Verizon Wireless 2011 Annual Report Download

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2011 Annual Report
Financial and Corporate Responsibility Performance
A TRUER CONNECTION

Table of contents

  • Page 1
    2011 Annual Report Financial and Corporate Responsibility Performance A TRUER CONNECTION

  • Page 2
    ...growth in adjusted revenues (non-GAAP) • 18.2% total shareowner return • 2.6% annual dividend increase • 5.4 million new wireless connections • 0.95% wireless postpaid churn • 6.3% growth in wireless retail service revenue • 21.0% growth in wireless data revenue • 735,000 new...

  • Page 3
    ...America and the world. Through this "shared success" strategy, we aim to create long-term value for our shareowners and leave a positive and lasting mark on society. Reginald F. Lewis High School in Baltimore, MD, is visited weekly by Verizon's Mobile Learning Lab, where students use 4G LTE tablets...

  • Page 4
    ... to meet crucial needs across America and the world. Verizon will create new and more effective products, solutions and processes that will make us an even more valuable partner to our customers, communities and shareowners." Lowell McAdam Chairman and Chief Executive Officer Verizon Communications...

  • Page 5
    ... throughout the physical world. We added the iPhone to our robust product line-up, which also includes a growing number of 4G LTE devices that operate on the Android platform. All of this is driving smartphone penetration and fueling 21 percent annual growth in wireless data revenue. We are very...

  • Page 6
    ..., Verizon's assets give us a strong foundation for growth. In 2012 and beyond, we will build on our wireless broadband, FiOS and global Internet backbone networks by putting together unique, integrated solutions that can be delivered to any device, giving customers new ways to manage their digital...

  • Page 7
    ... - from video and financial services to health care, energy and education - and wireless and cloudbased technologies are extending these benefits more widely as they bring more people and places into the digital economy. Pursuing these new market opportunities is Verizon's major strategic thrust and...

  • Page 8
    ..., and our employees' service to our communities - more than 674,000 volunteer hours dedicated in 2011 - is the best evidence of our commitment to making the world a better place than it was yesterday. That's why Verizon earned the No. 1 ranking in our industry in Fortune magazine's 2012 list of the...

  • Page 9
    ..., wireless broadband and global Internet networks. He also created the now-iconic Verizon brand that in 10 years' time has become one of the 20 most powerful brands in the world. In the process, Verizon grew to a $111 billion technology powerhouse with a solid foundation in the growth markets of...

  • Page 10
    ... technologies: fiber to the home, 4G LTE wireless, super-highspeed global backbones and high-capacity digital data centers. Our fiber-optic FiOS service is the fastest in the marketplace today, and its virtually unlimited capacities are ushering in the era of "big broadband" for homes and businesses...

  • Page 11
    ... marry the power of 4G LTE to high-speed fiber and cable broadband networks, enabling partners to develop new integrated products and services that will move seamlessly between mobile and fixed devices and knit together customers' digital lives. Machine-to-Machine - The Next Big Thing Some of the...

  • Page 12
    ...the Internet every minute of every day. For businesses, new technologies offer a new way of organizing work and engaging with the marketplace. Small companies and entrepreneurs gain instant access to worldwide markets. Large organizations link employees, suppliers and customers around the world into...

  • Page 13
    ... customers and - as we move forward - support the disruptive new business models emerging in markets like financial services, retail, energy management and health care. Video Everywhere In the old days - say, five years ago - video was synonymous with "television." You watched it at a specific time...

  • Page 14
    ... offers the fastest broadband speeds, enabling teleworkers to download large files quickly and conduct high-quality video conferences. FiOS TV Parental Controls make it easy to ensure viewable programming is appropriate for all family members. A remote medical monitoring system powered by Verizon...

  • Page 15
    ...LTE for Rural America program expands our industry-leading 4G LTE wireless broadband service beyond our current coverage area, giving rural communities access to the very latest mobile broadband technology. for real-time management of chronic health conditions. Home energy systems will be linked to...

  • Page 16
    ... power of our networks, technology and people to create long-term business value while addressing critical unmet needs of our communities in smart energy and health care. Shared Service / Philanthropy Align our philanthropic assets domestically and internationally to deliver shared solutions in...

  • Page 17
    ... to make the world a better place as we use these tools to find solutions to issues like health care, sustainability, smart grids and the like. We're working hard to bring these efforts into the mainstream and leverage what we do best." Lowell McAdam Chairman and Chief Executive Officer Verizon...

  • Page 18
    ... of digital health care products to overcome these roadblocks, using our 4G LTE network, smartphones, tablets and advanced video technology to enable virtual visits between patients and health care providers. In one such venture, Verizon Wireless is working with health insurance provider WellPoint...

  • Page 19
    ... scaled across the health care system using our advanced wireless and fiber-optic networks. Bringing Technology Solutions to Education Education is another market ripe for transformation through the strategic use of technology. Mobile broadband can spread scarce educational resources across a wide...

  • Page 20
    ... telehealth technologies to improve health care access and services. Verizon has also partnered with the University of Virginia to provide high-speed Internet and wireless connectivity for telemedicine services at the Remote Area Medical clinic that is held in Wise County each year. In 2011, over...

  • Page 21
    ... them. We're using philanthropy to plant the seeds of innovation and cultivate the creative thinking that will spread the benefits of technology broadly across society. To view the Verizon Corporate Responsibility report online featuring additional content, go to responsibility.verizon.com/2011. 19

  • Page 22
    ... Y Verizon is working with Duke Energy to provide the network that connects the digital meters, signs and media players used in "Envision: Charlotte," a program to make the commercial buildings in Charlotte's urban core more energy efficient. Using data and graphic displays about energy consumption...

  • Page 23
    ... is making every part of this system smarter. And the bigger the role of communications in addressing our long-term energy challenges, the bigger the opportunity for Verizon to be part of the solution. To view the Verizon Corporate Responsibility report online featuring additional content, go to...

  • Page 24
    ... advantage. WHO WE aRE We have work because our customers value our high-quality communications services. We deliver superior customer experiences through our products and our actions. Everything we do we build on a strong network, systems and process foundation. The quality and reliability of...

  • Page 25
    ...dealing with our customers, suppliers, owners and competitors. Our competitors are not enemies; they are challengers who drive us to improve. We are good corporate citizens and share our success with the community to make the world in which we work better than it was yesterday. We know that bigness...

  • Page 26
    ... of energy. In this way, we can adequately assess how we are becoming more energy efficient, even as our business expands. 381,413 199,859 5,061,414 5,642,686 6.76% 3.54% 89.79% 100% verizon's alternative-Fuel vehicles 2011 Active Total 2010 Active 2,569 1,902 hopeline 2011 Phones Collected...

  • Page 27
    ... and Analysis of Financial Condition and Results of Operations" section. • 2008 and 2007 data includes sales of businesses, severance, pension and benefit charges, merger integration costs, and other items. Stock Performance Graph Comparison of Five-Year Total Return Among Verizon, S&P 500...

  • Page 28
    ...44% of our retail postpaid phone base, driving a 21% annual growth in data revenue, which accounts for 40% of Verizon Wireless' total service revenue. In 2010, we launched our fourth-generation (4G) Long-Term Evolution technology (LTE) mobile broadband network in 38 major markets, and as of January...

  • Page 29
    ... on expanding the penetration of our data services, 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...

  • Page 30
    ... We have two reportable segments, which we operate and manage as strategic business units and organize by products and services. Our segments are Verizon Wireless and Wireline. In "Segment Results of Operations," we review the performance of our two reportable segments. Corporate, eliminations and...

  • Page 31
    ... plans which provide our customers with access to web and e-mail via their wireless device. We have also experienced growth in data revenues for internet data devices such as tablets, USB modems and Jetpacks which also require service plans allowing access to data services. Voice revenue decreased...

  • Page 32
    ... and costs caused by storm-related events as well as higher sales commission expense at our Verizon Wireless segment. Partially offsetting the increase was the absence of merger integration and acquisition related charges and access line spin-off charges during 2011 and a decrease in compensation...

  • Page 33
    ... related charges Cost of services and sales Selling, general and administrative expense Total non-operating charges included in operating expenses $ 2011 - 5,954 5,954 2010 $ 1,723 1,331 3,054 2009 $ 1,443 (3) 1,440 to capital expenditures and acquisitions that occurred in prior years, as well...

  • Page 34
    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 2011 $ 3,269 442 $ 2,827 $ 55,629 5.9...

  • Page 35
    ... monthly in arrears. Our prepaid service enables individuals to obtain wireless data and voice services without a long-term contract or credit verification by paying in advance. All financial results included in the tables below reflect the consolidated results of Verizon Wireless. operating revenue...

  • Page 36
    ... particular for higher-tier data service plans which provide our customers with access to web and e-mail via their wireless device. We have also experienced growth in data revenues from the use of internet data devices such as tablets, USB modems and Jetpacks. Voice revenue decreased as a result of...

  • Page 37
    ...of services increased during 2011 due to higher wireless network costs resulting from an increase in local interconnection costs related to additional Evolution-Data Optimized (EV-DO) capacity to meet expected data usage demands as well as an increase in Ethernet facilities costs that support the 4G...

  • Page 38
    ... and analYsis OF Financial cOnditiOn and REsults OF OPERatiOns continued Wireline The Wireline segment provides customers with voice service including long distance, broadband video and data, IP network services, network access and other services. We provide these products and services to consumers...

  • Page 39
    ... decreased revenues from the sale of customer premise equipment. Strategic services revenue increased $1.0 billion, or 15.2%, during 2011 compared to 2010 primarily due to growth in advanced services, such as managed network, call center, IP communications and our cloud offerings. Strategic services...

  • Page 40
    ... Sales Cost of services and sales decreased during 2011 compared to 2010 due to a decrease in access costs resulting primarily from management actions to reduce exposure to unprofitable international wholesale routes and declines in overall wholesale long distance volumes, as well as lower pension...

  • Page 41
    ... related tax benefits recognized in its financial statements in the period during which the Health Care Act was enacted. As a result, Verizon recorded a one-time, non-cash income tax charge of $1.0 billion in the first quarter of 2010 to reflect the impact of this change. other Debt Redemption Costs...

  • Page 42
    ... in working capital related in part to management of inventory and the timing of tax payments. Partially offsetting these increases were lower operating cash flows at Wireline, as well as a lower net distribution from Vodafone Omnitel. Years Ended December 31, Verizon Wireless Wireline Other Total...

  • Page 43
    ...November 2009, Verizon Wireless and Verizon Wireless Capital LLC, completed an exchange offer to exchange the privately placed notes issued in November 2008, and February and May 2009, for new notes with similar terms. Other, net The change in Other, net financing activities during 2011 compared to...

  • Page 44
    ..., 2011, Verizon Wireless cash and cash equivalents and debt outstanding totaled $12.3 billion and $11.6 billion, respectively. free cash flow Free cash flow is a non-GAAP financial measure that management believes is useful to investors and other users of Verizon's financial information in...

  • Page 45
    ...(5) Other long-term liabilities include estimated postretirement benefit and qualified pension plan contributions (see Note 11 to the consolidated financial statements). Guarantees In connection with the execution of agreements for the sale of businesses and investments, Verizon ordinarily provides...

  • Page 46
    ...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...

  • Page 47
    ..., as well as on the funded status due to an increase or a decrease in the actual versus expected return on plan assets as of December 31, 2011 and for the year then ended pertaining to Verizon's pension and postretirement benefit plans is provided in the table below. Percentage point change +0.50...

  • Page 48
    ... in cash, and Atlantic Tele-Network, Inc. acquired the remaining 26 Alltel Divestiture Markets, including licenses and network assets, for $0.2 billion in cash. See Note 2 to the consolidated financial statements for additional information relating to the above acquisitions and divestitures. 46

  • Page 49
    ...-rural high-cost areas, low income subscribers, schools and libraries and rural health care. The FCC's rules require tele communications companies including Verizon to pay into the Universal Service Fund (USF), which then makes distributions in support of the programs. Under the broad order issued...

  • Page 50
    ... 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...

  • Page 51
    ... 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...

  • Page 52
    ... 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. To The board...

  • Page 53
    ... the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. 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...

  • Page 54
    ...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 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...

  • Page 55
    ...) Contributed capital Reinvested earnings Accumulated other comprehensive income 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 3,448...

  • Page 56
    ... 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 Proceeds from access line spin-off Other...

  • Page 57
    ...) on marketable securities Defined benefit pension and postretirement plans Other comprehensive income Balance at end of year attributable to Verizon Treasury stock Balance at beginning of year Other (Note 10) Employee plans Shareowner plans Balance at end of year Deferred compensation-esoPs and...

  • Page 58
    ... (4G) Long-Term Evolution technology (LTE) networks of any U.S. wireless service provider. The Wireline segment provides customers with voice services, including long distance, broadband video and data, IP network services, network access and other services. We provide these products and services to...

  • Page 59
    ...tO cOnsOlidatEd Financial statEMEnts continued the amount that is not contingent upon providing additional services. For equipment sales, we currently subsidize the cost of wireless devices. The amount of this subsidy is generally contingent on the arrangement and terms selected by the customer. The...

  • Page 60
    ...network-related assets. Capitalized interest is reported as a reduction in interest expense and depreciated as part of the cost of the network-related assets. In connection with our ongoing review of the estimated remaining average useful lives of plant, property and equipment at our local telephone...

  • Page 61
    ... income. 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...

  • Page 62
    ... consolidated financial statements. NoTe 2 ACQUISITIONS AND DIVESTITURES Terremark Worldwide, Inc. During April 2011, we acquired Terremark Worldwide, Inc. (Terremark), a global provider of information technology infrastructure and cloud services, for $19 per share in cash. Closing and other direct...

  • Page 63
    ... to various conditions, including approval by the FCC and review by the Department of Justice (DOJ). These spectrum acquisitions are expected to close in 2012. In December 2011, we entered into commercial agreements with affiliates of Comcast Corporation, Time Warner Cable, Bright House Networks and...

  • Page 64
    ... Long-Term Evolution technology services. See Note 2 regarding the December 2011 agreement to acquire spectrum licenses. The average remaining renewal period of our wireless license portfolio was 6.4 years as of December 31, 2011 (see Note 1, Goodwill and Other Intangible Assets - Intangible Assets...

  • Page 65
    ... Total equity investees cost Investees Total investments in unconsolidated businesses ownership 23.1% Various 2011 $ 2,083 1,320 3,403 45 $ 3,448 $ $ 2010 At December 31, 2,002 1,471 3,473 24 3,497 Noncontrolling interests in consolidated subsidiaries: Verizon Wireless Wireless partnerships 2011...

  • Page 66
    ... Leases $ 171 157 140 119 95 102 784 Years 2012 2013 2014 2015 2016 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, 2011 Capital Leases $ 92 88 66 53 47 130 476...

  • Page 67
    ...,252 Verizon Wireless - notes payable and other Verizon Wireless - Alltel assumed notes Telephone subsidiaries - debentures Other subsidiaries - debentures and other Capital lease obligations (average rates of 6.3% and 6.8%, respectively) Unamortized discount, net of premium Total long-term debt...

  • Page 68
    ... 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, operations or revenues. Verizon...

  • Page 69
    ... at December 31, 2010 and the contracts were included in Other assets. In 2011, we terminated these forward interest rate swaps. Cross Currency Swaps During 2008, Verizon Wireless entered into cross currency swaps designated as cash flow hedges to exchange approximately $2.4 billion of British Pound...

  • Page 70
    ... 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. The Human Resources Committee of the Board of Directors determines the number of...

  • Page 71
    ...during 2011: ranges Risk-free rate Expected term (in years) Expected volatility 0.05% - 0.57% 0.02 - 1.50 29.47% - 48.30% Stock Options The Plan provides for grants of stock options to participants at an option price per share of no less than 100% of the fair market value of Verizon common stock on...

  • Page 72
    ... to time, and we may also periodically amend the benefits in the management plans. The following tables summarize 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...

  • Page 73
    ... Financial statEMEnts continued Net Periodic cost The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans: (dollars in millions) Years Ended December 31, Service cost Amortization of prior service cost (credit...

  • Page 74
    ...the assumed health care cost trend rate would have the following effects: (dollars in millions) One-Percentage Point Effect on 2011 service and interest cost Effect on postretirement benefit obligation as of December 31, 2011 Increase $ 199 3,422 Decrease $ (163) (2,768) Plan assets Historically...

  • Page 75
    ... discount and capitalization rates, financial conditions, local market conditions and the status of the capital markets, and thus are classified within Level 3. Private equity investments include those in limited partnerships that invest in operating companies that are not publicly traded on a stock...

  • Page 76
    nOtEs tO cOnsOlidatEd Financial statEMEnts continued estimated future benefit Payments The benefit payments to retirees are expected to be paid as follows: (dollars in millions) Year 2012 2013 2014 2015 2016 2017-2021 Health care and Life Prior to medicare Prescription Pension benefits Drug ...

  • Page 77
    ... federal income tax rate: Years Ended December 31, Statutory federal income tax rate State and local income tax rate, net of federal tax benefits Affordable housing credit Employee benefits including ESOP dividend Medicare Part D subsidy charge Equity in earnings from unconsolidated businesses...

  • Page 78
    ...527 Verizon and/or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. As a large taxpayer, we are under audit by the Internal Revenue Service (IRS) and multiple state and foreign jurisdictions on numerous open tax positions...

  • Page 79
    ... data services and equipment sales, which are provided to consumer, business and government customers across the United States. Wireline's communications products and services include voice, Internet access, broadband video and data, Internet protocol network services, network access, long distance...

  • Page 80
    ... cOnsOlidatEd Financial statEMEnts continued (dollars in millions) 2010 External Operating Revenues Retail service Other service Service revenue Equipment Other Consumer retail Small business Mass Markets Strategic services Other Global Enterprise Global Wholesale Other Intersegment revenues Total...

  • Page 81
    ...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 revenues during the years ended December 31, 2011, 2010 and 2009. International operating revenues and long-lived assets are not...

  • Page 82
    ... change in prior service cost. The change in Defined benefit pension and postretirement plans of $2.5 billion, net of taxes of $1.2 billion at December 31, 2010 was attributable to the change in prior service cost. The change was impacted by a change to our Medicare Part D strategy, resulting in the...

  • Page 83
    ... that follow provide additional financial information related to our consolidated financial statements: Income statement Information (dollars in millions) Years Ended December 31, Depreciation expense Interest costs on debt balances Capitalized interest costs Advertising expense $ 2011 14,991...

  • Page 84
    ...to purchase programming services from television networks and broadcast stations have no minimum volume requirement, we estimated our obligation based on number of subscribers at December 31, 2011, and applicable rates stipulated in the contracts in effect at that time. We also purchase products and...

  • Page 85
    ... quarter of 2010 include after-tax charges attributable to Verizon of $2.8 billion related to severance, pension and benefit charges, merger integration and acquisition costs, access line spin-off charges, and a one-time non-cash adjustment to wireless data revenues. • Results of operations for...

  • Page 86
    ... and Chief Executive Officer Verizon Communications Inc. 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 clarence...

  • Page 87
    ... funds transfer service to registered shareowners wishing to deposit dividends directly into savings or checking accounts on dividend payment dates. Direct Invest stock Purchase and ownership Plan - Verizon offers a direct stock purchase and share ownership plan. The plan allows current and new...

  • Page 88
    verizon Communications inc. 140 west Street new york, new york 10007 212 395-1000 verizon.com © 2012. Verizon. all rights reserved. 002csN0500