10-QPeriod: Q2 FY2010

VERIZON COMMUNICATIONS INC Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 29, 2010For Securities:VZ

Summary

Verizon Communications Inc. reported financial results for the period ending June 29, 2010. The company experienced a slight decrease in consolidated operating revenues for the three months ended June 30, 2010, down 0.3% year-over-year, primarily due to challenges in the Wireline segment. However, for the six-month period, consolidated revenues saw a modest increase of 0.4%. A significant event during the quarter was the completion of the spin-off and merger of its local exchange business with Frontier Communications, which was valued at approximately $8.6 billion. This transaction, along with the divestiture of Alltel markets, reshaped the company's operational footprint. Despite revenue pressures in Wireline, the Domestic Wireless segment demonstrated robust growth, with service revenues up 5.2% for the quarter and total customers increasing by 5.0%. Data services continue to be a key growth driver, significantly increasing its contribution to wireless service revenue. The company also incurred substantial one-time charges, including significant severance, pension, and benefit charges related to workforce reductions, as well as a non-cash income tax charge stemming from healthcare reform legislation. These charges impacted net income, resulting in a net loss attributable to Verizon for the three-month period.

Financial Highlights

49 data points
Beta

Revenue

$26.77B

54.4% Gross Margin

Net Income

-$1.19B

-4.5% Net Margin

EPS (Diluted)

$-0.42

Total Assets

$226.25B

Cash & Equivalents

$4.76B

Free Cash Flow

$9.72B

Financial Statements
Beta
Revenue$26.77B
Cost of Revenue$12.22B
Gross Profit$14.56B
SG&A Expenses$9.97B
Operating Expenses$26.36B
Operating Income$410.00M
Interest Expense$679.00M
Net Income-$1.19B
EPS (Basic)$-0.42
EPS (Diluted)$-0.42
Shares Outstanding (Basic)2.83B
Shares Outstanding (Diluted)2.83B

Key Highlights

  • 1Consolidated operating revenues slightly decreased by 0.3% to $26.77 billion for the three months ended June 30, 2010, compared to the prior year, but increased 0.4% to $53.69 billion for the six months ended June 30, 2010.
  • 2The Domestic Wireless segment showed strong performance with a 3.4% increase in total operating revenue to $16.01 billion for the quarter, driven by a 5.2% rise in service revenue and a 5.0% increase in total customers.
  • 3Significant one-time charges were recorded, including $2.31 billion in severance, pension, and benefit charges and a $0.96 billion non-cash income tax charge related to healthcare reform, impacting profitability.
  • 4The company completed the spin-off of its local exchange business to Frontier Communications for approximately $8.6 billion in value, including cash and stock.
  • 5Wireline segment revenues decreased by 3.3% for the quarter to $11.11 billion, impacted by ongoing access line losses, though growth in FiOS Internet and TV subscribers provided some offset.
  • 6Capital expenditures were $7.69 billion for the first six months of 2010, with a significant portion allocated to the build-out of the fourth-generation Long-Term Evolution (LTE) network.
  • 7Net income attributable to Verizon was a loss of $198 million for the three months ended June 30, 2010, a sharp decrease from a net income of $1.48 billion in the same period of 2009, heavily influenced by the aforementioned one-time charges.

Frequently Asked Questions

The significant decrease in net income attributable to Verizon, resulting in a net loss of $198 million for the three months ended June 30, 2010, was primarily driven by substantial one-time charges. These included $2.31 billion in severance, pension, and benefit charges related to workforce reductions and a $962 million non-cash income tax charge due to changes in healthcare legislation impacting future tax deductions for retiree prescription drug coverage. These extraordinary items significantly impacted the company's profitability for the period.

The completion of the spin-off of the local exchange business (Spinco) to Frontier Communications on July 1, 2010, was a significant event valued at approximately $8.6 billion. This transaction involved Verizon stockholders receiving Frontier common stock, and Verizon receiving a special cash payment of $3.083 billion and a $250 million reduction in consolidated indebtedness. This significantly reduced Verizon's long-term debt and strengthened its balance sheet, while also divesting a portion of its Wireline segment operations.

The Domestic Wireless segment continues to be a strong performer, showing revenue growth of 3.4% for the quarter, driven by increasing service revenue, a growing customer base, and a significant rise in data revenue contribution (now 34.5% of service revenue). In contrast, the Wireline segment experienced a revenue decline of 3.3% for the quarter, primarily due to ongoing switched access line losses, although growth in FiOS broadband and TV subscriptions offered some mitigation.

Verizon is actively managing its debt. The company used proceeds from the Spinco transaction to redeem $2.0 billion of notes. The debt-to-capital ratio was 59.4% as of June 30, 2010, slightly down from 59.9% at year-end 2009, indicating a stable capital structure. The company also has a $6.2 billion credit facility, with approximately $6.1 billion unused as of June 30, 2010, providing ample liquidity and financial flexibility. Net cash provided by operating activities increased significantly in the first half of 2010, supporting its financial needs.