Verizon Communications Inc. — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual report, not a standalone fourth-quarter filing. The supplied filing text incorporates the company’s annual report financial statements and MD&A by reference but does not include their detailed figures.
Business context and results
Verizon operates Domestic Wireless and Wireline. It completed the acquisition of Alltel on January 9, 2009, expanding Verizon Wireless’s customer base and footprint. Verizon owned 55% of Verizon Wireless; Vodafone owned 45%.
- Domestic Wireless revenue: $62.131 billion, approximately 58% of Verizon’s aggregate revenue.
- Wireline revenue: $46.080 billion, approximately 43% of aggregate revenue. Wireline lines of business were Mass Markets $19.755 billion, Global Enterprise $14.988 billion, Global Wholesale $9.637 billion and Other $1.700 billion.
- Combined segment revenue: $108.211 billion, calculated from the two disclosed segment figures. The percentages are approximate as presented in the filing.
- Capital expenditures, including capitalized software: $17.047 billion in 2009, versus $17.238 billion in 2008 and $17.538 billion in 2007.
- Gross property, plant and equipment investment: approximately $229 billion at year-end 2009 versus $216 billion at year-end 2008, before accumulated depreciation.
- Dividends: quarterly cash dividends declared were $0.460 in Q1 and Q2 2009, and $0.475 in Q3 and Q4.
Net income, operating income, cash flow, margins, total debt, cash balances and liquidity measures are not clearly provided in the supplied filing text; the referenced financial statements and MD&A would need to be consulted.
Changes and material developments
- Wireless capital expenditures increased to $7.152 billion from $6.510 billion in 2008; Wireline capital expenditures decreased to $8.892 billion from $9.797 billion.
- Alltel’s purchase involved $5.9 billion in cash consideration and assumption of approximately $24 billion of aggregate principal amount of Alltel debt. Verizon cited roaming, facility, advertising, overhead and headcount savings, while cautioning that anticipated benefits were not assured.
- Regulatory approvals for the Alltel acquisition required divestiture of wireless operations in 105 markets across 24 states. Agreements covered 79 markets for approximately $2.4 billion and the remaining 26 for $200 million; both transactions were expected to close in the first half of 2010, subject to regulatory approvals.
- Verizon announced a planned spin-off and merger with Frontier involving approximately 4 million access lines and businesses generating about $4 billion of annual Wireline revenue. Verizon expected approximately $3.3 billion of value from Spinco and Verizon shareholders were expected to receive approximately $5.3 billion of Frontier stock, subject to terms, adjustments and approvals. Closing was expected in Q2 2010.
Outlook, risks and contingencies
- Verizon planned to launch LTE service in 25–30 markets in 2010 and expected to cover virtually all of its existing 3G footprint by the end of 2013. These are plans, not assured outcomes; deployment timing, cost, equipment availability and technology adoption were risks.
- The company identified intense competition, economic weakness, technology substitution, regulation, spectrum availability, supplier dependence, labor matters, pension and healthcare costs, credit-market conditions, disasters and litigation as risks to results.
- A proposed FCC proceeding on net-neutrality rules could constrain broadband network management and service offerings if adopted, according to the filing.
- A consolidated lawsuit concerning alleged government access to telephone communications and records was dismissed in June 2009; plaintiffs appealed. Verizon Wireless paid $468,600 in penalties under an EPA consent agreement following an audit that identified potential compliance violations.
- Management reported effective disclosure controls as of December 31, 2009, with no material fourth-quarter change in internal control over financial reporting.
Key facts investors should verify
- Review the incorporated 2009 annual report financial statements and MD&A for earnings, cash flow, debt, liquidity, margins, impairments and comparable-period results.
- Check the Alltel integration results, debt impact, realized synergies and completion of the required market divestitures.
- Confirm the status, final terms and financial effects of the Frontier transaction and related asset spin-off.
- Assess LTE rollout spending, execution, coverage and customer adoption against the stated timetable.
- Monitor competitive and regulatory developments, benefit-plan obligations, litigation and any changes in financing costs or credit ratings.