Verizon Wireless 2009 Annual Report Download

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Verizon Communications
2009 Annual Report

Table of contents

  • Page 1
    Verizon Communications 2009 Annual Report

  • Page 2
    ...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 specific information...

  • Page 3
    ... 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...

  • Page 4
    ... 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...

  • Page 5
    ...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...

  • Page 6
    ...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...

  • Page 7
    ... 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...

  • Page 8
    ...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...

  • Page 9
    ... 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...

  • Page 10
    ...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...

  • Page 11
    ... 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 and MP3 players. Verizon's Multi-Room DVR lets a customer use one...

  • Page 12
    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 ...

  • Page 13
    ... 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...

  • Page 14
    ...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...

  • Page 15
    ... 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...

  • Page 16
    ... 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 offerings for both consumer and business customers. With our acquisition of Alltel, we...

  • Page 17
    ... 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...

  • Page 18
    ... 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...

  • Page 19
    ... 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 locationbased data services such as VZ Navigator. Equipment and other revenue in 2008 increased...

  • Page 20
    ... not directly attributable to a service or product, bad debt charges, taxes other than income taxes, advertising and sales commission costs, customer billing, call center and information technology costs, professional service fees and rent and utilities for administrative space. Consolidated selling...

  • Page 21
    ... and benefits charges, $150 million for merger integration costs, primarily comprised of systems integration 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...

  • Page 22
    Management's Discussion and Analysis of Financial Condition and Results of Operations continued Interest Expense (dollars in millions) Years Ended December 31, Total interest costs on debt balances Less capitalized interest costs Total Average debt outstanding Effective interest rate $ $ $ 2009 4,...

  • Page 23
    ...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...

  • Page 24
    ... were primarily a result of customer-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 service revenue in 2008, compared to...

  • Page 25
    ... 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...

  • Page 26
    ... business customers and carriers, as well as next-generation IP network services and communications 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...

  • Page 27
    ... 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 business volumes. (dollars in millions) Operating Expenses Years Ended December 31, Cost of services and sales Selling, general...

  • Page 28
    ..., 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 space. Selling, general and...

  • Page 29
    ..., we recorded pretax charges of $453 million ($287 million after-tax, or $.10 per diluted share) for costs incurred related to our Wireline cost reduction initiatives, as well as network, non-network software and other activities to enable the markets to be divested to operate on a stand-alone basis...

  • Page 30
    ... (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...

  • Page 31
    ... 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...

  • Page 32
    ... Negative implications 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...

  • Page 33
    ... 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...

  • Page 34
    ... 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...

  • Page 35
    ... 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...

  • Page 36
    .... (dollars in millions) Benefit obligation* Expense increase Percentage increase (decrease) for the point (decrease) at year ended change December 31, 2009 December 31, 2009 Pension plans discount rate +0.50 -0.50 $ (1,291) 1,413 $ (52) 56 Long-term rate of return on pension plan assets +1.00...

  • Page 37
    .... 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 services to consumer and business customers in 34 states, and its controlling stockholder, Atlantis Holdings LLC, an affiliate of private...

  • Page 38
    ... 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 customer proprietary network information; (ii) telemarketing; (iii) assignment of telephone numbers to customers...

  • Page 39
    ...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...

  • Page 40
    Management's Discussion and Analysis of Financial Condition and Results of Operations continued 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 ...

  • Page 41
    ... 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...

  • Page 42
    ... or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Ivan G. Seidenberg Chairman and Chief Executive Officer John F. Killian Executive Vice President and Chief Financial Officer Robert...

  • Page 43
    ... 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...

  • Page 44
    ...I E S Consolidated Statements of 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 and administrative expense Depreciation and amortization expense Total...

  • Page 45
    ... 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...

  • Page 46
    ... Statements of Cash Flows (dollars in millions) 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...

  • Page 47
    ...S Consolidated Statements of Changes in Equity (dollars in millions, except per share amounts, and shares in thousands) Years Ended December 31, Shares Common Stock Balance at beginning of year Other Balance at end of year Contributed Capital Balance at beginning of year Shares issued-employee and...

  • Page 48
    ... 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...

  • Page 49
    ... with the acquisition or construction of network-related assets. Capitalized interest is reported and depreciated as part of the cost of the networkrelated assets and as a reduction in interest expense. In connection with our ongoing review of the estimated remaining average useful lives of plant...

  • Page 50
    ... portion of our intangible assets are wireless licenses that provide our wireless operations with the exclusive right to utilize designated radio frequency spectrum to provide cellular communication services. While licenses are issued for only a fixed time, generally ten years, such licenses are...

  • Page 51
    ... 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...

  • Page 52
    ... 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...

  • Page 53
    ... 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 subject to receipt of regulatory approvals. Year ended December 31, Operating revenues Net...

  • Page 54
    ... 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...

  • Page 55
    ... 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 facilities and operations in Maine, New Hampshire and Vermont from Verizon at the closing of the transaction, as well...

  • Page 56
    ... Financial Statements continued Other Intangible Assets The following table displays the composition of Other intangible assets: (dollars in millions) Gross Amount Other intangible assets: Customer lists (6 to 8 years) $ Non-network internal-use software (2 to 7 years) Other (1 to 25 years) Total...

  • Page 57
    ... businesses are comprised of the following: (dollars in millions) Summarized Financial Information Summarized financial information for our equity investees is as follows: Balance Sheet (dollars in millions) At December 31, Current assets Noncurrent assets Total assets Current liabilities...

  • Page 58
    ... relating to operating leases for the periods shown at December 31, 2009, are as follows: (dollars in millions) 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...

  • Page 59
    ... 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...

  • Page 60
    ... 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...

  • Page 61
    ... 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 currency swaps designated as cash flow hedges to exchange approximately...

  • Page 62
    ... to Consolidated Financial Statements continued NOTE 11 ST OCK 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...

  • Page 63
    ...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...

  • Page 64
    ... 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...

  • Page 65
    ...: 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 Pension 2007 6.00% 8.50 4.00 2009 6.75% 8.25 N/A 2008 Health Care and Life 2007 6.00% 8.25 4.00 6.50% 8.25 4.00 In order to project the long-term target...

  • Page 66
    ... is as follows: (dollars in millions) Plan Assets Our portfolio strategy emphasizes a long-term equity orientation, significant global diversification, the use of both public and private investments and financial and operational risk controls. Our diversification and risk control processes serve to...

  • Page 67
    ... 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...

  • Page 68
    ... income taxes, Discontinued operations, Extraordinary item and Cumulative effect of accounting change are as follows: (dollars in millions) 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...

  • Page 69
    ... Tax Benefits A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows: (dollars in millions) At December 31, Employee benefits Tax loss and credit carry forwards Uncollectible accounts receivable Other - assets Valuation allowances Deferred tax assets...

  • Page 70
    ... 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...

  • Page 71
    Notes to Consolidated Financial Statements continued (dollars in millions) 2008 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 ...

  • Page 72
    ... 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...

  • Page 73
    ... 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...

  • Page 74
    ... 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 combinations Liabilities...

  • Page 75
    ... 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...

  • Page 76
    ... 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...

  • Page 77
    ... 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...

  • Page 78
    1 Verizon Wireless received the highest numerical score among wireless providers in the proprietary J.D. Power and Associates 2010 Wireless Customer Care Performance Study - Vol. 1. Study based on 9,685 total responses measuring 5 providers and measures opinions of consumers who contacted customer ...

  • Page 79
    .... 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. Common Stock Price and Dividend Information Market Price...

  • Page 80
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