Notes to Condensed Consolidated Financial Statements
Verizon Communications Inc. and Subsidiaries
(Unaudited)
The accompanying unaudited
condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (SEC) rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and
certain other information, you should refer to the financial statements included in the Verizon Communications Inc. (Verizon or the Company) Annual Report on Form
10-K
for the year ended December 31,
2016. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for
the interim periods are not necessarily indicative of results for the full year. We have reclassified certain prior year amounts to conform to the current year presentation.
Earnings Per Common Share
There were a total of approximately
5 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for the three months ended March 31, 2017 and 2016, respectively. There were no
outstanding options to purchase shares that would have been anti-dilutive for the three months ended March 31, 2017 and 2016, respectively.
Recently Adopted Accounting Standards
In January 2017, the accounting
standard update related to the simplification of the accounting for goodwill impairment was issued. The amendments in this update eliminate the requirement to perform step two of the goodwill impairment test, which requires a hypothetical purchase
price allocation when an impairment is determined to have occurred. A goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard
update is effective as of the first quarter of 2020; however, early adoption is permitted for any interim or annual impairment tests performed after January 1, 2017. Verizon early adopted this standard as of January 1, 2017.
In March 2016, the accounting standard update related to employee share-based payment accounting was issued. This standard update intends
to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This standard
update is effective as of the first quarter of 2017. The adoption of this standard update did not have a significant impact on our condensed consolidated financial statements.
Recently Issued Accounting Standards
In March 2017, the accounting
standard update related to the presentation of net periodic pension cost and net periodic postretirement benefit cost was issued. The amendments in this update require an employer to report the service cost component in the same line item or items
as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost, including the recognition of prior service credits, will be presented in the income statement
separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component of pension and other postretirement benefit costs to be eligible for capitalization
when applicable. The amendments in this update would be applied retrospectively for the presentation of the service cost component and other components of net periodic benefit cost in the income statement and prospectively, on and after the
effective date, for the capitalization of the service cost component of net periodic benefit cost in assets. Disclosures of the nature of and reason for the change in accounting principle would be required in the first interim and annual reporting
periods of adoption. This standard update is effective as of the first quarter of 2018; however, early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued. The impact of the retrospective
adoption of this standard update will be an increase to consolidated operating income of approximately $2.2 billion and no impact to consolidated net income for the year ended December 31, 2016.
In February 2017, the accounting standard to clarify the derecognition of nonfinancial assets and in substance nonfinancial assets to
noncustomers, including partial sales, was issued. The new guidance defines an in substance nonfinancial asset as an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or
subsidiary is not a business. The standard requires entities to derecognize nonfinancial assets or in substance nonfinancial assets when the entity no longer has (or ceases to have) a controlling financial interest in the legal entity that holds the
asset and the entity transfers control of the asset. The standard update also unifies guidance related to partial sales of nonfinancial assets to be more consistent with the sale of a business. This standard update is effective as of the first
quarter of 2018; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our condensed consolidated financial statements.
7
In January 2017, the accounting standard update to provide clarification on the definition
of a business was issued. The amendments in this update provide a framework, the screen, in which to evaluate whether a set of transferred assets and activities is a business. The screen requires that the set is not a business when substantially all
of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The standard also aligns the definition of outputs with how outputs are described in ASC 606. This standard is
effective as of the first quarter of 2018; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our condensed consolidated financial statements.
In November 2016, the accounting standard update related to the classification and presentation of changes in restricted cash was issued.
The amendments in this update require that cash and cash equivalent balances in a statement of cash flows include those amounts deemed to be restricted cash and restricted cash equivalents. This standard update is effective as of the first quarter
of 2018; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our condensed consolidated financial statements.
In August 2016, the accounting standard update related to the classification of certain cash receipts and cash payments was issued. This standard update addresses eight specific cash flow issues with the
objective of reducing the existing diversity in practice for these issues. Among the updates, this standard update requires cash receipts from payments on a transferors beneficial interests in securitized trade receivables to be classified as
cash inflows from investing activities. This standard update is effective as of the first quarter of 2018; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our condensed consolidated
financial statements. We expect the amendment relating to beneficial interests in securitization transactions will have an impact on our presentation of collections of the deferred purchase price from sales of wireless device payment plan agreement
receivables in our condensed consolidated statements of cash flows. Upon adoption of this standard update in the first quarter of 2018, we expect to retrospectively reclassify approximately $1.1 billion of collections of deferred purchase price
related to collections from customers for the year ended December 31, 2016 from Cash flows from operating activities to Cash flows from investing activities in our consolidated statements of cash flows.
In June 2016, the accounting standard update related to the measurement of credit losses was issued. This standard update requires that
certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain
financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical
information, current conditions and reasonable and supportable forecasts that affect the collectability of the amounts. This standard update is effective as of the first quarter of 2020; however, early adoption is permitted. We are currently
evaluating the impact that this standard update will have on our condensed consolidated financial statements.
In February
2016, the accounting standard update related to leases was issued. This standard update intends to increase transparency and improve comparability by requiring entities to recognize assets and liabilities on the balance sheet for all leases, with
certain exceptions. In addition, through improved disclosure requirements, the standard update will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. This standard
update is effective as of the first quarter of 2019; however, early adoption is permitted. Verizons current operating lease portfolio is primarily comprised of network, real estate, and equipment leases. Upon adoption of this standard, we
expect our balance sheet to include a right of use asset and liability related to substantially all operating lease arrangements. We have established a cross-functional coordinated implementation team to implement the standard update related to
leases. We are in the process of assessing the impact to our systems, processes and internal controls to meet the standard updates reporting and disclosure requirements.
In May 2014, the accounting standard update related to the recognition of revenue from contracts with customers was issued. This standard update along with related subsequently issued updates clarifies
the principles for recognizing revenue and develops a common revenue standard for U.S. generally accepted accounting principles (GAAP). The standard update also amends current guidance for the recognition of costs to obtain and fulfill contracts
with customers such that incremental costs of obtaining and direct costs of fulfilling contracts with customers will be deferred and amortized consistent with the transfer of the related good or service. The standard update intends to provide a more
robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and provide more useful information to users of financial statements through
improved disclosure requirements. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of
applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the standard is applied only to the most current period presented and the cumulative effect of applying the standard would be
recognized at the date of initial application. In August 2015, an accounting standard update was issued that delayed the effective date of this standard until the first quarter of 2018, at which time we plan to adopt the standard using the modified
retrospective approach.
8
We are in the process of evaluating the impact of the standard update. The ultimate impact
on revenue resulting from the application of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of our contractual arrangements and our mix of business. Upon adoption, we
expect that the allocation of revenue between equipment and service for our wireless fixed-term service plans will result in more revenue allocated to equipment and recognized earlier as compared with current GAAP. We expect the timing of
recognition of our sales commission expenses will also be impacted, as a substantial portion of these costs, which are currently expensed, will be capitalized and amortized as described above. In 2016, total sales commission expenses were
approximately $4.2 billion. In 2017, we expect total sales commission expenses to decline as our wireless customers continue to migrate from our fixed-term service plans to device payment plans which have lower commission structures.
We have established a cross-functional coordinated implementation team to implement the standard update related to the
recognition of revenue from contracts with customers. We have identified and are in the process of implementing changes to our systems, processes and internal controls to meet the standard updates reporting and disclosure requirements.
2.
|
Acquisitions and Divestitures
|
Wireless
Spectrum License Transactions
During the fourth quarter of 2016, we entered into a license exchange agreement with affiliates of AT&T Inc. to exchange certain Advanced Wireless Services (AWS) and Personal Communication Services
(PCS) spectrum licenses. This
non-cash
exchange was completed in February 2017, at which time we received $1.0 billion of AWS and PCS spectrum licenses at fair value and recorded a
pre-tax
gain of $0.1 billion in Selling, general and administrative expense on our condensed consolidated statement of income for the three months ended March 31, 2017.
During the first quarter of 2017, we entered into a license exchange agreement with affiliates of Sprint Corporation, which provides for
the exchange of certain PCS spectrum licenses. These wireless licenses are classified as Assets held for sale on our condensed consolidated balance sheet as of March 31, 2017. This
non-cash
exchange is
expected to be completed in the second quarter of 2017 and we expect to record an immaterial gain.
During the three months
ended March 31, 2017, we acquired various other wireless licenses for cash consideration that was not significant.
Wireline
XO Holdings
In February 2017, we completed our acquisition of XO Holdings wireline business (XO), which owns and operates one of the largest fiber-based Internet Protocol (IP) and Ethernet networks, for total
cash consideration of approximately $1.8 billion, of which $0.1 billion was paid in 2015. Separately, in February 2016, we entered into an agreement to lease certain wireless spectrum from a wholly-owned subsidiary of XO Holdings that
holds its wireless spectrum, which included an option to buy the subsidiary. In April 2017, Verizon exercised its option to buy that subsidiary for approximately $0.2 billion, subject to certain adjustments. The transaction is subject to
customary regulatory approvals and is expected to close by the end of 2017.
The condensed consolidated financial statements
include the results of XOs operations from the date the acquisition closed. Had this acquisition been completed on January 1, 2017, the results of the acquired operations of XO would not have had a significant impact on the consolidated
net income attributable to Verizon.
The acquisition of XO was accounted for as a business combination. The consideration was
preliminarily allocated to the assets acquired and liabilities assumed based on their fair values as of the close of the acquisition. Upon closing, we recorded approximately $0.4 billion of goodwill, and $0.3 billion of other intangibles.
Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired. The goodwill recorded as a result of the XO transaction represents future economic
benefits we expect to achieve as a result of the acquisition. The goodwill related to this acquisition is included within our Wireline segment (see Note 3 for additional information).
9
Data Center Sale
On December 6, 2016, we entered into a definitive agreement, which was subsequently amended on March 21, 2017, with Equinix, Inc. pursuant to which Verizon will sell 23 customer-facing data
center sites in the United States and Latin America, for approximately $3.6 billion, subject to certain adjustments. The sale does not affect Verizons data center services delivered from 27 sites in Europe, Asia-Pacific and Canada, or its
managed hosting and cloud offerings.
We plan to account for a portion of the transaction, consisting of the data center
buildings, land and related assets, as a sale of real estate. The real estate assets to be sold of $0.6 billion are currently included in Verizons continuing operations and classified as held and used within Plant, property and equipment,
net on our condensed consolidated balance sheet at March 31, 2017. The other primarily
non-real
estate assets and liabilities that will be sold are currently included in Verizons continuing
operations and reclassified as held for sale. At March 31, 2017, assets to be sold of $0.8 billion, classified as
Non-current
assets held for sale on our condensed consolidated balance sheet, were
principally comprised of goodwill, plant, property and equipment and other intangible assets. The liabilities associated with the sale were not significant and have been included in current and
non-current
Other liabilities on our condensed consolidated balance sheet at March 31, 2017. The transaction is subject to customary regulatory approvals and closing conditions, and is expected to close during the first half of 2017.
Other
Acquisition of Yahoo!
Inc.s Operating Business
On July 23, 2016, Verizon entered into a stock purchase agreement (the Purchase
Agreement) with Yahoo! Inc. (Yahoo). Pursuant to the Purchase Agreement, upon the terms and subject to the conditions thereof, we agreed to acquire the stock of one or more subsidiaries of Yahoo holding all of Yahoos operating business,
for approximately $4.83 billion in cash, subject to certain adjustments (the Transaction). Prior to the closing of the Transaction, pursuant to a reorganization agreement, Yahoo will transfer all of the assets and liabilities constituting
Yahoos operating business to the subsidiaries to be acquired in the Transaction. The assets to be acquired will not include Yahoos cash, its ownership interests in Alibaba, Yahoo! Japan and certain other investments, certain
undeveloped land recently divested by Yahoo or certain
non-core
intellectual property. We will receive for our benefit and that of our current and certain future affiliates a
non-exclusive,
worldwide, perpetual, royalty-free license to all of Yahoos intellectual property that is not being conveyed with the business.
Yahoo employees who transfer to Verizon will have any unvested Yahoo restricted stock units that they hold converted into cash-settleable
Verizon restricted stock units, which will have the same vesting schedule as their Yahoo restricted stock units. The value of those outstanding restricted stock units on the date of signing was approximately $1.0 billion.
On February 20, 2017, Verizon and Yahoo entered into an amendment to the Purchase Agreement, pursuant to which the Transaction
purchase price will be reduced by $350 million to approximately $4.48 billion in cash, subject to certain adjustments. Subject to certain exceptions, the parties also agreed that certain user security and data breaches incurred by Yahoo
(and the losses arising therefrom) will be disregarded (1) for purposes of specified conditions to Verizons obligations to close the Transaction and (2) in determining whether a Business Material Adverse Effect under the
Purchase Agreement has occurred.
Concurrently with the amendment of the Purchase Agreement, Yahoo and Yahoo Holdings, Inc., a
wholly owned subsidiary of Yahoo that Verizon has agreed to purchase pursuant to the Transaction, also entered into an amendment to the related reorganization agreement, pursuant to which Yahoo (which has announced that it intends to change its name
to Altaba Inc. following the closing of the Transaction) will retain 50% of certain post-closing liabilities arising out of governmental or third party investigations, litigations or other claims related to certain user security and data breaches
incurred by Yahoo. In accordance with the original Transaction Agreements, Yahoo will continue to retain 100% of any liabilities arising out of any shareholder lawsuits (including derivative claims) and investigations and actions by the SEC.
The Transaction remains subject to customary closing conditions, including the approval of Yahoos stockholders, and is
expected to close in the middle of 2017.
Other
During the three months ended March 31, 2017, we acquired various other businesses and investments for cash consideration that was not significant.
10
3.
|
Wireless Licenses, Goodwill and Other Intangible Assets
|
Wireless Licenses
Changes in the carrying amount of Wireless licenses are as follows:
|
|
|
|
|
|
|
(dollars in millions)
|
|
Balance at January 1, 2017
|
|
$
|
86,673
|
|
Acquisitions (Note 2)
|
|
|
76
|
|
Capitalized interest on wireless licenses
|
|
|
121
|
|
Reclassifications, adjustments and other
|
|
|
884
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
$
|
87,754
|
|
|
|
|
|
|
Reclassifications, adjustments and other includes $1.0 billion received in exchanges of wireless
licenses in 2017 offset by $0.1 billion of wireless licenses that are classified as Assets held for sale on our condensed consolidated balance sheet at March 31, 2017 (see Note 2 for additional information).
At March 31, 2017, approximately $10.0 billion of wireless licenses were under development for commercial service for which we
were capitalizing interest costs.
The average remaining renewal period for our wireless licenses portfolio was 5.3 years as
of March 31, 2017.
Goodwill
Changes in the carrying amount of Goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Wireless
|
|
|
Wireline
|
|
|
Other
|
|
|
Total
|
|
Balance at January 1, 2017
|
|
$
|
18,393
|
|
|
$
|
3,784
|
|
|
$
|
5,028
|
|
|
$
|
27,205
|
|
Acquisitions (Note 2)
|
|
|
|
|
|
|
418
|
|
|
|
2
|
|
|
|
420
|
|
Reclassifications, adjustments and other
|
|
|
|
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
$
|
18,393
|
|
|
$
|
4,205
|
|
|
$
|
5,032
|
|
|
$
|
27,630
|
|
|
|
|
|
|
During the first quarter of 2017, we recognized goodwill of $0.4 billion in Wireline as a result of
the acquisition of XO (see Note 2 for additional information).
Other Intangible Assets
The following table displays the composition of Other intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017
|
|
|
At December 31, 2016
|
|
(dollars in millions)
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Customer lists (8 to 10 years)
|
|
$
|
3,163
|
|
|
$
|
(548
|
)
|
|
$
|
2,615
|
|
|
$
|
2,884
|
|
|
$
|
(480
|
)
|
|
$
|
2,404
|
|
Non-network
internal-use
software (5 to 7
years)
|
|
|
16,459
|
|
|
|
(11,251
|
)
|
|
|
5,208
|
|
|
|
16,135
|
|
|
|
(10,913
|
)
|
|
|
5,222
|
|
Other (6 to 25 years)
|
|
|
1,707
|
|
|
|
(618
|
)
|
|
|
1,089
|
|
|
|
1,854
|
|
|
|
(583
|
)
|
|
|
1,271
|
|
|
|
|
|
|
Total
|
|
$
|
21,329
|
|
|
$
|
(12,417
|
)
|
|
$
|
8,912
|
|
|
$
|
20,873
|
|
|
$
|
(11,976
|
)
|
|
$
|
8,897
|
|
|
|
|
|
|
11
We recognized other intangible assets of $0.3 billion (primarily customer lists) in
Wireline as a result of the acquisition of XO (see Note 2 for additional information).
The amortization expense for Other intangible
assets was as follows:
|
|
|
|
|
(dollars in millions)
|
|
Three Months Ended
March 31,
|
|
2017
|
|
|
$ 452
|
|
2016
|
|
|
435
|
|
The estimated future amortization expense for Other intangible assets is as follows:
|
|
|
|
|
Years
|
|
(dollars in millions)
|
|
Remainder of 2017
|
|
|
$ 1,438
|
|
2018
|
|
|
1,632
|
|
2019
|
|
|
1,409
|
|
2020
|
|
|
1,168
|
|
2021
|
|
|
985
|
|
Changes to debt during the three months ended March 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Debt Maturing
within One Year
|
|
|
Long-term
Debt
|
|
|
Total
|
|
Balance at January 1, 2017
|
|
$
|
2,645
|
|
|
$
|
105,433
|
|
|
$
|
108,078
|
|
Proceeds from long-term borrowings
|
|
|
65
|
|
|
|
12,989
|
|
|
|
13,054
|
|
Proceeds from asset-backed long-term borrowings
|
|
|
|
|
|
|
1,283
|
|
|
|
1,283
|
|
Repayments of long-term borrowings and capital leases obligations
|
|
|
(201
|
)
|
|
|
(5,391
|
)
|
|
|
(5,592
|
)
|
Decrease in short-term obligations, excluding current maturities
|
|
|
(52
|
)
|
|
|
|
|
|
|
(52
|
)
|
Reclassifications of long-term debt
|
|
|
1,165
|
|
|
|
(1,165
|
)
|
|
|
|
|
Other
|
|
|
85
|
|
|
|
(310
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
Balance at March 31, 2017
|
|
$
|
3,707
|
|
|
$
|
112,839
|
|
|
$
|
116,546
|
|
|
|
|
|
|
January Exchange Offers and Cash Offers
On January 25, 2017, we commenced eighteen separate private offers to exchange (the January Exchange Offers) specified series of outstanding Notes issued by Verizon Communications (the Old Notes) for
new Notes to be issued by Verizon Communications and, for certain series, cash. In connection with the January Exchange Offers, which expired on January 31, 2017 and settled on February 3, 2017, we issued $3.2 billion aggregate
principal amount of Verizon Communications 2.946% Notes due 2022 (the 2022 New Notes), $1.7 billion aggregate principal amount of Verizon Communications 4.812% Notes due 2039 (the 2039 New Notes) and $4.1 billion aggregate principal amount
of Verizon Communications 5.012% Notes due 2049 (the 2049 New Notes) plus applicable cash of $0.6 billion (not including accrued and unpaid interest on the Old Notes) in exchange for $8.3 billion aggregate principal amount of tendered Old
Notes.
We concurrently commenced eighteen separate offers to purchase for cash (the January Cash Offers) the Old Notes. In
connection with the January Cash Offers, which expired on January 31, 2017 and settled on February 3, 2017, we repurchased $0.5 billion aggregate principal amount of Old Notes for $0.5 billion, exclusive of accrued interest. On
February 10, 2017, we purchased for $0.1 billion, exclusive of accrued interest, an additional $0.1 billion of Old Notes (the subsequent cash purchases) from certain holders whose tenders of Old Notes in the January Cash
Offers had been rejected.
12
The table below lists the series of Old Notes included in the January Exchange Offers for
the 2022 New Notes and the January Cash Offers, referred to as Group 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Interest
Rate
|
|
|
Maturity
|
|
|
Principal
Amount
Outstanding
|
|
|
Principal
Amount
Accepted for
Exchange
|
|
|
Principal
Amount
Accepted for
Cash
(1)
|
|
Verizon Communications Inc.
|
|
|
5.500
|
%
|
|
|
2018
|
|
|
$
|
737
|
|
|
$
|
83
|
|
|
$
|
8
|
|
|
|
|
6.100
|
%
|
|
|
2018
|
|
|
|
753
|
|
|
|
77
|
|
|
|
9
|
|
|
|
|
3.650
|
%
|
|
|
2018
|
|
|
|
2,698
|
|
|
|
508
|
|
|
|
97
|
|
|
|
|
2.550
|
%
|
|
|
2019
|
|
|
|
500
|
|
|
|
154
|
|
|
|
35
|
|
|
|
|
1.375
|
%
|
|
|
2019
|
|
|
|
1,000
|
|
|
|
376
|
|
|
|
38
|
|
|
|
|
2.625
|
%
|
|
|
2020
|
|
|
|
3,304
|
|
|
|
1,925
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,123
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amounts acquired pursuant to the subsequent cash purchases.
|
The table below lists the series of Old Notes included in the January Exchange Offers for the 2039 New Notes and the January Cash Offers,
referred to as Group 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Interest
Rate
|
|
|
Maturity
|
|
|
Principal
Amount
Outstanding
|
|
|
Principal
Amount
Accepted for
Exchange
|
|
|
Principal
Amount
Accepted for
Cash
(1)
|
|
Verizon Communications Inc.
|
|
|
5.150
|
%
|
|
|
2023
|
|
|
$
|
8,517
|
|
|
$
|
715
|
|
|
$
|
217
|
|
|
|
|
7.750
|
%
|
|
|
2030
|
|
|
|
930
|
|
|
|
184
|
|
|
|
4
|
|
|
|
|
7.750
|
%
|
|
|
2032
|
|
|
|
218
|
|
|
|
2
|
|
|
|
|
|
|
|
|
6.400
|
%
|
|
|
2033
|
|
|
|
1,729
|
|
|
|
640
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,541
|
|
|
$
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amounts acquired pursuant to the subsequent cash purchases.
|
The table below lists the series of Old Notes included in the January Exchange Offers for the 2049 New Notes and the January Cash Offers,
referred to as Group 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Interest
Rate
|
|
|
Maturity
|
|
|
Principal
Amount
Outstanding
|
|
|
Principal
Amount
Accepted for
Exchange
|
|
|
Principal
Amount
Accepted for
Cash
(1)
|
|
Verizon Communications Inc.
|
|
|
5.850
|
%
|
|
|
2035
|
|
|
$
|
1,250
|
|
|
$
|
447
|
|
|
$
|
4
|
|
|
|
|
6.250
|
%
|
|
|
2037
|
|
|
|
636
|
|
|
|
189
|
|
|
|
5
|
|
|
|
|
6.400
|
%
|
|
|
2038
|
|
|
|
750
|
|
|
|
228
|
|
|
|
6
|
|
|
|
|
6.900
|
%
|
|
|
2038
|
|
|
|
384
|
|
|
|
111
|
|
|
|
4
|
|
|
|
|
8.950
|
%
|
|
|
2039
|
|
|
|
290
|
|
|
|
48
|
|
|
|
|
|
|
|
|
7.350
|
%
|
|
|
2039
|
|
|
|
412
|
|
|
|
225
|
|
|
|
1
|
|
|
|
|
6.000
|
%
|
|
|
2041
|
|
|
|
1,000
|
|
|
|
480
|
|
|
|
20
|
|
|
|
|
6.550
|
%
|
|
|
2043
|
|
|
|
4,245
|
|
|
|
1,933
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,661
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amounts acquired pursuant to the subsequent cash purchases.
|
Term Loan Credit Agreements
During January 2017, we entered into a term
loan credit agreement with a syndicate of major financial institutions pursuant to which we could borrow up to $5.5 billion for (i) the acquisition of Yahoo and (ii) general corporate purposes. Borrowings under the term loan credit
agreement would mature 18 months following the funding date, with a partial mandatory prepayment
13
required within six months following the funding date. None of the $5.5 billion borrowing capacity was used during the three months ended March 31, 2017. In March 2017, the term loan
credit agreement was terminated in accordance with its terms and as such, the related fees were recognized in Other income and (expense), net and were not significant.
In March 2017, we prepaid $1.7 billion of the outstanding $3.3 billion term loan that matures in July 2019. During April 2017, we repaid the remaining outstanding amount under the term loan
agreement.
March Tender Offer
On March 13, 2017, we announced the commencement of a tender offer (the March Tender Offer) to purchase for cash any and all of the series of notes listed below. The Tender Offer expired on
March 17, 2017 and most of which was settled on March 20, 2017. In addition to the purchase price, any accrued and unpaid interest on the purchased notes was paid to the date of purchase.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except for Purchase Price)
|
|
Interest
Rate
|
|
|
Maturity
|
|
|
Principal
Amount
Outstanding
|
|
|
Purchase
Price
(1)
|
|
|
Principal
Amount
Purchased
|
|
Verizon Communications Inc.
|
|
|
8.950
|
%
|
|
|
2039
|
|
|
$
|
242
|
|
|
$
|
1,537.18
|
|
|
$
|
131
|
|
|
|
|
7.750
|
%
|
|
|
2032
|
|
|
|
215
|
|
|
|
1,341.68
|
|
|
|
36
|
|
|
|
|
6.550
|
%
|
|
|
2043
|
|
|
|
2,266
|
|
|
|
1,239.85
|
|
|
|
847
|
|
|
|
|
6.400
|
%
|
|
|
2033
|
|
|
|
1,083
|
|
|
|
1,216.85
|
|
|
|
612
|
|
|
|
|
7.350
|
%
|
|
|
2039
|
|
|
|
186
|
|
|
|
1,324.60
|
|
|
|
27
|
|
|
|
|
6.900
|
%
|
|
|
2038
|
|
|
|
270
|
|
|
|
1,273.29
|
|
|
|
49
|
|
|
|
|
7.750
|
%
|
|
|
2030
|
|
|
|
742
|
|
|
|
1,379.04
|
|
|
|
160
|
|
|
|
|
6.400
|
%
|
|
|
2038
|
|
|
|
515
|
|
|
|
1,206.61
|
|
|
|
118
|
|
|
|
|
6.250
|
%
|
|
|
2037
|
|
|
|
443
|
|
|
|
1,189.56
|
|
|
|
103
|
|
|
|
|
5.850
|
%
|
|
|
2035
|
|
|
|
800
|
|
|
|
1,151.79
|
|
|
|
249
|
|
|
|
|
6.000
|
%
|
|
|
2041
|
|
|
|
500
|
|
|
|
1,151.23
|
|
|
|
206
|
|
|
|
|
6.100
|
%
|
|
|
2018
|
|
|
|
667
|
|
|
|
1,048.45
|
|
|
|
153
|
|
|
|
|
5.500
|
%
|
|
|
2018
|
|
|
|
646
|
|
|
|
1,037.01
|
|
|
|
113
|
|
|
|
|
|
|
|
Verizon New York Inc.
|
|
|
7.375
|
%
|
|
|
2032
|
|
|
|
244
|
|
|
|
1,285.50
|
|
|
|
39
|
|
|
|
|
6.500
|
%
|
|
|
2028
|
|
|
|
72
|
|
|
|
1,177.23
|
|
|
|
1
|
|
|
|
|
|
|
|
Verizon Pennsylvania LLC
|
|
|
8.750
|
%
|
|
|
2031
|
|
|
|
53
|
|
|
|
1,426.33
|
|
|
|
17
|
|
|
|
|
8.350
|
%
|
|
|
2030
|
|
|
|
48
|
|
|
|
1,384.37
|
|
|
|
16
|
|
|
|
|
6.000
|
%
|
|
|
2028
|
|
|
|
68
|
|
|
|
1,139.69
|
|
|
|
11
|
|
|
|
|
|
|
|
Verizon Delaware LLC
|
|
|
8.625
|
%
|
|
|
2031
|
|
|
|
10
|
|
|
|
1,416.70
|
|
|
|
8
|
|
|
|
|
|
|
|
Verizon Maryland LLC
|
|
|
8.300
|
%
|
|
|
2031
|
|
|
|
24
|
|
|
|
1,378.75
|
|
|
|
2
|
|
|
|
|
8.000
|
%
|
|
|
2029
|
|
|
|
28
|
|
|
|
1,332.71
|
|
|
|
1
|
|
|
|
|
5.125
|
%
|
|
|
2033
|
|
|
|
179
|
|
|
|
1,063.06
|
|
|
|
15
|
|
|
|
|
|
|
|
Verizon Virginia LLC
|
|
|
8.375
|
%
|
|
|
2029
|
|
|
|
19
|
|
|
|
1,367.57
|
|
|
|
9
|
|
|
|
|
7.875
|
%
|
|
|
2022
|
|
|
|
57
|
|
|
|
1,206.35
|
|
|
|
|
|
|
|
|
|
|
|
Verizon New England Inc.
|
|
|
7.875
|
%
|
|
|
2029
|
|
|
|
173
|
|
|
|
1,322.35
|
|
|
|
26
|
|
|
|
|
|
|
|
Verizon New Jersey Inc.
|
|
|
7.850
|
%
|
|
|
2029
|
|
|
|
87
|
|
|
|
1,319.96
|
|
|
|
8
|
|
|
|
|
8.000
|
%
|
|
|
2022
|
|
|
|
146
|
|
|
|
1,227.16
|
|
|
|
25
|
|
|
|
|
|
|
|
GTE LLC
|
|
|
8.750
|
%
|
|
|
2021
|
|
|
|
207
|
|
|
|
1,240.28
|
|
|
|
14
|
|
|
|
|
6.940
|
%
|
|
|
2028
|
|
|
|
413
|
|
|
|
1,270.73
|
|
|
|
85
|
|
|
|
|
6.840
|
%
|
|
|
2018
|
|
|
|
332
|
|
|
|
1,056.27
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Per $1,000 principal amount of notes tendered.
|
14
Debt Issuances and Redemptions
During February 2017, we redeemed $0.2 billion of the $0.6 billion 6.94% GTE LLC Notes due 2028 at 124.8% of the principal
amount of the notes redeemed (see Early Debt Redemptions).
During February 2017, we issued approximately
$1.5 billion aggregate principal amount of 4.95% Notes due 2047. The issuance of these notes resulted in cash proceeds of approximately $1.5 billion, net of discounts and issuance costs and after reimbursement of certain expenses. The net
proceeds were used for general corporate purposes.
During March 2017, we issued $11.0 billion aggregate principal amount
of fixed and floating rate notes. The issuance of these notes resulted in cash proceeds of approximately $10.9 billion, net of discounts and issuance costs and after reimbursement of certain expenses. The issuance consisted of the following
series of notes: $1.4 billion aggregate principal amount of Verizon Communications Floating Rate Notes due 2022, $1.85 billion aggregate principal amount of Verizon Communications 3.125% Notes due 2022, $3.25 billion aggregate
principal amount of Verizon Communications 4.125% Notes due 2027, $3.0 billion aggregate principal amount of Verizon Communications 5.250% Notes due 2037, and $1.5 billion aggregate principal amount of Verizon Communications 5.500% Notes
due 2047. The floating rate notes bear interest at a rate equal to the three-month LIBOR plus 1.000% which rate will be reset quarterly. The net proceeds were primarily used for the tender offer and general corporate purposes, including
discretionary contributions to our qualified pension plans. We intend to use the remaining net proceeds for the financing, in whole or in part, of our pending acquisition of Yahoo.
On April 24, 2017, we redeemed in whole $0.5 billion aggregate principal amount of Verizon Communications 6.100% Notes due 2018
at 104.5% of the principal amount of such notes and $0.5 billion aggregate principal amount of Verizon Communications 5.50% Notes due 2018 at 103.3% of the principal amount of such notes, plus accrued and unpaid interest to the date of
redemption.
Asset-Backed Debt
As of March 31, 2017, the carrying value of our asset-backed debt was $6.3 billion. Our asset-backed debt includes notes (the Asset-Backed Notes) issued to third-party investors (Investors) and
loans (ABS Financing Facility) received from banks and their conduit facilities (collectively, the Banks). Our consolidated asset-backed securitization bankruptcy remote legal entities (each, an ABS Entity or collectively, the ABS Entities) issue
the debt or are otherwise party to the transaction documentation in connection with our asset-backed debt transactions. Under the terms of our asset-backed debt, we transfer device payment plan agreement receivables from Cellco Partnership and
certain other affiliates of Verizon (collectively, the Originators) to one of the ABS Entities, which in turn transfers such receivables to another ABS Entity that issues the debt. Verizon entities retain the equity interests in the ABS Entities,
which represent the rights to all funds not needed to make required payments on the asset-backed debt and other related payments and expenses.
Our asset-backed debt is secured by the transferred device payment plan agreement receivables and future collections on such receivables. The device payment plan agreement receivables transferred to the
ABS Entities and related assets, consisting primarily of restricted cash, will only be available for payment of asset-backed debt and expenses related thereto, payments to the Originators in respect of additional transfers of device payment plan
agreement receivables, and other obligations arising from our asset-backed debt transactions, and will not be available to pay other obligations or claims of Verizons creditors until the associated asset-backed debt and other obligations are
satisfied. The Investors or Banks, as applicable, which hold our asset-backed debt have legal recourse to the assets securing the debt, but do not have any recourse to Verizon with respect to the payment of principal and interest on the debt. Under
a parent support agreement, Verizon has agreed to guarantee certain of the payment obligations of Cellco Partnership and the Originators to the ABS Entities.
Cash collections on the device payment plan agreement receivables are required at certain specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered
restricted cash and are included in Prepaid expenses and other and Other assets on our condensed consolidated balance sheets.
Proceeds from our asset-backed debt transactions, deposits to the segregated accounts and payments to the Originators in respect of
additional transfers of device payment plan agreement receivables are reflected in Cash flows from financing activities in our condensed consolidated statements of cash flows. Repayments of our asset-backed debt and related interest payments made
from the segregated accounts are
non-cash
activities and therefore not reflected within Cash flows from financing activities in our condensed consolidated statements of cash flows. The asset-backed debt issued
and the assets securing this debt are included on our condensed consolidated balance sheets.
15
Asset-Backed Notes
In March 2017, we issued approximately $1.3 billion aggregate principal amount of senior and junior Asset-Backed Notes through an ABS Entity. The Class A senior asset-backed notes have an
expected weighted-average life of about 2.6 years and bear interest at 2.06% per annum, the Class B junior asset-backed notes have an expected weighted-average life of about 3.38 years and bear interest at 2.45% per annum and the Class C
junior asset-backed notes have an expected weighted-average life of about 3.64 years and bear interest at 2.65% per annum.
Under the terms of the asset-backed notes, there is a
two-year
revolving period during which we
may transfer additional receivables to the ABS Entity.
ABS Financing Facility
As of March 31, 2017, outstanding borrowings under the ABS Financing Facility were approximately $2.5 billion. We had the option
to request an additional $0.5 billion of committed funding, which was not exercised and expired on March 31, 2017. There is a two year revolving period, which may be extended, during which we may transfer additional receivables to the ABS
Entity. Subject to certain conditions, we may also remove receivables from the ABS Entity.
Although the ABS Financing
Facility is fully drawn as of March 31, 2017, we have the right to prepay all or a portion thereof at any time without penalty, but in certain cases, with breakage costs. If we choose to prepay, the amount prepaid shall be available for further
drawdowns until September 2018, except in certain circumstances.
Variable Interest Entities (VIEs)
The ABS Entities meet the definition of a VIE for which we have determined that we are the primary beneficiary as we have both the power
to direct the activities of the entity that most significantly impact the entitys performance and the obligation to absorb losses or the right to receive benefits of the entity. Therefore, the assets, liabilities and activities of the ABS
Entities are consolidated in our financial results and are included in amounts presented on the face of our condensed consolidated balance sheets.
The assets and liabilities related to our asset-backed debt arrangements included on our condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
At March 31,
2017
|
|
|
At December 31,
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Account receivable, net
|
|
$
|
4,628
|
|
|
$
|
3,383
|
|
Prepaid expenses and other
|
|
|
298
|
|
|
|
236
|
|
Other assets
|
|
|
2,574
|
|
|
|
2,383
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
3
|
|
|
|
4
|
|
Long-term debt
|
|
|
6,272
|
|
|
|
4,988
|
|
See Note 5 for additional information on device payment plan agreement receivables used to secure
asset-backed debt.
Credit Facilities
As of March 31, 2017, the unused borrowing capacity under our $9.0 billion credit facility was approximately $8.9 billion. The credit facility does not require us to comply with financial
covenants or maintain specified credit ratings, and it permits us to borrow even if our business has incurred a material adverse change. We use the credit facility for the issuance of letters of credit and for general corporate purposes.
As of March 31, 2017, the equipment credit facility insured by Eksportkreditnamnden Stockholm, Sweden (EKN), the Swedish export
credit agency, was fully drawn. We had the ability to borrow up to $1.0 billion to finance network equipment-related purchases. The facility had borrowings available through June 2017, contingent upon the amount of eligible equipment-related
purchases made by Verizon.
16
Additional Financing Activities
(Non-Cash
Transaction)
During the three months ended March 31, 2017, we financed, primarily through vendor financing arrangements, the
purchase of approximately $0.1 billion of long-lived assets consisting primarily of network equipment. At March 31, 2017, $1.2 billion relating to vendor financing arrangements, including those entered into in prior years and
liabilities assumed through acquisitions, remained outstanding. These purchases are
non-cash
financing activities and therefore not reflected within Capital expenditures on our condensed consolidated
statements of cash flows.
Early Debt Redemptions
During the first quarter of 2017, we recorded a net
pre-tax
loss on early debt redemption of $0.8 billion primarily in connection with the January Cash Offers
and the March Tender Offer.
We recognize early debt redemption costs in Other income and (expense), net on our condensed
consolidated statements of income.
Guarantees
We guarantee the debentures of our operating telephone company subsidiaries. As of March 31, 2017, $1.0 billion aggregate principal amount of these obligations remained outstanding. Each
guarantee will remain in place for the life of the obligation unless terminated pursuant to its terms, including the operating telephone company no longer being a wholly-owned subsidiary of Verizon.
We also guarantee the debt obligations of GTE LLC as successor in interest to GTE Corporation that were issued and outstanding prior to
July 1, 2003. As of March 31, 2017, $0.8 billion aggregate principal amount of these obligations remain outstanding.
5.
|
Wireless Device Payment Plans
|
Under the Verizon device payment
program, our eligible wireless customers purchase wireless devices under a device payment plan agreement. Customers that activate service on devices purchased under the device payment program pay lower service fees as compared to those under our
fixed-term service plans, and their device payment plan charge is included on their standard wireless monthly bill. As of January 2017, we no longer offer consumers fixed-term service plans for phones.
Wireless Device Payment Plan Agreement Receivables
The following table displays device payment plan agreement receivables, net, that continue to be recognized in our condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
At March 31,
2017
|
|
|
At December 31,
2016
|
|
Device payment plan agreement receivables, gross
|
|
$
|
13,154
|
|
|
$
|
11,797
|
|
Unamortized imputed interest
|
|
|
(582
|
)
|
|
|
(511
|
)
|
|
|
|
|
|
Device payment plan agreement receivables, net of unamortized imputed interest
|
|
|
12,572
|
|
|
|
11,286
|
|
Allowance for credit losses
|
|
|
(685
|
)
|
|
|
(688
|
)
|
|
|
|
|
|
Device payment plan agreement receivables, net
|
|
$
|
11,887
|
|
|
$
|
10,598
|
|
|
|
|
|
|
|
|
|
Classified on our condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
7,436
|
|
|
$
|
6,140
|
|
Other assets
|
|
|
4,451
|
|
|
|
4,458
|
|
|
|
|
|
|
Device payment plan agreement receivables, net
|
|
$
|
11,887
|
|
|
$
|
10,598
|
|
|
|
|
|
|
Included in our device payment plan agreement receivables, net at March 31, 2017 are net device
payment plan agreement receivables of $7.1 billion that have been transferred to ABS Entities and continue to be reported in our condensed consolidated balance sheet.
17
We may offer our customers certain promotions where a customer can
trade-in
his or her owned device in connection with the purchase of a new device. Under these types of promotions, the customer will receive
trade-in
credits that are applied
to the customers monthly bill. As a result, we recognize a
trade-in
obligation measured at fair value using weighted-average selling prices obtained in recent resales of devices eligible for
trade-in.
Device payment plan agreement receivables, net does not reflect this
trade-in
obligation. At March 31, 2017, the amount of
trade-in
obligations was not significant.
From time to time, on select devices,
certain marketing promotions have been revocably offered to customers to upgrade to a new device after paying down a certain specified portion of the required device payment plan agreement amount as well as trading in their device in good working
order.
At the time of the sale of a device, we impute risk adjusted interest on the device payment plan agreement
receivables. We record the imputed interest as a reduction to the related accounts receivable. Interest income, which is included within Service revenues and other on our condensed consolidated statements of income, is recognized over the financed
device payment term.
When originating device payment plan agreements, we use internal and external data sources to create a
credit risk score to measure the credit quality of a customer and to determine eligibility for the device payment program. If a customer is either new to Verizon Wireless or has less than 210 days of customer tenure with Verizon Wireless (a new
customer), the credit decision process relies more heavily on external data sources. If the customer has 210 days or more of customer tenure with Verizon Wireless (an existing customer), the credit decision process relies on internal data sources.
Verizon Wireless experience has been that the payment attributes of longer tenured customers are highly predictive when considering their ability to pay in the future. External data sources include obtaining a credit report from a national
consumer credit reporting agency, if available. Verizon Wireless uses its internal data and/or credit data obtained from the credit reporting agencies to create a custom credit risk score. The custom credit risk score is generated automatically
(except with respect to a small number of applications where the information needs manual intervention) from the applicants credit data using Verizon Wireless proprietary custom credit models, which are empirically derived, demonstrably
and statistically sound. The credit risk score measures the likelihood that the potential customer will become severely delinquent and be disconnected for
non-payment.
For a small portion of new customer
applications, a traditional credit report is not available from one of the national credit reporting agencies because the potential customer does not have sufficient credit history. In those instances, alternate credit data is used for the risk
assessment.
Based on the custom credit risk score, we assign each customer to a credit class, each of which has a specified
required down payment percentage and specified credit limits. Device payment plan agreement receivables originated from customers assigned to credit classes requiring no down payment represent the lowest risk. Device payment plan agreement
receivables originated from customers assigned to credit classes requiring a down payment represent a higher risk.
Subsequent
to origination, Verizon Wireless monitors delinquency and
write-off
experience as key credit quality indicators for its portfolio of device payment plan agreements and fixed-term service plans. The extent of
our collection efforts with respect to a particular customer are based on the results of proprietary custom empirically derived internal behavioral scoring models which analyze the customers past performance to predict the likelihood of the
customer falling further delinquent. These customer scoring models assess a number of variables, including origination characteristics, customer account history and payment patterns. Based on the score derived from these models, accounts are grouped
by risk category to determine the collection strategy to be applied to such accounts. We continuously monitor collection performance results and the credit quality of our device payment plan agreement receivables based on a variety of metrics,
including aging. Verizon Wireless considers an account to be delinquent and in default status if there are unpaid charges remaining on the account on the day after the bills due date.
The balance and aging of the device payment plan agreement receivables on a gross basis were as follows:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
At March 31,
2017
|
|
|
At December 31,
2016
|
|
Unbilled
|
|
$
|
12,476
|
|
|
$
|
11,089
|
|
Billed:
|
|
|
|
|
|
|
|
|
Current
|
|
|
552
|
|
|
|
557
|
|
Past due
|
|
|
126
|
|
|
|
151
|
|
|
|
|
|
|
Device payment plan agreement receivables, gross
|
|
$
|
13,154
|
|
|
$
|
11,797
|
|
|
|
|
|
|
18
Activity in the allowance for credit losses for the device payment plan agreement
receivables was as follows:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2017
|
|
|
2016
|
|
Balance at January 1,
|
|
$
|
688
|
|
|
$
|
444
|
|
Bad debt expense
|
|
|
151
|
|
|
|
163
|
|
Write-offs
|
|
|
(154
|
)
|
|
|
(95
|
)
|
Allowance related to receivables sold
|
|
|
|
|
|
|
(2
|
)
|
Other
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
Balance at March 31,
|
|
$
|
685
|
|
|
$
|
513
|
|
|
|
|
|
|
Sales of Wireless Device Payment Plan Agreement Receivables
During 2015 and 2016, we established programs pursuant to a Receivables Purchase Agreement, or RPA, to sell from time to time, on an
uncommitted basis, eligible device payment plan agreement receivables to a group of primarily relationship banks (Purchasers) on both a revolving (Revolving Program) and
non-revolving
(Non-Revolving
Program) basis. The receivables sold under the RPA are no longer considered assets of Verizon. The outstanding portfolio of device payment plan agreement receivables derecognized from our condensed
consolidated balance sheets, but which we continue to service, was $2.7 billion at March 31, 2017 and $9.6 billion at March 31, 2016. At March 31, 2017, the total portfolio of device payment plan agreement receivables,
including derecognized device payment plan agreement receivables, that we are servicing was $15.8 billion.
Under the
Non-Revolving
Program, we transfer the eligible receivables to wholly-owned subsidiaries that are bankruptcy remote special purpose entities (Sellers). The Sellers then sell the receivables to the Purchasers for
upfront cash proceeds and additional consideration upon settlement of the receivables (the deferred purchase price). Under the Revolving Program, we sell eligible device payment plan agreement receivables on a revolving basis, subject to a maximum
funding limit, to the Purchasers. Sales of eligible receivables by the Sellers, once initiated, generally occur and are settled on a monthly basis. Customer payments made towards receivables sold under the Revolving Program will be available to
purchase additional eligible device payment plan agreement receivables originated during the revolving period. We elected to end the revolving period in July 2016.
We continue to bill and collect on the receivables in exchange for a monthly servicing fee, which is not material. Eligible receivables under the RPA excluded device payment plan agreements where a new
customer was required to provide a down payment. The sales of receivables under the RPA did not have a material impact on our condensed consolidated statements of income. The cash proceeds received from the Purchasers were recorded within Cash flows
provided by operating activities on our condensed consolidated statements of cash flows.
There were no sales of device
payment plan agreement receivables under the Revolving Program or the
Non-Revolving
Program during the three months ended March 31, 2017. During the three months ended March 31, 2016, we sold
$2.6 billion of receivables, net of allowances and imputed interest, under the Revolving Program. We received cash proceeds from new transfers of $2.0 billion and cash proceeds from reinvested collections of $0.2 billion and recorded
a deferred purchase price of $0.4 billion.
Deferred Purchase Price
Under the RPA, the deferred purchase price was initially recorded at fair value, based on the remaining device payment amounts expected to
be collected, adjusted, as applicable, for the time value of money and by the timing and estimated value of the device
trade-in
in connection with upgrades. The estimated value of the device
trade-in
considers prices expected to be offered to us by independent third parties. This estimate contemplates changes in value after the launch of a device. The fair value measurements are considered to be
Level 3 measurements within the fair value hierarchy. The collection of the deferred purchase price is contingent on collections from customers. During the three months ended March 31, 2017 and 2016, we have collected $0.3 billion and
an insignificant amount, respectively, which was returned as deferred purchase price and recorded within Cash flows provided by operating activities on our condensed consolidated statements of cash flows. Collections, which were returned as deferred
purchase price and recorded within Cash flows provided by investing activities on our condensed consolidated statements of cash flows were not significant during the three months ended March 31, 2017 and 2016, respectively. At
March 31, 2017, our deferred purchase price receivable, which is held by the Sellers, was comprised of $1.4 billion included within Prepaid expenses and other in our condensed consolidated balance sheet. At December 31, 2016, our
deferred purchase price receivable was comprised of $1.2 billion included within Prepaid expenses and other and $0.4 billion included within Other assets in our condensed consolidated balance sheet.
19
Variable Interest Entities (VIEs)
Under the RPA, the Sellers sole business consists of the acquisition of the receivables from Cellco Partnership and certain other
affiliates of Verizon and the resale of the receivables to the Purchasers. The assets of the Sellers are not available to be used to satisfy obligations of any Verizon entities other than the Sellers. We determined that the Sellers are VIEs as they
lack sufficient equity to finance their activities. Given that we have the power to direct the activities of the Sellers that most significantly impact the Sellers economic performance, we are deemed to be the primary beneficiary of the
Sellers. As a result, we consolidate the assets and liabilities of the Sellers into our condensed consolidated balance sheet.
Continuing
Involvement
Verizon has continuing involvement with the sold receivables as it services the receivables. We continue to
service the customer and their related receivables on behalf of the Purchasers, including facilitating customer payment collection, in exchange for a monthly servicing fee. While servicing the receivables, the same policies and procedures are
applied to the sold receivables that apply to owned receivables, and we continue to maintain normal relationships with our customers. The credit quality of the customers we continue to service is consistent throughout the periods presented. To date,
we have collected and remitted approximately $8.5 billion, net of fees. To date, cash proceeds received, net of remittances, were $1.6 billion. Credit losses on receivables sold were immaterial during the three months ended March 31,
2017 and 2016, respectively.
In addition, we have continuing involvement related to the sold receivables as we may be
responsible for absorbing additional credit losses pursuant to the agreements. The Companys maximum exposure to loss related to the involvement with the Sellers is limited to the amount of the outstanding deferred purchase price, which was
$1.4 billion as of March 31, 2017. The maximum exposure to loss represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby the Company would not receive the portion of the proceeds withheld by the
Purchasers. As we believe the probability of these circumstances occurring is remote, the maximum exposure to loss is not an indication of the Companys expected loss.
6.
|
Fair Value Measurements
|
Recurring Fair Value Measurements
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis at March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Level
1
(1)
|
|
|
Level
2
(2)
|
|
|
Level
3
(3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
118
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
118
|
|
Fixed income securities
|
|
|
|
|
|
|
439
|
|
|
|
|
|
|
|
439
|
|
Interest rate swaps
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
91
|
|
Cross currency swaps
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
Interest rate cap
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
Total
|
|
$
|
118
|
|
|
$
|
600
|
|
|
$
|
|
|
|
$
|
718
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
296
|
|
|
$
|
|
|
|
$
|
296
|
|
Cross currency swaps
|
|
|
|
|
|
|
1,682
|
|
|
|
|
|
|
|
1,682
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
1,978
|
|
|
$
|
|
|
|
$
|
1,978
|
|
|
|
|
|
|
20
The following table presents the balances of assets and liabilities measured at fair value on a recurring
basis at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Level 1
(1)
|
|
|
Level 2
(2)
|
|
|
Level 3
(3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
123
|
|
Fixed income securities
|
|
|
10
|
|
|
|
566
|
|
|
|
|
|
|
|
576
|
|
Interest rate swaps
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
71
|
|
Cross currency swaps
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
Interest rate caps
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
Total
|
|
$
|
133
|
|
|
$
|
692
|
|
|
$
|
|
|
|
$
|
825
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
236
|
|
|
$
|
|
|
|
$
|
236
|
|
Cross currency swaps
|
|
|
|
|
|
|
1,803
|
|
|
|
|
|
|
|
1,803
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
2,039
|
|
|
$
|
|
|
|
$
|
2,039
|
|
|
|
|
|
|
(1)
|
quoted prices in active markets for identical assets or liabilities
|
(2)
|
observable inputs other than quoted prices in active markets for identical assets and liabilities
|
(3)
|
no observable pricing inputs in the market
|
Equity securities consist of investments in common stock of domestic and international corporations measured using quoted prices in active markets.
Fixed income securities consist primarily of investments in municipal bonds as well as U.S. Treasury securities. We use quoted prices in
active markets for our U.S. Treasury securities, therefore these securities are classified as Level 1. For all other fixed income securities that do not have quoted prices in active markets, we use alternative matrix pricing resulting in these
debt securities being classified as Level 2.
Derivative contracts are valued using models based on readily observable
market parameters for all substantial terms of our derivative contracts and thus are classified within Level 2. We use
mid-market
pricing for fair value measurements of our derivative instruments. Our
derivative instruments are recorded on a gross basis.
We recognize transfers between levels of the fair value hierarchy as of
the end of the reporting period. There were no transfers within the fair value hierarchy during the three months ended March 31, 2017 and 2016, respectively.
Fair Value of Short-term and Long-term Debt
The fair value of our debt is determined using
various methods, including quoted prices for identical terms and maturities, which is a Level 1 measurement, as well as quoted prices for similar terms and maturities in inactive markets and future cash flows discounted at current rates, which
are Level 2 measurements. The fair value of our short-term and long-term debt, excluding capital leases, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017
|
|
|
At December 31, 2016
|
|
(dollars in millions)
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
Short- and long-term debt, excluding capital leases
|
|
$
|
115,536
|
|
|
$
|
123,751
|
|
|
$
|
107,128
|
|
|
$
|
117,584
|
|
21
Derivative Instruments
The following table sets forth the notional amounts of our outstanding derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017
|
|
|
At December 31, 2016
|
|
(dollars in millions)
|
|
Notional Amount
|
|
|
Notional
Amount
|
|
Interest rate swaps
|
|
$
|
16,595
|
|
|
$
|
13,099
|
|
Cross currency swaps
|
|
|
12,890
|
|
|
|
12,890
|
|
Interest rate caps
|
|
|
2,540
|
|
|
|
2,540
|
|
Interest Rate Swaps
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates based on LIBOR, resulting in a net increase or
decrease to Interest expense. These swaps are designated as fair value hedges and hedge against interest rate risk exposure of designated debt issuances. We record the interest rate swaps at fair value on our condensed consolidated balance sheets as
assets and liabilities. Changes in the fair value of the interest rate swaps are recorded to Interest expense, which are offset by changes in the fair value of the hedged debt due to changes in interest rates.
During the first quarter of 2017, we entered into interest rate swaps with a total notional value of $3.5 billion.
The ineffective portion of our interest rate swaps was not material for the three months ended March 31, 2017 and 2016,
respectively.
Forward Interest Rate Swaps
In order to manage our exposure to future interest rate changes, we periodically enter into forward interest rate swaps. We designate these contracts as cash flow hedges. During the three months ended
March 31, 2016, a
pre-tax
loss of $0.1 billion was recognized in Other comprehensive income (loss).
Cross Currency Swaps
We have entered into cross currency swaps designated
as cash flow hedges to exchange our British Pound Sterling and Euro-denominated debt into U.S. dollars and to fix our future interest and principal payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction
gains or losses.
During the three months ended March 31, 2017 and 2016,
pre-tax
gains of $0.1 billion and $0.2 billion, respectively, were recognized in Other comprehensive income (loss). A portion of the gains and losses recognized in Other comprehensive income (loss) was reclassified to Other income and (expense),
net to offset the related
pre-tax
foreign currency transaction gain or loss on the underlying debt obligations.
Net Investment Hedges
We have designated certain foreign currency
instruments as net investment hedges to mitigate foreign exchange exposure related to
non-U.S.
dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. In 2016, we
designated $0.8 billion total notional value of Euro-denominated debt as a net investment hedge. The notional amount of the Euro-denominated debt as a net investment hedge was $0.8 billion at March 31, 2017 and December 31, 2016,
respectively.
Undesignated Derivatives
We also have the following derivative which we use as an economic hedge but for which we have elected not to apply hedge accounting.
Interest Rate Caps
We enter into interest rate caps to mitigate our
interest exposure to interest rate increases on our ABS Financing Facility. During the three months ended March 31, 2017, we recognized an immaterial increase in Interest expense.
Concentrations of Credit Risk
Financial instruments that subject us to
concentrations of credit risk consist primarily of temporary cash investments, short-term and long-term investments, trade receivables, including device payment plan agreement receivables, certain notes receivable, including lease receivables, and
derivative contracts. Our policy is to deposit our temporary cash investments with major
22
financial institutions. Counterparties to our derivative contracts are also major financial institutions with whom we have negotiated derivatives agreements (ISDA master agreements) and credit
support annex agreements which provide rules for collateral exchange. We generally apply collateralized arrangements with our counterparties for uncleared derivatives to mitigate credit risk. At March 31, 2017 and December 31, 2016, we
posted collateral of approximately $0.2 billion, respectively, related to derivative contracts under collateral exchange arrangements, which were recorded as Prepaid expenses and other in our condensed consolidated balance sheets. During the
first quarter of 2017, we paid an immaterial amount of cash to extend amendments to certain collateral exchange arrangements. These amendments suspend cash collateral posting for a specified period of time by both counterparties. We may enter into
swaps on an uncollateralized basis in certain circumstances. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote and do not expect the settlement of these transactions to have a
material effect on our results of operations or financial condition.
7.
|
Stock-Based Compensation
|
Verizon Communications Long-Term Incentive Plan
The Verizon Communications Inc. Long-Term Incentive Plan (the Plan) permits the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other awards. The maximum number of shares available for awards from the Plan is 119.6 million shares.
Restricted Stock Units
The Plan provides for grants of Restricted Stock Units (RSUs). For RSUs granted prior to 2017, vesting generally occurs at the end of the
third year. For the 2017 grants, vesting generally occurs in three equal installments on each anniversary of the grant date. The RSUs are generally classified as equity awards because the RSUs will be paid in Verizon common stock upon vesting. The
RSU equity awards are measured using the grant date fair value of Verizon common stock and are not remeasured at the end of each reporting period. Dividend equivalent units are also paid to participants at the time the RSU award is paid, and in the
same proportion as the RSU award.
Performance Stock Units
The Plan also provides for grants of Performance Stock Units (PSUs) that generally vest at the end of the third year after the grant. As defined by the Plan, the Human Resources Committee of the Board of
Directors determines the number of PSUs a participant earns based on the extent to which the corresponding performance goals have been achieved over the three-year performance cycle. The PSUs are classified as liability awards because the PSU awards
are paid in cash upon vesting. The PSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the price of Verizon common stock as well as performance relative to the targets.
Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award. The granted and cancelled activity for the PSU award includes adjustments for the performance
goals achieved.
The following table summarizes the Restricted Stock Unit and Performance Stock Unit activity:
|
|
|
|
|
|
|
|
|
(shares in thousands)
|
|
Restricted
Stock Units
|
|
|
Performance
Stock Units
|
|
Outstanding, January 1, 2017
|
|
|
13,308
|
|
|
|
17,919
|
|
Granted
|
|
|
5,105
|
|
|
|
5,837
|
|
Payments
|
|
|
(4,826
|
)
|
|
|
(6,031
|
)
|
Cancelled/Forfeited
|
|
|
(44
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
13,543
|
|
|
|
17,578
|
|
|
|
|
|
|
As of March 31, 2017, unrecognized compensation expense related to the unvested portion of
Verizons RSUs and PSUs was approximately $0.7 billion and is expected to be recognized over approximately two years.
The RSUs granted in 2017 have a weighted-average grant date fair value of $50.09 per unit.
23
We maintain
non-contributory
defined benefit pension plans for many of our employees. In addition, we maintain postretirement health care and life insurance plans for certain retirees and their dependents, which are both
contributory and
non-contributory,
and include a limit on our share of the cost for certain recent and future retirees. In accordance with our accounting policy for pension and other postretirement benefits,
operating expenses include pension and benefit related credits and/or charges based on actuarial assumptions, including projected discount rates and an estimated return on plan assets. These estimates are updated in the fourth quarter or upon a
remeasurement event to reflect actual return on plan assets and updated actuarial assumptions. The adjustment will be recognized in our consolidated statement of income during the fourth quarter or upon a remeasurement event pursuant to our
accounting policy for the recognition of actuarial gains and losses.
Net Periodic Cost
The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Pension
|
|
|
Health Care and Life
|
|
Three Months Ended March 31,
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
70
|
|
|
$
|
80
|
|
|
$
|
37
|
|
|
$
|
61
|
|
Amortization of prior service cost (credit)
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
(235
|
)
|
|
|
(73
|
)
|
Expected return on plan assets
|
|
|
(316
|
)
|
|
|
(271
|
)
|
|
|
(13
|
)
|
|
|
(15
|
)
|
Interest cost
|
|
|
171
|
|
|
|
186
|
|
|
|
165
|
|
|
|
224
|
|
Remeasurement loss, net
|
|
|
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) cost
|
|
$
|
(65
|
)
|
|
$
|
159
|
|
|
$
|
(46
|
)
|
|
$
|
197
|
|
|
|
|
|
|
Severance, Pension and Benefit Charges
During the three months ended March 31, 2016, we recorded a net
pre-tax
pension remeasurement charge of approximately $0.2 billion in accordance with our
accounting policy to recognize actuarial gains and losses in the period in which they occur. The pension remeasurement charge relates to settlements for employees who received
lump-sum
distributions in one of
Verizons seven defined benefit pension plans. The pension remeasurement charge was primarily driven by a decrease in our discount rate assumption used to determine the current year liabilities of this pension plan. Our weighted-average
discount rate assumption decreased from 4.60% at December 31, 2015 to 4.21% at March 31, 2016.
Severance Payments
During the three months ended March 31, 2017, we paid severance benefits of $0.2 billion. At March 31,
2017, we had a remaining severance liability of $0.5 billion, a portion of which includes future contractual payments to employees separated as of March 31, 2017.
Employer Contributions
During the three months ended March 31, 2017,
we contributed $3.6 billion to our qualified pension plans, which included $3.4 billion of discretionary contributions. The discretionary contribution together with previous estimates of $0.6 billion for minimum contributions result
in an expected $4.0 billion in pension funding to qualified plans in 2017. The contributions to our nonqualified pension plans were not material during the three months ended March 31, 2017. There have been no material changes with respect
to the nonqualified pension and other postretirement benefit plans contributions in 2017 as previously disclosed in Part II. Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form
10-K
for the year ended December 31, 2016.
24
9.
|
Equity and Accumulated Other Comprehensive Income
|
Equity
Changes in the components of Total equity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Attributable
to Verizon
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
Balance at January 1, 2017
|
|
$
|
22,524
|
|
|
$
|
1,508
|
|
|
$
|
24,032
|
|
|
|
|
|
Net income
|
|
|
3,450
|
|
|
|
103
|
|
|
|
3,553
|
|
Other comprehensive loss
|
|
|
(64
|
)
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
Comprehensive income
|
|
|
3,386
|
|
|
|
103
|
|
|
|
3,489
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21
|
)
|
Dividends declared
|
|
|
(2,356
|
)
|
|
|
|
|
|
|
(2,356
|
)
|
Common stock in treasury
|
|
|
119
|
|
|
|
|
|
|
|
119
|
|
Distributions and other
|
|
|
(159
|
)
|
|
|
(67
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
Balance at March 31, 2017
|
|
$
|
23,493
|
|
|
$
|
1,544
|
|
|
$
|
25,037
|
|
|
|
|
|
|
Common Stock
On February 28, 2017, our previously authorized share buyback program expired. On March 3, 2017, the Verizon Board of Directors approved a new share buyback program, which authorized the
repurchase of up to 100 million shares of Verizon common stock terminating no later than the close of business on February 28, 2020. The program permits Verizon to repurchase shares over time, with the amount and timing of repurchases
depending on market conditions and corporate needs.
Verizon did not repurchase any shares of Verizon common stock through its
authorized share buyback program during the three months ended March 31, 2017.
Common stock has been used from time to
time to satisfy some of the funding requirements of employee and shareowner plans, including 2.7 million common shares issued from Treasury stock during the three months ended March 31, 2017.
Accumulated Other Comprehensive Income
The changes in the balances of Accumulated other comprehensive income by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Foreign currency
translation
adjustments
|
|
|
Unrealized
loss on cash
flow hedges
|
|
|
Unrealized
gain on
marketable
securities
|
|
|
Defined benefit
pension and
postretirement
plans
|
|
|
Total
|
|
Balance at January 1, 2017
|
|
$
|
(713
|
)
|
|
$
|
(80
|
)
|
|
$
|
46
|
|
|
$
|
3,420
|
|
|
$
|
2,673
|
|
Other comprehensive income
|
|
|
77
|
|
|
|
83
|
|
|
|
6
|
|
|
|
|
|
|
|
166
|
|
Amounts reclassified to net income
|
|
|
|
|
|
|
(101
|
)
|
|
|
8
|
|
|
|
(137
|
)
|
|
|
(230
|
)
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
77
|
|
|
|
(18
|
)
|
|
|
14
|
|
|
|
(137
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
Balance at March 31, 2017
|
|
$
|
(636
|
)
|
|
$
|
(98
|
)
|
|
$
|
60
|
|
|
$
|
3,283
|
|
|
$
|
2,609
|
|
|
|
|
|
|
The amounts presented above in net other comprehensive income (loss) are net of taxes. The amounts
reclassified to net income related to unrealized loss on cash flow hedges in the table above are included in Other income and (expense), net and Interest expense on our condensed consolidated statements of income (see Note 6 for additional
information). The amounts reclassified to net income related to unrealized gain on marketable securities in the table above are included in Other income and (expense), net on our condensed consolidated statements of income. The amounts reclassified
to net income related to defined benefit pension and postretirement plans in the table above are included in Cost of services and Selling, general and administrative expense on our condensed consolidated statements of income (see Note 8 for
additional information).
25
Reportable Segments
We have two reportable segments, Wireless and Wireline, which we operate and manage as strategic business units and organize by products
and services, and customer groups, respectively. We measure and evaluate our reportable segments based on segment operating income, consistent with the chief operating decision makers assessment of segment performance.
Our segments and their principal activities consist of the following:
|
|
|
Segment
|
|
Description
|
Wireless
|
|
Wireless communications products and services include wireless voice and data services and equipment sales, which are provided to consumer, business and
government customers across the United States.
|
|
|
Wireline
|
|
Wirelines voice, data and video communications products and enhanced services include broadband video and data, corporate networking solutions, data center
and cloud services, security and managed network services and local and long distance voice services. We provide these products and services to consumers in the United States, as well as to carriers, businesses and government customers both in the
United States and around the world.
|
Corporate and other includes the results of our media, including AOL, telematics and other businesses,
investments in unconsolidated businesses, unallocated corporate expenses, pension and other employee benefit related costs and lease financing. Corporate and other also includes the historical results of divested operations and other adjustments and
gains and losses that are not allocated in assessing segment performance due to their
non-operational
nature. Although such transactions are excluded from the business segment results, they are included in
reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results as these items are included in the chief operating decision makers assessment of segment performance.
On April 1, 2016, we completed the sale (Access Line Sale) of our local exchange business and related landline activities in
California, Florida and Texas, including Fios Internet and video customers, switched and special access lines and high-speed Internet service and long distance voice accounts in these three states to Frontier Communications Corporation (Frontier).
The transaction, which included the acquisition by Frontier of the equity interests of Verizons incumbent local exchange carriers (ILECs) in California, Florida and Texas, did not involve any assets or liabilities of Verizon Wireless. The
results of operations for this divestiture is included within Corporate and other for all periods presented to reflect comparable segment operating results consistent with the information regularly reviewed by our chief operating decision maker.
In addition, Corporate and other includes the results of our telematics businesses for all periods presented, which were
reclassified from our Wireline segment effective April 1, 2016. The impact of this reclassification was not material to our condensed consolidated financial statements or our segment results of operations.
During the first quarter of 2017, Verizon reorganized the customer groups within its Wireline segment. Previously, the customer groups in
the Wireline segment consisted of Mass Markets (which included Consumer Retail and Small Business subgroups), Global Enterprise and Global Wholesale. Pursuant to the reorganization, there are now four customer groups within the Wireline segment:
Consumer Markets, which includes the customers previously included in Consumer Retail; Enterprise Solutions, which includes the large business customers, including multinational corporations, and federal government customers previously included in
Global Enterprise; Partner Solutions, which includes the customers previously included in Global Wholesale; and Business Markets, a new customer group, which includes U.S.-based small business customers previously included in Mass Markets and
U.S.-based medium business customers, state and local government customers and educational institutions previously included in Global Enterprise.
The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below also includes those items of a
non-operational
nature. We exclude from segment results the effects of certain items that management does not consider in assessing segment performance, primarily because of their
non-operational
nature.
We have adjusted prior period consolidated and segment information, where applicable, to conform to current period presentation.
26
The following table provides operating financial information for our two reportable segments:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(dollars in millions)
|
|
2017
|
|
|
2016
|
|
External Operating Revenues
|
|
|
|
|
|
|
|
|
Wireless
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
15,730
|
|
|
$
|
16,769
|
|
Equipment
|
|
|
3,764
|
|
|
|
3,954
|
|
Other
|
|
|
1,282
|
|
|
|
1,196
|
|
|
|
|
|
|
Total Wireless
|
|
|
20,776
|
|
|
|
21,919
|
|
|
|
|
Wireline
|
|
|
|
|
|
|
|
|
Consumer Markets
|
|
|
3,201
|
|
|
|
3,180
|
|
Enterprise Solutions
|
|
|
2,466
|
|
|
|
2,501
|
|
Partner Solutions
|
|
|
1,016
|
|
|
|
1,053
|
|
Business Markets
|
|
|
890
|
|
|
|
870
|
|
Other
|
|
|
62
|
|
|
|
82
|
|
|
|
|
|
|
Total Wireline
|
|
|
7,635
|
|
|
|
7,686
|
|
|
|
|
|
|
Total reportable segments
|
|
$
|
28,411
|
|
|
$
|
29,605
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues
|
|
|
|
|
|
|
|
|
Wireless
|
|
$
|
102
|
|
|
$
|
85
|
|
Wireline
|
|
|
241
|
|
|
|
237
|
|
|
|
|
|
|
Total reportable segments
|
|
$
|
343
|
|
|
$
|
322
|
|
|
|
|
|
|
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
|
Wireless
|
|
$
|
20,878
|
|
|
$
|
22,004
|
|
Wireline
|
|
|
7,876
|
|
|
|
7,923
|
|
|
|
|
|
|
Total reportable segments
|
|
$
|
28,754
|
|
|
$
|
29,927
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
Wireless
|
|
$
|
7,076
|
|
|
$
|
7,880
|
|
Wireline
|
|
|
293
|
|
|
|
(67
|
)
|
|
|
|
|
|
Total reportable segments
|
|
$
|
7,369
|
|
|
$
|
7,813
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
At March 31,
2017
|
|
|
At December 31,
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Wireless
|
|
$
|
215,206
|
|
|
$
|
211,345
|
|
Wireline
|
|
|
68,376
|
|
|
|
66,679
|
|
|
|
|
|
|
Total reportable segments
|
|
|
283,582
|
|
|
|
278,024
|
|
Corporate and other
|
|
|
221,012
|
|
|
|
213,787
|
|
Eliminations
|
|
|
(257,863
|
)
|
|
|
(247,631
|
)
|
|
|
|
|
|
Total consolidated reported
|
|
$
|
246,731
|
|
|
$
|
244,180
|
|
|
|
|
|
|
A reconciliation of the reportable segment operating revenues to consolidated operating revenues is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(dollars in millions)
|
|
2017
|
|
|
2016
|
|
Total reportable segment operating revenues
|
|
$
|
28,754
|
|
|
$
|
29,927
|
|
Corporate and other
|
|
|
1,460
|
|
|
|
1,309
|
|
Eliminations
|
|
|
(400
|
)
|
|
|
(345
|
)
|
Impact of divested operations
|
|
|
|
|
|
|
1,280
|
|
|
|
|
|
|
Total consolidated operating revenues
|
|
$
|
29,814
|
|
|
$
|
32,171
|
|
|
|
|
|
|
Fios revenues are included within our Wireline segment and amounted to approximately $2.9 billion
and $2.8 billion, respectively for the three months ended March 31, 2017 and 2016.
A reconciliation of the total of the reportable
segments operating income to consolidated income before provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(dollars in millions)
|
|
2017
|
|
|
2016
|
|
Total reportable segment operating income
|
|
$
|
7,369
|
|
|
$
|
7,813
|
|
Corporate and other
|
|
|
(314
|
)
|
|
|
(509
|
)
|
Severance, pension and benefit charges (Note 8)
|
|
|
|
|
|
|
(165
|
)
|
Gain on spectrum license transaction (Note 2)
|
|
|
126
|
|
|
|
142
|
|
Impact of divested operations
|
|
|
|
|
|
|
661
|
|
|
|
|
|
|
Total consolidated operating income
|
|
|
7,181
|
|
|
|
7,942
|
|
|
|
|
Equity in losses of unconsolidated businesses
|
|
|
(21
|
)
|
|
|
(20
|
)
|
Other income and (expense), net
|
|
|
(846
|
)
|
|
|
32
|
|
Interest expense
|
|
|
(1,132
|
)
|
|
|
(1,188
|
)
|
|
|
|
|
|
Income Before Provision For Income Taxes
|
|
$
|
5,182
|
|
|
$
|
6,766
|
|
|
|
|
|
|
No single customer accounted for more than 10% of our total operating revenues during the three months
ended March 31, 2017 and 2016.
11.
|
Commitments and Contingencies
|
In the ordinary course of business,
Verizon is involved in various commercial litigation and regulatory proceedings at the state and federal level. Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is probable and estimable in a
given matter, the Company establishes an accrual. In none of the currently pending matters is the amount of accrual material. An estimate of the reasonably possible loss or range of loss in excess of the amounts already accrued cannot be made at
this time due to various factors typical in contested proceedings, including (1) uncertain damage theories and demands; (2) a less than complete factual record; (3) uncertainty concerning legal theories and their resolution by
courts or regulators; and (4) the unpredictable nature of the opposing party and its demands. We continuously monitor these proceedings as
28
they develop and adjust any accrual or disclosure as needed. We do not expect that the ultimate resolution of any pending regulatory or legal matter in future periods, including the Hicksville
matter described below, will have a material effect on our financial condition, but it could have a material effect on our results of operations for a given reporting period.
Reserves have been established to cover environmental matters relating to discontinued businesses and past telecommunications activities. These reserves include funds to address contamination at the site
of a former Sylvania facility in Hicksville, NY, which had processed nuclear fuel rods in the 1950s and 1960s. In September 2005, the Army Corps of Engineers (ACE) accepted the site into its Formerly Utilized Sites Remedial Action Program. As a
result, the ACE has taken primary responsibility for addressing the contamination at the site. An adjustment to the reserves may be made after a cost allocation is conducted with respect to the past and future expenses of all of the parties.
Adjustments to the environmental reserve may also be made based upon the actual conditions found at other sites requiring remediation.
Verizon is currently involved in approximately 35 federal district court actions alleging that Verizon is infringing various patents. Most of these cases are brought by
non-practicing
entities and effectively seek only monetary damages; a small number are brought by companies that have sold products and may seek injunctive relief as well. These cases have progressed to
various stages and a small number may go to trial in the coming 12 months if they are not otherwise resolved.
In connection
with the execution of agreements for the sales of businesses and investments, Verizon ordinarily provides representations and warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being
sold, as well as indemnity from certain financial losses. From time to time, counterparties may make claims under these provisions, and Verizon will seek to defend against those claims and resolve them in the ordinary course of business.
Subsequent to the sale of Verizon Information Services Canada in 2004, we continue to provide a guarantee to publish directories, which
was issued when the directory business was purchased in 2001 and had a
30-year
term (before extensions). The preexisting guarantee continues, without modification, despite the subsequent sale of Verizon
Information Services Canada and the
spin-off
of our domestic print and Internet yellow pages directories business. The possible financial impact of the guarantee, which is not expected to be adverse, cannot be
reasonably estimated as a variety of the potential outcomes available under the guarantee result in costs and revenues or benefits that may offset each other. We do not believe performance under the guarantee is likely.
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