Verizon Communications (VZ)

2009 Compared to 2008

Consolidated revenues in 2009 increased by $10,454 million, or 10.7%, compared to the similar period in 2008, primarily due to the inclusion of the operating results of Alltel in our Wireless segment and higher revenues in our growth markets. These revenue increases were partially offset by declines in revenues at our Wireline segment due to switched access line losses and decreased minutes of use (MOUs) in traditional voice products.

Domestic Wireless’s revenues in 2009 increased by $12,799 million, or 25.9%, compared to the similar period in 2008, primarily due to the inclusion of the operating results of Alltel and continued growth in service revenue. Service revenue in 2009 increased $10,862 million, compared to the similar period in 2008 primarily as a result of the 13.2 million net new customers, after conforming adjustments, which we acquired in connection with the acquisition of Alltel on January 9, 2009, as well as a 5.9 million, or 8.2%, increase in total customers from sources other than acquisitions. Total data revenue was $16,014 million and accounted for 29.9% of service revenue in 2009, compared to $10,651 million and 25.0%, respectively, during the similar period in 2008 because of increased use of Mobile Broadband, e-mail, and messaging.

Domestic Wireless’s equipment and other revenue in 2009 increased by $1,937 million, or 28.9%, compared to the similar period in 2008, primarily due to an increase in gross customer additions as well as an increase in the number of units sold to existing customers upgrading their wireless devices. Other revenues increased primarily due to the inclusion of the operating results of Alltel and an increase in our cost recovery rate.

Wireline’s revenues in 2009 decreased by $2,134 million, or 4.4%, compared to the similar period in 2008. Mass Markets revenues in 2009 decreased $44 million, or 0.2%, compared to the similar period in 2008, primarily due to continued decline of local exchange revenues principally as a result of switched access line losses, partially offset by a continued growth in FiOS services. Global Enterprise revenues in 2009 decreased by $791 million, or 5.0%, compared to the similar period in 2008, primarily due to lower long distance and traditional circuit-based data revenues, and lower customer premise equipment 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 2009 decreased $723 million, or 7.0%, compared to the similar period in 2008, due to decreased MOUs in traditional voice products and continued rate compression due to competition in the marketplace.

2009 Compared to 2008

Cost of Services and Sales

Cost of services and sales includes the following costs directly attributable to a service or product: salaries and wages, benefits, materials and supplies, contracted services, network access and transport costs, wireless equipment costs, customer provisioning costs, computer systems support, costs to support our outsourcing contracts and technical facilities and contributions to the universal service fund. Aggregate customer care costs, which include billing and service provisioning, are allocated between Cost of services and sales and Selling, general and administrative expense.

Consolidated cost of services and sales during 2009 increased by $5,292 million, or 13.6%, compared to 2008, primarily due to higher wireless network costs, including the effects of operating an expanded wireless network as a result of the acquisition of Alltel, and increased costs of equipment. Additionally, we experienced increased costs associated with our growth businesses including higher content and customer acquisition costs. Also contributing to the increase were an increase in the numbers of both data and phone equipment units sold as well as an increase in the average cost per equipment unit. Partially offsetting these increases were reduced roaming costs realized by moving more traffic to our own network as a result of the acquisition of Alltel and declines due in part to lower headcount and productivity improvements at our Wireline segment.

Consolidated cost of services and sales during 2009 included $195 million for merger integration and acquisition costs primarily related to the Alltel acquisition, and $38 million for costs incurred related to preparing the separation of the wireline facilities and operations in the markets to be divested in the transaction with Frontier.

Consolidated cost of services and sales in 2009 and 2008 included $1,444 million and $65 million, respectively, for severance, pension and benefits charges.

Consolidated cost of services and sales in 2008 include $24 million of costs primarily associated with the integration of MCI into our wireline business. Consolidated cost of services and sales expense during 2008 also included $16 million related to the spin-off of local exchange and related business assets in Maine, New Hampshire and Vermont.

Selling, General and Administrative Expense

Selling, general and administrative expense includes salaries and wages and benefits not directly attributable to a service or product, bad debt charges, taxes other than income taxes, advertising and sales commission costs, customer billing, call center and information technology costs, professional service fees and rent and utilities for administrative space.

Consolidated selling, general and administrative expense in 2009 increased by $6,052 million, or 22.5%, compared to 2008. This increase was primarily due to increased wireless salary and benefits as a result of a larger employee base after the acquisition of Alltel and higher sales commission in our indirect channel in Domestic Wireless, partially offset by the impact of cost reduction initiatives in our Wireline segment.

Consolidated selling, general and administrative expense in 2009 included $2,602 million, for severance, pension and benefits charges. Consolidated selling, general and administrative expense in 2009 also included $442 million, primarily for merger integration and acquisition costs related to the acquisition of Alltel, as well as $415 million for costs incurred related to our Wireline cost reduction initiatives and costs to enable the markets to be divested to operate on a stand-alone basis subsequent to the closing of the transaction with Frontier.

Consolidated selling, general and administrative expense in 2008 included $885 million for severance and severance-related costs as well as pension settlement losses. Consolidated selling, general and administrative expense also included $150 million for merger integration costs, primarily related to the former MCI system integration activities and $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 2009 increased by $1,967 million, or 13.5%, compared to 2008. This increase was mainly driven by depreciable property and equipment and finite-lived intangible assets acquired from Alltel which are not being divested, as well as growth in depreciable plant from capital spending partially offset by lower rates of depreciation. Depreciation and amortization expense in 2009 included $317 million of merger integration costs related to the Alltel acquisition.