Verizon Communications Reports Strong 3Q Earnings Highlighted by Continued Gains in Wireless and Broadband

NEW YORK, Oct. 27 /PRNewswire/ -- Verizon Communications Inc. today reported third-quarter 2005 earnings of $1.9 billion, or 67 cents per diluted share, highlighted by continued strong results at Verizon Wireless, sustained overall revenue and customer growth, and a company record for net new wireline broadband connections.

Third-quarter earnings included a net gain of $37 million, or 1 cent per share, related to the sale of a New York City office building and related relocation costs, as well as tax benefits of $115 million, or 4 cents per share, largely offset by asset impairments at Verizon's leasing operations and other costs of $131 million, or 5 cents per share.

Earnings before these special items (non-GAAP measure) were $1.8 billion, or 66 cents per share. This compares with $1.8 billion, or 65 cents per share, in earnings before special items in the third quarter 2004.

Continued Strong Quarterly Revenues

Consolidated operating revenues were $19.0 billion in the third quarter 2005. On a comparable basis (non-GAAP, excluding revenues in both periods from operations that Verizon sold earlier this year), consolidated operating revenues increased 5.4 percent from $18.1 billion in the third quarter 2004.

The company said it expects full-year 2005 revenues to be from 5.5 percent to 5.8 percent higher than in 2004 -- tightening the range of previously announced guidance of 5 percent to 6 percent.

Third-quarter total revenues at Verizon Wireless increased 14.2 percent, or $1.0 billion, to $8.4 billion when compared with the third quarter 2004, driven by strong growth in total customers and demand for data services. This is the 13th consecutive quarter of double-digit year-over-year revenue percentage increases at Verizon Wireless.

Operating revenues on a comparable basis at Domestic Telecom were $9.4 billion in the third quarter 2005, a 0.7 percent decrease compared with the third quarter 2004. Domestic Telecom revenues in the third quarter 2005 were flat with the second quarter 2005 on a comparable basis.

Combined revenues from wireline and wireless data services were $2.8 billion in the third quarter 2005, a 23.3 percent increase compared with the third quarter 2004.

In the third quarter 2005, consolidated total operating expenses increased 5.4 percent to $15.4 billion, compared with third-quarter 2004 total operating expenses of $14.6 billion.

Financial and Operational Strength

"This was a very strong quarter both financially and operationally, as we delivered both revenue and earnings growth," said Ivan Seidenberg, Verizon chairman and chief executive officer. "We are executing well on our new product initiatives and seeing great response from the marketplace. Our revenues continue to grow as we have changed our revenue mix, stabilizing traditional wireline revenues while continuing great wireless growth.

"By maintaining our focus on cost control, we have again delivered stable margins, and we see significant opportunities for further efficiencies and cost reductions. At the same time, we are continuing to make investments in wireless, broadband and Enterprise -- those areas where customers are ready and willing to buy our services."

Verizon Wireless Sustains Industry-Leading Performance

In the third quarter 2005, Verizon Wireless added 1.9 million net new customers -- significantly more than its nearest competitor. Wireless has added more than 7 million net new customers over the past 12 months and now has a total of 49.3 million customers nationwide.

Total churn rate, a key measure of customer loyalty, was 1.3 percent for the third quarter 2005, down from 1.5 percent in the third quarter 2004. Churn in the retail post-paid segment -- a base of 45.7 million customers -- was 1.08 percent in the third quarter 2005.

Wireless operating income margin was 21.8 percent in the third quarter 2005, driven by industry-leading lows for cash expense-per-customer, even as the company added another high volume of customers in the quarter and absorbed the unfavorable impacts of approximately $44 million related to Hurricanes Katrina and Rita.

EBITDA margin at Verizon Wireless was 41.5 percent in the quarter. (EBITDA -- or earnings before interest, taxes, depreciation and amortization - - is a non-GAAP measure that adds depreciation and amortization to operating income; EBITDA margin is calculated by dividing EBITDA by wireless service revenues.)

Wireline Trends Improve in Key Markets

Revenues from broadband and other high-value wireline services contributed to a 4.6 percent increase, to $51.61, in the average revenue per month per Verizon residential wireline customer in the third quarter 2005, compared with the third quarter 2004. This is the sixth consecutive quarter of sequential increases in this measure.

Strong demand for wireline broadband services and high-capacity business data services contributed to $2.2 billion in total wireline data revenues in the third quarter 2005, a 10.9 percent increase from $1.9 billion in comparable revenues in the third quarter 2004.

In the third quarter 2005, revenues from wireline network access services were $3.1 billion, a 2.9 percent increase from the third quarter 2004, and revenues from long-distance services, including regional toll services, were $1.1 billion, a 2.3 percent increase from the third quarter 2004. Long- distance lines totaled 18.15 million at the end of the third quarter 2005, a 6.6 percent increase from the comparable total at the end of the third quarter 2004.

Also in the third quarter 2005, Verizon added a net of 389,000 wireline broadband connections, which is a company record and represents the total for both DSL and FiOS, Verizon's recently introduced next-generation, fiber-optic- based service.

Verizon has a total of 4.5 million wireline broadband connections -- a growth rate of 42.3 percent from the third quarter 2004.

Regarding continued wireline broadband deployment, the company said it plans to pass an additional 3 million homes and businesses with FiOS data services next year -- for a total of 6 million homes and businesses passed by year-end 2006.

Growth in Total Customer Connections

Verizon's total customer connections -- which include wireline switched access lines, wireless customers, and wireline and wireless customers using broadband connections (EV-DO, DSL or FiOS) -- increased to 103.5 million at the end of the third quarter 2005. This is an increase of 5.3 percent compared with the third quarter 2004, and an increase of 1.3 million customer connections compared with the end of the second quarter 2005.

Switched access lines totaled 49.7 million at the end of the third quarter 2005, a decline of 6.2 percent compared with the end of the third quarter 2004. This has been more than offset by the increases of 42.3 percent in wireline broadband connections and 17.0 percent in total wireless customers over the same period.

Capital Spending Detailed, Debt Reduced

Cash Flows From Operating Activities (CFFO) were $15.3 billion in the first nine months of 2005, compared with $15.5 billion in the first nine months of 2004.

In the first nine months of 2005, net cash used in investing activities was $13.6 billion, and net cash used in financing activities was $3.3 billion. Investing activities included $11.6 billion in capital expenditures, predominantly focused on growth markets.

Regarding capital expenditures, Verizon Wireless has invested $5.0 billion in the first nine months of 2005. The company expects wireless capital expenditures to total approximately $6.5 billion in 2005, including about $600 million for deployment of its nationwide broadband EV-DO (Evolution-Data Optimized) network.

In wireline, Verizon has invested $6.2 billion in the first nine months of 2005, including startup and deployment capital for FiOS data and video services. The company expects wireline capital expenditures to total approximately $8.3 billion in 2005.

The company is reiterating total 2005 capital spending guidance of an approximate 15 percent increase over 2004's $13.3 billion total to about $15.3 billion, and it is announcing that capital expenditures in 2006 are expected to be in the range of $15.4 billion to $15.7 billion. This excludes investments related to the integration of MCI, Inc., pending completion of the merger around the beginning of 2006.

Verizon's total debt at the end of the third quarter 2005 was $39.4 billion, compared with $41.8 billion at the end of the second quarter 2005 and $40.5 billion at the end of the third quarter 2004. The company expects that the end-of-year 2005 debt level should be approximately the same as the third- quarter level.

Earnings Comparisons and Special Items

As noted above, reported earnings were 67 cents per share in the third quarter 2005 and 64 cents per share in the third quarter 2004.

Third-quarter 2005 earnings were 66 cents per share before the net gain on the sale of a New York City office building and related relocation costs to Verizon Center in New Jersey, tax benefits, asset impairment and other costs. The tax benefits include $94 million related to prior-year investment losses that became recognizable in 2005 and a $21 million tax benefit related to repatriation of prior-year foreign earnings. Asset impairment and other charges relate to a $125 million expense pertaining to Verizon's leasing operations for aircraft leases involved in recent airline bankruptcy proceedings and $6 million for the early retirement of debt.

Third-quarter 2004 earnings were 64 cents per share before charges of $20 million, or 1 cent per share relating to pension settlements.

Business Segment Highlights

Following are third-quarter 2005 highlights from Verizon's four business segments.

  Wireline:

  * By the end of the third quarter, the company was deploying or selling
    FiOS fiber-to-the-premises (FTTP) broadband services in 15 states,
    passing a cumulative 2.5 million homes and businesses.  The company
    remains on track to pass 3 million homes and businesses by the end of
    the year with FiOS data services. The earnings dilution from FiOS is
    about 10 cents a share for the year to date.

  * In the 35 markets where Verizon has been actively selling FiOS data
    services for more than six months, market penetration is approximately
    12.4 percent -- an improvement over DSL penetration rates over longer
    timeframes.

  * Verizon introduced FiOS TV services in the third quarter in Keller,
    Texas. FiOS TV contains a collection of all-digital programming with
    more than 330 channels, and more on the way.

  * Approximately 62 percent of Verizon residential customers have purchased
    local services in combination with either Verizon long-distance or a
    Verizon broadband connection, or both.  This compares with approximately
    52 percent in the third quarter 2004. In addition, Verizon now has
    nearly 300,000 customers who receive a Verizon DirecTV bundle.

  * Approximately 5.0 million Verizon Freedom packages were in service to
    residential and business customers by the end of the third quarter 2005,
    an increase of 0.8 million since the end of the third quarter 2004.
    Verizon Freedom plans help retain and win back customers by offering
    local services with various combinations of long-distance, wireless and
    Internet access, available on one bill.

  * Consumer revenues of $3.8 billion were essentially flat compared with
    last year's third quarter, while business revenues of $2.8 billion
    decreased 1.6 percent and wholesale revenues of $2.2 billion decreased
    1.5 percent.

  * Wholesale voice connections -- which includes resale, Unbundled Network
    Element-Platform (UNE-P) and end-to-end wholesale voice services
    provided under commercial agreements -- totaled 5.8 million at the end
    of the third quarter 2005, down 12.3 percent from the end of the third
    quarter 2004.  At the same time, continued growth from sales of
    wholesale special access products -- such as high-speed DS1 and DS3
    circuits -- contributed to the $2.2 billion in quarterly wholesale
    revenues, an increase of $18 million compared with the second quarter
    2005.

  * Wireline total operating expenses were $8.1 billion in the third quarter
    2005, essentially flat compared with last year's third quarter.

  * Verizon's Enterprise Solutions Group continued to build on its
    successful Enterprise Advance initiative by rolling out its next
    generation IP VPN (Internet Protocol Virtual Private Network) services
    in the top 100 U.S. markets -- entering several markets, such as San
    Francisco and Milwaukee, for the first time.  Third-quarter sales
    included contracts with the state of Maryland and Masterbrand Cabinets
    in Indiana.

  Wireless:

  * Retail customers constitute nearly 96 percent of the company's total.
    Retail gross additions increased 5.8 percent over the third quarter
    2004.  Retail net additions increased 19.7 percent and accounted for
    98.5 percent of all net additions in the quarter.

  * Service revenues (which do not include taxes and regulatory fees) were
    $7.3 billion in the third quarter 2005, up 13.8 percent compared with
    the third quarter 2004.  Average monthly service revenue per customer
    increased 1.4 percent from the second quarter 2005 and decreased 2.8
    percent from the third quarter 2004 to $50.13.

  * Data services revenue for the third quarter 2005 climbed to 8.4 percent
    of service revenues, contributing $613 million, as sales of high-speed
    and broadband 3G (third generation) data services to businesses and
    consumers continue to gain.  The company now has 21.6 million data
    customers -- a 48.1 percent increase compared with a year ago.

  * As the industry leader in wireless broadband deployment, Verizon
    Wireless continued to extend the reach of its national 3G EV-DO high
    -speed network.  During the third quarter, the company expanded its
    broadband network coverage to now include more than 170 major
    metropolitan areas, as well as 84 major airports.  This is the largest
    wireless broadband network in the U.S. and is currently available to
    more than 140 million Americans coast to coast.

  * The growth and speed of the company's national broadband network drove
    new initiatives to make wireless broadband more widely available for
    customers.  The company announced partnerships with the top three laptop
    manufacturers -- Dell, HP and Lenovo -- to embed EV-DO capabilities into
    the next generation of notebook computers.  The company also announced
    with Microsoft and Palm a new Windows Mobile-based Treo that will run on
    the Verizon Wireless broadband network.

  * The company introduced new music-capable handsets for a total of six.
    Using memory cards, customers can transfer music, photos and video clips
    from PCs to these wireless phones.  The new handsets also offer V CAST,
    the nation's first 3G consumer multimedia service, delivering crystal
    clear video, movies, 3D games and music clips to 3G handsets, as well as
    built-in digital cameras, camcorders and Bluetooth technology for hands
    -free communication.  More than 1.6 million of the company's customers
    had broadband-capable devices at the end of the quarter.

  * Popularity of the company's Get it Now services continued to climb, with
    an industry-leading 5.9 billion text messages during the third quarter.
    In addition, customers exchanged nearly 110 million picture and video
    messages and had nearly 34 million downloads of games, exclusive
    content, ringtones and ringback tones.

  * During the third quarter, the company continued to expand its
    distribution channels.  Customers may purchase Verizon Wireless service
    and equipment at Best Buy, Costco, 1,900 Verizon Wireless Communications
    stores including stores in Circuit City, and 6,000 Verizon Wireless
    agents nationwide.

  * Verizon Wireless ranked highest in call quality or shared highest honors
    in more regions than any other U.S. wireless provider in the J.D. Power
    and Associates 2005 Wireless Call Quality Performance Study(SM).  The
    company also received J. D. Power awards for customer satisfaction and
    providing an excellent retail sales experience.

  Information Services:

  * Verizon Information Services (VIS) revenue of $857 million decreased 2.9
    percent for the third quarter 2005 compared with the third quarter 2004,
    primarily due to reduced domestic print advertising revenue.  However,
    reductions in total operating expenses have resulted in an improved
    operating income margin.

  * VIS' domestic online directory and search service, SuperPages.com,
    achieved growth of 12.7 percent in gross revenues compared with the
    third quarter of 2004.

  International:

  * Third-quarter revenues of $572 million represented an increase of 15.3
    percent from the third quarter 2004.  The increase primarily reflects
    favorable foreign exchange impacts in the Dominican Republic, as well as
    wireless growth in Puerto Rico.

Verizon Communications Inc. , a Dow 30 company, is a leader in delivering broadband and other communication innovations to wireline and wireless customers. Verizon operates America's most reliable wireless network, serving 49.3 million customers nationwide, and one of the nation's premier wireline networks, serving home, business and wholesale customers in 28 states. Based in New York, Verizon has a diverse workforce of nearly 215,000 and generates annual revenues of more than $71 billion from four business segments: Domestic Telecom, Domestic Wireless, Information Services and International. For more information, visit http://www.verizon.com/.

VERIZON'S ONLINE NEWS CENTER: Verizon news releases, executive speeches and biographies, media contacts, high quality video and images, and other information are available at Verizon's News Center on the World Wide Web at http://www.verizon.com/news. To receive news releases by e-mail, visit the News Center and register for customized automatic delivery of Verizon news releases.

NOTE: This press release contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: materially adverse changes in economic and industry conditions and labor matters, including workforce levels and labor negotiations, and any resulting financial and/or operational impact, in the markets served by us or by companies in which we have substantial investments; material changes in available technology; technology substitution; an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final results of federal and state regulatory proceedings concerning our provision of retail and wholesale services and judicial review of those results; the effects of competition in our markets; the timing, scope and financial impacts of our deployment of fiber-to-the-premises broadband technology; the ability of Verizon Wireless to continue to obtain sufficient spectrum resources; changes in our accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; a significant change in the timing of, or the imposition of any government conditions to, the closing of our business combination transaction with MCI, Inc., if consummated; actual and contingent liabilities in connection with the MCI transaction; and the extent and timing of our ability to obtain revenue enhancements and cost savings following the MCI transaction.

Verizon Communications Inc. Consolidated Statements of Income (dollars in millions, except per share amounts) 3 Mos. 3 Mos. 9 Mos. 9 Mos. Ended Ended % Change Ended Ended % Change Unaudited 9/30/05 9/30/04 9/30/05 9/30/04 Operating Revenues $19,038 $18,206 4.6 $55,786 $53,020 5.2 Operating Expenses Cost of services and sales 6,536 5,994 9.0 18,917 17,104 10.6 Selling, general & administrative expense 5,351 5,132 4.3 15,818 15,807 .1 Depreciation and amortization expense 3,518 3,483 1.0 10,474 10,345 1.2 Sales of businesses, net - - - (530) - * Total Operating Expenses 15,405 14,609 5.4 44,679 43,256 3.3 Operating Income 3,633 3,597 1.0 11,107 9,764 13.8 Equity in earnings of unconsolidated businesses 183 224 (18.3) 555 635 (12.6) Income from other unconsolidated businesses 1 2 (50.0) 57 74 (23.0) Other income and (expense), net 88 16 * 248 (20) * Interest expense (539) (577) (6.6) (1,640) (1,809) (9.3) Minority interest (760) (682) 11.4 (2,090) (1,835) 13.9 Income Before Provision for Income Taxes and Discontinued Operations 2,606 2,580 1.0 8,237 6,809 21.0 Provision for income taxes (737) (801) (8.0) (2,498) (2,065) 21.0 Income Before Discontinued Operations 1,869 1,779 5.1 5,739 4,744 21.0 Discontinued Operations(1) Income from operations - 33 (100.0) - 89 (100.0) Provision for income taxes - (16) (100.0) - (41) (100.0) Income on discontinued operations - 17 (100.0) - 48 (100.0) Net Income $1,869 $1,796 4.1 $5,739 $4,792 19.8 Basic Earnings per Share $.68 $.65 4.6 $2.07 $1.73 19.7 Weighted average number of common shares (in millions) 2,765 2,769 2,767 2,769 Diluted Earnings per Share(2) $.67 $.64 4.7 $2.05 $1.71 19.9 Weighted average number of common shares-assuming dilution (in millions) 2,817 2,820 2,818 2,833 Footnotes: (1) Discontinued Operations includes the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004. (2) Diluted Earnings per Share include (i) income related to share dilution (exchangeable equity interests and zero coupon convertible debt) of $15 million and $43 million for the third quarter and year -to-date 2005, respectively, and $14 million and $54 million for the third quarter and year-to-date 2004, respectively, and (ii) the dilutive effect of shares issuable under our stock-based compensation plans, exchangeable equity interests and zero coupon convertible debt, which represent the only potential dilution. * Not meaningful Verizon Communications Inc. Consolidated Statements of Income Before Special Items (dollars in millions, except per share amounts) 3 Mos. 3 Mos. 9 Mos. 9 Mos. Ended Ended % Change Ended Ended % Change Unaudited 9/30/05 9/30/04 9/30/05 9/30/04 Operating Revenues(1) Domestic Telecom $9,445 $9,515 (.7) $28,257 $28,488 (.8) Domestic Wireless 8,351 7,311 14.2 23,615 20,320 16.2 Information Services 857 883 (2.9) 2,608 2,675 (2.5) International 572 496 15.3 1,626 1,470 10.6 Other (187) (148) 26.4 (522) (377) 38.5 Total Operating Revenues 19,038 18,057 5.4 55,584 52,576 5.7 Operating Expenses(1) Cost of services and sales 6,536 5,941 10.0 18,844 16,962 11.1 Selling, general & administrative expense 5,290 5,057 4.6 15,706 14,982 4.8 Depreciation and amortization expense 3,518 3,483 1.0 10,474 10,316 1.5 Total Operating Expenses 15,344 14,481 6.0 45,024 42,260 6.5 Operating Income 3,694 3,576 3.3 10,560 10,316 2.4 Operating income impact of operations sold(1) - 54 (100.0) 78 149 (47.7) Equity in earnings of unconsolidated businesses 183 224 (18.3) 555 635 (12.6) Income from other unconsolidated businesses 1 2 (50.0) 57 31 83.9 Other income and (expense), net 98 16 * 258 35 * Interest expense (539) (577) (6.6) (1,640) (1,809) (9.3) Minority interest (760) (682) 11.4 (2,090) (1,835) 13.9 Income Before Provision for Income Taxes and Discontinued Operations 2,677 2,613 2.4 7,778 7,522 3.4 Provision for income taxes (829) (814) 1.8 (2,406) (2,338) 2.9 Income Before Discontinued Operations 1,848 1,799 2.7 5,372 5,184 3.6 Discontinued Operations(2) Income from operations - 33 (100.0) - 89 (100.0) Provision for income taxes - (16) (100.0) - (41) (100.0) Income on discontinued operations - 17 (100.0) - 48 (100.0) Net Income Before Special Items $1,848 $1,816 1.8 $5,372 $5,232 2.7 Basic Earnings per Share $.67 $.66 1.5 $1.94 $1.89 2.6 Weighted average number of common shares (in millions) 2,765 2,769 2,767 2,769 Diluted Adjusted Earnings per Share(3) $.66 $.65 1.5 $1.92 $1.87 2.7 Weighted average number of common shares- assuming dilution (in millions) 2,817 2,820 2,818 2,833 Footnotes: (1) Reclassifications of prior period amounts have also been made, where appropriate, to reflect comparable operating results excluding significant operations sold, principally the previously announced Domestic Telecom access lines, as follows: Revenues $- $149 $202 $444 Expenses $- $95 $124 $295 (2) Discontinued Operations includes the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004. (3) Diluted Earnings per Share include (i) income related to share dilution (exchangeable equity interests and zero coupon convertible debt) of $15 million and $43 million for the third quarter and year-to-date 2005, respectively, and $14 million and $54 million for the third quarter and year-to-date 2004, respectively, and (ii) the dilutive effect of shares issuable under our stock-based compensation plans, exchangeable equity interests and zero coupon convertible debt, which represent the only potential dilution. * Not meaningful Verizon Communications Inc. Consolidated Statements of Income - Reconciliations (dollars in millions, except per share amounts) Special and Non-Recurring Items Less Impair- 3 Mos. 3 Mos. Verizon ment Tax Ended Ended Center and on 9/30/05 9/30/05 Reloca- Other Tax Repatria- Before Reported tion, Special Bene- ted Special Unaudited (GAAP) Net Charges fits Earnings Items Operating Revenues $19,038 $- $- $- $- $19,038 Operating Expenses Cost of services and sales 6,536 - - - - 6,536 Selling, general & administrative expense 5,351 64 (125) - - 5,290 Depreciation and amortization expense 3,518 - - - - 3,518 Sales of businesses, net - - - - - - Total Operating Expenses 15,405 64 (125) - - 15,344 Operating Income 3,633 (64) 125 - - 3,694 Operating income impact of operations sold - - - - - - Equity in earnings of unconsolidated businesses 183 - - - - 183 Income from other unconsolidated businesses 1 - - - - 1 Other income and (expense), net 88 - 10 - - 98 Interest expense (539) - - - - (539) Minority interest (760) - - - - (760) Income Before Provision for Income Taxes and Discontinued Operations 2,606 (64) 135 - - 2,677 Provision for income taxes (737) 27 (4) (94) (21) (829) Income Before Discontinued Operations 1,869 (37) 131 (94) (21) 1,848 Discontinued Operations Income from operations - - - - - - Provision for income taxes - - - - - - Income on discontinued operations - - - - - - Net Income $1,869 $(37) $131 $(94) $(21) $1,848 Basic Earnings per Common Share(1) $.68 $(.01) $.05 $(.03) $(.01) $.67 Diluted Earnings per Common Share(1) $.67 $(.01) $.05 $(.03) $(.01) $.66 Special and Non-Recurring Items 3 Mos. Ended 3 Mos. Ended Severance 9/30/04 9/30/04 Pension and Impact of Before Reported Benefit Operations Special Unaudited (GAAP) Charges Sold Items Operating Revenues $18,206 $- $(149) $18,057 Operating Expenses Cost of services and sales 5,994 - (53) 5,941 Selling, general & administrative expense 5,132 (33) (42) 5,057 Depreciation and amortization expense 3,483 - - 3,483 Total Operating Expenses 14,609 (33) (95) 14,481 Operating Income 3,597 33 (54) 3,576 Operating income impact of operations sold - - 54 54 Equity in earnings of unconsolidated businesses 224 - - 224 Income from other unconsolidated businesses 2 - - 2 Other income and (expense), net 16 - - 16 Interest expense (577) - - (577) Minority interest (682) - - (682) Income Before Provision for Income Taxes and Discontinued Operations 2,580 33 - 2,613 Provision for income taxes (801) (13) - (814) Income Before Discontinued Operations 1,779 20 - 1,799 Discontinued Operations Income from operations 33 - - 33 Provision for income taxes (16) - - (16) Income on discontinued operations 17 - - 17 Net Income $1,796 $20 $- $1,816 Basic Earnings per Common Share(1) $.65 $.01 $- $.66 Diluted Earnings per Common Share(1) $.64 $.01 $- $.65 Footnote: (1) EPS totals may not add across due to rounding. Note: See http://www.verizon.com/investor for a reconciliation of other non-GAAP measures included in this Quarterly Bulletin. Verizon Communications Inc. Consolidated Statements of Income - Reconciliations (dollars in millions, except per share amounts) Special and Non-Recurring Items 9 Mos. Ended Verizon 9/30/05 Sales of Impact of Center Reported Business, Operations Relocation, Unaudited (GAAP) Net Sold Net Operating Revenues $55,786 $- $(202) $- Operating Expenses Cost of services and sales 18,917 - (73) - Selling, general & administrative expense 15,818 - (51) 64 Depreciation and amortization expense 10,474 - - - Sales of businesses, net (530) 530 - - Total Operating Expenses 44,679 530 (124) 64 Operating Income 11,107 (530) (78) (64) Operating income impact of operations sold - - 78 - Equity in earnings of unconsolidated businesses 555 - - - Income from other unconsolidated businesses 57 - - - Other income and (expense), net 248 - - - Interest expense (1,640) - - - Minority interest (2,090) - - - Income Before Provision for Income Taxes and Discontinued Operations 8,237 (530) - (64) Provision for income taxes (2,498) 194 - 27 Income Before Discontinued Operations 5,739 (336) - (37) Discontinued Operations Income from operations - - - - Provision for income taxes - - - - Income on discontinued operations - - - - Net Income $5,739 $(336) $- $(37) Basic Earnings per Common Share(1) $2.07 $(.12) $- $(.01) Diluted Earnings per Common Share(1) $2.05 $(.12) $- $(.01) Verizon Communications Inc. Consolidated Statements of Income - Reconciliations (dollars in millions, except per share amounts) Special and Non-Recurring Items Lease 9 Mos. Ended Impairment 9/30/05 and Other Tax on Before Special Tax Repatriated Special Unaudited Charges Benefits Earnings Items Operating Revenues $- $- $- $55,584 Operating Expenses Cost of services and sales - - - 18,844 Selling, general & administrative expense (125) - - 15,706 Depreciation and amortization expense - - - 10,474 Sales of businesses, net - - - - Total Operating Expenses (125) - - 45,024 Operating Income 125 - - 10,560 Operating income impact of operations sold - - - 78 Equity in earnings of unconsolidated businesses - - - 555 Income from other unconsolidated businesses - - - 57 Other income and (expense), net 10 - - 258 Interest expense - - - (1,640) Minority interest - - - (2,090) Income Before Provision for Income Taxes and Discontinued Operations 135 - - 7,778 Provision for income taxes (4) (336) 211 (2,406) Income Before Discontinued Operations 131 (336) 211 5,372 Discontinued Operations Income from operations - - - - Provision for income taxes - - - - Income on discontinued operations - - - - Net Income $131 $(336) $211 $5,372 Basic Earnings per Common Share(1) $.05 $(.12) $.08 $1.94 Diluted Earnings per Common Share(1) $.05 $(.12) $.07 $1.92 Special and Non-Recurring Items 9 Mos. 9 Mos. Severance Impact Sales Ended Ended Pension of of 9/30/04 9/30/04 and Oper- Invest- Other Before Reported Benefit ations ments, Special Special Unaudited (GAAP) Charges Sold Net Items Items Operating Revenues $53,020 $- $(444) $- $- $52,576 Operating Expenses Cost of services and sales 17,104 - (142) - - 16,962 Selling, general & administrative expense 15,807 (792) (124) - 91 14,982 Depreciation and amortization expense 10,345 - (29) - - 10,316 Total Operating Expenses 43,256 (792) (295) - 91 42,260 Operating Income 9,764 792 (149) - (91) 10,316 Operating income impact of operations sold - - 149 - - 149 Equity in earnings of unconsolidated businesses 635 - - - - 635 Income from other unconsolidated businesses 74 - - (43) - 31 Other income and (expense), net (20) - - - 55 35 Interest expense (1,809) - - - - (1,809) Minority interest (1,835) - - - - (1,835) Income Before Provision for Income Taxes and Discontinued Operations 6,809 792 - (43) (36) 7,522 Provision for income taxes (2,065) (307) - - 34 (2,338) Income Before Discontinued Operations 4,744 485 - (43) (2) 5,184 Discontinued Operations Income from operations 89 - - - - 89 Provision for income taxes (41) - - - - (41) Income on discontinued operations 48 - - - - 48 Net Income $4,792 $485 $- $(43) $(2) $5,232 Basic Earnings per Common Share(1) $1.73 $.18 $- $(.02) $- $1.89 Diluted Earnings per Common Share(1) $1.71 $.17 $- $(.02) $- $1.87 Footnote: (1) EPS totals may not add across due to rounding. Note: See http://www.verizon.com/investor for a reconciliation of other non-GAAP measures included in this Quarterly Bulletin. Verizon Communications Inc. Selected Financial and Operating Statistics (dollars in millions, except per share amounts) 3 Mos. Ended 3 Mos. Ended 9 Mos. Ended 9 Mos. Ended 9/30/05 9/30/04 9/30/05 9/30/04 Debt to debt and shareowners' equity ratio-end of period 50.1% 53.5% 50.1% 53.5% Book value per common share $14.19 $12.70 $14.19 $12.70 Cash dividends declared per common share $.405 $.385 $1.215 $1.155 Common shares outstanding (in millions) End of period 2,765 2,769 2,765 2,769 Capital expenditures (including capitalized software) Domestic Telecom $2,172 $1,761 $6,216 $4,703 Domestic Wireless 1,623 1,374 4,962 4,121 Information Services 20 18 53 49 International 70 98 192 195 Other 12 2 129 9 Total $3,897 $3,253 $11,552 $9,077 Total employees (1) 214,882 206,616 214,882 206,616 Footnote: (1) Prior period adjusted to reflect comparable figure. Verizon Communications Inc. Consolidated Balance Sheets (dollars in millions) Unaudited 9/30/05 12/31/04 $ Change Assets Current assets Cash and cash equivalents $616 $2,290 $(1,674) Short-term investments 1,208 2,257 (1,049) Accounts receivable, net 9,337 9,801 (464) Inventories 1,503 1,535 (32) Assets held for sale - 950 (950) Prepaid expenses and other 2,608 2,646 (38) Total current assets 15,272 19,479 (4,207) Plant, property and equipment 192,506 185,522 6,984 Less accumulated depreciation 117,314 111,398 5,916 75,192 74,124 1,068 Investments in unconsolidated businesses 5,754 5,855 (101) Wireless licenses 47,725 42,090 5,635 Goodwill 836 837 (1) Other intangible assets, net 4,363 4,521 (158) Other assets 19,159 19,052 107 Total Assets $168,301 $165,958 $2,343 Liabilities and Shareowners' Investment Current liabilities Debt maturing within one year $5,048 $3,593 $1,455 Accounts payable and accrued liabilities 12,760 13,177 (417) Liabilities related to assets held for sale - 525 (525) Other 5,831 5,834 (3) Total current liabilities 23,639 23,129 510 Long-term debt 34,391 35,674 (1,283) Employee benefit obligations 18,570 17,941 629 Deferred income taxes 22,527 22,532 (5) Other liabilities 3,978 4,069 (91) Minority interest 25,973 25,053 920 Shareowners' investment Common stock 277 277 - Contributed capital 25,361 25,404 (43) Reinvested earnings 15,365 12,984 2,381 Accumulated other comprehensive loss (1,710) (1,053) (657) Common stock in treasury, at cost (303) (142) (161) Deferred compensation - employee stock ownership plans and other 233 90 143 Total shareowners' investment 39,223 37,560 1,663 Total Liabilities and Shareowners' Investment $168,301 $165,958 $2,343 Verizon Communications Inc. Condensed Consolidated Statements of Cash Flows (dollars in millions) 9 Mos. Ended 9 Mos. Ended 9/30/05 9/30/04 $ Change Cash Flows From Operating Activities Income before discontinued operations $5,739 $4,744 $995 Adjustments to reconcile income before discontinued operations to net cash provided by operating activities: Depreciation and amortization expense 10,474 10,345 129 Sales of businesses, net (530) - (530) Employee retirement benefits 1,300 1,679 (379) Deferred income taxes (917) 968 (1,885) Provision for uncollectible accounts 1,007 876 131 Income from unconsolidated businesses (612) (709) 97 Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses (1,964) (2,344) 380 Other, net 778 (65) 843 Net cash provided by operating activities 15,275 15,494 (219) Cash Flows From Investing Activities Capital expenditures (including capitalized software) (11,552) (9,077) (2,475) Acquisitions, net of cash acquired, and investments (4,630) (300) (4,330) Proceeds from disposition of businesses 1,326 117 1,209 Net change in short-term investments 938 1,174 (236) Other, net 293 261 32 Net cash used in investing activities (13,625) (7,825) (5,800) Cash Flows From Financing Activities Proceeds from long-term borrowings 1,486 502 984 Repayments of long-term borrowings and capital lease obligations (2,464) (4,867) 2,403 Increase (decrease) in short-term obligations, excluding current maturities 1,121 (79) 1,200 Dividends paid (3,308) (3,198) (110) Proceeds from sale of common stock 37 220 (183) Purchase of common stock for treasury (221) (257) 36 Other, net 25 (43) 68 Net cash used in financing activities (3,324) (7,722) 4,398 Decrease in cash and cash equivalents (1,674) (53) (1,621) Cash and cash equivalents, beginning of period 2,290 669 1,621 Cash and cash equivalents, end of period $616 $616 $- Verizon Communications Inc. Domestic Telecom - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 9 Mos. 9 Mos. Ended Ended Ended Ended Unaudited 9/30/05 9/30/04 % Change 9/30/05 9/30/04 % Change Operating Revenues Local services $4,379 $4,565 (4.1) $13,225 $13,773 (4.0) Network access services 3,069 2,982 2.9 9,146 9,040 1.2 Long distance services 1,103 1,078 2.3 3,266 3,088 5.8 Other services 894 890 .4 2,620 2,587 1.3 Total Operating Revenues 9,445 9,515 (.7) 28,257 28,488 (.8) Operating Expenses Cost of services and sales 3,932 3,753 4.8 11,633 11,027 5.5 Selling, general & administrative expense 2,016 2,168 (7.0) 6,288 6,583 (4.5) Depreciation and amortization expense 2,197 2,215 (.8) 6,582 6,652 (1.1) Total Operating Expenses 8,145 8,136 .1 24,503 24,262 1.0 Operating Income $1,300 $1,379 (5.7) $3,754 $4,226 (11.2) Operating Income Margin 13.8% 14.5% 13.3% 14.8% Segment Income $537 $622 (13.7) $1,500 $1,948 (23.0) Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated. Certain reclassifications have been made, where appropriate, to reflect comparable operating results. Verizon Communications Inc. Domestic Telecom - Selected Operating Statistics 3 Mos. 3 Mos. 9 Mos. 9 Mos. Ended Ended Ended Ended Unaudited 9/30/05 9/30/04 % Change 9/30/05 9/30/04 % Change Switched access lines in service (000) Residence 31,629 34,289 (7.8) 31,629 34,289 (7.8) Business 17,660 18,264 (3.3) 17,660 18,264 (3.3) Public 400 430 (7.0) 400 430 (7.0) Total 49,689 52,983 (6.2) 49,689 52,983 (6.2) Wholesale voice connections* (000) 5,841 6,661 (12.3) 5,841 6,661 (12.3) Minutes of use from Carriers and CLECs (in millions) 51,662 55,224 (6.5) 156,376 169,185 (7.6) Long distance lines (000) 18,150 17,028 6.6 18,150 17,028 6.6 Broadband connections (000) 4,531 3,184 42.3 4,531 3,184 42.3 High capacity and digital data revenues ($ in millions) Data transport $1,943 $1,749 11.1 $5,690 $5,125 11.0 Data solutions 219 200 9.5 608 543 12.0 Total revenues $2,162 $1,949 10.9 $6,298 $5,668 11.1 Footnotes: * Resale and UNE-P lines, including lines covered under commercial agreements. Certain reclassifications have been made, where appropriate, to reflect comparable operating results. Verizon Communications Inc. Verizon Wireless - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 9 Mos. 9 Mos. Ended Ended Ended Ended Unaudited 9/30/05 9/30/04 % Change 9/30/05 9/30/04 % Change Revenues Service revenues $7,270 $6,389 13.8 $20,701 $17,933 15.4 Equipment and other 1,081 922 17.2 2,914 2,387 22.1 Total Revenues 8,351 7,311 14.2 23,615 20,320 16.2 Operating Expenses Cost of services and sales 2,519 2,107 19.6 6,899 5,619 22.8 Selling, general & administrative expense 2,814 2,411 16.7 8,051 6,933 16.1 Depreciation and amortization expense 1,199 1,147 4.5 3,524 3,305 6.6 Total Operating Expenses 6,532 5,665 15.3 18,474 15,857 16.5 Operating Income $1,819 $1,646 10.5 $5,141 $4,463 15.2 Operating Income Margin 21.8% 22.5% 21.8% 22.0% Segment Income $574 $478 20.1 $1,524 $1,249 22.0 Selected Operating Statistics Subscribers (000) 49,291 42,118 17.0 49,291 42,118 17.0 Penetration 19.9% 17.5% 19.9% 17.5% Subscriber net adds in period(1) (000) 1,918 1,674 14.6 5,475 4,596 19.1 Total churn rate, including prepaid 1.3% 1.5% 1.3% 1.5% Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated. (1) Includes acquisition of 32,000 subscribers, 4,000 subscribers and 11,000 subscribers in the first, second and third quarters of 2005, respectively. Verizon Communications Inc. Information Services - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 9 Mos. 9 Mos. Ended Ended Ended Ended Unaudited 9/30/05 9/30/04 % Change 9/30/05 9/30/04 % Change Operating Revenues $857 $883 (2.9) $2,608 $2,675 (2.5) Operating Expenses Cost of services and sales 141 126 11.9 444 394 12.7 Selling, general & administrative expense 252 324 (22.2) 826 983 (16.0) Depreciation and amortization expense 23 23 - 69 65 6.2 Total Operating Expenses 416 473 (12.1) 1,339 1,442 (7.1) Operating Income $441 $410 7.6 $1,269 $1,233 2.9 Operating Income Margin 51.5% 46.4% 48.7% 46.1% Segment Income $279 $244 14.3 $798 $743 7.4 Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated. Information Services results for the prior year exclude the operations of Verizon Information Services Canada as a result of an agreement to sell the business reached in the third quarter of 2004. The sale was completed in the fourth quarter of 2004. Certain reclassifications have been made, where appropriate, to reflect comparable operating results. Verizon Communications Inc. International - Selected Financial Results (dollars in millions) 3 Mos. 3 Mos. 9 Mos. 9 Mos. Ended Ended Ended Ended Unaudited 9/30/05 9/30/04 % Change 9/30/05 9/30/04 % Change Operating Revenues $572 $496 15.3 $1,626 $1,470 10.6 Operating Expenses Cost of services and sales 180 153 17.6 543 456 19.1 Selling, general & administrative expense 173 136 27.2 491 351 39.9 Depreciation and amortization expense 85 80 6.3 255 237 7.6 Total Operating Expenses 438 369 18.7 1,289 1,044 23.5 Operating Income $134 $127 5.5 $337 $426 (20.9) Operating Income Margin 23.4% 25.6% 20.7% 29.0% Equity in Earnings of Unconsolidated Businesses $220 $238 (7.6) $653 $726 (10.1) Income from Other Unconsolidated Businesses $- $2 (100.0) $56 $31 80.6 Segment Income $349 $319 9.4 $971 $887 9.5 Footnotes: The segment financial results above are adjusted to exclude the effects of special and non-recurring items. The company's chief decision makers exclude these items in assessing business unit performance, primarily due to their non-operational nature. Intersegment transactions have not been eliminated.

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