We never stop working for you. Communications 2005 Annual Report Kevin Hong ACG Title page

Overall, Verizon Communications, Inc. has not done as well as they have in It seems as if Verizon is trying to recover from an exogenous economic shock. From 2003 to 2004, Verizon was at peak growth and in 2005, their results have plummeted comparatively. I picked Verizon because I was interested in the financial status of the telecommunications leader. Needless to say, I’m quite disappointed at their 2005 performance. Verizon does show a lot of investments towards upgrading their telecommunications services and it’s nice to see such a company investing much to lead the way. I’m sure in the future, Verizon will have a better result to show me because a company like Verizon which thrives on being ahead of the game, will have a better future in a nation where expectations are high for a “leading” telecommunications market. Executive Summary

Ivan G. Seidenberg Chairman and CEO Verizon Communications 140 West Street New York, NY Introduction

Fiscal Year January 1 st, 2005 to December 31 st, 2005 Domestic Telecom Provider of wire line telecommunications service, including broadband Verizon Wireless Leading wireless services provider Information Services Provider of yellow pages directories International Operations in the Americans and Europe Introduction2

Ernst & Young LLP New York, New York The audit report, in plain and simple words, states that Verizon has maintained, in all material respects, effective internal over financial reporting as of December 31 st of 2005, based on the standards of the Public Company Accounting Oversight Board. This report was signed and dated February 23 rd of 2006 in page 37 of Verizon Communications, Inc. Annual Report. Audit Report

NYSE:VZ Last trade: October 10 th, :17pm EST $36.29 per share Year’s range: $38.00(Sep9,06) - $29.13(Oct20,05) = $9.87 Earnings Per Share: $2.35 Opinion: HOLD The company is growing as America’s leading telecommunications service provider. Due to the consistent and predicted growth of this company, I would personally hold the shares. Stock Market Information

Despite the decline in earnings per share in the year 2005 compared to 20004, Verizon Communications, Inc. has added millions of new customers in all their subdivisions with Verizon Wireless leading the way. Verizon has also expanded their wireless broadband network to cover half of the United States leading the telecommunications industry additional to upgraded fiber network for super-high-speed internet Revenues are up 5.4 percent from 2004 at a whopping 75 billion dollars with Verizon Wireless leading at a 16.8 percent growth in revenue which leads the wireless telecommunications industry. Verizon enabled a reserve of 15.3 billion dollars from capital to invest to expand their boundaries and service coverage and reduced their debt by 300 million dollars which adds up to a 18.8 billion dollars in debt reduction over the last five years. Verizon has also paid 4.4 billion dollars in dividends to shareowners. Company Outlook Plans

(Multi-step) Consistent Revenue increase shows that the company is increasing. Increased Net Income shows me that the company is becoming more productive and efficient. The jump from 2003 and 2004 is noteworthy. Operating Income nearly doubled from 2003 and The company increased income greatly between those two years. Income Statement

There are significant decreases in “Cash and Cash equivalents” and “Investments in unconsolidated businesses” while there are significant increases in “Debt maturing within one year”. Total current assets have decreased while total assets show a small increase. Balance Sheet

Revenue Recognition Domestic Telecom segment earns revenue based upon usage. Equipment revenue is recognized as services. Activation fees are amortized over the customer relationship period. Cash and Cash Equivalents Highly liquid investments with a maturity of 90 days or less are considered to be cash equivalents. Short-Term Investments Cash equivalents held in trust to pay for certain employee benefits. Inventories New and reusable supplies and network equipment are stated principally at average original cost, except that specific costs are used in the case of large individual items. Property and Equipment Plant, property, and equipment are recorded at cost. Operations’ depreciation expense is principally based on group remaining life estimates. Accounting Policies

(Liquidity Ratios) Working Capital Current Assets – Current Liabilities 2004 (in millions) $3650 -$8615 Verizon has negative working capital. I can only assume that this means Verizon works off of assets they don’t currently own. There’s been a significant decrease in working capital between 2004 and Financial Analysis

(Liquidity Ratios) Current Ratio Current Assets/Current Liabilities Verizon has a Current Ratio of less than 1 which obviously means Verizon’s liabilities are greater than its assets. In 2005, for every 87 cents of assets, there was a dollar of liabilities. Financial Analysis2

(Liquidity Ratios) Receivable Turnover Net Sales/Average Accounts Receivable times 7.9 times Verizon has a Receivable Turnover of 7.9 times. Receivable Turnover is a measure of relative size of accounts receivable and effectiveness of credit policies. Financial Analysis3

(Liquidity Ratios) Average days’ sales uncollected Days in year/Receivable Turnover days 46.1 days Verizon has an average days’ sales uncollected of 46.1 days. This means Verizon took an average of 46.1 days to collect their receivables. Financial Analysis4

(Liquidity Ratios) Inventory Turnover Costs of Goods Sold/Average Inventory times 15.4 times Verizon has an inventory turnover of 15.4 times. This means Verizon replaces their inventory of about 15 times a year. Financial Analysis5

(Liquidity Ratios) Average days’ inventory on hand Days in year/Inventory Turnover days 23.8 days Verizon has an average days’ inventory on hand. This means Verizon takes about 24 days to replace their inventory. Financial Analysis6

(Profitability Ratios) Profit Margin Net Income/Net Sales % 9.8% Verizon has 11.0% profit margin for the year 2004 and 9.8% for the year This means Verizon has produced 9.8 percent income from sales. Financial Analysis7

(Profitability Ratios) Asset turnover Net Sales/Average Total Assets times 4.18 times Verizon has had an asset turnover of 4.18 times Financial Analysis8

(Profitability Ratios) Return on Assets Net Income/Average Total Assets % 4.7% Verizon has had return on assets of 4.7% for the year Return on assets is a measure of overall earning power or profitability. Financial Analysis9

(Profitability Ratios) Return on Equity Net Income/Average Stockholders’ Equity % 20.3% Verizon has had return on equity of 20.3 percent for the year Return on equity is a measure of the profitability of stockholders’ investments. Financial Analysis10

(Solvency Ratios) Debt to Equity Total Liabilities/Stockholders’ Equity times.632 times Verizon’s debt to equity ratio shows that for the year 2005, Verizon has had about 67 cents of liabilities for every dollar of equity. Financial Analysis11

(Market Strength Ratios) Price/earnings ratio Market Price/Earnings per share times times Verizon’s price/earnings ratio has decreased a good amount between the 2004 and 2005 fiscal years. Apparently, 2005 was not too good of a year for the prospect stockholders. Financial Analysis12

(Market Strength Ratios) Dividends Yield Earnings/Market price per share % 6.98% Verizon’s dividend yield has dropped from 2004 to A stockholder would want the dividends yield for a company to be high. Financial Analysis13