8-KRegulation FD

VERIZON COMMUNICATIONS INC 8-K Report, Regulation FD Disclosure (Jan 7, 2013)

Filed January 7, 2013For Securities:VZ

Summary

Verizon Communications Inc. (VZ) filed an 8-K on January 7, 2013, providing a financial and operational update delivered by its CEO at the Citi Global Internet, Media and Telecommunications Conference. The update highlighted strong performance in both its wireless and FiOS segments, with expectations for significant retail postpaid net additions for Verizon Wireless and customer growth for FiOS. However, the filing also disclosed substantial expected charges for the fourth quarter of 2012. These include a significant pre-tax charge related to pension and postretirement liabilities due to actuarial assumption changes, alongside non-operational charges for debt retirement and restructuring. Additionally, the company anticipates a direct impact from Superstorm Sandy, though a portion is expected to be covered by insurance. Investors should note the positive operational trends alongside these significant one-time charges impacting reported earnings.

Key Highlights

  • 1Verizon Wireless expects to achieve 2.1 million retail postpaid net additions in Q4 2012, with approximately 87% of postpaid phone sales being smartphones.
  • 2Smartphone activations increased over 15% year-over-year for full-year 2012, leading to an expected near-term negative impact on Verizon Wireless' segment EBITDA service margin and EPS.
  • 3Verizon expects over 130,000 customer net additions for its FiOS service in Q4 2012, despite resource dedication to Superstorm Sandy restoration efforts.
  • 4The company anticipates a pre-tax charge of $7 billion to $7.5 billion in Q4 2012, primarily related to the non-cash remeasurement of pension and other postretirement liabilities.
  • 5Additional non-operational pre-tax charges of approximately $1.0 billion to $1.5 billion are expected in Q4 2012 for debt retirement and restructuring.
  • 6Superstorm Sandy is estimated to have a direct impact of approximately $1 billion, with over half as operating expenses and roughly one-third expected to be recovered by insurance.

Frequently Asked Questions

The substantial pre-tax charge of $7 billion to $7.5 billion is primarily due to the non-cash year-end remeasurement of pension and other postretirement liabilities. This remeasurement was influenced by changes in the discount rate and other actuarial assumptions, as well as the annuitization of various pension liabilities during the quarter.

While high smartphone adoption (87% of postpaid phone sales) and overall net additions are positive operational indicators, the company expects a near-term negative impact on Verizon Wireless' segment EBITDA service margin and consequently on earnings per share. This is due to the increased costs associated with supporting these data-intensive devices and services.

Verizon estimates the direct impact of Superstorm Sandy to be approximately $1 billion. Over half of this amount relates to operating expenses (for restoration and rebuilding efforts), with the remainder related to capital expenditures. The company anticipates that approximately one-third of this total impact will be recovered through insurance.

No, the significant charges related to pension and postretirement liabilities, as well as debt retirement and restructuring activities, are considered non-operational and are expected to be one-time or non-recurring items for the fourth quarter of 2012. These charges will impact reported earnings but are not indicative of ongoing operational performance.