10-QPeriod: Q3 FY2008

VERIZON COMMUNICATIONS INC Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 28, 2008For Securities:VZ

Summary

Verizon Communications Inc. reported solid financial results for the third quarter and first nine months of 2008, demonstrating resilience amidst evolving market conditions. Total operating revenues grew by 4.1% to $24.75 billion for the quarter and 4.4% to $72.71 billion for the nine-month period, primarily driven by robust performance in the Domestic Wireless segment. Net income for the quarter was $1.67 billion, a notable increase from $1.27 billion in the prior year, with diluted earnings per share of $0.59. The company continues to strategically invest in growth areas, particularly its wireless business and fiber optic network expansion (FiOS), while managing expenses through operational efficiencies. The company announced significant strategic moves, including the pending acquisition of Alltel Corporation for approximately $28.1 billion and the recent completion of the Rural Cellular Corporation acquisition. These transactions are aimed at strengthening Verizon's market position and expanding its network coverage. Despite these investments and ongoing integration costs, Verizon maintained a strong operational focus, reporting improved operating income for the nine-month period and continued dividend payments and share repurchases, signaling confidence in its long-term financial health.

Financial Highlights

27 data points
Beta

Revenue

$24.75B

59.4% Gross Margin

Net Income

$1.67B

6.7% Net Margin

EPS (Diluted)

$0.59

Cash & Equivalents

$696.00M

Free Cash Flow

$7.30B

Financial Statements
Beta
Revenue$24.75B
Cost of Revenue$10.05B
Gross Profit$14.70B
SG&A Expenses$6.88B
Operating Expenses$20.58B
Operating Income$4.17B
Interest Expense$440.00M
Net Income$1.67B
EPS (Basic)$0.59
EPS (Diluted)$0.59
Shares Outstanding (Basic)2.84B
Shares Outstanding (Diluted)2.85B

Key Highlights

  • 1Total operating revenues increased by 4.1% to $24.75 billion in Q3 2008, driven by a 12.5% surge in Domestic Wireless revenues.
  • 2Net income for the quarter rose to $1.67 billion from $1.27 billion in Q3 2007, with diluted EPS of $0.59.
  • 3The company announced the pending acquisition of Alltel Corporation for approximately $28.1 billion, and completed the acquisition of Rural Cellular Corporation.
  • 4Domestic Wireless segment operating income increased by 13.5% to $3.47 billion, reflecting strong growth in service and data revenues.
  • 5Wireline segment revenues saw a slight decline of 1.7% to $12.16 billion, impacted by lower demand for traditional voice services, though offset by broadband and strategic services growth.
  • 6Capital expenditures remained substantial, with $12.58 billion invested in the first nine months of 2008, primarily for network expansion and modernization, including spectrum acquisition.
  • 7Verizon continued its commitment to shareholders with a 7.0% increase in its quarterly dividend to $0.460 per share and active share repurchases.

Frequently Asked Questions

The primary driver of revenue growth was the Domestic Wireless segment, which saw a 12.5% increase in operating revenues. This growth was fueled by strong performance in data revenues and an 11.2% increase in the customer base compared to the prior year. While the Wireline segment experienced a slight revenue decline, growth in broadband and strategic services partially offset the decrease in traditional voice services.

Verizon Wireless entered into an agreement to acquire Alltel Corporation for approximately $28.1 billion (including net debt), with a targeted completion by year-end, subject to regulatory approvals. Additionally, Verizon Wireless completed the acquisition of Rural Cellular Corporation, a wireless provider focused on rural markets. The company also completed the spin-off of its local exchange and related business assets in Maine, New Hampshire, and Vermont to FairPoint Communications.

Verizon's total debt increased during the nine-month period primarily due to the issuance of new fixed-rate notes and borrowings under credit facilities, partly to finance acquisitions. The company managed its debt by issuing new debt and refinancing existing obligations. The ratio of debt to debt plus equity was 46.8% at September 30, 2008, up from 38.1% at year-end 2007. Verizon also reduced its net debt by approximately $1.4 billion as a result of the spin-off of its New England wireline assets and continues to maintain access to credit markets.

Verizon continues to prioritize revenue growth, particularly in higher-growth markets like wireless (including data) and wireline broadband (FiOS). The company is focused on gaining market share, improving profitability through operational efficiencies, and enhancing the customer experience. Significant capital expenditures are planned for network expansion and modernization, including the acquisition of new spectrum licenses. Verizon also aims to maintain and grow its dividend, reflecting confidence in its business model.