This excerpt taken from the VZ 8-K filed Jan 27, 2009.
Item 2.02. Results of Operations and Financial Condition
On January 27, 2009, Verizon Communications Inc. (Verizon) issued a press release and financial tables relating to its results for the 2008 fiscal year and the quarter ended December 31, 2008 (see Exhibit 99).
Verizons press release and financial tables include financial information prepared in conformity with generally accepted accounting principles (GAAP) as well as non-GAAP financial information. The non-GAAP financial information may be determined or calculated differently by other companies.
The consolidated statements of income before special items eliminate items of revenues, expenses, gains and losses primarily as a result of their non-operational and/or non-recurring nature. These adjustments also include the current and prior periods operating revenues and operating expenses of non-strategic local exchange and related business assets in Maine, New Hampshire, and Vermont that were spun off in the current year-to-date period, which were determined using specific information where available and allocations where data is not maintained on a state-specific basis within Verizons books and records. Management believes this presentation of operating performance assists readers in better understanding our results of operations and trends from period to period, consistent with managements evaluation of Verizons consolidated and segment results of operations for a variety of internal measures including strategic business planning, capital allocation and compensation. Management believes that the consolidated statements of income before special items provide current and prior period results of operations on a comparable basis as well as provide trends that are more indicative of future operating results than GAAP results of operations, given the non-operational and/or non-recurring nature of the special items removed for purposes of reporting results of operations before special items. While some of these items have been periodically reported in Verizons consolidated results of operations, their occurrence in future periods is dependent upon future business and economic factors, among other evaluation criteria, and may frequently be beyond the control of management. As a result of these factors, management also provides this information externally, along with a complete reconciliation to their comparable GAAP amounts, so readers have access to the detail and general nature of adjustments made to GAAP results. Descriptions of the special items are provided in the schedules accompanying the press release.
Management believes that Verizon Wirelesss cash expense per customer and Verizon Wirelesss operating income before depreciation and amortization (EBITDA) and EBITDA margin, additional non-GAAP financial measures, are also useful to investors and other users of our financial information in evaluating operating financial performance. Verizon Wirelesss cash expense per customer is determined by subtracting equipment and other revenue from Verizon Wirelesss cost of sales and services and selling, general and administrative expenses, divided by average customers during the period. Verizon Wirelesss EBITDA is determined by adding-back depreciation and amortization to operating income and the Verizon Wireless EBITDA margin is calculated by dividing Verizon Wirelesss EBITDA by Verizon Wirelesss service revenues. Verizon Wirelesss cash expense per customer, EBITDA and EBITDA margin are non-GAAP operating performance measures that are used internally to evaluate current operating expense efficiency and operating profitability on a more variable cost basis by excluding the depreciation and amortization expenses related primarily to capital expenditures and acquisitions (particularly customer base amortization) that occurred in prior years. Cash expense per customer is determined by reflecting equipment and other revenue on a net cost basis in order to illustrate the impact of the net cost of selling handsets and other equipment to the customers and other similar transactions with customers. In addition, Verizon management uses this information to evaluate operating performance in relation to Verizon Wirelesss competitors. The Verizon Wireless EBITDA margin utilizes service revenues rather than total revenues. Service revenues exclude primarily equipment revenues (as well as other non-service revenues) in order to capture the impact of providing service to the wireless customer base on an ongoing basis. Verizon Wirelesss EBITDA margin is presented along with Verizon Wirelesss operating income margin so as not to imply that more emphasis should be placed on it than the corresponding GAAP measure. Management believes that this presentation assists readers in preparing comparisons of this type of performance measure (operating profitability) using the GAAP measure as well as the measure management uses to evaluate segment results and perform comparisons to other wireless carriers.
It is managements intent to provide non-GAAP financial information to enhance understanding of Verizons GAAP financial statements and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.