Verizon Communications Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. Verizon is a communications provider with Wireless and Wireline reportable segments. The filing text states that key financial statements and management discussion are incorporated by reference to the 2017 Annual Report to Shareowners; those details are not included in the supplied text.
Business context and key metrics
- Wireless had 116.3 million retail connections and approximately $87.5 billion in 2017 revenue, about 69% of company revenue.
- Wireline generated $30.7 billion in 2017 revenue, about 24% of company revenue. Consumer Markets contributed $12.8 billion; Enterprise Solutions $9.2 billion; Partner Solutions $4.9 billion; and Business Markets $3.6 billion.
- Outstanding unsecured indebtedness was approximately $108.2 billion at year-end, with approximately $8.9 billion of unused borrowing capacity under the existing credit facility.
- Gross property, plant and equipment investment was approximately $246 billion, versus $232 billion at year-end 2016, before accumulated depreciation.
- Quarterly declared dividends were $0.5900 per share in Q4 2017, up from $0.5775 in Q4 2016. No shares were repurchased in 2017 or 2016.
- The supplied filing text does not provide clear consolidated values for total revenue, net income, operating profit, cash flow, margins, capital expenditures, or liquidity beyond the stated borrowing capacity.
Material changes and transactions
- Verizon acquired Yahoo’s operating business in June 2017 and combined it with AOL and other media operations to form Oath.
- The sale of 23 data-center sites to Equinix closed in May 2017 for approximately $3.6 billion, subject to adjustments.
- Verizon completed its acquisition of XO’s wireline business in February 2017 for approximately $1.5 billion. It acquired Chicago-area fiber assets from WOW! in December for approximately $0.2 billion of expected total consideration of approximately $0.3 billion.
- The 2017 Wireline customer groups were reorganized. The company also continued its shift away from traditional copper-based services toward fiber and advanced business services.
- In 2017, approximately 80% of Verizon’s postpaid phone base had unsubsidized service pricing, compared with approximately 67% in 2016.
Outlook, commentary and risks
- Verizon announced plans to commercially launch residential 5G wireless broadband in three to five U.S. markets in 2018. The NextLink acquisition closed in January 2018; the Straight Path acquisition was expected to close by the end of Q1 2018. Both relate to millimeter-wave spectrum for 5G.
- Management highlighted investment in network capacity, fiber, 5G, media and Internet of Things services as strategic priorities. The filing provides no consolidated earnings or cash-flow guidance in the supplied text.
- Principal risks include intense competition and pricing pressure; technology changes; spectrum and network investment needs; regulation and licensing; cybersecurity and service disruptions; high indebtedness and financing costs; labor and benefit costs; and litigation.
- The FCC reversed its 2015 broadband Title II classification in December 2017, restoring a “light touch” approach; the order could be challenged. European data-protection rules with significant potential penalties were scheduled to take effect in May 2018.
- Environmental reserves cover remediation matters, including a former Sylvania facility; costs may change after allocation and site assessments. A California hazardous-waste investigation remained ongoing, but Verizon did not expect any resulting penalties to be material.
Important facts for investors to verify
- Review the incorporated Annual Report for consolidated revenue, earnings, cash flows, margins, capital expenditures, cash balances, and year-over-year comparisons.
- Assess debt maturity, interest expense, leverage and cash generation against the approximately $108.2 billion of unsecured debt.
- Verify the financial contribution, integration costs and expected returns of Yahoo/Oath and the other acquisitions and divestitures.
- Track 5G launch timing, required investment and spectrum transaction approvals, as well as the regulatory outcome of challenges to the FCC broadband order.