Verizon Communications Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow summary.
Business context
Verizon provides wireless and wireline communications, technology and media services. Its reportable segments are Consumer and Business; Verizon Media is included in corporate and other. Consumer generated about 69% of consolidated revenue, Business about 24%, and Verizon Media reported $7.0 billion of revenue.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Consolidated revenue | $128.3 billion | $131.9 billion |
| Operating income | $28.8 billion | $30.4 billion |
| Net income | $18.3 billion | $19.8 billion |
| Net income attributable to Verizon | $17.8 billion | $19.3 billion |
| Diluted earnings per share | $4.30 | $4.65 |
| Operating cash flow | $41.8 billion | $35.7 billion |
| Capital expenditures, including capitalized software | $18.2 billion | $17.9 billion |
| Free cash flow (non-GAAP) | $23.6 billion | $17.8 billion |
| Total debt at year-end | $129.1 billion | $111.5 billion |
| Cash and cash equivalents at year-end | $22.2 billion | $2.6 billion |
Consumer revenue fell 2.8% to $88.5 billion; segment operating income was $28.9 billion, with a 32.6% operating margin versus 31.8% in 2019. Business revenue fell 1.5% to $31.0 billion; segment operating income was $3.8 billion, with a 12.2% margin versus 12.0%. Consolidated Adjusted EBITDA, a non-GAAP measure, was $47.1 billion versus $47.2 billion.
Year-end liquidity included approximately $9.4 billion of unused capacity on the revolving credit facility. Verizon paid $10.2 billion in dividends in 2020 and increased its quarterly dividend by 2.0%; it made no share repurchases under its buyback program.
Material changes versus 2019
- Revenue declined 2.7%, primarily reflecting lower Consumer, Business and corporate-and-other revenue. Wireless equipment revenue fell amid lower device sales and longer handset upgrade cycles; pandemic-related reductions in travel and customer activity also weighed on service and advertising revenue.
- Operating expenses declined 2.0%, including lower wireless equipment costs, partly offset by higher selling, general and administrative expense. The latter included a $1.2 billion spectrum-auction loss.
- Operating cash flow rose by $6.0 billion and free cash flow by $5.8 billion. The company cited working-capital improvements, a $2.2 billion cash tax benefit related to a 2019 foreign-affiliate preferred-stock disposition, and a $764 million receipt from settling interest-rate swaps; lower earnings partly offset the increase.
- Total debt increased by $17.6 billion. Verizon said it deliberately raised and retained cash to strengthen its position during pandemic uncertainty and take advantage of financing conditions.
- Income tax expense rose to $5.6 billion from $2.9 billion, and the effective tax rate increased to 23.4% from 13.0%, primarily because a $2.2 billion tax benefit recognized in 2019 did not recur.
Outlook, commentary and risks
- Management expected Consumer service revenue growth to accelerate in 2021, supported by customers moving to higher-tier plans and connecting more devices. It expected Business wireless revenue to expand with connection growth and anticipated Verizon Media revenue growth, while noting political advertising would not repeat the prior year’s support.
- Verizon planned continued investment in 4G capacity, 5G deployment, fiber and its Intelligent Edge Network. By year-end 2020, 5G Ultra Wideband was available in 61 markets; 5G Nationwide covered approximately 230 million people across more than 2,700 cities.
- The company reported $9.5 billion of cumulative cash savings through 2020 under its four-year Business Excellence program, against a $10 billion target for 2021.
- After year-end, Verizon was announced as the winning bidder for approximately $45.5 billion of C-Band spectrum licenses. The filing also cited an estimated $13.1 billion of related clearing and incentive costs. A February 2021 delayed-draw term loan agreement provided up to $25 billion of borrowing capacity; it had not yet been funded as described in the filing.
- The planned Tracfone acquisition was expected to close in the second half of 2021, subject to regulatory approvals and other conditions. Consideration was approximately $3.1 billion in cash and $3.1 billion in Verizon stock, plus up to $650 million in potential additional cash consideration.
- COVID-19 reduced roaming, overage, equipment and media advertising revenue and led to operational and customer-support costs. Customer delinquency rates had improved to pre-pandemic levels in the second half of 2020, but management warned that a renewed increase could affect credit-loss provisions, cash flow and asset-backed debt amortization.
- Key risks include intense competition and pricing pressure, 5G deployment costs and delays, spectrum availability, high indebtedness, cybersecurity incidents, supplier disruptions, regulatory and privacy changes, labor matters, economic weakness, and pension and healthcare costs. The filing says pending legal and regulatory matters were not expected to materially affect financial condition, though a given period’s results could be affected; excess loss estimates were not available.
Important facts for investors to verify
- Funding and cash-flow implications of the C-Band purchase, including clearing costs, capital spending and debt issuance.
- Whether 2021 service-revenue and margin expectations materialized, and whether elevated pandemic-era demand in parts of Business persisted.
- Tracfone’s regulatory approval, closing terms, and any additional consideration; also the status of the Bluegrass Cellular transaction.
- Debt and liquidity trends after the year-end cash build, including dividend coverage and the use of the delayed-draw facility.
- Credit-loss and device-receivable performance, pension assumptions and the effects of large nonrecurring tax, spectrum and benefit-plan items on reported earnings.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2020.