Verizon Communications (VZ)

Notes to Condensed Consolidated Financial Statements

Verizon Communications Inc. and Subsidiaries

(Unaudited)

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, 2007. 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. 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.

Alltel Corporation

On June 5, 2008, Verizon Wireless entered into an agreement with Alltel Corporation (Alltel) and Atlantis Holdings LLC, an affiliate of private investment firms TPG Capital and GS Capital Partners, to acquire Alltel in a cash merger. Alltel and Verizon Wireless use the same network technology. Alltel serves more than 13 million customers in markets in 34 states. Under the terms of the agreement, Verizon Wireless will acquire the equity of Alltel for approximately $5.9 billion. Based on Alltel’s projected net debt at closing of $22.2 billion, the aggregate value of the transaction is $28.1 billion. The parties are targeting completion of the merger by the end of the year, subject to obtaining regulatory approvals.

On June 10, 2008, Verizon Wireless purchased from third parties approximately $5,000 million aggregate principal amount of debt obligations of a subsidiary of Alltel for approximately $4,800 million, plus accrued and unpaid interest. This is included in Other Investments in the condensed consolidated balance sheet. The maturity dates of these obligations are expected to range from 2015 to 2017. These debt obligations are included in the $22.2 billion projected amount of Alltel net debt at closing referenced above. At June 30, 2008, we recorded an unrealized loss of approximately $6 million within Other Comprehensive Income related to this available-for-sale investment.

On June 5, 2008, Verizon Wireless entered into a $7,550 million 364-day Credit Agreement (Credit Agreement) with Morgan Stanley Senior Funding Inc. The Credit Agreement, with a maturity date of June 4, 2009, includes a $4,800 million term facility and $2,750 million delayed draw facility. On June 10, 2008, Verizon Wireless borrowed $4,795 million under the term facility in order to complete the purchase of Alltel’s debt obligations and pay fees and expenses incurred in connection with the Credit Agreement. The borrowings to be made under the delayed draw facility will be used to finance the previously announced acquisition of Rural Cellular Corporation (Rural Cellular) and for the refinancing of Rural Cellular debt. Interest on borrowings under the Credit Agreement is calculated based on the LIBOR rate for the applicable period, the level of borrowings on specified dates and a margin that is determined by reference to the long-term credit rating of Verizon Wireless issued by Standard & Poor’s Ratings Services. During the second quarter of 2008, $400 million of the borrowings under the Credit Agreement were repaid reducing the size of the term facility to $4,395 million. Borrowings under the Credit Agreement currently bear interest at a variable rate based on LIBOR plus 75 basis points. The Credit Agreement contains customary affirmative and negative covenants, including a requirement to maintain a certain leverage ratio and customary events of default. On July 1, 2008, Morgan Stanley Senior Funding Inc. sold and assigned a portion of its rights and interests with respect to the Credit Agreement to other lenders.

Rural Cellular Corporation

On July 30, 2007, Verizon Wireless announced that it had entered into an agreement to acquire Rural Cellular, for $45 per share in cash (or approximately $757 million). As a result of the acquisition, Verizon Wireless will assume Rural Cellular’s outstanding debt. The total value of the transaction is approximately $2,670 million. Rural Cellular has more than 700,000 customers. Rural Cellular’s networks are located in the states of Maine, Vermont, New Hampshire, New York, Massachusetts, Alabama, Mississippi, Minnesota, North Dakota, South Dakota, Wisconsin, Kansas, Idaho, Washington, and Oregon. Rural Cellular’s shareholders approved the transaction on October 4, 2007. On June 9, 2008, Verizon Wireless executed a consent decree with the United States Department of Justice, pursuant to which Verizon Wireless agreed to divest cellular operating markets in Burlington, Franklin and Addison, VT; Franklin, NY; and Okanogan and Ferry, WA in order to be permitted to proceed with the acquisition. The consent decree requires all of the markets to be divested in Vermont and New York to be sold to the same buyer and requires both of the markets to be divested in Washington to be sold to the same buyer. The acquisition, which is subject to regulatory approvals, is expected to close in the third quarter of 2008.

In a related transaction, on December 3, 2007, Verizon Wireless signed a definitive exchange agreement with AT&T. Under the terms of the agreement, Verizon Wireless will receive cellular operating markets in Madison and Mason, KY, and 10MHz PCS licenses in Las Vegas, NV; Buffalo, NY; Sunbury-Shamokin and Erie, PA; and Youngstown, OH. Verizon Wireless will also receive minority interests held by AT&T in three entities in which Verizon Wireless also holds an interest, plus a cash payment. In exchange, Verizon Wireless will transfer to AT&T six cellular operating markets in Burlington, Franklin and the northern portion of Addison, VT; Franklin, NY; and Okanogan and Ferry, WA; and a cellular license for the Kentucky-6 market. The operating markets Verizon

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Wireless is exchanging are among those it is to acquire from Rural Cellular. They represent all of the operating markets that are required by the consent decree to be divested, with the exception of the southern portion of Addison, VT. Verizon Wireless and AT&T are currently in discussions regarding amending the exchange agreement to add the southern portion of Addison, VT to the markets being obtained by AT&T. The exchange with AT&T is subject to regulatory approvals and is expected to close in the second half of 2008.

Other

In connection with the 2006 acquisition of MCI, Inc. (MCI), we recorded certain severance and severance-related costs and contract termination costs associated with the merger, pursuant to EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination.

The following table summarizes the activity related to these obligations during the first half of 2008:

The remaining contract termination costs at June 30, 2008 are expected to be paid over the remaining contract periods through 2009.

During the three and six months ended June 30, 2008, we recorded pretax charges of $36 million ($22 million after-tax) and $65 million ($40 million after-tax), respectively, primarily related to the MCI acquisition and comprised primarily of systems integration activities. During the three and six months ended June 30, 2007, we recorded pretax charges of $27 million ($17 million after-tax) and $41 million ($26 million after-tax), respectively, related to system integration activities associated with the MCI acquisition.

Notes to Condensed Consolidated Financial Statements

Verizon Communications Inc. and Subsidiaries

(Unaudited)

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, 2007. 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. 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.