10-QPeriod: Q2 FY2009

VERIZON COMMUNICATIONS INC Quarterly Report for Q2 Ended Jun 30, 2009

Filed July 30, 2009For Securities:VZ

Summary

Verizon Communications Inc. reported mixed financial results for the second quarter and first half of 2009, significantly impacted by the acquisition of Alltel Corporation in January 2009. Consolidated revenues saw a substantial increase of 11.3% and 11.5% for the respective periods, primarily driven by the inclusion of Alltel's operations within the Domestic Wireless segment. However, the Wireline segment experienced a revenue decline of 5.2% and 4.5%, reflecting ongoing pressures in traditional voice and data services, though growth in Mass Markets due to FiOS services provided some offset. Profitability metrics showed some strain, with operating income for the Wireline segment decreasing by 47.8% and 40.8% due to lower revenues and integration costs. Conversely, the Domestic Wireless segment saw its operating income increase by 28.8% and 29.9%, benefiting from the Alltel acquisition. The company also incurred significant merger integration and acquisition-related charges, impacting overall net income. Despite these challenges, Verizon demonstrated strong operating cash flow generation, which was utilized to reduce debt and fund capital expenditures, underscoring a focus on maintaining financial flexibility amidst a dynamic market.

Financial Highlights

50 data points
Beta

Revenue

$26.86B

61.0% Gross Margin

Net Income

$1.66B

6.2% Net Margin

EPS (Diluted)

$0.58

Total Assets

$225.00B

Cash & Equivalents

$820.00M

Free Cash Flow

$7.51B

Financial Statements
Beta
Revenue$26.86B
Cost of Revenue$10.48B
Gross Profit$16.38B
SG&A Expenses$7.87B
Operating Expenses$22.44B
Operating Income$4.67B
Interest Expense$787.00M
Net Income$1.66B
EPS (Basic)$0.58
EPS (Diluted)$0.58
Shares Outstanding (Basic)2.84B
Shares Outstanding (Diluted)2.84B

Key Highlights

  • 1Consolidated revenues increased significantly by 11.3% for Q2 2009 and 11.5% for the first six months of 2009, largely due to the acquisition of Alltel Corporation.
  • 2The Domestic Wireless segment was the primary growth driver, with revenues up 27.7% in Q2 and 28.7% year-to-date, primarily from the Alltel acquisition.
  • 3The Wireline segment's revenues declined by 5.2% in Q2 and 4.5% year-to-date, attributed to ongoing decreases in traditional services, partially offset by FiOS growth in Mass Markets.
  • 4Operating income for the Wireline segment decreased substantially by 47.8% in Q2 and 40.8% year-to-date, impacted by revenue declines and integration costs.
  • 5Net income attributable to Verizon decreased to $1.48 billion in Q2 2009 from $1.88 billion in Q2 2008, and to $3.13 billion for the first six months of 2009 from $3.52 billion in the prior year, reflecting acquisition-related expenses and other factors.
  • 6The company's cash flow from operating activities increased to $14.1 billion for the first six months of 2009, up from $12.6 billion in the prior year, supporting debt reduction and capital investments.
  • 7Verizon is undertaking significant divestitures of Alltel's overlapping properties to comply with regulatory approvals, with agreements in place with AT&T Mobility and Atlantic Tele-Network.

Frequently Asked Questions

The acquisition of Alltel Corporation, completed in January 2009, was the primary driver of the significant increase in consolidated revenues, particularly within the Domestic Wireless segment. This acquisition added substantial revenue streams and customer bases, but also contributed to increased operating expenses, merger integration costs, and a higher debt load.

Verizon's Wireline segment continues to face challenges, with revenues declining due to ongoing decreases in traditional voice and access line services. While the Mass Markets sub-segment showed some resilience driven by the growth of FiOS services (Internet and TV), declines in Global Enterprise and Global Wholesale segments more than offset this. Operating income for the Wireline segment saw a significant decrease, impacted by lower revenues and integration costs.

Verizon increased its total debt significantly to finance the Alltel acquisition and related expenses. For the six months ended June 30, 2009, net cash used in financing activities was substantial, reflecting debt repayments and dividend payments. The company generated strong operating cash flow, which was used to repay borrowings, particularly under the Bridge Facility used for the Alltel acquisition, and for general corporate purposes, indicating a focus on deleveraging and financial flexibility.

As a condition for regulatory approval of the Alltel acquisition, Verizon is required to divest overlapping properties in 105 markets. The company has entered into definitive agreements to sell these assets to AT&T Mobility LLC and Atlantic Tele-Network, Inc., expecting these transactions to close in the next 12 months and the second half of 2009, respectively.