01—Abstract
Summary
Summary of the 10-K filed February 15, 2019. Cited figures are marked; the original filing is the authoritative source.
Verizon's 2018 Form 10-K (filed February 15, 2019) shows a company with stable core economics but a sharp swing in reported earnings.
Consolidated operating revenues rose 3.8% to $130.9 billiona, driven by Wireless (up 4.8% to $91.7 billion, about 70% of revenue), while Wireline declined 3.0% to $29.8 billion. Reported net income attributable to Verizon fell to $15.5 billion from $30.1 billion in 2017, but that comparison is distorted by the prior-year $16.8 billion non-cash tax benefit from the Tax Cuts and Jobs Act. Operating income fell to $22.3 billion from $27.4 billion, mainly because of a $4.6 billion non-cash goodwill impairment on the Oath/Verizon Media business and $2.2 billion of severance charges tied to a voluntary separation program.
Cash generation improved meaningfully. Operating cash flow rose to $34.3 billionb from $24.3 billion, helped by working-capital gains and lower discretionary pension contributions. Capital expenditures were $16.7 billion, so free cash flow (a non-GAAP measure) reached $17.7 billion versus $7.1 billion a year earlier.
Management guides 2019 capex to $17.0 to $18.0 billionc, with continued 5G investment. Dividends paid were $9.8 billion, and the quarterly dividend was raised 2.1% to $0.6025 per share, the twelfth consecutive annual increase. Consolidated Adjusted EBITDA, a non-GAAP measure, rose to $47.4 billion from $44.2 billion.
The balance sheet remains heavily levered. Total debt was $113.1 billiond, down from $117.1 billion, and the effective interest rate was 4.8%.
Management reports that no required pension funding is expected until 2024 following 2018 discretionary contributions. Key risks flagged in the filing include Wireline's shrinking legacy voice and video base, rising competition in wireless pricing, pressure in the Verizon Media advertising business, a Wireline goodwill cushion that narrowed to 5% of fair value, and ongoing regulatory uncertainty around net neutrality and privacy.
02—Key points
Key Highlights
- Consolidated operating revenues grew 3.8% to $130.9 billion, led by Wireless (+4.8%); Wireline revenue fell 3.0% to $29.8 billion.
- Reported net income attributable to Verizon fell to $15.5 billion (EPS $3.76) from $30.1 billion (EPS $7.37), largely because 2017 included a one-time $16.8 billion non-cash tax benefit from TCJA.
- A $4.6 billion non-cash goodwill impairment on the Oath/Verizon Media unit and $2.2 billion of severance charges depressed 2018 operating income to $22.3 billion.
- Operating cash flow rose to $34.3 billion and free cash flow reached $17.7 billion, versus $7.1 billion in 2017, supported by working-capital improvements and lower pension contributions.
- The dividend was raised 2.1% to $0.6025 per quarter (twelfth consecutive annual increase); $9.8 billion of dividends were paid in 2018, and no share buybacks were made.
- Total debt declined to $113.1 billion, with about 78% at fixed rates; management expects 2019 capex of $17.0 to $18.0 billion, including 5G deployment.
- Wireline goodwill headroom narrowed to 5% of fair value, and management flagged increasing risk of a future impairment in that unit.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 15, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $130.86B$126.03B | +3.8% |
| SG&A Expenses | $31.08B$28.59B | +8.7% |
| Operating Expenses | $108.58B$98.61B | +10.1% |
| Operating Income | $22.28B$27.43B | −18.8% |
| Interest Expense | $4.83B$4.73B | +2.1% |
| Net Income | $15.53B$30.10B | −48.4% |
| EPS (Basic) | $3.76$7.37 | −49.0% |
| EPS (Diluted) | $3.76$7.36 | −48.9% |
| Shares Outstanding (Basic) | 4.13B4.08B | +1.1% |
| Shares Outstanding (Diluted) | 4.13B4.09B | +1.1% |
05—Questions
Frequently Asked Questions
Why did Verizon's net income drop so sharply in 2018?
The 2017 results included a non-recurring, non-cash tax benefit of about $16.8 billion from re-measuring U.S. deferred tax liabilities at the lower 21% federal rate under the Tax Cuts and Jobs Act. In 2018, net income was also reduced by a $4.6 billion goodwill impairment on the Oath/Verizon Media business and $2.2 billion of severance charges. Excluding special items, underlying earnings were considerably more stable than the headline decline suggests.
Is Verizon generating enough cash to fund its dividend and investment program?
Yes, in 2018. Operating cash flow of $34.3 billion covered $16.7 billion of capital expenditures, leaving $17.7 billion of free cash flow, which exceeded the $9.8 billion of dividends paid. Management expects continued investment in networks and 5G in 2019, and says its capital spending will be financed primarily through internally generated funds.
What are the main risks to Verizon's core businesses?
The filing highlights intense wireless competition that may pressure pricing, continued decline in legacy Wireline voice and linear video services, revenue pressure in digital advertising at Verizon Media, and a high debt load of about $113 billion. It also notes regulatory uncertainty around broadband net neutrality and privacy rules, and labor-union exposure, with about 23% of employees represented by unions.
How significant is the Verizon Media goodwill impairment for the outlook?
The $4.6 billion charge, recorded in Q4 2018, reflects unfavorable revised five-year projections for the Oath (Verizon Media) business after leadership changes and weaker-than-expected integration of Yahoo and AOL. It is non-cash and does not affect cash flow, but it signals that management no longer expects the media assets to meet earlier projections, and it leaves a much smaller remaining goodwill balance for that unit.
06—Continue