Verizon Wireless 2007 Annual Report Download

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Verizon Communications
2007 Annual Report

Table of contents

  • Page 1
    Verizon Communications 2007 Annual Report

  • Page 2
    ...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. In keeping with Verizon's commitment to protecting the environment, this annual report...

  • Page 3
    .... We now have a superior set of assets in place, based on quality networks and direct relationships with millions of customers, and we have developed a capable and experienced management team. This business model is delivering improved operational performance and creating higher returns for...

  • Page 4
    ... end฀of฀2007.฀Verizon฀also฀is฀a฀leader฀in฀providing฀the฀global฀IP฀network฀over฀which฀the฀ digital฀cargo฀of฀the฀21st฀century฀runs.฀Our฀network฀currently฀offers฀secure฀global฀access฀ to฀ large฀ business฀ and฀ government฀ customers...

  • Page 5
    ...฀productivity฀and฀help฀us฀put฀all฀our฀capabilities฀to฀work฀for฀the฀customer,฀we฀implemented฀a฀new฀corporate฀structure฀last฀year฀to฀coordinate฀functions฀such฀ as฀ marketing,฀ IT,฀ network฀ planning฀ and฀ purchasing฀ across฀ Verizon...

  • Page 6
    ...divesting our directory business and selling some access lines and international equity holdings. The capital from these transactions helped to further change our corporate profile, through the acquisition of MCI and investments in our broadband wireless and fiber networks. Collectively, these moves...

  • Page 7
    ...-high-speed฀ broadband,฀ wireless฀ multimedia฀ and฀ anytime-anywhere฀ applications฀ and฀ services.฀ We฀ expect฀ that฀ a฀ new฀ wave฀ of฀ wireless฀ devices฀ will฀ expand฀ the฀ market฀ beyond฀ phones฀ and฀ computers฀ by฀ embedding฀ communications...

  • Page 8
    ...฀that฀will฀enable฀customers฀to฀"bring฀their฀ own"฀devices฀and฀applications฀to฀run฀on฀our฀networks.฀ Verizon Business Strategic Services Revenue (billions) $5.2 $4.1 $3.3 05 06 07 The Verizon Value Creation Model (continued) Operating Cash Flow from Continuing...

  • Page 9
    ... manage฀ their฀ digital฀ lives฀ -฀ anytime,฀ anywhere,฀ on฀ any฀ device฀ -฀ will฀ be฀ one฀ of฀ the฀ great฀business฀opportunities฀of฀the฀next฀decade.฀Few฀companies฀are฀better฀positioned฀to฀ help฀customers฀do฀that฀than฀Verizon.฀That...

  • Page 10
    ...dedicated฀ employees฀ who฀ come฀ to฀ work฀ every฀day฀committed฀to฀serving฀our฀customers฀and฀delivering฀the฀products฀and฀services฀ that฀will฀make฀their฀lives฀more฀manageable,฀convenient฀and฀productive.฀Our฀legacy฀of฀ service฀is฀built...

  • Page 11
    ... communications business, which is so much a part of the daily lives of our customers and the communities we operate in. If we can use our technology to make their lives better, the potential - for us and for our society - is unlimited." Dennis F. Strigl President and Chief Operating Officer Verizon...

  • Page 12
    ... (millions) 120 U.S. Households with Laptops (millions) 80 Actual Forecast Actual Forecast 100 60 80 40 60 20 40 0 01 02 03 04 05 06 07 08 09 10 11 12 YEAR Source: Forrester Research, Inc., Benchmark 2007: The Five-Year Forecast for Devices and Access, Sept. 2007 01 02 03 04 05 06...

  • Page 13
    ...provide wireless access to email and other information stored on home or office computers. Through our Open Development Initiative, announced late last year, we will provide customers the option to use, on the Verizon Wireless network, wireless devices and applications not offered by the company but...

  • Page 14
    ... 50 40 40 30 20 20 10 0 0 01 02 03 04 05 06 07 08 09 10 11 12 YE A R Source: Forrester Research, Inc., Benchmark 2007: The Five-Year Forecast for Devices and Access, Sept. 2007 01 02 03 04 05 06 07 08 09 10 11 12 YEAR Source: Forrester Research, Inc., Benchmark...

  • Page 15
    ... major communications company that's installing fiber directly to homes and businesses on a mass scale across the country. Our fiber-optic network offers nearly unlimited bandwidth for voice, Internet and high-definition TV services, and is designed to handle new applications as they're developed...

  • Page 16
    ... Global Telecom Spending on Business Data Forecast ($ in billions) $37.9 $32.7 $28.0 $23.8 $20.2 $17.0 $123.4 $134.4 $146.1 $158.6 $172.4 $185.2 06 07 08 09 YEAR 10 11 06 07 08 YEAR 09 10 11 Source: IDC, Worldwide and U.S. Security Services 2006-2011 Forecast and Analysis, Dec. 2007...

  • Page 17
    ... world. A global company's network shouldn't care if employees and customers are wired or wireless, if they're in Paris or Singapore, or if they're working on a laptop or a PDA. They need to be able to gain access whenever they want, wherever they are and on whatever device they choose. Verizon is...

  • Page 18
    ... year the Verizon Foundation supported domestic violence prevention organizations with $5.4 million in grants. In addition, Verizon Wireless' HopeLine® program, which puts wireless technology to work to help victims of domestic violence, collected more than 1 million no-longer-used phones, awarded...

  • Page 19
    ... Condition. • 2004 data includes sales of business, severance, pension and benefit charges and other items. • 2003 data includes severance, pension and benefit charges and other items. Stock Performance Graph Comparison of Five-Year Total Return Among Verizon, S&P 500 Telecom Services...

  • Page 20
    ...a centralized shared services organization, and centralizing information technology and marketing efforts, has led to changes to the Company's cost structure as well as maintaining and improving operating income margins. With our deployment of the FiOS network, we expect to realize savings in annual...

  • Page 21
    ... market. In addition, during 2007 we acquired a security-services firm that enhanced our managed information security services offerings to large-business and government customers worldwide. At Domestic Wireless, we continue to execute on the fundamentals of our network superiority and value...

  • Page 22
    ... approximately 700,000 switched access lines, as well as the services and assets of Verizon Long Distance, Verizon Online, Verizon Information Services and Verizon Select Services Inc. in Hawaii, were sold to an affiliate of The Carlyle Group for $1,326 million in cash proceeds. In connection...

  • Page 23
    ...expense includes salaries and 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, professional service fees and rent for administrative...

  • Page 24
    ... gain on the sale of a small international business and investment gains and expenses related to the early retirement of debt. Interest Expense (dollars in millions) Years Ended December 31, Total interest costs on debt balances Less: capitalized interest costs Interest expense Weighted average...

  • Page 25
    ... including voice, broadband video and data, network access, long distance, and other services to residential and small business customers and carriers, and Verizon Business, which provides next-generation IP network services to medium and large businesses and government customers globally. Operating...

  • Page 26
    ... value-added services that make communications more secure, reliable and efficient. Enterprise Business provides managed network services for customers that outsource all or portions of their communications and information processing operations and data services such as Private IP, Private Line...

  • Page 27
    ... 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, professional service fees and rent for administrative...

  • Page 28
    ... the sale of a New York City office building, changes to management retirement benefit plans, severance costs and Verizon Center relocation-related costs. Domestic Wireless Our Domestic Wireless segment provides wireless voice and data services, other value-added services and equipment sales across...

  • Page 29
    ... customer care areas, and higher per employee salary and benefit costs. Sales commissions expense in both our direct and indirect channels increased by $147 million in 2007 compared to 2006, primarily as a result of an increase in customer renewals and equipment upgrades. Advertising and promotion...

  • Page 30
    ... other wireless properties and licenses. In 2005, we received cash proceeds of $1,326 million in connection with the sale of Verizon's wireline operations in Hawaii. Our short-term investments principally include cash equivalents held in trust accounts for payment of employee benefits. In 2007, 2006...

  • Page 31
    ...of $2,042 million in connection with the sale of Verizon Dominicana. In 2005, investing activities of discontinued operations primarily related to capital expenditures related to discontinued operations. Cash Flows Used In Financing Activities In 2007, our total debt was reduced by $5.2 billion, due...

  • Page 32
    ... Condition and Results of Operations continued 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. The majority of Verizon's pension...

  • Page 33
    ... increase (decrease) for the point (decrease) at year ended change December 31, 2007 December 31, 2007 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...

  • Page 34
    ... of deferred income tax assets and the timing of income tax payments. Actual collections and payments may materially differ from these estimates as a result of changes in tax laws as well as unanticipated future transactions impacting related income tax balances. We account for tax benefits taken or...

  • Page 35
    ... close in the first half of 2008. In a related transaction, on December 3, 2007, Verizon Wireless signed a definitive exchange agreement with AT&T. Under the terms of the agreement, Verizon Wireless will receive cellular operating markets in Madison and Mason, KY, and 10MHz PCS licenses in Las Vegas...

  • Page 36
    ... largely deregulated information services. The same order also concluded that telephone companies may offer the underlying broadband transmission services that are used as an input to Internet access services through private carriage arrangements on negotiated commercial terms. The order was upheld...

  • Page 37
    ... and Congress continuously consider 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' business plans or operations. To use the radio frequency spectrum, wireless communications systems must be licensed...

  • Page 38
    ..., Department of Justice and Federal Bureau of Investigation which imposes national security and law enforcement-related obligations on the ways in which Verizon Wireless stores information and otherwise conducts its business. Verizon Wireless anticipates that it will need additional spectrum to meet...

  • Page 39
    ... approvals for new tower sites has been and is likely to continue to be a difficult, lengthy and expensive process. Finally, state and local governments continue to impose new or higher fees and taxes on wireless carriers. CautiOnary statement COnCerning fOrward-lOOking statements In this Annual...

  • Page 40
    ...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. We have audited Verizon Communications Inc...

  • Page 41
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Verizon as of December 31, 2007 and 2006, and the related consolidated statements of income, cash flows and changes in shareowners' investment for each of the...

  • Page 42
    ... Income (dollars in millions, except per share amounts) Years Ended December 31, Operating Revenues Operating Expenses Cost of services and sales (exclusive of items shown below) Selling, general & administrative expense Depreciation and amortization expense Sales of businesses, net Total Operating...

  • Page 43
    ... one year Accounts payable and accrued liabilities Liabilities related to assets held for sale Other Total current liabilities Long-term debt Employee benefit obligations Deferred income taxes Other liabilities Minority interest Shareowners' investment Series preferred stock ($.10 par value; none...

  • Page 44
    ... 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 used in financing activities - continuing operations Net cash...

  • Page 45
    ... Capital Balance at beginning of year Shares issued-employee and shareowner plans Shares issued-MCI/Price acquisitions Domestic print and Internet yellow pages directories business spin-off Other Balance at end of year Reinvested Earnings Balance at beginning of year Adoption of tax accounting...

  • Page 46
    ...generation IP network products and Information Technology (IT) services to medium and large businesses and government customers worldwide. Verizon's Domestic Wireless segment, operating as Verizon Wireless, provides wireless voice and data products and other value-added services and equipment across...

  • Page 47
    ... of cash equivalents held in trust to pay for certain employee benefits. Short-term investments are stated at cost, which approximates market value. Marketable Securities Marketable securities are included in the accompanying consolidated balance sheets in Investments in Unconsolidated Businesses or...

  • Page 48
    ... For information related to the carrying amount of goodwill, other intangibles and wireless licenses by segment as well as the major components and average useful lives of our other acquired intangible assets, see Note 9. Income Taxes Verizon and its domestic subsidiaries file a consolidated federal...

  • Page 49
    ... 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. As of July 1, 2006, Verizon management employees no longer earn pension benefits or earn service towards the company retiree medical subsidy...

  • Page 50
    .... Other Dispositions Telephone Access Lines Spin-off On January 16, 2007, we announced a definitive agreement with FairPoint Communications, Inc. (FairPoint) that will result in Verizon establishing a separate entity for its local exchange and related business assets in Maine, New Hampshire and...

  • Page 51
    ... 700,000 switched access lines, as well as the services and assets of Verizon Long Distance, Verizon Online, Verizon Information Services and Verizon Select Services Inc. in Hawaii, to an affiliate of The Carlyle Group for $1,326 million in cash proceeds. In connection with this sale, we recorded...

  • Page 52
    ... a new cost basis in the investment is established. As of December 31, 2007, no impairments were determined to exist. The following table shows certain summarized information related to our investments in marketable securities: (dollars in millions) Cost At December 31, 2007 Short-term investments...

  • Page 53
    ... the remaining 45%. Under the terms of an investment agreement, Vodafone had the right to require Verizon Wireless to purchase up to an aggregate of $20 billion worth of Vodafone's interest in Verizon Wireless at designated times (put windows) at its then fair market value, not to exceed $10 billion...

  • Page 54
    ... regulatory approvals, Verizon completed the acquisition of 100% of the outstanding common stock of MCI, Inc. (MCI) for a combination of Verizon common shares and cash. MCI was a global communications company that provided Internet, data and voice communication services to businesses and government...

  • Page 55
    ... close in the first half of 2008. In a related transaction, on December 3, 2007, Verizon Wireless signed a definitive exchange agreement with AT&T. Under the terms of the agreement, Verizon Wireless will receive cellular operating markets in Madison and Mason, KY, and 10MHz PCS licenses in Las Vegas...

  • Page 56
    ...other intangible assets: (dollars in millions) At December 31, 2007 Gross Accumulated Amount Amortization Finite-lived intangible assets: Customer lists (3 to 10 years) Non-network internal-use software (2 to 7 years) Other (1 to 25 years) Total Indefinite-lived intangible assets: Wireless licenses...

  • Page 57
    ...plant, property and equipment are as follows: (dollars in millions) At December 31, Capital leases Accumulated amortization Total $ $ 2007 329 (153) 176 $ $ 2006 359 (160) 199 Years Ended December 31, Pretax lease income Income tax expense/(benefit) Investment tax credits $ 2007 78 30 4 $ 2006...

  • Page 58
    ... other Employee stock ownership plan loans - NYNEx debentures Capital lease obligations (average rate 6.8% and 8.0%) Unamortized discount, net of premium Total long-term debt, including current maturities Less: debt maturing within one year Total long-term debt Notes Payable In April 2007, Verizon...

  • Page 59
    ...Notes Due 2007 at 101% of their par value. On February 21, 2006, $1,804 million of these notes were redeemed by Verizon. Verizon satisfied and discharged the indenture governing this series of notes shortly after the close of the offer for those noteholders who did not accept this offer. We recorded...

  • Page 60
    ... Future cash flows discounted at current rates, market quotes for similar instruments or other valuation models (dollars in millions) Cost investments in unconsolidated businesses, derivative assets and liabilities and notes receivable At December 31, Carrying Amount Short- and long-term debt Cost...

  • Page 61
    ... the time the RSU award is paid. The following table summarizes Verizon's Restricted Stock Unit activity: Years Ended December 31, Income Before Discontinued Operations, Extraordinary Item and Cumulative Effect of Accounting Change After-tax minority interest expense related to exchangeable equity...

  • Page 62
    ... in net income as reported was $750 million, $535 million and $359 million for 2007, 2006 and 2005, respectively. Stock Options The Verizon Long Term Incentive Plan provides for grants of stock options to employees at an option price per share of 100% of the fair market value of Verizon Stock on the...

  • Page 63
    ... 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 (Pre-tax) Actuarial loss, net Prior service cost Total 2007 Pension 2006 Health Care and...

  • Page 64
    ... 31, Other changes in plan assets and benefit obligations recognized in other comprehensive income (Pre-tax) Actuarial (gain), net Reversal of amortization items: Prior service cost Actuarial loss, net Total recognized in other comprehensive income 2007 Pension 2006 Health Care and Life 2007 2006...

  • Page 65
    ... in compensation 2007 6.50% 4.00 Pension 2006 6.00% 4.00 Health Care and Life 2007 2006 6.50% 4.00 6.00% 4.00 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 2007 6.00...

  • Page 66
    ... Benefits (SFAS No. 112): (dollars in millions) There was no Verizon common stock held at the end of 2007 and 2006 in the health care and life plans. This portfolio strategy emphasizes a long-term equity orientation, significant global diversification, the use of both public and private...

  • Page 67
    ...The components of the provision for income taxes from continuing operations are as follows: (dollars in millions) Years Ended December 31, Current Federal Foreign State and local Deferred Federal Foreign State and local Investment tax credits Total income tax expense 2007 $ 2,568 461 545 3,574 397...

  • Page 68
    ... services, network access, long distance and other services. We provide these services to consumers, carriers, businesses and government customers both domestically and internationally in 150 countries. Domestic Wireless's products and services include wireless voice, data products, and other value...

  • Page 69
    ... for our two reportable segments: (dollars in millions) 2007 External revenues Intersegment revenues Total operating revenues Cost of services and sales Selling, general & administrative expense Depreciation & amortization expense Total operating expenses Operating income Equity in earnings...

  • Page 70
    ... Consolidated operating revenues - reported Operating Expenses Total reportable segments Merger integration costs (see Note 8) Access line spin-off related charges (see Note 2) Taxes on foreign distributions (see Note 6) Verizon Center relocation (see Note 3) Severance, pension and benefit charges...

  • Page 71
    ... Capitalized interest Advertising expense 2007 $ 13,036 2,258 (429) 2,463 2006 $ 13,122 2,811 (462) 2,271 2005 $ 12,171 2,481 (352) 1,844 Balance Sheet Information (dollars in millions) Years Ended December 31, Unrealized Gains (Losses) on Marketable Securities Unrealized gains, net of taxes...

  • Page 72
    ... Statements continued Cash Flow Information (dollars in millions) 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...

  • Page 73
    ... for the fourth quarter of 2006 include after-tax charges of $47 million for merger integration costs, $30 million for costs associated with the relocation to Verizon Center, $55 million for severance, pension and benefits charges, $541 million for the loss on sale of Verizon Dominicana included in...

  • Page 74
    ... de Puerto Rico M. Frances Keeth Retired Executive Vice President Royal Dutch Shell plc Robert W. Lane 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...

  • Page 75
    ...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 Certifications Regarding Public Disclosures & Listing Standards The 2007 Annual Report on Form 10-K filed...

  • Page 76
    Verizon Communications inc. 140 west street new york, new york 10007 212 395-1000 verizon.com Printed on recycled paper ©2008. Verizon. All Rights Reserved. 002CS-60954 This document is printed on recycled paper which contains at least 10% post-consumer waste.