VERIZON COMMUNICATIONS INC - 10-Q Quarterly Report

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 June 30, 2004


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 of Incorporation)		(I.R.S. Employer Identification No.)

1095 Avenue of the Americas		10036
New York, New York		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number (212) 395-2121

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. Yes þ No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No ¨

At June 30, 2004, 2,768,468,033 shares of the registrant’s Common Stock were outstanding, after deducting 6,397,348 shares held in treasury.

Table of Contents


		Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Income For the three and six months ended June 30, 2004 and 2003	1

	Condensed Consolidated Balance Sheets June 30, 2004 and December 31, 2003	2

	Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2004 and 2003	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

Part II.	Other Information

Item 2.	Changes in Securities and Use of Proceeds	41

Item 4.	Submission of Matters to a Vote of Security Holders	42

Item 6.	Exhibits and Reports on Form 8-K	43


Signature		44


Certifications

Part I – Financial Information

Item 1. Financial Statements

Condensed Consolidated Statements of Income

Verizon Communications Inc. and Subsidiaries


	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in Millions, Except Per Share Amounts) (Unaudited)	2004			2003			2004			2003

Operating Revenues	$	17,838		$	16,829		$	34,974		$	33,319

Operating Expenses
Cost of services and sales (exclusive of items shown below)		5,641			5,042			11,151			10,166
Selling, general and administrative expense		5,029			5,673			10,732			9,965
Depreciation and amortization expense		3,440			3,384			6,868			6,751

Total Operating Expenses		14,110			14,099			28,751			26,882

Operating Income		3,728			2,730			6,223			6,437
Equity in earnings of unconsolidated businesses		212			167			411			315
Income from other unconsolidated businesses		–			60			72			79
Other income and (expense), net		(2	)		(46	)		(36	)		11
Interest expense		(594	)		(692	)		(1,232	)		(1,447	)
Minority interest		(676	)		(380	)		(1,153	)		(722	)

Income Before Provision For Income Taxes, Discontinued Operations and Cumulative Effect of Accounting Change		2,668			1,839			4,285			4,673
Provision for income taxes		(871	)		(573	)		(1,289	)		(1,497	)

Income Before Discontinued Operations and Cumulative Effect of Accounting Change		1,797			1,266			2,996			3,176
Discontinued Operations
Loss from operations of Iusacell		–			(952	)		–			(957	)
Income tax benefit		–			24			–			22

Loss on discontinued operations, net of tax		–			(928	)		–			(935	)
Cumulative Effect of Accounting Change, Net of Tax		–			–			–			503

Net Income	$	1,797		$	338		$	2,996		$	2,744

Basic Earnings Per Common Share⁽¹⁾
Income before discontinued operations and cumulative effect of accounting change	$	.65		$	.46		$	1.08		$	1.15
Loss on discontinued operations, net of tax		–			(.34	)		–			(.34	)
Cumulative effect of accounting change, net of tax		–			–			–			.18

Net Income	$	.65		$	.12		$	1.08		$	1.00

Weighted-average shares outstanding (in millions)		2,770			2,754			2,770			2,751

Diluted Earnings Per Common Share⁽¹⁾
Income before discontinued operations and cumulative effect of accounting change	$	.64		$	.46		$	1.07		$	1.14
Loss on discontinued operations, net of tax		–			(.33	)		–			(.34	)
Cumulative effect of accounting change, net of tax		–			–			–			.18

Net Income	$	.64		$	.12		$	1.07		$	.99

Weighted-average shares outstanding (in millions)		2,804			2,786			2,804			2,783

Dividends declared per common share	$	.385		$	.385		$	.77		$	.77

(1) Total per share amounts may not add due to rounding.

See Notes to Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets

Verizon Communications Inc. and Subsidiaries


	At June 30,		At December 31,
(Dollars in Millions, Except Per Share Amounts) (Unaudited)	2004		2003

Assets
Current assets
Cash and cash equivalents	$ 608		$ 699
Short-term investments	1,390		2,172
Accounts receivable, net of allowances of $2,006 and $2,387	9,618		9,905
Inventories	1,362		1,283
Assets held for sale	935		–
Prepaid expenses and other	3,482		4,234

Total current assets	17,395		18,293

Plant, property and equipment	181,437		180,975
Less accumulated depreciation	107,896		105,659

	73,541		75,316

Investments in unconsolidated businesses	5,679		5,789
Wireless licenses	41,075		40,907
Goodwill	1,364		1,389
Other intangible assets, net	4,478		4,733
Other assets	18,906		19,541

Total assets	$ 162,438		$ 165,968

Liabilities and Shareowners’ Investment
Current liabilities
Debt maturing within one year	$ 4,439		$ 5,967
Accounts payable and accrued liabilities	12,491		14,699
Liabilities related to assets held for sale	502		–
Other	5,941		5,904

Total current liabilities	23,373		26,570

Long-term debt	37,449		39,413
Employee benefit obligations	17,255		16,759
Deferred income taxes	21,876		21,708
Other liabilities	3,565		3,704

Minority interest	24,821		24,348

Shareowners’ investment
Series preferred stock ($.10 par value; none issued)	–		–
Common stock ($.10 par value; 2,774,865,381 shares and 2,772,313,619 shares issued)	277		277
Contributed capital	25,461		25,363
Reinvested earnings	10,275		9,409
Accumulated other comprehensive loss	(1,669	)	(1,250	)

	34,344		33,799
Less common stock in treasury, at cost	180		115
Less deferred compensation – employee stock ownership plans and other	65		218

Total shareowners’ investment	34,099		33,466

Total liabilities and shareowners’ investment	$ 162,438		$ 165,968

See Notes to Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Cash Flows

Verizon Communications Inc. and Subsidiaries


	Six Months Ended June 30,
(Dollars in Millions) (Unaudited)	2004			2003

Cash Flows from Operating Activities
Income before discontinued operations and cumulative effect of accounting change	$	2,996		$	3,176
Adjustments to reconcile income before discontinued operations and cumulative effect of accounting change to net cash provided by operating activities:
Depreciation and amortization		6,868			6,751
Employee retirement benefits		1,412			170
Deferred income taxes		473			752
Provision for uncollectible accounts		512			904
Income from unconsolidated businesses		(483	)		(394	)
Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses		(2,325	)		(134	)
Other, net		438			(256	)

Net cash provided by operating activities		9,891			10,969


Cash Flows from Investing Activities
Capital expenditures (including capitalized software)		(5,827	)		(5,294	)
Acquisitions, net of cash acquired, and investments		(55	)		(1,033	)
Proceeds from disposition of businesses		117			–
Net change in short-term investments		759			1,145
Other, net		247			98

Net cash used in investing activities		(4,759	)		(5,084	)


Cash Flows from Financing Activities