Verizon Communications Inc. (VZ)

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Verizon Communications Inc. (VZ)

Q4 2009 Earnings Call

January 26, 2010 8:30 am ET

Executives

Ron Lataille - Senior Vice President

Ivan G. Seidenberg - Chairman of the Board, Chief Executive Officer

John F. Killian - Chief Financial Officer, Executive Vice President

Analysts

John Hodulik - UBS

Simon Flannery - Morgan Stanley

Vijay Jayant - Barclays Capital

David Barden - Bank of America-Merrill Lynch

Michael Rollins – Citi Investment Research

Jason Armstrong - Goldman Sachs

Mike McCormack – JPMorgan

Tim Horan – Oppenheimer & Co.

Presentation

Operator

Good morning and welcome to the Verizon fourth quarter 2009 earnings conference call. At this time all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. (Operator's Instructions) Today's conference is being recorded. If you have any objections you may disconnect at this time. It is now my pleasure to turn the call over to your host, Mr. Ron Lataille, Senior Vice President Investor Relations of Verizon.

Ron Lataille

Good morning and welcome to our fourth quarter 2009 earnings conference call. Thanks for joining us this morning. I'm Ron Lataille. With me this morning are Ivan Seidenberg our Chairman and Chief Executive Officer, and John Killian our Chief Financial Officer.


Before we get started let me remind you that our earnings release, financial statements, the investor quarterly publication, and the presentation slides are available on our investor relations website. This call is being webcast. If you would like to listen to a reply you can do so from our website. I would also like to draw your attention to our safe harbor statement. Information in this presentation contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC which are available on our website. This presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also on our website.

Next I'd like to cover the difference between reported and adjusted earnings this quarter. In the fourth quarter, we reported a net loss per diluted share of $0.23. Adjusted earnings before the effects of special items were $0.54 per share. The differences between reported and adjusted earnings this quarter were due to the following special items; the first one is a $3 billion pretax charge for severance and pension and benefit settlement and curtailment costs related to our force reduction program. On an after-tax basis, this equates to about $1.9 billion or $0.66 per share. About $950 million of the pretax charge is for additions to severance reserves. The remaining charges of approximately $2.1 billion pretax are related to pension settlement losses resulting from lump sum distributions during the quarter and curtailment costs related to the large number of employee separations.

The second item is an after-tax charge of $127 million or $0.02 per share for merger integration costs relating to Alltel. We are also excluding $246 million after tax or $0.09 per share in non-operational charges. These costs are related to our wireline cost reduction initiatives as well as costs in connection with our ongoing efforts to spin-off our local exchange business in 14 states. These costs are related to network, software, and other activities required for these facilities to function as a separate company.

With that I will now turn the call over to John Killian.

John Killian

Thanks, Ron, and good morning to everyone. Let me start with a quick look at our fourth quarter highlights on Slide 3. We've had strong cash flow growth all year long and our fourth quarter was no exception. Cash flow from operations was up 10.8% compared with the year ago quarter, demonstrating our continued focus on operating and capital discipline.

We made good progress this quarter in all of our key strategic areas. In wireless, we delivered a strong quarter of subscriber growth with total net adds of 2.2 million, 1.2 million of which were retail and primarily postpaid and 1 million from resellers. Wireless data revenues were up more than 26% and the wireless team is successfully integrating the Alltel properties, which will help growth in 2010.

In wireline, FIOS revenues grew more than 46% compared with fourth quarter last year. And although we were somewhat surprised by the continued level of economic pressures impacting our enterprise and wholesale markets , fourth quarter revenues from strategic services such as IP data services grew 6% year over year. We also continued to tightly manage costs. In the fourth quarter, we reduced our total headcount by 7,400. For the full year, total headcount was down about 17,000. Capital expenditures for 2009 totaled $17 billion, which was well below our targeted range of $17.4 billion to $17.8 billion, and also down year over year. This was the result of continued efforts to improve our capital efficiency and capture the CapEx benefits of reduced demand from the economy.

So we ended the year with continued progress on the key areas, operating with good financial discipline, but still facing a very challenging economic environment. Before we get to the operational results and trends, let's first review consolidated earnings and cash flow. As Ron indicated earlier, we generated $0.54 in adjusted earnings per share in the fourth quarter, bringing our full year result to $2.40 per share, which was down 5.5% or $0.14 below 2008.

Our financial objectives at this time last year were focused on growing earnings in the face of some tough cyclical, secular, and pension related headwinds, and just as important, increasing free cash flow by tightly managing our costs in the capital program and returning cash to shareholders.

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