Verizon Communications Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report, not a standalone fourth-quarter report. Verizon operated through Wireless and Wireline segments.
Business context and key metrics
- Verizon provided wireless services across the U.S. and wireline communications, broadband, video, enterprise and wholesale services in the U.S. and internationally.
- Wireless reported approximately $81.0 billion of 2013 revenue, about 67% of Verizon revenue, and 102.8 million retail connections at year-end. Verizon owned 55% of Verizon Wireless at December 31, 2013.
- Wireline reported $39.2 billion of 2013 revenue, about 33% of Verizon revenue. FiOS passed more than 18.5 million premises; FiOS Video was available to approximately 15 million homes.
- Verizon reported approximately $93.6 billion of debt outstanding at December 31, 2013 and approximately $6.1 billion of unused capacity under its existing credit facility. After year-end, it incurred $20.3 billion of additional debt related to the Wireless Transaction and became entitled to an additional $2 billion of borrowing capacity under a 364-day revolving agreement.
- Gross investment in plant, property and equipment was approximately $221 billion, versus $210 billion in 2012. Wireline accounted for 61.3% and Wireless 37.7% of total properties at year-end.
- The provided filing text does not give clear consolidated values for net income, operating cash flow, free cash flow, margins, cash balances or a complete liquidity analysis; those statements are incorporated by reference to the 2013 Annual Report to Shareowners.
Changes and notable developments
- In September 2013, Verizon agreed to acquire Vodafone’s 45% interest in Verizon Wireless for approximately $130 billion. The acquisition closed February 21, 2014, after the reporting period, giving Verizon 100% ownership. Consideration was primarily cash and Verizon common stock.
- Verizon issued approximately 1.27 billion common shares in the transaction; the filing cautions that sales of shares distributed to Vodafone shareholders could pressure Verizon’s share price.
- Share Everything accounts were approximately 46% of retail postpaid accounts at year-end, up from approximately 23% at year-end 2012. More Everything plans were introduced in February 2014.
- Wireline capital expenditures declined in 2013 versus 2012, primarily due to lower legacy spending requirements and reduced FiOS network spending. Verizon continued expanding its global IP network and adding 100G routes.
- Verizon declared quarterly dividends of $0.530 in Q3 and Q4 2013, up from $0.515 in Q4 2012. It made no share repurchases in Q4 2013.
Outlook, risks and contingencies
- Management described growth opportunities in wireless data, broadband, video, cloud, cybersecurity and telematics, and expected rising broadband and mobile-data usage. Commercial VoLTE was anticipated in 2014; these are forward-looking expectations, not assured results.
- Key risks include intense competition and pricing pressure, technology shifts, spectrum availability, regulation, supplier dependence, cyberattacks, natural disasters, labor negotiations, litigation, pension and healthcare costs, and economic weakness.
- Management specifically warned that the Wireless Transaction materially increased indebtedness, debt service obligations and interest-rate exposure, and could affect financing flexibility and credit ratings. A term-loan leverage covenant may constrain future borrowing unless specified credit-rating conditions are met.
- Two significant litigation matters were disclosed: the Idearc Litigation Trust’s claim for more than $9 billion was dismissed in Verizon’s favor, with an appeal pending; and a FairPoint-related trust sought approximately $2 billion, with a trial on its remaining claim completed in December 2013. The filing does not provide a clear expected loss value for the FairPoint matter.
- A California hazardous-waste investigation could result in penalties exceeding $100,000, but Verizon did not expect any penalties ultimately incurred to be material.
- Disclosure controls were reported effective at year-end. The company was continuing financial-system and transaction-processing changes while enhancing control design and documentation.
Important facts for investors to verify
- Review the incorporated financial statements and MD&A for consolidated revenue, earnings, cash flows, margins, cash balances, capital expenditures and comparative-period results; these values are not clear in the supplied text.
- Assess the Wireless Transaction’s final financing, debt service, preferred-stock obligations, leverage and expected benefits following its February 2014 closing.
- Track cash generation, capital spending and the sustainability of the dividend amid increased leverage.
- Monitor the FairPoint litigation, regulatory and spectrum matters, labor negotiations, and cyber and network-resilience risks.
- Evaluate whether wireless growth and FiOS, cloud and enterprise initiatives offset wireline pressures and industry pricing competition.