UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 (Mark one)  
 x 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,June 30, 2009

 

OR

 

 ¨ 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

 

Commission file number: 1-8606

Verizon Communications Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 23-2259884

(State or other jurisdiction

of incorporation or organization)

 (I.R.S. Employer Identification No.)

 

140 West Street

New York, New York

 10007
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 395-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).¨x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

x

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).¨  Yes    x  No

At March 31,June 30, 2009, 2,840,573,9192,840,613,457 shares of the registrant’s common stock were outstanding, after deducting 127,036,200126,996,662 shares held in treasury.

 

 

 


Table of Contents

 

  Page
PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements (Unaudited)  
 

Condensed Consolidated Statements of Income

2

Three and six months ended March 31,June 30, 2009 and 2008

  2
 

Condensed Consolidated Balance Sheets

3

At March 31,June 30, 2009 and December 31, 2008

  3
 

      ��   Condensed Consolidated Statements of Cash Flows

4

ThreeSix months ended March 31,June 30, 2009 and 2008

  4
 Notes to Condensed Consolidated Financial Statements  5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  1819
Item 3. Quantitative and Qualitative Disclosures About Market Risk  3437
Item 4. Controls and Procedures  3437
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings  3437
Item 1A. Risk Factors  3437
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  3538
Item 4.Submission of Matters to a Vote of Security Holders38
Item 5. Other Information  3539
Item 6. Exhibits  3639
Signature  3740
Certifications  


Part I - Financial Information

 

Item 1. Financial Statements

Condensed Consolidated Statements of Income

Verizon Communications Inc. and Subsidiaries

 

  Three Months Ended March 31,   

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 
(dollars in millions, except per share amounts) (unaudited)  2009 2008   2009 2008 2009 2008 

Operating Revenues

  $26,591  $23,833   $26,861   $24,124   $53,452   $47,957  

Operating Expenses

        

Cost of services and sales (exclusive of items shown below)

   10,308   9,517    10,481    9,466    20,789    18,983  

Selling, general and administrative expense

   7,561   6,401    7,871    6,528    15,432    12,929  

Depreciation and amortization expense

   4,028   3,582    4,091    3,584    8,119    7,166  
          

Total Operating Expenses

   21,897   19,500    22,443    19,578    44,340    39,078  

Operating Income

   4,694   4,333    4,418    4,546    9,112    8,879  

Equity in earnings of unconsolidated businesses

   128   97    128    150    256    247  

Other income and (expense), net

   53   23    11    92    64    115  

Interest expense

   (925)  (459)   (787  (403  (1,712  (862
          

Income Before Provision For Income Taxes

   3,950   3,994    3,770    4,385    7,720    8,379  

Provision for income taxes

   (740)  (945)   (610  (981  (1,350  (1,926
          

Net Income

  $3,210  $3,049   $3,160   $3,404   $6,370   $6,453  
          

Net income attributable to noncontrolling interest

  $1,565  $1,407   $1,677   $1,522   $3,242   $2,929  

Net income attributable to Verizon

   1,645   1,642    1,483    1,882    3,128    3,524  
          

Net Income

  $3,210  $3,049   $3,160   $3,404   $6,370   $6,453  
          

Basic Earnings Per Common Share

        

Net income attributable to Verizon

  $.58  $.57   $.52   $.66   $1.10   $1.23  

Weighted-average shares outstanding (in millions)

   2,841   2,863    2,841    2,850    2,841    2,856  

Diluted Earnings Per Common Share

        

Net income attributable to Verizon

  $.58  $.57   $.52   $.66   $1.10   $1.23  

Weighted-average shares outstanding (in millions)

   2,841   2,865    2,841    2,851    2,841    2,858  

Dividends declared per common share

  $.460  $.430   $.46   $.43   $.92   $.86  

See Notes to Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets

Verizon Communications Inc. and Subsidiaries

 

(dollars in millions, except per share amounts) (unaudited)  At March 31,
2009
 At December 31,
2008
   At June 30,
2009
 At December 31,
2008
 

Assets

      

Current assets

      

Cash and cash equivalents

  $3,979  $9,782   $820   $9,782  

Short-term investments

   372   509    360    509  

Accounts receivable, net of allowances of $1,005 and $941

   11,989   11,703 

Accounts receivable, net of allowances of $994 and $941

   12,170    11,703  

Inventories

   2,195   2,092    2,775    2,092  

Prepaid expenses and other

   3,343   1,989    5,339    1,989  
          

Total current assets

   21,878   26,075    21,464    26,075  
          

Plant, property and equipment

   221,500   215,605    224,150    215,605  

Less accumulated depreciation

   131,645   129,059    133,848    129,059  
          
   89,855   86,546    90,302    86,546  
          

Investments in unconsolidated businesses

   3,574   3,393    3,513    3,393  

Wireless licenses

   70,873   61,974    71,708    61,974  

Goodwill

   22,531   6,035    22,189    6,035  

Other intangible assets, net

   7,299   5,199    7,232    5,199  

Other investments

      4,781        4,781  

Other assets

   10,841   8,349    8,591    8,349  
          

Total assets

  $226,851  $202,352   $224,999   $202,352  
          

Liabilities and Equity

      

Current liabilities

      

Debt maturing within one year

  $13,459  $4,993   $5,440   $4,993  

Accounts payable and accrued liabilities

   14,403   13,814    14,685    13,814  

Other

   7,207   7,099    6,243    7,099  
          

Total current liabilities

   35,069   25,906    26,368    25,906  
          

Long-term debt

   55,674   46,959    59,469    46,959  

Employee benefit obligations

   32,149   32,512    32,162    32,512  

Deferred income taxes

   16,998   11,769    17,737    11,769  

Other liabilities

   6,407   6,301    6,442    6,301  

Equity

      

Series preferred stock ($.10 par value; none issued)

                

Common stock ($.10 par value; 2,967,610,119 shares and 2,967,610,119 shares issued)

   297   297    297    297  

Contributed capital

   40,108   40,291    40,102    40,291  

Reinvested earnings

   19,588   19,250    19,765    19,250  

Accumulated other comprehensive loss

   (13,387)  (13,372)   (12,742  (13,372

Common stock in treasury, at cost

   (4,837)  (4,839)   (4,836  (4,839

Deferred compensation – employee stock ownership plans and other

   82   79    86    79  

Noncontrolling interest

   38,703   37,199    40,149    37,199  
          

Total equity

   80,554   78,905    82,821    78,905  
          

Total liabilities and equity

  $226,851  $202,352   $224,999   $202,352  
          

See Notes to Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Cash Flows

Verizon Communications Inc. and Subsidiaries

 

  Three Months Ended March 31,   Six Months Ended June 30, 
(dollars in millions) (unaudited)  2009 2008   2009 2008 

Cash Flows from Operating Activities

      

Net Income

  $3,210  $3,049   $6,370   $6,453  

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

      

Depreciation and amortization expense

   4,028   3,582    8,119    7,166  

Employee retirement benefits

   502   407    1,420    808  

Deferred income taxes

   604   682    1,296    1,774  

Provision for uncollectible accounts

   358   298    643    494  

Equity in earnings of unconsolidated businesses, net of dividends received

   (117)  (90)   173    507  

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

   (393)  (564)   (2,070  (2,309

Other, net

   (1,772)  (1,974)   (1,814  (2,258
          

Net cash provided by operating activities

   6,420   5,390    14,137    12,635  
          

Cash Flows from Investing Activities

      

Capital expenditures (including capitalized software)

   (3,707)  (4,220)   (8,094  (8,397

Acquisitions of licenses, investments and businesses, net of cash acquired

   (5,118)  (931)   (5,367  (14,493

Net change in short-term investments

   80   241    119    736  

Other, net

   (14)  92    64    (114
          

Net cash used in investing activities

   (8,759)  (4,818)   (13,278  (22,268
          

Cash Flows from Financing Activities

      

Proceeds from long-term borrowings

   7,052   4,194    12,040    8,144  

Repayments of long-term borrowings and capital lease obligations

   (16,865)  (1,182)   (18,173  (1,849

Increase in short-term obligations, excluding current maturities

   7,908   2,929 

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

   (103  6,929  

Dividends paid

   (1,307)  (1,237)   (2,614  (2,464

Proceeds from sale of common stock

      9        15  

Purchase of common stock for treasury

      (1,001)       (1,117

Other, net

   (252)  48    (971  (596
          

Net cash provided by (used in) financing activities

   (3,464)  3,760    (9,821  9,062  
          

Increase (decrease) in cash and cash equivalents

   (5,803)  4,332 

Decrease in cash and cash equivalents

   (8,962  (571

Cash and cash equivalents, beginning of period

   9,782   1,153    9,782    1,153  
          

Cash and cash equivalents, end of period

  $3,979  $5,485   $820   $582  
          

See Notes to Condensed Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements

Verizon Communications Inc. and Subsidiaries

(Unaudited)

 

1.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (SEC) rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements included in the Verizon Communications Inc. (Verizon, or the Company) Annual Report on Form 10-K for the year ended December 31, 2008. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown including normal recurring accruals and other items. We have evaluated subsequent events through July 30, 2009, the date these condensed consolidated financial statements were filed with the SEC. The results for the interim periods are not necessarily indicative of results for the full year.

We have reclassified prior year amounts to conform to the current year presentation.

Recently Adopted Accounting Pronouncements

On January 1, 2009, we adopted Statement of Financial Accounting Standards (SFAS) No. 160,Noncontrolling Intereststhe accounting pronouncement on noncontrolling interests in Consolidated Financial Statements – an amendment of ARB No. 51 (SFAS No. 160),consolidated financial statements, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. As required by SFAS No. 160,this pronouncement, we retrospectively changed the classification and presentation of noncontrolling interest in our financial statements for all prior periods, which we previously referred to as minority interest. SFAS No. 160The adoption of this pronouncement also resulted in a lower effective income tax rate for the Company due to the inclusion of income attributable to Vodafone Group Plc.’s (Vodafone), noncontrolling partnership interest in incomeIncome before the provision for income taxes. However, the income tax provision was not adjusted as a result of adopting SFAS No. 160.this pronouncement.

SFAS No. 141(R),Business Combinations, (SFAS No. 141(R)), replaced SFAS No. 141,Business Combinations. Financial Accounting Standards Board (FASB) Staff Position (FSP) FAS No. 141 (R)-1,Accounting for Assets Acquired and Liabilities AssumedThe adoption of the following accounting pronouncements during the first six months of 2009 did not result in a Business Combination That Arisesignificant impact to our condensed consolidated financial statements:

On January 1, 2009, we adopted the accounting pronouncements relating to business combinations, including assets acquired and liabilities assumed arising from Contingencies,(FSP 141 (R)-1), was adopted concurrently.SFAS No. 141(R) requirescontingencies. These pronouncements require the use of the acquisition method of accounting, definesdefine the acquirer, establishesestablish the acquisition date and broadens the scopeapply to all transactions and other events in which one entity obtains control over one or more other businesses. FSP 141 (R)-1 amendsThese pronouncements also amend the accounting and disclosure requirements for assets and liabilities in a business combination that arise from contingencies. Upon our adoption of SFAS No. 141(R) on January 1, 2009these pronouncements, we were required to expense certain transaction costs and related fees associated with business combinations that were previously capitalized. In addition, with the adoption of SFAS No. 141(R),these pronouncements, changes to valuation allowances for deferred income tax assets and adjustments to unrecognized tax benefits generally are to be recognized as adjustments to income tax expense rather than goodwill. The adoption of SFAS No. 141(R) and FSP 141 (R)-1 did not result in a material impact on our condensed consolidated financial statements.

SFAS No. 161,DisclosuresOn January 1, 2009, we adopted the accounting pronouncement relating to disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133, (SFAS No. 161), requires additional disclosures for derivative instruments and hedging activities, which requires additional disclosures that include how and why an entity uses derivatives, how these instruments and the related hedged items are accounted for under SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), and related interpretations, and how derivative instruments and related hedged items affect the entity’s financial position, results of operations and cash flows. We adopted SFAS No. 161 on

On January 1, 2009, which did not result in a material impact on our condensed consolidated financial statements (see Note 4).

FSP FAS No. 142-3,Determinationwe adopted the accounting pronouncement regarding the determination of the Useful Lifeuseful life of Intangible Assets (FSP 142-3),intangible assets that removes the requirement under SFAS No. 142,Goodwill and Other Intangible Assets, to consider whether an intangible asset can be renewed without substantial cost or material modifications to the existing terms and conditions, and replaces it with a requirement that an entity consider its own historical experience in renewing similar arrangements, or a consideration of market participant assumptions in the absence of historical experience. FSP 142-3This pronouncement also requires entities to disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. Wearrangements.

On June 15, 2009, we adopted FSP 142-3 on January 1, 2009 which did not result in a material impact on our condensed consolidatedthe accounting pronouncement regarding the general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before the financial statements (see Notes 2are issued. This pronouncement was effective prospectively for interim and 3).annual reporting periods ending after June 15, 2009.

Other Recent Accounting Pronouncements

In December 2008,On June 15, 2009, we adopted the FASB issued FSP FAS No. 132 (R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (FSP 132 (R)-1), which requires Verizon, as a plan sponsor, to provideaccounting pronouncement that amends the requirements for disclosures about plan assets, including categories of plan assets, nature of concentrations of risk and disclosure about fair value measurements of plan assets, similar to those required by SFAS No. 157, Fair Value Measurements(SFAS No. 157). FSP 132 (R)-1 is effective for fiscal years ending after December 15, 2009. We are currently evaluatingfinancial instruments, regarding the effect of adopting FSP 132 (R)-1 but do not expect its adoption to have a significant impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSP 157-4), which provides additional guidance for estimating fair value in accordance with SFAS No. 157,Fair Value Measurements, when the volume and level of activityfinancial instruments for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 isannual, as well as interim, reporting periods. This pronouncement was effective prospectively for all interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. We do not expect that the adoption of FSP 157-4 will have a significant impact on our condensed consolidated financial statements.2009.

In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1), which amends SFAS No. 107,Disclosures about Fair Value of Financial Instruments, to require disclosures about the fair value of financial instruments for interim reporting periods, as well as annual reporting periods. FSP FAS 107-1 and APB 28-1 are effective for all interim and annual reporting periods ending afterOn June 15, 2009, and shall be applied prospectively. We do not expectwe adopted the accounting pronouncement that the adoption of FSP FAS 107-1 and APB 28-1 will have a significant impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2), which provides additional guidance designed to create greater clarity and consistency in accounting for, and presenting impairment losses on, debt securities. FSP FAS 115-2 and FAS 124-2 areThis pronouncement was effective prospectively for interim and annual reporting periods ending after June 15, 2009.

On June 15, 2009, we adopted the accounting pronouncement that provides additional guidance for estimating fair value in accordance with the accounting standard for fair value measurements when the volume and shall be applied prospectively. We dolevel of activity for the asset or liability has significantly decreased. This pronouncement also provides guidance for identifying transactions that are not expect thatorderly. This pronouncement was effective prospectively for all interim and annual reporting periods ending after June 15, 2009.

Other Recent Accounting Pronouncements

In December 2008, an accounting pronouncement was issued regarding employers’ disclosures about postretirement benefit plan assets which requires us, as a plan sponsor, to provide disclosures about plan assets, including categories of plan assets, the nature of concentrations of risk and disclosures about fair value measurements of plan assets. This pronouncement is effective for fiscal years ending after December 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 willthis pronouncement is not expected to have a significant impact on our condensed consolidated financial statements.

Earnings Per Common Share

There were no dilutive stock options outstanding to purchase shares included in the computation of diluted earnings per common share for the three and six months ended March 31,June 30, 2009. There were 1 million and 2 million weighted-average dilutive shares included in the computation of diluted earnings per common share for the three and six months ended March 31, 2008.June 30, 2008, respectively. Certain outstanding options to purchase shares were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the period, including approximately 120115 million weighted-average shares and 145118 million weighted-average shares for the three and six months ended March 31,June 30, 2009, respectively, and approximately 154 million weighted-average shares and 144 million weighted-average shares, for the three and six months ended June 30, 2008, respectively.

 

2.

Acquisitions and Dispositions

 

Acquisition of Alltel Corporation

On June 5, 2008, Verizon Wireless entered into an agreement and plan of merger with Alltel Corporation (Alltel), a provider of wireless voice and advanced data services to residential and business customers in 34 states, and its controlling stockholder, Atlantis Holdings LLC, an affiliate of private investment firms TPG Capital and GS Capital Partners, to acquire, in an all-cash merger, 100% of the equity of Alltel for cash consideration of $5.9 billion. Verizon Wireless closed the acquisitiontransaction on January 9, 2009. Alltel provides wireless voice and advanced data services to residential and business customers in 34 states.

We expect to experience substantial operational benefits from the acquisition of Alltel, including additional combined overall cost savings from reduced roaming costs by moving more traffic to our own network, reduced network-related costs from the elimination of duplicate facilities, consolidation of platforms, efficient traffic consolidation, and reduced overall expenses relating to advertising, overhead and headcount. We expect reduced combined capital expenditures as a result of greater economies of scale and the rationalization of network assets. We also anticipate that the use of the same technology platform will enable us to rapidly integrate Alltel’s operations with ours while enabling a seamless transition for customers.ours.

The acquisition of Alltel has been accounted for as a business combination under SFAS No. 141(R).the acquisition method. We have commenced the appraisals necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, the fair value of noncontrolling interests, and the amount of goodwill to be recognized as of the acquisition date. As the values of certain assets, liabilities and noncontrolling interests are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The valuations will be finalized within 12 months of the close of the acquisition. When the valuations are finalized, any changes to the preliminary valuation of assets acquired, liabilities or noncontrolling interests assumed may result in significant adjustments to the fair value of the net identifiable assets acquired and goodwill.

The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost, and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in SFAS No. 157, other than interest rate swaps (see Note 4)5) and long-term debt assumed in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of wireless licenses and customer relationships. The income approach indicates value for a subject asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property,asset, less an allowance for loss in value due to depreciation. The market approach, which indicates value for a subject asset based on available market pricing for comparable assets, was utilized in

combination with the income approach for certain acquired investments. Additionally, Alltel historically conducted business operations in certain markets through non-wholly owned entities (Managed Partnerships). The fair value of the noncontrolling interests in these Managed Partnerships as of the acquisition date of approximately $556$583 million was estimated by using a market approach. The market approach indicates value based on financial multiples available for similar entities and adjustments for the lack of control or lack of marketability that market participants would consider in determining fair value of the Managed Partnerships. The fair value of the majority of the long-term debt assumed was primarily valued using quoted market prices and represents a Level 1 measurement.prices.

The following table summarizes the consideration paid to Alltel and the preliminary allocation to the assets acquired, including cash acquired of $1.0 billion, and liabilities assumed as of the close of the acquisition, as well as the fair value at the acquisition date of Alltel’s noncontrolling partnership interests:

 

(dollars in millions)  As of January 9, 2009   As of
January 9, 2009
 Adjustments Adjusted as of
January 9, 2009
 

Cash consideration:

      

Cash payments to Alltel’s equity holders

  $5,782   $5,782   $   $5,782  

Other cash payments

   143    143        143  
         

Total purchase price

  $5,925   $5,925   $   $5,925  
         

Assets acquired

      

Current assets

  $2,778   $2,778   $   $2,778  

Plant, property and equipment

   3,404    3,404    (7  3,397  

Wireless licenses

   8,808    8,808    636    9,444  

Goodwill

   16,573    16,573    (344  16,229  

Intangible assets subject to amortization

   2,370    2,370    138    2,508  

Other assets

   2,688    2,688    (119  2,569  
         

Total assets acquired

   36,621    36,621    304    36,925  
     

Liabilities assumed

      

Current liabilities

   1,810    1,810    4    1,814  

Long-term debt

   23,929    23,929        23,929  

Deferred income taxes and other liabilities

   4,800    4,800    273    5,073  
         

Total liabilities assumed

   30,539    30,539    277    30,816  
         

Net assets acquired

   6,082    6,082    27    6,109  

Noncontrolling interest

   (490)   (490  (27  (517

Contributed capital

   333    333        333  
         
  $5,925   $    5,925   $   $    5,925  
         

Adjustments to the preliminary purchase price allocation during the three months ended June 30, 2009 were primarily related to updated valuations in the preliminary appraisals of identifiable intangible and tangible assets as well as the acquired liabilities, deferred taxes and noncontrolling interests. Included in the above purchase price allocation is $2.2 billion of net assets held for sale to be divested as a condition of the regulatory approval as described below.

Wireless licenses have an indefinite life, and accordingly, are not subject to amortization. The weighted average period prior to renewal of these licenses at acquisition is approximately 5.4 years. The customer relationships included in Intangible assets subject to amortization are being amortized using an accelerated method over 8 years, and other intangibles are being amortized on a straight-line basis or an accelerated method over a period of 24 to 6032 months. Goodwill of approximately $1.4 billion is expected to be deductible for tax purposes.

Alltel Divestiture Markets

As a condition of the regulatory approvals that were required to complete the Alltel acquisition, Verizon Wireless is required to divest overlapping properties in 105 operating markets in 24 states (Alltel Divestiture Markets). These markets consist primarily of Alltel operations, but also include a small number of pre-merger operations of Verizon Wireless. The Alltel Divestiture Markets, classified as held for sale,As of June 30, 2009, total assets and total liabilities to be divested of $2,636 million and $154 million, respectively, are included in Prepaid expenses and other current assets and Other assets inliabilities, respectively, on the above preliminary allocation and in theaccompanying condensed consolidated financial statements. balance sheets as a result of entering into the transactions described below.

On May 8, 2009, Verizon Wireless signedentered into a definitive agreement to sell towith AT&T Mobility LLC (AT&T Mobility), a subsidiary of AT&T Inc. (AT&T), pursuant to which AT&T Mobility agreed to acquire 79 of the 105 Alltel Divestiture Markets, including licenses and network assets for $2.35 billion in cashcash. Verizon Wireless expects the transaction with AT&T Mobility to close within the next 12 months. On June 9, 2009, Verizon Wireless entered into a portion ofdefinitive agreement with Atlantic Tele-Network, Inc (ATN), pursuant to which ATN agreed to acquire the remaining 26 Alltel Divestiture Markets representing approximately 1.5that were not included in the transaction with AT&T Mobility, including licenses and network assets, for $200 million customers in 79 operating markets.cash. Verizon Wireless expects the transaction with ATN to close during the second half of 2009. Completion of each of the foregoing transactions is subject to receipt of regulatory approvals.

Pro Forma Information

The unaudited pro forma information presents the combined operating results of Verizon and Alltel, with the results prior to the acquisition date adjusted to include the pro forma impact of: the elimination of transactions between Verizon and Alltel; the adjustment of amortization of intangible assets and depreciation of fixed assets based on the preliminary purchase price allocation; the elimination of merger expenses and management fees incurred by Alltel; and the adjustment of interest expense reflecting the assumption and partial redemption of Alltel’s debt and incremental borrowings incurred by Verizon Wireless to complete the acquisition of Alltel.

The unaudited pro forma results are presented for illustrative purposes only and do not reflect the realization of potential cost savings, or any related integration costs. Certain cost savings may result from the merger; however, there can be no assurance that these cost savings will be achieved. These pro forma results do not purport to be indicative of the results that would have actually been obtained if the merger occurred as of January 1, 2008, nor does the pro forma data intend to be a projection of results that may be obtained in the future.

The following unaudited pro forma consolidated results of operations assume that the acquisition of Alltel was completed as of January 1, 2008:

 

(dollars in millions, except per share amounts)  Three months ended
June 30, 2008
  Six months ended
June 30, 2008
  Three months ended March 31,
(dollars in millions)  2008

Operating revenues

  $26,010  $26,366  $52,376

Net income attributable to Verizon

   1,649   1,903   3,552

Earnings per common share from net income attributable to Verizon:

      

Basic

   .58   .66   1.24

Diluted

   .58   .66   1.24

Consolidated results of operations reported for the threesix months ended March 31,June 30, 2009 were not significantly different than the pro forma consolidated results of operations assuming the acquisition of Alltel was completed on January 1, 2009.

Acquisition of Rural Cellular Corporation

On August 7, 2008, Verizon Wireless acquired 100% of the outstanding common stock and redeemed all of the preferred stock of Rural Cellular Corporation (Rural Cellular) in a cash transaction valued at approximately $1.3 billion.

The acquisition of Rural Cellular has been accounted for as a business combination under SFAS No. 141.the purchase method. The following table summarizes the preliminary allocation of the acquisition cost to the assets acquired, including cash acquired of $42 million, and liabilities assumed as of the acquisition date:

 

(dollars in millions)  As of August 7, 2008  As of
August 7, 2008

Assets acquired

    

Wireless licenses

  $1,096  $1,096

Goodwill

   933   933

Intangible assets subject to amortization

   198   198

Other assets

   973   973
      

Total assets acquired

   3,200   3,200
      

Liabilities assumed

    

Long-term debt

   1,505   1,505

Deferred income taxes and other liabilities

   384   384
      

Total liabilities assumed

   1,889   1,889
      

Net assets acquired

  $1,311  $    1,311
      

Included in Other assets are assets that were assets divested of $485 million. On December 22, 2008, we exchanged these assets and an additional cellular license with AT&T for assets having a total preliminary aggregate value of approximately $495 million.

Acquisition Related Charges

During the first quarter ofthree and six months ended June 30, 2009, we recorded pretax charges of $298$47 million, of which $96$8 million is attributable to Verizon after-tax, and $345 million, of which $104 million is attributable to Verizon after-tax, respectively, primarily related to the Alltel acquisition for transaction fees and costs associated with the acquisition, including fees related to the credit facility that was entered into and utilized to complete the acquisition (see Note 5).acquisition.

Merger Integration Costs

During the first quarter ofthree and six months ended June 30, 2009, we recorded pretax charges of $158$181 million, of which $50$52 million is attributable to Verizon after-tax, and $339 million, of which $102 million is attributable to Verizon after-tax, respectively, for merger integration activities primarily related to the Alltel acquisition primarily comprised of trade name amortization, contract terminations, and the decommissioning of overlapping cell sites.network integration activities.

During the first quarter ofthree and six months ended June 30, 2008, we recorded pretax charges of $29$36 million of which $18($22 million is attributable to Verizon after-tax,after-tax), and $65 million ($40 million after-tax), respectively, primarily comprised of systems integration activities and other costs related to re-branding initiatives, facility exit costs and advertising associated with the MCI acquisition.

Other

On May 8, 2009, Verizon Wireless entered into an agreement with AT&T to purchase certain assets of Centennial Communications Corporation (Centennial) for $240 million, contingent on AT&T completing its acquisition of Centennial.

3.

Dispositions

Telephone Access Lines Spin-off2009

On May 13, 2009, we announced that we will spin off a newly formed subsidiary of Verizon (Spinco) to our stockholders. Spinco will hold defined assets and liabilities of the local exchange business and related landline activities of Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, and in portions of California bordering Arizona, Nevada and Oregon, including Internet access and long distance services and broadband video provided to designated customers in those areas. Immediately following the spin-off, Spinco will merge with Frontier Communications Corporation (Frontier) pursuant to a definitive agreement with Frontier, and Frontier will be the surviving corporation. The transactions do not involve any assets or liabilities of Verizon Wireless. The assets and liabilities that will be held by Spinco are currently included in Verizon’s continuing operations.

Depending on the trading prices of Frontier common stock prior to the closing of the merger, Verizon stockholders will collectively own between approximately 66% and 71% of Frontier’s outstanding equity immediately following the closing of the merger, and Frontier stockholders will collectively own between approximately 29% and 34% of Frontier’s outstanding equity immediately following the closing of the merger (in each case, before any closing adjustments). The actual number of shares of common stock to be issued by Frontier in the merger will be calculated based upon several factors, including the average trading price of Frontier common stock during a pre-closing measuring period subject to a collar mechanism, the total number of Verizon shares outstanding at that time and other closing adjustments. Verizon will not own any shares of Frontier after the merger.

Both the spin-off and merger are expected to qualify as tax-free transactions, except to the extent that cash is paid to Verizon stockholders in lieu of fractional shares.

In connection with the spin-off, Verizon will receive from Spinco approximately $3.3 billion in value through a combination of a special cash payment to Verizon, a reduction in Verizon’s consolidated indebtedness, and, in certain circumstances, the issuance to Verizon of debt securities of Spinco. In the merger, Verizon stockholders are expected to receive approximately $5.3 billion of Frontier common stock, assuming no closing adjustments.

The transaction is subject to the satisfaction of certain conditions, including receipt of state and federal telecommunications regulatory approvals. If the conditions are satisfied, we expect this transaction to close during the second quarter of 2010.

2008

On March 31, 2008, we completed the spin-off of the shares of Northern New England Spinco Inc. (Spinco) to Verizon shareowners and the merger of Northern New England Spinco Inc. with FairPoint.FairPoint Communications, Inc. As a result of the spin-off, our net debt was reduced by approximately $1.4 billion. The condensed consolidated statements of income for the periods presented include the results of operations of the local exchange and related business assets in Maine, New Hampshire and Vermont through the date of completion of the spin-off.

During the threefirst six months ended March 31,of 2008, we recorded pretax charges of $103 million of which $81($81 million is attributable to Verizon after-tax,after-tax), for costs incurred related to the separation of the wireline facilities and operations in Maine, New Hampshire and Vermont from Verizon at the closing of the transaction, as well as for professional advisory and legal fees in connection with this transaction.

3.4.

Wireless Licenses, Goodwill and Other Intangible Assets

 

Wireless Licenses

Changes in the carrying amount of wireless licenses are as follows:

 

(dollars in millions)(dollars in millions) 

(dollars in millions)

  

Balance at December 31, 2008

  $    61,974   $    61,974  

Wireless licenses acquired (Note 2)

   8,808    9,444  

Capitalized interest on wireless licenses

   184    367  

Other, net

   (93)

Reclassifications, adjustments and other

   (77
        

Balance at March 31, 2009

  $70,873 

Balance at June 30, 2009

  $71,708  
        

Other, netReclassifications, adjustments and other primarily includes the reclassification of wireless licenses associated with the pre-merger operations of Verizon Wireless that are included in the Alltel Divestiture Markets (see Note 2) as held for sale and included in Other assets (see Note 2).Prepaid expenses and other in the accompanying condensed consolidated financial statements. As of March 31,June 30, 2009, and December 31, 2008, $12.2 billion and $12.4 billion, respectively, of wireless licenses were under development for commercial service.service for which we are capitalizing interest costs.

Renewals of licenses have occurred routinely and at nominal cost,costs, which are expensed as incurred. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our wireless licenses. As a result, we treat the wireless licenses as an indefinite-lived intangible asset under the provisions of SFAS No. 142.asset. The average remaining renewal period of our wireless license portfolio was 8.58.3 years as of March 31,June 30, 2009.

Goodwill

Changes in the carrying amount of goodwill are as follows:

 

(dollars in millions)  Domestic
Wireless
 Wireline Total   

Domestic

Wireless

 Wireline Total 

Balance at December 31, 2008

  $1,297  $4,738  $6,035   $1,297   $4,738   $6,035  

Acquisitions (Note 2)

   16,573      16,573    16,229        16,229  

Reclassifications, adjustments and other

   (63)  (14)  (77)   (68  (7  (75
          

Balance at March 31, 2009

  $17,807  $4,724  $    22,531 

Balance at June 30, 2009

  $17,458   $4,731   $  22,189  
          

Reclassifications, adjustments and other primarily include the reclassification of goodwill associated with the pre-merger operations of Verizon Wireless that are included in the Alltel Divestiture Markets (see Note 2) as held for sale and included in Other assets (see Note 2).Prepaid expenses and other in the accompanying condensed consolidated financial statements.

Other Intangible Assets

The following table displays the details of other intangible assets:

 

  At March 31, 2009  

At December 31, 2008

 
     
(dollars in millions)  Gross
Amount
  Accumulated
Amortization
  Net
Amount
  Gross
Amount
  Accumulated
Amortization
  Net
Amount
  At June 30, 2009 At December 31, 2008
(dollars in millions)   
Gross
Amount
  Accumulated
Amortization
 Net
Amount
 

Gross

Amount

  Accumulated
Amortization
 Net
Amount
                    

Customer lists (6 to 10 years)

  $2,954  $549  $2,405  $1,415  $595  $820 

Customer lists (6 to 8 years)

 $3,114  $(709 $2,405 $1,415  $(595 $820

Non-network internal-use software (2 to 7 years)

   8,375   4,162   4,213   8,099   4,102   3,997   8,460   (4,276  4,184  8,099   (4,102  3,997

Other (1 to 25 years)

   821   140   681   465   83   382   852   (209  643  465   (83  382
        

Total

  $12,150  $4,851  $7,299  $9,979  $4,780  $5,199  $12,426  $(5,194 $7,232 $9,979  $(4,780 $5,199
        

Customer lists, Non-network software and Other at March 31,June 30, 2009, include $2,370$2,508 million related to the Alltel acquisition. Amortization expense was $475$498 million and $332$973 million for the three and six months ended March 31,June 30, 2009, respectively. Amortization expense was $338 million and $671 million for the three and six months ended June 30, 2008, respectively, andrespectively. Amortization expense is estimated to be $1,980$1,994 million for the full year 2009, $1,696$1,746 million in 2010, $1,325$1,391 million in 2011, $1,073$1,117 million in 2012 and $840$880 million in 2013.

During 2008, we entered into an agreement to acquire a non-exclusive license (the IP License) to a portfolio of intellectual property owned by an entity formed for the purpose of acquiring and licensing intellectual property. We paid an initial fee of $100 million for the IP License, which is included in Other intangible assets, net and is being amortized over the expected usefulestimated average remaining lives of the licensed intellectual property. In addition, we executed a subscription agreement (with a capital commitment of $250 million, of which approximately $202$192 million is remainingremains to be funded at March 31,June 30, 2009, as required, through 2012) to become a member in a limited liability company (the LLC) formed by the same entity for the purpose of acquiring and licensing additional intellectual property. In connection with this investment, we will receive non-exclusive license rights to certain intellectual property acquired by the LLC for an annual license fee.

4.5.

Fair Value Measurements

 

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of March 31,June 30, 2009:

 

(dollars in millions)  Level 1 (1)  Level 2 (2)  Level 3 (3)  Total  Level 1 (1)  Level 2 (2)  Level 3 (3)  Total

Assets:

                

Short-term investments

  $124  $248  $  $372  $178  $182  $  $360

Investments in unconsolidated businesses

       281         281   324         324

Other assets

          1,133       –       1,133      1,302      1,302

Liabilities:

        

Other liabilities

      616      616

(1) – quoted prices in active markets for identical assets or liabilities

(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) – no observable pricing inputs in the market

Upon closing of the Alltel acquisition (see Note 2), the $4.8 billion investment in Alltel debt, which was classified as Level 3 at December 31, 2008, became an intercompany loan and is eliminated in consolidation.

The fair value of our short-term and long-term debt, excluding capital leases, is determined based on market quotes for similar terms and maturities or future cash flows discounted at current rates. The fair value of our long-term and short-term debt, excluding capital leases, was approximately $68 billion and $53 billion at June 30, 2009 and December 31, 2008, respectively, as compared to the carrying value of approximately $65 billion and $52 billion at June 30, 2009 and December 31, 2008, respectively.

Derivative Instruments

We have entered into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates, interest rates, equity and commodity prices. We employ risk management strategies which may include the use of a variety of derivatives including cross currency swaps, foreign currency and prepaid forwards and collars, equity options, interest rate and commodity swap agreements and interest rate locks. We do not hold derivatives for trading purposes.

In accordance with SFAS No. 133 and related amendments and interpretations, weWe measure all derivatives, including derivatives embedded in other financial instruments, at fair value and recognize them as either assets or liabilities on our consolidated balance sheets. The derivative instruments discussed below are valued primarily using models based on readily observable market parameters for all substantial terms of our derivative contracts and thus are classified as Level 2. Changes in the fair values of derivative instruments not qualifying as hedges or any ineffective portion of hedges are recognized in earnings in the current period. Changes in the fair values of derivative instruments used effectively as fair value hedges are recognized in earnings, along with changes in the fair value of the hedged item. Changes in the fair value of the effective portions of cash flow hedges are reported in Other comprehensive income (loss) and recognized in earnings when the hedged item is recognized in earnings.

Interest Rate Swaps

We have entered into domestic interest rate swaps to achieve a targeted mix of fixed and variable rate debt, where we principally receive fixed rates and pay variable rates based on London Interbank Offered Rate (LIBOR). These swaps are designated as fair value hedges and hedge against changes in the fair value of our debt portfolio. We record the interest rate swaps at fair value on our balance sheet as assets and liabilities. Changes in the fair value of the interest rate swaps are recorded to Interest expense, which are offset by changes in the fair value of the debt due to changes in interest rates. The fair value of these contracts was $361$197 million and $415 million at March 31,June 30, 2009 and December 31, 2008, respectively, and areis included in Other assets and Long-term debt. As of March 31,June 30, 2009, the total notional amount of these interest rate swaps was $3.0$3 billion.

Cross Currency Swaps

During the fourth quarter of 2008, Verizon Wireless entered into cross currency swaps designated as cash flow hedges to exchange approximately $2.4 billion of the net proceeds from athe December 2008 Verizon Wireless and Verizon Wireless Capital LLC debt offering fromof British PoundsPound Sterling and EurosEuro denominated debt into U.S. dollars and to fix our future interest and principal payments in U.S. dollars, as well as mitigate the impact of foreign currency transaction gains or losses. At March 31, 2009 and December 31, 2008, theThe fair value of the cross currencythese swaps included in Other assets and Other liabilitiesat June 30, 2009 was not significant.approximately $302 million. For the three and six months ended March 31,June 30, 2009, a pretax lossgain of $21$318 million on the cross currency swaps has beenand $297 million, respectively, was recognized in Other comprehensive income, of which $218 million and $99$119 million, wasrespectively, were reclassified from Accumulated other comprehensive loss to Other income and (expense), net to offset the related pretax foreign currency transaction gainloss on the underlying debt obligation.

Alltel Interest Rate Swaps

As a result of the Alltel acquisition, Verizon Wireless acquired seven interest rate swap agreements with a notional value of $9.5 billion that pay fixed and receive variable rates based on three-month and one-month LIBOR with maturities ranging from 2009 to 2013. Until they are terminated, the swap agreements are guaranteed by Verizon Wireless. As of May 1, 2009, weWe have settled approximately $3.1 billion notional amountall of these contracts and anticipate that the remaining contracts will be settled during the first halfagreements using cash generated from operations as of June 30, 2009. These swap agreements are not designated as hedging instruments and changesChanges in the fair value of these swaps arewere recorded in earnings. As of March 31, 2009, these interest rate swaps were in a liability position of $565 million and are included in Other current liabilities in the condensed consolidated balance sheets. For the three months ended March 31, 2009, changes in fair valueThe gain recognized upon settlement in the condensed consolidated statements of income werewas not significant.

Prepaid Forward Contracts

During the first quarter of 2009, we entered into privately negotiated prepaid forward agreements for approximately $390 million in Verizon shares, which are included in Other assets. As these agreements are not designated as hedges, changesChanges in the fair value of the agreements, which were not significant during the first quarter ofthree and six months ended June 30, 2009, were included in Selling, general and administrative expense and Cost of services and sales.

 

5.6.

Debt

 

Verizon Wireless

On December 19, 2008, Verizon Wireless and Verizon Wireless Capital LLC, as the borrowers, entered into a $17.0 billion credit facility (Bridge Facility). On December 31, 2008, the Bridge Facility was reduced to $12.5 billion. On January 9, 2009, Verizon Wireless borrowed $12.4 billion under the Bridge Facility in order to complete the acquisition of Alltel and repay certain of Alltel’s outstanding debt as described below. The Bridge Facility has a maturity date of January 8, 2010. Interest on borrowings under the Bridge Facility is calculated based on LIBOR for the applicable period, the level of borrowings on specified dates and a margin that is determined by reference to Verizon Wireless’s long-term credit rating issued by S&P. The Bridge Facility includes a requirement to maintain a certain leverage ratio. We are required to prepay indebtedness under the Bridge Facility with the net cash proceeds of specified asset sales, equity issuances and borrowings, subject to certain exceptions. At March 31, 2009, approximately $7.2 billion was outstanding and the unused commitments under the Bridge Facility were terminated. On April 8,Through June 30, 2009, Verizon Wireless repaid approximately $1.3 billion of the borrowings under the Bridge Facility, reducing the outstanding balance to approximately $5.9 billion.

During February 2009, Verizon Wirelessused cash generated from operations and Verizon Wireless Capital LLC co-issued $4.25 billion of notes in a private placement resulting in cash proceeds of $4.2 billion, net of discounts and issuance costs. Verizon Wireless used the net proceeds from the sale of thesethe notes described below to reducerepay all of the balanceborrowings under the Bridge Facility. As of June 30, 2009, no borrowings were outstanding under itsthe Bridge Facility described above.and the commitments under the Bridge Facility have been terminated.

In connection with the Alltel acquisition, Verizon Wireless assumed approximately $23.9 billion of debt, of which approximately $2.5$2.3 billion remainedremains outstanding through January 28,to third parties as of June 30, 2009. Under the terms of a tender offer that was completed on March 20, 2009, $0.2 billion aggregate principal amount of the remaining outstanding debt was redeemed for a loss that was not significant.

In February 2009, Verizon Wireless and Verizon Wireless Capital LLC co-issued $4.3 billion aggregate principal amount of three and five-year fixed rate notes in a private placement resulting in cash proceeds of $4.2 billion, net of discounts and issuance costs. In May 2009, Verizon Wireless and Verizon Wireless Capital LLC co-issued $4.0 billion aggregate principal amount of two-year fixed and floating rate notes in a private placement resulting in cash proceeds of approximately $4.0 billion, net of discounts and issuance costs.

In June 2009, Verizon Wireless issued in a private placement $1.0 billion aggregate principal amount of floating rate notes due 2011. Commencing on December 27, 2009 and on each interest payment date thereafter, both the note holders and Verizon Wireless have the right to require settlement of all or a portion of these notes at par. Accordingly, these notes are classified as current maturities in the condensed consolidated balance sheet.

Cellco Partnership (d/b/a Verizon Wireless) and Verizon Wireless Capital LLC filed a registration statement with the SEC on July 6, 2009 to register a total of approximately $11.8 billion of new notes which may, once the registration statement is declared effective by the SEC, be exchanged for privately placed debt with similar terms, pursuant to the requirements of registration rights agreements. The privately placed debt includes the debt issued in November of 2008, as well as February and May of 2009. This Report on Form 10-Q does not constitute an offer of any securities for sale.

Verizon Communications

In March 2009, Verizon issued $1.8 billion of 6.35% notes due 2019 and $1.0 billion of 7.35% notes due 2039, resulting in cash proceeds of $2.7 billion, net of discounts and issuance costs, which was used to reduce our commercial paper borrowings, repay maturing debt including commercial paper, and for general corporate purposes. In December 2008, the Companywe entered into a $0.2 billion vendor provided credit facility. Infacility and in January 2009, the Companywe borrowed the entire $0.2 billionamount available under this facility. On January 15,During the first half of 2009, $0.2 billion of 5.5% notes issued by the Verizon California Inc., $0.2 billion of 5.875% notes issued by Verizon New England Inc., and $0.5 billion of floating rate notes issued by Verizon matured and were repaid.

As of March 31, 2009, we had approximately $5.6 billion of unused bank lines of credit consisting of a three-year committed facility that were due to expire in September 2009. On April 15, 2009, we terminated all commitments under our $6.0 billion three-year credit facility with a syndicate of lenders that was scheduled to mature in September 2009 and entered into a new $5.3 billion 364-day credit facility for $5.3 billion. Commitmentswith a group of major financial institutions. As of June 30, 2009, the unused borrowing capacity under the prior364-day credit facility were cancelled. We have a shelf registration available for the issuance of up to $4.0 billion of additional unsecured debt or equity securities.was approximately $5.2 billion.

Guarantees

We guarantee the debt obligations of GTE Corporation (but not the debt of its subsidiary or affiliate companies) that were issued and outstanding prior to July 1, 2003. In April 2009, $0.5 billion of 7.51% notes issued by GTE Corporation matured and were repaid. As of March 31,June 30, 2009, $2.2$1.7 billion principal amount of these obligations remained outstanding. Verizon Communications Inc. and NYNEX Corporation are the joint and several co-obligors of the 20-Year 9.55% Debentures due 2010 previously issued by NYNEX on March 26, 1990. As of March 31, 2009, $47 million principal amount of this obligation remained outstanding. NYNEX and GTE no longer issue public debt.

Debt Covenants

As of March 31,June 30, 2009, we and our consolidated subsidiaries are in compliance with all of our debt covenants.

6.7.

Stock-Based Compensation

 

Verizon Communications Long-Term Incentive Plan

TheIn May 2009, Verizon shareholders approved the 2009 Verizon Communications Inc. Long-Term Incentive Plan (the Plan) which permits the granting of nonqualified stock options, incentive stock options,appreciation rights, restricted stock, restricted stock units, performance shares, performance share units and other awards. The maximum number of shares available for awards from the Plan is 207 million.115 million shares. The Plan amends and restates the previous long-term incentive plan.

Restricted Stock Units

The Plan provides for grants of Restricted Stock Units (RSUs) that generally vest at the end of the third year after the grant. The RSUs are classified as liability awards because the RSUs will be paid in cash upon vesting. The RSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the performance of Verizon’s stock. Dividend equivalent units are also paid to participants at the time the RSU award is paid.

The following table summarizes Verizon’s Restricted Stock Unit activity:

 

(shares in thousands)  Restricted Stock
Units
 

Weighted-Average
Grant-Date

Fair Value

  Restricted Stock
Units
 

Weighted-Average
Grant-Date

Fair Value

Outstanding, beginning of year

  21,820  $35.01  21,820   $35.01

Granted

  6,094   31.41  6,427    31.59

Payments

  (9,347)  31.64  (9,349  31.64

Cancelled/Forfeited

  (35)  37.21  (62  35.92
          

Outstanding, March 31, 2009

  18,532   35.53

Outstanding, June 30, 2009

  18,836    35.52
          

Performance Share Units

The Plan also provides for grants of Performance Share Units (PSUs) that generally vest at the end of the third year after the grant if certain threshold performance requirements have been satisfied. The PSUs are classified as liability awards because the PSUs will be paid in cash upon vesting. Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award.

The following table summarizes Verizon’s Performance Share Unit activity:

 

(shares in thousands)  Performance Share
Units
 

Weighted-Average
Grant-Date

Fair Value

  Performance Share
Units
 

Weighted-Average
Grant-Date

Fair Value

Outstanding, beginning of year

  33,214  $35.04  33,214   $35.04

Granted

  12,556   31.46  13,056    31.59

Payments

  (17,138)  31.58  (17,141  31.58

Cancelled/Forfeited

  (129)  33.87  (169  33.95
          

Outstanding, March 31, 2009

  28,503   35.55

Outstanding, June 30, 2009

  28,960    35.54
          

As of March 31,June 30, 2009, unrecognized compensation expense related to the unvested portion of RSUs and PSUs was approximately $570$470 million and is expected to be recognized over a weighted-average period of approximately two years.

Verizon Wireless Long-Term Incentive Plan

The 2000 Verizon Wireless Long-Term Incentive Plan (the Wireless Plan) provides compensation opportunities to eligible employees and other participating affiliates of Verizon Wireless. The Wireless Plan provides rewards that are tied to the long-term performance of Verizon Wireless. Under the Wireless Plan, Value Appreciation Rights (VARs) were granted to eligible employees. As of March 31,June 30, 2009, all VARs were fully vested.

The following table summarizes the Value Appreciation Rights activity:

 

(shares in thousands)  Value Appreciation
Rights
 

Weighted-Average
Grant-Date

Fair Value

  Value Appreciation
Rights
 

Weighted-Average
Grant-Date

Fair Value

Outstanding, beginning of year

  28,244  $16.54  28,244   $16.54

Exercised

  (9,010)  15.60  (9,706  15.74

Cancelled/Forfeited

  (89)  18.83  (150  18.07
          

Outstanding, March 31, 2009

  19,145   16.98

Outstanding, June 30, 2009

  18,388    16.95
          

Stock Options

The Plan provides for grants of stock options to employees at an option price per share of 100% of the fair market value of Verizon stock on the date of grant. Each grant has a 10 year life, vesting equally over a three year period, starting at the date of the grant. We have not granted new stock options since 2004; all stock options outstanding are vested and exercisable.

The following table summarizes our stock option activity:

 

(shares in thousands)  Stock Options Weighted-Average
Exercise Price
  Stock Options Weighted-Average
Exercise Price

Outstanding, beginning of year

  134,767  $47.69  134,767   $47.69

Exercised

       (2  26.33

Cancelled/Forfeited

  (18,796)  51.84  (20,428  51.70
          

Outstanding, March 31, 2009

  115,971   47.01

Outstanding, June 30, 2009

  114,337    46.97
          

The weighted-average remaining contractual term was approximately two years for stock options outstanding as of March 31,June 30, 2009. The total intrinsic value for stock options outstanding and exercised was not material as of March 31, 2009 and March 31, 2008.June 30, 2009.

 

7.8.

Employee Benefits

 

We maintain noncontributory defined benefit pension plans for many of our employees. In addition, we maintain postretirement health care and life insurance plans for certain of our retirees and their dependents, which are both contributory and non-contributory and include a limit on the company’s share of cost for certain recent and future retirees.

Net Periodic Benefit (Income) Cost

The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans:

 

(dollars in millions)

       Pension Health Care and Life 
   Pension   Health Care and Life 
Three Months Ended March 31,  2009 2008 2009 2008 
(dollars in millions)    
  2009 2008 2009 2008 

Service cost

  $        96  $        96  $        78  $        81   $96   $94   $78   $79  

Interest cost

   481   491   441   429    481    489    442    426  

Expected return on plan assets

   (734)  (800)  (76)  (80)   (735  (794  (75  (80

Amortization of prior service cost

   28   14   100   99    28    13    100    98  

Actuarial loss, net

   28   10   60   67    28    10    59    66  
          

Net periodic benefit (income) cost

  $(101) $(189) $603  $596    (102  (188  604    589  

Settlement loss

   416              
          

Total (income) cost

  $314   $(188 $604   $589  
     
(dollars in millions)  Pension Health Care and Life 
   
Six Months Ended June 30,  2009 2008 2009 2008 

Service cost

  $192   $190   $156   $160  

Interest cost

   962    980    883    855  

Expected return on plan assets

     (1,469    (1,594    (151    (160

Amortization of prior service cost

   56    27    200    197  

Actuarial loss, net

   56    20    119    133  
     

Net periodic benefit (income) cost

   (203  (377  1,207    1,185  

Settlement loss

   416              
     

Total (income) cost

  $213   $(377 $1,207   $1,185  
     

Severance, Pension and Benefit Charges

During the three and six months ended June 30, 2009, we recorded pension settlement losses of $416 million ($253 million after-tax), related to employees that received lump-sum distributions primarily resulting from our previous separation plans in which prescribed payment thresholds have been reached.

Employer Contributions

During the three months ended March 31,June 30, 2009, we contributed $35$29 million to our qualified pension trusts, $59$18 million to our nonqualified pension plans and $416$426 million to our other postretirement benefit plans. During the six months ended June 30, 2009, we contributed $64 million to our qualified pension trusts, $77 million to our nonqualified pension plans and $842 million to our other postretirement benefit plans. The anticipated qualified pension trust contributions for 2009 disclosed in Verizon’s Annual Report on Form 10-K for the year ended December 31, 2008, have not changed. Our estimate of the amount and timing of required qualified pension trust contributions for 2009 is based on current proposed Internal Revenue Service regulations under the Pension Protection Act of 2006.

Severance Benefits

During the three and six months ended March 31,June 30, 2009, we paid severance benefits of $99 million.million and $198 million, respectively. At March 31,June 30, 2009, we had a remaining severance liability of $1,025$944 million, which includes future contractual payments to employees separated as of March 31,June 30, 2009.

8.9.

Equity and Comprehensive Income

 

Equity

Changes in the components of equity were as follows:

 

 

Three Months Ended March 31,

 
 2009 2008   Six Months Ended June 30, 2009 Six Months Ended June 30, 2008 
(dollars in millions) Attributable
to Verizon
 Noncontrolling
Interest
 Total
Equity
 Attributable
to Verizon
 Noncontrolling
Interest
 Total
Equity
   Attributable
to Verizon
 Noncontrolling
Interest
 Total
Equity
 Attributable
to Verizon
 Noncontrolling
Interest
 Total
Equity
 

Balance at beginning of period

 $41,706  $37,199  $78,905       $50,581  $32,288  $82,869   $41,706   $37,199   $78,905   $50,581   $32,288   $82,869  

Spin-off of local exchange businesses in Maine,

New Hampshire and Vermont

       49    49                44        44  
        

Adjusted balance at beginning of period

 41,706  37,199  78,905  50,630  32,288  82,918    41,706    37,199    78,905    50,625    32,288    82,913  

Net income

    1,645  1,565  3,210  1,642  1,407  3,049    3,128    3,242    6,370    3,524    2,929    6,453  

Other comprehensive income

 (15) 36  21  250  1  251 

Other comprehensive income (loss)

   630    82    712    312    (2  310  
        

Comprehensive income

 1,630  1,601  3,231  1,892  1,408  3,300    3,758    3,324    7,082    3,836    2,927    6,763  

Contributed capital

 (183) (150) (333) (26)   (26)   (189  (155  (344  (26      (26

Acquisition of noncontrolling interests

   253  253    (4) (4)       266    266        1    1  

Dividends declared

 (1,307)   (1,307) (1,225)   (1,225)   (2,613      (2,613  (2,450      (2,450

Common stock in treasury

 2    2  (992)   (992)   3        3    (1,101      (1,101

Distributions and other

 3  (200) (197) 1  (293) (292)   7    (485  (478  3    (583  (580
        

Balance at end of period

 $41,851  $38,703  $  80,554  $50,280  $33,399  $83,679   $42,672   $40,149   $82,821   $50,887   $34,633   $85,520  
        

Noncontrolling interest included in our condensed consolidated financial statements primarily include Vodafone Group Plc.’sVodafone’s 45% ownership interest in our Verizon Wireless joint venture.

Comprehensive Income

Comprehensive income (loss) consists of net income and other gains and losses affecting equity that, under generally accepted accounting principles, are excluded from net income. Significant changes in the components of Other comprehensive income (loss), net of income tax expense (benefit), are described below.

Changes in the components of Other comprehensive income were as follows:

  Three Months Ended March 31,   Three Months Ended
June 30,
 Six Months Ended
June 30,
 
(dollars in millions)  2009 2008   2009  2008 2009  2008 

Net Income

  $3,210  $3,049   $3,160  $3,404   $6,370  $6,453  

Other Comprehensive Income (Loss), Net of Taxes

          

Foreign currency translation adjustments

   (158)  178    188   (28  30   149  

Net unrealized gain on cash flow hedges

   38   1    47   1    85   1  

Unrealized loss on marketable securities

   (15)  (33)

Unrealized gain (loss) on marketable securities

   39   (12  24   (44

Defined benefit pension and postretirement plans

   120   104    371   102    491   206  
          

Other comprehensive income (loss) attributable to Verizon

   (15)  250 

Other comprehensive income attributable to noncontrolling interest

   36   1 

Other comprehensive income attributable to Verizon

   645   63    630   312  

Other comprehensive income (loss) attributable to noncontrolling interest

   46   (3  82   (2
          

Total Comprehensive Income

  $3,231  $3,300   $3,851  $3,464   $7,082  $6,763  
          

Comprehensive income attributable to noncontrolling interest

   1,601   1,408   $1,723  $1,519   $3,324  $2,927  

Comprehensive income attributable to Verizon

   1,630   1,892    2,128   1,945    3,758   3,836  
          

Total Comprehensive Income

  $3,231  $3,300   $3,851  $3,464   $7,082  $6,763  
          

Other comprehensive income attributable to noncontrolling interest primarily reflects activity related to the cross currency swap (see Note 4)5).

The components of Accumulated other comprehensive loss were as follows:

 

(dollars in millions)  

At March 31,

2009

 

At December 31,

2008

   At June 30,
2009
 At December 31,
2008
 

Foreign currency translation adjustments

  $      778  $936   $966   $936  

Net unrealized loss on cash flow hedges

   (12)  (50)

Net unrealized gain (loss) on cash flow hedges

   35    (50

Unrealized loss on marketable securities

   (52)  (37)   (13  (37

Defined benefit pension and postretirement plans

   (14,101)  (14,221)   (13,730  (14,221
          

Accumulated Other Comprehensive Loss

  $(13,387) $(13,372)  $(12,742 $(13,372
          

Foreign Currency Translation Adjustments

The change in foreign currency translation adjustments for the three and six months ended March 31,June 30, 2009 was primarily driven by appreciationthe devaluation in the U.S. dollar against the Euro.

Unrealized Loss on Marketable Securities

Gross unrealized gains and losses on marketable securities and other investments were not significant during the three and six months ended June 30, 2009.

Defined Benefit Pension and Postretirement Plans

The change in defined benefit pension and postretirement plans of $120 million, $96 million attributable to Verizon after-tax, for the three and six months ended March 31,June 30, 2009 was attributable to pension settlement losses recorded during the change insecond quarter of 2009 and the funded statusamortization of the plans in connection with the annual pensionprior service cost and postretirement valuation in accordance with SFAS No. 158,Employers Accounting for Defined Benefit Plans and Other Postretirement Benefitsactuarial loss (see Note 8).

 

9.10.

Segment Information

 

Reportable Segments

We have two reportable segments, which we operate and manage as strategic business units and organize by products and services. We measure and evaluate our reportable segments based on segment operating income. The use of segment operating income is consistent with the chief operating decision makers’maker’s assessment of segment performance.

Beginning in 2009, we changed the manner in which the Wireline segment reports Operating revenues to align our financial presentation to the continued evolution of the wireline business. Accordingly, there are four marketing units within the Wireline segment: Mass Markets, Global Enterprise, Global Wholesale and Other. Mass Markets includes consumer and small business revenues. Global Enterprise includes all retail revenue from enterprise customers, both domestic and international. Global Wholesale includes all wholesale revenues, both domestic and international. Other primarily includes operator services, payphone services and revenues from the former MCI mass markets customer base.

Corporate, eliminations and other includes unallocated corporate expenses, intersegment eliminations recorded in consolidation, the results of other businesses, such as our investments in unconsolidated businesses, lease financing, and other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-recurring or non-operational nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results, since these items are included in the chief operating decision makers’maker’s assessment of segment performance.

The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below also include those items of a non-recurring or non-operational nature. We exclude from segment results the effects of certain items that management does not consider in assessing segment performance, primarily because of their non-recurring and/or non-operational nature. We believe that this presentation will assist readers in better understanding our results of operations and trends from period to period.

During the first three monthsquarter of 2008, we completed the spin-off of our local exchange and related business assets in Maine, New Hampshire and Vermont (see Note 2)3). Accordingly, Wireline results from these operations have been reclassified to Corporate and Other to reflect comparable operating results.

Our segments and their principal activities consist of the following:

 

Segment  Description

Domestic Wireless

  

Domestic Wireless’s products and services include wireless voice, data services and other value-added services and equipment sales across the United States.

Wireline

  

Wireline’s communications services include voice, Internet access, broadband video and data, next generation Internet Protocol network services, network access, long distance and other services. We provide these services to consumers, carriers, businesses and government customers both in the United States and internationally in 150 countries.

The following table provides operating financial information for our two reportable segments:

 

  Three Months Ended March 31,   Three Months Ended
June 30,
 Six Months Ended
June 30,
 
(dollars in millions)  2009 2008   2009 2008 2009 2008 

External Operating Revenues

        

Domestic Wireless

        

Service revenue

  $  13,057  $  10,127   $13,330   $10,472   $26,387   $20,599  

Equipment and other

   2,039   1,515    2,125    1,620    4,164    3,135  
          

Total Domestic Wireless

   15,096   11,642    15,455    12,092    30,551    23,734  

Wireline

        

Mass Markets

   4,921   4,886    4,956    4,943    9,877    9,829  

Global Enterprise

   3,742   3,875    3,705    3,971    7,447    7,846  

Global Wholesale

   2,086   2,363    2,100    2,321    4,186    4,684  

Other

   490   596    399    565    889    1,162  
          

Total Wireline

   11,239   11,720    11,160    11,800    22,399    23,521  
          

Total segments

   26,335   23,362    26,615    23,892    52,950    47,255  

Corporate, eliminations and other

   256   471    246    232    502    702  
          

Total consolidated – reported

  $26,591  $23,833   $26,861   $24,124   $53,452   $47,957  
          

Intersegment Revenues

        

Domestic Wireless

  $26  $27   $25   $26   $51   $53  

Wireline

   328   306    328    313    656    618  
          

Total segments

   354   333    353    339    707    671  

Corporate, eliminations and other

   (354)  (333)   (353  (339  (707  (671
          

Total consolidated – reported

  $  $   $   $   $   $  
          

Total Operating Revenues

        

Domestic Wireless

  $15,122  $11,669   $15,480   $12,118   $30,602   $23,787  

Wireline

   11,567   12,026    11,488    12,113    23,055    24,139  
          

Total segments

   26,689   23,695    26,968    24,231    53,657    47,926  

Corporate, eliminations and other

   (98)  138    (107  (107  (205  31  
          

Total consolidated – reported

  $26,591  $23,833   $26,861   $24,124   $53,452   $47,957  
          

Operating Income

        

Domestic Wireless

  $4,271  $3,255   $4,459   $3,463   $8,730   $6,718  

Wireline

   691   1,040    555    1,063    1,246    2,103  
          

Total segments

   4,962   4,295    5,014    4,526    9,976    8,821  

Reconciling items

   (268)  38    (596  20    (864  58  
          

Total consolidated – reported

  $4,694  $4,333   $4,418   $4,546   $9,112   $8,879  
          

 

(dollars in millions)  

At March 31,

2009

 

At December 31,

2008

   At June 30,
2009
 At December 31,
2008
 

Assets

      

Domestic Wireless

  $  134,583  $  111,979   $134,383   $111,979  

Wireline

   93,618   90,386    92,720    90,386  
          

Total segments

   228,201   202,365    227,103    202,365  

Reconciling items

   (1,350)  (13)   (2,104  (13
          

Total consolidated – reported

  $226,851  $202,352   $224,999   $202,352  
          

A reconciliation of the total of the reportable segments’ operating income to consolidated Income before provision for income taxes is as follows:

 

  Three Months Ended March 31,   Three Months Ended
June 30,
 Six Months Ended
June 30,
 
(dollars in millions)  2009 2008    2009    2008    2009    2008  

Total segment operating income

  $    4,962  $    4,295   $5,014   $4,526   $9,976   $8,821  

Merger integration costs (see Note 2)

   (158)  (29)   (181  (36  (339  (65

Severance, pension and benefit charges (see Note 8)

   (416      (416    

Acquisition related charges (see Note 2)

   (88)              (88    

Access line spin-off related charges (see Note 2)

      (103)

Impact of divested operations (see Note 2)

      44 

Access line spin-off related charges (see Note 3)

               (103

Impact of divested operations (see Note 3)

               44  

Corporate and other

   (22)  126    1    56    (21  182  
          

Total consolidated operating income

   4,694   4,333    4,418    4,546    9,112    8,879  

Equity in earnings of unconsolidated businesses

   128   97    128    150    256    247  

Other income and (expense), net

   53   23    11    92    64    115  

Interest expense

   (925)  (459)   (787  (403  (1,712  (862
          

Income Before Provision For Income Taxes

  $3,950  $3,994   $3,770   $4,385   $7,720   $8,379  
          

We generally account for intersegment sales of products and services and asset transfers at current market prices. No single customer accounted for more than 10% of our total operating revenues during the three and six months ended March 31,June 30, 2009 and 2008.

 

10.11.

Commitments and Contingencies

 

Several state and federal regulatory proceedings may require our telephone operations to pay penalties or to refund to customers a portion of the revenues collected in the current and prior periods. There are also various legal actions pending to which we are a party and claims which, if asserted, may lead to other legal actions. We have established reserves for specific liabilities in connection with regulatory and legal actions, including environmental matters that we currently deem to be probable and estimable. We do not expect that the ultimate resolution of pending regulatory and legal matters in future periods, including the Hicksville matter described below, will have a material effect on our financial condition, but it could have a material effect on our results of operations for a given reporting period.

During 2003, under a government-approved plan, remediation commenced at the site of a former Sylvania facility in Hicksville, New York that processed nuclear fuel rods in the 1950s and 1960s. Remediation beyond original expectations proved to be necessary and a reassessment of the anticipated remediation costs was conducted. A reassessment of costs related to remediation efforts at several other former facilities was also undertaken. In September 2005, the Army Corps of Engineers (ACE) accepted the Hicksville site into the Formerly Utilized Sites Remedial Action Program. This may result in the ACE performing some or all of the remediation effort for the Hicksville site with a corresponding decrease in costs to Verizon. To the extent that the ACE assumes responsibility for remedial work at the Hicksville site, an adjustment to a reserve previously established for the remediation may be made. Adjustments to the reserve may also be made based upon actual conditions discovered during the remediation at any of the sites requiring remediation.

In connection with the execution of agreements for the sales of businesses and investments, Verizon ordinarily provides representations and warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being sold, as well as indemnity from certain financial losses.

Subsequent to the sale of Verizon Information Services Canada in 2004, we continue to provide a guarantee to publish directories, which was issued when the directory business was purchased in 2001 and had a 30-year term (before extensions). The preexisting guarantee continues, without modification, despite the subsequent sale of Verizon Information Services Canada and the spin-off of our domestic print and Internet yellow pages directories business. The possible financial impact of the guarantee, which is not expected to be adverse, cannot be reasonably estimated since a variety of the potential outcomes available under the guarantee result in costs and revenues or benefits that may offset each other. In addition, performance under the guarantee is not likely.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

Overview

 

Verizon Communications Inc., (Verizon, or the Company) is one of the world’s leading providers of communications services. Our domestic wireless business, operating as Verizon Wireless, provides wireless voice and data products and services across the United States (U.S.) using one of the most extensive and reliable wireless networks. Our wireline business provides communications services, including voice, broadband data and video services, network access, nationwide long-distance and other communications products and services, and also owns and operates one of the most expansive end-to-end global Internet Protocol (IP) networks. Stressing diversity and commitment to the communities in which we operate, we have a highly diverse workforce of approximately 237,300235,300 employees.

In the sections that follow, we provide information about the important aspects of our operations and investments, both at the consolidated and segment levels, and discuss our results of operations, financial position and sources and uses of cash. In addition, we highlight key trends and uncertainties to the extent practicable. The content and organization of the financial and non-financial data presented in these sections are consistent with information used by our chief operating decision makersmaker for, among other purposes, evaluating performance and allocating resources. We also monitor several key economic indicators as well as the state of the economy in general, primarily in the United States where the majority of our operations are located, in evaluating our operating results and assessing the potential impacts of these trends on our businesses. While most key economic indicators, including gross domestic product, affect our operations to some degree, we historically have noted higher correlations to non-farm employment, personal consumption expenditures and capital spending, as well as more general economic indicators such as inflationary or recessionary trends and housing starts.

Beginning in 2009, we changed the manner in which the Wireline segment reports Operating revenues to align our financial presentation to the continued evolution of the wireline business. Accordingly, there are four marketing units within the Wireline segment: Mass Markets, Global Enterprise, Global Wholesale and Other. Mass Markets includes consumer and small business revenues. Global Enterprise includes all retail revenue from enterprise customers, both domestic and international. Global Wholesale includes all wholesale revenues, both domestic and international, including switched and special access revenues, local wholesale and wholesale services from our global and IP networks. Other primarily includes operator services, payphone services and revenues from the former MCI mass markets customer base. In providing services to former MCI mass market customers we principally use other carriers’ networks.

Our results of operations, financial position and sources and uses of cash in the current and future periods reflect our focus on the following strategic imperatives:

Revenue Growth – To generate revenue growth we are devoting our resources to higher growth markets such as the wireless voice and data markets, the broadband and video markets, and the provision of strategic services to business markets, rather than to the traditional wireline voice market. During the first quarter ofthree months ended June 30, 2009, we reported consolidated revenue growth of 11.6%was 11.3% compared to last year, primarily due to the acquisition of Alltel Corporation (Alltel) in January 2009 and higher revenues in growth markets partially offset by declines in Global Wholesale and Global Enterprise. We continue developing and marketing innovative product bundles to include local, long-distance, wireless and broadband services for consumer and general business retail customers. We anticipate that these efforts will help counter the effects of competition and technology substitution that have resulted in access line losses, and will enable us to continue to grow consolidated revenues.

Market Share Gains – In our wireless business, our goal is to continue to be the market leader in providing wireless voice and data communication services in the U.S. We are focused on providing the highest network reliability and innovative products and services such as Mobile Broadband and our Evolution-Data Optimized (EV-DO) service. We also continue to expand our wireless data, messaging and multi-media offerings for both consumer and business customers. With our acquisition of Alltel, we became the largest wireless provider in the U.S. as measured by the total number of customers and revenues. In our wireline business, our goal is to become the leading broadband provider in every market in which we operate. During the first quarter ofthree months ended June 30, 2009 as compared to the similar period in 2008:

 

Domestic Wireless total customers increased 28.8%27.7% to 86.687.7 million as of June 30, 2009, primarily due to the acquisition of Alltel;

 

average revenue per customer per month (ARPU) from service revenues decreased by 0.3%0.8% to $50.74$51.10, primarily due to the inclusion of customers acquired in connection with the acquisition of Alltel; and

 

total data ARPU grew by 20.8%18.9% to $14.16.$14.96.

In our wireline business, our goal is to become the leading broadband provider in every market in which we operate. During the first quarterAs of June 30, 2009,

we passed 13.213.8 million premises with our high-capacity fiber optics network operated under the FiOS service mark;mark. During the three months ended June 30, 2009:

 

we added 252,000186,000 net wireline broadband connections, including 303,000 net new FiOS Internet subscribers, for a total of 8,925,0009.1 million connections; and

 

we added approximately 299,000300,000 net new FiOS TV customers,subscribers, for a total of 2,217,0002.5 million FiOS TV customers.subscribers.

With FiOS, we have created the opportunity to increase revenue per customer as well as improve retention and profitability as the traditional fixed-line telephone business continues to decline due to customer migration to wireless, cable and other newer technologies. Consumer ARPU increased 13.7% in the three months ended June 30, 2009 compared to the similar period in 2008.

We are also focused on gaining market share in the enterprise business by the deployment of strategic service offerings – including expansion of our VoIP and international Ethernet capabilities, the introduction of video and web-based conferencing capabilities, and enhancements to our virtual private network portfolio. In the first quarter ofthree months ended June 30, 2009, revenues from total strategic services grew 7.5% compared to the similar period in 2008. Consumer ARPU increased 13.7%3.0% compared to the similar period in 2008.

Profitability Improvement – Our goal is to increase operating income and margins. During the first quarter of 2009,While our wireless, FiOS and IP services offerings continue to positively impact operating income rose 8.3% comparedresults, economic conditions continue to the first quarter of 2008. Given the recent economic challenges inaffect parts of our wireline business. Specifically, business we maintained a stablecustomers continue to be adversely affected by the economy, including delaying decision-making regarding spending on information technology and customer premises equipment. The cumulative effect of unemployment is impacting usage volumes, which is pressuring our margins. In addition, higher costs related to merger integration activities and severance, pension and benefit charges also impacted our reported operating income margin at approximately 17.7%results which were lower in the three months ended June 30, 2009, compared to 18.2% in the similar period in 2008. We remained sharplylast year. However, we remain focused on cost controls with the objective of driving efficiencies to offset business volume declines.

In addition, to position our company for sustainable, long-term profitability, we are directing our capital spending primarily toward higher growth markets. High-speed wireless data services, fiber optics to the premises, as well as expanded services to enterprise customers, are examples of these growth markets. Capital expenditures for the first quarter of 2009 were $3,707 million or 13.9% of revenue. During the first quarter of 2008, capital expenditures were $4,220 million or 17.7% of revenue.

Due to the uncertainties surrounding the domestic and global economies,declines, although we expect these pressures to continue throughout the second half of 2009. As part of our ongoing program to manageresize and reduce our capital programcost structure, we reduced headcount by more than 8,000 over the 12 months ended June 30, 2009 and we plan to reduce employee and contractor headcount by more than 8,000 in a disciplined manner.the second half of 2009.

Operational Efficiency – While focusing resources on revenue growth and market share gains, we are continually challenging our management team to lower expenses, particularly through technology-assisted productivity improvements, including self-service initiatives. The effect of these and other efforts, such as real estate consolidation, call center routing improvements, the formation of a centralized shared services organization, information technology and marketing efforts, has led to changes in our cost structure as well aswith a goal of maintaining and improving operating income margins. Through our deployment of the FiOS network, we expect to realize savings annually in our ongoing operating expenses as a result of efficiencies gained from fiber network facilities. As the deployment of the FiOS network gains scale and installation and automation improvements occur, average costs per home connected have begun to decline. In addition, the integration of Alltel’s operations has begun and we anticipate that the use of the same technology platform will enable us to rapidly integrate Alltel’s operations with ours.

We create value for our shareowners by investing the cash flows generated by our business in opportunities and transactions that support our strategic imperatives, thereby increasing customer satisfaction and usage of our products and services. In addition, we use our cash flows to repurchase shares and maintain and grow our dividend payout to shareowners. Verizon’s Board of Directors increased the Company’s quarterly dividend 7.0% during the third quarter of 2008. Net cash provided by operating activities for the six months ended June 30, 2009 of $14,137 million increased by $1,502 million from $12,635 million for the six months ended June 30, 2008.

Customer Service – Our goal is to be the leading company in customer service in every market we serve. We view superior product offerings and customer service experiences as a competitive differentiatordifferentiators and a catalystcatalysts to growing revenues and gaining market share. We are committed to providing high-quality customer service and continually monitoring customer satisfaction in all facets of our business. We believe that we have the most loyal customer base of any wireless service provider in the U.S., as measured by customer churn.

Performance-Based Culture – We embrace a culture of accountability, based on individual and team objectives that are performance-based and tied to Verizon’s strategic imperatives. Key objectives of our compensation programs are pay-for-performance and the alignment of executives’management’s and shareowners’ long-term interests. We also employ a highly diverse workforce, since respect for diversity is an integral part of Verizon’s culture and a critical element of our competitive success.

We create value for our shareowners by investing the cash flows generated by our business in opportunities and transactions that support our strategic imperatives, thereby increasing customer satisfaction and usage of our products and services. In addition, we use our cash flows to repurchase shares and maintain and grow our dividend payout to shareowners. Reflecting continued strong cash flows and confidence in Verizon’s business model, Verizon’s Board of Directors increased the Company’s quarterly dividend 7.0% during the third quarter of 2008. Net cash provided by operating activities for the three months ended March 31, 2009 of $6,420 million increased by $1,030 million from $5,390 million for the three months ended March 31, 2008.

Consolidated Results of Operations

In this section, we discuss our overall results of operations and highlight items that are not included in our business segment results. We have two reportable segments, which we operate and manage as strategic business units and organize by products and services. Our segments are Domestic Wireless and Wireline.

This section and the following “Segment Results of Operations” section also highlight and describe those items of a non-recurring or non-operational nature separately to ensure consistency of presentation. In the following section, we review the performance of our two reportable segments. We exclude the effects of certain items that management does not consider in assessing segment performance, primarily because of their non-recurring and/or non-operational nature as discussed below and in the “Other Consolidated Results” and “Other Items” sections. We believe that this presentation will assist readers in better understanding our results of operations and trends from period to period.

Corporate, eliminations and other includes unallocated corporate expenses, intersegment eliminations recorded in consolidation, the results of other businesses such as our investments in unconsolidated businesses, lease financing, and other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-recurring or non-operational nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results, since these items are included in the chief operating decision makers’maker’s assessment of segment performance. On March 31, 2008, we completed the spin-off of our local exchange and related business assets in Maine, New Hampshire and Vermont. Wireline resultsReclassifications of prior-period amounts have been reclassifiedmade in accordance with the adoption of the accounting standard on noncontrolling interests in the consolidated financial statements and, where appropriate, to reflect comparable operating results for boththe spinoff of these changes.our local exchange and related business assets in Maine, New Hampshire and Vermont.

 

Consolidated Revenues

 

 

  

Three Months Ended March 31,

      Three Months Ended
June 30,
 Six Months Ended
June 30,
   
(dollars in millions)  2009 2008   % Change    2009    2008   % Change    2009    2008  % Change  

Domestic Wireless

  $15,122  $11,669   29.6   $15,480   $12,118   27.7   $30,602   $23,787  28.7  

Wireline

             

Mass Markets

   4,924   4,892   0.7    4,959    4,947   0.2    9,883    9,839  0.4  

Global Enterprise

   3,743   3,876   (3.4)   3,704    3,972   (6.7  7,447    7,848  (5.1

Global Wholesale

   2,389   2,632   (9.2)    2,409    2,605   (7.5  4,798    5,237  (8.4

Other

   511   626    (18.4)   416    589   (29.4  927    1,215  (23.7
                  

Total

   11,567   12,026   (3.8)   11,488    12,113   (5.2  23,055    24,139  (4.5

Corporate, eliminations and other

   (98)  138   nm    (107  (107     (205  31  nm  
                  

Consolidated Revenues

  $  26,591  $  23,833   11.6   $  26,861   $  24,124   11.3   $  53,452   $  47,957  11.5  
                  

nm – Not meaningful

Consolidated revenues in the first quarter ofthree months ended June 30, 2009 increased $2,758$2,737 million, or 11.6%11.3%, and $5,495 million, or 11.5%, for the six months ended June 30, 2009, compared to the similar period in 2008 primarily due to the acquisition of Alltel and higher revenues in growth markets partially offset by declines in Global Wholesale and Global Enterprise.

Domestic Wireless’s revenues during the first quarter of 2009 increased $3,453 million, or 29.6% compared to the similar periodperiods in 2008, primarily due to the inclusion of the operating results of Alltel as well as continuedand higher revenues in growth markets. These revenue increases were partially offset by declines in Global Enterprise and Global Wholesale.

Domestic Wireless’s revenues during the three months ended June 30, 2009 increased by $3,362 million, or 27.7%, and $6,815 million, or 28.7%, for the six months ended June 30, 2009, compared to the similar periods in 2008, primarily due to the inclusion of the operating results of Alltel. Continued growth in service equipment andrevenue from other sources also contributed to the increase in Domestic Wireless’s revenues. Service revenues during the first quarter ofthree months ended June 30, 2009 increased $2,930$2,857 million, or 28.9%27.2%, and $5,787 million, or 28.0%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008. TheThis increase in service revenue was primarily due to the inclusion of service revenue derived from the 13.2 million net new customers, after conforming adjustments, thatwhich we acquired in connection with the acquisition of Alltel.Alltel on January 9, 2009. Service revenue also increased as a result of a 6.25.8 million, or 9.2%8.4%, increase in customers from March 31,since July 1, 2008, as well asunrelated to Alltel, and continued growth from data services. Total data revenues inrevenue during the first quarter ofthree months ended June 30, 2009 increased $1,313by $1,347 million, or 56.2%52.6%, and $2,660 million, or 54.3%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008. Total data revenues continue to increase as a result of increasednon-messaging and, to a lesser extent, messaging services and non-messaging services such as mobile broadband and email, data transport, andVZ Navigator.increases. Equipment and other revenue in the first quarter ofthree months ended June 30, 2009 increased by $523$505 million, or 34.3%31.1%, and $1,028 million, or 32.6%, for the six months ended June 30, 2009 compared to the similar periodperiods in 2008, due to the inclusion of equipment sales and handset insuranceother revenues from Alltel.of Alltel, partially offset by a decrease in the average revenue per unit, driven in part by promotional activities.

Wireline’s revenues during the first quarter ofthree months ended June 30, 2009 decreased $459$625 million, or 3.8%5.2%, and $1,084 million, or 4.5%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008, primarily fromas increases in Mass Markets revenues were more than offset by declines in Global Wholesale revenuesEnterprise and to a lesser extent Global Enterprise revenues. Global Wholesale revenues. Mass Markets revenues in the first quarter of 2009 decreased $243increased $12 million, or 9.2%0.2%, and $44 million, or 0.4%, for the three and six months ended June 30, 2009, respectively, compared to the similar periodperiods in 2008, due to decreased minutes of use (MOUs) in traditional voice products, continued rate compression in the marketplace and the negative effect of movements in foreign exchange rates versus the U.S. dollar, partially offset by an increase in special access revenues. Global Enterprise revenues decreased $133 million, or 3.4% compared to the similar period in 2008 primarily due to lower long distance and traditional circuit based data revenues, combined with the negative effects of movements in foreign exchange rates versus the U.S. dollar, offset partially by an increase in IP and security solutions revenues. Other revenue during the first quarter of 2009 decreased $115 million, or 18.4% compared to the similar period in 2008 primarily due to the discontinuation of non-strategic product lines and reduced business volumes, including former MCI mass markets customer losses. These declines were slightly offset by an increase in Mass Markets revenues during the first quarter of 2009 of $32 million, or 0.7%, compared to the similar period in 2008 due to continued growth in consumer and business FiOS services (Voice, Internet and TV), partially offset by a continued decline of local exchange revenues principally as a result of switched access line losses. Global Enterprise revenues decreased $268 million, or 6.7%, during the three months ended June 30, 2009 and $401 million, or 5.1%, during the six months ended June 30, 2009, compared to the similar periods in 2008, primarily due to lower long distance and traditional circuit-based data revenues, combined with the negative effects of movements in foreign exchange rates versus the U.S. dollar. This decrease was offset partially by an increase in IP and security solutions revenues. Global Wholesale revenues in the three months ended June 30, 2009 decreased $196 million, or 7.5%, and $439 million, or 8.4%, for the six months ended June 30, 2009, compared to the similar periods in 2008, due to decreased minutes of use (MOUs) in traditional voice products and continued rate compression in the marketplace. This decrease was partially offset by an increase in special access revenues. Other revenue during the three months ended June 30, 2009 decreased $173 million, or 29.4%, and $288 million, or 23.7%, for the six months ended June 30, 2009, compared to the similar periods in 2008, primarily due to the discontinuation of non-strategic product lines and reduced business volumes, including former MCI mass markets customer losses.

 

Consolidated Operating Expenses

 

 

  Three Months Ended March 31,   Three Months Ended
June 30,
     Six Months Ended
June 30,
   
(dollars in millions)  2009  2008 % Change  2009  2008  % Change      2009  2008  % Change

Cost of services and sales

  $    10,308  $    9,517  8.3  $10,481  $9,466  10.7      $20,789  $18,983  9.5

Selling, general and administrative expense

   7,561   6,401  18.1   7,871   6,528  20.6       15,432   12,929  19.4

Depreciation and amortization expense

   4,028   3,582   12.5   4,091   3,584  14.1       8,119   7,166  13.3
                  

Consolidated Operating Expenses

  $  21,897  $  19,500  12.3  $22,443  $19,578  14.6      $44,340  $39,078  13.5
                  

Cost of Services and Sales

Consolidated cost of services and sales expense in the first quarter ofthree months ended June 30, 2009 increased $791$1,015 million, or 8.3%10.7%, and $1,806 million, or 9.5%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008, primarily due to the inclusionincreased costs associated with operating an expanded wireless network as a result of the operating resultsacquisition of Alltel,Alltel. Additionally, the increase was due to increased costs associated with our growth businesses, as well as increased use of wireless data services and applications and increased wireless network related costs.costs, primarily related to cell site lease expense and local interconnection cost growth. Also contributing to the increase were higher wireless equipment sales compared to the similar periodperiods in 2008, primarily due to the inclusion of equipment sales in distribution channels acquired from Alltel, as well as an increase in the number andof equipment units sold at a higher average cost per unit, as a result of wireless devices sold.increased sales of data devices. Partially offsetting these increases were declines in our Wireline segment, in part due to lower headcount and productivity improvements.

Consolidated cost of services and sales for the three and six months ended June 30, 2009 included $24 million and $85 million, respectively, for merger integration costs primarily relating to the Rural Cellular Corporation and Alltel acquisitions. Consolidated cost of services and sales expense for the threesix months ended March 31, 2009 included $61 million for merger integration costs primarily relating to the Alltel acquisition. Consolidated cost of services and sales expense for the three months ended March 31,June 30, 2008 included $16 million related to the spin-off of local exchange and related business assets in Maine, New Hampshire and Vermont,Vermont. Consolidated cost of services and $5 million forsales expense during the three and six months ended June 30, 2008 also included merger integration costs of $8 million and $13 million, respectively, primarily relating to the former MCI system integration activities.

Selling, General and Administrative Expense

Consolidated selling, general and administrative expense in the first quarter ofthree months ended June 30, 2009, increased $1,160$1,343 million, or 18.1%20.6%, and $2,503 million, or 19.4%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008. This increase is primarily due to the inclusion of the operating results of Alltel, as well as higher sales commission expense in our indirect channel,and pension and benefit related expenses, partially offset by the impact of cost reduction initiatives.initiatives in our Wireline segment.

Consolidated selling, general and administrative expense for the first quarterthree and six months ended June 30, 2009 included $416 million related to pension settlement losses. Consolidated selling, general and administrative expense for the three and six months ended June 30, 2009 included $66 million and $118 million, respectively, of merger integration costs primarily related to the acquisition of Alltel. The six months ended June 30, 2009 also included $88 million forof acquisition-related charges and $52 million of merger integration costs primarily related to the acquisition of Alltel. Consolidated selling, general and administrative expense for the first quarter ofthree and six months ended June 30, 2008 included $24$28 million and $52 million, respectively, for merger integration costs, primarily relating to the former MCI system integration activitiesactivities. Consolidated selling, general and administrative expense for six months ended June 30, 2008 included $87 million related to the spin-off of local exchange and related business assets in Maine, New Hampshire and Vermont.

Depreciation and Amortization Expense

Depreciation and amortization expense in the first quarter ofthree months ended June 30, 2009 increased $446$507 million, or 12.5%14.1%, and $953 million, or 13.3%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008. This increase was mainly driven by the acquisition of Alltel’s depreciable property and equipment and finite-lived intangible assets acquired from Alltel which are not being divested, as well as growth in depreciable assets and non-network software through the first quarter ofsix months ended June 30, 2009.

AmortizationDepreciation and amortization expense in the first quarter ofthree and six months ended June 30, 2009 included $45$91 million and $136 million, respectively, of merger integration costs related to the Alltel acquisition.

Other Consolidated Results

Equity in Earnings of Unconsolidated Businesses

 

   Three Months Ended March 31,    
(dollars in millions)  2009  2008  % Change 

Vodafone Omnitel

  $    142  $    115  23.5 

Other

   (14)  (18) (22.2)
      

Total

  $128  $97  32.0 
      

Equity in earnings of unconsolidated businesses during the first quarter of 2009 increased $31 million compared to the similar period in 2008, primarily driven by higher earnings at Vodafone Omnitel N.V. (Vodafone Omnitel).

Other Income and (Expense), Net

   Three Months Ended March 31,    
(dollars in millions)  2009  2008  % Change 

Interest income

  $    23  $55  (58.2)

Foreign exchange gains (losses), net

   29   (38) nm 

Other, net

   1   6  (83.3)
      

Total

  $53  $23  nm 
      

nm – Not meaningful

Other income and (expense), net in the first quarter of 2009 increased $30 million compared to the similar period in 2008 primarily due to higher foreign exchange gains at our international Wireline operations that were partially offset by lower interest income due to a lower balance in Short-term investments.

Interest Expense

   Three Months Ended March 31,   
(dollars in millions)  2009  2008  % Change

Total interest costs on debt balances

  $1,160  $544  nm

Less capitalized interest costs

   235   85  nm
      

Interest expense

  $925  $459  nm
      

Weighted-average debt outstanding

  $  63,917  $33,217  

Effective interest rate

   7.26%  6.55% 

nm – Not meaningful

   Three Months Ended June 30,     Six Months Ended June 30,    
(dollars in millions)  2009  2008  % Change  2009  2008  % Change 

Vodafone Omnitel

  $142   $173   (17.9 $284   $288   (1.4

Other

   (14  (23 (39.1  (28  (41 (31.7
           

Total

  $128   $150   (14.7 $256   $247   3.6  
           

 

Equity in earnings of unconsolidated businesses decreased $22 million and increased $9 million, respectively, for the three and six months ended June 30, 2009, compared to the similar periods in 2008. The decrease during the three months ended June 30, 2009 was primarily due to lower earnings at Vodafone Omnitel N.V. (Vodafone Omnitel) driven by the devaluation of the Euro versus the U.S. dollar.

 

Other Income and (Expense), Net

 

     

  

   Three Months Ended June 30,     Six Months Ended June 30,    
(dollars in millions)  2009  2008  % Change  2009  2008  % Change 

Interest income

  $18   $57   (68.4 $41   $112   (63.4

Foreign exchange gains (losses), net

   (9  8   nm    20    (30 nm  

Other, net

   2    27   (92.6  3    33   (90.9
           

Total

  $11   $92   (88.0 $64   $115   (44.3
           

nm – Not meaningful

 

Other income and (expense), net decreased $81 million and $51 million, respectively, for the three and six months ended June 30, 2009, compared to the similar periods in 2008, primarily driven by lower interest income, in part due to lower invested balances in the current year, including the investment in Alltel’s senior notes which were eliminated in consolidation beginning in January 2009. Partially offsetting the decrease during the six months ended June 30, 2009 were foreign exchange gains at our international Wireline operations.

 

Interest Expense

 

  

     

  

   Three Months Ended June 30,     Six Months Ended June 30,    
(dollars in millions)  2009  2008  % Change  2009  2008  % Change 

Total interest costs on debt balances

  $1,017   $611   66.4   $2,177   $1,155   88.5  

Less capitalized interest costs

   230    208   10.6    465    293   58.7  
           

Interest expense

  $787   $403   95.3   $1,712   $862   98.6  
           

Weighted-average debt outstanding

  $66,663   $39,339    $64,741   $36,340   

Effective interest rate

   6.1  6.2   6.7  6.4 

Total interest costs on debt balances inincreased $406 million and $1,022 million, respectively, for the first quarter ofthree and six months ended June 30, 2009, increased $616 million compared to the similar periodperiods in 2008, primarily due to an increase in the weighted-average debt levellevels and, during the six months ended June 30, 2009, higher interest rates. Capitalized interest costs during the first quarter of 2009 include approximately $184 million related to the development of wireless licenses acquired in the 700 MHz auction. The increaseincreases in weighted-average debt outstanding compared to the similar periodperiods in 2008 waswere primarily driven by borrowings to finance the acquisition of Alltel and the licenses acquired in the 700 MHz auction. The increase in capitalized interest costs during the three and six months ended June 30, 2009 primarily related to the development of wireless licenses.

Provision for Income Taxes

 

  Three Months Ended March 31,   Three Months Ended June 30, Six Months Ended June 30, 
(dollars in millions)  2009 2008 % Change   2009 2008 % Change 2009 2008 % Change 

Provision for income taxes

  $    740  $    945  (21.7)  $610   $981   (37.8 $1,350   $1,926   (29.9

Effective income tax rate

   18.7%  23.7%    16.2  22.4   17.5  23.0 

The effective income tax rate is calculated by dividing the provision for income taxes by income before the provision for income taxes. The adoption of Statement of Financial Accounting Standards No. 160,Noncontrolling InterestsOn January 1, 2009, we adopted the accounting pronouncement on noncontrolling interests in Consolidated Financial Statements – an amendment of ARB No. 51,consolidated financial statements, which resulted in a lower effective income tax rate for the Company due to the inclusion of income attributable to Vodafone Group Plc.’s (Vodafone) noncontrolling partnership interest in incomeIncome before the provision for income taxes. However, the income tax provision was not adjusted as a result of adopting this pronouncement.

The effective income tax rate for the three and six months ended March 31,June 30, 2009 compared to similar periodperiods in 2008, decreased primarily due to higher earnings attributable to the noncontrolling interest, greater benefits from tax restructuring of non-UScertain domestic and non-U.S. operations and lower state income taxes.

Unrecognized Tax Benefits

The unrecognized tax benefits pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 48,Accounting for Uncertainty in Income Taxes, were $2,584$2,419 million and $2,622 million at March 31,June 30, 2009 and December 31, 2008, respectively. Interest and penalties related to unrecognized tax benefits were $484$486 million (after-tax) and $538 million (after-tax), at March 31,June 30, 2009 and December 31, 2008, respectively. The decrease in unrecognized tax benefits and the related interest and penalties was due to the resolution of issues under income tax examinations and benefits recognized from filing amended tax returns, partially offset by the increase from the acquisition of Alltel. The decrease in unrecognized tax benefits was primarily offset by an increase to deferred income taxes. The Internal Revenue Service (IRS) is currently examining the Company’s U.S. income tax returns for tax years 2004 through 2006. As a large taxpayer, we are under continual audit by the IRS and other taxing authorities on numerous open tax positions. It is possible that the amount of the liability for unrecognized tax benefits could change by a significant amount during the next twelve-month period. An estimate of the range of the possible change cannot be made until issues are further developed or examinations close.

Net Income Attributable to Noncontrolling Interest

 

  Three Months Ended March 31,     Three Months Ended June 30,     Six Months Ended June 30,   
(dollars in millions)  2009  2008  % Change  2009  2008  % Change  2009  2008  % Change

Net income attributable to noncontrolling interest

  $    1,565  $    1,407  11.2  $1,677  $1,522  10.2  $3,242  $2,929  10.7

The increase in net income attributable to noncontrolling interest in the first quarter ofthree and six months ended June 30, 2009, compared to the similar periodperiods in 2008, was the result of higher earnings at Domestic Wireless, which has a 45% noncontrolling partnership interest attributable to Vodafone Group Plc.Vodafone.

Segment Results of Operations

 

We have two reportable segments, which we operate and manage as strategic business units and organize by products and services. We measure and evaluate our reportable segments based on segment operating income.

 

Domestic Wireless

 

Our Domestic Wireless segment, which includes the operations of Alltel subsequent to the completion of the acquisition, provides wireless voice and data services, other value-added services and equipment sales across the United States.U.S. This segment primarily represents the operations of the Verizon joint venture with Vodafone, operating as Verizon Wireless.

Operating Revenue and Selected Operating Statistics

 

   Three Months Ended March 31,   
(dollars in millions)  2009  2008  % Change

Service revenue

  $  13,075  $10,145  28.9

Equipment and other

   2,047   1,524  34.3
      

Total Domestic Wireless Operating Revenue

  $15,122  $  11,669  29.6
      

Total customers (’000)

   86,552   67,178  28.8

Retail customers (’000)

   84,095   65,186  29.0

Total customer net adds in period (’000)

   14,496   1,471  nm

Retail customer net adds in period (’000)

   14,074   1,451  nm

Total churn rate

   1.47%  1.19% 

Retail postpaid churn rate

   1.14%  0.93% 
   Three Months Ended June 30,     Six Months Ended June 30,    
(dollars in millions, except ARPU)  2009  2008  % Change  2009  2008  % Change 

Service revenues

  $13,349   $10,492   27.2   $26,424   $20,637   28.0  

Equipment and other

   2,131    1,626   31.1    4,178    3,150   32.6  
           

Total Domestic Wireless
Operating Revenue

  $15,480   $12,118   27.7   $30,602   $23,787   28.7  
           

Total customers (‘000)

      87,694    68,681   27.7  

Retail customers (‘000)

      85,240    66,680   27.8  

Total customer net adds in period (including acquisitions and adjustments) (‘000)

   1,142    1,503   (24.0  15,638    2,974   nm  

Retail customer net adds in period (including acquisitions and adjustments) (‘000)

   1,145    1,494   (23.4  15,219    2,945   nm  

Total churn rate

   1.37  1.12 22.3    1.42  1.16 22.4  

Retail postpaid churn rate

   1.01    0.83   21.7    1.08    0.88   22.7  

Service ARPU

  $51.10   $51.53   (0.8 $50.92   $51.22   (0.6

Retail service ARPU

   51.11    51.93   (1.6  51.04    51.67   (1.2

Total data ARPU

   14.96    12.58   18.9    14.56    12.16   19.7  

nm – Not meaningful

Domestic Wireless’s total operating revenue induring the first quarter ofthree months ended June 30, 2009 increased by $3,453$3,362 million, or 29.6%27.7%, and $6,815 million, or 28.7%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008, primarily due to the inclusion of the operating results of Alltel, as well as overall growth in our service revenues.revenue from sources other than the acquisition of Alltel.

Service revenue during the three months ended June 30, 2009 increased by $2,930$2,857 million, or 28.9%27.2%, duringand $5,787 million, or 28.0%, for the first quarter ofsix months ended June 30, 2009, compared to the similar periodperiods in 2008. The increase in service revenue was2008, primarily due to the inclusion of service revenue as a result of the 13.2 million net new customers, after conforming adjustments, that we acquired in connection with the acquisition of Alltel. ServiceSince July 1, 2008, service revenue also increased as a result of a 6.25.8 million, or 9.2%8.4%, increase in customers from sources other than the acquisition of13.2 million customers acquired from Alltel, since March 31, 2008 as well as continued growth from data services.

ExcludingDomestic Wireless added 1.1 million net retail customers during the three months ended June 30, 2009, compared to approximately 1.5 million during the similar period in 2008, and, excluding the 13.2 million customers acquired in connection with the acquisition of Alltel, Domestic Wireless added 1.32.4 million net retail customers during the first quarter ofsix months ended June 30, 2009, compared to approximately 1.52.9 million during the similar period in 2008. Retail (non-wholesale) customers are customers who are directly served and managed by Verizon Wireless and who buy its branded services. The decline in net retail customer additions for the three months ended June 30, 2009 and the six months ended June 30, 2009 was due to an increase in ourthe average monthly customer churn (churn), or the rate at which customers disconnect service.service, compared to the similar periods in 2008, partially offset by an increase in gross customer additions due to the expansion of our sales and distribution channels as a result of the acquisition of Alltel. The increases in our total and retail postpaid churn rates were primarily as a result of increased disconnections by business customers forof Mobile Broadband service and secondarybusiness share lines, which we believe isare mostly attributable to current economic conditions. We continue to believe that we have the most loyal customer base of any wireless provider in the United States, as measured by customer churn.

Total data revenue in the first quarter of 2009 was $3,649$3,908 million and accounted for 27.9%29.3% of service revenue in the three months ended June 30, 2009, compared to $2,336$2,561 million and 23.0%24.4%, respectively, in the similar period in 2008. Total data revenue was $7,557 million and accounted for 28.6% of service revenue in the six months ended June 30, 2009, compared to $4,897 million and 23.7% in the similar period in 2008. Total data revenue continues to increase as a result of increased use of messaging services and non-messaging services, such as Mobile Broadband and e-mail, data transport, andVZ Navigator.Navigator,and messaging services.We expect that data revenuesrevenue will continue to increase directly as a result of recent strong sales of PDA and smartphoneEV-DO-enabled devices that have HTML-browsing capability, or “smartphones,” continued introductions of new data-capable devices and upselling of data services to customers we acquired from Alltel customers.as we convert them to the Verizon Wireless brand.

Total data ARPU increased by 20.8% to $14.16The declines in the first quarter of 2009, compared to $11.72 in the similar period in 2008, as a result of the aforementioned increased usage of our data services. Service ARPU decreased by 0.3% to $50.74 in the first quarter of 2009 compared to $50.91 in the similar period in 2008. Retail service ARPU decreased by 0.8% to $50.97 in the first quarter of 2009 compared to $51.40 in the similar period in 2008. The decline in service and retail service ARPU waswere due to the inclusion of customers acquired in connection with the acquisition of Alltel, as well as continued reductions in average voice revenue per customer.customer, partially offset by an increase in total data ARPU. Total data ARPU increased 18.9% in the three months ended June 30, 2009 and 19.7% in the six months ended June 30, 2009, compared to the similar periods in 2008, as a result of the aforementioned increased usage of our data services.

Equipment and other revenue in the first quarter ofthree months ended June 30, 2009 increased by $523$505 million, or 34.3%31.1%, and $1,028 million, or 32.6%, in the six months ended June 30, 2009, compared to the similar periodperiods in 2008 primarily2008. Equipment revenue increased due to the inclusion of equipment sales and handset insurance revenues from Alltel. Excluding the results of Alltel, equipment and other revenue increased slightly as a result of an increase in cost recovery surcharges, partially offset by a decrease in equipment revenue. The number of equipment units sold increased over the similar period in 2008 but was offset by a decrease in the average revenue per unit, driven in part by recent promotions.promotional activities. Other revenues increased primarily due to the inclusion of the operating results of Alltel and an increase in cost recovery surcharges.

Operating Expenses

 

  Three Months Ended March 31,   Three Months Ended June 30,     Six Months Ended June 30,   
(dollars in millions)  2009  2008 % Change  2009  2008  % Change  2009  2008  % Change

Cost of services and sales

  $4,660  $3,585  30.0  $4,825  $3,744  28.9  $9,485  $7,329  29.4

Selling, general and administrative expense

   4,442   3,529  25.9   4,469   3,588  24.6   8,911   7,117  25.2

Depreciation and amortization expense

   1,749   1,300   34.5   1,727   1,323  30.5   3,476   2,623  32.5
                  

Total Operating Expenses

  $  10,851  $    8,414  29.0  $11,021  $8,655  27.3  $21,872  $17,069  28.1
                  

Cost of Services and Sales

Cost of services and sales includes costs to operate the wireless network as well as the cost of roaming and long distance, the cost of data services and applications and the cost of equipment sales. Cost of services and salesincreased by $1,081 million, or 28.9%, in the first quarter ofthree months ended June 30, 2009 increased by $1,075and $2,156 million, or 30.0%29.4%, in the six months ended June 30, 2009, compared to the similar periodperiods in 2008. The increase in cost of services was primarily due to the inclusionincreased costs associated with operating an expanded wireless network as a result of the operating resultsacquisition of Alltel, as well asAlltel. Additionally, the increase was due to increased use of data services and applications, such as messaging, e-mail andVZ Navigator;, and increased wireless network costs from increased network usageprimarily related to cell site lease expense and network-related leases.local interconnection cost growth. Cost of equipment sales increased by 27.1%26.5% in the first quarter ofthree months ended June 30, 2009 and 26.8% in the six months ended June 30, 2009, compared to the similar periodperiods in 2008, primarily due to the inclusion of equipment sales in distribution channels acquired from Alltel, as well as both an increase in the number of equipment units sold over the similar periodperiods in 2008 and an increase in the average cost per unit as a result of increased sales of data devices.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $881 million, or 24.6%, in the first quarter ofthree months ended June 30, 2009 increased by $913and $1,794 million, or 25.9%25.2%, in the six months ended June 30, 2009, compared to the similar periodperiods in 2008. This increase was primarily due to the inclusion of the operating results of Alltel, as well asand an increase in sales commission expense in our indirect channel, primarily from increased equipment upgrades and gross customer additions, as well as an increase in the indirectaverage commission rates.per unit.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by $404 million, or 30.5%, in the first quarter ofthree months ended June 30, 2009 increased by $449and $853 million, or 34.5%32.5%, in the six months ended June 30, 2009, compared to the similar periodperiods in 2008. This increase was primarily driven by the acquisition of Alltel’s depreciable property and equipment and finite-lived intangible assets acquired from Alltel which are not being divested, including its customer lists, and trade name, as well as growth in depreciable assets through the first quarter ofthree months ended June 30, 2009.

Operating Income

 

  Three Months Ended March 31,     Three Months Ended June 30,     Six Months Ended June 30,   
(dollars in millions)  2009  2008  % Change  2009  2008  % Change  2009  2008  % Change

Operating Income

  $4,271  $3,255  31.2  $4,459  $3,463  28.8  $8,730  $6,718  29.9

Operating income increased by $996 million, or 28.8%, in the first quarter ofthree months ended June 30, 2009 increased by $1,016and $2,012 million, or 31.2%29.9%, in the six months ended June 30, 2009, compared to the similar periodperiods in 2008, primarily as a result of the acquisition of Alltel and the impact of operating revenue and operating expenses described above. Non-recurring or non-operational items not included in Domestic Wireless’s operating income totaled $246$181 million in the first quarter ofthree months ended June 30, 2009 and $427 million in the six months ended June 30, 2009, which included acquisition charges and merger integration costs primarily related to the Alltel acquisition.

Wireline

 

The Wireline segment provides customers with communication services, including voice, broadband video and data, network access, long distance, and other services, to residential and small business customers and carriers, as well as next-generation IP network services and communications solutions to medium and large businesses and government customers globally.

The results of operations presented below exclude the local exchange and related businesses in Maine, New Hampshire and Vermont that were spun-off on March 31, 2008.

Operating Revenues and Selected Operating Statistics

 

  Three Months Ended March 31,   Three Months Ended June 30,   Six Months Ended June 30,   
(dollars in millions)  2009  2008 % Change   2009  2008  % Change 2009  2008  % Change 

Mass Markets

  $4,924  $4,892  0.7   $4,959  $4,947  0.2   $9,883  $9,839  0.4  

Global Enterprise

   3,743   3,876  (3.4)   3,704   3,972  (6.7  7,447   7,848  (5.1

Global Wholesale

   2,389   2,632  (9.2)   2,409   2,605  (7.5  4,798   5,237  (8.4

Other

   511   626   (18.4)   416   589  (29.4  927   1,215  (23.7
                 

Total Wireline Operating Revenues

  $11,567  $12,026  (3.8)  $11,488  $12,113  (5.2 $23,055  $24,139  (4.5
                 

Switched access lines in service (‘000)

   35,197   39,004  (9.8)        34,313   38,084  (9.9

Broadband connections (‘000)

   8,925   8,276  7.8         9,111   8,330  9.4  

FiOS Internet subscribers (‘000)

   2,779   1,787  55.5         3,082   1,974  56.1  

FiOS TV subscribers (‘000)

   2,217   1,206  83.8         2,517   1,382  82.1  

Mass Markets

Mass Markets revenue includes local exchange (basic service and end-user access), value-added services, long distance (including regional toll), broadband services (including high-speed Internet and FiOS Internet) and FiOS TV services for residential and small business accounts and TV services. Long distance also includes regional toll services. Broadband services include high speed Internet and FiOS Internet.accounts.

Mass Markets revenue during the first quarter ofthree months ended June 30, 2009 increased $32$12 million, or 0.7%0.2%, and $44 million, or 0.4%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008. The increase was primarily driven by expansion of consumer and business FiOS services (Voice, Internet and TV), which are typically sold in bundles, partially offset by the continued decline of local exchange revenues principally as a result of switched access line losses.

As we continue to increaseexpand the number of premises eligible to order FiOS services and increaseextend our sales and marketing efforts to attract new FiOS customers, we have continued to grow our customer base and consistently improve penetration rates within our FiOS service areas, we have continued to increase our customer base. And ourareas. Our bundled pricing strategy allows us to provide competitive offerings to our customers and potential customers. Consequently, we added 252,000186,000 net new broadband connections, including 298,000303,000 net new FiOS Internet connectionssubscribers in the first quarterthree months ended June 30, 2009. For the six months ended June 30, 2009, we added 438,000 net new broadband connections, including 601,000 net new FiOS Internet subscribers, for a total of 2009.9.1 million broadband connections at June 30, 2009, including 3.1 million FiOS Internet subscribers, representing a 56.1% increase compared to June 30, 2008. In addition, we added 299,000300,000 net new FiOS TV customerssubscribers in the first quarterthree months ended June 30, 2009 and 599,000 for the six months ended June 30, 2009, for a total of 2.5 million at June 30, 2009. As of March 31,June 30, 2009, we achieved penetration rates of 26.8%28.1% and 22.9%24.6% for FiOS Internet and FiOS TV, respectively. respectively, compared to penetration rates of 23.5% and 19.7% for FiOS Internet and FiOS TV, respectively, at June 30, 2008.

Partially offsetting the increase were lower local exchange revenues due to a 9.9% decline in switched access lines as of June 30, 2009 compared to June 30, 2008, primarily as a result of competition and technology substitution. Residential retail customers substituted traditional landline services for wireless, VoIP, broadband and cable services. At the same time, small business retail customers declined, primarily reflecting economic compression, competition and a shift to both IP and high-speed circuits.

Global Enterprise

Global Enterprise offers voice, data and Internet communications services to medium and large business customers, multi-national corporations, and state and federal government customers. In addition to traditional voice and data services, Global Enterprise offers managed and advanced products and solutions through our strategic services. This encompasses our focus areas of growth, including IP services and value-added solutions that make communications more secure, reliable and efficient. Global Enterprise also provides managed network services for customers that outsource all or portions of their communications and information processing operations and data services such as Privateprivate IP, Private Line, Frame Relayprivate line, frame relay and ATMasynchronous transfer mode (ATM) services, both domestically and internationally. In addition, Global Enterprise offers professional services in more than 30 countries around the world, supporting a range of solutions including network service, managing a move to IP-based unified communications and providing application performance support.

Global Enterprise revenues during the first quarter ofthree months ended June 30, 2009 decreased $133$268 million, or 3.4%6.7%, and $401 million, or 5.1%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008. The revenue decline was due to lower long distance and traditional circuit based data revenues and lower customer premises equipment revenue, combined with the negative effect of movements in foreign exchange rates versus the U.S. dollar. The decline in long distance revenue is driven by a 5%1.2% decline in MOUs compared to the similar period last year, as well asthree months ended June 30, 2008, due to continuing competitive rate pressures.pressures and global economic conditions which continue to adversely impact our business customers. The cumulative effect of unemployment is impacting usage volumes. Traditional circuit based services such as frame relay, private line and asynchronous transfer modeATM services declined compared to the similar period last year as our customer base migrated to next generation IP services. Partially offsetting these declines was an increase in IP and security solutions revenues. Global Enterprise services many customer accounts that are moving from core data products to more robust IP products. As a result, of customers moving to these IP products and services, strategic services continues to be Global Enterprise’s fastest growing suite of offerings, accounting for the majority of the 7.5% increase3.0% and 5.2% increases in total strategic services revenue for the three and six months ended June 30, 2009, respectively, compared to the similar periodperiods in 2008.

Global Wholesale

Global Wholesale revenues are primarily earned from long distance and other carriers who use our facilities to provide services to their customers. Switched access revenues are generated from fixed and usage-based charges paid by carriers for access to our local network, interexchange wholesale traffic sold in the United States, as well as internationally destined traffic that originates in the U.S. Special access revenues are generated from carriers that buy dedicated local exchange capacity to support their private networks. Wholesale services also include local wholesale revenues from unbundled network elements and interconnection revenues from competitive local exchange carriers and wireless carriers. A portion of Global Wholesale revenues are generated by a few large telecommunication companies, many of whom compete directly with us.

Global Wholesale revenues during the first quarter ofthree months ended June 30, 2009 decreased $243$196 million, or 9.2%7.5%, and $439 million, or 8.4%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008, primarily due to decreased MOUs in traditional voice products, and continued rate compression due to competition in the marketplace, and the negative effect of movements in foreign exchange rates versus the U.S. dollar, partially offset by an increase in special access revenues.

Switched access and interexchange wholesale MOUs declined 8.7% primarily as a result of wireless substitution and access line losses and wireless substitution due in part to global economic conditions.losses. Wholesale lines decreased 18.5% due to the continued impact of competitors deemphasizing their local market initiatives coupled with the impact of technology substitution. Changes in foreign exchange rates resulted in a revenue decline of approximately 1.5%1.8% in the first quartersix months of 2009, compared to the similar period ofin 2008. However, special access revenue growth reflects continuing demand for high-capacity, high-speed digital services, partially offset by lower demand for older, low-speed data products and services.

Other

Other revenues include such services as local exchange and long distance services from former MCI mass market customers, operator services, (including deaf relay services), pay phone, card services and supply sales, as well as dial around services including 10-10-987, 10-10-220, 1-800-COLLECT and prepaid cards. Revenues from other services during the first quarter ofthree months ended June 30, 2009 decreased by $115$173 million, or 18.4%29.4%, and $288 million, or 23.7% for the six months ended June 30, 2009, compared to the similar periodperiods in 2008, mainly due to the discontinuation of non-strategic product lines and reduced business volumes, including former MCI mass market customer losses.

Operating Expenses

 

  Three Months Ended March 31,   Three Months Ended June 30,   Six Months Ended June 30,   
(dollars in millions)  2009  2008 % Change   2009  2008  % Change 2009  2008  % Change 

Cost of services and sales

  $5,895  $6,081  (3.1)  $5,947  $5,997  (0.8 $11,842  $12,078  (2.0

Selling, general and administrative expense

   2,766   2,696  2.6    2,726   2,808  (2.9  5,492   5,504  (0.2

Depreciation and amortization expense

   2,215   2,209   0.3    2,260   2,245  0.7    4,475   4,454  0.5  
                 

Total Operating Expenses

  $  10,876  $  10,986  (1.0)  $10,933  $11,050  (1.1 $21,809  $22,036  (1.0
                 

Cost of Services and Sales

Cost of services and sales expense during the first quarter of 2009 decreased $186$50 million, or 3.1%0.8%, in the three months ended June 30, 2009 and $236 million, or 2.0%, in the six months ended June 30, 2009, compared to the similar periodperiods in 2008. This decrease wasThe decreases were primarily due to lower long distance MOUs, favorable foreign exchange movements and reducedcosts associated with compensation, installation, repair and maintenance expenses as a result of fewer access lines, lower headcount and productivity improvements. Also contributing to the decreases were lower long distance MOUs and customer premise equipment costs, as well as favorable foreign exchange movements. Our FiOS TV and FiOS Internet cost of acquisition per addition also improved in the three months ended June 30, 2009, compared to a similar period in 2008. Partially offsetting the decreasethese decreases were higher costs, such as programmingcontent and customer acquisition costs, associated with our larger customer base at our growth businesses, including FiOS TV and FiOS Internet.

Selling, General and Administrative ExpensesExpense

Selling, general and administrative expenses decreased by $82 million, or 2.9%, in the first quarter ofthree months ended June 30, 2009 increased $70and $12 million, or 2.6%0.2%, in the six months ended June 30, 2009, compared to the similar periodperiods in 20082008. The decreases were primarily due to higher information systems related costs. Partially offsetting the increase were declinesdecline in compensation expense and cost reduction initiatives as a result of lower headcount, as well as favorable foreign exchange movements. Partially offsetting the decreases were higher marketing costs related to our growth business.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by $15 million, or 0.7%, in the first quarter ofthree months ended June 30, 2009 increased $6and $21 million, or 0.3%0.5%, asfor the six months ended June 30, 2009, compared to the similar periodperiods in 2008. The increase was driven by growth in depreciable telephone plant from capital spending, partially offset by lower rates of depreciation.

Operating Income

 

  Three Months Ended March 31,     Three Months Ended June 30,   Six Months Ended June 30,   
(dollars in millions)  2009  2008  % Change   2009  2008  % Change 2009  2008  % Change 

Operating Income

  $691  $1,040  (33.6)  $555  $1,063  (47.8 $1,246  $2,103  (40.8

Segment operatingOperating income decreased $508 million, or 47.8%, in the first quarter ofthree months ended June 30, 2009 decreased $349and $857 million, or 33.6%40.8%, for the six months ended June 30, 2009, compared to the similar periodperiods in 2008, due to the impact of the factors described in connection with operating revenues and operating expenses above.

Non-recurring or non-operational items related to our Wireline segment but not included in the Wireline’s segment operating resultsincome totaled $132$394 million forin the three and six months ended March 31,June 30, 2009, related to pension settlement losses. Non-recurring items during the three and six months ended June 30, 2008 totaled $36 million and $168 million, respectively, primarily for merger integration costs associated with the MCI acquisition and the costs incurred in connection with the spin-offtransaction with FairPoint Communications Inc. related to network, non-network software and other activities.

 

Other Items

 

 

Acquisition Related ChargesMerger Integration Costs

 

During the first quarter ofthree and six months ended June 30, 2009, we recorded pretax charges of $298$181 million, of which $96$52 million is attributable to Verizon after-tax ($.02 per diluted share), and $339 million, of which $102 million is attributable to Verizon after-tax ($.03 per diluted share), respectively, for merger integration activities primarily related to the Alltel acquisition for transaction fees and costs associated with the acquisition, including fees related to the credit facility that was entered into and utilized to complete the acquisition.

Merger Integration Costs

During the first quarter of 2009, we recorded pretax charges of $158 million, of which $50 million is attributable to Verizon after-tax ($.02 per diluted share), for merger integration activities related to the Alltel acquisition primarily comprised of trade name amortization, contract terminationstermination costs, and the decommissioning of overlapping cell sites.network integration activities.

During the first quarter ofthree and six months ended June 30, 2008, we recorded pretax charges of $29$36 million of which $18($22 million is attributable to Verizon after-tax ($.01or $.01 per diluted share), and $65 million ($40 million after-tax or $.01 per diluted share), respectively, primarily comprised of systems integration activities and other costs related to re-branding initiatives, facility exit costs and advertising associated with the MCI acquisition.

 

Acquisition Related Charges

During the three and six months ended June 30, 2009, we recorded pretax charges of $47 million, of which $8 million is attributable to Verizon after-tax, and $345 million, of which $104 million is attributable to Verizon after-tax ($.04 per diluted share), respectively, primarily for transaction fees and costs associated with the Alltel acquisition, including fees related to the credit facility that was entered into and utilized to complete the acquisition.

Severance, Pension and Benefit Charges

During the three and six months ended June 30, 2009, we recorded pension settlement losses of $416 million ($253 million after-tax or $.09 per diluted share) related to employees that received lump-sum distributions primarily resulting from our previous separation plans in which prescribed payment thresholds have been reached.

Telephone Access Lines Spin-off

 

During the first quarter ofsix months ended June 30, 2008, we recorded pretax charges of $103 million of which $81($81 million is attributable to Verizon after-tax ($.03or $.03 per diluted share), for costs incurred related to network, non-network software and other activities to enable the impacted facilities and operations in Maine, New Hampshire and Vermont to operate on a stand-alone basis subsequent to the closing of the transaction with FairPoint Communications Inc., as well as professional advisory and legal fees in connection with this transaction.

Consolidated Financial Condition

 

   Three Months Ended March 31,    
(dollars in millions)  2009  2008  Change 

Cash Flows Provided By (Used In)

    

Operating Activities:

  $    6,420  $5,390  $    1,030 

Investing Activities:

   (8,759)  (4,818)  (3,941)

Financing Activities:

   (3,464)  3,760   (7,224)
     

Increase (Decrease) In Cash and Cash Equivalents

  $(5,803) $    4,332  $(10,135)
     
   Six Months Ended June 30,    
(dollars in millions)  2009  2008  Change 

Cash Flows Provided By (Used In)

    

Operating activities

  $14,137   $12,635   $1,502  

Investing activities

   (13,278  (22,268  8,990  

Financing activities

   (9,821  9,062    (18,883
     

Decrease In Cash and Cash Equivalents

  $(8,962 $(571 $(8,391
     

We use the net cash generated from our operations to fund network expansion and modernization, repay external financing, pay dividends, repurchase Verizon common stock and invest in new businesses. While our current liabilities typically exceed current assets, our sources of funds, primarily from operations and, to the extent necessary, from external financing arrangements, are sufficient to meet ongoing operating and investing requirements. We expect that our capital spending requirements will continue to be financed primarily through internally generated funds. Additional debt or equity financing may be needed to fund additional development activities or to maintain our capital structure to ensure our financial flexibility.

We manage our capital structure to balance our cost of capital and the need for financial flexibility. The mix of debt and equity is intended to allow us to maintain ratings in the “A” category from the primary rating agencies. Although conditions in the credit markets through March 31, 2009during the second half of 2008 did not have a significant impact on our ability to obtain financing, such conditions, along with our need to finance acquisitions and our purchase of licenses acquired in the 700 MHz auction, resulted in higher fixed interest rates on borrowings than those we have paid in recent years.

Our available external financing arrangements include the issuance of commercial paper, credit available under credit facilities and other bank lines of credit, vendor financing arrangements, issuances of registered debt or equity securities and privately-placed capital market securities. We currently have a shelf registration available for the issuance of up to $4 billion of additional unsecured debt or equity securities. We also issue short-term debt through an active commercial paper program and have a $5.3 billion credit facility to support such commercial paper issuances. Over the previous twelve months we have raised capital from a variety of public and private sources in both domestic and international markets to fund the acquisition of Alltel, to refinance Alltel debt, acquireto fund the acquisition of wireless spectrum licenses by Verizon Wireless, and to repay maturing debt, including commercial paper.

During Februarythe first half of 2009, Cellco Partnership doing business as VerizonDomestic Wireless issued $4.25 billionused cash generated from operations and net proceeds from the sale of notes to reducerepay the balance outstandingborrowings under the credit facility that was entered into and utilized to complete the acquisition of Alltel and during March 2009, weAlltel. Verizon issued $2.75 billion of notes to repay maturing debt, including commercial paper, and for general corporate purposes.

We believe that based on current market conditions, we will continue to have the necessary access to capital markets.

The recent disruption in the global financial markets during the second half of 2008 has affected some of the financial institutions with which we do business. A continued sustained decline in the stability of financial institutions could affect our access to financing. In addition, if the national or global economy or credit market conditions in general were to deteriorate further, it is possible that such changes could adversely affect our cash flows through increased interest costs or our ability to obtain external financing or to refinance our existing indebtedness.

 

Cash Flows Provided By Operating Activities

 

Our primary source of funds continues to be cash generated from operations. Net cash provided by operating activities duringfor the first quarter ofsix months ended June 30, 2009 increased $1.0by $1.5 billion, compared to the similar period in 2008, primarily driven by higher earnings at Domestic Wireless in part due to the acquisition of Alltel.

In April 2009, Verizon received Partially offsetting the increase in net cash provided by operating activities were payments totaling $0.5 billion to settle the acquired Alltel interest rate swaps and net distributions from Vodafone Omnitel of approximately $0.4 billion.

that were $0.3 billion lower compared to the prior period.

Cash Flows Used In Investing Activities

 

Capital expenditures continue to be our primary use of capital resources as they facilitate the introduction of new products and services, enhance responsiveness to competitive challenges and increase the operating efficiency and productivity of our networks. We are directing our capital spending primarily toward higher growth markets. Our 2009 capital program includes capital to fund the introduction of advanced networks and services, including FiOS, the continued expansion of our core networks, including our IP and wireless EV-DO networks, integration activities, maintenance and support for our legacy voice networks and other expenditures. During 2009, we have also begun to develop our wireless LTE network. The amount and the timing of the Company’s capital expenditures within these broad categories can vary significantly as a result of a variety of factors outside our control, including, for example, accelerations or delays in obtaining franchises or material weather events. We are not subject to any agreement that would constrain our ability to control our capital expenditures by requiring material capital expenditures on a designated schedule or upon the occurrence of designated events. We believe that we have sufficient discretion over the amount and timing of our capital expenditures on a company-wide basis that we can reasonably expect to have lower capital expenditures in 2009 than in 2008, excluding Alltel-related capital. We expect that 2009 capital expenditures, excluding Alltel-related capital, will be at least $0.5 billion less than capital expenditures in 2008, and that 2009 capital expenditures including Alltel-related capital will be in the range of $17.4 billion to $17.8 billion.

We expect that, after the integration of the Alltel network, we will incur lower capital expenditures than the Company and Alltel would have incurred separately due to the potential achievement of greater volume discounts from vendors based on the combined purchasing amounts, as well as the elimination of the purchasing of duplicate network assets in the combined coverage areas.

During the six months ended June 30, 2009, capital expenditures were $8.1 billion, or 15.1%, of revenue. During the similar period in 2008, capital expenditures were $8.4 billion, or 17.5%, of revenue. Including capitalized software, we invested $1.6$3.3 billion in Domestic Wireless during the first quartersix months of 2009 and 2008. In the first six months of 2009, we invested $4.3 billion in Wireline, compared to $1.7with $4.8 billion in the similar period of 2008. In the first quarter of 2009, we invested $2.0 billion in Wireline, compared with $2.4 billion in the similar period of 2008.

On January 9, 2009, Verizon Wireless paid approximately $5.9 billion for the equity of Alltel which was partially offset by $1.0 billion of cash acquired at closing.

On March 20, 2008, the Federal Communications Commission (FCC) announced that Verizon Wireless was the successful bidder for twenty-five 12 MHz licenses in the A-Block frequency, seventy-seven 12 MHz licenses in the B-Block frequency and seven 22 MHZ licenses (nationwide with the exception of Alaska) in the C-Block frequency, with an aggregate bid price of $9.4 billion. Verizon Wireless paid the FCC a $0.9 billion deposit in January 2008 and the remaining balance in April 2008. On June 10, 2008, in connection with the announcement of the Alltel transaction, Verizon Wireless purchased from third parties approximately $5.0 billion aggregate principal amount of debt obligations of a subsidiary of Alltel for approximately $4.8 billion plus accrued and unpaid interest.

Cash Flows Used InProvided by (Used In) Financing Activities

 

During the first quarter ofsix months ended June 30, 2009, net cash used in financing activities was $3.5$9.8 billion, compared with the net cash provided by financing activities of $3.8$9.1 billion in the similar period in 2008. Net proceeds from borrowings during the first quarter ofsix months ended June 30, 2009 were approximately $15.0$12.0 billion. Cash flows used in financing activities primarily included net debt repayments of $16.9$18.3 billion and dividend payments of $1.3$2.6 billion.

Our total debt at June 30, 2009 increased by $17.2$13.0 billion during the first quarterhalf of 2009. Domestic2009, compared to the similar period in 2008. Verizon Wireless issued $4.3$9.3 billion of fixed and floating rate debt with varying maturities and utilized a credit facility to complete the acquisition of Alltel as described below. The increase in debt at March 31,June 30, 2009 also reflects approximately $2.3 billion of assumed Alltel debt that is still owed to third parties. Verizon Communications issued $2.8 billion of fixed rate debt with varying maturities. In addition, commercial paper outstanding increased $0.9 billion.

Verizon Wireless

On December 19, 2008, Verizon Wireless and Verizon Wireless Capital LLC as the borrowers, entered into a $17.0 billion credit facility (Bridge Facility). On December 31, 2008, the Bridge Facility was reduced to $12.5 billion. On January 9, 2009, Verizon Wireless borrowed $12.4 billion under the Bridge Facility in order to complete the acquisition of Alltel and repay certain of Alltel’s outstanding debt as described below. The Bridge Facility has a maturity date of January 8, 2010. Interest on borrowings under the Bridge Facility is calculated based on London Interbank Offered Rate (LIBOR) for the applicable period, the level of borrowings on specified dates and a margin that is determined by reference to Verizon Wireless’s long-term credit rating issued by S&P. The Bridge Facility includes a requirement to maintain a leverage ratio. We are required to prepay indebtedness under the Bridge Facility with the net cash proceeds of specified asset sales, equity issuances and borrowings, subject to certain exceptions. At March 31, 2009 approximately $7.2 billion was outstanding and the unused commitments under the Bridge Facility were terminated.

On April 8,Through June 30, 2009, Verizon Wireless repaid approximately $1.3 billionused cash generated from operations and the net proceeds from the sale of the notes described below to repay all of the borrowings under the Bridge Facility, reducing theFacility. As of June 30, 2009, no borrowings were outstanding balance to approximately $5.9 billion. We expect to refinance or repay the remaining borrowings under the Bridge Facility withinand the next 9 months by utilizing a combination of internally generated free cash flows, net cash proceeds fromcommitments under the required disposition of assets in connection with the Alltel acquisition and new borrowings.Bridge Facility have been terminated.

In connection with the Alltel acquisition, Verizon Wireless assumed approximately $23.9 billion of debt, of which approximately $2.5$2.3 billion remainedremains outstanding through January 28,to third parties as of June 30, 2009. Under the terms of a tender offer that was completed on March 20, 2009, $0.2 billion aggregate principal amount of the remaining outstanding debt was redeemed for a loss that was not significant.

In February 2009, Verizon Wireless and Verizon Wireless Capital LLC co-issued $4.3 billion aggregate principal amount of three and five yearfive-year fixed rate notes in a private placement resulting in cash proceeds of $4.2 billion, net of discounts and issuance costs. In May 2009, Verizon Wireless usedand Verizon Wireless Capital LLC co-issued $4.0 billion aggregate principal amount of two-year fixed and floating rate notes in a private placement resulting in cash proceeds of approximately $4.0 billion, net of discounts and issuance costs.

In June 2009, Verizon Wireless issued in a private placement $1.0 billion aggregate principal amount of floating rate notes due 2011. Commencing on December 27, 2009 and on each interest payment date thereafter, both the net proceeds fromnote holders and Verizon Wireless have the saleright to require settlement of all or a portion of these notes at par. Accordingly, the notes are classified as current maturities in the condensed consolidated balance sheet.

Cellco Partnership (d/b/a Verizon Wireless) and Verizon Wireless Capital LLC filed a registration statement with the SEC on July 6, 2009 to repayregister a portiontotal of approximately $11.8 billion of new notes which may, once the borrowings outstanding underregistration statement is declared effective by the Bridge Facility described above.SEC, be exchanged for privately placed debt with similar terms, pursuant to the requirements of registration rights agreements. The privately placed debt includes the debt issued in November of 2008, as well as February and May of 2009. This Report on Form 10-Q does not constitute an offer of any securities for sale.

Other, net financing activities in the first quarterhalf of 2009 primarily included approximately $0.2 billion related to the buyout of wireless partnerships in which our ownership interests increased as a result of the acquisition of Alltel.

Verizon Communications

In March 2009, Verizon issued $1.8 billion of 6.35% notes due 2019 and $1.0 billion of 7.35% notes due 2039, resulting in cash proceeds of $2.7 billion, net of discounts and issuance costs, which was used to reduce our commercial paper borrowings, repay maturing debt and for general corporate purposes. In December 2008, the Companywe entered into a $0.2 billion vendor provided credit facility. Infacility and in January 2009, the Companywe borrowed the entire $0.2 billionamount available under this facility. On January 15,During the first half of 2009, $0.2 billion of 5.5% notes issued by the Verizon California Inc. and $0.2 billion of 5.875% notes issued by Verizon New England Inc. matured and were repaid. Additionally, during the first half of 2009, $0.5 billion of 7.51% notes issued by GTE Corporation and $0.5 billion of floating rate notes issued by Verizon matured and were repaid.

As of March 31,On April 15, 2009, we had a $6terminated all commitments under our $6.0 billion 3-yearthree-year credit facility with a syndicate of lenders that was scheduled to mature in September 2009. On that date, the unused borrowing capacity under the facility was approximately $5.6 billion. On April 15, 2009 we terminated all commitments under the 3-year credit facility and entered into a new $5.3 billion 364-day credit facility with a group of major financial institutions.

On its effective date, As of June 30, 2009, the unused borrowing capacity under the 364-day credit facility was approximately $0.2$5.2 billion. Approximately $0.1 billion of stand-by letters of credit were issuedare outstanding under the new credit facility.

The credit facility does not require us to comply with financial covenants or maintain specified credit ratings, and it permits us to borrow even if our business has incurred a material adverse change. The credit facility contains provisions that permit us to convert any borrowings that are outstanding at maturity to a term loan with a maturity date of one year from the original maturity date of the credit facility. We intend to use the credit facility to support the issuance of commercial paper, for the issuance of letters of credit and for general corporate purposes.

We have a shelf registration available for the issuance of up to $4.0 billion of additional unsecured debt or equity securities.

Our ratio of debt to debt combined with Verizon’s equity was 62.3%60.3% at March 31,June 30, 2009 compared to 55.5% at December 31, 2008.

Credit Ratings

There were no changes to the credit ratings of Verizon Communications and/or Cellco Partnership (d/b/a Verizon Wireless) from those discussed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Cash Flows Provided by Financing Activities” in our Annual Report on the Form 10-K for the year ended December 31, 2008. While we do not anticipate a ratings downgrade, the three primary rating agencies have identified factors which they believe could result in a ratings downgrade for Verizon Communications and/or Cellco Partnership in the future including sustained leverage levels at Verizon Communications and/or Cellco Partnership resulting from: (i) diminished wireless operating performance as a result of a weakening economy and competitive pressures; (ii) failure to achieve significant synergies in the Alltel integration; (iii) accelerated wireline losses; or (iv) a material acquisition or sale of operations that causes a material deterioration in its credit metrics. A ratings downgrade would increase the cost of refinancing existing debt and might constrain Verizon Communications’ access to certain short-term debt markets.

Covenants

Our credit agreements contain covenants that are typical for large, investment grade companies. These covenants include requirements to pay interest and principal in a timely fashion, to pay taxes, to maintain insurance with responsible and reputable insurance companies, to preserve our corporate existence, to keep appropriate books and records of financial transactions, to maintain our properties, to provide financial and other reports to our lenders, to limit pledging of assets and other similar covenants.

In addition, Cellco Partnership is required to maintain on the last day of any period of four fiscal quarters a leverage ratio of debt to earnings before interest, taxes, depreciation, amortization and other adjustments, as defined in the related credit agreements,agreement, not in excess of 3.25 to 1.0 times for such period. At March 31,June 30, 2009, the leverage ratio was 1.71.5 to 1.0.1.0 times.

As of March 31,June 30, 2009, we and our consolidated subsidiaries were in compliance with all of our debt covenants.

 

Cash and Cash Equivalents

 

Our Cash and cash equivalents at March 31,June 30, 2009 totaled $4.0$0.8 billion, a $5.8$9.0 billion decrease compared to Cash and cash equivalents at December 31, 2008, primarily related to complete the acquisition of Alltel, net of cash acquired.

Market Risk

We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes, foreign currency exchange rate fluctuations, changes in investment, equity and commodity prices and changes in corporate tax rates. We employ risk management strategies usingwhich may include the use of a variety of derivatives including cross currency swaps, foreign currency and prepaid forwards and collars, equity options, interest rate and commodity swap agreements and foreign currency forwards and swaps.interest rate locks. We do not hold derivatives for trading purposes.

It is our general policy to enter into interest rate, foreign currency and other derivative transactions only to the extent necessary to achieve our desired objectives in limiting our exposure to the various market risks. Our objectives include maintaining a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow volatility resulting from changes in market conditions. We do not hedge our market risk exposure in a manner that would completely eliminate the effect of changes in interest rates and foreign exchange rates on our earnings. We do not expect that our net income, liquidity and cash flows will be materially affected by these risk management strategies.

The functional currency for our foreign operations is primarily the local currency. The translation of income statement and balance sheet amounts of our foreign operations into U.S. dollars are recorded as cumulative translation adjustments, which are included in Accumulated Other Comprehensive Loss in our condensed consolidated balance sheets. Gains and losses on foreign currency transactions are recorded in the condensed consolidated statements of income in Other income and (expense), net. At March 31,June 30, 2009, our primary translation exposure was to the British Pound Sterling, the Euro and the Canadian and Australian Dollars.Dollar.

We are exposed to changes in interest rates, primarily on our short-term debt and the portion of long-term debt that carries floating interest rates. As of March 31,June 30, 2009, more than two-thirds in aggregate principal amount of our total debt portfolio consisted of fixed rate indebtedness, including the effect of interest rate swap agreements designated as hedges. The impact of a 100 basis point change in interest rates affecting our floating rate debt would result in a change in annual interest expense, including our interest rate swap agreements that are designated as hedges, of approximately $0.2$0.1 billion. The interest rates on our existing long-term debt obligations, with the exception of the $4.44 billion three-year term loan, are unaffected by changes to our credit ratings.

Interest Rate Swaps

We have entered into domestic interest rate swaps to achieve a targeted mix of fixed and variable rate debt, where we principally receive fixed rates and pay variable rates based on LIBOR.London Interbank Offered Rate (LIBOR). These swaps are designated as fair value hedges and hedge against changes in the fair value of our debt portfolio. We record the interest rate swaps at fair value on our balance sheet as assets and liabilities. Changes in the fair value of the interest rate swaps are recorded to Interest expense, which are offset by changes in the fair value of the debt due to changes in interest rates. The fair value of these contracts was $361$197 million and $415 million at March 31,June 30, 2009 and December 31, 2008, respectively, and are included in Other assets and Long-term debt. As of March 31,June 30, 2009, the total notional amount of these interest rate swaps was $3.0$3 billion.

Cross Currency Swaps

During the fourth quarter of 2008, Verizon Wireless entered into cross currency swaps designated as cash flow hedges to exchange approximately $2.4 billion of the net proceeds from the December 2008 Verizon Wireless and Verizon Wireless Capital LLC debt offering of British Pound Sterling and Euro denominated debt into U.S. dollars and to fix our future interest and principal payments in U.S. dollars, as well as mitigate the impact of foreign currency transaction gains or losses. The fair value of these swaps included in Other assets at June 30, 2009 was approximately $302 million. For the three and six months ended June 30, 2009, a pretax gain of $318 million and $297 million, respectively, was recognized in Other comprehensive income, of which $218 million and $119 million, respectively, were reclassified from Accumulated other comprehensive loss to Other income and (expense), net to offset the related pretax foreign currency transaction loss on the underlying debt obligation.

Alltel Interest Rate Swaps

As a result of the Alltel acquisition, Verizon Wireless acquired seven interest rate swap agreements with a notional value of $9.5 billion that pay fixed and receive variable rates based on three-month and one-month LIBOR with maturities ranging from 2009 to 2013. Until they are terminated, the swap agreements are guaranteed by Verizon Wireless. As of May 1, 2009, weWe have settled approximately $3.1 billion notional amountall of these contracts and anticipate that the remaining contracts will be settled during the first halfagreements using cash generated from operations as of June 30, 2009. These swap agreements are not designated as hedging instruments and changesChanges in the fair value of these swaps arewere recorded in earnings. As of March 31, 2009, these interest rate swaps were in a liability position of $565 million and are included in Other current liabilities in the condensed consolidated balance sheets. For the three months ended March 31, 2009, changes in the fair value of these swapsThe gain recognized upon settlement in the condensed consolidated statements of income were not significant.

Cross Currency Swaps

During the fourth quarter of 2008, Verizon Wireless entered into cross currency swaps designated as cash flow hedges to exchange approximately $2.4 billion of the net proceeds from a Verizon Wireless and Verizon Wireless Capital LLC debt offering from British Pound Sterling and Euros into U.S. dollars and to fix our future interest and principal payments in U.S. dollars, as well as mitigate the impact of foreign currency transaction gains or losses. At March 31, 2009 and December 31, 2008, the fair value of the cross currency swaps, included in Other assets and Other liabilities was not significant. For the three months ended March 31, 2009, a pretax loss of $21 million on the cross currency swaps has been recognized in Other comprehensive income and $99 million was reclassified from Accumulated other comprehensive loss to Other income and (expense), net to offset the related pretax foreign currency transaction gain on the underlying debt obligation.

Prepaid Forward Agreements

During the first quarter of 2009, we entered into privately negotiated prepaid forward agreements for approximately $390 million in Verizon shares, which are included in Other assets. As these agreements are not designated as hedges, changesChanges in the fair value of the agreements, which were not significant during the first quarter ofthree and six months ended June 30, 2009, were included in Selling, general and administrative expense and Cost of services and sales.

Other Factors That May Affect Future Results

 

Recent Developments

 

Telephone Access Lines Spin-off

On May 13, 2009, we announced that we will spin off a newly formed subsidiary of Verizon (Spinco) to our stockholders. Spinco will hold defined assets and liabilities of the local exchange business and related landline activities of Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, and in portions of California bordering Arizona, Nevada and Oregon, including Internet access and long distance services and broadband video provided to designated customers in those areas. Immediately following the spin-off, Spinco will merge with Frontier Communications Corporation (Frontier) pursuant to a definitive agreement with Frontier, and Frontier will be the surviving corporation. The transactions do not involve any assets or liabilities of Verizon Wireless. The assets and liabilities that will be held by Spinco are currently included in Verizon’s continuing operations.

Depending on the trading prices of Frontier common stock prior to the closing of the merger, Verizon stockholders will collectively own between approximately 66% and 71% of Frontier’s outstanding equity immediately following the closing of the merger, and Frontier stockholders will collectively own between approximately 29% and 34% of Frontier’s outstanding equity immediately following the closing of the merger (in each case, before any closing adjustments). The actual number of shares of common stock to be issued by Frontier in the merger will be calculated based upon several factors, including the average trading price of Frontier common stock during a pre-closing measuring period subject to a collar mechanism, the total number of Verizon shares outstanding at that time and other closing adjustments. Verizon will not own any shares of Frontier after the merger.

Both the spin-off and merger are expected to qualify as tax-free transactions, except to the extent that cash is paid to Verizon stockholders in lieu of fractional shares.

In connection with the spin-off, Verizon will receive from Spinco approximately $3.3 billion in value through a combination of a special cash payment to Verizon, a reduction in Verizon’s consolidated indebtedness, and, in certain circumstances, the issuance to Verizon of debt securities of Spinco. In the merger, Verizon stockholders are expected to receive approximately $5.3 billion of Frontier common stock, assuming no closing adjustments.

The transaction is subject to the satisfaction of certain conditions, including receipt of state and federal telecommunications regulatory approvals. If the conditions are satisfied, we expect this transaction to close during the second quarter of 2010.

Alltel Corporation

On June 5, 2008, Verizon Wireless entered into an agreement and plan of merger with Alltel, a provider of wireless voice and advanced data services to residential and business customers in 34 states, and its controlling stockholder, Atlantis Holdings LLC, an affiliate of private investment firms TPG Capital and GS Capital Partners, to acquire 100% of the equity of Alltel in an all-cash merger. After satisfying all closing conditions, including receiving the required regulatory approvals, Verizon Wireless closed the acquisition on January 9, 2009, and paid approximately $5.9 billion for the equity of Alltel. At closing, the Alltel debt associated with the transaction, net of cash acquired, was approximately $22.9 billion. Alltel provides wireless voice and advanced data services to residential and business customers in 34 states.

As a condition of the regulatory approvals that were required to complete the Alltel acquisition, Verizon Wireless is required to divest overlapping properties in 105 operating markets in 24 states (Alltel Divestiture Markets). These markets consist primarily of Alltel operations, but also include a small number of pre-merger operations of Verizon Wireless.

On May 8, 2009, Verizon Wireless signedentered into a definitive agreement to sell towith AT&T Mobility LLC (AT&T Mobility), a subsidiary of AT&T Inc. (AT&T), pursuant to which AT&T Mobility agreed to acquire 79 of the 105 Alltel Divestiture Markets, including licenses and network assets for $2.35 billion in cashcash. Verizon Wireless expects the transaction with AT&T Mobility to close within the next 12 months. On June 9, 2009, Verizon Wireless entered into a portion ofdefinitive agreement with Atlantic Tele-Network, Inc (ATN), pursuant to which ATN agreed to acquire the remaining 26 Alltel Divestiture Markets representing approximately 1.5that were not included in the transaction with AT&T Mobility, including licenses and network assets for $200 million customers in 79 operating markets.cash. Verizon Wireless expects the transaction with ATN to close during the second half of 2009. Completion of each of the foregoing transactions is subject to receipt of regulatory approvals.

Environmental Matters

During 2003, under a government-approved plan, remediation commenced at the site of a former Sylvania facility in Hicksville, New York that processed nuclear fuel rods in the 1950s and 1960s. Remediation beyond original expectations proved to be necessary and a reassessment of the anticipated remediation costs was conducted. A reassessment of costs related to remediation efforts at several other former facilities was also undertaken. In September 2005, the Army Corps of Engineers (ACE) accepted the Hicksville site into the Formerly Utilized Sites Remedial Action Program. This may result in the ACE performing some or all of the remediation effort for the Hicksville site with a corresponding decrease in costs to Verizon. To the extent that the ACE assumes responsibility for remedial work at the Hicksville site, an adjustment to a reserve previously established for the remediation may be made. Adjustments to the reserve may also be made based upon actual conditions discovered during the remediation at any of the sites requiring remediation.

Regulatory and Competitive Trends

The information set forth below updates the corresponding information in Part I, Item 1. “Business” in our Annual Report on Form 10-K for the year ended December 31, 2008.

FCC Regulation

Wireless Services

Verizon Wireless participated in the FCC’s auction of spectrum in the 700 MHz band, and was the high bidder on 109 700 MHz licenses. The FCC granted all of those licenses to Verizon Wireless on November 26, 2008. The 700 MHz spectrum was used for UHF television operations, but by law those operations ceased on June 12, 2009.

The FCC also adopted service rules that will impose costs on licensees that acquire the 700 MHz band spectrum, including minimum coverage mandates by specific dates during the license terms, and, for approximately one-third of the spectrum, “open access” requirements, which generally require licensees of that spectrum to allow customers to use devices and applications of their choice, subject to certain limits. Seven of the licenses that Verizon Wireless acquired in the 700 MHz auction, which in the aggregate cover the United States except for Alaska, are subject to these requirements.

 

Other Recent Accounting Pronouncements

 

In December 2008, the FASBan accounting pronouncement was issued FSP FAS No. 132 (R)-1, Employers’ Disclosuresregarding employers’ disclosures about Postretirement Benefit Plan Assets (FSP 132 (R)-1),postretirement benefit plan assets which requires Verizon,us, as a plan sponsor, to provide disclosures about plan assets, including categories of plan assets, the nature of concentrations of risk and disclosuredisclosures about fair value measurements of plan assets, similar to those required by SFAS No. 157, Fair Value Measurements(SFAS No. 157). FSP 132 (R)-1assets. This pronouncement is effective for fiscal years ending after December 15, 2009. We are currently evaluating the effectThe adoption of adopting FSP 132 (R)-1 but dothis pronouncement is not expect its adoptionexpected to have a significant impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSP 157-4), which provides additional guidance for estimating fair value in accordance with SFAS No. 157,Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for all interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. We do not expect that the adoption of FSP 157-4 will have a significant impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1), which amends SFAS No. 107,Disclosures about Fair Value of Financial Instruments, to require disclosures about the fair value of financial instruments for interim reporting periods, as well as annual reporting periods. FSP FAS 107-1 and APB 28-1 are effective for all interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. We do not expect that the adoption of FSP FAS 107-1 and APB 28-1 will have a significant impact on our condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2), which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively. We do not expect that the adoption of FSP FAS 115-2 and FAS 124-2 will have a significant impact on our condensed consolidated financial statements.

Cautionary Statement Concerning Forward-Looking Statements

In this Quarterly Report on Form 10-Q we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions. 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, along with those discussed elsewhere in this Quarterly Report and those disclosed in Part 1, Item 1A1A. “Risk Factors” in our Annual Report on Form 10-K for the year endended December 31, 2008, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:

 

the effects of adverse conditions in the U.S. and international economies;

 

the effects of competition in our markets;

 

materially adverse changes in 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;

 

the effects of material changes in available technology;

 

any disruption of our suppliers’ provisioning of critical products or services;

 

significant increases in benefit plan costs or lower investment returns on plan assets;

 

the impact of natural or man-made disasters or existing or future litigation and any resulting financial impact not covered by insurance;

 

technology substitution;

 

an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing;

 

any changes in the regulatory environments in which we operate, including any loss of or inability to renew wireless licenses, and the final results of federal and state regulatory proceedings and judicial review of those results;

 

the timing, scope and financial impact of our deployment of fiber-to-the-premises broadband technology;

 

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;

 

our ability to complete acquisitions and dispositions;

our ability to successfully integrate Alltel Corporation into Verizon Wireless’s business and achieve anticipated benefits of the acquisition; and

 

the inability to implement our business strategies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information relating to market risk is included in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Market Risk.”

Item 4. Controls and Procedures

Our chief executive officer and chief financial officer have evaluated the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and chief financial officer have concluded that the registrant’s disclosure controls and procedures were effective as of March 31,June 30, 2009.

We completed the acquisition of Alltel Corporation on January 9, 2009, at which time Alltel became a subsidiary of Verizon. We considered the transaction material to the results of our operations, cash flows and financial position from the date of the acquisition through March 31,June 30, 2009, and believe that the internal controls and procedures of Alltel have a material effect on our internal control over financial reporting. We are currently in the process of incorporating the internal controls and procedures of the former Alltel into our internal control over financial reporting. We have extended our Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include the former Alltel. We will report on our assessment of our combined operations within the time period provided by the Act and the applicable SEC rules and regulations concerning business combinations.

There were no other changes in our internal control over financial reporting during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II - Other Information

Item 1. Legal Proceedings

Verizon, and a number of other telecommunications companies, have been the subject of multiple class action suits concerning its alleged participation in intelligence-gathering activities allegedly carried out by the federal government, at the direction of the President of the United States, as part of the government’s post-September 11 program to prevent terrorist attacks. Plaintiffs generally allege that Verizon has participated by permitting the government to gain access to the content of its subscribers’ telephone calls and/or records concerning those calls and that such action violates federal and/or state constitutional and statutory law. Relief sought in the cases includes injunctive relief, attorneys’ fees, and statutory and punitive damages. On August 9, 2006, the Judicial Panel on Multidistrict Litigation (“Panel”) ordered that these actions be transferred, consolidated and coordinated in the U.S. District Court for the Northern District of California. The Panel subsequently ordered that a number of “tag along” actions also be transferred to the Northern District of California. Verizon believes that these lawsuits are without merit. On July 10, 2008, the President signed into law the FISA Amendments Act of 2008, which provides for dismissal of these suits by the court based on submission by the Attorney General of the United States of certain specified certifications. On September 19, 2008, the Attorney General made such a submission in the consolidated proceedings which is currently under consideration byproceedings. Based on this submission, the court.court ordered dismissal of the complaints on June 3, 2009. Time to appeal that order has not yet expired.

The New York State Department of Environmental Conservation has advised Verizon New York Inc. (VZNY) of potential issues in connection with its underground storage tank registration, inspection and maintenance program. While VZNY does not believe that any of the alleged conditions has resulted in a release or threatened release, aggregate penalties relating to alleged violations could exceed $100,000 because of the number of tanks operated by VZNY. VZNY does not believe that the cost of remedying any alleged violations will be material.

Verizon Wireless has concluded an audit of its cell site, switch and non-retail building facilities under an audit agreement with the U.S. Environmental Protection Agency (EPA). The audit identified potential violations of various laws governing hazardous substance reporting, air permitting and spill plan preparation. A consent agreement relating to the audit is pending final approval by the EPA. While Verizon Wireless does not believe that any of the alleged violations has resulted in a release or threatened release, aggregate penalties will exceed $100,000 because of the number of facilities operated by Verizon Wireless. Verizon Wireless does not believe that the penalties ultimately incurred and the cost of remedying any alleged violations will be material.

Item 1A. Risk Factors

Information related to our risk factors is disclosed underin Part I, Item 1A to Part I1A. of our Annual Report on Form 10-K for the year ended December 31, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about repurchases of Verizon’s common stock during the first quarter of 2009 by Verizon or any “affiliated purchaser” of Verizon, as defined in Rule 10b-18(a)(3) under the Exchange Act:

Period  Total Number of
Shares
Purchased
  Average Price
Paid per
Share
  Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
  

Maximum Number of Shares

that May Yet Be Purchased

Under the Plans or Programs

January

    $    74,015,938

February

  2,397,398   28.09  2,397,398  71,618,540

March

  11,602,602   27.57  11,602,602  60,015,938
          
  14,000,000    14,000,000  60,015,938
          

During the first quarter of 2009, all repurchases were pursuant to privately negotiated agreements. On February 7, 2008, the Board approved a share buyback program which authorized the repurchase of up to 100 million common shares terminating no later than the close of business on February 28, 2011. The program permits Verizon to repurchase shares over time, with the amount and timing of repurchases depending on market conditions and corporate needs. This share buyback program replaced a share buyback program which was previously approved by the Board on March 1, 2007. The Board also authorized Verizon to enter into Rule 10b5-1 plans from time to time to facilitate the repurchase of its shares. A Rule 10b5-1 plan permits the Company to repurchase shares at times when it might otherwise be prevented from doing so, provided the plan is adopted when the Company is not aware of material non-public information.

Verizon did not repurchase any shares of Verizon common stock during the three months ended June 30, 2009. At June 30, 2009, the maximum number of shares that may be purchased by Verizon or any “affiliated purchaser” of Verizon, as defined by Rule 10b-18(a)(3) under the Exchange Act, under our share buyback program was 60,015,938.

Item 4. Submission of Matters to a Vote of Security Holders

Our 2009 Annual Meeting of Shareholders was held on May 7, 2009. At the meeting, the following items were submitted to a vote of shareholders.

The number of common shares present at the Annual Meeting of Shareholders of Verizon Communications Inc. voting in the election of Directors (the “Total Vote”) was 2,386,884,317 or 84.03% of the common shares outstanding on March 9, 2009, the record date for said meeting.

(a)

The following nominees were elected to serve on the Board of Directors:

Name of Nominee  Votes Cast For  Votes Cast Against  Abstentions

Richard L. Carrión

  2,196,501,489  157,101,348  33,281,480

M. Frances Keeth

  2,284,982,711  69,596,557  32,305,049

Robert W. Lane

  2,187,269,967  167,100,139  32,514,211

Sandra O. Moose

  2,232,985,203  121,749,650  32,149,464

Joseph Neubauer

  2,135,185,680  218,587,351  33,111,286

Donald T. Nicolaisen

  2,278,641,369  75,567,843  32,675,105

Thomas H. O’Brien

  2,259,612,453  95,000,013  32,271,851

Clarence Otis, Jr.

  2,169,683,525  184,548,232  32,652,560

Hugh B. Price

  2,207,659,338  146,582,447  32,642,532

Ivan G. Seidenberg

  2,249,339,788  108,088,746  29,455,783

John W. Snow

  2,194,815,064  160,769,259  31,299,994

John R. Stafford

  2,248,562,322  105,749,508  32,572,487

(b)

The appointment of Ernst & Young LLP as independent registered public accounting firm for 2009 was ratified with 2,305,841,719 votes for, 59,761,950 votes against, and 21,280,648 abstentions.

(c)

A proposal regarding Advisory Vote Related to Executive Compensation was approved with 2,085,094,157 votes for, 228,272,852 votes against, and 73,517,308 abstentions.

(d)

A proposal regarding Approval of Long-Term Incentive Plan was approved with 1,682,806,424 votes for, 269,208,459 votes against, 27,005,423 abstentions and 407,864,011 broker non-votes.

(e)

A proposal regarding Approval of Short-Term Incentive Plan was approved with 1,738,025,089 votes for, 212,936,902 votes against, 28,058,315 abstentions and 407,864,011 broker non-votes.

(f)

A shareholder proposal regarding Prohibiting the Grant of Stock Options was defeated with 203,290,748 votes for, 1,748,817,917 votes against, 26,911,641 abstentions and 407,864,011 broker non-votes.

(g)

A shareholder proposal regarding Shareholder Ability to Call Special Meeting was approved with 988,644,400 votes for, 965,167,774 votes against, 25,208,132 abstentions and 407,864,011 broker non-votes.

(h)

A shareholder proposal regarding Separate Offices of Chairman and CEO was defeated with 443,795,322 votes for, 1,510,689,499 votes against, 24,535,485 abstentions and 407,864,011 broker non-votes.

(i)

A shareholder proposal regarding Cumulative Voting was defeated with 764,689,515 votes for, 1,184,252,383 votes against, 30,078,408 abstentions and 407,864,011 broker non-votes.

(j)

A shareholder proposal regarding Shareholder Approval of Benefits Paid After an Executive’s Death was defeated with 709,811,833 votes for, 1,243,282,051 votes against, 25,926,422 abstentions and 407,864,011 broker non-votes.

Item 5. Other Information

At the annual meeting of shareholders held on May 7,On July 28, 2009, the shareholders of Verizon approved the amended and restated Verizon Communications Inc. Long-Term Incentive Plan (the “2009 LTIP”“Company”) and Doreen A. Toben, formerly the amendedCompany’s Executive Vice President and restated Verizon Communications Inc. Short-Term Incentive PlanChief Financial Officer, entered into a one-year Consultant Agreement (the “2009 STIP”“Agreement”). effective as of August 1, 2009. Subject to the terms of the Agreement, the Company will pay Ms. Toben $125,000 per month for consulting services provided to the Company.

The 2009 LTIP providesforegoing description is qualified in its entirety by the framework for allterms of the Company’s long-term incentive awards. The 2009 LTIP will be administered by the Human Resources Committee of Verizon’s Board of Directors (the “Committee”). It provides the Company with the authority to grant various types of awards including performance shares, performance share units, restricted stock, restricted stock units, stock options, stock appreciation rights and other awards. The maximum number of shares of Verizon’s common stock that will be issuable under the 2009 LTIPAgreement, which is 115,000,000. The 2009 LTIP also authorizes the Committee to establish performance goals, based on goals approved by the shareholders, in connection with the grant of awards, and to determine if such awards satisfy the conditions under Section 162(m) of the Internal Revenue Code. The 2009 LTIP has a term of ten years. No awards have been made under the 2009 LTIP.

The 2009 STIP facilitates the Company’s ability to achieve its short-term financial and operating goals by offering key employees at the senior management level performance-based annual incentive opportunities. The 2009 STIP will be administered by the Committee. Under the 2009 STIP, no awards will be paid for any plan year in which Verizon’s return on equity attributable to Verizon is 8% or less. In addition to the return on equity requirement, awards may be made based on achievement of key performance measures at the corporate, business unit and/or individual levels. All awards under the 2009 STIP are intended to qualify for the performance-based exception under Section 162(m) of the Internal Revenue Code. The 2009 STIP has a term of ten years. No awards have been made under the 2009 STIP.

The descriptions above are qualified in their entirety by reference to the complete text of the 2009 LTIP and 2009 STIP, which are filed herewith as Exhibits 10dExhibit 10f and 10e, respectively, and areis incorporated herein by reference.

Item 6. Exhibits

 

Exhibit
Number

   
10a 

    2.1

  Agreement and Plan of Merger dated as of May 13, 2009 by and among Verizon Communications Inc. Long-Term Incentive Plan - Restricted Stock Unit Agreement 2009-11 Award Cycle., New Communications Holdings Inc. and Frontier Communications Corporation.
10b   Verizon Communications Inc. Long-Term Incentive2.1(i) Amendment No. 1 to Agreement and Plan - Performance Stock Unit Agreement 2009-11 Award Cycle.of Merger.

  10a

Distribution Agreement by and between Verizon Communications Inc. and New Communications Holdings Inc. dated as of May 13, 2009.
10a(i) Amendment No. 1 to Distribution Agreement.

  10b

Aircraft Time Sharing Agreement.

10c

  Form of Addendum to Employment Agreement between Verizon Communications Inc. Long-Term Incentive Plan - Performance Stock Unit Agreement.and Band 1 Senior Management Employee.

10d

  Addendum to Employment Agreement between Verizon Communications Inc. Long-Term Incentive Plan, as Amended and Restated (incorporated by reference to Appendix B of the Registrant’s Proxy Statement included in Schedule 14A filed on March 23, 2009).Dennis F. Strigl.

10e

  Summary Plan Description of Verizon Communications Inc. Short-Term Incentive Plan, as Amended and Restated (incorporated by reference to Appendix C of the Registrant’s Proxy Statement included in Schedule 14A filed on March 23, 2009).Executive Deferral Plan.

  10f

Consultant Agreement between Verizon and Doreen A. Toben.

12

  Computation of Ratio of Earnings to Fixed Charges.

31.1

  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

  Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

  Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.PRE

XBRL Taxonomy Presentation Linkbase Document.

101.CAL

XBRL Taxonomy Calculation Linkbase Document.

101.LAB

XBRL Taxonomy Label Linkbase Document.

Signature

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

VERIZON COMMUNICATIONS INC.

 VERIZON COMMUNICATIONS INC.

Date: May 11,July 30, 2009

 

By

 By

  /s/ Robert J. Barish

 /s/ Robert J. Barish
  

       Robert J. Barish

      Robert J. Barish
  

       Senior Vice President and Controller

  

       (Principal Accounting Officer)

      (Principal Accounting Officer)

UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MAY 8, 2009.

Exhibit Index

 

Exhibit
Number

  

Description

  10a

    2.1

  Agreement and Plan of Merger dated as of May 13, 2009 by and among Verizon Communications Inc. Long-Term Incentive Plan - Restricted Stock Unit Agreement 2009-11 Award Cycle., New Communications Holdings Inc. and Frontier Communications Corporation.
  10b  Verizon Communications Inc. Long-Term Incentive2.1(i) Amendment No. 1 to Agreement and Plan - Performance Stock Unit Agreement 2009-11 Award Cycle.of Merger.

  10a

Distribution Agreement by and between Verizon Communications Inc. and New Communications Holdings Inc. dated as of May 13, 2009.
10a(i) Amendment No. 1 to Distribution Agreement.

  10b

Aircraft Time Sharing Agreement.

  10c

  Form of Addendum to Employment Agreement between Verizon Communications Inc. Long-Term Incentive Plan - Performance Stock Unit Agreement.and Band 1 Senior Management Employee.

  10d

Addendum to Employment Agreement between Verizon and Dennis F. Strigl.

  10e

Summary Plan Description of Verizon Executive Deferral Plan.

  10f

Consultant Agreement between Verizon and Doreen A. Toben.

  12

  Computation of Ratio of Earnings to Fixed Charges.

  31.1

  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2

  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32.1

  Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2

  Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.PRE

XBRL Taxonomy Presentation Linkbase Document.

101.CAL

XBRL Taxonomy Calculation Linkbase Document.

101.LAB

XBRL Taxonomy Label Linkbase Document.

 

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