Verizon to Share Tax Savings With Staff -- WSJ

By FeaturesDow Jones Newswires

Windfall of as much as $4 billion also to go toward paying down carrier's hefty debt

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 24, 2018).

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The new tax law will put as much as $4 billion extra cash in Verizon Communications Inc.'s pocket this year.

The telecommunications giant said it would use the funds to pay down some of its $117 billion debt, donate $200 million to $300 million to its charity, and give almost all of its 155,000 employees 50 shares of Verizon stock. The shares, which currently trade around $53, will be priced Feb. 1 and vest over two years. Verizon said the employee stock award is worth about $380 million.

The windfall comes as Verizon's business is humming. On Tuesday, the carrier said it had turned around two years of declining revenue in its wireless unit, increasing revenue by 1.7% from a year earlier to $23.8 billion. Verizon also added 1.2 million postpaid connections, 431,000 of which were phones.

Verizon said the tax law wouldn't result in increased network spending because the company has always been disciplined about its deployment strategy.

"It's very inconsistent that just because tax reform comes through, we are all of a sudden going to draw the line at a different place or lose that discipline," Verizon Chief Executive Lowell McAdam said on a call with analysts. "What tax reform does do is gives us great flexibility that once we prove to ourselves that we can get a reasonable return on invested capital, we can accelerate very rapidly."

One thing Mr. McAdam said Verizon won't spend money on now: A major acquisition of a media company. "I can say unequivocally, there is nothing going on right now with us considering a large media play."

Instead, Verizon wants to remain neutral amid all the disruption in the media space, which will allow it to strike distribution deals with many content companies, rather than being tied to a single producer.

"It's great to be in the content business if you're making good content, " Verizon's finance chief, Matt Ellis, said in an interview. But "just because you're making good content today, there's no guarantee next year will be good. If you're in the distribution space, you're not dependent on the creative success from any one studio."

That thinking contrasts with its counterpart AT&T Inc., which agreed to spend $85 billion on Time Warner Inc., which owns HBO, CNN and the Warner Bros. film studio, in 2016. The Justice Department is suing to block that deal.

Verizon ended the year with 116.3 million total wireless connections, up from 114.2 million in the same quarter the previous year and 115.3 million in the third quarter.

In addition to the $3.5 billion to $4 billion in 2018 cash savings from the tax law, Verizon also reduced its deferred tax liabilities by $16.8 billion.

While Verizon's home TV business struggles -- it lost 29,000 Fios video customers in the quarter, down from 21,000 additions in the year-ago period -- its nascent digital media business is showing signs of life. Oath, a unit composed of Yahoo and AOL properties, had $2.2 billion in revenue in the quarter, up 10% from the previous quarter, driven by holiday advertising spending.

Fewer people upgraded to new smartphones in the quarter, a sign that people are hanging onto smartphones longer and possibly a bad sign for Apple Inc.'s iPhone X. Verizon's phone upgrade rate was 7.2%, down from 8.3% the previous year.

In all, Verizon posted a profit of $18.67 billion, or $4.56 a share, compared with a profit of $4.5 billion, or $1.10 a share, a year ago. The boost was a result of the one-time $16.8 billion reduction of its deferred tax liabilities. Excluding the tax law related gain and other items, the company posted adjusted earnings per share of 86 cents, the same as the fourth quarter of 2016, slightly below analyst expectations of 88 cents.

Write to Ryan Knutson at ryan.knutson@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

January 24, 2018 02:47 ET (07:47 GMT)

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