10-QPeriod: Q2 FY2014

VERIZON COMMUNICATIONS INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 29, 2014For Securities:VZ

Summary

Verizon Communications Inc. reported its second-quarter 2014 financial results, showcasing a significant increase in operating revenues to $31.5 billion, up 5.7% year-over-year, driven by strong performance in its Wireless segment. This growth was bolstered by a substantial increase in equipment revenue, partly due to the adoption of the Verizon Edge installment plan. The company also saw a notable rise in operating income to $7.7 billion, a 17.3% increase, primarily benefiting from gains on spectrum license transactions and improved operational efficiencies. The most impactful event during the period was the completion of the acquisition of Vodafone's 45% stake in Verizon Wireless for approximately $130 billion. This transaction, finalized in February 2014, resulted in Verizon achieving full ownership of its wireless operations. While this significantly increased debt levels and cash outflow related to financing, it also brought the entirety of Verizon Wireless's cash flows under Verizon's control, providing greater financial flexibility for future investments and operations. Despite the substantial debt incurred, the company's liquidity remains strong, supported by operating cash flows and existing credit facilities.

Financial Highlights

50 data points
Beta

Revenue

$31.48B

61.6% Gross Margin

Net Income

$4.21B

13.4% Net Margin

EPS (Diluted)

$1.01

Total Assets

$224.43B

Cash & Equivalents

$5.78B

Free Cash Flow

$7.67B

Financial Statements
Beta
Revenue$31.48B
Cost of Revenue$12.09B
Gross Profit$19.40B
SG&A Expenses$7.55B
Operating Expenses$23.80B
Operating Income$7.68B
Interest Expense$1.16B
Net Income$4.21B
EPS (Basic)$1.02
EPS (Diluted)$1.01
Shares Outstanding (Basic)4.15B
Shares Outstanding (Diluted)4.15B

Key Highlights

  • 1Operating revenues increased by 5.7% to $31.5 billion, primarily driven by a 7.5% increase in the Wireless segment's revenue.
  • 2Operating income surged by 17.3% to $7.7 billion, boosted by spectrum license transaction gains and improved operational efficiency.
  • 3The company completed the acquisition of Vodafone's 45% interest in Verizon Wireless for $130 billion, resulting in full ownership of its wireless operations.
  • 4Net income attributable to Verizon increased to $4.2 billion from $2.2 billion in the prior year, reflecting the full consolidation of Verizon Wireless.
  • 5Total assets decreased significantly from $274 billion to $224.4 billion, largely due to cash used in financing activities for the Vodafone acquisition.
  • 6Long-term debt increased substantially from $89.7 billion to $107.7 billion, reflecting new borrowings to finance the Wireless Transaction.
  • 7Capital expenditures increased to $8.5 billion for the first six months of 2014, up from $7.6 billion in the prior year, focused on network capacity enhancements.

Frequently Asked Questions

The primary driver of revenue growth was the Wireless segment, which saw a 7.5% increase in operating revenues, reaching $21.5 billion. This growth was fueled by strong service revenue and a significant 22.2% increase in equipment sales, partly attributed to the popularity of the Verizon Edge installment plan and increased smartphone and tablet activations.

The acquisition, completed in February 2014, resulted in Verizon gaining full ownership of its wireless operations. This led to a significant increase in reported revenues and operating income by consolidating all of Verizon Wireless's results. However, it also substantially increased the company's debt levels and led to a large outflow of cash for the purchase price, which was reflected in a decrease in cash and cash equivalents and a significant increase in long-term debt.

Verizon continues to invest heavily in its network infrastructure. Capital expenditures for the first six months of 2014 increased to $8.5 billion, up from $7.6 billion in the prior year. These investments are primarily focused on enhancing the capacity and density of its 4G LTE network, including the deployment of XLTE spectrum, and supporting its Wireline segment's fiber optic network.

Verizon incurred significant new debt to finance the Vodafone acquisition. The company is managing this by maintaining a mix of fixed and variable rate debt, with approximately 84% of its total debt portfolio consisting of fixed-rate instruments as of June 30, 2014. They also maintain substantial unused borrowing capacity under their credit facilities, providing flexibility for future financing needs.