Verizon Wireless 2009 Annual Report Download - page 30

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Management’s Discussion and Analysis
of Financial Condition and Results of Operations continued
CONSOLIDATED FINANCIAL CONDITION
(dollars in millions)
Years Ended December 31, 2009 2008 2007
Cash Flows Provided By (Used In)
Operating Activities:
Continuing Operations $ 31,565 $ 27,557 $ 27,409
Discontinued Operations – – (570)
Investing Activities:
Continuing Operations (23,331) (31,579) (16,865)
Discontinued Operations – – 757
Financing Activities:
Continuing Operations (16,007) 12,651 (12,797)
Discontinued Operations – – –
Increase (Decrease) In Cash and
Cash Equivalents $ (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.
Cash Flows Provided By (Used In) Investing Activities
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:
(dollars in millions)
Years Ended December 31, 2009 2008 2007
Domestic Wireless $ 7,152 $ 6,510 $ 6,503
Wireline 8,892 9,797 10,956
Other 1,003 931 79
$ 17,047 $ 17,238 $ 17,538
Total as a percentage of total revenue 15.8% 17.7% 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.