EX-99 2 dex99.htm PRESS RELEASE AND FINANCIAL TABLES Press release and financial tables

Exhibit 99

 

NEWS RELEASE

 

LOGO

 

FOR IMMEDIATE RELEASE    Media contacts:
January 26, 2006    Peter Thonis
     212-395-2355
     peter.thonis@verizon.com
     Bob Varettoni
     212-395-7726
     robert.a.varettoni@verizon.com

 

Verizon Communications Reports Strong 4Q 2005 Results,

Driven by Continued Growth in Wireless and Broadband

 

Industry-Record Broadband Net Adds and Wireless Record Growth and Margins

Fuel 4Q Revenues of $19.3 Billion, Annual Revenues of $75.1 Billion

 

2005 HIGHLIGHTS

 

Financial Performance

 

  •   Fourth-quarter diluted earnings per share of 59 cents, or 64 cents per share before special items (non-GAAP measure); 2005 earnings per share of $2.65, or $2.56 per share before special items (non-GAAP)

 

  •   Fourth-quarter consolidated operating revenues of $19.3 billion, up 6.7 percent on a comparable basis (non-GAAP) from fourth quarter 2004; 2005 revenues of $75.1 billion

 

  •   $22.0 billion in 2005 Cash Flows From Operations

 

Operational Performance

 

  •   Verizon Wireless fourth-quarter results: Industry-record 2.0 million net customer additions, up 20.5 percent from fourth quarter 2004; 51.3 million total customers, up 17.2 percent from 2004; repeat record-low quarterly churn (customer turnover) of 1.2 percent; total revenues up 18.3 percent from fourth quarter 2004; EBITDA margin (non-GAAP) of 46.8 percent

 

  •   Wireline fourth-quarter results: Industry-record 613,000 net new broadband connections (DSL and Verizon FiOS data lines); 5.1 million total broadband connections, up 47.6 percent from 2004; total data revenues up 9.0 percent from fourth quarter 2004; average monthly revenue per residential customer up 3.9 percent to $51.50

Verizon News Release, page 2

 

Notes: Reclassifications of prior-period amounts have been made to reflect comparable results excluding Verizon’s Hawaii wireline and directory operations, which were sold in the second quarter 2005. See the schedules accompanying this news release and www.verizon.com/investor for reconciliations to generally accepted accounting principles (GAAP) for the non-GAAP financial measures included in this announcement. Discontinued operations in the prior-year periods presented include the operations of Verizon Information Services Canada.

 

NEW YORK — Verizon Communications Inc. (NYSE:VZ) today reported strong fourth-quarter and year-end 2005 results, highlighted by an industry-record quarterly total for net new wireline broadband connections, as well as continued record growth and sustained margins at Verizon Wireless.

 

For the fourth quarter 2005, Verizon reported earnings of $1.7 billion, or 59 cents per diluted share, compared with $3.0 billion, or $1.08 per share, in the fourth quarter 2004. Reported earnings in the fourth quarter 2005 include non-recurring net expenses for previously announced changes to management retirement benefit plans, as well as severance and relocation costs. The fourth quarter 2004 principally included non-recurring gains from sales of non-strategic assets and tax benefits.

 

Before special items, earnings were 64 cents per share in both the fourth quarter 2005 and the fourth quarter 2004.

 

For the year, Verizon reported earnings of $7.4 billion, or $2.65 per share, in 2005, compared with $7.8 billion, or $2.79 per share, in 2004. Before special items, earnings were $7.2 billion, or $2.56 per share, in 2005, compared with $7.0 billion, or $2.51 per share, in 2004.

 

‘Strategies Taking Root’

 

“Verizon finished the year strongly, and as we begin 2006 our strategies are taking root,” said Ivan Seidenberg, Verizon chairman and CEO. “We continue to grow what is already a great customer base — especially as we continue to introduce innovations in wireless and broadband services.

Verizon News Release, page 3

 

“At the same time, we are investing in our powerful networks to position Verizon for additional growth in the future. We see real momentum in these growth initiatives, and we look forward to seizing the opportunities we see in the large-business market with our new Verizon Business unit.”

 

Continued Revenue Gains

 

Quarterly consolidated operating revenues reached $19.3 billion in the fourth quarter 2005. On a comparable basis (non-GAAP, excluding revenues in both periods from operations that Verizon sold in 2005), consolidated operating revenues increased 6.7 percent from $18.1 billion in the fourth quarter 2004.

 

Verizon’s growth businesses — wireless, broadband, data and long-distance services — contributed 59.6 percent to fourth-quarter 2005 revenues, compared with a 54.9 percent contribution to fourth-quarter 2004 revenues.

 

Annual consolidated operating revenues were $75.1 billion in 2005, or $74.9 billion excluding revenues from operations since sold. On a comparable basis, this is a revenue increase of 6.0 percent from $70.7 billion in 2004.

 

Total operating expenses were $15.6 billion in the fourth quarter 2005 and $60.3 billion for the full year, up 4.8 percent and 3.7 percent, respectively, from the similar periods in 2004.

 

Growth in Total Customer Connections

 

Verizon’s total customer connections — which include wireline switched access lines, wireless customers, and wireline and wireless customers using broadband connections (EV-DO, DSL or FiOS) — increased to 105.3 million at the end of the fourth quarter 2005. This is an

Verizon News Release, page 4

 

increase of 5.7 percent compared with the fourth quarter 2004, and an increase of 1.8 million customer connections compared with the end of the third quarter 2005.

 

Switched access lines totaled 48.8 million at the end of the fourth quarter 2005, a decline of 6.7 percent compared with the end of the fourth quarter 2004. This has been more than offset by increases of 47.6 percent in wireline broadband connections and 17.2 percent in total wireless customers over the same period.

 

Continued Solid Margins, Cash Flows

 

Verizon’s consolidated operating income margin was 19.2 percent in the fourth quarter 2005, compared with 18.4 percent in the fourth quarter 2004. When adjusted to exclude the special and non-recurring items as well as net pension and OPEB (other post-retirement benefits) impact, Verizon’s consolidated operating income margin would have been 22.1 percent in the fourth quarter 2005 and 20.2 percent in the fourth quarter 2004 (non-GAAP measures) — the fourth consecutive quarter of gains in consolidated margins.

 

Cash Flows From Operations were $22.0 billion in 2005, compared with $21.8 billion in 2004. In 2005, net cash used in investing activities was $18.5 billion, including $15.3 billion in capital expenditures. Net cash used in financing activities was $5.0 billion.

 

Verizon’s total debt decreased $0.3 billion compared with year-end 2004, to $39.0 billion at year-end 2005.

 

Wireless Builds on Momentum of Sustained Strong Performance

 

At Verizon Wireless, record growth and profitability in the fourth quarter 2005 built on the momentum of its sustained strong performance, quarter after quarter. This was the 14th consecutive quarter of double-digit, year-over-year revenue growth; the seventh consecutive

Verizon News Release, page 5

 

quarter that the company added more than 1.5 million customers, and the fourth consecutive quarter of EBITDA margins of more than 40 percent.

 

Verizon Wireless added 7.5 million net new customers over the last 12 months and now has 51.3 million customers nationwide.

 

The company continued to set records for low churn, a key measure of customer loyalty, with total churn of 1.2 percent for the fourth quarter 2005 (matching the company’s previous quarterly record) and 1.3 percent for the year. Churn among the company’s 47 million retail postpaid customers was even lower — 1.0 percent for the quarter and 1.1 percent for the year.

 

Verizon Wireless revenues were $8.7 billion in the fourth quarter 2005, an 18.3 percent increase compared with $7.3 billion in the fourth quarter 2004 — driven by continued strong customer growth and demand for data services. Full-year 2005 wireless revenues were $32.3 billion, an increase of 16.8 percent compared with 2004.

 

Wireless operating income margins were 25.8 percent for the fourth quarter and 22.8 percent for the year, the result of the company’s continued focus on managing costs and efficiencies as it added record numbers of customers.

 

Wireless EBITDA margins were 46.8 percent for the fourth quarter and 43.2 percent for the year. (EBITDA — or earnings before interest, taxes, depreciation and amortization — is a non-GAAP measure that adds depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by wireless service revenues.)

 

Record Wireline Broadband Growth

 

Verizon’s wireline business segment added a net of 613,000 wireline broadband connections in the fourth quarter 2005. This is a broadband industry record, topping any prior quarterly total posted by a telecommunications or cable company.

Verizon News Release, page 6

 

This brings the company’s year-end total to 5.1 million wireline broadband connections, representing 1.7 million net additions in 2005 — a growth rate of 47.6 percent compared with year-end 2004. Wireline broadband connections include totals for both DSL and FiOS, Verizon’s next-generation, fiber-optic-based service.

 

Operating revenues on a comparable basis at Domestic Telecom were $9.4 billion in the fourth quarter 2005, a 1.8 percent decrease compared with the fourth quarter 2004. For the year, comparable wireline operating revenues were $37.6 billion, a 1.1 percent decrease compared with 2004.

 

Revenues from DSL and FiOS data contributed to total wireline data revenues of $2.2 billion in the fourth quarter 2005, a 9.0 percent increase compared with the fourth quarter 2004. For the year, data revenues of $8.5 billion grew 10.5 percent compared with 2004 and now represent 23.4 percent of total wireline revenues, up from 21.1 percent at the end of 2004.

 

Long-distance services including regional toll services, another wireline growth area, contributed $1.1 billion to total wireline revenues in the fourth quarter 2005 and $4.3 billion in the full year, up 2.7 percent and 5.0 percent, respectively, compared with the similar periods in 2004.

 

Operating income margin for the wireline segment was 11.1 percent in fourth quarter 2005 and 12.7 percent for the year, compared with 15.0 percent and 14.9 percent in the similar periods in 2004. When adjusted to exclude the net pension and OPEB impact, wireline’s operating income margin would have been 14.5 percent in the fourth quarter 2005 and 16.1 percent for the year, compared with 17.1 percent and 17.0 percent in the similar periods in 2004 (non-GAAP measures). For 2006, Verizon is targeting comparable annual operating income margins of about 16 percent.

Verizon News Release, page 7

 

Consistent with past practice, Verizon believes that excluding the impact of net pension and OPEB expenses or credits enhances comparability, providing a better picture of operating cost management.

 

Earnings Comparisons and Special Items

 

Verizon’s reported fourth-quarter 2005 earnings of $1.7 billion, or 59 cents per share, primarily included non-recurring expenses of $59 million, or 2 cents per share, to recognize the net effect of the restructuring of management retirement benefit plans announced in December 2005, and 1 cent per share in expenses each for a voluntary severance program for union-represented employees ($36 million) and for net relocation costs associated with the new Verizon Center in New Jersey ($29 million).

 

Fourth-quarter 2004 earnings of $1.08 per share included net gains of $1.0 billion, or 36 cents per share, from the sales of Verizon Information Services Canada and Verizon’s investment stake in TELUS Corp.; and tax benefits of $234 million, or 8 cents per share, from previous investment-related losses.

 

Verizon’s reported year-end 2005 earnings of $7.4 billion, or $2.65 per share, also included non-recurring gains of $336 million each, or 12 cents per share each, related to the sale of wireline and directory operations in Hawaii, and for tax benefits recognized on prior-year investment losses. These gains were partially offset by net tax expense of $206 million, or 7 cents per share, for the repatriation of foreign earnings, as well as asset impairments at Verizon’s leasing operations and other costs of $133 million, or 5 cents per share.

 

Reported year-end 2004 earnings of $7.8 billion, or $2.79 per share, also included $499 million, or 18 cents per share, in severance-related charges, partially offset by a $43 million, or 2 cents per share, gain on the sale of an investment.

Verizon News Release, page 8

 

Net pension and OPEB costs reduced Verizon’s earnings by 30 cents per share in 2005, compared with 21 cents per share in 2004. The earnings dilution from FiOS was 15 cents per share in 2005, compared with 4 cents per share in 2004.

 

2006 Guidance Items

 

In 2006, Verizon expects that net pension and OPEB costs will reduce earnings by 34 cents to 36 cents per share, compared with the 30 cents per share noted above.

 

Regarding 2006 capital spending, the company reiterated previous guidance of from $15.4 billion to $15.7 billion, excluding capital related to Verizon’s recently closed merger with MCI, Inc. Verizon announced today that, with MCI, total 2006 capital spending is expected to be from $17.0 billion to $17.4 billion. This includes about $550 million in integration capital in 2006 to improve efficiencies and help achieve merger synergies, which have a net present value of approximately $8 billion in incremental revenues and operational savings, including investments in network and systems to achieve these savings.

 

Network savings represent nearly half of the synergies, as bringing traffic onto Verizon’s networks is expected to save more than $200 million in 2006. Workforce reductions and information technology savings each represent about 20 percent of the synergy totals.

 

Verizon Business

 

Related to the merger closing, Verizon Business — the industry’s new provider of advanced communications and information technology solutions to large businesses and government - earlier this week unveiled a robust line of integrated services, including new integrated wireless and wireline network access offerings.

Verizon News Release, page 9

 

Business Segment Highlights

 

Following are highlights from Verizon’s 2005 business segments.

 

Wireline:

 

  •   By the end of 2005, the company was deploying or selling FiOS fiber-to-the-premises (FTTP) broadband data services in 16 states, passing a cumulative 3 million homes and businesses. In markets where Verizon has been selling FiOS data services for at least nine months, the average penetration rate at the nine-month mark was 14 percent.

 

  •   Verizon has franchises covering 1 million households for FiOS video services. Market penetration in Keller, Texas — Verizon’s first video market — is 21 percent in four months. Verizon announced it had begun sales of FiOS video in markets in Massachusetts and New York earlier this week, and it expects to announce sales in a California market shortly.

 

  •   Approximately 65 percent of Verizon residential customers have purchased local services in combination with either Verizon long-distance or a Verizon broadband connection, or both. This compares with approximately 55 percent in the fourth quarter 2004. In addition, Verizon now has nearly 350,000 customers who receive a Verizon DirecTV bundle.

 

  •   Consumer demand for value-added services has increased average monthly revenue per wireline customer to $51.50, up 3.9 percent from the fourth quarter 2004.

 

  •   Approximately 5.5 million Verizon Freedom packages were in service to residential and business customers by the end of the fourth quarter 2005, an increase of 1.1 million since the end of the fourth quarter 2004. Verizon Freedom plans help retain and win back customers by offering local services with various combinations of long-distance, wireless and Internet access, available on one bill. Freedom packages for business customers have passed the 1 million mark and are up 38 percent since year-end 2004.

 

  •   Wholesale voice connections — which includes resale, Unbundled Network Element-Platform (UNE-P) and end-to-end wholesale voice services provided under commercial agreements — totaled 5.5 million at the end of the fourth quarter 2005, down 16.1 percent from the end of the fourth quarter 2004. At the same time, continued growth from sales of wholesale special access products — such as high-speed DS1 and DS3 circuits — contributed to $2.1 billion in fourth-quarter 2005 wholesale revenues, an increase of 1.6 percent compared with the fourth quarter 2004.

 

  •   Comparing fourth quarter 2005 with fourth quarter 2004, consumer revenues were $3.8 billion, down 1.1 percent, and business revenues were $2.8 billion, down 4.4 percent.

Verizon News Release, page 10

 

  •   For the year, wireline total operating revenues were $37.6 billion, down 1.1 percent from 2004. Total operating expenses were $32.8 billion in 2005, up 1.4 percent from 2004.

 

Wireless:

 

  •   Retail gross additions increased 4.6 percent over the fourth quarter 2004. Retail net additions increased 15.4 percent, to 1.8 million of the company’s 2.0 million total net additions. Retail customers are 96 percent of the company’s customer base.

 

  •   Service revenues (which do not include taxes and regulatory fees) were $7.4 billion for the fourth quarter 2005, up 14.9 percent. For the year, service revenues were $28.1 billion, up 15.3 percent. Average monthly service revenue per customer was $49.36 for the quarter and $49.49 for the full year, down 1.9 percent and 1.5 percent, respectively, from the similar periods in 2004.

 

  •   Verizon Wireless continued to deliver industry-leading cost efficiency, even as it added a record-high volume of new customers. Cash expense per customer declined 2.9 percent for the full year and 13.7 percent, to $26.27, for the fourth quarter, achieving the company’s lowest-ever annual and quarterly per-customer expense levels.

 

  •   Data services revenues in 2005 more than doubled over the previous year, contributing $2.2 billion in revenues. In the fourth quarter, $731 million, or 9.8 percent, of service revenues came from data services, up from 5.6 percent in the prior year’s quarter. The company now has 23.7 million data customers — a 43 percent increase compared with 2004.

 

  •   Verizon Wireless, the first to build a national wireless broadband network, continued to extend the reach of its 3G EV-DO high-speed network. During the fourth quarter, the company expanded its award-winning broadband network to now include 180 major metropolitan areas covering approximately 150 million Americans coast to coast.

 

  •   More than 3.5 million customers had broadband-capable devices at the end of the fourth quarter 2005, as the company continued its stream of new broadband devices, including the first EV-DO enabled Motorola RAZR; Palm’s Treo 700, the first Windows Mobile-based Treo smartphone; and aircards embedded in laptops and PDAs from major manufacturers.

 

  •   The company’s broadband network also made possible its launch earlier this month of V CAST Music, the world’s most comprehensive mobile music service. Customers can download music over the air directly to their wireless phones and to their Windows XP PCs, and can transfer new and existing digital music from the PC to their wireless phone. Two new V CAST Music-capable handsets are available. One million songs will be available on V CAST Music by spring from artists at major music labels, Warner Music Group, EMI Music, Universal and Sony/BMG, and at independent providers, including The Orchard.

 

  •  

Usage of the company’s Get It Now services continued to climb, with an industry-leading 7.4 billion text messages during the fourth quarter. In addition, customers exchanged more

Verizon News Release, page 11

 

 

than 134 million picture and video messages and had nearly 35 million downloads of games, exclusive content, ringtones and ringback tones.

 

  •   During the fourth quarter, the company continued to expand and diversify its distribution channels with the opening of stores inside 117 BJ’s Wholesale Clubs, mainly in the Northeast. Customers can now purchase Verizon Wireless service and equipment at more than 2,000 Verizon Wireless communications stores including stores in Circuit City and BJ’s, and from 7,000 Verizon Wireless agents nationwide including Best Buy and Costco.

 

Information Services:

 

  •   Verizon Information Services’ (VIS) fourth-quarter operating revenues were $844 million, bringing full-year revenues to $3.45 billion, compared with $874 million and $3.55 billion in the fourth quarter and full-year 2004, respectively. This fourth-quarter decrease of 3.4 percent and full-year decrease of 2.7 percent were primarily driven by reductions in domestic print advertising revenue. However, reductions in total operating expenses have resulted in an improved operating income margin for both the fourth quarter and the full year when compared with the similar periods in 2004.

 

  •   In 2005, VIS’ domestic online directory and search service, SuperPages.com, achieved revenue growth of 18.4 percent compared with 2004, and Internet yellow pages searches increased 17.1 percent over the same period.

 

  •   In December, Verizon announced that it is exploring divesting VIS through a spin-off, sale or other strategic transaction.

 

International:

 

  •   Fourth-quarter revenues were $567 million, bringing full-year revenues to $2.2 billion, compared with $544 million and $2.0 billion in the fourth quarter and full-year 2004, respectively. The fourth-quarter increase of 4.2 percent was primarily driven by wireless growth in Puerto Rico and the Dominican Republic, partially offset by unfavorable foreign exchange rates in the Dominican Republic. The full-year increase of 8.9 percent primarily reflects favorable foreign exchange impacts in the Dominican Republic.

 

  •   During the fourth quarter, the second part of the Vodafone Omnitel share buyback was completed, resulting in Verizon receiving approximately $1.0 billion in proceeds before taxes. During the second quarter of 2005, the board of directors and shareowners of Vodafone Omnitel approved a share buyback in two parts — resulting in total cash proceeds before taxes of $2.2 billion for the year.

Verizon News Release, page 12

 

Verizon Communications Inc. (NYSE:VZ), a Dow 30 company, is a leader in delivering broadband and other communication innovations to wireline and wireless customers. Verizon operates America’s most reliable wireless network, serving 51.3 million customers nationwide; one of the most expansive wholly-owned global IP networks; and one of the nation’s premier wireline networks, serving home, business and wholesale customers. Based in New York, Verizon has a diverse workforce of approximately 250,000 and generates annual consolidated operating revenues of approximately $90 billion. For more information, visit www.verizon.com.

 

####

 

VERIZON’S ONLINE NEWS CENTER: Verizon news releases, executive speeches and biographies, media contacts, high quality video and images, and other information are available at Verizon’s News Center on the World Wide Web at www.verizon.com/news. To receive news releases by e-mail, visit the News Center and register for customized automatic delivery of Verizon news releases.

 

NOTE: This press release contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. 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 could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: materially adverse changes in economic and industry conditions and 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; material changes in available technology; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final results of federal and state regulatory proceedings concerning our provision of retail and wholesale services and judicial review of those results; the effects of competition in our markets; the timing, scope and financial impacts of our deployment of fiber-to-the-premises broadband technology; the ability of Verizon Wireless to continue to obtain sufficient spectrum resources; 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; and the extent and timing of our ability to obtain revenue enhancements and cost savings following our business combination with MCI, Inc.

Verizon Communications Inc.

Consolidated Statements of Income

 

                       (dollars in millions, except per share amounts)  

Unaudited

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     % Change
     12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
     % Change
  

Operating Revenues

    $ 19,326     $ 18,263     5.8     $ 75,112     $ 71,283     5.4  

Operating Expenses

                                             

Cost of services and sales

      6,552       6,064     8.0       25,469       23,168     9.9  

Selling, general & administrative expense

      5,494       5,281     4.0       21,312       21,088     1.1  

Depreciation and amortization expense

      3,573       3,565     .2       14,047       13,910     1.0  

Sales of businesses, net

      —         —       —         (530 )     —         *
    
 
       
 
     

Total Operating Expenses

      15,619       14,910     4.8       60,298       58,166     3.7  

Operating Income

      3,707       3,353     10.6       14,814       13,117     12.9  

Equity in earnings of unconsolidated businesses

      134       1,056     (87.3 )     689       1,691     (59.3 )

Income from other unconsolidated businesses

      35       1       *     92       75     22.7  

Other income and (expense), net

      (11 )     42       *     237       22       *

Interest expense

      (540 )     (575 )   (6.1 )     (2,180 )     (2,384 )   (8.6 )

Minority interest

      (955 )     (574 )   66.4       (3,045 )     (2,409 )   26.4  
    
 
       
 
     

Income Before Provision for Income Taxes and Discontinued Operations

      2,370       3,303     (28.2 )     10,607       10,112     4.9  

Provision for income taxes

      (712 )     (786 )   (9.4 )     (3,210 )     (2,851 )   12.6  
    
 
       
 
     

Income Before Discontinued Operations

      1,658       2,517     (34.1 )     7,397       7,261     1.9  

Discontinued Operations(1)

                                             

Income from operations

      —         1,027     (100.0 )     —         1,116     (100.0 )

Provision for income taxes

      —         (505 )   (100.0 )     —         (546 )   (100.0 )
    
 
       
 
     

Income on discontinued operations

      —         522     (100.0 )     —         570     (100.0 )
    
 
       
 
     

Net Income

    $ 1,658     $ 3,039     (45.4 )   $ 7,397     $ 7,831     (5.5 )
    
 
       
 
     

Basic Earnings per Share

    $ .60     $ 1.10     (45.5 )   $ 2.67     $ 2.83     (5.7 )

Weighted average number of common shares (in millions)

      2,764       2,770             2,766       2,770        

Diluted Earnings per Share(2)

    $ .59     $ 1.08     (45.4 )   $ 2.65     $ 2.79     (5.0 )

Weighted average number of common shares-assuming dilution (in millions)

      2,816       2,823             2,817       2,831        

 

Footnotes:

 

(1) Discontinued Operations includes the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004.

 

(2) Diluted Earnings per Share include (i) income related to share dilution (exchangeable equity interests and zero coupon convertible debt) of $17 million and $60 million for the fourth quarter and year-to-date 2005, respectively, and $14 million and $68 million for the fourth quarter and year-to-date 2004, respectively, and (ii) the dilutive effect of shares issuable under our stock-based compensation plans, exchangeable equity interests and zero coupon convertible debt, which represent the only potential dilution.

 

* Not meaningful

Verizon Communications Inc.

Consolidated Statements of Income Before Special Items

 

                       (dollars in millions, except per share amounts)  

Unaudited

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     % Change
     12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
     % Change
  

Operating Revenues(1)

                                             

Domestic Telecom

    $ 9,359     $ 9,533     (1.8 )   $ 37,616     $ 38,021     (1.1 )

Domestic Wireless

      8,686       7,342     18.3       32,301       27,662     16.8  

Information Services

      844       874     (3.4 )     3,452       3,549     (2.7 )

International

      567       544     4.2       2,193       2,014     8.9  

Other

      (130 )     (181 )   (28.2 )     (652 )     (558 )   16.8  
    
 
       
 
     

Total Operating Revenues

      19,326       18,112     6.7       74,910       70,688     6.0  
    
 
       
 
     
                                              

Operating Expenses(1)

                                             

Cost of services and sales

      6,552       6,013     9.0       25,396       22,975     10.5  

Selling, general & administrative expense

      5,291       5,111     3.5       20,997       20,093     4.5  

Depreciation and amortization expense

      3,573       3,565     .2       14,047       13,881     1.2  
    
 
       
 
     

Total Operating Expenses

      15,416       14,689     4.9       60,440       56,949     6.1  
    
 
       
 
     

Operating Income

      3,910       3,423     14.2       14,470       13,739     5.3  

Operating income impact of operations sold(1)

      —         53     (100.0 )     78       202     (61.4 )

Equity in earnings of unconsolidated businesses

      134       269     (50.2 )     689       904     (23.8 )

Income from other unconsolidated businesses

      35       1       *     92       32     187.5  

Other income and (expense), net

      (7 )     42       *     251       77     226.0  

Interest expense

      (540 )     (575 )   (6.1 )     (2,180 )     (2,384 )   (8.6 )

Minority interest

      (955 )     (574 )   66.4       (3,045 )     (2,409 )   26.4  
    
 
       
 
     

Income Before Provision for Income Taxes and Discontinued Operations

      2,577       2,639     (2.3 )     10,355       10,161     1.9  

Provision for income taxes

      (798 )     (842 )   (5.2 )     (3,204 )     (3,180 )   .8  
    
 
       
 
     

Income Before Discontinued Operations

      1,779       1,797     (1.0 )     7,151       6,981     2.4  

Discontinued Operations(2)

                                             

Income from operations

      —         10     (100.0 )     —         99     (100.0 )

Provision for income taxes

      —         (4 )   (100.0 )     —         (45 )   (100.0 )
    
 
       
 
     

Income on discontinued operations

      —         6     (100.0 )     —         54     (100.0 )
    
 
       
 
     

Net Income Before Special Items

    $ 1,779     $ 1,803     (1.3 )   $ 7,151     $ 7,035     1.6  
    
 
       
 
     
                                              
                                              

Basic Earnings per Share

    $ .64     $ .65     (1.5 )   $ 2.59     $ 2.54     2.0  

Weighted average number of common shares (in millions)

      2,764       2,770             2,766       2,770        
                                              

Diluted Adjusted Earnings per Share(3)

    $ .64     $ .64     —       $ 2.56     $ 2.51     2.0  

Weighted average number of common shares-assuming dilution (in millions)

      2,816       2,823             2,817       2,831        

 

Footnotes:

 

(1)       Reclassifications of prior period amounts have also been made, where appropriate, to reflect comparable operating results

        excluding significant operations sold, principally the previously announced Domestic Telecom access lines, as follows:

 

 

        

            

        Revenues

    $ —       $ 151           $ 202     $ 595        

        Expenses

    $ —       $ 98           $ 124     $ 393        

 

(2)       Discontinued Operations includes the operations of Verizon Information Services Canada as a result of an agreement to

        sell the business reached in the third quarter of 2004.

 

(3)       Diluted Earnings per Share include (i) income related to share dilution (exchangeable equity interests and zero coupon

        convertible debt) of $17 million and $60 million for the fourth quarter and year-to-date 2005, respectively, and $14

        million and $68 million for the fourth quarter and year-to-date 2004, respectively, and (ii) the dilutive effect of shares

        issuable under our stock-based compensation plans, exchangeable equity interests and zero coupon convertible debt,

        which represent the only potential dilution.

 

*      Not meaningful

        

            

        

            

            

            

            

 

Verizon Communications Inc.

Consolidated Statements of Income - Reconciliations

 

     (dollars in millions, except per share amounts)  
    

3 Mos. Ended
12/31/05
Reported
(GAAP)

     Special and Non-Recurring Items
    

3 Mos. Ended
12/31/05
Before Special
Items

  

Unaudited

      Verizon Center
Relocation, Net
     Pension and
Benefit
Charges
     Severance
     Other Special
Items
     Tax on
Repatriated
Earnings
    

Operating Revenues

    $ 19,326     $ —       $ —       $ —       $ —       $ —       $ 19,326  

Operating Expenses

                                                         

Cost of services and sales

      6,552       —         —         —         —         —         6,552  

Selling, general & administrative expense

      5,494       (46 )     (98 )     (59 )     —         —         5,291  

Depreciation and amortization expense

      3,573       —         —         —         —         —         3,573  

Sales of businesses, net

      —         —         —         —         —         —         —    
    
 
 
 
 
 
 

Total Operating Expenses

      15,619       (46 )     (98 )     (59 )     —         —         15,416  
    
 
 
 
 
 
 

Operating Income

      3,707       46       98       59       —         —         3,910  

Operating income impact of operations sold

      —         —         —         —         —         —         —    

Equity in earnings of unconsolidated businesses

      134       —         —         —         —         —         134  

Income from other unconsolidated businesses

      35       —         —         —         —         —         35  

Other income and (expense), net

      (11 )     —                 —         4       —         (7 )

Interest expense

      (540 )     —         —         —         —         —         (540 )

Minority interest

      (955 )     —         —         —         —         —         (955 )
    
 
 
 
 
 
 

Income Before Provision for Income Taxes and Discontinued Operations

      2,370       46       98       59       4       —         2,577  

Provision for income taxes

      (712 )     (17 )     (39 )     (23 )     (2 )     (5 )     (798 )
    
 
 
 
 
 
 

Income Before Discontinued Operations

      1,658       29       59       36       2       (5 )     1,779  

Discontinued Operations

                                                         

Income from operations

      —         —         —         —         —         —         —    

Provision for income taxes

      —         —         —         —         —         —         —    
    
 
 
 
 
 
 

Income on discontinued operations

      —         —         —         —         —         —         —    
    
 
 
 
 
 
 

Net Income

    $ 1,658     $ 29     $ 59     $ 36     $ 2     $ (5 )   $ 1,779  
    
 
 
 
 
 
 

Basic Earnings per Common Share(1)

    $ .60     $ .01     $ .02     $ .01     $ —       $ —       $ .64  

Diluted Earnings per Common Share(1)

    $ .59     $ .01     $ .02     $ .01     $ —       $ —       $ .64  

 

 

     3 Mos. Ended
12/31/04
Reported
(GAAP)
     Special and Non-Recurring Items
     3 Mos. Ended
12/31/04
Before Special
Items
  

Unaudited

      Severance,
Pension and
Benefit Charges
     Impact of
Operations Sold
     Sales of
Businesses and
Investments, Net
     Tax Benefits
    

Operating Revenues

    $ 18,263     $ —       $ (151 )   $ —       $ —       $ 18,112  

Operating Expenses

                                                 

Cost of services and sales

      6,064       —         (51 )     —         —         6,013  

Selling, general & administrative expense

      5,281       (23 )     (47 )     (100 )     —         5,111  

Depreciation and amortization expense

      3,565       —         —         —         —         3,565  
    
 
 
 
 
 

Total Operating Expenses

      14,910       (23 )     (98 )     (100 )     —         14,689  
    
 
 
 
 
 

Operating Income

      3,353       23       (53 )     100       —         3,423  

Operating income impact of operations sold

      —         —         53       —         —         53  

Equity in earnings of unconsolidated businesses

      1,056       —         —         (787 )     —         269  

Income from other unconsolidated businesses

      1       —         —         —         —         1  

Other income and (expense), net

      42       —         —         —         —         42  

Interest expense

      (575 )     —         —         —         —         (575 )

Minority interest

      (574 )     —         —         —         —         (574 )
    
 
 
 
 
 

Income Before Provision for Income Taxes and Discontinued Operations

      3,303       23       —         (687 )     —         2,639  

Provision for income taxes

      (786 )     (9 )     —         187       (234 )     (842 )
    
 
 
 
 
 

Income Before Discontinued Operations

      2,517       14       —         (500 )     (234 )     1,797  

Discontinued Operations

                                                 

Income from operations

      1,027       —         —         (1,017 )     —         10  

Provision for income taxes

      (505 )     —         —         501       —         (4 )
    
 
 
 
 
 

Income on discontinued operations

      522       —         —         (516 )     —         6  
    
 
 
 
 
 

Net Income

    $ 3,039     $ 14     $ —       $ (1,016 )   $ (234 )   $ 1,803  
    
 
 
 
 
 

Basic Earnings per Common Share(1)

    $ 1.10     $ .01     $ —       $ (.37 )   $ (.08 )   $ .65  

Diluted Earnings per Common Share(1)

    $ 1.08     $ —       $ —       $ (.36 )   $ (.08 )   $ .64  

 

Footnote:

 

(1) EPS totals may not add across due to rounding.

 

Note: See www.verizon.com/investor for a reconciliation of other non-GAAP measures included in this Quarterly Bulletin.

Verizon Communications Inc.

Consolidated Statements of Income - Reconciliations

 

    (dollars in millions, except per share amounts)  
    12 Mos. Ended
12/31/05
Reported
(GAAP)
     Special and Non-Recurring Items
     12 Mos. Ended
12/31/05
Before Special
Items
  

Unaudited

     Sales of
Businesses,
Net
     Impact of
Operations Sold
    

Verizon

Center
Relocation,

Net

    

Lease

Impairment
and Other
Special
Items

     Tax Benefits
     Tax on
Repatriated
Earnings
  

Pension

and

Benefit
Charges

     Severance
    

Operating Revenues

   $ 75,112     $ —       $ (202 )   $ —       $ —       $ —       $ —     $ —       $ —       $ 74,910  

Operating Expenses

                                                                              

Cost of services and sales

     25,469       —         (73 )     —         —         —         —       —         —         25,396  

Selling, general & administrative expense

     21,312       —         (51 )     18       (125 )     —         —       (98 )     (59 )     20,997  

Depreciation and amortization expense

     14,047       —         —         —         —         —         —       —         —         14,047  

Sales of businesses, net

     (530 )     530       —         —         —         —         —       —         —         —    
   
 
 
 
 
 
 
 
 
 

Total Operating Expenses

     60,298       530       (124 )     18       (125 )     —         —       (98 )     (59 )     60,440  
   
 
 
 
 
 
 
 
 
 

Operating Income

     14,814       (530 )     (78 )     (18 )     125       —         —       98       59       14,470  

Operating income impact of operations sold

     —         —         78       —         —         —         —       —         —         78  

Equity in earnings of unconsolidated businesses

     689       —         —         —         —         —         —       —         —         689  

Income from other unconsolidated businesses

     92       —         —         —         —         —         —       —         —         92  

Other income and (expense), net

     237       —         —         —         14       —         —       —         —         251  

Interest expense

     (2,180 )     —         —         —         —         —         —       —         —         (2,180 )

Minority interest

     (3,045 )     —         —         —         —         —         —       —         —         (3,045 )
   
 
 
 
 
 
 
 
 
 

Income Before Provision for Income Taxes and Discontinued Operations

     10,607       (530 )     —         (18 )     139       —         —       98       59       10,355  

Provision for income taxes

     (3,210 )     194       —         10       (6 )     (336 )     206     (39 )     (23 )     (3,204 )
   
 
 
 
 
 
 
 
 
 

Income Before Discontinued Operations

     7,397       (336 )     —         (8 )     133       (336 )     206     59       36       7,151  

Discontinued Operations

                                                                              

Income from operations

     —         —         —         —         —         —         —       —         —         —    

Provision for income taxes

     —         —         —         —         —         —         —       —         —         —    
   
 
 
 
 
 
 
 
 
 

Income on discontinued operations

     —         —         —         —         —         —         —       —         —         —    
   
 
 
 
 
 
 
 
 
 

Net Income

   $ 7,397     $ (336 )   $ —       $ (8 )   $ 133     $ (336 )   $ 206   $ 59     $ 36     $ 7,151  
   
 
 
 
 
 
 
 
 
 

Basic Earnings per Common Share (1)

   $ 2.67     $ (.12 )   $ —       $ —       $ .05     $ (.12 )   $ .07   $ .02     $ .01     $ 2.59  

Diluted Earnings per Common Share (1)

   $ 2.65     $ (.12 )   $ —       $ —       $ .05     $ (.12 )   $ .07   $ .02     $ .01     $ 2.56  

 

     12 Mos. Ended
12/31/04
Reported
(GAAP)
     Special and Non-Recurring Items
     12 Mos. Ended
12/31/04
Before Special
Items
  

Unaudited

      Severance,
Pension and
Benefit
Charges
     Impact of
Operations Sold
     Sales of Business
and Investments,
Net
     Tax Benefits
     Other Special Items
    

Operating Revenues

    $ 71,283     $ —       $ (595 )   $ —       $ —       $ —       $ 70,688  

Operating Expenses

                                                         

Cost of services and sales

      23,168       —         (193 )     —         —         —         22,975  

Selling, general & administrative expense

      21,088       (815 )     (171 )     (100 )     —         91       20,093  

Depreciation and amortization expense

      13,910       —         (29 )     —         —         —         13,881  
    
 
 
 
 
 
 

Total Operating Expenses

      58,166       (815 )     (393 )     (100 )     —         91       56,949  
    
 
 
 
 
 
 

Operating Income

      13,117       815       (202 )     100       —         (91 )     13,739  

Operating income impact of operations sold

      —         —         202       —         —         —         202  

Equity in earnings of unconsolidated businesses

      1,691       —         —         (787 )     —         —         904  

Income from other unconsolidated businesses

      75       —         —         (43 )     —         —         32  

Other income and (expense), net

      22       —         —         —         —         55       77  

Interest expense

      (2,384 )     —         —         —         —         —         (2,384 )

Minority interest

      (2,409 )     —         —         —         —         —         (2,409 )
    
 
 
 
 
 
 

Income Before Provision for Income Taxes and Discontinued Operations

      10,112       815       —         (730 )     —         (36 )     10,161  

Provision for income taxes

      (2,851 )     (316 )     —         187       (234 )     34       (3,180 )
    
 
 
 
 
 
 

Income Before Discontinued Operations

      7,261       499       —         (543 )     (234 )     (2 )     6,981  

Discontinued Operations

                                                         

Income from operations

      1,116       —         —         (1,017 )     —         —         99  

Provision for income taxes

      (546 )     —         —         501       —         —         (45 )
    
 
 
 
 
 
 

Income on discontinued operations

      570       —         —         (516 )     —         —         54  
    
 
 
 
 
 
 

Net Income

    $ 7,831     $ 499     $ —       $ (1,059 )   $ (234 )   $ (2 )   $ 7,035  
    
 
 
 
 
 
 

Basic Earnings per Common Share (1)

    $ 2.83     $ .18     $ —       $ (.38 )   $ (.08 )   $ —       $ 2.54  

Diluted Earnings per Common Share (1)

    $ 2.79     $ .18     $ —       $ (.37 )   $ (.08 )   $ —       $ 2.51  

 

Footnote:

 

(1) EPS totals may not add across due to rounding.

 

Note: See www.verizon.com/investor for a reconciliation of other non-GAAP measures included in this Quarterly Bulletin.

Verizon Communications Inc.

Selected Financial and Operating Statistics

 

     (dollars in millions, except per share amounts)  

Unaudited

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
  

Debt to debt and shareowners’ equity ratio-end of period

      49.6 %     51.1 %     49.6 %     51.1 %

Book value per common share

    $ 14.36     $ 13.56     $ 14.36     $ 13.56  

Cash dividends declared per common share

    $ .405     $ .385     $ 1.62     $ 1.54  

Common shares outstanding (in millions)

                                

End of period

      2,763       2,770       2,763       2,770  

Capital expenditures (including capitalized software)

                                 

Domestic Telecom

    $ 2,051     $ 2,415     $ 8,267     $ 7,118  

Domestic Wireless

      1,522       1,512       6,484       5,633  

Information Services

      27       38       80       87  

International

      91       187       283       382  

Other

      81       30       210       39  
    
 
 
 

Total

    $ 3,772     $ 4,182     $ 15,324     $ 13,259  
    
 
 
 

Total employees (1)

      216,704       208,747       216,704       208,747  

 

Footnote:

 

(1) Prior period adjusted to reflect comparable figure.

Verizon Communications Inc.

Consolidated Balance Sheets

 

     (dollars in millions)  

Unaudited

    12/31/05
     12/31/04
     $ Change
  

Assets

                         

Current assets

                         

Cash and cash equivalents

    $ 776     $ 2,290     $ (1,514 )

Short-term investments

      2,498       2,257       241  

Accounts receivable, net

      9,171       9,801       (630 )

Inventories

      1,780       1,535       245  

Assets held for sale

      —         950       (950 )

Prepaid expenses and other

      2,223       2,646       (423 )
    
 
 

Total current assets

      16,448       19,479       (3,031 )
    
 
 

Plant, property and equipment

      193,610       185,522       8,088  

Less accumulated depreciation

      118,305       111,398       6,907  
    
 
 
       75,305       74,124       1,181  
    
 
 

Investments in unconsolidated businesses

      4,604       5,855       (1,251 )

Wireless licenses

      47,804       42,090       5,714  

Goodwill

      836       837       (1 )

Other intangible assets, net

      4,293       4,521       (228 )

Other assets

      18,840       19,052       (212 )
    
 
 

Total Assets

    $ 168,130     $ 165,958     $ 2,172  
    
 
 
                          
                          

Liabilities and Shareowners’ Investment

                         

Current liabilities

                         

Debt maturing within one year

    $ 7,141     $ 3,593     $ 3,548  

Accounts payable and accrued liabilities

      12,351       13,177       (826 )

Liabilities related to assets held for sale

      —         525       (525 )

Other

      5,571       5,834       (263 )
    
 
 

Total current liabilities

      25,063       23,129       1,934  
    
 
 

Long-term debt

      31,869       35,674       (3,805 )

Employee benefit obligations

      18,819       17,941       878  

Deferred income taxes

      22,411       22,532       (121 )

Other liabilities

      3,534       4,069       (535 )

Minority interest

      26,754       25,053       1,701  

Shareowners’ investment

                         

Common stock

      277       277       —    

Contributed capital

      25,369       25,404       (35 )

Reinvested earnings

      15,905       12,984       2,921  

Accumulated other comprehensive loss

      (1,783 )     (1,053 )     (730 )

Common stock in treasury, at cost

      (353 )     (142 )     (211 )

Deferred compensation - employee stock ownership plans and other

      265       90       175  
    
 
 

Total shareowners’ investment

      39,680       37,560       2,120  
    
 
 

Total Liabilities and Shareowners' Investment

    $ 168,130     $ 165,958     $ 2,172  
    
 
 

Verizon Communications Inc.

Condensed Consolidated Statements of Cash Flows

 

           (dollars in millions)  

Unaudited

   

12 Mos. Ended

12/31/05

    

12 Mos. Ended

12/31/04

     $ Change
  

Cash Flows From Operating Activities

                         

Net Income

    $ 7,397     $ 7,831     $ (434 )

Adjustments to reconcile net income to net cash provided by operating activities:

                         

Depreciation and amortization expense

      14,047       13,910       137  

Sales of businesses, net

      (530 )     —         (530 )

Gain on sale of discontinued operations

      —         (516 )     516  

Employee retirement benefits

      1,840       1,999       (159 )

Deferred income taxes

      (1,059 )     1,842       (2,901 )

Provision for uncollectible accounts

      1,290       1,181       109  

Income from unconsolidated businesses

      (781 )     (1,766 )     985  

Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses

      (2,410 )     (3,243 )     833  

Other, net

      2,218       582       1,636  
    
 
 

Net cash provided by operating activities

      22,012       21,820       192  
    
 
 

Cash Flows From Investing Activities

                         

Capital expenditures (including capitalized software)

      (15,324 )     (13,259 )     (2,065 )

Acquisitions, net of cash acquired, and investments

      (4,684 )     (1,196 )     (3,488 )

Proceeds from disposition of businesses

      1,326       117       1,209  

Proceeds from discontinued operations

      —         1,603       (1,603 )

Net change in short-term investments

      (344 )     (100 )     (244 )

Other, net

      534       2,492       (1,958 )
    
 
 

Net cash used in investing activities

      (18,492 )     (10,343 )     (8,149 )
    
 
 

Cash Flows From Financing Activities

                         

Proceeds from long-term borrowings

      1,487       514       973  

Repayments of long-term borrowings and capital lease obligations

      (3,919 )     (5,198 )     1,279  

Increase (decrease) in short-term obligations, excluding current maturities

      2,129       (783 )     2,912  

Dividends paid

      (4,427 )     (4,262 )     (165 )

Proceeds from sale of common stock

      37       320       (283 )

Purchase of common stock for treasury

      (271 )     (370 )     99  

Other, net

      (70 )     (77 )     7  
    
 
 

Net cash used in financing activities

      (5,034 )     (9,856 )     4,822  
    
 
 

Increase (decrease) in cash and cash equivalents

      (1,514 )     1,621       (3,135 )

Cash and cash equivalents, beginning of period

      2,290       669       1,621  
    
 
 

Cash and cash equivalents, end of period

    $ 776     $ 2,290     $ (1,514 )
    
 
 

Verizon Communications Inc.

Domestic Telecom – Selected Financial Results

 

                             (dollars in millions)  

Unaudited

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     % Change
     12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
     % Change
  

Operating Revenues

                                             

Local services

    $ 4,375     $ 4,496     (2.7 )   $ 17,600     $ 18,269     (3.7 )

Network access services

      3,071       3,018     1.8       12,217       12,058     1.3  

Long distance services

      1,081       1,053     2.7       4,347       4,141     5.0  

Other services

      832       966     (13.9 )     3,452       3,553     (2.8 )
    
 
       
 
     

Total Operating Revenues

      9,359       9,533     (1.8 )     37,616       38,021     (1.1 )
    
 
       
 
     

Operating Expenses

                                             

Cost of services and sales

      3,971       3,803     4.4       15,604       14,830     5.2  

Selling, general & administrative expense

      2,131       2,038     4.6       8,419       8,621     (2.3 )

Depreciation and amortization expense

      2,219       2,258     (1.7 )     8,801       8,910     (1.2 )
    
 
       
 
     

Total Operating Expenses

      8,321       8,099     2.7       32,824       32,361     1.4  
    
 
       
 
     

Operating Income

    $ 1,038     $ 1,434     (27.6 )   $ 4,792     $ 5,660     (15.3 )

Operating Income Margin

      11.1 %     15.0 %           12.7 %     14.9 %      

Segment Income

    $ 406     $ 704     (42.3 )   $ 1,906     $ 2,652     (28.1 )

 

Footnotes:

 

The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company’s chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature.

 

Intersegment  transactions have not been eliminated.

 

Certain reclassifications have been made, where appropriate, to reflect comparable operating results.

 

Verizon Communications Inc.

 

Domestic Telecom – Selected Operating Statistics

 

Unaudited

    3 Mos. Ended
12/31/05
    3 Mos. Ended
12/31/04
    % Change
     12 Mos. Ended
12/31/05
    12 Mos. Ended
12/31/04
    % Change
  

Switched access lines in service (000)

                                         

Residence

      30,902      33,725    (8.4 )     30,902      33,725    (8.4 )

Business

      17,509      18,143    (3.5 )     17,509      18,143    (3.5 )

Public

      392      421    (6.9 )     392      421    (6.9 )
    
  
        
  
      

Total

      48,803      52,289    (6.7 )     48,803      52,289    (6.7 )
    
  
        
  
      

Wholesale voice connections* (000)

      5,518      6,576    (16.1 )     5,518      6,576    (16.1 )

Minutes of use from Carriers and CLECs (in millions)

      50,365      53,413    (5.7 )     206,741      222,598    (7.1 )

Long distance lines (000)

      18,359      17,367    5.7       18,359      17,367    5.7  

Broadband connections (000)

      5,144      3,485    47.6       5,144      3,485    47.6  

High capacity and digital data revenues ($ in millions)

                                         

Data transport

    $ 1,970    $ 1,796    9.7     $ 7,660    $ 6,921    10.7  

Data solutions

      221      215    2.8       829      758    9.4  
    
  
        
  
      

Total revenues

    $ 2,191    $ 2,011    9.0     $ 8,489    $ 7,679    10.5  
    
  
        
  
      

 

Footnotes:

 

* Resale and UNE-P lines, including lines covered under commercial agreements.

Certain reclassifications have been made, where appropriate, to reflect comparable operating results.

Verizon Communications Inc.

Verizon Wireless – Selected Financial Results

 

                            (dollars in millions)

Unaudited

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     % Change
    12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
     % Change

Revenues

                                          

Service revenues

    $ 7,430     $ 6,467     14.9    $ 28,131     $ 24,400     15.3

Equipment and other

      1,256       875     43.5      4,170       3,262     27.8
    
 
      
 
   

Total Revenues

      8,686       7,342     18.3      32,301       27,662     16.8
    
 
      
 
   

Operating Expenses

                                          

Cost of services and sales

      2,494       2,128     17.2      9,393       7,747     21.2

Selling, general & administrative expense

      2,717       2,658     2.2      10,768       9,591     12.3

Depreciation and amortization expense

      1,236       1,181     4.7      4,760       4,486     6.1
    
 
      
 
   

Total Operating Expenses

      6,447       5,967     8.0      24,921       21,824     14.2
    
 
      
 
   

Operating Income

    $ 2,239     $ 1,375     62.8    $ 7,380     $ 5,838     26.4

Operating Income Margin

      25.8 %     18.7 %          22.8 %     21.1 %    

Segment Income

    $ 695     $ 396     75.5    $ 2,219     $ 1,645     34.9

Selected Operating Statistics

                                          

Subscribers (000)

      51,337       43,816     17.2      51,337       43,816     17.2

Penetration

      20.5 %     18.0 %          20.5 %     18.0 %    

Subscriber net adds in period(1) (000)

      2,046       1,698     20.5      7,521       6,294     19.5

Total churn rate, including prepaid

      1.2 %     1.4 %          1.3 %     1.5 %    

 

Footnotes:

 

The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company’s chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature.

 

Intersegment  transactions have not been eliminated.

 

(1) Includes acquisition of 4,000 subscribers in the 4th quarter of 2004 and 32,000 subscribers, 4,000 subscribers, 11,000 subscribers and 11,000 subscribers in the first, second, third and fourth quarters of 2005, respectively.

Verizon Communications Inc.

Information Services – Selected Financial Results

 

(dollars in millions)  

Unaudited

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     % Change
     12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
     % Change
  

Operating Revenues

    $ 844     $ 874     (3.4 )   $ 3,452     $ 3,549     (2.7 )

Operating Expenses

                                             

Cost of services and sales

      149       148     .7       593       542     9.4  

Selling, general & administrative expense

      281       336     (16.4 )     1,107       1,319     (16.1 )

Depreciation and amortization expense

      23       22     4.5       92       87     5.7  
    
 
       
 
     

Total Operating Expenses

      453       506     (10.5 )     1,792       1,948     (8.0 )
    
 
       
 
     

Operating Income

    $ 391     $ 368     6.3     $ 1,660     $ 1,601     3.7  

Operating Income Margin

      46.3 %     42.1 %           48.1 %     45.1 %      

Segment Income

    $ 246     $ 225     9.3     $ 1,044     $ 968     7.9  

 

Footnotes:

 

The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company’s chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature.

 

Intersegment transactions have not been eliminated.

 

Information Services results for the prior year exclude the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004. The sale was completed in the fourth quarter of 2004.

 

Certain reclassifications have been made, where appropriate, to reflect comparable operating results.

 

Verizon Communications Inc.

International – Selected Financial Results

 

(dollars in millions)  

Unaudited

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     % Change
     12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
     % Change
  

Operating Revenues

    $ 567     $ 544     4.2     $ 2,193     $ 2,014     8.9  

Operating Expenses

                                             

Cost of services and sales

      164       170     (3.5 )     707       626     12.9  

Selling, general & administrative expense

      184       120     53.3       675       471     43.3  

Depreciation and amortization expense

      85       87     (2.3 )     340       324     4.9  
    
 
       
 
     

Total Operating Expenses

      433       377     14.9       1,722       1,421     21.2  
    
 
       
 
     

Operating Income

    $ 134     $ 167     (19.8 )   $ 471     $ 593     (20.6 )

Operating Income Margin

      23.6 %     30.7 %           21.5 %     29.4 %      

Equity in Earnings of Unconsolidated Businesses

    $ 154     $ 305     (49.5 )   $ 807     $ 1,031     (21.7 )

Income from Other Unconsolidated Businesses

    $ —       $ —       —       $ 56     $ 31     80.6  

Segment Income

    $ 280     $ 338     (17.2 )   $ 1,251     $ 1,225     2.1  

 

Footnotes:

 

The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company’s chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature.

 

Intersegment transactions have not been eliminated.

Verizon Communications Inc.

Other Reconciliations

 

(dollars in millions)  

Unaudited    

    3 Mos. Ended
12/31/05
     3 Mos. Ended
12/31/04
     12 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/04
  

Operating Income Margin Excluding Special and Non-recurring Items and Net Pension/OPEB - Total Verizon

                                 

Operating Revenues

    $ 19,326     $ 18,263                  

Special and non-recurring items

      —         (151 )                
    
 
               

Adjusted Operating revenues

    $ 19,326     $ 18,112                  
    
 
               

Reported operating income

    $ 3,707     $ 3,353                  

Special and non-recurring items

      203       70                  

Net pension/OPEB expense

      353       238                  
    
 
               

Operating income excluding special and non-recurring items and net pension/OPEB

    $ 4,263     $ 3,661                  
    
 
               

Reported operating income margin

      19.2 %     18.4 %                

Operating income margin excluding special and non-recurring items and net pension/OPEB

      22.1 %     20.2 %                

Operating Income Margin Excluding Net Pension/OPEB - Domestic Telecom

                                 

Total operating revenues

    $ 9,359     $ 9,533     $ 37,616     $ 38,021  
    
 
 
 

Operating income

    $ 1,038     $ 1,434     $ 4,792     $ 5,660  

Net pension/OPEB expense

      317       200       1,248       803  
    
 
 
 

Operating income excluding net pension/OPEB

    $ 1,355     $ 1,634     $ 6,040     $ 6,463  
    
 
 
 

Operating income margin

      11.1 %     15.0 %     12.7 %     14.9 %

Operating income margin excluding net pension/OPEB

      14.5 %     17.1 %     16.1 %     17.0 %

Unaudited    

    3 Mos. Ended
12/31/05
                    

Domestic Wireless Cash Cost Per Customer

                                 

Domestic Wireless Cost of Services and Sales

    $ 2,494                          

Domestic Wireless Selling, General & Administrative Expense

      2,717                          

Less: Equipment and Other Revenue

      (1,256 )                        
    
                       

Cash Expense

    $ 3,955                          

Cumulative average subscribers (millions)

      150.54                          
    
                       

Cash Expense Per Subscriber

    $ 26.27                          
    
                       

Verizon Communications Inc.

Other Reconciliations

 

(dollars in millions)  

Unaudited

    3 Mos. Ended
12/31/05
     12 Mos. Ended
12/31/05
  

EBITDA - Verizon Wireless

                 

Segment income:

                 

Domestic Telecom

    $ 406     $ 1,906  

Verizon Wireless

      695       2,219  

Information Services

      246       1,044  

International

      280       1,251  
    
 

Total segments

      1,627       6,420  

Corporate and other

      31       977  
    
 

Consolidated net income

    $ 1,658     $ 7,397  
    
 

Verizon Wireless EBITDA

                 

Segment income

    $ 695     $ 2,219  

Add/subtract non-operating items:

                 

Provision for income taxes

      495       1,598  

Minority interest

      935       2,995  

Interest expense

      133       601  

Other income/(expense), net

      (4 )     (6 )

Equity in earnings of unconsolidated businesses

      (15 )     (27 )
    
 

Operating income

      2,239       7,380  

Add depreciation and amortization expense

      1,236       4,760  
    
 

Verizon Wireless EBITDA

    $ 3,475     $ 12,140  
    
 

Verizon Wireless total revenues

    $ 8,686     $ 32,301  
    
 

Verizon Wireless service revenues

    $ 7,430     $ 28,131  
    
 

Verizon Wireless operating income margin

      25.8 %     22.8 %
    
 

Verizon Wireless EBITDA margin

      46.8 %     43.2 %