Verizon Communications Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed February 21, 2017. The filing describes Verizon’s Wireless and Wireline businesses. Several financial statements and MD&A details are incorporated by reference to the 2016 Annual Report to Shareowners and are not included in the supplied text.
Business and key financial information
- Verizon is a communications provider serving consumers, businesses and government customers. It reported approximately 160,900 employees at year-end.
- Wireless: 2016 revenue was approximately $89.2 billion, about 71% of company revenue. Verizon reported 114.2 million retail connections at year-end; approximately 95% were postpaid.
- Wireline: 2016 revenue was $31.3 billion, about 25% of company revenue. Its Mass Markets, Global Enterprise and Global Wholesale businesses generated $14.4 billion, $11.6 billion and $5.0 billion, respectively.
- Debt and liquidity: Outstanding indebtedness was approximately $108.1 billion at December 31, 2016, with $8.9 billion of unused borrowing capacity under the existing credit facility. The filing identifies leverage and financing costs as risks.
- Capital assets: Gross investment in plant, property and equipment was approximately $232 billion, versus $220 billion at year-end 2015, before accumulated depreciation.
- Cash flow, net income, operating margins and liquidity beyond the stated borrowing capacity: The supplied filing text does not provide clear values; the relevant financial statements and MD&A are incorporated by reference.
- Shareholder returns: The quarterly dividend declared was $0.5775 per share in Q4 2016, versus $0.5650 in Q4 2015. Verizon repurchased no shares in Q4 2016.
Material changes and unusual items
- Verizon completed the sale of its California, Florida and Texas local exchange businesses to Frontier on April 1, 2016, for approximately $10.5 billion, subject to adjustments, including Frontier’s assumption of $0.6 billion of debt. The businesses’ results were excluded from Wireline segment results for all periods presented to provide comparable segment results.
- Verizon agreed to acquire Yahoo’s operating business for approximately $4.83 billion; a February 2017 amendment reduced the price by $350 million to approximately $4.48 billion, subject to adjustments. The transaction remained pending in the supplied text.
- Verizon agreed to sell 24 U.S. and Latin American data center sites to Equinix for approximately $3.6 billion, subject to adjustments and customary closing conditions; closing was expected in the first half of 2017.
- Verizon acquired XO Holdings’ wireline business for approximately $1.8 billion, subject to adjustment; the acquisition closed February 1, 2017, after year-end.
- Verizon paid approximately $10.4 billion for 181 AWS-3 spectrum licenses in 2015. The filing says additional spectrum may be needed as demand grows.
Outlook, commentary and risks
- Verizon intended to deploy a fixed 5G wireless broadband service in the United States in 2018, subject to the outcome of pre-commercial trials. Its One Fiber strategy was presented as supporting LTE coverage, 5G deployment and fiber services; the company launched the strategy in Boston in 2016.
- Management described digital media, advertising technology, IoT and telematics as areas for new business models and growth. In February 2017, Verizon announced an introductory unlimited plan for consumers and small businesses.
- Principal disclosed risks include intense competition and pricing pressure; technology and consumer-demand shifts; regulation of broadband, privacy and data security; cyberattacks and service disruptions; supplier dependence; high indebtedness and credit-market exposure; pension and healthcare costs; labor matters; litigation; and risks to realizing strategic-transaction benefits.
- The filing discusses environmental reserves, including remediation at a former Sylvania site, where responsibility and potential cost allocation remained relevant. A California hazardous-waste investigation was also described; Verizon did not expect any penalties ultimately incurred to be material, and Frontier assumed liabilities associated with the sold California entity.
Important facts for investors to verify
- Review the incorporated annual report for consolidated revenue, net income, cash flow, margins, capital expenditures, cash balances and full debt maturity and liquidity details.
- Assess Wireless and Wireline revenue and operating trends on a comparable basis, particularly the effects of the Frontier divestiture and competitive pricing.
- Verify the final terms, closing status and realized proceeds or costs of the Yahoo, Equinix and XO transactions, and the expected benefits of those deals.
- Track debt reduction, interest expense, spectrum spending and the funding impact of dividends, capital investment and benefit plans.
- Evaluate execution and investment requirements for 5G, One Fiber, digital media and IoT, alongside regulatory, cybersecurity and litigation exposures.