|
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
Verizon Communications Inc. and Subsidiaries
|
|
|
Note 1. Basis of Presentation
|
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and based upon Securities and Exchange Commission 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 for the year ended December 31, 2018 of Verizon Communications Inc. (Verizon or the Company) included in its Current Report on Form 8-K dated August 8, 2019. 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.
In November 2018, we announced a strategic reorganization of our business. Under the new structure, effective April 1, 2019, there are two reportable segments that we operate and manage as strategic business units - Verizon Consumer Group (Consumer) and Verizon Business Group (Business). In conjunction with the new reporting structure, we recast our segment disclosures for all periods presented.
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are provided across one of the most extensive wireless networks in the U.S. under the Verizon Wireless brand and through wholesale and other arrangements. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network under the Fios brand and over a traditional copper-based network to customers who are not served by Fios. Our Consumer segment’s wireless and wireline products and services are available to our retail customers, as well as resellers that purchase wireless network access from us on a wholesale basis.
Our Business segment provides wireless and wireline communications services and products, video and data services, corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver various Internet of Things (IoT) services and products. We provide these products and services to businesses, government customers and wireless and wireline carriers across the U.S. and select products and services to customers around the world.
Basis of Presentation
We have reclassified certain prior year amounts to conform to the current year presentation, including impacts for changes in our reportable segments.
Earnings Per Common Share
There were a total of approximately 2 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for both the three and nine months ended September 30, 2019. There were a total of approximately 4 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for both the three and nine months ended September 30, 2018.
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates quoted market value and includes amounts held in money market funds.
Cash collections on the device payment plan agreement receivables collateralizing asset-backed debt securities 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 in our condensed consolidated balance sheets.
Cash, cash equivalents and restricted cash are included in the following line items in the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
Increase / (Decrease)
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
|
Cash and cash equivalents
|
$
|
3,020
|
|
|
$
|
2,745
|
|
|
$
|
275
|
|
Restricted cash:
|
|
|
|
|
|
Prepaid expenses and other
|
1,077
|
|
|
1,047
|
|
|
30
|
|
Other assets
|
109
|
|
|
124
|
|
|
(15
|
)
|
Cash, cash equivalents and restricted cash
|
$
|
4,206
|
|
|
$
|
3,916
|
|
|
$
|
290
|
|
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment testing for goodwill is performed annually in the fourth quarter or more frequently if impairment indicators are present. We transitioned into our new segment reporting structure effective April 1, 2019, which resulted in certain changes to our operating segments and reporting units. Upon the
date of reorganization, the goodwill of our historical Wireless reporting unit, historical Wireline reporting unit and historical Verizon Connect reporting unit were reallocated to our new Consumer and Business reporting units using a relative fair value approach.
We performed an impairment assessment of the impacted reporting units, specifically our historical Wireless, historical Wireline and historical Connect reporting units on March 31, 2019, immediately before our strategic reorganization became effective. Our impairment assessments indicated that the fair value for each of our historical Wireless, historical Wireline and historical Connect reporting units exceeded their respective carrying value, and therefore did not result in a goodwill impairment. We then performed an impairment assessment for our Consumer and Business reporting units on April 1, 2019, immediately following our strategic reorganization. Our impairment assessments indicated that the fair value for each of our Consumer and Business reporting units exceeded their respective carrying values and therefore, did not result in a goodwill impairment. Our Media reporting unit was not impacted by the strategic reorganization and there was no indicator of impairment.
Recently Adopted Accounting Standard
The following Accounting Standard Updates (ASUs) were issued by Financial Accounting Standards Board (FASB), and have been recently adopted by Verizon.
|
|
|
|
|
|
|
|
Description
|
Date of Adoption
|
Effect on Financial Statements
|
|
ASU 2016-02, ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, Leases (Topic 842)
|
|
The FASB issued Topic 842 requiring entities to recognize assets and liabilities on the balance sheet for all leases, with certain exceptions. In addition, Topic 842 enables users of financial statements to further understand the amount, timing and uncertainty of cash flows arising from leases. Topic 842 allowed for a modified retrospective application and was effective as of the first quarter of 2019. Entities were allowed to apply the modified retrospective approach: (1) retrospectively to each prior reporting period presented in the financial statements with the cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented; or (2) retrospectively at the beginning of the period of adoption (January 1, 2019) through a cumulative-effect adjustment. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply.
|
1/1/2019
|
We adopted Topic 842 beginning on January 1, 2019, using the modified retrospective approach with a cumulative-effect adjustment to opening retained earnings recorded at the beginning of the period of adoption. Therefore, upon adoption, we have recognized and measured leases without revising comparative period information or disclosure. We recorded an increase of $410 million (net of tax) to retained earnings on January 1, 2019 which related to deferred sale leaseback gains recognized from prior transactions. Additionally, the adoption of the standard had a significant impact in our condensed consolidated balance sheet due to the recognition of $22.1 billion of operating lease liabilities, along with $23.2 billion of operating lease right-of-use-assets.
|
|
The cumulative after-tax effect of the changes made to our condensed consolidated balance sheet for the adoption of Topic 842 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
At December 31, 2018
|
|
|
Adjustments due to
Topic 842
|
|
|
At January 1, 2019
|
|
Prepaid expenses and other
|
$
|
5,453
|
|
|
$
|
(329
|
)
|
|
$
|
5,124
|
|
Operating lease right-of-use assets
|
—
|
|
|
23,241
|
|
|
23,241
|
|
Other assets
|
11,717
|
|
|
(2,048
|
)
|
|
9,669
|
|
Accounts payable and accrued liabilities
|
22,501
|
|
|
(3
|
)
|
|
22,498
|
|
Other current liabilities
|
8,239
|
|
|
(2
|
)
|
|
8,237
|
|
Current operating lease liabilities
|
—
|
|
|
2,931
|
|
|
2,931
|
|
Deferred income taxes
|
33,795
|
|
|
139
|
|
|
33,934
|
|
Non-current operating lease liabilities
|
—
|
|
|
19,203
|
|
|
19,203
|
|
Other liabilities
|
13,922
|
|
|
(1,815
|
)
|
|
12,107
|
|
Retained earnings
|
43,542
|
|
|
410
|
|
|
43,952
|
|
Noncontrolling interests
|
1,565
|
|
|
1
|
|
|
1,566
|
|
In addition to the increase to the operating lease liabilities and right-of-use assets and the derecognition of deferred sale leaseback gains through opening retained earnings, Topic 842 also resulted in reclassifying the presentation of prepaid and deferred rent to operating lease right-of-use assets. The operating lease right-of-use assets amount also includes the balance of any prepaid lease payments, unamortized initial direct costs and lease incentives.
We elected the package of practical expedients permitted under the transition guidance within the new standard. Accordingly, we have adopted these practical expedients and did not reassess: (1) whether an expired or existing contract is a lease or contains an embedded lease; (2) lease classification of an expired or existing lease; or (3) capitalization of initial direct costs for an expired or existing lease. In addition, we have elected the land easement transition practical expedient, and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease.
We lease network equipment including towers, distributed antenna systems, small cells, real estate, connectivity mediums which include dark fiber, equipment, and other various types of assets for use in our operations under both operating and finance leases. We assess whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately,
we determine the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use.
For both operating and finance leases, we recognize a right-of-use asset, which represents our right to use the underlying asset for the lease term, and a lease liability, which represents the present value of our obligation to make payments arising over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. Management uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate, which will be updated on a quarterly basis for measurement of new lease liabilities.
In those circumstances where the Company is the lessee, we have elected to account for non-lease components associated with our leases (e.g., common area maintenance costs) and lease components as a single lease component for substantially all of our asset classes. Additionally, in arrangements where we are the lessor, we have customer premise equipment for which we apply the lease and non-lease component practical expedient and account for non-lease components (e.g., service revenue) and lease components as combined components under the revenue recognition guidance in ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606) as the service revenues are the predominant components in the arrangements.
Rent expense for operating leases is recognized on a straight-line basis over the term of the lease and is included in either Cost of services or Selling, general and administrative expense in our condensed consolidated statements of income, based on the use of the facility on which rent is being paid. Variable rent payments related to both operating and finance leases are expensed in the period incurred. Our variable lease payments consist of payments dependent on various external indicators, including real estate taxes, common area maintenance charges and utility usage.
Operating leases with a term of 12 months or less are not recorded on the balance sheet; we recognize a rent expense for these leases on a straight-line basis over the lease term.
We recognize the amortization of the right-of-use asset for our finance leases on a straight-line basis over the shorter of the term of the lease or the useful life of the right-of-use asset in Depreciation and amortization expense in our condensed consolidated statements of income. The interest expense related to finance leases is recognized using the effective interest method based on the discount rate determined at lease commencement and is included within Interest expense in our condensed consolidated statements of income.
See Note 5 for additional information related to leases, including disclosure required under Topic 842.
Recently Issued Accounting Standards
The following ASUs have been recently issued by the FASB.
|
|
|
|
|
|
|
|
Description
|
Date of Adoption
|
Effect on Financial Statements
|
|
ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05, Financial Instruments - Credit Losses (Topic 326)
|
|
In June 2016, the FASB issued this standard update which requires 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. An entity will apply the update through a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (January 1, 2020). A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. Early adoption of this standard is permitted.
|
1/1/2020
|
Over the course of 2019, our cross-functional coordinated team has been evaluating the requirements and scoping the possible impacts that this standard update will have on our various financial assets, which we expected to include, but were not limited to, our device payment plan agreement receivables, service receivables and contract assets.
During the fourth quarter of 2019, we will be finalizing our assessment of the expected impacts to our accounting, reporting, processes and internal controls arising from this standard update which we will adopt on January 1, 2020. Although we have not yet finalized our evaluation of the standard update, we do not currently expect the impact to be significant. We anticipate any impact will be primarily related to certain device payment plan agreement receivables.
|
|
|
|
|
Note 2. Revenues and Contract Costs
|
We earn revenue from contracts with customers, primarily through the provision of telecommunications and other services and through the sale of wireless equipment.
Revenue by Category
We have two reportable segments that we operate and manage as strategic business units - Consumer and Business. Revenue is disaggregated by products and services within Consumer, and customer groups (Global Enterprise, Small and Medium Business, Public Sector and Other and Wholesale) within Business. See Note 11 for additional information on revenue by segment.
Corporate and other includes the results of our media business, Verizon Media Group (Verizon Media), which operated under the "Oath" brand until January 2019, and other businesses. Verizon Media generated revenues from contracts with customers under Topic 606 of approximately $1.8 billion and $5.4 billion, during the three and nine months ended September 30, 2019, respectively. Verizon Media generated revenues from contracts with customers under Topic 606 of approximately $1.8 billion and $5.6 billion during the three and nine months ended September 30, 2018, respectively.
We also earn revenues that are not accounted for under Topic 606, from leasing arrangements (such as towers), captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed on a device payment plan agreement when sold to the customer by an authorized agent. As allowed by the practical expedient within Topic 842, we have elected to combine the lease and non-lease components for those arrangements of customer premise equipment where we are the lessor as components accounted for under Topic 606. During the three and nine months ended September 30, 2019, revenues from arrangements that were not accounted for under Topic 606 were approximately $779 million and $2.4 billion, respectively. During the three and nine months ended September 30, 2018, revenues from arrangements that were not accounted for under Topic 606 were approximately $1.1 billion and $3.4 billion, respectively.
Remaining Performance Obligations
When allocating the total contract transaction price to identified performance obligations, a portion of the total transaction price may relate to service performance obligations which were not satisfied or are partially satisfied as of the end of the reporting period. Below we disclose information relating to these unsatisfied performance obligations. Upon adoption, we elected to apply the practical expedient available under Topic 606 that provides the option to exclude the expected revenues arising from unsatisfied performance obligations related to contracts that have an original expected duration of one year or less. This situation primarily arises with respect to certain month-to-month service contracts. At September 30, 2019, month-to-month service contracts represented approximately 87% of our wireless postpaid contracts and approximately 59% of our wireline Consumer and Small and Medium Business contracts, compared to September 30, 2018, for which month-to-month service contracts represented approximately 85% of our wireless postpaid contracts and 56% of our wireline Consumer and Small and Medium Business contracts.
Additionally, certain contracts provide customers the option to purchase additional services. The fees related to these additional services are recognized when the customer exercises the option (typically on a month-to-month basis).
Contracts for wireless services are generally either month-to-month and cancellable at any time (typically under a device payment plan) or contain terms ranging from greater than one month to up to two years (typically under a fixed-term plan). Additionally, customers may incur charges based on usage or additional optional services purchased in conjunction with entering into a contract that can be cancelled at any time and therefore are not included in the transaction price. The transaction price allocated to service performance obligations, which are not satisfied or are partially satisfied as of the end of the reporting period, are generally related to our fixed-term plans.
Our Consumer group customers also include traditional wholesale resellers that purchase and resell wireless service under their own brands to their respective customers. Reseller arrangements generally include a stated contract term, which typically extends longer than two years and, in some cases, include a periodic minimum revenue commitment over the contract term for which revenues will be recognized in future periods.
Consumer customer contracts for wireline services generally have a service term of two years; however, this term may be shorter than twelve months or may be month-to-month. Certain contracts with Business customers for wireline services extend into future periods, contain fixed monthly fees and usage-based fees, and can include annual commitments in each year of the contract or commitments over the entire specified contract term; however, a significant number of contracts for wireline services with our Business customers have a contract term that is twelve months or less.
Additionally, there are certain contracts with Business customers for wireline services that have a contractual minimum fee over the total contract term. We cannot predict the time period when revenue will be recognized related to those contracts; thus, they are excluded from the time bands below. These contracts have varying terms spanning over approximately five years ending in September 2024 and have aggregate contract minimum payments totaling $3.7 billion.
At September 30, 2019, the transaction price related to unsatisfied performance obligations for total Verizon that is expected to be recognized for 2019, 2020 and thereafter was $5.8 billion, $17.3 billion and $7.6 billion, respectively. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations and changes in the timing and scope of contracts, arising from contract modifications.
Accounts Receivable and Contract Balances
The timing of revenue recognition may differ from the time of billing to our customers. Receivables presented in our condensed consolidated balance sheet represent an unconditional right to consideration. Contract balances represent amounts from an arrangement when either Verizon has performed, by transferring goods or services to the customer in advance of receiving all or partial consideration for such goods and services
from the customer, or the customer has made payment to Verizon in advance of obtaining control of the goods and/or services promised to the customer in the contract.
Contract assets primarily relate to our rights to consideration for goods or services provided to customers but for which we do not have an unconditional right at the reporting date. Under a fixed-term plan, total contract revenue is allocated between wireless service and equipment revenues. In conjunction with these arrangements, a contract asset is created, which represents the difference between the amount of equipment revenue recognized upon sale and the amount of consideration received from the customer when the performance obligation related to the transfer of control of the equipment is satisfied. The contract asset is reclassified to accounts receivable as wireless services are provided and billed. We have the right to bill the customer as service is provided over time, which results in our right to the payment being unconditional. The contract asset balances are presented in our condensed consolidated balance sheet as Prepaid expenses and other and Other assets. We assess our contract assets for impairment on a quarterly basis and will recognize an impairment charge to the extent their carrying amount is not recoverable.
Contract liabilities arise when we bill our customers and receive consideration in advance of providing the goods or services promised in the contract. We typically bill service one month in advance, which is the primary component of the contract liability balance. Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability balances are presented in our condensed consolidated balance sheet as Other current liabilities and Other liabilities.
The following table presents information about receivables from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At January 1,
|
|
|
At September 30,
|
|
|
At January 1,
|
|
(dollars in millions)
|
2019
|
|
|
2019
|
|
|
2018
|
|
|
2018
|
|
Receivables(1)
|
$
|
11,900
|
|
|
$
|
12,104
|
|
|
$
|
11,966
|
|
|
$
|
12,073
|
|
Device payment plan agreement receivables(2)
|
10,538
|
|
|
8,940
|
|
|
6,723
|
|
|
1,461
|
|
|
|
(1)
|
Balances do not include receivables related to the following contracts: leasing arrangements (such as towers), captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed on a device payment plan agreement when sold to the customer by an authorized agent.
|
|
|
(2)
|
Included in device payment plan agreement receivables presented in Note 7. Balances do not include receivables related to contracts completed prior to January 1, 2018 and receivables derived from the sale of equipment on a device payment plan through an authorized agent.
|
The following table presents information about contract balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At January 1,
|
|
|
At September 30,
|
|
|
At January 1,
|
|
(dollars in millions)
|
2019
|
|
|
2019
|
|
|
2018
|
|
|
2018
|
|
Contract asset
|
$
|
1,102
|
|
|
$
|
1,003
|
|
|
$
|
997
|
|
|
$
|
1,170
|
|
Contract liability (1)
|
5,082
|
|
|
4,943
|
|
|
4,693
|
|
|
4,452
|
|
(1) Revenue recognized related to contract liabilities existing at January 1, 2019 and January 1, 2018 were $235 million and $4.1 billion, for the three and nine months ended September 30, 2019, respectively, and $101 million and $3.9 billion, for the three and nine months ended September 30, 2018.
The balance of contract assets and contract liabilities recorded in our condensed consolidated balance sheet were as follows:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
Prepaid expenses and other
|
$
|
818
|
|
|
$
|
757
|
|
Other assets
|
284
|
|
|
246
|
|
Total
|
$
|
1,102
|
|
|
$
|
1,003
|
|
|
|
|
|
Liabilities
|
|
|
|
Other current liabilities
|
$
|
4,480
|
|
|
$
|
4,207
|
|
Other liabilities
|
602
|
|
|
736
|
|
Total
|
$
|
5,082
|
|
|
$
|
4,943
|
|
Contract Costs
Topic 606 requires the recognition of an asset for incremental costs to obtain a customer contract, which are then amortized to expense over the respective periods of expected benefit. We recognize an asset for incremental commission expenses paid to internal and external sales personnel and agents in conjunction with obtaining customer contracts. We only defer these costs when we have determined the commissions are incremental costs that would not have been incurred absent the customer contract and are expected to be recoverable. Costs to obtain a contract are amortized and recorded ratably as commission expense over the period representing the transfer of goods or services to which the assets relate. Costs to obtain wireless contracts are amortized over both of our Consumer and Business customers' estimated device upgrade cycles, as such costs are typically incurred each time a customer upgrades. Costs to obtain wireline contracts are amortized as expense over the estimated customer
relationship period for our Consumer customers. Incremental costs to obtain wireline contracts for our Business customers are insignificant. Costs to obtain contracts are recorded in Selling, general and administrative expense.
We also defer costs incurred to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used to satisfy our performance obligation under the contract; and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed as we satisfy our performance obligations and recorded in Cost of services. These costs principally relate to direct costs that enhance our wireline business resources, such as costs incurred to install circuits.
We determine the amortization periods for our costs incurred to obtain or fulfill a customer contract at a portfolio level due to the similarities within these customer contract portfolios.
Other costs, such as general costs or costs related to past performance obligations, are expensed as incurred.
Collectively, costs to obtain a contract and costs to fulfill a contract are referred to as deferred contract costs, and amortized over a two- to five-year period. Deferred contract costs are classified as current or non-current within Prepaid expenses and other and Other assets, respectively.
The balances of deferred contract costs included in our condensed consolidated balance sheet were as follows:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
Prepaid expenses and other
|
$
|
2,455
|
|
|
$
|
2,083
|
|
Other assets
|
1,793
|
|
|
1,812
|
|
Total
|
$
|
4,248
|
|
|
$
|
3,895
|
|
For the three and nine months ended September 30, 2019, we recognized expense of $687 million and $1.9 billion, respectively, associated with the amortization of deferred contract costs, primarily within Selling, general and administrative expense in our condensed consolidated statements of income. For the three and nine months ended September 30, 2018, we recognized expense of $523 million and $1.4 billion, respectively, associated with the amortization of deferred contract costs, primarily within Selling, general and administrative expense in our condensed consolidated statements of income.
We assess our deferred contract costs for impairment on a quarterly basis. We recognize an impairment charge to the extent the carrying amount of a deferred cost exceeds the remaining amount of consideration we expect to receive in exchange for the goods and services related to the cost, less the expected costs related directly to providing those goods and services that have not yet been recognized as expenses. There have been no impairment charges recognized for the three and nine months ended September 30, 2019 or September 30, 2018.
|
|
Note 3. Acquisitions and Divestitures
|
Spectrum License Transactions
In 2019, the Federal Communications Commission (FCC) completed two millimeter wave spectrum license auctions. Verizon participated in these auctions and was the high bidder on 9 and 1,066 licenses, respectively, in the 24 Gigahertz (GHz) and 28 GHz bands. We submitted an application to the FCC and paid cash of approximately $521 million for the licenses. The deposits related to these spectrum licenses are classified within Other assets in our condensed consolidated balance sheets as of September 30, 2019.
During both the three and nine months ended September 30, 2019, we entered into and completed various other wireless license transactions for an insignificant amount of cash consideration.
Other
In July 2019, Verizon completed a sale-leaseback transaction for buildings and real estate. See Note 5 for additional information related to the transaction. In connection with this transaction and other insignificant transactions, we recorded a pre-tax net gain from dispositions of assets and businesses of $261 million in Selling, general and administrative expense in our condensed consolidated statements of income for the three and nine months ended September 30, 2019.
During both the three and nine months ended September 30, 2019, we completed various other transactions for insignificant amounts of cash consideration.
|
|
Note 4. Wireless Licenses, Goodwill, and Other Intangible Assets
|
Wireless Licenses
The carrying amounts of Wireless licenses are as follows:
|
|
|
|
|
|
|
|
|
At September 30,
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
2018
|
|
Wireless licenses
|
$
|
94,433
|
|
$
|
94,130
|
|
At September 30, 2019 and 2018, approximately $6.5 billion and $11.1 billion, respectively, of wireless licenses were under development for commercial service for which we were capitalizing interest costs. We recorded approximately $248 million and $406 million of capitalized interest on wireless licenses for the nine months ended September 30, 2019 and 2018, respectively.
The average remaining renewal period of our wireless licenses portfolio was 4.1 years as of September 30, 2019.
Goodwill
The Company transitioned into our new reporting structure as of April 1, 2019. The table below shows the reallocation of goodwill from our historical reporting structure to our current reporting structure.
Changes in the carrying amount of Goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Consumer
|
|
|
Business
|
|
|
Wireless
|
|
|
Wireline
|
|
|
Other (1)
|
|
|
Total
|
|
Balance at January 1, 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,397
|
|
|
$
|
3,871
|
|
|
$
|
2,346
|
|
|
$
|
24,614
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Reclassifications, adjustments and other
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Balance at March 31, 2019
|
—
|
|
|
—
|
|
|
18,397
|
|
|
3,892
|
|
|
2,346
|
|
|
24,635
|
|
Reporting Unit reallocation (2)
|
17,104
|
|
|
7,269
|
|
|
(18,397
|
)
|
|
(3,892
|
)
|
|
(2,084
|
)
|
|
—
|
|
Balance at April 1, 2019
|
17,104
|
|
|
7,269
|
|
|
—
|
|
|
—
|
|
|
262
|
|
|
24,635
|
|
Acquisitions
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Reclassifications, adjustments and other
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(60
|
)
|
|
(67
|
)
|
Balance at September 30, 2019
|
$
|
17,104
|
|
|
$
|
7,264
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
202
|
|
|
$
|
24,570
|
|
(1) Goodwill is net of accumulated impairment charge of $4.6 billion, related to our Media reporting unit, which was recorded in the fourth quarter of 2018.
(2) Represents the reallocation of goodwill as a result of the Company reorganizing its segments as described in Note 1.
Other Intangible Assets
The following table displays the composition of Other intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2019
|
|
|
At December 31, 2018
|
|
(dollars in millions)
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Customer lists (8 to 13 years)
|
$
|
3,895
|
|
|
$
|
(1,393
|
)
|
|
$
|
2,502
|
|
|
$
|
3,951
|
|
|
$
|
(1,121
|
)
|
|
$
|
2,830
|
|
Non-network internal-use software (3 to 7 years)
|
19,721
|
|
|
(13,990
|
)
|
|
5,731
|
|
|
18,603
|
|
|
(12,785
|
)
|
|
5,818
|
|
Other (2 to 25 years)
|
1,968
|
|
|
(937
|
)
|
|
1,031
|
|
|
1,988
|
|
|
(861
|
)
|
|
1,127
|
|
Total
|
$
|
25,584
|
|
|
$
|
(16,320
|
)
|
|
$
|
9,264
|
|
|
$
|
24,542
|
|
|
$
|
(14,767
|
)
|
|
$
|
9,775
|
|
The amortization expense for Other intangible assets was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(dollars in millions)
|
September 30,
|
|
|
September 30,
|
|
2019
|
$
|
580
|
|
|
$
|
1,704
|
|
2018
|
557
|
|
|
1,648
|
|
The estimated future amortization expense for Other intangible assets for the remainder of the current year and next 5 years is as follows:
|
|
|
|
|
Years
|
(dollars in millions)
|
|
Remainder of 2019
|
$
|
571
|
|
2020
|
2,046
|
|
2021
|
1,751
|
|
2022
|
1,471
|
|
2023
|
1,163
|
|
2024
|
821
|
|
|
|
Note 5. Leasing Arrangements
|
We enter into various lease arrangements for network equipment including towers, distributed antenna systems, small cells, real estate and connectivity mediums including dark fiber, equipment, and other various types of assets for use in our operations. Our leases have remaining lease terms ranging from 1 year to 28 years, some of which include options that we can elect to extend the leases term for up to 25 years, and some of which include options to terminate the leases. For the majority of leases entered into during the current period, we have concluded it is not reasonably certain that we would exercise the options to extend the lease or terminate the lease. Therefore, as of the lease commencement date, our lease terms generally do not include these options. We include options to extend the lease when it is reasonably certain that we will exercise that option.
During March 2015, we completed a transaction with American Tower Corporation (American Tower) pursuant to which American Tower acquired the exclusive rights to lease and operate approximately 11,300 of our wireless towers for an upfront payment of $5.0 billion. We have subleased capacity on the towers from American Tower for a minimum of 10 years at current market rates in 2015, with options to renew. We continue to include the towers in Property, plant and equipment, net in our condensed consolidated balance sheets and depreciate them accordingly. In addition to the rights to lease and operate the towers, American Tower assumed the interest in the underlying ground leases related to these towers. While American Tower can renegotiate the terms of and is responsible for paying the ground leases, we are still the primary obligor for these leases and accordingly, the present value of these ground leases are included in our operating lease right-of-use assets and operating lease liabilities. We do not expect to be required to make ground lease payments unless American Tower defaults, which we determined to be remote.
The components of net lease cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(dollars in millions)
|
Classification
|
2019
|
|
|
2019
|
|
Operating lease cost (1)
|
Cost of services
Selling, general and administrative expense
|
$
|
1,202
|
|
|
$
|
3,550
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
Depreciation and amortization expense
|
76
|
|
|
244
|
|
Interest on lease liabilities
|
Interest expense
|
9
|
|
|
28
|
|
Short-term lease cost (1)
|
Cost of services
Selling, general and administrative expense
|
8
|
|
|
32
|
|
Variable lease cost (1)
|
Cost of services
Selling, general and administrative expense
|
55
|
|
|
163
|
|
Sublease income
|
Service revenues and other
|
(68
|
)
|
|
(202
|
)
|
Total net lease cost
|
|
$
|
1,282
|
|
|
$
|
3,815
|
|
|
|
|
|
|
Gain on sale and leaseback transaction, net
|
Selling, general and administrative expense
|
$
|
(391
|
)
|
|
$
|
(391
|
)
|
(1) All operating lease costs, including short-term and variable lease costs, are split between Cost of services and Selling, general and administrative expense in the condensed consolidated statements of income based on the use of the facility that the rent is being paid on. See Note 1 for additional information. Variable lease costs represent payments that are dependent on a rate or index, or on usage of the asset.
Supplemental disclosure for the statement of cash flows related to operating and finance leases were as follows:
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
(dollars in millions)
|
2019
|
|
Cash Flows from Operating Activities
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
Operating cash flows for operating leases
|
$
|
(3,192
|
)
|
Operating cash flows for finance leases
|
(28
|
)
|
Cash Flows from Financing Activities
|
|
Financing cash flows for finance leases
|
(267
|
)
|
Supplemental lease cash flow disclosures
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
|
2,097
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
356
|
|
Supplemental disclosures for the balance sheet related to finance leases were as follows:
|
|
|
|
|
|
At September 30,
|
|
(dollars in millions)
|
2019
|
|
Assets
|
|
Property, plant and equipment, net
|
$
|
858
|
|
|
|
Liabilities
|
|
Debt maturing within one year
|
$
|
327
|
|
Long-term debt
|
667
|
|
Total Finance lease liabilities
|
$
|
994
|
|
The weighted-average remaining lease term and the weighted-average discount rate of our leases were as follows:
|
|
|
|
|
At September 30,
|
|
|
2019
|
|
Weighted-average remaining lease term (years)
|
|
Operating Leases
|
9
|
|
Finance Leases
|
4
|
|
Weighted-average discount rate
|
|
Operating Leases
|
4.1
|
%
|
Finance Leases
|
3.9
|
%
|
The Company's maturity analysis of operating and finance lease liabilities as of September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Operating Leases
|
|
|
Finance Leases
|
|
Remainder of 2019
|
$
|
1,009
|
|
|
$
|
93
|
|
2020
|
3,896
|
|
|
329
|
|
2021
|
3,558
|
|
|
232
|
|
2022
|
3,162
|
|
|
172
|
|
2023
|
2,807
|
|
|
118
|
|
Thereafter
|
11,344
|
|
|
146
|
|
Total lease payments
|
25,776
|
|
|
1,090
|
|
Less interest
|
(4,603
|
)
|
|
(96
|
)
|
Present value of lease liabilities
|
21,173
|
|
|
994
|
|
Less current obligation
|
(2,959
|
)
|
|
(327
|
)
|
Long-term obligation at September 30, 2019
|
$
|
18,214
|
|
|
$
|
667
|
|
As of September 30, 2019, we have contractually obligated lease payments amounting to $1.4 billion for office facility operating leases and small cell colocation and fiber operating leases that have not yet commenced. We have legally obligated lease payments for various other operating leases that have not yet commenced for which the total obligation was not significant. We have certain rights and obligations for these leases, but have not recognized an operating lease right-of-use asset or an operating lease liability since they have not yet commenced.
Real Estate Transaction
On July 23, 2019, Verizon completed a sale-leaseback transaction for buildings and real estate. We received total gross proceeds of approximately $1.0 billion. We leased back a portion of the buildings and real estate sold and accounted for it as an operating lease. The term of the leaseback is for two years with four options to renew for an additional three months each. The proceeds received as a result of this transaction have been classified in Other, net within Cash Flows from Investing Activities in our condensed consolidated statement of cash flows for the nine months ended September 30, 2019. The net gain as a result of this transaction is included in the components of net lease cost table above.
Significant Debt Transactions
The following table shows the transactions that occurred during the nine months ended September 30, 2019.
February Exchange Offers
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Principal Amount Exchanged
|
|
|
Principal Amount Issued
|
|
Verizon 1.750% - 5.150% notes and floating rate notes, due 2021 - 2025
|
$
|
3,892
|
|
|
$
|
—
|
|
GTE LLC 8.750% debentures, due 2021
|
21
|
|
|
—
|
|
Verizon 4.016% notes due 2029 (1)
|
—
|
|
|
4,000
|
|
Total
|
$
|
3,913
|
|
|
$
|
4,000
|
|
(1) Total exchange amount issued in consideration does not include an insignificant amount of cash used to settle.
May Tender Offers
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Principal Amount Purchased
|
|
|
Cash Consideration(1)
|
|
Verizon 5.012% notes due 2054
|
$
|
3,192
|
|
|
$
|
3,626
|
|
Verizon 4.672% notes due 2055
|
1,308
|
|
|
1,404
|
|
Total
|
$
|
4,500
|
|
|
$
|
5,030
|
|
(1) In addition to the purchase price, any accrued and unpaid interest on the purchased notes was paid to the date of purchase.
Debt Redemptions, Repurchases and Repayments
|
|
|
|
|
|
|
|
(dollars in millions)
|
Principal Redeemed / Repaid
|
|
|
Amount Paid as % of Principal (1)
|
|
Three Months Ended March 31, 2019
|
|
|
|
Verizon 5.900% notes due 2054
|
$
|
500
|
|
|
100.000
|
%
|
Verizon 1.375% notes due 2019
|
206
|
|
|
100.000
|
%
|
Verizon 1.750% notes due 2021
|
621
|
|
|
100.000
|
%
|
Verizon 3.000% notes due 2021
|
930
|
|
|
101.061
|
%
|
Verizon 3.500% notes due 2021
|
315
|
|
|
102.180
|
%
|
Open market repurchases of various Verizon notes
|
163
|
|
|
Various
|
|
Three Months Ended March 31, 2019 total
|
2,735
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
Verizon 2.625% notes due 2020
|
831
|
|
|
100.037
|
%
|
Verizon 3.500% notes due 2021
|
736
|
|
|
102.238
|
%
|
Verizon floating rate (LIBOR + 0.770%) notes due 2019
|
229
|
|
|
100.000
|
%
|
Three Months Ended June 30, 2019 total
|
1,796
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
Verizon 4.200% notes due 2046
|
2,059
|
|
|
100.000
|
%
|
Verizon floating rate (LIBOR + 0.370%) notes due 2019
|
306
|
|
|
100.000
|
%
|
Verizon 2.600% - 4.300% Internotes due 2022 - 2029
|
177
|
|
|
100.000
|
%
|
Three Months Ended September 30, 2019 total
|
2,542
|
|
|
|
Nine Months Ended September 30, 2019 total
|
$
|
7,073
|
|
|
|
(1) Percentages represent price paid to redeem, repurchase and repay.
Debt Issuances
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
Principal Amount Issued
|
|
|
Net Proceeds (1)
|
|
Three Months Ended March 31, 2019
|
|
|
|
Verizon 3.875% notes due 2029 (2)
|
$
|
1,000
|
|
|
$
|
994
|
|
Verizon 5.000% notes due 2051
|
510
|
|
|
506
|
|
Three Months Ended March 31, 2019 total
|
$
|
1,510
|
|
|
1,500
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
Verizon 0.875% notes due 2027
|
€
|
1,250
|
|
|
1,391
|
|
Verizon 1.250% notes due 2030
|
€
|
1,250
|
|
|
1,385
|
|
Verizon 2.500% notes due 2031
|
£
|
500
|
|
|
647
|
|
Three Months Ended June 30, 2019 total
|
|
|
|
3,423
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
Verizon 0.875% notes due 2032
|
€
|
800
|
|
|
882
|
|
Verizon 1.500% notes due 2039
|
€
|
500
|
|
|
545
|
|
Verizon 1.875% Notes due 2030
|
£
|
550
|
|
|
672
|
|
Three Months Ended September 30, 2019 total
|
|
|
2,099
|
|
Nine Months Ended September 30, 2019 total
|
|
|
$
|
7,022
|
|
(1) Net proceeds were net of discount and issuance costs.
(2) An amount equal to the net proceeds from this green bond will be used to fund, in whole or in part, "Eligible Green Investments." "Eligible Green Investments" include new and existing investments made by us during the period from two years prior to the issuance of the green bond through the maturity date of the green bond, in the following categories: (1) renewable energy; (2) energy efficiency; (3) green buildings; (4) sustainable water management; and (5) biodiversity and conservation.
Commercial Paper Program
As of September 30, 2019, we had no commercial paper outstanding.
Asset-Backed Debt
As of September 30, 2019, the carrying value of our asset-backed debt was $8.8 billion. Our asset-backed debt includes Asset-Backed Notes (ABS Notes) issued to third-party investors (Investors) and loans (ABS Financing Facilities) received from banks and their conduit facilities (collectively, the Banks). Our consolidated asset-backed debt 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, Cellco Partnership (Cellco) and certain other affiliates of Verizon (collectively, the Originators) transfer device payment plan agreement receivables 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 Verizon’s 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 and the Originators to the ABS Entities.
Cash collections on the device payment plan agreement receivables collateralizing asset-backed debt securities 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 in our condensed consolidated balance sheets.
Proceeds from our asset-backed debt transactions are reflected in 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 in our condensed consolidated balance sheets.
ABS Notes
During the nine months ended September 30, 2019, we completed the following ABS Notes transactions:
|
|
|
|
|
|
|
|
(dollars in millions)
|
Interest Rates %
|
|
Expected Weighted-average Life to Maturity (in years)
|
Principal Amount Issued
|
|
March 2019
|
|
|
|
|
A-1a Senior class notes
|
2.930
|
|
2.50
|
$
|
900
|
|
A-1b Senior floating rate class notes
|
LIBOR + 0.330
|
(1)
|
2.50
|
100
|
|
B Junior class notes
|
3.020
|
|
3.22
|
69
|
|
C Junior class notes
|
3.220
|
|
3.40
|
53
|
|
March 2019 total
|
|
|
|
1,122
|
|
|
|
|
|
|
June 2019
|
|
|
|
|
A-1a Senior class notes
|
2.330
|
|
2.52
|
855
|
|
A-1b Senior floating rate class notes
|
LIBOR + 0.450
|
(1)
|
2.52
|
145
|
|
B Junior class notes
|
2.400
|
|
3.28
|
69
|
|
C Junior class notes
|
2.600
|
|
3.47
|
53
|
|
June 2019 total
|
|
|
|
1,122
|
|
Total
|
|
|
|
$
|
2,244
|
|
(1) The one-month London Interbank Offered Rate (LIBOR) rate at September 30, 2019 was 2.016%.
Under the terms of each series of ABS Notes, there is a two year revolving period during which we may transfer additional receivables to the ABS Entity. In April 2019, the two year revolving period of the ABS Notes issued in March 2017 ended and we began to repay principal on the 2017-1 Class A senior ABS Notes. In July 2019, the two year revolving period of the ABS Notes issued in June 2017 ended and we began to repay principal on the 2017-2 Class A Notes. During the three and nine months ended September 30, 2019, we made aggregate principal repayments of $956 million and $2.3 billion, respectively, for all ABS Notes. In October 2019, we issued approximately $1.6 billion aggregate principal amount of senior and junior Asset-Backed Notes through an ABS Entity.
ABS Financing Facilities
In May 2018, we entered into an ABS financing facility with a number of financial institutions (2018 ABS Financing Facility). One loan agreement was entered into in connection with the 2018 ABS financing facility. In May 2019, the remaining $540 million outstanding under the loan agreement was prepaid, and the loan agreement was terminated.
In September 2016, we entered into an ABS Financing Facility with a number of financial institutions, which was amended and restated in May 2019 (2019 ABS Financing Facility). Under the terms of the 2019 ABS Financing Facility, the financial institutions made advances under asset-backed loans backed by device payment plan agreement receivables of both consumer and business customers. Two loan agreements were entered into in connection with the 2019 ABS Financing Facility in September 2016 and May 2017 and a third was entered into in May 2019. The 2016 and 2017 loan agreements had a final maturity date in March 2021 and bore interest at a floating rate. The two year revolving period of the two loan agreements ended in September 2018. The 2019 loan agreement has a final maturity date in May 2023 and bears interest at floating rates. There is a one year revolving period until May 2020, which may be extended with the approval of the financial institutions. Under all of the loan agreements, we have the right to prepay all or a portion of the advances at any time without penalty, but in certain cases, with breakage costs. Subject to certain conditions, we may also remove receivables from the ABS Entity. In April and May of 2019, we paid off both the 2016 and 2017 loans for an aggregate of $671 million primarily with proceeds from the 2019 loan agreement. In August 2019, we prepaid $1.5 billion of the loan made in May 2019 under the 2019 ABS Financing Facility. As of September 30, 2019, there was an outstanding balance under the 2019 ABS Financing Facility of $250 million.
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 entity’s 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 in our condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
Account receivable, net
|
$
|
9,912
|
|
|
$
|
8,861
|
|
Prepaid expenses and other
|
1,016
|
|
|
989
|
|
Other assets
|
3,130
|
|
|
2,725
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts payable and accrued liabilities
|
8
|
|
|
7
|
|
Short-term portion of long-term debt
|
4,160
|
|
|
5,352
|
|
Long-term debt
|
4,640
|
|
|
4,724
|
|
See Note 7 for additional information on device payment plan agreement receivables used to secure asset-backed debt.
Credit Facilities
As of September 30, 2019, the unused borrowing capacity under our $9.5 billion credit facility was approximately $9.4 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.
In March 2016, we entered into a $1.0 billion credit facility insured by Eksportkreditnamnden, an export credit agency, with a maturity date of December 2024. As of September 30, 2019, the outstanding balance was $647 million. We used this credit facility to finance network equipment-related purchases.
In July 2017, we entered into credit facilities insured by various export credit agencies providing us with the ability to borrow up to $4.0 billion to finance equipment-related purchases with maturity dates ranging from July 2022 to May 2027. The facilities have multiple borrowings available, portions of which extend through October 2019, contingent upon the amount of eligible equipment-related purchases that we make. During the nine months ended September 30, 2019, we drew down $874 million from these facilities, and we had an outstanding balance of $3.4 billion as of September 30, 2019. During the nine months ended September 30, 2018, we drew down $3.0 billion from these facilities.
Non-Cash Transaction
During the nine months ended September 30, 2019 and 2018, we financed, primarily through vendor financing arrangements, the purchase of approximately $356 million and $967 million, respectively, of long-lived assets consisting primarily of network equipment. At both September 30, 2019 and 2018, $1.0 billion and $1.1 billion, respectively, relating to these 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 are not reflected within Capital expenditures in our condensed consolidated statements of cash flows.
Early Debt Redemptions
During the three months ended September 30, 2019, we recorded insignificant losses on early debt redemptions. During the nine months ended September 30, 2019, we recorded losses on early debt redemptions of $1.6 billion primarily related to the May tender offers, which were recorded in Other income (expense), net in our condensed consolidated statements of income.
During the three and nine months ended September 30, 2018, we recorded losses on early debt redemptions of $420 million and $690 million, respectively, primarily related to the 2018 September tender offers for 8 series of notes issued by Verizon with coupon rates ranging from 3.850% to 5.012% with maturity dates ranging from 2039 to 2055. In addition, during the nine months ended September 30, 2018, we recorded losses on early debt redemptions primarily related to the 2018 March tender offers for 13 series of notes issued by Verizon with coupon rates ranging from 1.750% to 5.012% with maturity dates ranging from 2021 to 2055. We recorded losses on early debt redemptions in Other income (expense), net in our condensed consolidated statements of income.
Guarantees
We guarantee the debentures of our operating telephone company subsidiaries. As of September 30, 2019, $796 million 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 September 30, 2019, $423 million aggregate principal amount of these obligations remained outstanding.
|
|
Note 7. 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 wireless monthly bill. As of January 2017, we no longer offer Consumer customers new fixed-term, subsidized service plans for phones; however, we continue to offer subsidized plans to our Business customers. We also continue to service existing plans for customers who have not yet purchased and activated devices under the Verizon device payment program.
Wireless Device Payment Plan Agreement Receivables
The following table displays device payment plan agreement receivables, net, recognized in our condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Device payment plan agreement receivables, gross
|
$
|
18,261
|
|
|
$
|
19,313
|
|
Unamortized imputed interest
|
(434
|
)
|
|
(546
|
)
|
Device payment plan agreement receivables, net of unamortized imputed interest
|
17,827
|
|
|
18,767
|
|
Allowance for credit losses
|
(460
|
)
|
|
(597
|
)
|
Device payment plan agreement receivables, net
|
$
|
17,367
|
|
|
$
|
18,170
|
|
|
|
|
|
Classified in our condensed consolidated balance sheets:
|
|
|
|
Accounts receivable, net
|
$
|
12,504
|
|
|
$
|
12,624
|
|
Other assets
|
4,863
|
|
|
5,546
|
|
Device payment plan agreement receivables, net
|
$
|
17,367
|
|
|
$
|
18,170
|
|
Included in our device payment plan agreement receivables, net at September 30, 2019 and December 31, 2018, are net device payment plan agreement receivables of $13.0 billion and $11.5 billion, respectively, which have been transferred to ABS Entities and continue to be reported in our condensed consolidated balance sheets. See Note 6 for additional information. We believe the carrying value of our installment loans receivables approximate their fair value using a Level 3 expected cash flow model.
We may offer certain promotions that allow a customer to trade in their owned device in connection with the purchase of a new device. Under these types of promotions, the customer receives a credit for the value of the trade-in device. In addition, we may provide the customer with additional future credits that will be applied against the customer’s monthly bill as long as service is maintained. We recognize a liability for the customer's right to trade-in the device measured at fair value, which is determined by considering several factors, including the weighted-average selling prices obtained in recent resales of similar devices eligible for trade-in. Future credits are recognized when earned by the customer. Device payment plan agreement receivables, net does not reflect the trade-in device liability. At September 30, 2019 and December 31, 2018, the amount of trade-in liability was $73 million and $64 million, respectively.
From time to time, we offer certain marketing promotions that allow our 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. When a customer enters into a device payment plan agreement with the right to upgrade to a new device, we account for this trade-in right as a guarantee obligation.
For indirect channel wireless contracts with customers, 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 in 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 45 days or less of customer tenure with Verizon Wireless, the credit decision process relies more heavily on external data sources. If the customer has more than 45 days of customer tenure with Verizon Wireless (an existing customer), the credit decision process relies on a combination of internal and external data sources. 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 applicant’s 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, alternative 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 specified offers of credit including an account level spending limit and either a maximum amount of credit allowed per device or a required down payment percentage. During the fourth
quarter of 2018, Verizon Wireless moved all Consumer customers, new and existing, from a required down payment percentage, between zero and 100%, to a maximum amount of credit per device.
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 that analyze the customer’s 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 bill’s due date.
The balance and aging of the device payment plan agreement receivables on a gross basis were as follows:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Unbilled
|
$
|
16,972
|
|
|
$
|
18,043
|
|
Billed:
|
|
|
|
Current
|
1,021
|
|
|
986
|
|
Past due
|
268
|
|
|
284
|
|
Device payment plan agreement receivables, gross
|
$
|
18,261
|
|
|
$
|
19,313
|
|
Activity in the allowance for credit losses for the device payment plan agreement receivables was as follows:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Balance at January 1,
|
$
|
597
|
|
|
$
|
848
|
|
Bad debt expense
|
640
|
|
|
333
|
|
Write-offs
|
(777
|
)
|
|
(519
|
)
|
Balance at September 30,
|
$
|
460
|
|
|
$
|
662
|
|
|
|
Note 8. 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 as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Level 1(1)
|
|
|
Level 2(2)
|
|
|
Level 3(3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
Fixed income securities
|
$
|
—
|
|
|
$
|
444
|
|
|
$
|
—
|
|
|
$
|
444
|
|
Interest rate swaps
|
—
|
|
|
849
|
|
|
—
|
|
|
849
|
|
Cross currency swaps
|
—
|
|
|
79
|
|
|
—
|
|
|
79
|
|
Total
|
$
|
—
|
|
|
$
|
1,372
|
|
|
$
|
—
|
|
|
$
|
1,372
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
212
|
|
|
$
|
—
|
|
|
$
|
212
|
|
Cross currency swaps
|
—
|
|
|
1,381
|
|
|
—
|
|
|
1,381
|
|
Forward starting interest rate swaps
|
—
|
|
|
886
|
|
|
—
|
|
|
886
|
|
Foreign exchange forwards
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Total
|
$
|
—
|
|
|
$
|
2,489
|
|
|
$
|
—
|
|
|
$
|
2,489
|
|
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Level 1(1)
|
|
|
Level 2(2)
|
|
|
Level 3(3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
Fixed income securities
|
$
|
—
|
|
|
$
|
405
|
|
|
$
|
—
|
|
|
$
|
405
|
|
Interest rate swaps
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Cross currency swaps
|
—
|
|
|
220
|
|
|
—
|
|
|
220
|
|
Interest rate caps
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Total
|
$
|
—
|
|
|
$
|
642
|
|
|
$
|
—
|
|
|
$
|
642
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
813
|
|
|
$
|
—
|
|
|
$
|
813
|
|
Cross currency swaps
|
—
|
|
|
536
|
|
|
—
|
|
|
536
|
|
Forward starting interest rate swaps
|
—
|
|
|
60
|
|
|
—
|
|
|
60
|
|
Interest rate caps
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Total
|
$
|
—
|
|
|
$
|
1,413
|
|
|
$
|
—
|
|
|
$
|
1,413
|
|
|
|
(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)
|
Unobservable pricing inputs in the market
|
Certain of our equity investments do not have readily determinable fair values and are excluded from the tables above. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer and are included in Investments in unconsolidated businesses in our condensed consolidated balance sheets. As of September 30, 2019 and December 31, 2018, the carrying amount of our investments without readily determinable fair values were $293 million and $248 million, respectively. During the three and nine months ended September 30, 2019, there were insignificant adjustments due to observable price changes and there were no impairment charges. Cumulative adjustments due to observable price changes and impairment charges were $50 million and insignificant, respectively.
Fixed income securities consist primarily of investments in municipal bonds. For 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 between Level 1 and Level 2 during the nine months ended September 30, 2019 and 2018.
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 finance leases, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
2019
|
|
|
2018
|
|
(dollars in millions)
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
Short- and long-term debt, excluding finance leases
|
$
|
108,604
|
|
|
$
|
128,380
|
|
|
$
|
112,159
|
|
|
$
|
118,535
|
|
Derivative Instruments
The following table sets forth the notional amounts of our outstanding derivative instruments:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Interest rate swaps
|
$
|
16,993
|
|
|
$
|
19,813
|
|
Cross currency swaps
|
22,212
|
|
|
16,638
|
|
Forward starting interest rate swaps
|
3,000
|
|
|
4,000
|
|
Interest rate caps
|
975
|
|
|
2,218
|
|
Foreign exchange forwards
|
1,085
|
|
|
600
|
|
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 in 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 nine months ended September 30, 2019, we entered into interest rate swaps with a total notional value of $510 million. During the three and nine months ended September 30, 2019, we settled interest rate swaps with a total notional value of $2.1 billion and $3.3 billion, respectively.
The ineffective portions of these interest rate swaps for the three and nine months ended September 30, 2019 were insignificant and $88 million, respectively, and insignificant for the similar periods in 2018.
The following amounts were recorded in Long-term debt in our condensed consolidated balance sheets related to cumulative basis adjustments for fair value hedges:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
Carrying amount of hedged liabilities
|
$
|
17,535
|
|
|
$
|
18,903
|
|
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities
|
645
|
|
|
(785
|
)
|
Cross Currency Swaps
We have entered into cross currency swaps designated as cash flow hedges to exchange our British Pound Sterling, Euro, Swiss Franc and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses.
During the three and nine months ended September 30, 2019, we entered into cross currency swaps with a total notional value of $2.1 billion and $5.6 billion, respectively. During the three and nine months ended September 30, 2019, pre-tax losses of $658 million and $986 million, respectively, were recognized in Other comprehensive income (loss). During the three and nine months ended September 30, 2018, pre-tax gains of $214 million and $220 million, respectively, were recognized in Other comprehensive income (loss). A portion of the gains recognized in Other comprehensive income (loss) was reclassified to Other income (expense), net to offset the related pre-tax foreign currency transaction gain or loss on the underlying hedged item.
Forward Starting Interest Rate Swaps
We have entered into forward starting interest rate swaps designated as cash flow hedges in order to manage our exposure to interest rate changes on future forecasted transactions.
During the three and nine months ended September 30, 2019, we did not enter into any new forward starting interest rate swaps. During the three months ended September 30, 2019, we did not settle any forward starting interest rate swaps and for the nine months ended September 30, 2019, we settled forward starting interest rate swaps with a total notional value of $1.0 billion. During the three and nine months ended September 30, 2019, pre-tax losses of $350 million and $847 million, respectively, were recognized in Other comprehensive income (loss).
We hedge our exposure to the variability in future cash flows based on the expected maturities of the related forecasted debt issuance.
Net Investment Hedges
We have designated certain foreign currency debt 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. The notional amount of the Euro-denominated debt as a net investment hedge was €750 million as of both September 30, 2019 and December 31, 2018.
Undesignated Derivatives
We also have the following derivative contracts which we use as economic hedges 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 Facilities and ABS Notes. During the three and nine months ended September 30, 2019 and 2018, we recognized an insignificant amount in Interest expense.
Foreign Exchange Forwards
We enter into British Pound Sterling and Euro foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional currency denominated monetary assets and liabilities of international subsidiaries. During the three and nine months ended September 30, 2019, we entered into foreign exchange forwards with a total notional value of $3.1 billion and $9.2 billion, respectively, and settled foreign exchange forwards with a total notional value of $3.0 billion and $8.6 billion, respectively. During the three and nine months ended September 30, 2019, pre-tax losses of an insignificant amount and $53 million, respectively, were recognized in Other income (expense), net.
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.
Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. Negotiations and executions of new ISDA master agreements and CSA agreements with our counterparties continued throughout 2018 and 2019. The newly executed CSA agreements contain rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding positions as compared to established thresholds and changes in credit ratings. At September 30, 2019, we held an insignificant amount and at December 31, 2018, we posted approximately $0.1 billion of collateral related to derivative contracts under collateral exchange arrangements, which were recorded as Other current liabilities and Prepaid expenses and other, respectively, in our condensed consolidated balance sheets. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote and do not expect that any such nonperformance would result in a significant effect on our results of operations or financial condition due to our diversified pool of counterparties.
|
|
Note 9. Employee Benefits
|
We maintain non-contributory defined benefit pension plans for certain 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 current and future retirees. In accordance with our accounting policy for pension and other postretirement benefits, operating expenses include service costs associated with pension and other postretirement benefits while other credits and/or charges based on actuarial assumptions, including projected discount rates, an estimated return on plan assets, and impact from health care trend rates are reported in Other income (expense), net. These estimates are updated in the fourth quarter to reflect actual return on plan assets and updated actuarial assumptions or upon a remeasurement event. The adjustment is recognized in the income statement during the fourth quarter or upon a remeasurement event pursuant to our accounting policy for the recognition of actuarial gains and losses.
Net Periodic Benefit Cost (Income)
The following table summarizes the components of net periodic benefit cost (income) related to our pension and postretirement health care and life insurance plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Pension
|
|
Health Care and Life
|
|
Three Months Ended September 30,
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Service cost - Cost of services
|
$
|
51
|
|
|
$
|
57
|
|
|
$
|
20
|
|
|
$
|
26
|
|
Service cost - Selling, general and administrative expense
|
11
|
|
|
13
|
|
|
4
|
|
|
6
|
|
Service cost
|
$
|
62
|
|
|
$
|
70
|
|
|
$
|
24
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
$
|
15
|
|
|
$
|
13
|
|
|
$
|
(242
|
)
|
|
$
|
(244
|
)
|
Expected return on plan assets
|
(282
|
)
|
|
(321
|
)
|
|
(9
|
)
|
|
(11
|
)
|
Interest cost
|
173
|
|
|
176
|
|
|
157
|
|
|
153
|
|
Remeasurement loss (gain), net
|
291
|
|
|
(454
|
)
|
|
—
|
|
|
—
|
|
Other components
|
$
|
197
|
|
|
$
|
(586
|
)
|
|
$
|
(94
|
)
|
|
$
|
(102
|
)
|
|
|
|
|
|
|
|
|
Total
|
$
|
259
|
|
|
$
|
(516
|
)
|
|
$
|
(70
|
)
|
|
$
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Pension
|
|
Health Care and Life
|
|
Nine Months Ended September 30,
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Service cost - Cost of services
|
$
|
151
|
|
|
$
|
174
|
|
|
$
|
59
|
|
|
$
|
78
|
|
Service cost - Selling, general and administrative expense
|
34
|
|
|
41
|
|
|
13
|
|
|
18
|
|
Service cost
|
$
|
185
|
|
|
$
|
215
|
|
|
$
|
72
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
$
|
46
|
|
|
$
|
33
|
|
|
$
|
(728
|
)
|
|
$
|
(732
|
)
|
Expected return on plan assets
|
(846
|
)
|
|
(979
|
)
|
|
(28
|
)
|
|
(33
|
)
|
Interest cost
|
527
|
|
|
508
|
|
|
472
|
|
|
460
|
|
Remeasurement loss (gain), net
|
195
|
|
|
(454
|
)
|
|
—
|
|
|
—
|
|
Other components
|
$
|
(78
|
)
|
|
$
|
(892
|
)
|
|
$
|
(284
|
)
|
|
$
|
(305
|
)
|
|
|
|
|
|
|
|
|
Total
|
$
|
107
|
|
|
$
|
(677
|
)
|
|
$
|
(212
|
)
|
|
$
|
(209
|
)
|
The service cost component of net periodic benefit cost (income) is recorded in Cost of services and Selling, general and administrative expense in the condensed consolidated statements of income while the other components, including mark-to-market adjustments, if any, are recorded in Other income (expense), net.
2018 Voluntary Separation Program
In September 2018, we announced a Voluntary Separation Program for select U.S.-based management employees. Approximately 10,400 eligible employees separated from the Company under this program as of the end of June 2019. The severance benefits payments to these employees were substantially completed by the end of September 2019.
Severance Payments
During the three and nine months ended September 30, 2019, we paid severance benefits of $435 million and $1.9 billion, respectively. During the nine months ended September 30, 2019, we recorded net pre-tax severance charges of an insignificant amount. At September 30, 2019, we had a remaining severance liability of $355 million, a portion of which includes future contractual payments to separated employees.
Employer Contributions
During the nine months ended September 30, 2019, we made a discretionary contribution of $300 million to our qualified pension plans. As a result of the $300 million and $1.0 billion discretionary pension contributions during the nine months ended September 30, 2019 and 2018, respectively, we do not expect mandatory pension funding through December 31, 2019. There was no contribution made to our nonqualified pension plans during the three and nine months ended September 30, 2019. There have been no significant changes with respect to the nonqualified pension and other postretirement benefit plans contributions in 2019.
Remeasurement loss (gain), net
During the three and nine months ended September 30, 2019, we recorded a net pre-tax remeasurement loss of $291 million and $195 million in our pension plans, respectively, triggered by the Voluntary Separation Program for select U.S.-based management employees and other headcount reduction initiatives. For the three months ended September 30, 2019, the net pre-tax remeasurement loss was primarily driven by a $589 million charge due to changes in our discount rate and lump sum interest rate assumptions used to determine the current year liabilities of our pension plans, offset by a $298 million credit due to the difference between our estimated return on assets and our actual return on assets. For the nine months ended September 30, 2019, the net pre-tax remeasurement loss of $195 million includes a pre-tax remeasurement loss of $291 million recorded during the three months ended September 30, 2019 offset by a $96 million gain recorded during the three months ended March 31, 2019.
During the three and nine months ended September 30, 2018, we recorded a net pre-tax remeasurement gain of $454 million triggered by the collective bargaining negotiations, primarily driven by a $1.1 billion credit due to a change in our discount rate assumption used to determine the current year liabilities of our pension plans, offset by a $599 million charge due to the difference between our estimated return on assets and our actual return on assets.
|
|
Note 10. Equity and Accumulated Other Comprehensive Income
|
Equity
Changes in the components of Total equity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts, and shares in thousands)
|
Three months ended September 30,
|
2019
|
|
|
|
|
2018
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
4,291,434
|
|
|
$
|
429
|
|
|
4,291,434
|
|
|
$
|
429
|
|
|
Balance at end of period
|
4,291,434
|
|
|
429
|
|
|
4,291,434
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid In Capital
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
13,419
|
|
|
|
|
13,438
|
|
|
Other
|
|
|
(1
|
)
|
|
|
|
(2
|
)
|
|
Balance at end of period
|
|
|
13,418
|
|
|
|
|
13,436
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
47,945
|
|
|
|
|
41,657
|
|
|
Net income attributable to Verizon
|
|
|
5,194
|
|
|
|
|
4,924
|
|
|
Dividends declared ($0.6150, $0.6025 per share)
|
|
|
(2,544
|
)
|
|
|
|
(2,490
|
)
|
|
Balance at end of period
|
|
|
50,595
|
|
|
|
|
44,091
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
Balance at beginning of period attributable to Verizon
|
|
|
1,447
|
|
|
|
|
3,205
|
|
|
Foreign currency translation adjustments
|
|
|
(10
|
)
|
|
|
|
10
|
|
|
Unrealized gain (loss) on cash flow hedges
|
|
|
(166
|
)
|
|
|
|
329
|
|
|
Unrealized gain (loss) on marketable securities
|
|
|
2
|
|
|
|
|
(1
|
)
|
|
Defined benefit pension and postretirement plans
|
|
|
(169
|
)
|
|
|
|
(342
|
)
|
|
Other comprehensive loss
|
|
|
(343
|
)
|
|
|
|
(4
|
)
|
|
Balance at end of period attributable to Verizon
|
|
|
1,104
|
|
|
|
|
3,201
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
(155,669
|
)
|
|
(6,823
|
)
|
|
(159,498
|
)
|
|
(6,990
|
)
|
|
Employee plans
|
20
|
|
|
1
|
|
|
79
|
|
|
3
|
|
|
Balance at end of period
|
(155,649
|
)
|
|
(6,822
|
)
|
|
(159,419
|
)
|
|
(6,987
|
)
|
|
|
|
|
|
|
|
|
|
|
Deferred Compensation-ESOPs and Other
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
165
|
|
|
|
|
285
|
|
|
Restricted stock equity grant
|
|
|
32
|
|
|
|
|
41
|
|
|
Amortization
|
|
|
—
|
|
|
|
|
(1
|
)
|
|
Balance at end of period
|
|
|
197
|
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
1,365
|
|
|
|
|
1,551
|
|
|
Total comprehensive income
|
|
|
143
|
|
|
|
|
138
|
|
|
Distributions and other
|
|
|
(117
|
)
|
|
|
|
(97
|
)
|
|
Balance at end of period
|
|
|
1,391
|
|
|
|
|
1,592
|
|
|
Total Equity
|
|
|
$
|
60,312
|
|
|
|
|
$
|
56,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts, and shares in thousands)
|
Nine months ended September 30,
|
2019
|
|
|
|
|
2018
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
4,291,434
|
|
|
$
|
429
|
|
|
4,242,374
|
|
|
$
|
424
|
|
|
Common shares issued
|
—
|
|
|
—
|
|
|
49,060
|
|
|
5
|
|
|
Balance at end of period
|
4,291,434
|
|
|
429
|
|
|
4,291,434
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid In Capital
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
13,437
|
|
|
|
|
11,101
|
|
|
Other
|
|
|
(19
|
)
|
|
|
|
2,335
|
|
|
Balance at end of period
|
|
|
13,418
|
|
|
|
|
13,436
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
43,542
|
|
|
|
|
35,635
|
|
|
Opening balance sheet adjustment
|
|
|
410
|
|
(1)
|
|
|
2,232
|
|
(2)
|
Adjusted opening balance
|
|
|
43,952
|
|
|
|
|
37,867
|
|
|
Net income attributable to Verizon
|
|
|
14,170
|
|
|
|
|
13,589
|
|
|
Dividends declared ($1.8200, $1.7825 per share)
|
|
|
(7,527
|
)
|
|
|
|
(7,365
|
)
|
|
Balance at end of period
|
|
|
50,595
|
|
|
|
|
44,091
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
Balance at beginning of year attributable to Verizon
|
|
|
2,370
|
|
|
|
|
2,659
|
|
|
Opening balance sheet adjustment
|
|
|
—
|
|
|
|
|
630
|
|
(2)
|
Adjusted opening balance
|
|
|
2,370
|
|
|
|
|
3,289
|
|
|
Foreign currency translation adjustments
|
|
|
(53
|
)
|
|
|
|
(73
|
)
|
|
Unrealized gain (loss) on cash flow hedges
|
|
|
(716
|
)
|
|
|
|
678
|
|
|
Unrealized gain (loss) on marketable securities
|
|
|
10
|
|
|
|
|
(5
|
)
|
|
Defined benefit pension and postretirement plans
|
|
|
(507
|
)
|
|
|
|
(688
|
)
|
|
Other comprehensive loss
|
|
|
(1,266
|
)
|
|
|
|
(88
|
)
|
|
Balance at end of period attributable to Verizon
|
|
|
1,104
|
|
|
|
|
3,201
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
(159,400
|
)
|
|
(6,986
|
)
|
|
(162,898
|
)
|
|
(7,139
|
)
|
|
Employee plans
|
3,746
|
|
|
164
|
|
|
3,475
|
|
|
152
|
|
|
Shareholder plans
|
5
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
Balance at end of period
|
(155,649
|
)
|
|
(6,822
|
)
|
|
(159,419
|
)
|
|
(6,987
|
)
|
|
|
|
|
|
|
|
|
|
|
Deferred Compensation-ESOPs and Other
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
353
|
|
|
|
|
416
|
|
|
Restricted stock equity grant
|
|
|
111
|
|
|
|
|
132
|
|
|
Amortization
|
|
|
(267
|
)
|
|
|
|
(223
|
)
|
|
Balance at end of period
|
|
|
197
|
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
1,565
|
|
|
|
|
1,591
|
|
|
Opening balance sheet adjustment
|
|
|
1
|
|
(1)
|
|
|
44
|
|
(2)
|
Adjusted opening balance
|
|
|
1,566
|
|
|
|
|
1,635
|
|
|
Total comprehensive income
|
|
|
401
|
|
|
|
|
385
|
|
|
Distributions and other
|
|
|
(576
|
)
|
|
|
|
(428
|
)
|
|
Balance at end of period
|
|
|
1,391
|
|
|
|
|
1,592
|
|
|
Total Equity
|
|
|
$
|
60,312
|
|
|
|
|
$
|
56,087
|
|
|
(1) Opening balance sheet adjustments for the nine months ended September 30, 2019 are due to the adoption of Topic 842 on January 1, 2019. See Note 1 for additional information.
(2) Opening balance sheet adjustments for the nine months ended September 30, 2018 are due to the adoption of multiple ASUs on January 1, 2018. Refer to the consolidated financial statements and notes thereto included in the Company's Current Report on Form 8-K dated August 8, 2019 for additional information.
Common Stock
Verizon did not repurchase any shares of Verizon common stock through its previously authorized share buyback program during the nine months ended September 30, 2019. At September 30, 2019, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 100 million.
Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareowner plans, including 3.8 million common shares issued from Treasury stock during the nine months ended September 30, 2019.
In connection with our acquisition of Straight Path Communications, Inc. in February 2018, we issued approximately 49 million shares of Verizon common stock, valued at approximately $2.4 billion.
Accumulated Other Comprehensive Income
The changes in the balances of Accumulated other comprehensive income by component were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Foreign
currency
translation
adjustments
|
|
|
Unrealized
gain (loss) on cash
flow hedges
|
|
|
Unrealized
gain on
marketable
securities
|
|
|
Defined
benefit
pension and
postretirement
plans
|
|
|
Total
|
|
Balance at January 1, 2019
|
$
|
(600
|
)
|
|
$
|
(80
|
)
|
|
$
|
20
|
|
|
$
|
3,030
|
|
|
$
|
2,370
|
|
Other comprehensive income (loss)
|
(52
|
)
|
|
(1,348
|
)
|
|
10
|
|
|
—
|
|
|
(1,390
|
)
|
Amounts reclassified to net income
|
(1
|
)
|
|
632
|
|
|
—
|
|
|
(507
|
)
|
|
124
|
|
Net other comprehensive income (loss)
|
(53
|
)
|
|
(716
|
)
|
|
10
|
|
|
(507
|
)
|
|
(1,266
|
)
|
Balance at September 30, 2019
|
$
|
(653
|
)
|
|
$
|
(796
|
)
|
|
$
|
30
|
|
|
$
|
2,523
|
|
|
$
|
1,104
|
|
The amounts presented above in net other comprehensive income (loss) are net of taxes. The amounts reclassified to net income related to unrealized gain on cash flow hedges in the table above are included in Other income (expense), net and Interest expense in our condensed consolidated statements of income. See Note 8 for additional information. 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 in our condensed consolidated statements of income. See Note 9 for additional information.
|
|
Note 11. Segment Information
|
Reportable Segments
As discussed in Note 1, in November 2018, we announced a strategic reorganization of our business. Under the new structure, effective April 1, 2019, there are two reportable segments that we operate and manage as strategic business units - Consumer and Business. In conjunction with the new reporting structure, we recast our segment disclosures for all periods presented. We measure and evaluate our reportable segments based on segment operating income, consistent with the chief operating decision maker’s assessment of segment performance.
Our segments and their principal activities consist of the following:
|
|
|
|
Segment
|
|
Description
|
Verizon Consumer Group
|
|
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are provided across one of the most extensive wireless networks in the U.S. under the Verizon Wireless brand and through wholesale and other arrangements. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network under the Fios brand and over a traditional copper-based network to customers who are not served by Fios.
|
|
|
|
Verizon
Business Group
|
|
Our Business segment provides wireless and wireline communications services and products, video and data services, corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver various IoT services and products. We provide these products and services to businesses, government customers and wireless and wireline carriers across the U.S. and select products and services to customers around the world.
|
Our Consumer segment’s wireless and wireline products and services are available to our retail customers, as well as resellers that purchase wireless network access from us on a wholesale basis. Our Business segment’s wireless and wireline products and services are organized by the primary customer groups targeted by these offerings: Global Enterprise, Small and Medium Business, Public Sector and Other, and Wholesale.
Corporate and other includes the results of Verizon Media, and other businesses, investments in unconsolidated businesses, unallocated corporate expenses, certain pension and other employee benefit related costs and interest and financing expenses. Corporate and other also includes the historical results of divested businesses and other adjustments and gains and losses that are not allocated in assessing segment performance due to their nature. Although such transactions are excluded from the segment results, they are included in reported consolidated earnings. Gains and losses from these transactions that are not individually significant are included in segment results as these items are included in the chief operating decision maker’s assessment of segment performance.
The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below includes the effects of special items that the chief operating decision maker does not consider in assessing segment performance, primarily because of their nature.
The following table provides operating financial information for our two reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
External Operating Revenues
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
Service
|
$
|
16,432
|
|
|
$
|
16,194
|
|
|
$
|
49,043
|
|
|
$
|
48,058
|
|
Wireless equipment
|
4,256
|
|
|
4,507
|
|
|
12,326
|
|
|
13,028
|
|
Other
|
1,953
|
|
|
1,642
|
|
|
5,303
|
|
|
4,772
|
|
Total Consumer
|
22,641
|
|
|
22,343
|
|
|
66,672
|
|
|
65,858
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
Global Enterprise
|
2,714
|
|
|
2,781
|
|
|
8,077
|
|
|
8,413
|
|
Small and Medium Business
|
2,894
|
|
|
2,725
|
|
|
8,379
|
|
|
7,891
|
|
Public Sector and Other
|
1,472
|
|
|
1,454
|
|
|
4,435
|
|
|
4,320
|
|
Wholesale
|
790
|
|
|
918
|
|
|
2,440
|
|
|
2,859
|
|
Total Business
|
7,870
|
|
|
7,878
|
|
|
23,331
|
|
|
23,483
|
|
Total reportable segments
|
$
|
30,511
|
|
|
$
|
30,221
|
|
|
$
|
90,003
|
|
|
$
|
89,341
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues
|
|
|
|
|
|
|
|
Consumer
|
$
|
65
|
|
|
$
|
56
|
|
|
$
|
177
|
|
|
$
|
171
|
|
Business
|
15
|
|
|
15
|
|
|
41
|
|
|
44
|
|
Total reportable segments
|
$
|
80
|
|
|
$
|
71
|
|
|
$
|
218
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
Consumer
|
$
|
22,706
|
|
|
$
|
22,399
|
|
|
$
|
66,849
|
|
|
$
|
66,029
|
|
Business(1)
|
7,885
|
|
|
7,893
|
|
|
23,372
|
|
|
23,527
|
|
Total reportable segments
|
$
|
30,591
|
|
|
$
|
30,292
|
|
|
$
|
90,221
|
|
|
$
|
89,556
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
Consumer
|
$
|
7,489
|
|
|
$
|
7,213
|
|
|
$
|
22,075
|
|
|
$
|
21,208
|
|
Business
|
977
|
|
|
1,154
|
|
|
3,096
|
|
|
3,369
|
|
Total reportable segments
|
$
|
8,466
|
|
|
$
|
8,367
|
|
|
$
|
25,171
|
|
|
$
|
24,577
|
|
(1) Service and other revenues included in our Business segment amounted to approximately $7.0 billion and $20.9 billion for the three and nine months ended September 30, 2019, respectively, and approximately $7.1 billion and $21.1 billion for the three and nine months ended September 30, 2018, respectively. Wireless equipment revenues included in our Business segment amounted to approximately $880 million and $2.5 billion for the three and nine months ended September 30, 2019, respectively, and approximately $845 million and $2.4 billion for the three and nine months ended September 30, 2018, respectively.
The following table provides Fios revenue for our two reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Consumer
|
$
|
2,811
|
|
|
$
|
2,764
|
|
|
$
|
8,347
|
|
|
$
|
8,236
|
|
Business
|
243
|
|
|
222
|
|
|
725
|
|
|
657
|
|
Total Fios revenue
|
$
|
3,054
|
|
|
$
|
2,986
|
|
|
$
|
9,072
|
|
|
$
|
8,893
|
|
The following table provides Wireless service revenue under our current reportable structure and includes intersegment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Consumer
|
$
|
13,533
|
|
|
$
|
13,257
|
|
|
$
|
40,346
|
|
|
$
|
39,260
|
|
Business
|
2,850
|
|
|
2,687
|
|
|
8,319
|
|
|
7,803
|
|
Total Wireless service revenue
|
$
|
16,383
|
|
|
$
|
15,944
|
|
|
$
|
48,665
|
|
|
$
|
47,063
|
|
Reconciliation to Consolidated Financial Information
A reconciliation of the reportable segment operating revenues to consolidated operating revenues is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Total reportable segment operating revenues
|
$
|
30,591
|
|
|
$
|
30,292
|
|
|
$
|
90,221
|
|
|
$
|
89,556
|
|
Corporate and other
|
2,400
|
|
|
2,400
|
|
|
7,147
|
|
|
7,291
|
|
Eliminations
|
(97
|
)
|
|
(85
|
)
|
|
(275
|
)
|
|
(265
|
)
|
Total consolidated operating revenues
|
$
|
32,894
|
|
|
$
|
32,607
|
|
|
$
|
97,093
|
|
|
$
|
96,582
|
|
A reconciliation of total reportable segment operating income to consolidated income before provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
|
(dollars in millions)
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Total reportable segment operating income
|
$
|
8,466
|
|
|
$
|
8,367
|
|
|
$
|
25,171
|
|
|
$
|
24,577
|
|
Corporate and other
|
(344
|
)
|
|
(350
|
)
|
|
(1,083
|
)
|
|
(1,161
|
)
|
Severance charges (Note 9)
|
—
|
|
|
—
|
|
|
—
|
|
|
(339
|
)
|
Other components of net periodic benefit charges (Note 9)
|
(203
|
)
|
|
(205
|
)
|
|
(610
|
)
|
|
(621
|
)
|
Acquisition and integration related charges
|
—
|
|
|
(137
|
)
|
|
—
|
|
|
(364
|
)
|
Product realignment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
(451
|
)
|
Net gain from dispositions of assets and businesses
|
261
|
|
|
—
|
|
|
261
|
|
|
—
|
|
Total consolidated operating income
|
8,180
|
|
|
7,675
|
|
|
23,739
|
|
|
21,641
|
|
|
|
|
|
|
|
|
|
Equity in losses of unconsolidated businesses
|
(1
|
)
|
|
(3
|
)
|
|
(20
|
)
|
|
(250
|
)
|
Other income (expense), net
|
(110
|
)
|
|
214
|
|
|
(1,127
|
)
|
|
499
|
|
Interest expense
|
(1,146
|
)
|
|
(1,211
|
)
|
|
(3,571
|
)
|
|
(3,634
|
)
|
Income Before Provision For Income Taxes
|
$
|
6,923
|
|
|
$
|
6,675
|
|
|
$
|
19,021
|
|
|
$
|
18,256
|
|
No single customer accounted for more than 10% of our total operating revenues during the three and nine months ended September 30, 2019 and 2018.
The chief operating decision maker does not review disaggregated assets on a segment basis; therefore, such information is not presented. Depreciation included in the measure of segment profitability is allocated primarily based on proportional usage.
|
|
Note 12. 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 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 25 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 could 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.