivity of our networks. We are directing our capital
spending primarily toward higher growth markets.
Capital expenditures, including capitalized software, were as follows:
Years Ended December 31,
Domestic Wireless
Wireline
Other
Total as a percentage of total revenue
2009
$ 7,152
8,892
1,003
$ 17,047
15.8%
(dollars in millions)
2007
2008
$
6,510
9,797
931
$ 17,238
17.7%
$
6,503
10,956
79
$ 17,538
18.8%
The increase in capital expenditures at Domestic Wireless during 2009
was primarily due to the incremental capital spending on the acquired
Alltel properties, continued investment in our wireless EV-DO networks,
and funding the development of 4G technology (LTE). The decreases in
capital expenditures at Wireline during 2009 and 2008 were primarily due
to the FiOS deployment plan, which included larger expenditures in 2008
and 2007 as deployment should be substantially complete by 2010, as
well as lower legacy spending requirements.
Acquisitions
During 2009, 2008 and 2007, we invested $6.0 billion, $15.9 billion and
$0.8 billion, respectively, in acquisitions of licenses, investments and
businesses.
• On January 9, 2009, Verizon Wireless paid approximately $5.9 billion
for the equity of Alltel, which was partially offset by $1.0 billion of cash
acquired at closing.
• During 2008, Verizon Wireless was the winning bidder in the Federal
Communications Commission’s (FCC) auction of spectrum in the 700
MHz band and paid the FCC $9.4 billion to acquire 109 licenses in the
700 MHz band.
• On August 7, 2008, Verizon Wireless completed its acquisition of Rural
Cellular for cash consideration of $0.9 billion, net of cash acquired and
after an exchange transaction with another carrier to complete the
required divestiture of certain markets.
• On June 10, 2008, in connection with the announcement of the Alltel
transaction, Verizon Wireless purchased approximately $5.0 billion
aggregate principal amount of debt obligations of Alltel for approxi-
mately $4.8 billion plus accrued and unpaid interest.
In 2007, we paid $0.4 billion, net of cash received, to acquire a network
security business and $0.2 billion to purchase several wireless proper-
ties and licenses.
•
Short-term Investments
Our short-term investments include cash equivalents held in trust accounts
for payment of employee benefits. In 2007, we invested $1.7 billion in
short-term investments, primarily to pre-fund active employees’ health
and welfare benefits. Proceeds from the sales of all short-term invest-
ments, principally for the payment of these benefits, were $0.2 billion, $1.8
billion and $1.9 billion in the years 2009, 2008 and 2007, respectively.
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Cash Flows Provided By (Used In) Financing Activities
During 2009, net cash used in financing activities was $16.0 billion, com-
pared with the net cash provided by financing activities of $12.7 billion
in the similar period in 2008. During 2007, net cash used in financing
activities was $12.8 billion. Net proceeds from borrowings during 2009
were approximately $12.0 billion compared to $21.6 billion in the sim-
ilar period of 2008. Net proceeds from borrowings during 2007 were
$3.4 billion. Cash flows from financing activities during 2009, 2008 and
2007, primarily related to raising capital to support certain of our stra-
tegic initiatives, including completing the acquisition of Alltel, funding
the payments for spectrum in the 700 MHz auction including net debt
repayments and dividend payments as described below.
Our total debt increased by $10.3 billion in 2009. During 2009, Verizon
Wireless issued $9.3 billion of fixed and floating rate debt with varying
maturities and utilized a credit facility to complete the acquisition of
Alltel as described below. The increase in debt at December 31, 2009 also
reflects approximately $2.3 billion of assumed Alltel debt owed to third
parties. Additionally, Verizon Communications also issued $2.8 billion of
fixed rate debt with varying maturities. Partially offsetting the increase
in total debt was lower commercial paper outstanding and other debt
reductions as described below.
Verizon Wireless
During 2009, Verizon Wireless raised capital to fund the acquisition
of Alltel.
•
• On January 9, 2009, Verizon Wireless borrowed $12.4 billion under a
$17.0 billion credit facility (Bridge Facility) in order to complete the
acquisition of Alltel and repay a portion of the approximately $24
billion of Alltel debt assumed. Verizon Wireless used cash generated
from operations and the net proceeds from the sale of the notes in
private placements issued in February 2009, May 2009 and June 2009,
which are described below to repay the borrowings under the Bridge
Facility. No borrowings were outstanding under the Bridge Facility at
December 31, 2009 and the commitments under the Bridge Facility
have been terminated.
In February 2009, Verizon Wireless and Verizon Wireless Capital LLC co-
issued $4.3 billion aggregate principal amount of three and five-year
fixed rate notes in a private placement resulting in cash proceeds of
$4.2 billion, net of discounts and issuance costs.
In May 2009, Verizon Wireless and Verizon Wireless Capital LLC co-
issued $4.0 billion aggregate principal amount of two-year fixed and
floating rate notes in a private placement resulting in cash proceeds of
approximately $4.0 billion, net of discounts and issuance costs.
In June 2009, Verizon Wireless issued $1.0 billion aggregate principal
amount of floating rate notes due 2011. Commencing on December 27,
2009 and on each quarterly interest payment date thereafter, both the
noteholders and Verizon Wireless have the right to require settlement of
all or a portion of these notes at par. Accordingly, the notes are classified
as current maturities in the consolidated balance sheet. As of December
31, 2009, neither Verizon Wireless nor the noteholders have exercised
their right to require settlement on any portion of these notes.
•
•
• On August 28, 2009, Verizon Wireless repaid $0.4 billion due under a
three-year term loan facility, reducing the outstanding borrowings
under this facility to $4.0 billion.
The increase in Other, net financing activities during 2009 was primarily
driven by higher distributions to Vodafone, which owns a 45% noncontrol-
ling interest in Verizon Wireless. In addition, Other, net financing activities
during 2009 included the buyout of wireless partnerships in which our
ownership interests increased as a result of the acquisition of Alltel.
During November 2009, Verizon Wireless and Verizon Wireless Capital
LLC, completed an exchange offer to exchange the privately placed
notes issued in November 2008, as well as in February and May 2009, for
new notes with similar terms, pursuant to the requirements of registra-
tion rights agreements.
In December 2008, Verizon Wireless obtained net proceeds of $2.4 billion
from the issuance of €0.7 billion of 7.625% notes due 2011, €0.5 billion
of 8.750% notes due 2015 and £0.6 billion of 8.875% notes due 2018. In
November 2008, Verizon Wireless obtained proceeds of $3.5 billion, net
of discounts and issuance costs, from the issuance in a private placement
of $1.3 billion of 7.375% notes due November 2013 and $2.3 billion of
8.500% notes due November 2018. These notes were used to fund the
acquisition of Alltel.
On September 30, 2008, Verizon Wireless and Verizon Wireless Capital LLC
entered into a $4.4 billion Three-Year Term Loan Facility Agreement (Three-
Year Term Facility) with a maturity date of September 30, 2011. Verizon
Wireless borrowed $4.4 billion under the Three-Year Term Facility in order
to repay a portion of the 364-Day Credit Agreement as described below.
On June 5, 2008, Verizon Wireless entered into a $7.6 billion 364-Day Credit
Agreement which included a $4.8 billion term facility and a $2.8 billion
delayed draw facility. On June 10, 2008, Verizon Wireless borrowed $4.8 bil-
lion under the 364-Day Credit Agreement in order to purchase Alltel debt
obligations acquired in the second quarter of 2008 and, during the third
quarter of 2008, borrowed $2.8 billion under the delayed draw facility to
complete the purchase of Rural Cellular and to repay Rural Cellular’s debt
and pay fees and expenses incurred in connection therewith. During 2008
the borrowings under the 364-Day Credit Agreement were repaid.
Verizon Communications
In March 2009, we issued $1.8 billion of 6.35% notes due 2019 and $1.0
billion of 7.35% notes due 2039, resulting in cash proceeds of $2.7 bil-
lion, net of discounts and issuance costs, which was used to reduce our
commercial paper borrowings, repay maturing debt and for general cor-
porate purposes. In January 2009, Verizon utilized a $0.2 billion floating
rate vendor financing facility due 2010.
During 2009, we redeemed $0.1 billion of 6.8% Verizon New Jersey Inc.
debentures, $0.3 billion of 6.7% and $0.2 billion of 5.5% Verizon California
Inc. notes and $0.2 billion of 5.875% Verizon New England Inc. notes. In
April 2009, we redeemed $0.5 billion of 7.51% GTE Corporation notes. In
addition during 2009, we redeemed $0.5 billion of floating rate and $0.1
billion of 8.23% Verizon notes.
During 2008, we made debt repayments of approximately $2.6 billion
which primarily included $0.2 billion of 5.55% Verizon Northwest notes,
$0.3 billion of 6.9% and $0.3 billion of 5.65% Verizon North Inc. notes, $0.1
billion of 7.0% Verizon California Inc. notes, $0.3 billion of 6.0% Verizon
New York Inc. notes, $0.3 billion of 6.46% GTE Corporation notes, $0.1
billion of 6.0% Verizon South Inc. notes, and $1.0 billion of 4.0% Verizon
Communications Inc. notes. As a result of the spin-off of our local exchange
business and related activities in Maine, New Hampshire and Vermont, in
March 2008, our net debt was reduced by approximately $1.4 billion.
In November 2008, Verizon issued $2.0 billion of 8.75% notes due 2018
and $1.3 billion of 8.95% notes due 2039, which resulted in cash proceeds
of $3.2 billion net of discount and issuance costs. In April 2008, Verizon
issued $1.3 billion of 5.25% notes due 2013, $1.5 billion of 6.10% notes
due 2018, and $1.3 billion of 6.90% notes due 2038, resulting in cash
proceeds of $4.0 billion, net of discounts and issuance costs. In February
2008, Verizon issued $0.8 billion of 4.35% notes due 2013, $1.5 billion of
5.50% notes due 2018, and $1.8 billion of 6.40% notes due 2038, resulting
in cash proceeds of $4.0 billion, net of discounts and issuance costs. In
January 2008, Verizon utilized a $0.2 billion fixed rate vendor financing
facility due 2010.
29
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Our total debt was reduced by $5.2 billion in 2007. We repaid approxi-
mately $1.7 billion of Wireline debt, including the early repayment of
previously guaranteed $0.3 billion 7.0% debentures issued by Verizon
South Inc. and $0.5 billion 7.0% debentures issued by Verizon New
England Inc., as well as approximately $1.6 billion of other borrowings.
Also, we redeemed $1.6 billion principal of our outstanding floating rate
notes, which were called on January 8, 2007, and the $0.5 billion 7.9%
debentures issued by GTE Corporation. Partially offsetting the reduction
in total debt were cash proceeds of $3.4 billion in connection with fixed
and floating rate debt issued during 2007.
Credit Facility and Shelf Registration
On April 15, 2009, we terminated all commitments under our previous
$6.0 billion three-year credit facility with a syndicate of lenders that was
scheduled to mature in September 2009 and entered into a new $5.3 bil-
lion 364-day credit facility with a group of major financial institutions. As
of December 31, 2009, the unused borrowing capacity under the 364-day
credit facility was approximately $5.2 billion. Approximately $0.1 billion of
stand-by letters of credit are outstanding under the new credit facility.
The $5.3 billion 364-day credit facility does not require us to comply with
financial covenants or maintain specified credit ratings, and it permits us
to borrow even if our business has incurred a material adverse change.
The credit facility contains provisions that permit us to convert any bor-
rowings that are outstanding at maturity to a term loan with a maturity
date of one year from the original maturity date of the credit facility. We
use the credit facility to support the issuance of commercial paper, for
the issuance of letters of credit and for general corporate purposes.
We have a shelf registration available for the issuance of up to $4.0 billion
of additional unsecured debt or equity securities.
Verizon’s ratio of debt to debt combined with Verizon’s equity was 59.9%
at December 31, 2009 compared to 55.5% at December 31, 2008.
Dividends Paid
During 2009, we paid $5.3 billion in dividends as compared to $5.0
billion in 2008 and $4.8 billion in 2007. As in prior periods, dividend pay-
ments were a significant use of capital resources. The Board of Directors
of Verizon determines the appropriateness of the level of our dividend
payments on a periodic basis by considering such factors as long-term
growth opportunities, internal cash requirements and the expectations
of our shareowners. During the third quarter of 2009, the Board increased
our quarterly dividend payments 3.3% to $.475 per share from $.460 per
share. During the third quarter of 2008 and 2007, the Board increased our
dividend payments 7.0% and 6.2%, respectively.
Common Stock
Common stock has been used from time to time to satisfy some of the
funding requirements of employee and shareowner plans. On February 7,
2008, the Board of Directors replaced the current share buy back program
with a new program for the repurchase of up to 100 million common
shares terminating no later than the close of business on February 28,
2011. The Board also determined that no additional shares were to be
purchased under the prior program. During the first quarter of 2009,
we entered into a privately negotiated prepaid forward agreement for
14 million shares of Verizon common stock. During the fourth quarter of
2009, we terminated the prepaid forward agreement with respect to 5
million shares of Verizon common stock, which resulted in the delivery
of those shares to Verizon. There were no repurchases of common stock
during 2009. During 2008 and 2007, we repurchased $1.4 billion and $2.8
billion of our common stock, respectively.
30
Credit Ratings
The amount of cash that we need to service our debt substantially
increased with the acquisition of Alltel. Our ability to make payments on
our debt will depend largely upon our cash balances and future oper-
ating performance. The debt securities of Verizon Communications and
its subsidiaries continue to be accorded high ratings by the three primary
rating agencies.
Standard & Poor’s (S&P) assigns an ‘A’ Corporate Credit Rating and an ‘A-1’
short-term rating to Verizon Communications. The outlook is Negative.
In May 2009 S&P affirmed these ratings and placed Verizon subsidiaries
North, Northwest and West Virginia on CreditWatch with Negative impli-
cations in connection with the Frontier transaction. S&P assigns an ‘A’
Corporate Credit Rating to Cellco Partnership with a Negative outlook.
Moody’s Investors Service (Moody’s) assigns an ‘A3’ long-term debt rating
and a ‘P-2’ short-term rating to Verizon Communications. In October 2009
Moody’s affirmed these ratings and changed the outlook from Negative
to Stable. In May 2009 Moody’s placed Verizon subsidiaries North,
Northwest and West Virginia on review for possible downgrade in con-
nection with the Frontier transaction. Moody’s assigns an ‘A2’ long-term
debt rating to Cellco Partnership. In October 2009 Moody’s changed the
Cellco Partnership outlook from Negative to Stable.
Fitch Ratings (Fitch) assigns an ‘A’ long-term Issuer Default Rating and a
‘F-1’ short-term rating to Verizon Communications. The outlook is Stable.
In May 2009, Fitch affirmed this rating and placed Verizon subsidiaries
North, Northwest and West Virginia on Rating Watch Negative in con-
nection with the Frontier transaction. Fitch assigns an ‘A’ long-term Issuer
Default Rating to Cellco Partnership with a Stable outlook.
While we do not anticipate a ratings downgrade, the three primary rating
agencies have identified factors which they believe could result in a rat-
ings downgrade for Verizon Communications and/or Cellco Partnership in
the future including sustained leverage levels at Verizon Communications
and/or Cellco Partnership resulting from: (i) diminished wireless operating
performance as a result of a weakening economy and competitive pres-
sures; (ii) failure to achieve significant synergies in the Alltel integration;
(iii) accelerated wireline losses; (iv) the absence of material improvement
in the status of underfunded pension balances; or (v) an acquisition or
sale of operations that causes a material deterioration in its credit metrics.
A ratings downgrade may increase the cost of refinancing existing debt
and might constrain Verizon Communications’ access to certain short-
term debt markets. Securities ratings assigned by rating organizations are
expressions of opinion and are not recommendations to buy, sell, or hold
securities. A securities rating is subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should be evalu-
ated independently of any other rating.
Covenants
Our credit agreements contain covenants that are typical for large,
investment grade companies. These covenants include requirements to
pay interest and principal in a timely fashion, to pay taxes, to maintain
insurance with responsible and reputable insurance companies, to pre-
serve our corporate existence, to keep appropriate books and records of
financial transactions, to maintain our properties, to provide financial and
other reports to our lenders, to limit pledging and disposition of assets
and mergers and consolidations, and other similar covenants.
In addition, Verizon Wireless is required to maintain on the last day of any
period of four fiscal quarters a leverage ratio of debt to earnings before
interest, taxes, depreciation, amortization and other adjustments, as
defined in the related credit agreement, not in excess of 3.25 times based
on the preceding twelve months. At December 31, 2009, the leverage
ratio was 1.1 times.
As of December 31, 2009, we and our consolidated subsidiaries were in
compliance with all of our debt covenants.
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Increase (Decrease) In Cash and Cash Equivalents
Our Cash and cash equivalents at December 31, 2009 totaled $2.0 bil-
lion, a $7.8 billion decrease compared to Cash and cash equivalents at
December 31, 2008 for the reasons discussed above. Our Cash and cash
equivalents at December 31, 2008 totaled $9.8 billion, an $8.6 billion
increase compared to Cash and cash equivalents at December 31, 2007
for the reasons discussed above.
Employee Benefit Plan Funded Status and Contributions
We operate numerous qualified and nonqualified pension plans and
other postretirement benefit plans. These plans primarily relate to our
domestic business units. We contributed $0.2 billion, $0.3 billion and
$0.6 billion in 2009, 2008 and 2007, respectively, to our qualified pension
plans. We also contributed $0.1 billion, $0.2 billion and $0.1 billion to our
nonqualified pension plans in 2009, 2008 and 2007, respectively.
We do not expect to have any material required qualified pension plan
contributions in 2010. Nonqualified pension contributions are estimated
to be approximately $0.1 billion for 2010.
Contributions to our other postretirement benefit plans generally relate
to payments for benefits on an as-incurred basis since the other post-
retirement benefit plans do not have funding requirements similar to
Off Balance Sheet Arrangements and Contractual Obligations
the pension plans. We contributed $1.6 billion, $1.2 billion and $1.0 bil-
lion to our other postretirement benefit plans in 2009, 2008 and 2007,
respectively. Contributions to our other postretirement benefit plans are
estimated to be approximately $1.9 billion in 2010.
Leasing Arrangements
We are the lessor in leveraged and direct financing lease agreements for
commercial aircraft and power generating facilities, which comprise the
majority of the portfolio along with telecommunications equipment, real
estate property and other equipment. These leases have remaining terms
up to 41 years as of December 31, 2009. In addition, we lease space on
certain of our cell towers to other wireless carriers. Minimum lease pay-
ments receivable represent unpaid rentals, less principal and interest on
third-party nonrecourse debt relating to leveraged lease transactions.
Since we have no general liability for this debt, which holds a senior
security interest in the leased equipment and rentals, the related prin-
cipal and interest have been offset against the minimum lease payments
receivable in accordance with generally accepted accounting principles.
All recourse debt is reflected in our consolidated balance sheets.
Contractual Obligations and Commercial Commitments
The following table provides a summary of our contractual obligations and commercial commitments at December 31, 2009. Additional detail about
these items is included in the notes to the consolidated financial statements.
Contractual Obligations
Long-term debt(1)
Capital lease obligations (see Note 8)
Total long-term debt, including current maturities
Interest on long-term debt(1)
Operating leases (see Note 8)
Purchase obligations (see Note 17)
Income tax audit settlements(2)
Other long-term liabilities(3)
Total contractual obligations
Payments Due By Period
(dollars in millions)
Total
$ 60,759
397
61,156
39,444
12,326
9,925
370
3,185
$ 126,406
Less than
1 year
$
6,026
79
6,105
3,607
1,971
3,415
370
1,985
$ 17,453
1-3 years
3-5 years
$ 15,400
130
15,530
6,231
3,128
4,233
–
1,200
$ 30,322
$
9,282
99
9,381
4,784
2,092
1,887
–
–
$ 18,144
More than
5 years
$ 30,051
89
30,140
24,822
5,135
390
–
–
$ 60,487
(1) Items included in long-term debt with variable coupon rates are described in Note 9 to the consolidated financial statements.
(2) Income tax audit settlements include gross unrecognized tax benefits of $220 million and related gross interest and penalties of $150 million as determined under the accounting standard
relating to the uncertainty in income taxes. We are not able to make a reliable estimate of when the unrecognized tax benefits balance of $3,180 million and related interest and penalties
will be settled with the respective taxing authorities until issues or examinations are further developed (see Note 13 to the consolidated financial statements).
(3) Other long-term liabilities include estimated postretirement benefit and qualified pension plan contributions.
Guarantees
In connection with the execution of agreements for the sale of businesses
and investments, Verizon ordinarily provides representations and warran-
ties to the purchasers pertaining to a variety of nonfinancial matters, such
as ownership of the securities being sold, as well as financial losses.
As of December 31, 2009, letters of credit totaling approximately $117
million were executed in the normal course of business, which support
several financing arrangements and payment obligations to third parties.
31
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
MArket riSk
We are exposed to various types of market risk in the normal course of
business, including the impact of interest rate changes, foreign currency
exchange rate fluctuations, changes in investment, equity and commodity
prices and changes in corporate tax rates. We employ risk management
strategies, which may include the use of a variety of derivatives including
cross currency swaps, foreign currency and prepaid forwards and collars,
interest rate and commodity swap agreements and interest rate locks. We
do not hold derivatives for trading purposes.
It is our general policy to enter into interest rate, foreign currency and
other derivative transactions only to the extent necessary to achieve our
desired objectives in limiting our exposure to various market risks. Our
objectives include maintaining a mix of fixed and variable rate debt to
lower borrowing costs within reasonable risk parameters and to protect
against earnings and cash flow volatility resulting from changes in market
conditions. We do not hedge our market risk exposure in a manner that
would completely eliminate the effect of changes in interest rates and
foreign exchange rates on our earnings. We do not expect that our net
income, liquidity and cash flows will be materially affected by these risk
management strategies.
Interest Rate Risk
We are exposed to changes in interest rates, primarily on our short-term
debt and the portion of long-term debt that carries floating interest rates.
As of December 31, 2009, more than two-thirds in aggregate principal
amount of our total debt portfolio consisted of fixed rate indebtedness,
including the effect of interest rate swap agreements designated as
hedges. The impact of a 100 basis point change in interest rates affecting
our floating rate debt would result in a change in annual interest expense,
including our interest rate swap agreements that are designated as
hedges, of approximately $0.1 billion. The interest rates on our existing
long-term debt obligations, with the exception of a three-year term loan,
are unaffected by changes to our credit ratings.
The table that follows summarizes the fair values of our long-term debt,
including current maturities, and interest rate swap derivatives as of
December 31, 2009 and 2008. The table also provides a sensitivity anal-
ysis of the estimated fair values of these financial instruments assuming
100-basis-point upward and downward shifts in the yield curve. Our sen-
sitivity analysis does not include the fair values of our commercial paper
and bank loans, if any, because they are not significantly affected by
changes in market interest rates.
At December 31, 2009
Fair Values
Fair Value
assuming
+ 100 basis
point shift
(dollars in millions)
Fair Value
assuming
- 100 basis
point shift
Long-term debt and related
derivatives
At December 31, 2008
Long-term debt and related
derivatives
$
66,042
$
62,788
$
69,801
$
51,258
$
48,465
$
54,444
Interest Rate Swaps
We have entered into domestic interest rate swaps to achieve a targeted
mix of fixed and variable rate debt, where we principally receive fixed
rates and pay variable rates based on London Interbank Offered Rate
(LIBOR). These swaps are designated as fair value hedges and hedge
32
against changes in the fair value of our debt portfolio. We record the
interest rate swaps at fair value on our balance sheet as assets and lia-
bilities. Changes in the fair value of the interest rate swaps are recorded
to Interest expense, which are offset by changes in the fair value of the
debt due to changes in interest rates. The fair value of these contracts
was $171 million and $415 million at December 31, 2009 and 2008,
respectively, and are included in Other assets and Long-term debt. As
of December 31, 2009, the total notional amount of these interest rate
swaps was $6.0 billion.
Alltel Interest Rate Swaps
As a result of the Alltel acquisition, Verizon Wireless acquired seven interest
rate swap agreements with a notional value of $9.5 billion that paid fixed
and received variable rates based on three-month and one-month LIBOR
with maturities ranging from 2009 to 2013. During the second quarter
of 2009, we settled all of these agreements using cash generated from
operations for a gain that was not significant. Changes in the fair value of
these swaps were recorded in earnings through settlement.
Equity Price Risk
Prepaid Forward Agreement
During the first quarter of 2009, we entered into a privately negotiated
prepaid forward agreement for 14 million shares of Verizon common
stock at a cost of approximately $390 million. During the fourth quarter
of 2009, we terminated the prepaid forward agreement with respect to
5 million shares of Verizon common stock, which resulted in the delivery
of those shares to Verizon. The remaining balance of the prepaid forward
agreement for 9 million shares of Verizon common stock at December 31,
2009 of $252 million is included in Other assets. Changes in the fair value
of the agreement, which were not significant during 2009, were included
in Selling, general and administrative expense and Cost of services
and sales.
Foreign Currency Translation
The functional currency for our foreign operations is primarily the
local currency. The translation of income statement and balance sheet
amounts of our foreign operations into U.S. dollars are recorded as cumu-
lative translation adjustments, which are included in Accumulated other
comprehensive loss in our consolidated balance sheets. Gains and losses
on foreign currency transactions are recorded in the consolidated state-
ments of income in Other income and (expense), net. At December 31,
2009, our primary translation exposure was to the British Pounds Sterling,
the Euro and the Australian Dollar.
Cross Currency Swaps
During the fourth quarter of 2008, Verizon Wireless entered into cross cur-
rency swaps designated as cash flow hedges to exchange approximately
$2.4 billion of the net proceeds from the December 2008 Verizon Wireless
co-issued debt offering of British Pounds Sterling and Euro denominated
debt into U.S. dollars and to fix our future interest and principal payments
in U.S. dollars, as well as mitigate the impact of foreign currency transac-
tion gains or losses. The fair value of these swaps included in Other assets
at December 31, 2009 was approximately $315 million and, at December
31, 2008, was insignificant. During 2009, a pretax gain of $310 million
was recognized in Other comprehensive income, of which $135 million
was reclassified from Accumulated other comprehensive loss to Other
income and (expense), net to offset the related pretax foreign currency
transaction loss on the underlying debt obligation.
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
CritiCAl ACCOunting eStiMAteS AnD reCent ACCOunting StAnDArDS
Goodwill
At December 31, 2009, the balance of our goodwill was approximately
$22.5 billion, of which $17.7 billion was in our Wireless segment and
$4.7 billion was in our Wireline segment. Determining whether an
impairment has occurred requires the determination of fair value of
each respective reporting unit. Our operating segments, Domestic
Wireless and Wireline, are deemed to be our reporting units for pur-
poses of goodwill impairment testing. The fair value of Domestic
Wireless significantly exceeded its carrying value. The fair value of
Wireline exceeded its carrying value. Accordingly, our annual impair-
ment tests for 2009, 2008 and 2007 did not result in an impairment.
The fair value of goodwill is calculated using a market approach and a
discounted cash flow method. The market approach includes the use
of comparative multiples to corroborate discounted cash flow results.
The discounted cash flow method is based on the present value of
two components—projected cash flows and a terminal value. The
terminal value represents the expected normalized future cash flows of
the reporting unit beyond the cash flows from the discrete projection
period. The fair value of the reporting unit is calculated based on the
sum of the present value of the cash flows from the discrete period and
the present value of the terminal value. The estimated cash flows are
discounted using a rate that represents our WACC.
With regards to the Wireline goodwill valuation, a critical assumption
includes the development of the WACC for use in our estimate of fair
value. The WACC is based on current market conditions, including the
equity-risk premium and risk-free interest rate. The projected WACC
used in the estimate of fair value in future periods may be impacted by
adverse changes in market and economic conditions, including risk-free
interest rates, and are subject to change based on the facts and circum-
stances that exist at the time of the valuation, which may increase the
likelihood of a potential future impairment charge related to Wireline
goodwill. Reducing the calculated fair value of Wireline by more than
10 percent would not have resulted in goodwill impairment.
• We maintain benefit plans for most of our employees, including pen-
sion and other postretirement benefit plans. At December 31, 2009,
in the aggregate, pension plan benefit obligations exceeded the fair
value of pension plan assets, which will result in higher future pension
plan expense. Other postretirement benefit plans have larger benefit
obligations than plan assets, resulting in expense. Significant benefit
plan assumptions, including the discount rate used, the long-term rate
of return on plan assets and health care trend rates are periodically
updated and impact the amount of benefit plan income, expense,
assets and obligations.
Critical Accounting Estimates
A summary of the critical accounting estimates used in preparing our
financial statements is as follows:
• Wireless licenses and Goodwill are a significant component of our con-
solidated assets. Both our wireless licenses and goodwill are treated as
indefinite-lived intangible assets and, therefore are not amortized, but
rather are tested for impairment annually in the fourth fiscal quarter,
unless there are events or changes in circumstances during an interim
period that indicates these assets may not be recoverable. We believe
our estimates and assumptions are reasonable and represent appro-
priate marketplace considerations as of the valuation date. We do not
believe that reasonably likely adverse changes in our assumptions and
estimates would result in an impairment charge as of our latest impair-
ment testing date. However, if there is a substantial and sustained
adverse decline in our operating profitability, we may have impairment
charges in future years. Any such impairment charge could be material
to our results of operations and financial condition.
Wireless Licenses
The carrying value of our wireless licenses was approximately $72.1
billion as of December 31, 2009. We aggregate our wireless licenses
into one single unit of accounting, as we utilize our wireless licenses
on an integrated basis as part of our nationwide wireless network. Our
wireless licenses provide us with the exclusive right to utilize certain
radio frequency spectrum to provide wireless communication services.
There are currently no legal, regulatory, contractual, competitive, eco-
nomic or other factors that limit the useful life of our wireless licenses.
Our impairment test consists of comparing the estimated fair value of
our wireless licenses to the aggregated carrying amount as of the test
date. If the estimated fair value of our wireless licenses is less than the
aggregated carrying amount of the wireless license then an impair-
ment charge is recognized. Our annual impairment tests for 2009,
2008 and 2007 indicated that the fair value significantly exceeded the
carrying value and, therefore, did not result in an impairment.
We estimate the fair value of our wireless licenses using a direct income
based valuation approach. This approach uses a discounted cash flow
analysis to estimate what a marketplace participant would be willing
to pay to purchase the aggregated wireless licenses as of the valuation
date. As a result we are required to make significant estimates about
future cash flows specifically associated with our wireless licenses,
an appropriate discount rate based on the risk associated with those
estimated cash flows and assumed terminal value and growth rates.
We consider current and expected future economic conditions, cur-
rent and expected availability of wireless network technology and
infrastructure and related equipment and the costs thereof as well as
other relevant factors in estimating future cash flows. The discount rate
represents our estimate of the weighted average cost of capital (or
expected return, “WACC”) that a marketplace participant would require
as of the valuation date. We develop the discount rate based on our
consideration of the cost of debt and equity of a group of guideline
companies as of the valuation date. Accordingly, our discount rate
incorporates our estimate of the expected return a marketplace partici-
pant would require as of the valuation date, including the risk premium
associated with the current and expected economic conditions as of
the valuation date. The terminal value growth rate represents our esti-
mate of the marketplace’s long-term growth rate.
33
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
• Verizon’s plant, property and equipment balance represents a signifi-
cant component of our consolidated assets. We record plant, property
and equipment at cost. Depreciation expense on Verizon’s local
telephone operations is principally based on the composite group
remaining life method and straight-line composite rates, which pro-
vides for the recognition of the cost of the remaining net investment
in local telephone plant, less anticipated net salvage value, over the
remaining asset lives. An increase or decrease of 50 basis points to the
composite rates of this class of assets would result in an increase or
decrease of approximately $775 million to depreciation expense based
on year-end plant balances at December 31, 2009. We depreciate
other plant, property and equipment on a straight-line basis over the
estimated useful life of the assets. We expect that a one-year increase
in estimated useful lives of our plant, property and equipment that
we depreciate on a straight line basis would result in a decrease to
our 2009 depreciation expense of $968 million and that a one-year
decrease would result in an increase of approximately $1,219 million in
our 2009 depreciation expense.
Recent Accounting Standards
In June 2009, the accounting standard regarding the requirements of
consolidation accounting for variable interest entities was updated to
require an enterprise to perform an analysis to determine whether the
entity’s variable interest or interests give it a controlling interest in a vari-
able interest entity. The adoption of this standard, effective January 1,
2010, is not expected to have a significant impact on our consolidated
financial statements.
In September 2009, the accounting standard regarding multiple deliver-
able arrangements was updated to require the use of the relative selling
price method when allocating revenue in these types of arrangements.
This method allows a vendor to use its best estimate of selling price if
neither vendor specific objective evidence nor third party evidence of
selling price exists when evaluating multiple deliverable arrangements.
This standard update is effective January 1, 2011 and may be adopted pro-
spectively for revenue arrangements entered into or materially modified
after the date of adoption or retrospectively for all revenue arrangements
for all periods presented. We are currently evaluating the impact that this
standard update will have on our consolidated financial statements.
In September 2009, the accounting standard regarding arrangements
that include software elements was updated to require tangible products
that contain software and non-software elements that work together to
deliver the products essential functionality to be evaluated under the
accounting standard regarding multiple deliverable arrangements. This
standard update is effective January 1, 2011 and may be adopted pro-
spectively for revenue arrangements entered into or materially modified
after the date of adoption or retrospectively for all revenue arrangements
for all periods presented. We are currently evaluating the impact that this
standard update will have on our consolidated financial statements.
A sensitivity analysis of the impact of changes in these assumptions on
the benefit obligations and expense (income) recorded as of December
31, 2009 and for the year then ended pertaining to Verizon’s pension
and postretirement benefit plans is provided in the table below.
Percentage
point
change
Benefit obligation*
increase
(decrease) at
December 31, 2009
(dollars in millions)
Expense increase
(decrease) for the
year ended
December 31, 2009
Pension plans
discount rate
Long-term rate of
return on pension
plan assets
Postretirement plans
discount rate
Long-term rate
of return on
postretirement
plan assets
Health care
trend rates
+0.50
–0.50
+1.00
–1.00
+0.50
–0.50
+1.00
–1.00
+1.00
–1.00
$
(1,291)
1,413
$
(52)
56
–
–
(1,436)
1,588
–
–
3,053
(2,520)
(346)
346
(75)
94
(37)
37
450
(302)
* In determining its pension and other postretirement obligation, the Company used a
6.25% discount rate. The rate was selected to approximate the composite interest rates
available on a selection of bonds available in the market at December 31, 2009. The
bonds used in developing the composite interest rate were U.S. dollar denominated,
rated Aa3 to Aa1 by Moody’s Investor Services or AA- to AA+ by Standard & Poor’s.
The bonds selected had maturities that coincided with the time periods during which
benefits payments are expected to occur, were non-callable and available in sufficient
quantities to ensure marketability (at least $150 million par outstanding).
• Our current and deferred income taxes, and associated valuation allow-
ances, are impacted by events and transactions arising in the normal
course of business as well as in connection with the adoption of new
accounting standards, changes in tax laws and rates, acquisitions and
dispositions of businesses and non-recurring items. As a global com-
mercial enterprise, our income tax rate and the classification of income
taxes can be affected by many factors, including estimates of the
timing and realization of deferred income tax assets and the timing
and amount of income tax payments. We account for tax benefits
taken or expected to be taken in our tax returns in accordance with the
accounting standard relating to the uncertainty in income taxes, which
requires the use of a two-step approach for recognizing and measuring
tax benefits taken or expected to be taken in a tax return. We review
and adjust our liability for unrecognized tax benefits based on our best
judgment given the facts, circumstances, and information available at
each reporting date. To the extent that the final outcome of these tax
positions is different than the amounts recorded, such differences may
impact income tax expense and actual tax payments. We recognize
any interest and penalties accrued related to unrecognized tax benefits
in income tax expense. Actual tax payments may materially differ from
estimated liabilities as a result of changes in tax laws as well as unan-
ticipated transactions impacting related income tax balances.
34
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Other FACtOrS thAt MAy AFFeC t Future reSult S
Recent Developments
Telephone Access Lines Spin-off
On May 13, 2009, we announced plans to spin off a newly formed subsidiary
of Verizon (Spinco) to our stockholders. Spinco will hold defined assets and
liabilities of the local exchange business and related landline activities of
Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina,
Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, and
in portions of California bordering Arizona, Nevada and Oregon, including
Internet access and long distance services and broadband video provided
to designated customers in those areas. Immediately following the spin-
off, Spinco plans to merge with Frontier Communications Corporation
(Frontier) pursuant to a definitive agreement with Frontier, and Frontier will
be the surviving corporation. The transactions do not involve any assets
or liabilities of Verizon Wireless. The merger will result in Frontier acquiring
approximately 4 million access lines and certain related businesses from
Verizon, which collectively generated annual revenues of approximately $4
billion for Verizon’s Wireline segment.
Depending on the trading prices of Frontier common stock prior to the
closing of the merger, Verizon stockholders will collectively own between
approximately 66% and 71% of Frontier’s outstanding equity imme-
diately following the closing of the merger, and Frontier stockholders
will collectively own between approximately 29% and 34% of Frontier’s
outstanding equity immediately following the closing of the merger (in
each case, before any closing adjustments). The actual number of shares
of common stock to be issued by Frontier in the merger will be calcu-
lated based upon several factors, including the average trading price of
Frontier common stock during a pre-closing measuring period (subject
to a collar) and other closing adjustments. Verizon will not own any shares
of Frontier after the merger.
Both the spin-off and merger are expected to qualify as tax-free transac-
tions, except to the extent that cash is paid to Verizon stockholders in lieu
of fractional shares.
In connection with the spin-off, Verizon expects to receive from Spinco
approximately $3.3 billion in value through a combination of a special
cash payment to Verizon, a reduction in Verizon’s consolidated indebt-
edness, and, in certain circumstances, the issuance to Verizon of debt
securities of Spinco. In the merger, Verizon stockholders are expected to
receive approximately $5.3 billion of Frontier common stock, assuming the
average trading price of Frontier common stock during the pre-closing
measuring period is within the collar and no closing adjustments.
The transaction is subject to the satisfaction of certain conditions,
including receipt of state and federal telecommunications regulatory
approvals. If the conditions are satisfied, we expect this transaction to
close during the second quarter of 2010.
Alltel Corporation
On June 5, 2008, Verizon Wireless entered into an agreement and plan of
merger with Alltel, a provider of wireless voice and advanced data ser-
vices to consumer and business customers in 34 states, and its controlling
stockholder, Atlantis Holdings LLC, an affiliate of private investment firms
TPG Capital and GS Capital Partners, to acquire, in an all-cash merger,
100% of the equity of Alltel for cash consideration of $5.9 billion and the
assumption of approximately $24 billion of aggregate principal amount
of Alltel debt. Verizon Wireless closed the transaction on January 9, 2009.
As a condition of the regulatory approvals that were required to complete
the Alltel acquisition, Verizon Wireless is required to divest overlap-
ping properties in 105 operating markets in 24 states (Alltel Divestiture
Markets). These markets consist primarily of Alltel operations, but also
include a small number of pre-merger operations of Verizon Wireless.
On May 8, 2009, Verizon Wireless entered into a definitive agreement
with AT&T Mobility LLC (AT&T Mobility), a subsidiary of AT&T Inc. (AT&T),
pursuant to which AT&T Mobility agreed to acquire 79 of the 105 Alltel
Divestiture Markets, including licenses and network assets for approxi-
mately $2.4 billion in cash. On June 9, 2009, Verizon Wireless entered into
a definitive agreement with Atlantic Tele-Network, Inc. (ATN), pursuant to
which ATN agreed to acquire the remaining 26 Alltel Divestiture Markets
that were not included in the transaction with AT&T Mobility, including
licenses and network assets for $200 million in cash. We expect to close
both the AT&T Mobility and ATN transactions during the first half of 2010.
Completion of each of the foregoing transactions is subject to receipt of
regulatory approvals.
Environmental Matters
During 2003, under a government-approved plan, remediation com-
menced at the site of a former Sylvania facility in Hicksville, New York
that processed nuclear fuel rods in the 1950s and 1960s. Remediation
beyond original expectations proved to be necessary and a reassessment
of the anticipated remediation costs was conducted. A reassessment of
costs related to remediation efforts at several other former facilities was
also undertaken. In September 2005, the Army Corps of Engineers (ACE)
accepted the Hicksville site into the Formerly Utilized Sites Remedial
Action Program. This may result in the ACE performing some or all of the
remediation effort for the Hicksville site with a corresponding decrease
in costs to Verizon. To the extent that the ACE assumes responsibility for
remedial work at the Hicksville site, an adjustment to a reserve previously
established for the remediation may be made. Adjustments to the reserve
may also be made based upon actual conditions discovered during the
remediation at this or any other site requiring remediation.
35
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Video
The FCC has a body of rules that apply to cable operators under Title VI of
the Communications Act of 1934, and these rules also generally apply to
telephone companies that provide cable services over their networks. In
addition, the Act generally requires companies that provide cable service
over a cable system to obtain a local cable franchise, and the FCC has
adopted rules that interpret and implement this requirement.
Interstate Access Charges and Intercarrier Compensation
The FCC’s current framework for interstate switched access rates was estab-
lished in the Coalition for Affordable Local and Long Distance Services
(CALLS) plan which the FCC adopted in 2000, and it has more recently
adopted a separate framework that applies to dial-up Internet-bound
traffic. The FCC currently is conducting a broad rulemaking to determine
whether and how these existing frameworks should be modified.
The FCC is also conducting a rulemaking proceeding to address the
regulation of services that use Internet protocol. The issues raised in the
rulemaking as well as in several petitions currently pending before the
FCC include whether, and under what circumstances, access charges
should apply to voice or other Internet protocol services and the scope
of federal and state commission authority over these services.
The FCC’s current rules for special access services provide for pricing flex-
ibility and ultimately the removal of services from price regulation when
prescribed competitive thresholds are met. More than half of special
access revenues are now removed from price regulation. The FCC cur-
rently has a rulemaking proceeding underway to determine whether and
how these rules should be modified.
Universal Service
The FCC also has a body of rules implementing the universal service pro-
visions of the Telecommunications Act of 1996, including rules governing
support to rural and non-rural high-cost areas, support for low income
subscribers and support for schools, libraries and rural health care. The
FCC’s current rules for support to high-cost areas served by larger “non-
rural” local telephone companies were previously remanded by U.S. Court
of Appeals for the Tenth Circuit, which had found that the FCC had not
adequately justified these rules. The FCC has initiated a rulemaking pro-
ceeding in response to the court’s remand, but its rules remain in effect
pending the results of the rulemaking. In response to growth in the
size of the fund, the FCC has capped the amount of support competi-
tive carriers (including all wireless carriers) may receive. In its 2008 order
approving Verizon Wireless’s acquisition of Alltel, the FCC also required
Verizon Wireless to phase out the high-cost universal service support the
merged company receives by 20 percent during the first year following
completion of the acquisition and by an additional 20 percent for each
of the following three years, after which no support will be provided. The
FCC currently is considering other changes to the rules governing contri-
butions to, and disbursements from, the fund. Any change in the current
rules could result in a change in the contribution that local telephone
companies, wireless carriers or others must make and that would have
to be collected from customers, or in the amounts that these providers
receive from the fund.
Regulatory and Competitive Trends
Competition and Regulation
Technological, regulatory and market changes have provided Verizon
both new opportunities and challenges. These changes have allowed
Verizon to offer new types of services in an increasingly competitive
market. At the same time, they have allowed other service providers
to broaden the scope of their own competitive offerings. Current and
potential competitors for network services include other telephone
companies, cable companies, wireless service providers, foreign telecom-
munications providers, satellite providers, electric utilities, Internet service
providers, providers of VoIP services, and other companies that offer net-
work services using a variety of technologies. Many of these companies
have a strong market presence, brand recognition and existing customer
relationships, all of which contribute to intensifying competition and may
affect our future revenue growth. Many of our competitors also remain
subject to fewer regulatory constraints than us.
We are unable to predict definitively the impact that the ongoing
changes in the telecommunications industry will ultimately have on our
business, results of operations or financial condition. The financial impact
will depend on several factors, including the timing, extent and success
of competition in our markets, the timing and outcome of various regula-
tory proceedings and any appeals, and the timing, extent and success of
our pursuit of new opportunities.
FCC Regulation
The FCC has jurisdiction over our interstate telecommunications services
and other matters under the Communications Act of 1934, as amended
(Communications Act). The Communications Act generally provides that
we may not charge unjust or unreasonable rates, or engage in unreason-
able discrimination when we are providing services as a common carrier,
and regulates some of the rates, terms and conditions under which we
provide certain services. The FCC also has adopted regulations governing
various aspects of our business including: (i) use and disclosure of cus-
tomer proprietary network information; (ii) telemarketing; (iii) assignment
of telephone numbers to customers; (iv) provision to law enforcement
agencies of the capability to obtain call identifying information and call
content information from calls pursuant to lawful process; (v) accessi-
bility of services and equipment to individuals with disabilities if readily
achievable; (vi) interconnection with the networks of other carriers; and
(vii) customers’ ability to keep (or “port”) their telephone numbers when
switching to another carrier. In addition, we pay various fees to support
other FCC programs, such as the universal service program discussed
below. Changes to these mandates, or the adoption of additional man-
dates, could require us to make changes to our operations or otherwise
increase our costs of compliance.
Broadband
The FCC has adopted a series of orders that recognize the competitive
nature of the broadband market and impose lesser regulatory require-
ments on broadband services and facilities than apply to narrowband or
traditional telephone services. With respect to facilities, the FCC has deter-
mined that certain unbundling requirements that apply to narrowband
facilities of local exchange carriers do not apply to broadband facilities
such as fiber to the premise loops and packet switches. With respect to
services, the FCC has concluded that both wireline and wireless broad-
band Internet access services qualify as largely deregulated information
services. Separately, certain of our wireline broadband services sold pri-
marily to larger business customers were largely deregulated when our
forbearance petition was deemed granted by operation of law. The latter
relief has been upheld on appeal, but is subject to a continuing challenge
before the FCC.
36
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Unbundling of Network Elements
Under Section 251 of the Telecommunications Act of 1996, incumbent
local exchange carriers are required to provide competing carriers with
access to components of their network on an unbundled basis, known
as UNEs, where certain statutory standards are satisfied. The FCC has
adopted rules defining the network elements that must be made avail-
able, including criteria for determining whether high-capacity loops,
transport or dark fiber transport must be unbundled in individual wire
centers. The Telecommunications Act of 1996 also adopted a cost-based
pricing standard for these UNEs, which the FCC interpreted as allowing
it to impose a pricing standard known as “total element long run incre-
mental cost” or “TELRIC.”
Net Neutrality
On October 22, 2009, the FCC initiated a proceeding in which it proposes
to adopt so-called “net neutrality” rules that it describes as intended to
preserve the openness of the Internet. The proposed rules would apply
to all providers of broadband Internet access services, whether wireline
or wireless, but would not apply to providers of applications, content or
other services. The FCC proposes to adopt as rules four principles taken
from a previous policy statement that applied to wireline broadband
services and to add two new requirements, all of which would be sub-
ject to the ability of network providers to engage in reasonable network
management practices and to meeting the needs of law enforcement,
public safety and national security. Specifically, the proposed rules would
provide that a broadband Internet access provider: 1) may not prevent
its users from sending or receiving lawful content over the Internet; 2)
may not prevent its users from running or using lawful applications and
services; 3) may not prevent its users from connecting to and using on
its networks their choice of lawful devices that do not harm the network;
4) may not deprive its users of their entitlement to competition among
network providers, applications, content or services; 5) must treat lawful
content, applications or services in a nondiscriminatory manner; and 6)
must disclose information on network management and other practices
reasonably required for users and application, content and service pro-
viders to enjoy the protections of the rules. If final rules are adopted that
limit our flexibility in managing our broadband networks and delivering
broadband services, these rules could have a significant adverse effect
on our broadband business, restrict our ability to compete in the market-
place and limit the return we can expect to achieve on past and future
investments in our broadband networks.
Wireless Services
The FCC regulates the licensing, construction, operation, acquisition and
transfer of wireless communications systems, including the systems that
Verizon Wireless operates, pursuant to the Communications Act, other
legislation, and the FCC’s rules. The FCC and Congress continuously con-
sider changes to these laws and rules. Adoption of new laws or rules
may raise the cost of providing service or require modification of Verizon
Wireless’s business plans or operations.
To use the radio frequency spectrum, wireless communications systems
must be licensed by the FCC to operate the wireless network and mobile
devices in assigned spectrum segments. Verizon Wireless holds FCC
licenses to operate in several different radio services, including the cel-
lular radiotelephone service, personal communications service, wireless
communications service, and point-to-point radio service. The technical
and service rules, the specific radio frequencies and amounts of spectrum
Verizon Wireless holds, and the sizes of the geographic areas it is autho-
rized to operate in, vary for each of these services. However, all of the
licenses Verizon Wireless holds allow it to use spectrum to provide a wide
range of mobile and fixed communications services, including both voice
and data services, and Verizon Wireless operates a seamless network that
utilizes those licenses to provide services to customers. Because the FCC
issues licenses for only a fixed time, generally 10 years, Verizon Wireless
must periodically seek renewal of those licenses. Although the FCC has
routinely renewed all of Verizon Wireless’s licenses that have come up for
renewal to date, challenges could be brought against the licenses in the
future. If a wireless license were revoked or not renewed upon expira-
tion, Verizon Wireless would not be permitted to provide services on the
licensed spectrum in the area covered by that license.
The FCC has also imposed specific mandates on carriers that operate
wireless communications systems, which increase Verizon Wireless’s costs.
These mandates include requirements that Verizon Wireless: (i) meet
specific construction and geographic coverage requirements during
the license term; (ii) meet technical operating standards that, among
other things, limit the radio frequency radiation from mobile devices
and antennas; (iii) deploy “Enhanced 911” wireless services that provide
the wireless caller’s number, location and other information to a state or
local public safety agency that handles 911 calls; (iv) provide roaming
services to other wireless service providers; and (v) comply with regula-
tions for the construction of transmitters and towers that, among other
things, restrict siting of towers in environmentally sensitive locations and
in places where the towers would affect a site listed or eligible for listing
on the National Register of Historic Places. Changes to these mandates
could require Verizon Wireless to make changes to operations or increase
its costs of compliance. In its November 4, 2008 order approving Verizon
Wireless’s acquisition of Alltel, the FCC adopted conditions that impose
additional requirements on Verizon Wireless in its provision of Enhanced
911 services and roaming services.
The Communications Act imposes restrictions on foreign ownership of
U.S. wireless systems. The FCC has approved the interest that Vodafone
Group Plc holds, through various of its subsidiaries, in Verizon Wireless.
The FCC may need to approve any increase in Vodafone’s interest or the
acquisition of an ownership interest by other foreign entities. In addition,
as part of the FCC’s approval of Vodafone’s ownership interest, Verizon
Wireless, Verizon and Vodafone entered into an agreement with the
U.S. Department of Defense, Department of Justice and Federal Bureau
of Investigation which imposes national security and law enforce-
ment-related obligations on the ways in which Verizon Wireless stores
information and otherwise conducts its business.
37
Management’s Discussion and Analysis
of Financial Condition and results of Operations continued
Video
Companies that provide cable service over a cable system are typically
subject to state and/or local cable television rules and regulations. As
noted above, cable operators generally must obtain a local cable fran-
chise from each local unit of government prior to providing cable service
in that local area. Some states have recently enacted legislation that
enables cable operators to apply for, and obtain, a single cable franchise
at the state, rather than local, level. To date, Verizon has applied for and
received state-issued franchises in California, Indiana, Florida, New Jersey,
Texas and the unincorporated areas of Delaware. We also have obtained
authorization from the state commission in Rhode Island to provide cable
service in certain areas in that state, have obtained required state com-
mission approvals for our local franchises in New York, and will need to
obtain additional state commission approvals in these states to provide
cable service in additional areas. Virginia law provides us the option of
entering a given franchise area using state standards if local franchise
negotiations are unsuccessful.
Wireless Services
The rapid growth of the wireless industry has led to efforts by some state
legislatures and state public utility commissions to regulate the industry
in ways that may impose additional costs on Verizon Wireless. The
Communications Act generally preempts regulation by state and local
governments of the entry of, or the rates charged by, wireless carriers, but
does not prohibit states from regulating the other “terms and conditions”
of wireless service. While numerous state commissions do not currently
have jurisdiction over wireless services, state legislatures may decide to
grant them such jurisdiction, and those commissions that already have
authority to impose regulations on wireless carriers may adopt new rules.
State efforts to regulate wireless services have included proposals to
regulate customer billing, termination of service, trial periods for service,
advertising, network outages, the use of handsets while driving, and
reporting requirements for system outages and the availability of broad-
band wireless services. Wireless tower and antenna facilities are also
subject to state and local zoning and land use regulation, and securing
approvals for new or modified tower or antenna sites is often a lengthy
and expensive process.
Verizon Wireless (as well as AT&T and Sprint-Nextel) is a party to an
Assurance of Voluntary Compliance (AVC) with 33 State Attorneys
General. The AVC, which generally reflected Verizon Wireless’s practices at
the time it was entered into in July 2004, obligates the company to dis-
close certain rates and terms during a sales transaction, to provide maps
depicting coverage, and to comply with various requirements regarding
advertising, billing, and other practices.
Verizon Wireless anticipates that it will need additional spectrum to meet
future demand. It can meet spectrum needs by purchasing licenses or
leasing spectrum from other licensees, or by acquiring new spectrum
licenses from the FCC. Under the Communications Act, before Verizon
Wireless can acquire a license from another licensee in order to expand
its coverage or its spectrum capacity in a particular area, it must file an
application with the FCC, and the FCC can grant the application only after
a period for public notice and comment. This review process can delay
acquisition of spectrum needed to expand services. The Communications
Act also requires the FCC to award new licenses for most commercial
wireless services through a competitive bidding process in which spec-
trum is awarded to bidders in an auction. Verizon Wireless has participated
in spectrum auctions to acquire licenses for radio spectrum in various
bands. Most recently, Verizon Wireless participated in the FCC’s auction
of spectrum in the 700 MHz band, and was the high bidder on 109 700
MHz licenses. The FCC granted all of those licenses to Verizon Wireless on
November 26, 2008. The 700 MHz spectrum was used for UHF television
operations, but by law those operations ceased on June 12, 2009.
The FCC also adopted service rules that will impose costs on licensees
that acquire the 700 MHz band spectrum, including minimum coverage
mandates by specific dates during the license terms, and, for approxi-
mately one-third of the spectrum, “open access” requirements, which
generally require licensees of that spectrum to allow customers to use
devices and applications of their choice, subject to certain limits. Seven
of the licenses that Verizon Wireless acquired in the 700 MHz auction,
which in the aggregate cover the U.S. except for Alaska, are subject to
these requirements.
The FCC is also conducting several proceedings to explore making
additional spectrum available for licensed and/or unlicensed use. These
proceedings could increase radio interference to Verizon Wireless’s opera-
tions from other spectrum users and could impact the ways in which
it uses spectrum, the capacity of that spectrum to carry traffic, and the
value of that spectrum.
State Regulation and Local Approvals
Telephone Operations
State public utility commissions regulate our telephone operations with
respect to certain telecommunications intrastate rates and services and
other matters. Our competitive local exchange carrier and long distance
operations are generally classified as nondominant and lightly regu-
lated the same as other similarly situated carriers. Our incumbent local
exchange operations are generally classified as dominant. These latter
operations predominantly are subject to alternative forms of regulation
(AFORs) in the various states, although they remain subject to rate of
return regulation in a few states. Arizona, Illinois, Nevada, Oregon and
Washington are rate of return regulated with various levels of pricing
flexibility for competitive services. California, Connecticut, Delaware, the
District of Columbia, Florida, Indiana, Maryland, Michigan, Massachusetts,
New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island,
South Carolina, Texas, Virginia, West Virginia and Wisconsin are under
AFORs with various levels of pricing flexibility, detariffing, and service
quality standards. None of the AFORs include earnings regulation. In
Idaho, Verizon has made the election under a statutory amendment into
a deregulatory regime that phases out all price regulation.
38
CAutiOnAry StAteMent COnCerning
FOrwArD-lOOking St AteMentS
In this Annual Report to Shareowners we have made forward-looking
statements. These statements are based on our estimates and assump-
tions and are subject to risks and uncertainties. Forward-looking
statements include the information concerning our possible or assumed
future results of operations. Forward-looking statements also include
those preceded or followed by the words “anticipates,” “believes,” “esti-
mates,” “hopes” or similar expressions. 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, along with those discussed elsewhere
in this annual report, could affect future results and could cause those
results to differ materially from those expressed in the forward-looking
statements:
• the effects of adverse conditions in the U.S. and international
economies;
• the effects of competition in our markets;
• materially adverse changes in 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;
• the effect of material changes in available technology;
• any disruption of our suppliers’ provisioning of critical products or
services;
• significant increases in benefit plan costs or lower investment returns
on plan assets;
• the impact of natural or man-made disasters or existing or future litiga-
tion and any resulting financial impact not covered by insurance;
• technology substitution;
• an adverse change in the ratings afforded our debt securities by
nationally accredited ratings organizations or adverse conditions in
the credit markets impacting the cost, including interest rates, and/or
availability of financing;
• any changes in the regulatory environments in which we operate,
including any loss of or inability to renew wireless licenses, and the final
results of federal and state regulatory proceedings and judicial review
of those results;
• the timing, scope and financial impact of our deployment of fiber-to-
the-premises broadband technology;
• 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;
• our ability to complete acquisitions and dispositions;
• our ability to successfully integrate Alltel Corporation into Verizon
Wireless’s business and achieve anticipated benefits of the acquisition;
and
• the inability to implement our business strategies.
39
Report of Management on Internal Control Over
Financial Reporting
Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
We, the management of Verizon Communications Inc., are responsible
for establishing and maintaining adequate internal control over financial
reporting of the company. Management has evaluated internal control
over financial reporting of the company using the criteria for effective
internal control established in Internal Control–Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Management has assessed the effectiveness of the company’s internal
control over financial reporting as of December 31, 2009. Based on this
assessment, we believe that the internal control over financial reporting
of the company is effective as of December 31, 2009. In connection with
this assessment, there were no material weaknesses in the company’s
internal control over financial reporting identified by management.
The company’s financial statements included in this annual report have
been audited by Ernst & Young LLP, independent registered public
accounting firm. Ernst & Young LLP has also provided an attestation
report on the company’s internal control over financial reporting.
Ivan G. Seidenberg
Chairman and Chief Executive Officer
John F. Killian
Executive Vice President and Chief Financial Officer
Robert J. Barish
Senior Vice President and Controller
To The Board of Directors and Shareowners of Verizon
Communications Inc.:
We have audited Verizon Communications Inc. and subsidiaries’ (Verizon)
internal control over financial reporting as of December 31, 2009, based
on criteria established in Internal Control–Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Verizon’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included
in the accompanying Report of Management on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assur-
ance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external pur-
poses in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those poli-
cies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assur-
ance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and direc-
tors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or dis-
position of the company’s assets that could have a material effect on the
financial statements.
40
Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evalua-
tion of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, Verizon maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
balance sheets of Verizon as of December 31, 2009 and 2008, and the
related consolidated statements of income, cash flows and changes in
equity for each of the three years in the period ended December 31, 2009
of Verizon and our report dated February 26, 2010 expressed an unquali-
fied opinion thereon.
Ernst & Young LLP
New York, New York
February 26, 2010
Report of Independent Registered Public Accounting
Firm on Financial Statements
To The Board of Directors and Shareowners of Verizon
Communications Inc.:
We have audited the accompanying consolidated balance sheets of
Verizon Communications Inc. and subsidiaries (Verizon) as of December
31, 2009 and 2008, and the related consolidated statements of income,
cash flows and changes in equity for each of the three years in the period
ended December 31, 2009. These financial statements are the responsi-
bility of Verizon’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those stan-
dards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and signifi-
cant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Verizon
at December 31, 2009 and 2008, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, Verizon changed
its method of accounting for business combinations effective January
1, 2009.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), Verizon’s internal
control over financial reporting as of December 31, 2009, based on cri-
teria established in Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 26, 2010 expressed an unqualified
opinion thereon.
Ernst & Young LLP
New York, New York
February 26, 2010
41
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
2009
(dollars in millions, except per share amounts)
2007
2008
$ 107,808
$
97,354
$
93,469
44,299
32,950
16,532
93,781
14,027
553
90
(3,102)
11,568
(1,210)
10,358
–
–
$ 10,358
$
6,707
3,651
$ 10,358
$
$
$
$
1.29
–
–
1.29
2,841
1.29
–
–
1.29
2,841
39,007
26,898
14,565
80,470
16,884
567
282
(1,819)
15,914
(3,331)
12,583
–
–
12,583
6,155
6,428
12,583
2.26
–
–
2.26
2,849
2.26
–
–
2.26
2,850
$
$
$
$
$
$
$
37,547
25,967
14,377
77,891
15,578
585
211
(1,829)
14,545
(3,982)
10,563
142
(131)
10,574
5,053
5,521
10,574
1.90
0.05
(0.05)
1.91
2,898
1.90
0.05
(0.05)
1.90
2,902
$
$
$
$
$
$
$
Consolidated Statements of Income
Years Ended December 31,
Operating Revenues
Operating Expenses
Cost of services and sales (exclusive of items shown below)
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
Operating Income
Equity in earnings of unconsolidated businesses
Other income and (expense), net
Interest expense
Income Before Provision for Income Taxes, Discontinued Operations
and Extraordinary Item
Provision for income taxes
Income Before Discontinued Operations and Extraordinary Item
Income from discontinued operations, net of tax
Extraordinary item, net of tax
Net Income
Net income attributable to noncontrolling interest
Net income attributable to Verizon
Net Income
Basic Earnings Per Common Share(1)
Income before discontinued operations and extraordinary item
attributable to Verizon
Income from discontinued operations attributable to Verizon, net of tax
Extraordinary item attributable to Verizon, net of tax
Net Income attributable to Verizon
Weighted-average shares outstanding (in millions)
Diluted Earnings Per Common Share(1)
Income before discontinued operations and extraordinary item
attributable to Verizon
Income from discontinued operations attributable to Verizon, net of tax
Extraordinary item attributable to Verizon, net of tax
Net Income attributable to Verizon
Weighted-average shares outstanding (in millions)
(1) Total per share amounts may not add due to rounding
See Notes to Consolidated Financial Statements
42
Consolidated Balance Sheets
At December 31,
Assets
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $976 and $941
Inventories
Prepaid expenses and other
Total current assets
Plant, property and equipment
Less accumulated depreciation
Investments in unconsolidated businesses
Wireless licenses
Goodwill
Other intangible assets, net
Other investments
Other assets
Total assets
Liabilities and Equity
Current liabilities
Debt maturing within one year
Accounts payable and accrued liabilities
Other
Total current liabilities
Long-term debt
Employee benefit obligations
Deferred income taxes
Other liabilities
Equity
Series preferred stock ($.10 par value; none issued)
Common stock ($.10 par value; 2,967,610,119 shares issued in both periods)
Contributed capital
Reinvested earnings
Accumulated other comprehensive loss
Common stock in treasury, at cost
Deferred compensation – employee stock ownership plans and other
Noncontrolling interest
Total equity
Total liabilities and equity
See Notes to Consolidated Financial Statements
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
(dollars in millions, except per share amounts)
2008
2009
$
2,009
490
12,573
2,289
5,247
22,608
228,518
137,052
91,466
3,535
72,067
22,472
6,764
–
8,339
$ 227,251
$
7,205
15,223
6,708
29,136
55,051
32,622
19,310
6,765
–
297
40,108
17,592
(11,479)
(5,000)
88
42,761
84,367
$ 227,251
$
9,782
509
11,703
2,092
1,989
26,075
215,605
129,059
86,546
3,393
61,974
6,035
5,199
4,781
8,349
$ 202,352
$
4,993
13,814
7,099
25,906
46,959
32,512
11,769
6,301
–
297
40,291
19,250
(13,372)
(4,839)
79
37,199
78,905
$ 202,352
43
Consolidated Statements of Cash Flows
Years Ended December 31,
Cash Flows from Operating Activities
Net Income
Adjustments to reconcile net income to net cash provided by operating activities –
continuing operations:
Depreciation and amortization expense
Employee retirement benefits
Deferred income taxes
Provision for uncollectible accounts
Equity in earnings of unconsolidated businesses, net of dividends received
Extraordinary item, net of tax
Changes in current assets and liabilities, net of effects from acquisition/disposition
of businesses:
Accounts receivable
Inventories
Other assets
Accounts payable and accrued liabilites
Other, net
Net cash provided by operating activities – continuing operations
Net cash used in operating activities – discontinued operations
Net cash provided by operating activities
Cash Flows from Investing Activities
Capital expenditures (including capitalized software)
Acquisitions of licenses, investments and businesses, net of cash acquired
Net change in short-term investments
Other, net
Net cash used in investing activities – continuing operations
Net cash provided by investing activities – discontinued operations
Net cash used in investing activities
Cash Flows from Financing Activities
Proceeds from long-term borrowings
Repayments of long-term borrowings and capital lease obligations
Increase (decrease) in short-term obligations, excluding current maturities
Dividends paid
Proceeds from sale of common stock
Purchase of common stock for treasury
Other, net
Net cash provided by (used in) financing activities – continuing operations
Net cash used in financing activities – discontinued operations
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See Notes to Consolidated Financial Statements
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
2009
2008
(dollars in millions)
2007
$ 10,358
$ 12,583
$ 10,574
16,532
5,095
1,384
1,306
389
–
(1,393)
235
(102)
(1,251)
(988)
31,565
–
31,565
(17,047)
(5,958)
84
(410)
(23,331)
–
(23,331)
12,040
(19,260)
(1,652)
(5,271)
–
–
(1,864)
(16,007)
–
(16,007)
14,565
1,955
2,183
1,085
212
–
(1,085)
(188)
(59)
(1,701)
(1,993)
27,557
–
27,557
(17,238)
(15,904)
1,677
(114)
(31,579)
–
(31,579)
21,598
(4,146)
2,389
(4,994)
16
(1,368)
(844)
12,651
–
12,651
14,377
1,720
408
1,047
1,986
131
(1,931)
(255)
(140)
(567)
59
27,409
(570)
26,839
(17,538)
(763)
169
1,267
(16,865)
757
(16,108)
3,402
(5,503)
(3,252)
(4,773)
1,274
(2,843)
(1,102)
(12,797)
–
(12,797)
(7,773)
9,782
$ 2,009
8,629
1,153
9,782
$
(2,066)
3,219
1,153
$
44
Consolidated Statements of Changes in Equity
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
Years Ended December 31,
Common Stock
Balance at beginning of year
Other
Balance at end of year
Contributed Capital
Balance at beginning of year
Shares issued-employee and shareowner plans
Other
Balance at end of year
Reinvested Earnings
Balance at beginning of year
Adoption of tax accounting standards
Adjusted balance at beginning of year
Net income attributable to Verizon
Dividends declared ($1.87, $1.78 and $1.67 per share)
Other
Balance at end of year
Accumulated Other Comprehensive Loss
Balance at beginning of year attributable to Verizon
Spin-off of local exchange businesses in Maine, New Hampshire
and Vermont (Note 3)
Adjusted balance at beginning of year
Foreign currency translation adjustments
Unrealized gains (losses) on marketable securities
Unrealized gains (losses) on cash flow hedges
Defined benefit pension and postretirement plans
Other
Other comprehensive income (loss)
Balance at end of year attributable to Verizon
Treasury Stock
Balance at beginning of year
Shares purchased
Other (Note 10)
Shares distributed
Employee plans
Shareowner plans
Balance at end of year
Deferred Compensation–ESOPs and Other
Balance at beginning of year
Amortization
Balance at end of year
Noncontrolling Interest
Balance at beginning of year
Net income attributable to noncontrolling interest
Other comprehensive income (loss)
Total comprehensive income
Distributions and other
Balance at end of year
Total Equity
Comprehensive Income
Net income
Other comprehensive income (loss)
Total Comprehensive Income
Comprehensive income attributable to noncontrolling interest
Comprehensive income (loss) attributable to Verizon
Total Comprehensive Income
See Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts, and shares in thousands)
2007
Amount
2008
Amount
Shares
Shares
2009
Amount
Shares
$
2,967,610
–
2,967,610
297
–
297
2,967,610
–
2,967,610
$
297
–
297
2,967,652
(42)
2,967,610
$
297
–
297
40,291
–
(183)
40,108
19,250
–
19,250
3,651
(5,309)
–
17,592
(13,372)
–
(13,372)
78
87
87
1,641
–
1,893
(11,479)
(4,839)
–
(166)
5
–
(5,000)
79
9
88
37,199
6,707
103
6,810
(1,248)
42,761
(90,786)
(36,779)
–
468
7
(127,090)
40,316
–
(25)
40,291
17,884
–
17,884
6,428
(5,062)
–
19,250
(4,484)
44
(4,440)
(231)
(97)
(40)
(8,564)
–
(8,932)
(13,372)
(3,489)
(1,368)
–
18
–
(4,839)
79
–
79
32,266
6,155
(30)
6,125
(1,192)
37,199
(56,147)
(68,063)
–
33,411
13
(90,786)
40,124
58
134
40,316
17,324
(134)
17,190
5,521
(4,830)
3
17,884
(7,503)
–
(7,503)
838
(4)
1
1,943
241
3,019
(4,484)
(1,871)
(2,843)
–
1,224
1
(3,489)
191
(112)
79
28,310
5,053
5
5,058
(1,102)
32,266
$ 84,367
$
78,905
$
82,869
$ 10,358
1,996
$ 12,354
$
6,810
5,544
$ 12,354
$
$
$
$
12,583
(8,962)
3,621
6,125
(2,504)
3,621
$
$
$
$
10,574
3,024
13,598
5,058
8,540
13,598
45
(127,090)
–
(5,000)
142
6
(131,942)
Notes to Consolidated Financial Statements
v e r i zo n co m m u n i c at i o n s i n c . a n d s u b s i d i a r i e s
NOTE 1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
Verizon Communications Inc. (Verizon or the Company) is one of the
world’s leading providers of communications services. We have two
reportable segments, Domestic Wireless and Wireline. For further infor-
mation concerning our business segments, see Note 14.
Verizon’s Domestic Wireless segment, operating as Verizon Wireless, pro-
vides wireless voice and data products and equipment across the United
States (U.S.) using one of the most extensive and reliable wireless net-
works in the nation. Verizon Wireless continues to expand its wireless
data, messaging and multi-media offerings at broadband speeds for both
consumer and business customers.
Our Wireline segment provides communications services, including voice,
broadband video and data, network access, nationwide long distance
and other communications products and services, and also owns and
operates one of the most expansive end-to-end global Internet Protocol
(IP) networks. We continue to deploy advanced broadband network
technology, with our fiber-to-the-premises network, operated under the
FiOS service mark, creating a platform with sufficient bandwidth and
capabilities to meet customers’ current and future needs. FiOS allows
us to offer our customers a wide array of broadband services, including
advanced data and video offerings. Our IP network includes over 485,000
route miles of fiber optic cable and provides access to over 150 countries
across six continents, enabling us to provide next-generation IP network
products and information technology services to medium and large busi-
nesses and government customers worldwide.
Consolidation
The method of accounting applied to investments, whether consoli-
dated, equity or cost, involves an evaluation of all significant terms of
the investments that explicitly grant or suggest evidence of control or
influence over the operations of the investee. The consolidated financial
statements include our controlled subsidiaries. For controlled subsidiaries
that are not wholly owned, the noncontrolling interest is included in Net
income and Total equity. Investments in businesses which we do not
control, but have the ability to exercise significant influence over oper-
ating and financial policies, are accounted for using the equity method.
Investments in which we do not have the ability to exercise significant
influence over operating and financial policies are accounted for under
the cost method. Equity and cost method investments are included in
Investments in unconsolidated businesses in our consolidated balance
sheets. Certain of our cost method investments are classified as available-
for-sale securities and adjusted to fair value pursuant to the accounting
standard related to debt and equity securities. All significant intercom-
pany accounts and transactions have been eliminated.
We have evaluated subsequent events through February 26, 2010, the
date these consolidated financial statements were filed with the U.S.
Securities and Exchange Commission (SEC).
We have reclassified certain prior year amounts to conform to the current
year presentation.
Use of Estimates
We prepare our financial statements using U.S. generally accepted
accounting principles (GAAP), which require management to make esti-
mates and assumptions that affect reported amounts and disclosures.
Actual results could differ from those estimates.
46
Examples of significant estimates include: the allowance for doubtful
accounts, the recoverability of plant, property and equipment, the recov-
erability of intangible assets and other long-lived assets, unbilled revenues,
fair values of financial instruments, unrecognized tax benefits, valuation
allowances on tax assets, accrued expenses, pension and postretirement
benefit assumptions, contingencies and allocation of purchase prices in
connection with business combinations.
Revenue Recognition
Domestic Wireless
Our Domestic Wireless segment earns revenue by providing access to
and usage of its network, which includes voice and data revenue. In gen-
eral, access revenue is billed one month in advance and recognized when
earned. Usage revenue is generally billed in arrears and recognized when
service is rendered. Equipment sales revenue associated with the sale of
wireless handsets and accessories is recognized when the products are
delivered to and accepted by the customer, as this is considered to be a
separate earnings process from the sale of wireless services. Activation
fees charged to customers are considered additional arrangement con-
sideration and are recorded in Equipment and other revenue, generally,
at the time of customer acceptance. For agreements involving the resale
of third-party services in which we are considered the primary obligor in
the arrangements, we record the revenue gross at the time of the sale.
Wireline
Our Wireline segment earns revenue based upon usage of its network
and facilities and contract fees. In general, fixed monthly fees for voice,
video, data and certain other services are billed one month in advance
and recognized when earned. Revenue from services that are not fixed in
amount and are based on usage is generally billed in arrears and recog-
nized when such services are provided.
When we bundle the equipment with maintenance and monitoring ser-
vices, we recognize equipment revenue when the equipment is installed
in accordance with contractual specifications and ready for the cus-
tomer’s use. The maintenance and monitoring services are recognized
monthly over the term of the contract as we provide the services. Long-
term contracts are accounted for using the percentage of completion
method. We use the completed contract method if we cannot estimate
the costs with a reasonable degree of reliability.
Customer activation fees, along with the related costs up to but not
exceeding the activation fees, are deferred and amortized over the esti-
mated customer relationship period.
We report taxes imposed by governmental authorities on revenue-pro-
ducing transactions between us and our customers on a net basis.
Discontinued Operations, Assets Held for Sale, and Sales of
Businesses and Investments
We classify as discontinued operations for all periods presented any
component of our business that we hold for sale or disposal that has
operations and cash flows that are clearly distinguishable operationally
and for financial reporting purposes. For those components, Verizon has
no significant continuing involvement after disposal and their operations
and cash flows are eliminated from Verizon’s ongoing operations.
Maintenance and Repairs
We charge the cost of maintenance and repairs, including the cost of
replacing minor items not constituting substantial betterments, princi-
pally to Cost of services and sales as these costs are incurred.
Notes to Consolidated Financial Statements continued
Advertising Costs
Costs for advertising products and services as well as other promotional
and sponsorship costs are charged to Selling, general and administrative
expense in the periods in which they are incurred (see Note 16).
Earnings Per Common Share
Basic earnings per common share are based on the weighted-average
number of shares outstanding during the period. Where appropriate,
diluted earnings per common share include the dilutive effect of shares
issuable under our stock-based compensation plans.
Dilutive stock options outstanding to purchase shares included in the
computation of diluted earnings per common share for the years ended
December 31, 2009 were not significant. There were approximately 1 mil-
lion and 4 million weighted-average dilutive shares, respectively, included
in the computation of diluted earnings per common share for the years
ended December 31, 2008 and 2007. Outstanding options to purchase
shares that were not included in the computation of diluted earnings per
common share because to do so would have been anti-dilutive for the
period, including approximately 112 million, 158 million and 170 million
weighted-average shares for the years ended December 31, 2009, 2008
and 2007 respectively.
We are authorized to issue up to 4.25 billion and 250 million shares of
common stock and Series Preferred Stock, respectively.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of 90 days or
less when purchased to be cash equivalents. Cash equivalents are stated
at cost, which approximates market value and include amounts held in
money market funds.
Marketable Securities
We have investments in marketable securities which are considered “avail-
able-for-sale” under the provisions of the accounting standard for certain
debt and equity securities. Marketable securities are included in the
accompanying consolidated balance sheets in Short-term investments,
Investments in unconsolidated businesses or Other assets. We continu-
ally evaluate our investments in marketable securities for impairment
due to declines in market value considered to be other-than-temporary.
That evaluation includes, in addition to persistent, declining stock prices,
general economic and company-specific evaluations. In the event of a
determination that a decline in market value is other-than-temporary, a
charge to earnings is recorded for the loss, and a new cost basis in the
investment is established.
Inventories
Inventory consists primarily of wireless and wireline equipment held for
sale, which is carried at the lower of cost (determined principally on either
an average cost or first-in, first-out basis) or market. We also include in
inventory new and reusable supplies and network equipment of our local
telephone operations, which are stated principally at average original cost,
except that specific costs are used in case of large individual items.
Plant and Depreciation
We record plant, property and equipment at cost. Our local telephone
operations’ depreciation expense is principally based on the composite
group remaining life method and straight-line composite rates. This
method provides for the recognition of the cost of the remaining net
investment in local telephone plant, less anticipated net salvage value,
over the remaining asset lives. This method requires the periodic revision
of depreciation rates.
Plant, property and equipment of other wireline and wireless operations
are generally depreciated on a straight-line basis. The asset lives used by
our operations are presented in the following table:
Average Useful Lives (in years)
Buildings
Central office and other network equipment
Outside communications plant
Copper cable
Fiber cable (including undersea cable)
Poles, conduit and other
Furniture, vehicles and other
15 – 45
3 – 15
15
11 – 25
30 – 50
2 – 20
When we replace, retire or otherwise dispose of depreciable plant used
in our local telephone network, we deduct the carrying amount of such
plant from the respective accounts and charge it to accumulated depre-
ciation. When the depreciable assets of our other wireline and wireless
operations are retired or otherwise disposed of, the related cost and
accumulated depreciation are deducted from the plant accounts, and
any gains or losses on disposition are recognized in income.
We capitalize and depreciate network software purchased or developed
along with related plant assets. We also capitalize interest associated with
the acquisition or construction of network-related assets. Capitalized
interest is reported and depreciated as part of the cost of the network-
related assets and as a reduction in interest expense.
In connection with our ongoing review of the estimated remaining
average useful lives of plant, property and equipment, we determined
that there were no changes necessary to average useful lives for 2010.
We determined effective January 1, 2009 that the average useful lives of
fiber cable (not including undersea cable) would be increased to 25 years
from 20 to 25 years and the average useful lives of copper cable would
be changed to 15 years from 13 to 18 years. These changes did not have
a significant impact on depreciation expense. Effective January 1, 2008
the average useful lives of fiber cable was increased from 20 years to 20
to 25 years. This change did not result in a significant impact to deprecia-
tion expense. While the timing and extent of current deployment plans
are subject to ongoing analysis and modification, we believe the current
estimates of useful lives are reasonable.
Computer Software Costs
We capitalize the cost of internal-use network and non-network software,
which has a useful life in excess of one year. Subsequent additions, modi-
fications or upgrades to internal-use network and non-network software
are capitalized only to the extent that they allow the software to perform
a task it previously did not perform. Software maintenance and training
costs are expensed in the period in which they are incurred. Also, we cap-
italize interest associated with the development of internal-use network
and non-network software. Capitalized non-network internal-use soft-
ware costs are amortized using the straight-line method over a period
of 2 to 7 years and are included in Other intangible assets, net in our
consolidated balance sheets. For a discussion of our impairment policy
for capitalized software costs, see “Goodwill and Other Intangible Assets”
below. Also, see Note 4 for additional detail of internal-use non-network
software reflected in our consolidated balance sheets.
47
Notes to Consolidated Financial Statements continued
Goodwill and Other Intangible Assets
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the
fair value of the identifiable net assets acquired. Impairment testing
for goodwill is performed annually in the fourth fiscal quarter or more
frequently if indications of potential impairment exist. The impairment
test for goodwill uses a two-step approach, which is performed at the
reporting unit level. We have determined that in our case, the reporting
units are our operating segments since that is the lowest level at which
discrete, reliable financial and cash flow information is regularly reviewed
by our chief operating decision maker. Step one compares the fair value
of the reporting unit (calculated using a market approach and/or a dis-
counted cash flow method) to its carrying value. If the carrying value
exceeds the fair value, there is a potential impairment and step two must
be performed. Step two compares the carrying value of the reporting
unit’s goodwill to its implied fair value (i.e., fair value of reporting unit
less the fair value of the unit’s assets and liabilities, including identifiable
intangible assets). If the implied fair value of goodwill is less than the car-
rying amount of goodwill, an impairment is recognized.
Intangible Assets Not Subject to Amortization
A significant portion of our intangible assets are wireless licenses that
provide our wireless operations with the exclusive right to utilize des-
ignated radio frequency spectrum to provide cellular communication
services. While licenses are issued for only a fixed time, generally ten years,
such licenses are subject to renewal by the Federal Communications
Commission (FCC). Renewals of licenses have occurred routinely and at
nominal cost. Moreover, we have determined that there are currently
no legal, regulatory, contractual, competitive, economic or other factors
that limit the useful life of our wireless licenses. As a result, we treat the
wireless licenses as an indefinite-lived intangible asset. We reevaluate the
useful life determination for wireless licenses each reporting period to
determine whether events and circumstances continue to support an
indefinite useful life.
We test our wireless licenses for potential impairment annually or more
frequently if indications of impairment exist. We evaluate our licenses
on an aggregate basis using a direct income-based value approach. The
direct value approach estimates fair value using a discounted cash flow
analysis to estimate what a marketplace participant would be willing to
pay to purchase the aggregated wireless licenses as of the valuation date.
If the fair value of the aggregated wireless licenses is less than the aggre-
gated carrying amount of the licenses, an impairment is recognized.
Interest expense incurred while qualifying activities to develop wireless
licenses for service are underway is capitalized as part of wireless licenses.
The capitalization period ends when the development is completed.
Intangible Assets Subject to Amortization
Our intangible assets that do not have indefinite lives (primarily customer
lists and non-network internal-use software) are amortized over their
useful lives and reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may
not be recoverable. If any indications were present, we would test for
recoverability by comparing the carrying amount of the asset to the net
undiscounted cash flows expected to be generated from the asset. If
those net undiscounted cash flows do not exceed the carrying amount
(i.e., the asset is not recoverable), we would perform the next step, which
is to determine the fair value of the asset and record an impairment, if
any. We reevaluate the useful life determinations for these intangible
assets each reporting period to determine whether events and circum-
stances warrant a revision in their remaining useful lives.
For information related to the carrying amount of goodwill by segment,
wireless licenses and other intangible assets, as well as the major com-
ponents and average useful lives of our other acquired intangible assets,
see Note 4.
Fair Value Measurements
Fair value of financial and non-financial assets and liabilities is defined
as an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants. The three-tier hierarchy for inputs used in measuring
fair value, which prioritizes the inputs used in the methodologies of mea-
suring fair value for assets and liabilities, is as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Observable inputs other than quoted prices in active markets
for identical assets and liabilities
Level 3 – No observable pricing inputs in the market
Financial assets and financial liabilities are classified in their entirety based
on the lowest level of input that is significant to the fair value measure-
ments. Our assessment of the significance of a particular input to the fair
value measurements requires judgment, and may affect the valuation of
the assets and liabilities being measured and their placement within the
fair value hierarchy.
See Note 10 for further details on our fair value measurements.
Income Taxes
Our effective tax rate is based on pre-tax income, statutory tax rates, tax
laws and regulations and tax planning strategies available to us in the
various jurisdictions in which we operate.
Deferred income taxes are provided for temporary differences in the
bases between financial statement and income tax assets and liabilities.
Deferred income taxes are recalculated annually at rates then in effect.
We record valuation allowances to reduce our deferred tax assets to the
amount that is more likely than not to be realized.
We use a two-step approach for recognizing and measuring tax benefits
taken or expected to be taken in a tax return. The first step is recognition:
we determine whether it is more likely than not that a tax position will be
sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. In
evaluating whether a tax position has met the more-likely-than-not rec-
ognition threshold, we presume that the position will be examined by
the appropriate taxing authority that has full knowledge of all relevant
information. The second step is measurement: a tax position that meets
the more-likely-than-not recognition threshold is measured to determine
the amount of benefit to recognize in the financial statements. The tax
position is measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate settlement. Differences
between tax positions taken in a tax return and amounts recognized in
the financial statements will generally result in one or more of the fol-
lowing: an increase in a liability for income taxes payable, a reduction of
an income tax refund receivable, a reduction in a deferred tax asset, or an
increase in a deferred tax liability.
The accounting standard relating to income taxes generated by lever-
aged lease transactions requires that changes in the projected timing of
income tax cash flows generated by a leveraged lease transaction be rec-
ognized as a gain or loss in the year in which the change occurs.
Significant management judgment is required in evaluating our tax posi-
tions and in determining our effective tax rate.
48
Notes to Consolidated Financial Statements continued
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based
compensation awards made to employees and directors based on esti-
mated fair values. See Note 11 for further details.
Foreign Currency Translation
The functional currency of our foreign operations is generally the local
currency. For these foreign entities, we translate income statement
amounts at average exchange rates for the period, and we translate
assets and liabilities at end-of-period exchange rates. We record these
translation adjustments in Accumulated other comprehensive loss, a
separate component of Equity, in our consolidated balance sheets. We
report exchange gains and losses on intercompany foreign currency
transactions of a long-term nature in Accumulated other comprehensive
loss. Other exchange gains and losses are reported in income.
Employee Benefit Plans
Pension and postretirement health care and life insurance benefits earned
during the year as well as interest on projected benefit obligations are
accrued currently. Prior service costs and credits resulting from changes
in plan benefits are amortized over the average remaining service period
of the employees expected to receive benefits. Expected return on
plan assets is determined by applying the return on assets assumption
to the market-related value of assets. Verizon management employees
no longer earn pension benefits or earn service towards the company
retiree medical subsidy (see Note 12).
We recognize a defined benefit postretirement plan’s funded status
as either an asset or liability on the consolidated balance sheets. Also,
we measure any unrecognized actuarial gains and losses and prior ser-
vice costs and credits that arise during the period as a component of
Accumulated other comprehensive loss, net of applicable income tax.
Derivative Instruments
We have entered into derivative transactions primarily to manage our
exposure to fluctuations in foreign currency exchange rates, interest rates,
equity and commodity prices. We employ risk management strategies,
which may include the use of a variety of derivatives including cross cur-
rency swaps, foreign currency and prepaid forwards and collars, interest
rate and commodity swap agreements and interest rate locks. We do not
hold derivatives for trading purposes.
We measure all derivatives, including derivatives embedded in other
financial instruments, at fair value and recognize them as either assets or
liabilities on our consolidated balance sheets. Our derivative instruments
are valued primarily using models based on readily observable market
parameters for all substantial terms of our derivative contracts and thus
are classified as Level 2. Changes in the fair values of derivative instru-
ments not qualifying as hedges or any ineffective portion of hedges are
recognized in earnings in the current period. Changes in the fair values
of derivative instruments used effectively as fair value hedges are recog-
nized in earnings, along with changes in the fair value of the hedged item.
Changes in the fair value of the effective portions of cash flow hedges are
reported in Other comprehensive income (loss) and recognized in earn-
ings when the hedged item is recognized in earnings.
Recently Adopted Accounting Standards
On January 1, 2009, we adopted the accounting standard relating
to business combinations, including assets acquired and liabilities
assumed arising from contingencies. This standard requires the use of
the acquisition method of accounting, defines the acquirer, establishes
the acquisition date and applies to all transactions and other events in
which one entity obtains control over one or more other businesses.
Upon our adoption of this standard, we were required to expense certain
transaction costs and related fees associated with business combinations
that were previously capitalized. In addition, with the adoption of this
standard, changes to valuation allowances for acquired deferred income
tax assets and adjustments to unrecognized tax benefits acquired
generally are to be recognized as adjustments to income tax expense
rather than goodwill.
The adoption of the following accounting standards and updates during
2009 did not result in a significant impact to our consolidated financial
statements:
On January 1, 2009, we adopted the accounting standard relating to
disclosures about derivative instruments and hedging activities, which
requires additional disclosures that include how and why an entity uses
derivatives, how these instruments and the related hedged items are
accounted for and how derivative instruments and related hedged items
affect the entity’s financial position, results of operations and cash flows.
On January 1, 2009, we adopted the accounting standard that modifies
the determination of the useful life of intangible assets from a require-
ment to consider whether an intangible asset can be renewed without
substantial cost or material modifications to the existing terms and condi-
tions to one that requires an entity consider its own historical experience
in renewing similar arrangements, or a consideration of market partici-
pant assumptions in the absence of historical experience. This standard
also requires disclosure of information that enables users of financial
statements to assess the extent to which the expected future cash flows
associated with the asset are affected by the entity’s intent and ability to
renew or extend the arrangements.
On June 15, 2009, we prospectively adopted the accounting standard
regarding the accounting for, and disclosure of, events that occur after
the balance sheet date but before the financial statements are issued.
On June 15, 2009, we adopted the accounting standard that amends the
requirements for disclosures about fair value of financial instruments for
annual, as well as interim, reporting periods. This standard was effective
prospectively for all interim and annual reporting periods ending after
June 15, 2009.
On June 15, 2009, we prospectively adopted the accounting standard
that amends requirements for recognizing and measuring other-than-
temporary impairment of debt securities classified as held to maturity or
available for sale. The presentation and disclosure requirements apply to
both debt and equity securities.
On June 15, 2009, we prospectively adopted the accounting standard
regarding estimating fair value measurements when the volume and
level of activity for the asset or liability has significantly decreased, which
also provides guidance for identifying transactions that are not orderly.
On August 28, 2009, we adopted the accounting standard update
regarding the measurement of liabilities at fair value. This standard
update provides techniques to use in measuring fair value of a liability in
circumstances in which a quoted price in an active market for the iden-
tical liability is not readily available.
In December 2008, the accounting standard regarding employers’ disclo-
sures about postretirement benefit plan assets was updated to require us,
as a plan sponsor, to provide disclosures about plan assets, including cat-
egories of plan assets, the nature of concentrations of risk and disclosures
about fair value measurements of plan assets, which became effective as
of December 31, 2009.
49
Notes to Consolidated Financial Statements continued
Recent Accounting Standards
In June 2009, the accounting standard regarding the requirements of
consolidation accounting for variable interest entities was updated to
require an enterprise to perform an analysis to determine whether the
entity’s variable interest or interests give it a controlling interest in a vari-
able interest entity. The adoption of this standard, effective January 1,
2010, is not expected to have a significant impact on our consolidated
financial statements.
In September 2009, the accounting standard regarding multiple deliver-
able arrangements was updated to require the use of the relative selling
price method when allocating revenue in these types of arrangements.
This method allows a vendor to use its best estimate of selling price if
neither vendor specific objective evidence nor third party evidence of
selling price exists when evaluating multiple deliverable arrangements.
This standard update is effective January 1, 2011 and may be adopted pro-
spectively for revenue arrangements entered into or materially modified
after the date of adoption or retrospectively for all revenue arrangements
for all periods presented. We are currently evaluating the impact that this
standard update will have on our consolidated financial statements.
In September 2009, the accounting standard regarding arrangements
that include software elements was updated to require tangible products
that contain software and non-software elements that work together to
deliver the products essential functionality to be evaluated under the
accounting standard regarding multiple deliverable arrangements. This
standard update is effective January 1, 2011 and may be adopted pro-
spectively for revenue arrangements entered into or materially modified
after the date of adoption or retrospectively for all revenue arrangements
for all periods presented. We are currently evaluating the impact that this
standard update will have on our consolidated financial statements.
NOTE 2
ACQUISITIONS
Acquisition of Alltel Corporation
On June 5, 2008, Verizon Wireless entered into an agreement and plan
of merger with Alltel Corporation (Alltel), a provider of wireless voice
and data services to consumer and business customers in 34 states, and
its controlling stockholder, Atlantis Holdings LLC, an affiliate of private
investment firms TPG Capital and GS Capital Partners, to acquire, in an
all-cash merger, 100% of the equity of Alltel for cash consideration of $5.9
billion and the assumption of approximately $24 billion of aggregate
principal amount of Alltel debt. Verizon Wireless closed the transaction
on January 9, 2009.
We expect to experience substantial operational benefits from the acqui-
sition of Alltel, including additional combined overall cost savings from
reduced roaming costs by moving more traffic to our own network,
reduced network-related costs from the elimination of duplicate facilities,
consolidation of platforms, efficient traffic consolidation, and reduced
overall expenses relating to advertising, overhead and headcount. We
expect reduced combined capital expenditures as a result of greater
economies of scale and the rationalization of network assets. We believe
that the use of the same technology platform is facilitating the integra-
tion of Alltel’s network operations with ours.
We have substantially completed the appraisals necessary to assess the
fair values of the tangible and intangible assets acquired and liabilities
assumed, the fair value of noncontrolling interests, and the amount of
goodwill recognized as of the acquisition date.
The fair values of the assets acquired and liabilities assumed were deter-
mined using the income, cost, and market approaches. The fair value
measurements were primarily based on significant inputs that are not
observable in the market other than interest rate swaps (see Note 10)
and long-term debt assumed in the acquisition. The income approach
was primarily used to value the intangible assets, consisting primarily
of wireless licenses and customer relationships. The income approach
indicates value for a subject asset based on the present value of cash
flows projected to be generated by the asset. Projected cash flows are
discounted at a required market rate of return that reflects the relative
risk of achieving the cash flows and the time value of money. The cost
approach, which estimates value by determining the current cost of
replacing an asset with another of equivalent economic utility, was used,
as appropriate, for plant, property and equipment. The cost to replace
a given asset reflects the estimated reproduction or replacement cost
for the asset, less an allowance for loss in value due to depreciation.
The market approach, which indicates value for a subject asset based
on available market pricing for comparable assets, was utilized in com-
bination with the income approach for certain acquired investments.
Additionally, Alltel historically conducted business operations in certain
markets through non-wholly owned entities (Managed Partnerships). The
fair value of the noncontrolling interests in these Managed Partnerships
as of the acquisition date of approximately $586 million was estimated
by using a market approach. The market approach indicates value based
on financial multiples available for similar entities and adjustments for
the lack of control or lack of marketability that market participants would
consider in determining fair value of the Managed Partnerships. The fair
value of the majority of the long-term debt assumed and held was pri-
marily valued using quoted market prices.
50
Notes to Consolidated Financial Statements continued
The following table summarizes the consideration paid and the allocation
of the assets acquired, including cash acquired of $1.0 billion, and liabili-
ties assumed as of the close of the acquisition, as well as the fair value at
the acquisition date of Alltel’s noncontrolling partnership interests:
(dollars in millions)
Assets acquired
Current assets
Plant, property and equipment
Wireless licenses
Goodwill
Intangible assets subject to amortization
Other assets
Total assets acquired
Liabilities assumed
Current liabilities
Long-term debt
Deferred income taxes and other liabilities
Total liabilities assumed
Net assets acquired
Noncontrolling interest
Contributed capital
Total cash consideration
$
2,760
3,513
9,444
16,353
2,391
2,444
36,905
1,833
23,929
5,032
30,794
6,111
(519)
333
5,925
$
Pro Forma Information
The unaudited pro forma information presents the combined operating
results of Verizon and Alltel, with the results prior to the acquisition date
adjusted to include the pro forma impact of: the elimination of transactions
between Verizon and Alltel; the adjustment of amortization of intangible
assets and depreciation of fixed assets based on the purchase price alloca-
tion; the elimination of merger expenses and management fees incurred
by Alltel; and the adjustment of interest expense reflecting the assump-
tion and partial redemption of Alltel’s debt and incremental borrowing
incurred by Verizon Wireless to complete the acquisition of Alltel.
The unaudited pro forma results are presented for illustrative purposes
only and do not reflect the realization of potential cost savings, or any
related integration costs. Certain cost savings may result from the merger;
however, there can be no assurance that these cost savings will be
achieved. These pro forma results do not purport to be indicative of the
results that would have actually been obtained if the merger occurred as
of January 1, 2008, nor does the pro forma data intend to be a projection
of results that may be obtained in the future.
The following unaudited pro forma consolidated results of operations
assume that the acquisition of Alltel was completed as of January
1, 2008:
Included in the above purchase price allocation is $2.1 billion of net assets
to be divested as a condition of the regulatory approval as described
below.
Year ended December 31,
Operating revenues
Net income attributable to Verizon
(dollars in millions, except per share amounts)
2008
$ 106,509
6,482
Earnings per common share from net income attributable to Verizon:
Basic
Diluted
2.28
2.27
Consolidated results of operations reported for the year ended December
31, 2009 were not significantly different than the pro forma consolidated
results of operations assuming the acquisition of Alltel was completed
on January 1, 2009.
Acquisition of Rural Cellular Corporation
On August 7, 2008, Verizon Wireless acquired 100% of the outstanding
common stock and redeemed all of the preferred stock of Rural Cellular
Corporation (Rural Cellular) in a cash transaction valued at approximately
$1.3 billion. Rural Cellular was a wireless communications service pro-
vider operating under the trade name of “Unicel,” focusing primarily on
rural markets in the United States. We believe that the acquisition has
enhanced Verizon Wireless’s network coverage in markets adjacent to its
existing service areas and has enabled Verizon Wireless to achieve opera-
tional benefits through realizing synergies in reduced roaming and other
operating expenses.
Had this acquisition been consummated on January 1, 2008, the results
of Rural Cellular’s acquired operations would not have had a significant
impact on the consolidated net income attributable to Verizon.
Wireless licenses have an indefinite life, and accordingly, are not sub-
ject to amortization. The weighted average period prior to renewal of
these licenses at acquisition is approximately 5.7 years. The customer
relationships included in Intangible assets subject to amortization are
being amortized using an accelerated method over 8 years, and other
intangibles are being amortized on a straight-line basis or an accelerated
method over a period of 2 to 3 years. Goodwill of approximately $1.4 bil-
lion is expected to be deductible for tax purposes.
Alltel Divestiture Markets
As a condition of the regulatory approvals by the Department of Justice
(DOJ) and the FCC to complete the Alltel acquisition, Verizon Wireless is
required to divest overlapping properties in 105 operating markets in 24
states (Alltel Divestiture Markets). These markets consist primarily of Alltel
operations, but also include a small number of pre-merger operations of
Verizon Wireless. As of December 31, 2009, total assets and total liabili-
ties to be divested of $2.6 billion and $0.1 billion, respectively, principally
comprised of network assets, wireless licenses and customer relationships
are included in Prepaid expenses and other current assets and Other cur-
rent liabilities, respectively, on the accompanying consolidated balance
sheets as a result of entering into the transactions described below.
On May 8, 2009, Verizon Wireless entered into a definitive agreement
with AT&T Mobility LLC (AT&T Mobility), a subsidiary of AT&T Inc. (AT&T),
pursuant to which AT&T Mobility agreed to acquire 79 of the 105 Alltel
Divestiture Markets, including licenses and network assets for approxi-
mately $2.4 billion in cash. On June 9, 2009, Verizon Wireless entered into
a definitive agreement with Atlantic Tele-Network, Inc. (ATN), pursuant to
which ATN agreed to acquire the remaining 26 Alltel Divestiture Markets
that were not included in the transaction with AT&T Mobility, including
licenses and network assets, for $200 million in cash. Verizon Wireless
expects to close the transactions with AT&T Mobility and ATN during the
first half of 2010. Completion of each of the foregoing transactions is sub-
ject to receipt of regulatory approvals.
51
Notes to Consolidated Financial Statements continued
The acquisition of Rural Cellular has been accounted for as a business
combination under the purchase method. The following table sum-
marizes the allocation of the acquisition cost to the assets acquired,
including cash acquired of $42 million, and liabilities assumed as of the
acquisition date:
(dollars in millions)
Assets acquired
Wireless licenses
Goodwill
Intangible assets subject to amortization
Other assets
Total assets acquired
Liabilities assumed
Long-term debt
Deferred income taxes and other liabilities
Total liabilities assumed
Net assets acquired
$
$
1,095
925
206
971
3,197
1,505
376
1,881
1,316
As part of its regulatory approval for the Rural Cellular acquisition, the
FCC and DOJ required the divestiture of six operating markets, including
all of Rural Cellular’s operations in Vermont and New York as well as its
operations in Okanogan and Ferry, WA. Included in Other assets in the
table above are assets that were divested of $485 million. On December
22, 2008, we exchanged these assets and an additional cellular license
with AT&T for assets having a total aggregate value of approximately
$495 million.
Merger Integration and Acquisition Costs
During 2009, we recorded pretax charges of $1,211 million ($380 million
attributable to Verizon after-tax) for merger integration activities primarily
related to the Alltel acquisition including trade name amortization, re-
branding initiatives and handset conversion costs. Additionally, the 2009
charges also included transaction fees and costs associated with the
acquisition, including fees related to the credit facility that was entered
into and utilized to complete the acquisition.
In 2008 and 2007, we recorded pretax charges of $174 million ($107
million attributable to Verizon after-tax) and $178 million ($112 million
after-tax), respectively, primarily comprised of systems integration activi-
ties and other costs related to re-branding initiatives, facility exit costs
and advertising associated with the MCI acquisition.
Other
On May 8, 2009, Verizon Wireless entered into an agreement with AT&T to
purchase certain assets of Centennial Communications Corporation for
$240 million. Completion of the foregoing transaction is subject to the
receipt of regulatory approval.
In July 2007, Verizon acquired a security-services firm for $435 million,
primarily resulting in goodwill of $343 million and other intangible assets
of $81 million. This acquisition was made to enhance our managed infor-
mation security services to large business and government customers
worldwide. This acquisition was integrated into the Wireline segment.
52
NOTE 3
DISPOSITIONS , DISCONTINUED OPERATIONS AND
ExTRAORDINARY ITEM
Dispositions
2009
On May 13, 2009, we announced plans to spin off a newly formed subsidiary
of Verizon (Spinco) to our stockholders. Spinco will hold defined assets and
liabilities of the local exchange business and related landline activities of
Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina,
Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, and
in portions of California bordering Arizona, Nevada and Oregon, including
Internet access and long distance services and broadband video provided
to designated customers in those areas. Immediately following the spin-
off, Spinco plans to merge with Frontier Communications Corporation
(Frontier) pursuant to a definitive agreement with Frontier, and Frontier will
be the surviving corporation. The transactions do not involve any assets
or liabilities of Verizon Wireless. The merger will result in Frontier acquiring
approximately 4 million access lines and certain related businesses from
Verizon, which collectively generated annual revenues of approximately $4
billion for Verizon’s Wireline segment.
Depending on the trading prices of Frontier common stock prior to the
closing of the merger, Verizon stockholders will collectively own between
approximately 66% and 71% of Frontier’s outstanding equity imme-
diately following the closing of the merger, and Frontier stockholders
will collectively own between approximately 29% and 34% of Frontier’s
outstanding equity immediately following the closing of the merger (in
each case, before any closing adjustments). The actual number of shares
of common stock to be issued by Frontier in the merger will be calcu-
lated based upon several factors, including the average trading price of
Frontier common stock during a pre-closing measuring period (subject
to a collar) and other closing adjustments. Verizon will not own any shares
of Frontier after the merger.
Both the spin-off and merger are expected to qualify as tax-free transac-
tions, except to the extent that cash is paid to Verizon stockholders in lieu
of fractional shares.
In connection with the spin-off, Verizon expects to receive from Spinco
approximately $3.3 billion in value through a combination of a special
cash payment to Verizon, a reduction in Verizon’s consolidated indebt-
edness, and, in certain circumstances, the issuance to Verizon of debt
securities of Spinco. In the merger, Verizon stockholders are expected to
receive approximately $5.3 billion of Frontier common stock, assuming the
average trading price of Frontier common stock during the pre-closing
measuring period is within the collar and no closing adjustments.
During 2009, we recorded pretax charges of $453 million ($287 million
after-tax) for costs incurred related to our Wireline cost reduction initia-
tives, as well as network, non-network software and other activities to
enable the markets to be divested to operate on a stand-alone basis sub-
sequent to the closing of the transaction with Frontier, and professional
advisory and legal fees in connection with this transaction.
2008
On March 31, 2008, we completed the spin-off of the shares of Northern
New England Spinco Inc. to Verizon shareowners and the merger of
Northern New England Spinco Inc. with FairPoint Communications, Inc.
As a result of the spin-off, our net debt was reduced by approximately
$1.4 billion. The consolidated statements of income for the periods pre-
sented include the results of operations of the local exchange and related
business assets in Maine, New Hampshire and Vermont through the date
of completion of the spin-off.
Notes to Consolidated Financial Statements continued
During 2008, we recorded pretax charges of $103 million ($81 million
after-tax), for costs incurred related to the separation of the wireline facili-
ties and operations in Maine, New Hampshire and Vermont from Verizon
at the closing of the transaction, as well as for professional advisory and
legal fees in connection with this transaction.
Discontinued Operations
On March 30, 2007, we completed the sale of our 52% interest in
Telecomunicaciones de Puerto Rico, Inc. (TELPRI) and received gross pro-
ceeds of approximately $980 million. The sale resulted in a pretax gain of
$120 million ($70 million after-tax). Verizon contributed $100 million ($65
million after-tax) of the proceeds to the Verizon Foundation.
We have classified the financial information of TELPRI as discontinued
operations in the consolidated financial statements for all periods pre-
sented through the date of the divestiture.
Income from discontinued operations, net of tax, presented in the consol-
idated statements of income during the year ended December 31, 2007
included operating revenues of $306 million, income before provision for
income taxes of $185 million, provision for income taxes of $43 million
and income from discontinued operations, net of tax of $142 million.
Extraordinary Item
In January 2007, the Bolivarian Republic of Venezuela (the Republic)
declared its intent to nationalize certain companies, including Compañía
Anónima Nacional Teléfonos de Venezuela (CANTV). On February 12,
2007, we entered into a Memorandum of Understanding (MOU) with the
Republic, which provided that the Republic offer to purchase all of the
equity securities of CANTV, including our 28.5% interest, through public
tender offers in Venezuela and the United States. Under the terms of the
MOU, the prices in the tender offers would be adjusted downward to
reflect any dividends declared and paid subsequent to February 12, 2007.
During 2007, the tender offers were completed and Verizon received
an aggregate amount of approximately $572 million, which included
$476 million from the tender offers as well as $96 million of dividends
declared and paid subsequent to the MOU. During 2007, based upon our
investment balance in CANTV, we recorded an extraordinary loss of $131
million, including taxes of $38 million.
NOTE 4
WIRELESS LICENSES , GOODWILL AND OTHER
INTANGIBLE ASSETS
Wireless Licenses
Changes in the carrying amount of wireless licenses are as follows:
Balance at December 31, 2007
Wireless licenses acquired
Capitalized interest on wireless licenses
Reclassifications, adjustments and other
Balance at December 31, 2008
Wireless licenses acquired (Note 2)
Capitalized interest on wireless licenses
Reclassifications, adjustments and other
Balance at December 31, 2009
(dollars in millions)
$ 50,796
10,626
557
(5)
$ 61,974
9,444
730
(81)
$ 72,067
Reclassifications, adjustments and other during 2009 primarily include
wireless licenses that are included in the Alltel Divestiture Markets (see
Note 2) as held for sale and included in Prepaid expenses and other in the
accompanying consolidated balance sheets. As of December 31, 2009
and 2008, $12.2 billion and $12.4 billion, respectively, of wireless licenses
were under development for commercial service for which we are capi-
talizing interest costs.
The average remaining renewal period of our wireless license portfolio
was 8.0 years as of December 31, 2009 (see Note 1, Goodwill and Other
Intangible Assets – Intangible Assets Not Subject to Amortization).
On March 20, 2008, the FCC announced the results of Auction 73 of
wireless spectrum licenses in the 700 MHz band. We were the suc-
cessful bidder for twenty-five 12 MHz licenses in the A-Block frequency,
seventy-seven 12 MHz licenses in the B-Block frequency and seven 22
MHz licenses (nationwide with the exception of Alaska) in the C-Block
frequency, with an aggregate bid price of $9,363 million. We have made
all required payments to the FCC for these licenses by April 2008. The FCC
granted us these licenses on November 26, 2008.
Goodwill
Changes in the carrying amount of goodwill are as follows:
Domestic
Wireless
(dollars in millions)
Wireline
Total
Balance at December 31, 2007
Acquisitions (Note 2)
Reclassifications, adjustments and other
Balance at December 31, 2008
Acquisitions (Note 2)
Reclassifications, adjustments and other
Balance at December 31, 2009
$
345
954
(2)
1,297
16,353
88
$ 17,738
$
$
4,900
–
(162)
4,738
–
(4)
$ 4,734
$
$
5,245
954
(164)
6,035
16,353
84
$ 22,472
$
Reclassifications, adjustments and other in Domestic Wireless during 2009
relate to the finalization of the Rural Cellular purchase accounting, par-
tially offset by goodwill that is included in the Alltel Divestiture Markets
(see Note 2) as held for sale and included in Prepaid expenses and other
in the accompanying consolidated financial statements. Reclassifications,
adjustments and other during 2008 reflect the revised estimated tax
losses of acquired assets and liabilities.
53
Notes to Consolidated Financial Statements continued
Other Intangible Assets
The following table displays the composition of Other intangible assets:
Gross
Amount
At December 31, 2009
Net
Amount
Accumulated
Amortization
Other intangible assets:
Customer lists (6 to 8 years)
Non-network internal-use software (2 to 7 years)
Other (1 to 25 years)
Total
$
3,134
8,455
865
$ 12,454
$
$
(1,012)
(4,346)
(332)
(5,690)
$
$
2,122
4,109
533
6,764
(dollars in millions)
At December 31, 2008
Net
Amount
Accumulated
Amortization
Gross
Amount
$
$
1,415
8,099
465
9,979
$
$
(595)
(4,102)
(83)
(4,780)
$
$
820
3,997
382
5,199
During 2008, we entered into an agreement to acquire a non-exclusive
license (the IP License) to a portfolio of intellectual property owned by
an entity formed for the purpose of acquiring and licensing intellectual
property. We paid an initial fee of $100 million for the IP License, which is
included in Other intangible assets, net and is being amortized over the
estimated average remaining lives of the licensed intellectual property. In
addition, we executed a subscription agreement (with a capital commit-
ment up to $250 million, of which approximately $176 million remains to
be funded at December 31, 2009, as required, through 2012) to become
a member in a limited liability company (the LLC) formed by the same
entity for the purpose of acquiring and licensing additional intellectual
property. In connection with this investment, we will receive non-exclu-
sive license rights to certain intellectual property acquired by the LLC for
an annual license fee.
NOTE 5
PLANT, PROPERT Y AND EQUIPMENT
The following table displays the details of Plant, property and equipment,
which is stated at cost:
At December 31,
Land
Buildings and equipment
Network equipment
Furniture, office and data processing equipment
Work in progress
Leasehold improvements
Vehicles and other
Less accumulated depreciation
Total
(dollars in millions)
2008
2009
$
$
925
21,492
184,547
9,083
3,331
4,694
4,446
228,518
137,052
91,466
$
$
813
20,085
174,715
9,177
3,038
3,903
3,874
215,605
129,059
86,546
At December 31, 2009, the gross amount of Customer lists, Non-
network software and Other includes $2,391 million related to the Alltel
acquisition.
The annual amortization expense for Other intangible assets were as
follows:
Years
2009
2008
2007
(dollars in millions)
$
1,970
1,383
1,341
Estimated future annual amortization expense for Other intangible assets
at December 31, 2009 is as follows:
(dollars in millions)
$
1,848
1,496
1,224
987
582
Years
2010
2011
2012
2013
2014
54
Notes to Consolidated Financial Statements continued
NOTE 6
INVESTMENTS IN UNCONSOLIDATED BUSINESSES
Our investments in unconsolidated businesses are comprised of the
following:
At December 31,
Ownership
(dollars in millions)
2008
2009
Balance Sheet
At December 31,
Current assets
Noncurrent assets
Total assets
Equity Investees
Vodafone Omnitel
Other
Total equity investees
Cost Investees
Total investments in
unconsolidated businesses
23.1%
$
Various
1,978
1,130
3,108
$
2,182
877
3,059
Various
427
334
Current liabilities
Noncurrent liabilities
Equity
Total liabilities and equity
$
3,535
$
3,393
Income Statement
Summarized Financial Information
Summarized financial information for our equity investees is as follows:
(dollars in millions)
2008
2009
$ 3,588
8,179
$ 11,767
$
3,247
8,315
$ 11,562
$ 6,804
49
4,914
$ 11,767
$
5,847
54
5,661
$ 11,562
Years Ended December 31,
2009
(dollars in millions)
2007
2008
Net revenue
Operating income
Net income
NOTE 7
$ 12,903
4,313
2,717
$ 13,077
3,820
2,634
$ 11,317
4,643
2,511
NONCONTROLLING INTEREST
Noncontrolling interests in equity of subsidiaries were as follows:
At December 31,
Noncontrolling interests in consolidated subsidiaries:
Wireless joint venture
Cellular partnerships and other
(dollars in millions)
2008
2009
$ 41,950
811
$ 42,761
$ 36,683
516
$ 37,199
Wireless Joint Venture
Our Domestic Wireless segment, Cellco Partnership doing business
as Verizon Wireless (Verizon Wireless) is a joint venture formed in April
2000 by the combination of the U.S. wireless operations and interests of
Verizon and Vodafone. Verizon owns a controlling 55% interest in Verizon
Wireless and Vodafone owns the remaining 45%.
Dividends and repatriations of foreign earnings received from these
investees amounted to $942 million in 2009, $779 million in 2008 and
$2,571 million in 2007.
Equity Method Investments
Vodafone Omnitel
Vodafone Omnitel N.V. (Vodafone Omnitel) is the second largest wireless
communications company in Italy. At December 31, 2009 and 2008, our
investment in Vodafone Omnitel included goodwill of $1,132 million and
$1,105 million, respectively. During 2009 and 2008, Verizon received net
distributions from Vodafone Omnitel of approximately $874 million and
$670 million, respectively.
Other Equity Investees
We have limited partnership investments in entities that invest in afford-
able housing projects, for which we provide funding as a limited partner
and receive tax deductions and tax credits based on our partnership
interests. At December 31, 2009 and 2008, we had equity investments
in these partnerships of $888 million and $761 million, respectively. We
adjust the carrying value of these investments for any losses incurred by
the limited partnerships through earnings.
The remaining investments include wireless partnerships in the U.S. and
other smaller domestic and international investments.
Cost Method Investments
Some of our cost investments are carried at their current market value.
Other cost investments are carried at their original cost if the current
market value is not readily determinable. We do however, adjust the
carrying value of these securities in cases where we have determined
that a decline in their estimated market value is other-than-temporary.
The carrying value for investments carried at cost was not significant at
December 31, 2009 and 2008.
55
Notes to Consolidated Financial Statements continued
NOTE 8
LEASING ARRANGEMENTS
As Lessor
We are the lessor in leveraged and direct financing lease agreements for commercial aircraft and power generating facilities, which comprise the
majority of the portfolio along with telecommunications equipment, real estate property and other equipment. These leases have remaining terms
up to 41 years as of December 31, 2009. In addition, we lease space on certain of our cell towers to other wireless carriers. Minimum lease payments
receivable represent unpaid rentals, less principal and interest on third-party nonrecourse debt relating to leveraged lease transactions. Since we have
no general liability for this debt, which holds a senior security interest in the leased equipment and rentals, the related principal and interest have been
offset against the minimum lease payments receivable in accordance with GAAP. All recourse debt is reflected in our consolidated balance sheets.
Finance lease receivables, which are included in Prepaid expenses and other and Other assets in our consolidated balance sheets are comprised of
the following:
At December 31,
Minimum lease payments receivable
Estimated residual value
Unearned income
Total
Allowance for doubtful accounts
Finance lease receivables, net
Current
Noncurrent
Leveraged
Leases
$ 2,504
1,410
(1,251)
$ 2,663
Direct
Finance
Leases
$
$
166
12
(19)
159
2009
Total
$ 2,670
1,422
(1,270)
$ 2,822
(158)
$ 2,664
72
$
2,592
$ 2,664
Leveraged
Leases
$
$
2,734
1,501
(1,400)
2,835
Direct
Finance
Leases
$
$
133
12
(23)
122
(dollars in millions)
2008
Total
2,867
1,513
(1,423)
2,957
(159)
2,798
46
2,752
2,798
$
$
$
$
$
Accumulated deferred taxes arising from leveraged leases, which are
included in Deferred income taxes, amounted to $2,081 million at
December 31, 2009 and $2,218 million at December 31, 2008.
Amortization of capital leases is included in Depreciation and amortiza-
tion expense in the consolidated statements of income. Capital lease
amounts included in Plant, property and equipment are as follows:
The following table is a summary of the components of income from
leveraged leases:
At December 31,
Years Ended December 31,
Pretax lease income
Income tax expense
Investment tax credits
$
2009
83
34
4
(dollars in millions)
2007
2008
$
$
74
30
4
78
30
4
The future minimum lease payments to be received from noncancelable
capital leases (direct financing and leveraged leases), net of nonrecourse
loan payments related to leveraged leases, along with payments relating
to operating leases for the periods shown at December 31, 2009, are as
follows:
Years
2010
2011
2012
2013
2014
Thereafter
Total
(dollars in millions)
Operating
Leases
Capital
Leases
$
$
228
169
135
136
124
1,878
2,670
$
$
117
96
70
41
20
47
391
As Lessee
We lease certain facilities and equipment for use in our operations under
both capital and operating leases. Total rent expense under operating
leases amounted to $2,518 million, $2,201 million and $2,051 million in
2009, 2008 and 2007, respectively.
56
Capital leases
Less accumulated amortization
Total
(dollars in millions)
2008
2009
$
$
357
126
231
$
$
298
97
201
The aggregate minimum rental commitments under noncancelable
leases for the periods shown at December 31, 2009, are as follows:
Years
2010
2011
2012
2013
2014
Thereafter
Total minimum rental commitments
Less interest and executory costs
Present value of minimum lease payments
Less current installments
Long-term obligation at December 31, 2009
(dollars in millions)
Operating
Leases
Capital
Leases
$
1,971
1,706
1,422
1,154
938
5,135
$ 12,326
$
$
102
92
73
68
53
106
494
97
397
79
318
As of December 31, 2009, the total minimum sublease rentals to be
received in the future under noncancelable operating subleases was
approximately $44 million.
Notes to Consolidated Financial Statements continued
NOTE 9
DEBT
Debt Maturing Within One Year
Debt maturing within one year is as follows:
At December 31,
Long-term debt maturing within one year
Commercial paper
Total debt maturing within one year
(dollars in millions)
2008
2009
$
$
6,105
1,100
7,205
$
$
3,506
1,487
4,993
The weighted average interest rate for our commercial paper at December 31, 2009 and December 31, 2008 was 0.7% and 2.9%, respectively.
Capital expenditures (primarily acquisition and construction of network assets) are partially financed pending long-term financing through bank loans
and the issuance of commercial paper payable within 12 months.
On April 15, 2009, we terminated all commitments under our previous $6.0 billion three-year credit facility with a syndicate of lenders that was
scheduled to mature in September 2009 and entered into a new $5.3 billion 364-day credit facility with a group of major financial institutions. As of
December 31, 2009, the unused borrowing capacity under the 364-day credit facility was approximately $5.2 billion. A commitment fee accrues on
the unused portion of the credit facility.
Long-Term Debt
Outstanding long-term debt obligations are as follows:
At December 31,
Interest Rates %
Maturities
Verizon Wireless – notes payable and other
Verizon Wireless – Alltel assumed notes
Verizon Communications – notes payable and other
Telephone subsidiaries – debentures
3.75 – 5.55
7.38 – 8.89
Floating
6.50 – 7.88
4.35 – 5.50
5.55 – 6.90
7.25 – 8.95
4.63 – 7.00
7.15 – 7.88
8.00 – 8.75
2011 – 2014
2011 – 2018
2011
2012 – 2032
2010 – 2018
2012 – 2038
2010 – 2039
2010 – 2033
2012 – 2032
2010 – 2031
(dollars in millions)
2008
2009
$
$
7,000
6,118
6,246
2,334
6,196
10,386
9,671
8,797
1,449
1,080
–
5,983
4,440
–
7,878
8,741
8,822
9,654
1,449
1,080
Other subsidiaries – debentures and other
6.84 – 8.75
2018 – 2028
1,700
2,200
Employee stock ownership plan loans – NYNEx debentures
9.55
2010
23
47
Capital lease obligations (average rates of 6.3% and 6.2%, respectively)
Unamortized discount, net of premium
Total long-term debt, including current maturities
Less long-term debt maturing within one year
Total long-term debt
397
(241)
61,156
6,105
$ 55,051
$
390
(219)
50,465
3,506
46,959
Verizon Wireless – Notes Payable and Other
Verizon Wireless Capital LLC, a wholly owned subsidiary of Verizon
Wireless, is a limited liability company formed under the laws of Delaware
on December 7, 2001 as a special purpose finance subsidiary to facilitate
the offering of debt securities of Verizon Wireless by acting as co-issuer.
Other than the financing activities as a co-issuer of Verizon Wireless
indebtedness, Verizon Wireless Capital LLC has no material assets, opera-
tions or revenues. Verizon Wireless is jointly and severally liable with
Verizon Wireless Capital LLC for co-issued notes, as indicated below.
2009
During November 2009, Verizon Wireless and Verizon Wireless Capital LLC
completed an exchange offer to exchange privately placed notes issued
in November 2008, as well as in February and May 2009 for new notes
with similar terms.
In June 2009, Verizon Wireless issued $1.0 billion aggregate principal
amount of floating rate notes due 2011. Commencing on December 27,
2009 and on each quarterly interest payment date thereafter, both the
noteholders and Verizon Wireless have the right to require settlement of
all or a portion of these notes at par. Accordingly, the notes are classified
as current maturities in the consolidated balance sheet. As of December
31, 2009, neither Verizon Wireless nor the noteholders have exercised
their right to require settlement on any portion of these notes.
In May 2009, Verizon Wireless and Verizon Wireless Capital LLC co-issued
$4.0 billion aggregate principal amount of two-year fixed and floating
rate notes in a private placement resulting in cash proceeds of approxi-
mately $4.0 billion, net of discounts and issuance costs. In February 2009,
Verizon Wireless and Verizon Wireless Capital LLC co-issued $4.3 billion
57
Notes to Consolidated Financial Statements continued
aggregate principal amount of three and five-year fixed rate notes in a
private placement resulting in cash proceeds of $4.2 billion, net of dis-
counts and issuance costs.
2008
In December 2008, Verizon Wireless and Verizon Wireless Capital LLC, as
the borrowers, entered into a $17.0 billion credit facility (Bridge Facility).
On January 9, 2009, Verizon Wireless borrowed $12.4 billion under the
Bridge Facility in order to complete the acquisition of Alltel and repay
certain of Alltel’s outstanding debt. Verizon Wireless used cash gener-
ated from operations and the net proceeds from the sale of the notes
in private placements issued in February 2009, May 2009 and June 2009,
which are described above, to repay all of the borrowings under the
Bridge Facility. No borrowings were outstanding under the Bridge Facility
at December 31, 2009 and the commitments under the Bridge Facility
were terminated.
In December 2008, Verizon Wireless and Verizon Wireless Capital LLC, co-
issued €650 million of 7.625% notes due 2011, €500 million of 8.750%
notes due 2015 and £600 million of 8.875% notes due 2018. Concurrent
with these offerings, Verizon Wireless entered into cross currency swaps
to fix our future interest and principal payments in U.S. dollars as well as
to exchange the net proceeds from British Pounds Sterling and Euros into
U.S. dollars (see Note 10). The net proceeds of $2.4 billion, net of discounts
and issuance costs were used in connection with the Alltel acquisition.
In November 2008, Verizon Wireless and Verizon Wireless Capital LLC co-
issued a private placement of $1.3 billion of 7.375% notes due 2013 and
$2.3 billion of 8.500% notes due 2018 resulting in cash proceeds of $3.5
billion net of discounts and issuance costs. The net proceeds from the
sale of these notes were used in connection with the Alltel acquisition on
January 9, 2009 (see Note 2).
On September 30, 2008, Verizon Wireless and Verizon Wireless Capital LLC
entered into a $4.4 billion Three-Year Term Loan Facility Agreement (Three-
Year Term Facility) with a maturity date of September 30, 2011. Verizon
Wireless borrowed $4.4 billion under the Three-Year Term Facility in order
to repay a portion of the 364-Day Credit Agreement as described below.
Borrowings under the Three-Year Term Facility currently bear interest at a
variable rate based on LIBOR plus 100 basis points. During 2009, the first
principal payment was made to reduce the outstanding balance as of
December 31, 2009 to $4 billion. The Three-Year Term Facility includes a
requirement to maintain a certain leverage ratio.
Verizon Communications – Notes Payable and Other
2009
During 2009, Verizon issued $1.8 billion of 6.35% notes due 2019 and
$1.0 billion of 7.35% notes due 2039, resulting in cash proceeds of $2.7
billion, net of discounts and issuance costs, which was used to reduce
our commercial paper borrowings, repay maturing debt and for gen-
eral corporate purposes. In January 2009, Verizon utilized a $0.2 billion
floating rate vendor financing facility due 2010. During 2009, $0.5 billion
of floating rate notes due 2009 and $0.1 billion of 8.23% notes matured
and were repaid.
2008
In November 2008, Verizon issued $2.0 billion of 8.75% notes due 2018
and $1.3 billion of 8.95% notes due 2039, which resulted in cash proceeds
of $3.2 billion net of discount and issuance costs. In April 2008, Verizon
issued $1.3 billion of 5.25% notes due 2013, $1.5 billion of 6.10% notes
due 2018, and $1.3 billion of 6.90% notes due 2038, resulting in cash
proceeds of $4.0 billion, net of discounts and issuance costs. In February
2008, Verizon issued $0.8 billion of 4.35% notes due 2013, $1.5 billion of
5.50% notes due 2018, and $1.8 billion of 6.40% notes due 2038, resulting
in cash proceeds of $4.0 billion, net of discounts and issuance costs. In
January 2008, Verizon utilized a $0.2 billion fixed rate vendor financing
facility due 2010. During the first quarter of 2008, $1.0 billion of Verizon
Communications Inc. 4.0% notes matured and were repaid.
Telephone and Other Subsidiary Debt
During 2009, we redeemed $0.1 billion of 6.8% Verizon New Jersey Inc.
debentures, $0.3 billion of 6.7% notes and $0.2 billion of 5.5% Verizon
California Inc. notes and $0.2 billion of 5.875% Verizon New England Inc.
notes. In April 2009, we redeemed $0.5 billion of 7.51% GTE Corporation
notes.
During 2008, we redeemed $0.2 billion of 5.55% Verizon Northwest notes,
$0.3 billion of 6.9% and $0.3 billion of 5.65% Verizon North Inc. notes, $0.1
billion of 7.0% Verizon California Inc. notes, $0.3 billion of 6.0% Verizon
New York Inc. notes, $0.3 billion of 6.46% GTE Corporation notes and $0.1
billion of 6.0% Verizon South Inc. notes.
Guarantees
We guarantee the debt obligations of GTE Corporation (but not the debt
of its subsidiary or affiliate companies) that were issued and outstanding
prior to July 1, 2003. As of December 31, 2009, $1.7 billion principal
amount of these obligations remained outstanding.
On June 5, 2008, Verizon Wireless entered into a $7.6 billion 364-Day Credit
Agreement. During 2008, Verizon Wireless utilized this facility primarily to
purchase Alltel debt obligations and pay fees and expenses incurred in
connection therewith, finance the acquisition of Rural Cellular and repay
the outstanding Rural Cellular debt and pay fees and expenses incurred
in connection therewith. During 2008, the borrowings under the 364-Day
Credit Agreement were repaid.
Debt Covenants
We and our consolidated subsidiaries are in compliance with all of our
debt covenants.
Maturities of Long-Term Debt
Maturities of long-term debt outstanding at December 31, 2009 are as
follows:
Years
2010
2011
2012
2013
2014
Thereafter
(dollars in millions)
$
6,105
9,646
5,884
5,857
3,524
30,140
58
Notes to Consolidated Financial Statements continued
NOTE 10
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The following table presents the balances of assets measured at fair value
on a recurring basis as of December 31, 2009:
Level 1
Level 2
(dollars in millions)
Total
Level 3
Assets:
Short-term investments
Investments in
unconsolidated businesses
Other assets
$
274
$
216
$
–
$
490
417
–
–
1,365
–
–
417
1,365
Short-term investments and Investments in unconsolidated businesses
include equity securities, mutual funds and U.S. Treasuries, which are gen-
erally measured using quoted prices in active markets and are classified
as Level 1.
Other assets and the short-term investments classified as Level 2 are
comprised of domestic and foreign corporate and government bonds.
While quoted prices in active markets for certain of these debt securities
are available, for some they are not. We use alternative matrix pricing as
a practical expedient resulting in our debt securities being classified as
Level 2. Our derivative contracts included in Other assets are primarily
comprised of cross currency and interest rate swaps. Derivative contracts
are valued using models based on readily observable market parameters
for all substantial terms of our derivative contracts and thus are classified
within Level 2. We use mid-market pricing for fair value measurements of
our derivative instruments.
Gross unrealized gains and losses on marketable securities and other
investments were not significant during 2009 and 2008.
Upon closing of the Alltel acquisition (see Note 2), the $4.8 billion invest-
ment in Alltel debt, which was classified as Level 3 at December 31, 2008,
became an intercompany loan and is eliminated in consolidation.
Investment Impairment Charge
During 2008, we recorded a pretax charge of $48 million ($31 million
after-tax) related to an other-than-temporary decline in the fair value of
our investments in certain marketable securities.
Fair Value of Short-term and Long-term Debt
The fair value of our short-term and long-term debt, excluding capital
leases, is determined based on market quotes for similar terms and
maturities or future cash flows discounted at current rates. The fair value
and carrying value of our long-term and short-term debt, excluding cap-
ital leases, were as follows:
At December 31,
2009
Fair
Value
(dollars in millions)
2008
Fair
Value
Carrying
Amount
Carrying
Amount
Short- and long-term debt
$ 61,859 $
67,359
$ 51,562
$ 53,174
Derivatives
Interest Rate Swaps
We have entered into domestic interest rate swaps to achieve a targeted
mix of fixed and variable rate debt, where we principally receive fixed
rates and pay variable rates based on London Interbank Offered Rate
(LIBOR). These swaps are designated as fair value hedges and hedge
against changes in the fair value of our debt portfolio. We record the
interest rate swaps at fair value on our balance sheet as assets and liabili-
ties. Changes in the fair value of the interest rate swaps are recorded to
interest expense, which are offset by changes in the fair value of the debt
due to changes in interest rates. The fair value of these contracts was
$171 million and $415 million at December 31, 2009 and December 31,
2008, respectively, and is included in Other assets and Long-term debt.
As of December 31, 2009, the total notional amount of these interest rate
swaps was $6.0 billion.
Cross Currency Swaps
During the fourth quarter of 2008, Verizon Wireless entered into cross cur-
rency swaps designated as cash flow hedges to exchange approximately
$2.4 billion of the net proceeds from the December 2008 Verizon Wireless
co-issued debt offering of British Pounds Sterling and Euro denominated
debt into U.S. dollars and to fix our future interest and principal payments
in U.S. dollars, as well as mitigate the impact of foreign currency transac-
tion gains or losses. The fair value of these swaps included in Other assets
at December 31, 2009 was approximately $315 million and at December
31, 2008 was insignificant. During 2009, a pretax gain of $310 million
was recognized in Other comprehensive income, of which $135 million
was reclassified from Accumulated other comprehensive loss to Other
income and (expense), net to offset the related pretax foreign currency
transaction loss on the underlying debt obligation.
Alltel Interest Rate Swaps
As a result of the Alltel acquisition, Verizon Wireless acquired seven interest
rate swap agreements with a notional value of $9.5 billion that paid fixed
and received variable rates based on three-month and one-month LIBOR
with maturities ranging from 2009 to 2013. During the second quarter
of 2009, we settled all of these agreements using cash generated from
operations for a gain that was not significant. Changes in the fair value of
these swaps were recorded in earnings through settlement.
Prepaid Forward Agreement
During the first quarter of 2009, we entered into a privately negotiated pre-
paid forward agreement for 14 million shares of Verizon common stock at
a cost of approximately $390 million. During the fourth quarter of 2009, we
terminated the prepaid forward agreement with respect to 5 million shares
of Verizon common stock, which resulted in the delivery of those shares to
Verizon. The remaining balance of the prepaid forward agreement for 9
million shares of Verizon common stock at December 31, 2009 of $252 mil-
lion is included in Other assets. Changes in the fair value of the agreement,
which were not significant during 2009, were included in Selling, general
and administrative expense and Cost of services and sales.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk con-
sist primarily of temporary cash investments, short-term and long-term
investments, trade receivables, certain notes receivable, including lease
receivables, and derivative contracts. Our policy is to deposit our tem-
porary cash investments with major financial institutions. Counterparties
to our derivative contracts are also major financial institutions. The finan-
cial institutions have all been accorded high ratings by primary rating
agencies. We limit the dollar amount of contracts entered into with any
one financial institution and monitor our counterparties’ credit ratings.
We generally do not give or receive collateral on swap agreements due
to our credit rating and those of our counterparties. While we may be
exposed to credit losses due to the nonperformance of our counterpar-
ties, we consider the risk remote and do not expect the settlement of
these transactions to have a material effect on our results of operations
or financial condition.
59
Notes to Consolidated Financial Statements continued
NOTE 11
STOCk-BASED COMPENSATION
Verizon Communications Long-Term Incentive Plan
In May 2009, Verizon shareholders approved the 2009 Verizon
Communications Inc. Long-Term Incentive Plan (the Plan) which permits
the granting of stock options, stock appreciation rights, restricted stock,
restricted stock units, performance shares, performance stock units and
other awards. The maximum number of shares available for awards from
the Plan is 115 million shares. The Plan amends and restates the previous
long-term incentive plan.
Restricted Stock Units
The Plan provides for grants of Restricted Stock Units (RSUs) that generally
vest at the end of the third year after the grant. The RSUs are classified as
liability awards because the RSUs will be paid in cash upon vesting. The
RSU award liability is measured at its fair value at the end of each reporting
period and, therefore, will fluctuate based on the performance of Verizon’s
stock. Dividend equivalent units are also paid to participants at the time
the RSU award is paid, and in the same proportion as the RSU award.
Performance Stock Units
The Plan also provides for grants of Performance Stock Units (PSUs) that
generally vest at the end of the third year after the grant. As defined by
the Plan, the Human Resources Committee of the Board of Directors
determines the number of PSUs a participant earns based on the extent
to which the corresponding goals have been achieved over the three-
year performance cycle. All payments are subject to approval by the
Human Resources Committee. The PSUs are classified as liability awards
because the PSU awards are paid in cash upon vesting. The PSU award
liability is measured at its fair value at the end of each reporting period
and, therefore, will fluctuate based on the price of Verizon’s stock as well
as performance relative to the targets. Dividend equivalent units are also
paid to participants at the time that the PSU award is determined and
paid, and in the same proportion as the PSU award.
The following table summarizes Verizon’s Performance Stock Unit
activity:
The following table summarizes Verizon’s Restricted Stock Unit activity:
(shares in thousands)
Outstanding, January 1, 2007
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2007
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2008
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2009
Restricted
Stock Units
15,593
6,779
(602)
(197)
21,573
7,277
(6,869)
(161)
21,820
7,101
(9,357)
(121)
19,443
Weighted-
Average
Grant-Date
Fair Value
$
33.67
37.59
36.75
34.81
34.80
36.64
36.06
35.45
35.01
31.90
31.65
35.43
35.50
(shares in thousands)
Outstanding, January 1, 2007
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2007
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2008
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2009
Performance
Stock Units
28,423
10,371
(5,759)
(900)
32,135
11,194
(7,597)
(2,518)
33,214
14,079
(17,141)
(257)
29,895
Weighted-
Average
Grant-Date
Fair Value
$
34.22
37.59
36.75
36.18
34.80
36.64
36.06
36.00
35.04
31.84
31.58
34.32
35.52
As of December 31, 2009, unrecognized compensation expense related
to the unvested portion of Verizon’s RSUs and PSUs was approximately
$304 million and is expected to be recognized over a weighted-average
period of approximately two years.
Verizon Wireless’s Long-Term Incentive Plan
The 2000 Verizon Wireless Long-Term Incentive Plan (the Wireless Plan)
provides compensation opportunities to eligible employees and other
participating affiliates of Verizon Wireless (the Partnership). The Wireless
Plan provides rewards that are tied to the long-term performance of the
Partnership. Under the Wireless Plan, Value Appreciation Rights (VARs)
were granted to eligible employees. As of December 31, 2009, all VARs
were fully vested.
VARs reflect the change in the value of the Partnership, as defined in
the Wireless Plan, similar to stock options. Once VARs become vested,
employees can exercise their VARs and receive a payment that is equal to
the difference between the VAR price on the date of grant and the VAR
price on the date of exercise, less applicable taxes. VARs are fully exercis-
able three years from the date of grant, with a maximum term of 10 years.
All VARs were granted at a price equal to the estimated fair value of the
Partnership, as defined in the Wireless Plan, at the date of the grant.
60
Notes to Consolidated Financial Statements continued
The following table summarizes the assumptions used in the Black-
Scholes model during 2009:
Risk-free rate
Expected term (in years)
Expected volatility
Ranges
0.2% – 1.6%
0.4 – 2.5
35.4% – 61.5%
The risk-free rate is based on the U.S. Treasury yield curve in effect at the
time of the measurement date. Expected volatility was based on a blend
of the historical and implied volatility of publicly traded peer companies
for a period equal to the VARs expected life, ending on the measurement
date, and calculated on a monthly basis.
The following table summarizes the Value Appreciation Rights activity:
(shares in thousands)
Outstanding rights, January 1, 2007
Exercised
Cancelled/Forfeited
Outstanding rights, December 31, 2007
Exercised
Cancelled/Forfeited
Outstanding rights, December 31, 2008
Exercised
Cancelled/Forfeited
Outstanding rights, December 31, 2009
VARs
94,467
(30,848)
(3,207)
60,412
(31,817)
(351)
28,244
(11,442)
(211)
16,591
Weighted-
Average
Grant-Date
Fair Value
$
16.99
15.07
24.55
17.58
18.47
19.01
16.54
16.53
17.63
16.54
Stock-Based Compensation Expense
After-tax compensation expense for stock-based compensation related
to RSUs, PSUs, and VARs described above included in net income attribut-
able to Verizon was $492 million, $375 million and $750 million for 2009,
2008 and 2007, respectively.
Stock Options
The Plan provides for grants of stock options to employees at an option
price per share of 100% of the fair market value of Verizon common stock
on the date of grant. Each grant has a 10 year life, vesting equally over a
three year period, starting at the date of the grant. We have not granted
new stock options since 2004.
The following table summarizes Verizon’s stock option activity:
(shares in thousands)
Outstanding, January 1, 2007
Exercised
Cancelled/Forfeited
Outstanding, December 31, 2007
Exercised
Cancelled/Forfeited
Outstanding, December 31, 2008
Exercised
Cancelled/Forfeited
Outstanding, December 31, 2009
Stock
Options
229,364
(33,079)
(21,422)
174,863
(218)
(39,878)
134,767
(2)
(31,145)
103,620
Weighted-
Average
Grant-Date
Fair Value
$
46.48
38.50
48.26
47.78
38.00
48.13
47.69
26.33
52.32
46.29
Total stock options outstanding at December 31, 2009 and 2008 were
exercisable. The number of stock options exercisable at December 31,
2007 was 174,838.
The following table summarizes information about Verizon’s stock options
outstanding as of December 31, 2009:
Range of
Exercise Prices
$ 20.00-29.99
30.00-39.99
40.00-49.99
50.00-59.99
Total
Stock Options
(in thousands)
22
18,380
50,897
34,321
103,620
Weighted-
Average
Remaining Life
(years)
2.7
3.6
1.2
0.6
1.4
Weighted-
Average
Exercise Price
$
28.02
36.40
43.97
55.04
46.29
The total intrinsic value for stock options outstanding was not significant
as of December 31, 2009 and December 31, 2008. The total intrinsic value
for stock options exercised was $147 million in 2007 and not significant
in 2009 and 2008. The amount of cash received from the exercise of stock
options and the related tax benefits was not significant in 2009 and 2008
and was $1,274 million in 2007. The after-tax compensation expense for
stock options was not significant for 2009, 2008 and 2007.
61
Notes to Consolidated Financial Statements continued
NOTE 12
EMPLOYEE BENEFITS
We maintain non-contributory defined benefit pension plans for many
of our employees. In addition, we maintain postretirement health care
and life insurance plans for our retirees and their dependents, which
are both contributory and non-contributory, and include a limit on the
Company’s share of cost for certain recent and future retirees. We also
sponsor defined contribution savings plans to provide opportunities for
eligible employees to save for retirement on a tax-deferred basis. We use
a measurement date of December 31 for our pension and postretirement
health care and life insurance plans.
Pension and Other Postretirement Benefits
Pension and other postretirement benefits for many of our employees
are subject to collective bargaining agreements. Modifications in benefits
have been bargained from time to time, and we may also periodically
amend the benefits in the management plans. The following tables sum-
marize benefit costs, as well as the benefit obligations, plan assets, funded
status and rate assumptions associated with pension and postretirement
health care and life insurance benefit plans.
62
Obligations and Funded Status
At December 31,
Change in Benefit
Obligations
Beginning of year
Service cost
Interest cost
Plan amendments
Actuarial (gain) loss, net
Benefits paid
Termination benefits
Curtailment (gain) loss, net
Acquisitions and
divestitures, net
Settlements
End of year
Change in Plan Assets
Beginning of year
Actual return on plan assets
Company contributions
Benefits paid
Settlements
Acquisitions and
divestitures, net
End of year
Funded Status
End of year
Amounts recognized on
the balance sheet
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total
Amounts recognized in
Accumulated Other
Comprehensive Loss
(Pretax)
Actuarial loss, net
Prior service cost
Total
2009
Pension
2008
(dollars in millions)
Health Care and Life
2008
2009
$ 30,394
384
1,924
–
2,056
(2,565)
75
1,245
$ 32,495
382
1,966
300
(154)
(2,577)
32
–
$ 27,096
311
1,766
(5)
(469)
(1,740)
18
352
$ 27,306
306
1,663
24
(483)
(1,529)
7
(29)
192
(1,887)
31,818
(183)
(1,867)
30,394
8
–
27,337
27,791
4,793
337
(2,565)
(1,887)
42,659
(10,680)
487
(2,577)
(1,867)
2,555
638
1,638
(1,740)
–
123
28,592
(231)
27,791
–
3,091
(169)
–
27,096
4,142
(1,285)
1,227
(1,529)
–
–
2,555
$ (3,226)
$ (2,603)
$ (24,246)
$ (24,541)
$ 3,141
(139)
(6,228)
$ (3,226)
$
$
3,132
(122)
(5,613)
(2,603)
$
–
(542)
(23,704)
$ (24,246)
$
–
(496)
(24,045)
$ (24,541)
$ 12,200
999
$ 13,199
$ 13,296
1,162
$ 14,458
$ 5,806
2,667
$ 8,473
$
6,848
3,235
$ 10,083
Changes in benefit obligations were caused by factors including changes
in actuarial assumptions, settlements and curtailments.
The accumulated benefit obligation for all defined benefit pension plans
was $30,793 million and $29,405 million at December 31, 2009 and 2008,
respectively.
Information for pension plans with an accumulated benefit obligation in
excess of plan assets follows:
At December 31,
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
(dollars in millions)
2008
2009
$ 28,719
28,128
22,352
$ 27,171
26,641
21,436
Notes to Consolidated Financial Statements continued
Net Periodic Cost
The following table displays the details of net periodic pension and other
postretirement costs:
Years Ended December 31,
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Actuarial loss, net
Net periodic benefit (income) cost
Termination benefits
Settlement loss
Curtailment loss and other, net
Subtotal
Total (income) cost
2009
384
1,924
(2,937)
112
112
(405)
75
1,183
1,296
2,554
2,149
$
$
2008
382
1,966
(3,187)
62
40
(737)
32
364
–
396
(341)
$
$
Other pretax changes in plan assets and benefit obligations recognized
in other comprehensive (income) loss are as follows:
At December 31,
Other changes in plan assets and benefit obligations recognized
in other comprehensive (income) loss (pretax)
Actuarial (gain) loss, net
Prior service cost
Reversal of amortization items
Prior service cost
Actuarial loss, net
Total recognized in other comprehensive (income) loss (pretax)
The estimated actuarial loss and prior service cost for the defined benefit
pension plans that will be amortized from Accumulated other compre-
hensive loss into net periodic benefit cost over the next fiscal year are
$255 million and $110 million, respectively. The estimated actuarial loss
and prior service cost for the defined benefit postretirement plans that
will be amortized from Accumulated other comprehensive loss into net
periodic benefit cost over the next fiscal year are $235 million and $377
million, respectively.
Assumptions
The weighted-average assumptions used in determining benefit obliga-
tions follow:
At December 31,
Discount rate
Rate of compensation increases
The weighted-average assumptions used in determining net periodic
cost follow:
Years Ended December 31,
Discount rate
Expected return on plan assets
Rate of compensation increase
2009
6.75%
8.50
4.00
2008
6.50%
8.50
4.00
In order to project the long-term target investment return for the total
portfolio, estimates are prepared for the total return of each major asset
class over the subsequent 10-year period, or longer. Those estimates are
based on a combination of factors including the current market interest
rates and valuation levels, consensus earnings expectations, historical
Pension
2007
$
$
442
1,975
(3,175)
43
98
(617)
–
–
–
–
(617)
2009
311
1,766
(302)
401
238
2,414
18
–
514
532
2,946
$
$
(dollars in millions)
Health Care and Life
2007
2008
$
$
306
1,663
(321)
395
222
2,265
7
–
24
31
2,296
$
$
354
1,592
(317)
392
316
2,337
–
–
–
–
2,337
2009
Pension
2008
(dollars in millions)
Health Care and Life
2008
2009
$
199
(51)
(112)
(1,295)
$ (1,259)
$ 13,686
293
(62)
(404)
$ 13,513
$
(804)
(167)
(401)
(238)
$ (1,610)
$
1,030
(6)
(395)
(222)
407
$
2009
6.25%
4.00
Pension
2007
6.00%
8.50
4.00
Pension
2008
6.75%
4.00
2009
6.75%
8.25
N/A
Health Care and Life
2008
2009
6.25%
N/A
6.75%
N/A
Health Care and Life
2007
2008
6.50%
8.25
4.00
6.00%
8.25
4.00
63
Notes to Consolidated Financial Statements continued
long-term risk premiums and value-added. To determine the aggregate
return for the pension trust, the projected return of each individual asset
class is then weighted according to the allocation to that investment area
in the trust’s long-term asset allocation policy.
The assumed Health Care Cost Trend Rates follow:
At December 31,
Healthcare cost trend rate assumed
for next year
Rate to which cost trend rate
gradually declines
Year the rate reaches level it is assumed
Health Care and Life
2007
2008
2009
8.00%
9.00%
10.00%
5.00
5.00
5.00
to remain thereafter
2014
2014
2013
A one-percentage-point change in the assumed health care cost trend
rate would have the following effects:
One-Percentage-Point
Effect on 2009 service and interest cost
Effect on postretirement benefit obligation as of
December 31, 2009
(dollars in millions)
Decrease
Increase
$
277
$
(216)
3,053
(2,520)
Plan Assets
Our portfolio strategy emphasizes a long-term equity orientation, signifi-
cant global diversification, the use of both public and private investments
and financial and operational risk controls. Our diversification and risk
control processes serve to minimize the concentration of risk. Assets are
allocated according to long-term risk and return estimates. Both active
and passive management approaches are used depending on perceived
market efficiencies and various other factors.
While target allocation percentages will vary over time, the company’s
overall investment strategy is to achieve a mix of assets, which allows us
to meet projected benefits payments while taking into consideration risk
and return. The target allocations for plan assets are currently 60% equity,
25% fixed income, 9% private equity, 4% real estate and 2% cash invest-
ments. Our target policies are revisited every few years to ensure they are
in line with fund objectives. There are no significant concentrations of
risk, in terms of sector, industry, geography or company names.
Pension plan assets include Verizon common stock of $67 million and $87
million at December 31, 2009 and 2008, respectively. In our health care
and life plans, there was not a significant amount of Verizon common
stock held at the end of 2009 and 2008.
64
Pension Plans
The fair values for the pension plans by asset category at December 31,
2009 are as follows:
Asset Category
Total
Level 1
(dollars in millions)
Level 3
Level 2
Cash and cash equivalents
Equity securities
Fixed income securities
U.S. Treasuries and agencies
Corporate bonds
International bonds
Other
Real estate
Other
Private equity
Hedge funds
Total
$
2,299
12,691
$
2,299
12,691
$
$
–
–
–
–
1,095
2,531
1,112
646
1,541
428
158
774
–
–
667
2,236
338
646
–
–
137
–
–
1,541
5,362
1,315
$ 28,592
–
–
$ 16,350
26
1,315
5,228
$
5,336
–
7,014
$
A reconciliation of the beginning and ending balance of pension plan
assets that are measured at fair value using significant unobservable
inputs as of December 31, 2009 is as follows:
Corporate
Bonds
Real
Estate
Private
Equity
Total
(dollars in millions)
Balance at December 31, 2008
Actual gain (loss) on plan assets
Purchases and sales
Transfers in and/or out of Level 3
Balance at December 31, 2009
$
$
23
26
84
4
137
$ 1,665
(455)
331
–
$ 1,541
$ 5,101
(5)
263
(23)
$ 5,336
$ 6,789
(434)
678
(19)
$ 7,014
The fair values for the other postretirement benefit plans by asset cat-
egory at December 31, 2009 are as follows:
Asset Category
Total
Level 1
(dollars in millions)
Level 3
Level 2
Cash and cash equivalents
Equity securities
Fixed income securities
U.S. Treasuries and agencies
Corporate bonds
International bonds
Other
Other
Total
$
166
2,240
$
27
1,795
$
139
445
$
61
275
81
231
37
3,091
36
42
13
–
–
1,913
$
$
25
233
68
231
37
1,178
$
$
–
–
–
–
–
–
–
–
Plan assets are recognized and measured at fair value in accordance
with the accounting standards regarding fair value measurements. The
following are general descriptions of asset categories, as well as the valu-
ation methodologies and inputs used to determine the fair value of each
major category of plan assets.
Cash and cash equivalents include short-term investment funds, primarily
in diversified portfolios of investment grade money market instruments
and are valued using quoted market prices or other valuation methods,
and thus classified within Level 1 or Level 2 of the fair value hierarchy.
Equity securities are investments in common stock of domestic and
international corporations in a variety of industry sectors, and are valued
primarily using quoted market prices and generally classified within Level
1 in the fair value hierarchy.
Fixed income securities include U.S. Treasuries and agencies, debt obli-
gations of foreign governments and debt obligations in corporations of
domestic and foreign issuers. Fixed income also includes investments
Notes to Consolidated Financial Statements continued
in asset backed securities such as collateralized mortgage obligations,
mortgage backed securities and interest rate swaps. The fair value of
fixed income securities are based on observable prices for identical or
comparable assets, adjusted using benchmark curves, sector grouping,
matrix pricing, broker/dealer quotes and issuer spreads, and are generally
classified within Level 1 or Level 2 in the fair value hierarchy.
Real estate investments include those in limited partnerships that invest
in various commercial and residential real estate projects both domesti-
cally and internationally. The fair values of real estate assets are typically
determined by using income and/or cost approaches or comparable sales
approach, taking into consideration discount and capitalization rates,
financial conditions, local market conditions and the status of the capital
markets, and thus are classified within Level 3 in the fair value hierarchy.
Private equity investments include those in limited partnerships that invest
in operating companies that are not publicly traded on a stock exchange.
Investment strategies in private equity include leveraged buyouts, ven-
ture capital, distressed investments and investments in natural resources.
These investments are valued using inputs such as trading multiples of
comparable public securities, merger and acquisition activity and pricing
data from the most recent equity financing taking into consideration illi-
quidity, and thus are classified within Level 3 in the fair value hierarchy.
Hedge fund investments include those seeking to maximize absolute
returns using a broad range of strategies to enhance returns and provide
additional diversification. The fair values of hedge funds are estimated
using net asset value per share (NAV) of the investments. Verizon has the
ability to redeem these investments at NAV within the near term and
thus are classified within Level 2 of the fair value hierarchy.
Cash Flows
In 2009, we contributed $213 million to our qualified pension plans, $124
million to our nonqualified pension plans and $1,638 million to our other
postretirement benefit plans. We have no material required qualified pen-
sion plan contributions in 2010. We also anticipate approximately $140
million in contributions to our non-qualified pension plans and $1,890
million to our other postretirement benefit plans in 2010.
Estimated Future Benefit Payments
The benefit payments to retirees are expected to be paid as follows:
Year
2010
2011
2012
2013
2014
2015 – 2019
Pension
Benefits
$
5,599
3,796
2,134
2,206
2,173
10,723
(dollars in millions)
Health Care and Life
Prior to Medicare
Prescription
Drug Subsidy
Expected
Medicare Prescription
Drug Subsidy
$
2,076
2,158
2,169
2,182
2,175
10,379
$
99
108
120
130
140
857
Savings Plan and Employee Stock Ownership Plans
We maintain four leveraged employee stock ownership plans (ESOP).
Only one plan currently has unallocated shares. We match a certain per-
centage of eligible employee contributions to the savings plans with
shares of our common stock from this ESOP. At December 31, 2009, the
number of unallocated and allocated shares of common stock in this
ESOP were 3 million and 68 million, respectively. All leveraged ESOP
shares are included in earnings per share computations.
Total savings plan costs were $725 million, $683 million and $712 million
in 2009, 2008 and 2007, respectively.
Severance Benefits
The following table provides an analysis of our severance liability recorded
in accordance with the accounting standard regarding employers’
accounting for postemployment benefits:
Year
2007
2008
2009
Beginning
of Year
Charged to
Expense
Payments
Other End of Year
(dollars in millions)
$ 644
1,024
1,104
$
743
570
1,034
$ (363)
(509)
(522)
$
–
19
22
$ 1,024
1,104
1,638
The remaining severance liability is actuarially determined and includes
the impact of the activities described below. The 2009 expense
includes charges for the involuntary separation of approximately 17,600
employees and related charges; 4,200 of whom were separated in late
2009, with the remainder expected to occur in 2010. The 2008 expense
includes charges for the involuntary separation of approximately 8,600
employees, including approximately 3,500 of whom were separated in
the second half of 2008 and the remainder in 2009. The 2007 expense
includes charges for the involuntary separation of 9,000 employees as
described below.
Severance, Pension and Benefit Charges
During 2009, we recorded net pretax severance, pension and benefits
charges of $4,046 million ($2,487 million after-tax). Included in the
charges were net pretax settlement losses of $1,183 million ($719 mil-
lion after-tax) related to employees that received lump-sum distributions,
primarily resulting from our previous separation plans, as prescribed
payment thresholds were reached. Additionally, we recorded net pretax
pension and postretirement curtailment losses of $1,810 million ($1,100
million after-tax) as workforce reductions caused the elimination of a sig-
nificant amount of future service requiring us to recognize a portion of
the prior service costs and actuarial losses. These charges also included
$1,053 million ($668 million after-tax) for planned workforce reductions of
approximately 17,600 employees, 4,200 of which occurred in late 2009.
During 2008, we recorded net pretax severance, pension and benefits
charges of $950 million ($588 million after-tax). These charges primarily
included $586 million ($363 million after-tax) for workforce reductions in
connection with the separation of approximately 8,600 employees and
related charges; 3,500 of whom were separated in the second half of 2008
and the remainder in 2009. Also included are net pretax pension settle-
ments losses of $364 million ($225 million after-tax) related to employees
that received lump-sum distributions, primarily resulting from our separa-
tion plans in which prescribed payment thresholds have been reached.
During the fourth quarter of 2007, we recorded charges of $772 million
($477 million after-tax) primarily in connection with workforce reductions
of 9,000 employees and related charges, 4,000 of whom were separated
in the fourth quarter of 2007 with the remaining reductions occurring
throughout 2008. In addition, we adjusted our actuarial assumptions for
severance to align with future expectations.
65
Notes to Consolidated Financial Statements continued
NOTE 13
INCOME TAxES
The components of Income before provision for income taxes,
Discontinued operations, Extraordinary item and Cumulative effect of
accounting change are as follows:
The following table shows the principal reasons for the difference
between the effective income tax rate and the statutory federal income
tax rate:
Years Ended December 31,
2009
(dollars in millions)
2007
2008
Domestic
Foreign
$ 10,673
895
$ 11,568
$ 14,993
921
$ 15,914
$ 13,561
984
$ 14,545
The components of the provision for income taxes from continuing oper-
ations are as follows:
Years Ended December 31,
2009
2008
2007
Statutory federal income tax rate
State and local income tax rate,
net of federal tax benefits
Distributions from foreign investments
Equity in earnings from
–
unconsolidated businesses
Noncontrolling interest
Other, net
Effective income tax rate
35.0%
35.0%
35.0%
0.8
(1.9)
(18.7)
(4.7)
10.5%
2.5
(0.4)
(1.4)
(12.3)
(2.5)
20.9%
2.2
3.9
(1.5)
(11.0)
(1.2)
27.4%
Years Ended December 31,
Current
Federal
Foreign
State and Local
Deferred
Federal
Foreign
State and Local
Investment tax credits
Total income tax expense
2009
(611)
73
364
(174)
1,085
(35)
340
1,390
(6)
1,210
$
$
(dollars in millions)
2007
2008
$
$
365
240
543
1,148
2,214
(91)
66
2,189
(6)
3,331
$
$
2,568
461
545
3,574
397
66
(48)
415
(7)
3,982
The effective income tax rate in 2009 decreased to 10.5% from 20.9% in
2008. The decrease was primarily driven by higher earnings attributable
to the noncontrolling interest, which accounted for an 18.7 percentage
point reduction in the effective tax rate in 2009 compared to a 12.3 per-
centage point reduction in 2008. Included within the (4.7)% ‘Other, net’
above is the impact of lower federal taxes, net of higher state taxes attrib-
utable to prior year adjustments to tax balances that were not material to
the overall effective income tax rate.
The state and local income tax rate, net of federal tax benefits, in 2009
decreased to 0.8% from 2.5% in 2008 due to reductions in unrecognized
tax benefits after statutes of limitations in multiple jurisdictions lapsed
and the impact of earnings attributable to the noncontrolling interest.
The effective income tax rate in 2008 decreased to 20.9% from 27.4% in
2007. The decrease was primarily due to recording $610 million of for-
eign and domestic taxes and expenses in 2007 relating to our share of
Vodafone Omnitel’s distributable earnings. This expense, which increased
the effective tax rate by 3.9 percentage points in 2007 compared to 2008,
was primarily comprised of $300 million of Italian withholding taxes
and $260 million of U.S. federal income taxes. Verizon received net dis-
tributions from Vodafone Omnitel in April 2008 and December 2007 of
approximately $670 million and $2,100 million, respectively.
The state and local income tax rate, net of federal tax benefits, in 2008
increased to 2.5% from 2.2% in 2007. The increase was primarily due to
an increase in earnings at Verizon Wireless, apportioned to states with
higher state income tax rates than the remainder of the Company’s oper-
ations. This increase was partially offset by lower expenses recorded for
unrecognized tax benefits in 2008 compared to 2007. In addition, overall
state income taxes in 2007 was also positively impacted by the lower tax
rate applicable to earnings from its investments in unconsolidated busi-
nesses. Specifically, the Company disposed of its interest in CANTV in the
second quarter of 2007, and as a result, the positive impact of the CANTV
earnings was reduced in 2007 and eliminated in 2008.
66
Notes to Consolidated Financial Statements continued
Deferred taxes arise because of differences in the book and tax bases of
certain assets and liabilities. Significant components of deferred tax are
shown in the following table:
Unrecognized Tax Benefits
A reconciliation of the beginning and ending balance of unrecognized
tax benefits is as follows:
At December 31,
Employee benefits
Tax loss and credit carry forwards
Uncollectible accounts receivable
Other – assets
Valuation allowances
Deferred tax assets
Former MCI intercompany accounts receivable
basis difference
Depreciation
Leasing activity
Wireless joint venture including wireless licenses
Other – liabilities
Deferred tax liabilities
Net deferred tax liability
(dollars in millions)
2008
2009
$ 13,204
2,786
303
1,269
17,562
(2,942)
14,620
$ 13,174
2,634
341
953
17,102
(2,995)
14,107
1,633
10,416
2,081
18,249
1,012
33,391
$ 18,771
1,818
8,157
2,218
12,957
823
25,973
$ 11,866
Employee benefits deferred tax assets include $9,161 million and $10,344
million at December 31, 2009 and 2008, respectively, recognized in accor-
dance with the accounting standard relating to an employer’s accounting
for defined benefit pension and other postretirement benefit plans (see
Note 12).
At December 31, 2009, undistributed earnings of our foreign subsidiaries
indefinitely invested outside of the United States amounted to approxi-
mately $1,100 million. We have not provided deferred taxes on these
earnings because we intend that they will remain indefinitely invested out-
side of the United States. Determination of the amount of unrecognized
deferred taxes related to these undistributed earnings is not practical.
At December 31, 2009, we had net tax loss and credit carry forwards (tax
effected) for income tax purposes of approximately $3,300 million. Of
these net tax loss and credit carry forwards (tax effected), approximately
$2,600 million will expire between 2010 and 2029 and approximately
$700 million may be carried forward indefinitely. The amount of net tax
loss and credit carry forwards (tax effected) reflected as a deferred tax
asset above has been reduced by approximately $639 million and $614
million at December 31, 2009 and 2008, respectively, due to federal and
state tax law limitations on utilization of net operating losses.
During 2009, the valuation allowance decreased $53 million. The balance
at December 31, 2009 is primarily related to state and foreign tax losses
and credit carry forwards. Beginning January 1, 2009, we adopted the
new accounting standard relating to business combinations. Due to the
adoption of this standard, the reversal of valuation allowances associated
with acquired losses recognized during 2009 was reflected in income
tax expense.
Balance at January 1,
Additions based on tax positions related
to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapses of statutes of limitations
Balance at December 31,
2009
(dollars in millions)
2007
2008
$
2,622
$
2,883
$
2,958
288
1,128
(477)
(27)
(134)
3,400
$
$
251
344
(651)
(126)
(79)
2,622
$
141
291
(420)
(11)
(76)
2,883
Included in the total unrecognized tax benefits at December 31, 2009,
2008 and 2007 is $2,099 million, $1,631 million and $1,245 million,
respectively, that if recognized, would favorably affect the effective
income tax rate.
We recognize any interest and penalties accrued related to unrecognized
tax benefits in income tax expense. During 2009 and 2008, we recog-
nized a net after tax benefit in the income statement related to interest
and penalties of approximately $14 million and $55 million respectively.
During 2007, we recognized a net after tax expense in the income state-
ment related to interest and penalties of approximately $175 million. We
had approximately $552 million (after-tax) and $538 million (after-tax) for
the payment of interest and penalties accrued in the balance sheets at
December 31, 2009 and December 31, 2008, respectively.
The increase in unrecognized tax benefits during 2009 was primarily due
to the acquisition of Alltel, from the filing of a refund claim related to
non-U.S. income taxes, and increased unrecognized tax benefits related
to non-U.S. income tax audits, partially offset by the resolution of certain
U.S. income tax examinations.
Verizon and/or its subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state, local and foreign jurisdictions. The Internal
Revenue Service (IRS) is currently examining the Company’s U.S. income
tax returns for the years 2004 through 2006. As a large taxpayer, we are
under continual audit by the IRS and multiple state and foreign jurisdic-
tions on numerous open tax positions. Significant foreign examinations
are ongoing in Canada, Australia and Italy for tax years as early as 2002.
It is reasonably possible that the amount of the remaining liability for
unrecognized tax benefits could change by a significant amount during
the next twelve-month period. An estimate of the range of the possible
change cannot be made until issues are further developed or examina-
tions close.
67
Notes to Consolidated Financial Statements continued
In 2008, we completed the spin-off of our local exchange and related busi-
ness assets in Maine, New Hampshire and Vermont. Accordingly, Wireline
results from divested operations, including the impact of the non stra-
tegic assets sold during the first quarter of 2007, have been reclassified to
Corporate and Other and reflect comparable operating results. In 2007,
we completed the sale of our 52% interest in TELPRI and our interest in
CANTV which were reported in our former International segment.
Our segments and their principal activities consist of the following:
Segment
Description
Domestic Wireless
Domestic Wireless’s products and services include
wireless voice and data services and equipment sales
across the U.S.
Wireline
Wireline’s communications products and services include
voice, Internet access, broadband video and data, next
generation Internet protocol (IP) network services,
network access, long distance and other services. We
provide these products and services to consumers in the
U.S., as well as to carriers, businesses and government
customers both in the U.S. and in 150 other countries
around the world.
NOTE 14
SEGMENT INFORMATION
Reportable Segments
We have two reportable segments, which we operate and manage as
strategic business units and organize by products and services. We mea-
sure and evaluate our reportable segments based on segment operating
income, consistent with the chief operating decision maker’s assessment
of segment performance.
Beginning in 2009, we changed the manner in which the Wireline seg-
ment reports Operating revenues to align our financial presentation
to the continued evolution of the wireline business. Accordingly, there
are four revenue-producing lines of business within the Wireline seg-
ment: Mass Markets, Global Enterprise, Global Wholesale and Other.
Mass Markets includes consumer and small business revenues. Global
Enterprise includes retail revenue from enterprise customers, both
domestic and international. Global Wholesale includes wholesale reve-
nues, both domestic and international. Other primarily includes operator
services, payphone services and revenues from the former MCI mass
markets customer base.
Corporate, eliminations and other includes unallocated corporate
expenses, intersegment eliminations recorded in consolidation, the
results of other businesses, such as our investments in unconsolidated
businesses, lease financing, and other adjustments and gains and losses
that are not allocated in assessing segment performance due to their
non-recurring or non-operational nature. Although such transactions
are excluded from the business segment results, they are included in
reported consolidated earnings. Gains and losses that are not individu-
ally significant are included in all segment results, since these items are
included in the chief operating decision maker’s assessment of segment
performance.
The reconciliation of segment operating revenues and expenses to con-
solidated operating revenues and expenses below also include those
items of a non-recurring or non-operational nature. We exclude from
segment results the effects of certain items that management does not
consider in assessing segment performance, primarily because of their
non-recurring non-operational nature.
The following table provides operating financial information for our two reportable segments:
2009
Domestic Wireless
Wireline
External Operating Revenues
Service revenue
Equipment and other
Mass Markets
Global Enterprise
Global Wholesale
Other
Intersegment revenues
Total operating revenues
Cost of services and sales
Selling, general and administrative expense
Depreciation and amortization expense
Total operating expenses
Operating income
Assets
Plant, property and equipment, net
Capital expenditures
68
$
$
53,426
8,604
–
–
–
–
101
62,131
19,749
17,847
7,030
44,626
17,505
$ 135,162
30,849
7,152
$
$
$
–
–
19,744
14,988
8,387
1,626
1,335
46,080
24,144
10,833
9,122
44,099
1,981
91,778
59,373
8,892
(dollars in millions)
Total Segments
$
$
53,426
8,604
19,744
14,988
8,387
1,626
1,436
108,211
43,893
28,680
16,152
88,725
19,486
$ 226,940
90,222
16,044
Notes to Consolidated Financial Statements continued
2008
Domestic Wireless
Wireline
External Operating Revenues
Service revenue
Equipment and other
Mass Markets
Global Enterprise
Global Wholesale
Other
Intersegment revenues
Total operating revenues
Cost of services and sales
Selling, general and administrative expense
Depreciation and amortization expense
Total operating expenses
Operating income
Assets
Plant, property and equipment, net
Capital expenditures
$
$
42,560
6,666
–
–
–
–
106
49,332
15,660
14,273
5,405
35,338
13,994
$ 111,979
27,136
6,510
2007
Domestic Wireless
External Operating Revenues
Service revenue
Equipment and other
Mass Markets
Global Enterprise
Global Wholesale
Other
Intersegment revenues
Total operating revenues
Cost of services and sales
Selling, general and administrative expense
Depreciation and amortization expense
Total operating expenses
Operating income
Assets
Plant, property and equipment, net
Capital expenditures
$
$
$
37,951
5,826
–
–
–
–
105
43,882
13,456
13,477
5,154
32,087
11,795
83,755
25,971
6,503
$
$
$
$
$
$
–
–
19,785
15,777
9,240
2,176
1,236
48,214
24,274
11,047
9,031
44,352
3,862
90,386
58,287
9,797
Wireline
–
–
19,541
15,712
9,638
2,998
1,240
49,129
24,181
11,527
8,927
44,635
4,494
92,264
58,702
10,956
(dollars in millions)
Total Segments
$
$
42,560
6,666
19,785
15,777
9,240
2,176
1,342
97,546
39,934
25,320
14,436
79,690
17,856
$ 202,365
85,423
16,307
(dollars in millions)
Total Segments
$
$
37,951
5,826
19,541
15,712
9,638
2,998
1,345
93,011
37,637
25,004
14,081
76,722
16,289
$ 176,019
84,673
17,459
69
Notes to Consolidated Financial Statements continued
Reconciliation to Consolidated Financial Information
A reconciliation of the segment operating revenues to consolidated operating revenues is as follows:
Operating Revenues
Total reportable segments
Reconciling items:
Impact of dispositions and operations sold
Corporate, eliminations and other
Consolidated operating revenues
2009
2008
$ 108,211
–
(403)
$ 107,808
$
97,546
258
(450)
97,354
$
(dollars in millions)
2007
$
93,011
1,094
(636)
93,469
$
A reconciliation of the total of the reportable segments’ operating income to consolidated Income before provision for income taxes, discontinued
operations and extraordinary item is as follows:
Operating Income
Total segment operating income
Merger integration and acquisition costs (see Note 2)
Access line spin-off and other charges (see Note 3)
Taxes on foreign distributions (see Note 13)
Severance, pension and benefit charges (see Note 12)
Impact of divested operations (see Note 3)
Verizon Foundation contribution (see Note 3)
Corporate, eliminations and other
Consolidated operating income
Equity in earnings of unconsolidated businesses
Other income (expense), net
Interest expense
Income Before Provision for Income Taxes, Discontinued Operations
and Extraordinary Item
Assets
Total reportable segments
Corporate, eliminations and other
Total consolidated
2009
$ 19,486
(954)
(453)
–
(4,046)
–
–
(6)
$ 14,027
553
90
(3,102)
$
$
2008
17,856
(174)
(103)
–
(950)
44
–
211
16,884
567
282
(1,819)
(dollars in millions)
2007
$
$
16,289
(178)
(84)
(15)
(772)
182
(100)
256
15,578
585
211
(1,829)
$ 11,568
$
15,914
$
14,545
$ 226,940
311
$ 227,251
$ 202,365
(13)
$ 202,352
We generally account for intersegment sales of products and services and asset transfers at current market prices. No single customer accounted
for more than 10% of our total operating revenue during the years ended December 31, 2009, 2008 and 2007. International operating revenues and
long-lived assets are not significant.
70
Notes to Consolidated Financial Statements continued
NOTE 15
COMPREHENSIVE INCOME
Comprehensive income (loss) consists of net income and other gains and
losses affecting equity that, under GAAP, are excluded from net income.
Significant changes in the components of Other comprehensive income
(loss), net of income tax expense (benefit), are described below.
Foreign Currency Translation
The changes in Foreign currency translation adjustments were as follows:
Years Ended December 31,
2009
(dollars in millions)
2007
2008
Foreign Currency Translation
Adjustments:
Vodafone Omnitel
CANTV
Other international operations
$
$
49
–
29
78
$
$
(119)
–
(112)
(231)
$
$
397
412
29
838
Net Unrealized Gains (Losses) on Cash Flow Hedges
The changes in Unrealized gains (losses) on cash flow hedges were as
follows:
Years Ended December 31,
2009
(dollars in millions)
2007
2008
$
112
$
(43)
$
(2)
Unrealized Gains (Losses) on
Cash Flow Hedges
Unrealized gains (losses), net of taxes
Less reclassification adjustments
for gains realized in net income,
net of taxes
Net unrealized gains (losses) on
cash flow hedges
$
87
$
(40)
$
25
(3)
(3)
1
Unrealized Gains (Losses) on Marketable Securities
The changes in Unrealized gains (losses) on marketable securities were
as follows:
Years Ended December 31,
2009
(dollars in millions)
2007
2008
Unrealized Gains (Losses) on
Marketable Securities
Unrealized gains (losses), net of taxes
Less reclassification adjustments
for gains (losses) realized in net income,
net of taxes
Net unrealized gains (losses)
on marketable securities
$
95
$
(142)
$
13
8
(45)
17
$
87
$
(97)
$
(4)
Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss were as
follows:
At December 31,
Foreign currency translation adjustments
Net unrealized gain (loss) on cash flow hedges
Unrealized gain (loss) on marketable securities
Defined benefit pension and postretirement plans
Accumulated Other Comprehensive Loss
(dollars in millions)
2008
2009
$
1,014
37
50
(12,580)
$ (11,479)
$
936
(50)
(37)
(14,221)
$ (13,372)
Foreign Currency Translation Adjustments
The change in Foreign currency translation adjustments during 2009 was
primarily driven by the devaluation of the U.S. dollar against the Euro. The
change in Foreign currency translation adjustments during 2008 was pri-
marily driven by the settlement of the foreign currency forward contracts,
which hedged a portion of our net investment in Vodafone Omnitel and
the devaluation of the Euro. During 2007, we sold our interest in CANTV
(see Note 3).
Net Unrealized Gains (Losses) on Cash Flow Hedges
During 2009 and 2008, Unrealized gains on cash flow hedges, included in
Other comprehensive income attributable to noncontrolling interest, pri-
marily reflects activity related to the cross currency swap (see Note 10).
Defined Benefit Pension and Postretirement Plans
The change in Defined benefit pension and postretirement plans of $1.6
billion, net of taxes of $1.2 billion at December 31, 2009 was attributable
to the change in the funded status of the plans in connection with the
required annual pension and postretirement valuation. The funded status
was impacted by changes in asset performance, actuarial assumptions,
plan experience and settlement losses (see Note 12).
The change in Defined benefit pension and postretirement plans of $8.5
billion, net of taxes of $5.4 billion at December 31, 2008 was attribut-
able to the change in the funded status of the plans in connection with
the required annual pension and postretirement valuation. The funded
status was impacted by changes in asset performance, actuarial assump-
tions, and plan experience. In addition to the pension and postretirement
items, we recorded a reduction to the beginning balance of Accumulated
other comprehensive loss of $79 million ($44 million after-tax) in connec-
tion with the spin-off of our local exchange and related business assets in
Maine, New Hampshire and Vermont.
The change in Defined benefit pension and postretirement plans of $1.9
billion, net of taxes of $0.7 billion, at December 31, 2007 was attributable
to the change in the funded status of the plans in connection with the
required annual pension and postretirement valuation. The funded status
was impacted by changes in actuarial assumptions, asset performance
and plan experience.
71
Notes to Consolidated Financial Statements continued
NOTE 16
ADDITIONAL FINANCIAL INFORMATION
The tables that follow provide additional financial information related to our consolidated financial statements:
2009
$ 14,562
4,029
(927)
3,020
2009
$
158
2,573
1,044
35,861
6,865
23,929
$
2008
13,182
2,566
(747)
2,754
2009
$
4,337
3,486
5,084
872
1,444
$ 15,223
$
$
$
2,644
1,372
2,692
6,708
2008
1,206
1,664
397
2,800
376
1,505
(dollars in millions)
2007
$
13,036
2,258
(429)
2,463
(dollars in millions)
2008
$
$
$
$
3,856
2,299
4,871
652
2,136
13,814
2,651
1,334
3,114
7,099
(dollars in millions)
2007
$
2,491
1,682
17
589
154
–
Income Statement Information
Years Ended December 31,
Depreciation expense
Interest cost incurred
Capitalized interest
Advertising costs
Balance Sheet Information
Years Ended December 31,
Accounts Payable and Accrued Liabilities
Accounts payable
Accrued expenses
Accrued vacation, salaries and wages
Interest payable
Taxes payable
Other Current Liabilities
Advance billings and customer deposits
Dividends payable
Other
Cash Flow Information
Years Ended December 31,
Cash Paid
Income taxes, net of amounts refunded
Interest, net of amounts capitalized
Supplemental Investing and Financing Transactions
Cash acquired in business combinations
Assets acquired in business combinations
Liabilities assumed in business combinations
Debt assumed in business combinations
72
Notes to Consolidated Financial Statements continued
NOTE 17
COMMITMENTS AND CONTINGENCIES
Several state and federal regulatory proceedings may require our tele-
phone operations to pay penalties or to refund to customers a portion
of the revenues collected in the current and prior periods. There are also
various legal actions pending to which we are a party and claims which,
if asserted, may lead to other legal actions. We have established reserves
for specific liabilities in connection with regulatory and legal actions,
including environmental matters that we currently deem to be probable
and estimable. We do not expect that the ultimate resolution of pending
regulatory and legal matters in future periods, including the Hicksville
matter described below, will have a material effect on our financial con-
dition, but it could have a material effect on our results of operations for
a given reporting period.
During 2003, under a government-approved plan, remediation com-
menced at the site of a former Sylvania facility in Hicksville, New York
that processed nuclear fuel rods in the 1950s and 1960s. Remediation
beyond original expectations proved to be necessary and a reassessment
of the anticipated remediation costs was conducted. A reassessment of
costs related to remediation efforts at several other former facilities was
also undertaken. In September 2005, the Army Corps of Engineers (ACE)
accepted the Hicksville site into the Formerly Utilized Sites Remedial
Action Program. This may result in the ACE performing some or all of the
remediation effort for the Hicksville site with a corresponding decrease
in costs to Verizon. To the extent that the ACE assumes responsibility for
remedial work at the Hicksville site, an adjustment to a reserve previously
established for the remediation may be made. Adjustments to the reserve
may also be made based upon actual conditions discovered during the
remediation at this or any other site requiring remediation.
In connection with the execution of agreements for the sales of busi-
nesses and investments, Verizon ordinarily provides representations and
warranties to the purchasers pertaining to a variety of nonfinancial mat-
ters, such as ownership of the securities being sold, as well as indemnity
from certain financial losses.
Subsequent to the sale of Verizon Information Services Canada in 2004,
we continue to provide a guarantee to publish directories, which was
issued when the directory business was purchased in 2001 and had a
30-year term (before extensions). The preexisting guarantee continues,
without modification, despite the subsequent sale of Verizon Information
Services Canada and the spin-off of our domestic print and Internet
yellow pages directories business. The possible financial impact of the
guarantee, which is not expected to be adverse, cannot be reasonably
estimated since a variety of the potential outcomes available under the
guarantee result in costs and revenues or benefits that may offset each
other. In addition, performance under the guarantee is not likely.
As of December 31, 2009, letters of credit totaling approximately $117
million were executed in the normal course of business, which support
several financing arrangements and payment obligations to third parties.
We have several commitments primarily to purchase programming and
network services, equipment and software from a variety of suppliers
totaling $9,925 million. Of this total amount, we expect to purchase
$3,415 million in 2010, $4,233 million in 2011 through 2012, $1,887
million in 2013 through 2014 and $390 million thereafter. The commit-
ments to purchase programming services are with television networks
and broadcast stations. The amounts included for such commitments are
based on several factors, including the number of subscribers receiving
the programming. Since most of these programming commitments have
no minimum volume requirement, we estimated our obligation based
on subscribers at December 31, 2009, at applicable pricing stipulated in
the contracts that were in effect as of December 31, 2009.
73
Notes to Consolidated Financial Statements continued
NOTE 18
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarter Ended
2009
March 31
June 30
September 30
December 31
2008
March 31
June 30
September 30
December 31
Operating
Revenues
Operating
Income
$ 26,591
26,861
27,265
27,091
$ 23,833
24,124
24,752
24,645
$
4,694
4,418
3,986
929
$
4,333
4,546
4,173
3,832
Net Income (Loss) attributable to Verizon(1)
(dollars in millions, except per share amounts)
Amount
$
1,645
1,483
1,176
(653)
$
1,642
1,882
1,669
1,235
Per Share-
Basic
Per Share-
Diluted
Net Income
$
$
.58
.52
.41
(.23)
.57
.66
.59
.43
$
$
.58
.52
.41
(.23)
.57
.66
.59
.43
$
3,210
3,160
2,887
1,101
$
3,049
3,404
3,199
2,931
• Results of operations for the first quarter of 2009 include after-tax charges attributable to Verizon of $96 million related to acquisition related charges and $50 million of merger
integration costs.
• Results of operations for the second quarter of 2009 include after-tax charges attributable to Verizon of $253 million related to severance, pension and benefits charges, $52 million of merger
integration costs and $8 million of acquisition related charges.
• Results of operations for the third quarter of 2009 include after-tax charges attributable to Verizon of $372 million related to severance, pension and benefits charges, $103 million of merger
integration and acquisition costs, and $41 million related to access line spin-off charges.
• Results of operations for the fourth quarter of 2009 include after-tax charges attributable to Verizon of $1,862 million for severance, pension and benefits charges, $246 million for wireline
cost reduction initiatives and access line spin-off charges, and $71 million of merger integration and acquisition costs.
• Results of operations for the first quarter of 2008 include after-tax charges of $18 million for merger integration costs and $81 million related to access line spin-off charges.
• Results of operations for the second quarter of 2008 include after-tax charges attributable to Verizon of $22 million for merger integration costs.
• Results of operations for the third quarter of 2008 include after-tax charges attributable to Verizon of $32 million for merger integration costs and $164 million for severance, pension and
benefit charges.
• Results of operations for the fourth quarter of 2008 include after-tax charges attributable to Verizon of $35 million for merger integration costs, $31 million investment related charges attrib-
utable to an other-than-temporary decline in the fair value of our investments in marketable securities, and $424 million for severance, pension and other charges.
(1) Net income attributable to Verizon per common share is computed independently for each quarter and the sum of the quarters may not equal the annual amount.
74
Board of Directors
Richard L. Carrión
Chairman and Chief Executive Officer
Popular, Inc.
and Chairman and Chief Executive Officer
Banco Popular de Puerto Rico
M. Frances Keeth
Retired Executive Vice President
Royal Dutch Shell plc
Robert W. Lane
Retired Chairman and Chief Executive Officer
Deere & Company
Sandra O. Moose
President
Strategic Advisory Services LLC
Joseph Neubauer
Chairman and Chief Executive Officer
ARAMARk Holdings Corporation
Donald T. Nicolaisen
Former Chief Accountant
United States Securities and
Exchange Commission
Thomas H. O’Brien
Retired Chairman and Chief Executive Officer
The PNC Financial Services Group, Inc.
and PNC Bank, N.A.
Clarence Otis, Jr.
Chairman and Chief Executive Officer
Darden Restaurants, Inc.
Hugh B. Price
Visiting Professor and Lecturer
Woodrow Wilson School of Public and
International Affairs, Princeton University
and Non-Resident Senior Fellow
The Brookings Institution
Ivan G. Seidenberg
Chairman and Chief Executive Officer
Verizon Communications Inc.
Rodney E. Slater*
Partner
Patton Boggs LLP
John W. Snow
President
JWS Associates, LLC
John R. Stafford
Retired Chairman and Chief Executive Officer
Wyeth
*
Rodney E. Slater was elected to the Board in 2010.
Corporate Officers and
Executive Leadership
Ivan G. Seidenberg
Chairman and Chief Executive Officer
John F. Killian
Executive Vice President and
Chief Financial Officer
Robert J. Barish
Senior Vice President and Controller
John W. Diercksen
Executive Vice President –
Strategy, Development and Planning
Patrick R. Gaston
President – Verizon Foundation
Holyce E. Hess Groos
Senior Vice President and Treasurer
William L. Horton, Jr.
Senior Vice President, Deputy General Counsel
and Corporate Secretary
Shaygan Kheradpir
Executive Vice President and
Chief Information Officer
Ronald H. Lataille
Senior Vice President – Investor Relations
Kathleen H. Leidheiser
Senior Vice President – Internal Auditing
Richard J. Lynch
Executive Vice President and
Chief Technology Officer
Lowell C. McAdam
Executive Vice President and
President and Chief Executive Officer –
Verizon Wireless
Randal S. Milch
Executive Vice President and
General Counsel
Marc C. Reed
Executive Vice President –
Human Resources
Virginia P. Ruesterholz
President – Verizon Services Operations
Francis J. Shammo
President – Verizon Telecom and Business
Thomas J. Tauke
Executive Vice President –
Public Affairs, Policy and Communications
75
Verizon Wireless received the highest numerical score among wireless providers in the proprietary J.D. Power and Associates 2010 Wireless Customer Care Performance StudySM – Vol. 1. Study based on
9,685 total responses measuring 5 providers and measures opinions of consumers who contacted customer care between January 2009 and December 2009. Proprietary study results are based on
experiences and perceptions of consumers surveyed July-December 2009. Your experiences may vary. Visit jdpower.com
Verizon received the highest numerical score among service providers in the East Region in the proprietary J.D. Power and Associates 2009 Internet Service Provider Residential Customer Satisfaction
StudySM and 2008–2009 Residential Television Service Satisfaction StudiesSM. ISP study based on 23,997 total responses, measuring 11 providers and Television study based on 28,118 total responses,
measuring 9 providers in the East region (CT, DE, DC, ME, MD, MA, NH, NJ, NY, PA, RI, VA, VT, WV) and measures satisfaction of consumers with their service provider. Proprietary study results are based on
experiences and perceptions of consumers surveyed in January, March, June and July 2009. Your experiences may vary. Visit jdpower.com.
Verizon received the highest numerical score among large enterprise business service providers in the proprietary J.D. Power and Associates 2009 Major Provider Business Telecommunications Data and
Voice Services StudiesSM. Data study based on 4,252 total responses and voice study on 3,304 total responses; measures opinions of large enterprise businesses (500+ employees). Proprietary study results
are based on experiences and perceptions of businesses surveyed in January and April 2009. Your experiences may vary. Visit jdpower.com.
1
2
3
76
v e r i zo n co m m u n i c at i o n s i n c . 2 0 0 9 a n n ua l r e p o r t
Investor Information
Registered Shareowner Services
Questions or requests for assistance regarding changes to or transfers
of your registered stock ownership should be directed to our transfer
agent, Computershare Trust Company, N.A. at:
Verizon Communications Shareowner Services
c/o Computershare
P.O. Box 43078
Providence, RI 02940-3078
Phone: 800 631-2355
Website: www.computershare.com/verizon
Email: verizon@computershare.com
Investor Services
Investor Website – Get company information and news on our
website – www.verizon.com/investor
VZ Mail – Get the latest investor information delivered directly to your
computer desktop. Subscribe to VzMail at our investor information
website.
Stock Market Information
Shareowners of record at December 31, 2009: 773,417
Verizon is listed on the New York Stock Exchange (ticker symbol: VZ)
and also on the London Stock Exchange.
Persons outside the U.S. may call: 781 575-3994
Common Stock Price and Dividend Information
Persons using a telecommunications device for the deaf (TDD) may call:
800 524-9955
On-line Account Access – Registered shareowners can view account
information on-line at: www.computershare.com/verizon
Click on “Create login” to register. For more information, contact
Computershare.
Direct Dividend Deposit Service – Verizon offers an electronic funds
transfer service to registered shareowners wishing to deposit dividends
directly into savings or checking accounts on dividend payment dates.
For more information, contact Computershare.
Direct Invest Stock Purchase and Ownership Plan – Verizon offers a
direct stock purchase and share ownership plan. The plan allows cur-
rent and new investors to purchase common stock and to reinvest the
dividends toward the purchase of additional shares. To receive a Plan
Prospectus and enrollment form, contact Computershare or visit their
website.
eTree® Program – Worldwide, Verizon is acting to conserve natural
resources in a variety of ways. Now we are proud to offer shareowners
an opportunity to be environmentally responsible. By receiving links
to proxy, annual report and shareowner materials online, you can help
Verizon reduce the amount of materials we print and mail. As a thank
you for choosing electronic delivery, Verizon will plant a tree on your
behalf. It’s fast and easy and you can change your electronic delivery
options at any time. Sign up at www.eTree.com/verizon or call
800 631-2355 or 781 575-3994.
Corporate Governance
Verizon’s Corporate Governance Guidelines are available on our
website – www.verizon.com/investor
If you would prefer to receive a printed copy in the mail, please contact
the Assistant Corporate Secretary:
Verizon Communications Inc.
Assistant Corporate Secretary
140 West Street, 29th Floor
New York, NY 10007
2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2008
Fourth Quarter
Third Quarter
Second Quarter
First Quarter*
Market Price
High
Low
$ 34.13 $ 28.57
28.31
28.64
26.10
32.69
33.07
34.76
Cash
Dividend
Declared
$ 0.475
0.475
0.460
0.460
$
34.90
36.34
39.94
44.12
$
23.07
30.25
33.84
33.00
$ 0.460
0.460
0.430
0.430
*Prices have been adjusted for the spin-off of our local exchange and related
business assets in Maine, New Hampshire and Vermont.
Form 10–K
To receive a copy of the 2009 Annual Report on Form 10-K, which is
filed with the Securities and Exchange Commission, contact Investor
Relations:
Verizon Communications Inc.
Investor Relations
One Verizon Way
Basking Ridge, NJ 07920
Phone: 212 395-1525
Equal Opportunity Policy
Verizon maintains a long-standing commitment to equal opportunity
and valuing the diversity of its employees, suppliers and customers.
Verizon is fully committed to a workplace free from discrimination
and harassment for all persons, without regard to race, color, religion,
age, gender, national origin, sexual orientation, marital status, military
status, citizenship status, veteran status, disability or other protected
classifications.
Verizon Communications Inc.
140 West Street
New York, New York 10007
212 395-1000
verizon.com
© 2010. Verizon. All Rights Reserved.
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