Verizon Communications Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed February 23, 2016. The filing describes Verizon’s Wireless and Wireline businesses. Although the request references 2015 Q4, this is an annual report, not a standalone quarterly filing.
Business context and key metrics
Verizon is a communications provider operating wireless and wireline networks. Wireless reported approximately $91.7 billion of 2015 revenue, about 70% of company revenue, and 112.1 million retail connections at year-end. Wireline reported $37.7 billion, about 29% of company revenue. The percentages are approximate.
- Wireless: about 95% of retail connections were postpaid; 4G LTE coverage reached approximately 312 million people, including partner-served areas.
- Wireline: Mass Markets revenue was $18.5 billion; Global Enterprise, $12.9 billion; Global Wholesale, $6.0 billion. These are rounded figures and do not sum precisely to reported Wireline revenue.
- Debt: approximately $110.2 billion of outstanding indebtedness at December 31, 2015, with about $7.9 billion of unused borrowing capacity under the existing credit facility.
- Capital assets: gross investment in plant, property and equipment was approximately $220 billion, versus $231 billion at year-end 2014, before accumulated depreciation.
- Fourth-quarter 2015 declared dividend: $0.565 per share. Verizon made no common-stock repurchases in the quarter.
The supplied filing text incorporates the Annual Report to Shareowners for detailed consolidated results, cash flows, margins, liquidity, and segment operating results, but does not include those figures. Accordingly, revenue growth, net income, operating margins, cash flow, capital expenditures, and detailed liquidity values cannot be stated clearly from the provided text.
Material changes and unusual items
- Verizon completed its acquisition of AOL on June 23, 2015; the filing positions digital content and advertising as strategic growth opportunities.
- In March 2015, Verizon received $5.0 billion upfront for American Tower’s exclusive rights to lease and operate approximately 11,300 Verizon wireless towers. Verizon retained tower capacity under long-term subleases and also sold 162 towers for $0.1 billion.
- Verizon paid approximately $10.4 billion for 181 AWS-3 spectrum licenses, granted in April 2015.
- Verizon completed a $5.0 billion accelerated share repurchase in 2015, retiring 101.6 million shares at an average price of $49.21.
- Verizon agreed to sell its California, Florida, and Texas local exchange operations and related landline activities to Frontier for approximately $10.5 billion, or about $7.5 billion net of income taxes, subject to adjustments and including Frontier’s assumption of $0.6 billion of debt. The filing expected closing at the end of Q1 2016; required federal and state regulatory approvals had been obtained, but closing conditions remained.
Compared with 2014, gross property investment declined, while the share allocated to Wireless increased and Wireline’s decreased. The text does not provide sufficient comparable consolidated financial results to assess year-over-year changes in revenue, earnings, margins, or cash flow.
Outlook, risks, and contingencies
Management describes continued investment in wireless capacity and density, fiber and broadband, IoT, digital media, and development of 5G; field technology trials were planned for 2016. The filing provides no clear quantitative earnings or revenue guidance. Verizon anticipated additional spectrum needs and expected unsubsidized service pricing and device-payment plans to become more prevalent in 2016.
- Key business risks include intense competition and pricing pressure, technology change, supplier concentration, and the need for sustained network investment.
- Regulatory uncertainty increased after the FCC reclassified broadband Internet access as a Title II telecommunications service in 2015. Verizon noted related litigation and possible constraints on network management, commercial arrangements, investment, and innovation.
- Verizon identified substantial debt, borrowing costs and ratings, benefit-plan costs, labor negotiations, cybersecurity, natural disasters, and litigation as material risks. Contracts covering approximately 36,300 Wireline employees had expired in August 2015, and negotiations continued.
- Environmental reserves cover remediation matters, including a former Sylvania site; the filing notes possible future reserve adjustments. Verizon was cooperating with a California hazardous-waste investigation and did not expect any penalties to be material.
- Disclosure controls were reported effective at December 31, 2015. The company said it was continuing to standardize and centralize accounting transaction processing.
Important facts for investors to verify
- Consult the incorporated 2015 Annual Report to Shareowners for consolidated revenue, net income, cash flow, margins, capital expenditures, and full balance-sheet and liquidity details.
- Verify the Frontier transaction’s final closing date, consideration adjustments, and effects on continuing operations.
- Review debt maturities, interest expense, ratings, and leverage covenants alongside the reported $110.2 billion debt balance.
- Assess the costs and returns of the AWS-3 spectrum purchase, tower lease transaction, AOL acquisition, and ongoing network and 5G investment.
- Track outcomes of broadband-regulation litigation, Wireline labor negotiations, and significant litigation or environmental matters.