10-QPeriod: Q1 FY2010

VERIZON COMMUNICATIONS INC Quarterly Report for Q1 Ended Mar 31, 2010

Filed April 28, 2010For Securities:VZ

Summary

Verizon Communications Inc. reported a net income of $2.28 billion for the first quarter of 2010, a decrease from $3.21 billion in the same period of 2009. This decline was largely driven by a significant one-time, non-cash income tax charge of $962 million related to the new healthcare legislation, which impacted the effective tax rate. Despite this, the company's operating revenues saw a modest increase of 1.2% year-over-year, reaching $26.91 billion. This growth was primarily fueled by a strong performance in the Domestic Wireless segment, which reported a 4.4% increase in revenue, driven by customer growth and a significant 18.0% rise in data ARPU. The Wireline segment experienced a revenue decline of 2.9%, impacted by ongoing access line losses, though growth in FiOS broadband and TV subscribers showed resilience. The company continues to focus on strategic imperatives such as revenue growth in wireless and broadband, market share gains, and profitability improvement. Significant events during the quarter included the completion of financing for the spin-off of local exchange assets to Frontier Communications and ongoing efforts to divest Alltel markets. The company also reaffirmed its 2010 capital expenditure guidance.

Financial Highlights

49 data points
Beta

Revenue

$26.91B

60.4% Gross Margin

Net Income

$443.00M

1.6% Net Margin

EPS (Diluted)

$0.16

Total Assets

$227.35B

Cash & Equivalents

$3.04B

Free Cash Flow

$7.08B

Financial Statements
Beta
Revenue$26.91B
Cost of Revenue$10.65B
Gross Profit$16.26B
SG&A Expenses$7.70B
Operating Expenses$22.47B
Operating Income$4.44B
Interest Expense$680.00M
Net Income$443.00M
EPS (Basic)$0.16
EPS (Diluted)$0.16
Shares Outstanding (Basic)2.84B
Shares Outstanding (Diluted)2.84B

Key Highlights

  • 1Operating revenues increased by 1.2% to $26.91 billion, driven by the Domestic Wireless segment.
  • 2Domestic Wireless revenue grew 4.4% to $15.78 billion, with total customers up 7.2% to 92.8 million and data ARPU increasing by 18.0% to $16.71.
  • 3Wireline revenue decreased by 2.9% to $11.23 billion, reflecting ongoing access line losses, although FiOS broadband and TV subscribers continued to grow.
  • 4Net income decreased to $2.28 billion from $3.21 billion in the prior year, primarily due to a $962 million non-cash income tax charge related to healthcare reform.
  • 5Operating expenses increased by 3.0% to $22.56 billion, with increases in cost of services and sales, SG&A, and depreciation and amortization.
  • 6Cash flow from operations increased to $7.12 billion, and free cash flow grew to $3.66 billion.
  • 7The company continued to manage its debt, with total debt at $61.55 billion and a debt-to-equity ratio of 60.3% at the end of the quarter.

Frequently Asked Questions

The primary driver for the decrease in net income was a one-time, non-cash income tax charge of $962 million recorded in the first quarter of 2010. This charge resulted from the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, which impacts the deductibility of certain retiree prescription drug subsidies.

The Domestic Wireless segment showed strong performance, with revenues increasing by 4.4% driven by a 7.2% increase in total customers to 92.8 million. A key metric to watch is the total data ARPU, which grew significantly by 18.0% to $16.71, indicating a strong shift towards data services. Retail customer net additions slowed down, but churn rates improved, suggesting effective customer retention.

The Wireline segment is facing challenges from declining revenues, down 2.9%, primarily due to a 9.5% decrease in switched access lines as customers migrate to wireless, VoIP, and broadband services. However, the segment is adapting by expanding its FiOS broadband and TV services, which saw significant subscriber growth. Strategic enterprise services also showed revenue growth, indicating a focus on higher-value business solutions.

During the quarter, Verizon completed financing for the spin-off of its local exchange business, which is planned to merge with Frontier Communications. The company also continued its efforts to divest markets acquired in the Alltel acquisition, with expected closings for the AT&T Mobility transaction in Q2 2010. Additionally, a new $6.2 billion three-year credit facility was entered into in April 2010.