Business Context and Reporting Period
Company: Verizon Communications Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2001
Overview: Verizon is a Fortune 10 global provider of communications services with approximately 247,000 employees. The company operates four reportable segments: Domestic Telecom, Domestic Wireless, International, and Information Services. As of December 31, 2001, the company reported approximately $67 billion in annual revenues, serving 132.1 million access line equivalents and 29.4 million wireless customers in the U.S.
Key Financial Metrics
Revenue: Approximately $67 billion for the fiscal year 2001.
Capital Expenditures: Total capital expenditures were approximately $17.4 billion in 2001 ($11.5 billion Domestic Telecom, $5.0 billion Domestic Wireless, $0.9 billion other).
Plant, Property, and Equipment: Total investment was approximately $170 billion at December 31, 2001.
Stock Performance (2001): High of $57.40, Low of $43.80. Quarterly cash dividend declared was $0.385 per share.
Debt and Liquidity: The filing text does not provide specific values for total debt, cash flow, or liquidity ratios. These figures are incorporated by reference from the Annual Report to Shareowners.
Material Changes and Developments
- Asset Sales: In October 2001, Verizon agreed to sell 675,000 switched access lines in Alabama and Missouri to CenturyTel Inc. for $2.2 billion, and approximately 600,000 access lines in Kentucky to ALLTEL Corporation for $1.9 billion. Closures were expected in the second half of 2002.
- Wireless Acquisitions: Verizon Wireless signed agreements to acquire Dobson Communications Corporation's wireless operations in five states (closed February 2002) and entered a partnership with Price Communications Wireless valued at $1.7 billion to expand its footprint in the Southeastern U.S.
- Regulatory Changes: The FCC approved Verizon's entry into the in-region long distance market in Massachusetts, Connecticut, Pennsylvania, and Rhode Island (subject to appeals). State regulators in New York and New Jersey mandated substantial reductions in rates for Unbundled Network Elements (UNEs).
- International Consolidation: Verizon exercised an option to purchase an additional 12% of TELPRI (Puerto Rico), increasing its stake to 52% and triggering consolidation in 2002.
Outlook, Risks, and Management Commentary
Capital Expenditure Guidance: Management expects capital expenditures in 2002 to range between $15 billion and $16 billion.
Verizon Wireless IPO: The company filed an amended registration statement for the proposed Initial Public Offering (IPO) of Verizon Wireless in November 2001, noting the timing depends on favorable market conditions.
Key Risks:
- Regulatory Uncertainty: Ongoing litigation regarding the FCC's cancellation of NextWave licenses (Verizon paid $8.78 billion for licenses later reinstated to NextWave by a court ruling; Supreme Court agreed to hear the appeal in March 2002).
- Competition: Intensifying competition in local exchange, long distance, and wireless markets, including price pressures and the substitution of wireless for wireline services.
- September 11 Impact: Risks related to the ability to recover insurance proceeds for equipment losses and adverse financial impacts from the terrorist attacks.
- Economic Conditions: Sensitivity to the duration and extent of the current economic downturn.
Investor Verification Checklist
- Verify the final outcome of the FCC/NextWave litigation and the status of the $8.78 billion payment obligation.
- Confirm the closing dates and regulatory approvals for the $4.1 billion in asset sales to CenturyTel and ALLTEL.
- Monitor the timing and pricing of the Verizon Wireless IPO.
- Review the impact of mandated UNE rate reductions in New York and New Jersey on Domestic Telecom margins.
- Assess the financial impact of the September 11, 2001, terrorist attacks on insurance recoveries and operational costs.