|
|
|
|
|
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 included in Verizon Communications Inc.'s (Verizon or the Company) Annual Report on Form 10-K for the year ended December 31, 2020. 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.
Certain amounts have been reclassified to conform to the current period’s presentation.
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 the three and nine months ended September 30, 2021 and September 30, 2020.
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 our 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,
|
|
Decrease
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
|
Cash and cash equivalents
|
$
|
9,936
|
|
|
$
|
22,171
|
|
|
$
|
(12,235)
|
|
|
Restricted cash:
|
|
|
|
|
|
|
Prepaid expenses and other
|
1,074
|
|
|
1,195
|
|
|
(121)
|
|
|
Other assets
|
101
|
|
|
132
|
|
|
(31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash
|
$
|
11,111
|
|
|
$
|
23,498
|
|
|
$
|
(12,387)
|
|
|
|
|
|
|
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 (Small and Medium Business, Global Enterprise, Public Sector and Other, and Wholesale) within Business. See Note 11 for additional information on revenue by segment.
Corporate and other primarily includes insurance captives as well as the historical results of the divested Verizon Media Group (Verizon Media). On September 1, 2021, we completed the sale of Verizon Media to an affiliate of Apollo Global Management Inc. Under our ownership, Verizon Media generated revenues from contracts with customers under Accounting Standards Updated (ASU) 2014-09, "Revenue from Contracts with Customers" (Topic 606) of approximately $1.4 billion and $5.3 billion during the three and nine months ended September 30, 2021, respectively. Under our ownership, Verizon Media generated revenues from contracts with customers under Topic 606 of approximately $1.7 billion and $4.7 billion during the three and nine months ended September 30, 2020, respectively. Refer to Note 3 for additional information on the sale of Verizon Media.
We also earn revenues that are not accounted for under Topic 606 from leasing arrangements (such as those for towers and equipment), captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed under a device payment plan agreement when sold to the customer by an authorized agent. As allowed by the practical expedient within ASU 2016-02, "Leases" (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, 2021, revenues from arrangements that were not accounted for under Topic 606 were approximately $803 million and $2.3 billion, respectively. During the three and nine months ended September 30, 2020, revenues from arrangements that were not accounted for under Topic 606 were approximately $715 million and $2.3 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. We 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, 2021, month-to-month service contracts represented approximately 93% of our wireless postpaid contracts and approximately 83% of our wireline Consumer and Small and Medium Business contracts, compared to September 30, 2020, for which month-to-month service contracts represented approximately 90% of our wireless postpaid contracts and 70% 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 canceled 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 contracts that are not accounted for as month-to-month contracts.
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 are generally month-to-month; however, they may have a service term of two years or shorter than twelve months. 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 and telematics 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 seven years ending in January 2029 and have aggregate contract minimum payments totaling $2.7 billion.
At September 30, 2021, the transaction price related to unsatisfied performance obligations that are expected to be recognized for the remainder of 2021, 2022 and thereafter was $4.7 billion, $14.5 billion and $6.3 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 sheets 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 sheets as Prepaid expenses and other and Other assets. We recognize the allowance for credit losses at inception and reassess quarterly based on management’s expectation of the asset’s collectability.
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 sheets 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)
|
2021
|
|
2021
|
|
2020
|
|
2020
|
|
Receivables(1)
|
$
|
10,088
|
|
|
$
|
12,029
|
|
|
$
|
11,094
|
|
|
$
|
12,078
|
|
|
Device payment plan agreement receivables(2)
|
11,178
|
|
|
10,358
|
|
|
9,559
|
|
|
11,741
|
|
(1)Balances do not include receivables related to the following contracts: leasing arrangements (such as those for towers and equipment), captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed under 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 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)
|
2021
|
|
2021
|
|
2020
|
|
2020
|
|
Contract asset
|
$
|
878
|
|
|
$
|
937
|
|
|
$
|
923
|
|
|
$
|
1,150
|
|
|
Contract liability (1)
|
6,034
|
|
|
5,598
|
|
|
5,321
|
|
|
5,307
|
|
(1) Revenue recognized related to contract liabilities existing at January 1, 2021 were $161 million and $4.2 billion for the three and nine months ended September 30, 2021, respectively. Revenue recognized related to contract liabilities existing at January 1, 2020 were $124 million and $4.2 billion, for the three and nine months ended September 30, 2020, respectively.
The balance of contract assets and contract liabilities recorded in our condensed consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
At December 31,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
Assets
|
|
|
|
|
Prepaid expenses and other
|
$
|
701
|
|
|
$
|
733
|
|
|
Other assets
|
177
|
|
|
204
|
|
|
Total
|
$
|
878
|
|
|
$
|
937
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Other current liabilities
|
$
|
5,159
|
|
|
$
|
4,843
|
|
|
Other liabilities
|
875
|
|
|
755
|
|
|
Total
|
$
|
6,034
|
|
|
$
|
5,598
|
|
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 six-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 sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
At December 31,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
Assets
|
|
|
|
|
Prepaid expenses and other
|
$
|
2,366
|
|
|
$
|
2,472
|
|
|
Other assets
|
2,151
|
|
|
2,070
|
|
|
Total
|
$
|
4,517
|
|
|
$
|
4,542
|
|
For the three and nine months ended September 30, 2021, we recognized expense of $751 million and $2.3 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, 2020, we recognized expense of $763 million and $2.3 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, 2021 or September 30, 2020.
|
|
|
|
|
Note 3. Acquisitions and Divestitures
|
Spectrum License Transactions
In March 2020, the Federal Communications Commission's (FCC) incentive auction, Auction 103, for spectrum licenses in the upper 37 Gigahertz (GHz), 39 GHz, and 47 GHz bands concluded. Verizon participated in this incentive auction and was the high bidder on 4,940 licenses, which primarily consisted of 37 GHz and, to a lesser extent, 39 GHz spectrum. As an incumbent licensee, our 39 GHz licenses provided us with incentive payments that were applied towards the purchase price of spectrum in the auction. The value of the licenses won by Verizon amounted to $3.4 billion, of which $1.8 billion was settled with the relinquished 39 GHz licenses. The remaining balance was settled in cash of $1.6 billion, of which $101 million was paid in December 2019. In connection with the incentive auction, a pre-tax net loss of $1.2 billion ($914 million after-tax) was recorded in Selling, general and administrative expense in the condensed consolidated statement of income during the nine months ended September 30, 2020 because the exchange of the previously held licenses for new licenses had commercial substance. See Note 4 for additional information. The new reconfigured licenses were received in the second quarter 2020 and are included in Wireless licenses in our condensed consolidated balance sheet.
In September 2020, the FCC completed Auction 105 for Priority Access Licenses. Verizon participated in the auction and was the high bidder on 557 licenses in the 3.5 GHz band valued at approximately $1.9 billion. Verizon made payments for these licenses in 2020 and received them from the FCC in March 2021. The purchase cost for these licenses and related capitalized interest, to the extent qualifying activities have occurred, are included in Wireless licenses in our condensed consolidated balance sheet.
In February 2021, the FCC concluded Auction 107 for C-Band wireless spectrum. Verizon was the winning bidder on 3,511 licenses, consisting of contiguous C-Band spectrum bands ranging between 140 and 200 megahertz of C-Band spectrum in all 406 markets available in the auction. Verizon paid $45.5 billion for the licenses it won, of which $44.6 billion was paid in the first quarter of 2021. In accordance with the rules applicable to the auction, Verizon is required to make additional payments to acquire the licenses. The payments are for our allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction, which are estimated to be $7.7 billion. In September 2021, we made a payment of $1.3 billion for certain obligations related to projected clearing costs associated with the auction. We expect to make payments related to accelerated clearing incentives later in 2021 for the initial 46 markets. We expect to continue to make payments related to clearing cost and incentive payment obligations through 2024. These payments are dependent on the incumbent license holders accelerated clearing of the spectrum for Verizon’s use and, therefore, the final timing and amounts could differ based on the incumbent holders’ execution of their clearing process. In accordance with the FCC order, the clearing must be completed by December 2025.
The carrying value of the wireless spectrum won in Auction 107 will consist of all payments required to participate and purchase licenses in the auction, including Verizon’s allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction that we are obligated to pay in order to acquire the licenses. Carrying value will also include capitalized interest to the extent qualifying activities have occurred. The licenses were received from the FCC in July 2021 and are included within Wireless licenses in our condensed consolidated balance sheet as of September 30, 2021. The average remaining renewal period for these acquired licenses was 15 years.
Refer to Note 6 for further details on significant debt transactions.
During the three and nine months ended September 30, 2021, we entered into and completed various other wireless license acquisitions for cash consideration of an insignificant amount and approximately $95 million, respectively. We recognized a pre-tax loss in connection with the sale of certain wireless licenses during the nine months ended September 30, 2021 of $223 million ($167 million after-tax).
Blue Jeans Network, Inc.
In April 2020, we entered into a definitive purchase agreement to acquire Blue Jeans Network, Inc. (BlueJeans), an enterprise-grade video conferencing and event platform, whose services are sold to Business customers globally. The transaction closed in May 2020. The aggregate cash consideration paid by Verizon at the closing of the transaction was approximately $397 million, net of cash acquired.
TracFone Wireless, Inc.
In September 2020, we entered into a purchase agreement (Tracfone Purchase Agreement) with América Móvil to acquire TracFone Wireless, Inc. (Tracfone), a provider of prepaid and value mobile services in the U.S. Under the terms of the Tracfone Purchase Agreement, we will acquire all of the stock of Tracfone for approximately $3.1 billion in cash and $3.1 billion in Verizon common stock, subject to customary adjustments, at closing. The number of shares issued will be based on an average trading price determined as of the closing date and is subject to a minimum number of shares issuable of 47,124,445 and a maximum number of shares issuable of 57,596,544. The Tracfone Purchase Agreement also includes up to an additional $650 million in future cash consideration related to the achievement of certain performance measures and other commercial arrangements. The transaction is subject to regulatory approvals and closing conditions and is expected to close in the fourth quarter of 2021.
Bluegrass Cellular
In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass Cellular (Bluegrass), a rural wireless operator serving central Kentucky. Bluegrass provides wireless service to 210,000 customers in 34 counties in rural service areas 3, 4, and 5 in Central Kentucky. The transaction closed in March 2021. The aggregate cash consideration paid by Verizon at the closing of the transaction was approximately $412 million, net of cash acquired, which is subject to customary closing adjustments.
The financial results of Bluegrass are included in the consolidated results of Verizon from the date of acquisition. For the three and nine months ended September 30, 2021, revenue related to Bluegrass was insignificant and approximately $88 million, respectively.
The acquisition of Bluegrass was accounted for as a business combination. We are currently assessing the identification and measurement of the assets acquired and liabilities assumed based on their fair values as of the close of the acquisition. Preliminarily, we recorded approximately $141 million of plant, property and equipment, $135 million of intangible assets and $92 million of goodwill. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired. The goodwill represents future economic benefits that we expect to achieve as a result of the acquisition. The goodwill related to this acquisition is included within Consumer.
Verizon Media
On May 2, 2021, Verizon entered into a definitive agreement with an affiliate of Apollo Global Management Inc. (the Apollo Affiliate) pursuant to which we agreed to sell Verizon Media in return for consideration of $4.3 billion in cash, subject to customary adjustments, $750 million in non-convertible preferred limited partnership units of the Apollo Affiliate, and 10% of the fully-diluted common limited partnership units of the Apollo Affiliate.
On September 1, 2021, we completed the sale of Verizon Media. As of the close of the transaction, cash proceeds, the fair value of the non-convertible preferred limited partnership units of the Apollo Affiliate, and the fair value of 10% of the fully-diluted common limited partnership units of the Apollo Affiliate were $4.3 billion, $496 million, and $124 million, respectively. We recorded a pre-tax gain on sale of approximately $1.1 billion (after-tax $1.1 billion) in Selling general and administrative expense in our condensed consolidated statement of income for the three and nine months ended September 30, 2021. In addition, we incurred $346 million of various costs associated with this disposition which are primarily recorded in Selling general and administrative expense in our condensed consolidated statement of income for the three and nine months ended September 30, 2021.
Upon the closing of the transaction, Verizon’s preferred limited partnership interest in the Apollo Affiliate and 10% common interest in the Apollo Affiliate were recognized at their initial fair value of $496 million and $124 million, respectively. The fair values were both estimated using a combination of the market approach and the income approach. The valuations are both considered Level 3 fair value measurements due to the use of significant judgment and unobservable inputs, which include the amount and timing of future cash flows, and a discount rate reflecting risks inherent in the future cash flows and market prices. Verizon’s preferred limited partnership interest is accounted for at cost, and is subject to impairment and other changes resulting from observable price changes in orderly transactions for identical or similar investments of the issuer. On September 28, 2021, the Apollo Affiliate redeemed $100 million of Verizon’s preferred limited partnership interest reducing the carrying value of our preferred interest at September 30, 2021 to $396 million. The redemption is reflected within Net cash used in investing activities in our condensed consolidated statement of cash flows for the nine months ended September 30, 2021. Verizon’s 10% common interest in the Apollo Affiliate is accounted for as an equity method investment. The post-sale results of Verizon’s common ownership interest in the Apollo Affiliate are recorded through the equity method of accounting, within our Corporate and other segment.
The following table summarizes the assets and liabilities which were disposed as a result of the closing of the transaction:
|
|
|
|
|
|
|
|
|
|
|
September 1,
|
|
|
|
(dollars in millions)
|
2021
|
|
|
|
Assets:
|
|
|
|
|
Cash, cash equivalents and restricted cash
|
$
|
168
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
1,597
|
|
|
|
|
Prepaid expenses and other
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
1,235
|
|
|
|
|
Other intangible assets, net
|
2,579
|
|
|
|
|
Other assets
|
221
|
|
|
|
|
Total assets
|
$
|
5,934
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
1,411
|
|
|
|
|
Other current liabilities
|
315
|
|
|
|
|
Other liabilities
|
310
|
|
|
|
|
Total liabilities
|
$
|
2,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The operating results of Verizon Media are included within our Corporate and other segment for all periods presented through the date of the sale. Refer to Note 2 for further details on revenues generated by Verizon Media under Topic 606.
In connection with the closing of the transaction, we entered into Transition Services Agreements with the Apollo Affiliate, under which Verizon will continue to provide and receive specified administrative and technical services to support operations for up to 12 months and 18 months, respectively.
Other
During the three and nine months ended September 30, 2021, we completed other acquisitions for cash consideration of an insignificant amount and $51 million, respectively.
|
|
|
|
|
Note 4. Wireless Licenses, Goodwill, and Other Intangible Assets
|
Wireless Licenses
The carrying amounts of our Wireless licenses, as well as wireless spectrum for which licenses had not yet been received, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
At December 31,
|
|
(dollars in millions)
|
2021
|
2020
|
|
Wireless licenses
|
$
|
145,767
|
|
$
|
96,097
|
|
|
Deposits for wireless licenses
|
—
|
|
2,772
|
|
At September 30, 2021 and 2020, approximately $54.8 billion and $6.9 billion, respectively, of wireless licenses were under development for commercial service for which we were capitalizing interest costs. We recorded approximately $1.1 billion and $171 million of capitalized interest on wireless licenses for the nine months ended September 30, 2021 and 2020, respectively.
In July 2021, we received the wireless licenses won in connection with the FCC's auction for C-Band wireless spectrum, Auction 107. As a result, these wireless licenses, including capitalized interest, were reclassified from Deposits for wireless licenses to Wireless licenses in our condensed consolidated balance sheet. Refer to Note 3 for additional information regarding spectrum license transactions.
In the first quarter of 2020, we reclassified substantially all of our 39 GHz wireless licenses, including capitalized interest, with a carrying value of $2.8 billion to assets held for sale in connection with the FCC's incentive auction, Auction 103. As a result, these wireless licenses were adjusted down to their fair value of $1.6 billion resulting in a pre-tax loss of $1.2 billion ($914 million after-tax) in 2020. The new reconfigured licenses were received in the second quarter 2020 and had a value of $3.4 billion.
During the nine months ended September 30, 2021, we renewed various wireless licenses in accordance with FCC regulations. The average renewal period for these licenses was 10 years.
Goodwill
Changes in the carrying amount of Goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Consumer
|
|
Business
|
|
Other
|
|
Total
|
|
Balance at January 1, 2021 (1)
|
$
|
17,222
|
|
|
$
|
7,535
|
|
|
$
|
16
|
|
|
$
|
24,773
|
|
|
Acquisitions (2)
|
92
|
|
|
—
|
|
|
37
|
|
|
129
|
|
|
Reclassifications, adjustments and other
|
3
|
|
|
(17)
|
|
|
(1)
|
|
|
(15)
|
|
|
Balance at September 30, 2021 (1)
|
$
|
17,317
|
|
|
$
|
7,518
|
|
|
$
|
52
|
|
|
$
|
24,887
|
|
(1) Goodwill is net of accumulated impairment charges of $4.8 billion, related to our historical Media reporting unit, which included Verizon Media. On September 1, 2021, we completed the sale of Verizon Media. See Note 3 for additional information.
(2) The change in goodwill due to acquisitions is related to Bluegrass and other insignificant transactions. See Note 3 for additional information.
Other Intangible Assets
The following table displays the composition of Other intangible assets, net as well as the respective amortization period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2021
|
|
At December 31, 2020
|
|
(dollars in millions)
|
Gross (1)
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Customer lists (8 to 13 years)
|
$
|
1,933
|
|
|
$
|
(1,033)
|
|
|
$
|
900
|
|
|
$
|
4,021
|
|
|
$
|
(1,961)
|
|
|
$
|
2,060
|
|
|
Non-network internal-use software (5 to 7 years)
|
20,525
|
|
|
(14,524)
|
|
|
6,001
|
|
|
21,685
|
|
|
(15,104)
|
|
|
6,581
|
|
|
Other (4 to 25 years)
|
869
|
|
|
(748)
|
|
|
121
|
|
|
1,771
|
|
|
(999)
|
|
|
772
|
|
|
Total
|
$
|
23,327
|
|
|
$
|
(16,305)
|
|
|
$
|
7,022
|
|
|
$
|
27,477
|
|
|
$
|
(18,064)
|
|
|
$
|
9,413
|
|
(1) Other intangible assets are net of assets disposed as a result of the closing of the Verizon Media sale on September 1, 2021. See Note 3 for additional information.
The amortization expense for Other intangible assets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(dollars in millions)
|
September 30,
|
|
September 30,
|
|
2021
|
$
|
430
|
|
|
$
|
1,539
|
|
|
2020
|
621
|
|
|
1,818
|
|
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 2021
|
$
|
440
|
|
|
2022
|
1,632
|
|
|
2023
|
1,426
|
|
|
2024
|
1,187
|
|
|
2025
|
994
|
|
|
2026
|
758
|
|
|
|
|
|
|
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 30 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.
In April 2021, Verizon executed agreements that modified the tenure and payment terms for certain existing cell tower operating leases to support the build out of our fifth generation wireless network.
The components of net lease cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
|
September 30,
|
September 30,
|
|
(dollars in millions)
|
Classification
|
2021
|
|
2020
|
2021
|
|
2020
|
|
Operating lease cost (1)
|
Cost of services
Selling, general and administrative expense
|
$
|
1,332
|
|
|
$
|
1,279
|
|
$
|
3,917
|
|
|
$
|
3,766
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
Depreciation and amortization expense
|
65
|
|
|
9
|
|
198
|
|
|
300
|
|
|
Interest on lease liabilities
|
Interest expense
|
9
|
|
|
9
|
|
26
|
|
|
29
|
|
|
Short-term lease cost (1)
|
Cost of services
Selling, general and administrative expense
|
7
|
|
|
5
|
|
16
|
|
|
17
|
|
|
Variable lease cost (1)
|
Cost of services
Selling, general and administrative expense
|
75
|
|
|
74
|
|
234
|
|
|
226
|
|
|
Sublease income
|
Service revenues and other
|
(47)
|
|
|
(72)
|
|
(144)
|
|
|
(216)
|
|
|
Total net lease cost
|
|
$
|
1,441
|
|
|
$
|
1,304
|
|
$
|
4,247
|
|
|
$
|
4,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 or equipment that the rent is being paid on. Refer to the consolidated financial statements included in Verizon's Annual Report on Form 10-K for the year ended December 31, 2020 for additional information. Variable lease costs represent payments that are dependent on a rate or index, or on usage of the asset.
The Company's maturity analysis of operating and finance lease liabilities as of September 30, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Years
|
Operating Leases
|
|
Finance Leases
|
|
Remainder of 2021
|
$
|
1,085
|
|
|
$
|
107
|
|
|
2022
|
4,233
|
|
|
399
|
|
|
2023
|
4,017
|
|
|
337
|
|
|
2024
|
3,760
|
|
|
268
|
|
|
2025
|
3,380
|
|
|
149
|
|
|
Thereafter
|
14,661
|
|
|
111
|
|
|
Total lease payments
|
31,136
|
|
|
1,371
|
|
|
Less interest
|
4,023
|
|
|
70
|
|
|
Present value of lease liabilities
|
27,113
|
|
|
1,301
|
|
|
Less current obligation
|
3,606
|
|
|
393
|
|
|
Long-term obligation at September 30, 2021
|
$
|
23,507
|
|
|
$
|
908
|
|
Significant Debt Transactions
Debt or equity financing may be needed to fund additional investments or development activities or to maintain an appropriate capital structure to ensure our financial flexibility.
The following tables show the significant transactions involving the senior unsecured debt securities of Verizon and its subsidiaries that occurred during the nine months ended September 30, 2021.
Exchange Offers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Principal Amount Exchanged
|
|
Principal Amount Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verizon 0.750% - 4.150% notes and floating rate notes, due 2024 - 2026
|
$
|
4,480
|
|
|
$
|
—
|
|
|
Verizon 2.355% notes due 2032 (1)
|
—
|
|
|
4,664
|
|
|
Three and Nine Months Ended September 30, 2021 total (2)
|
$
|
4,480
|
|
|
$
|
4,664
|
|
(1) The principal amount issued in exchange does not include either an insignificant amount of cash paid in lieu of the issuance of fractional new notes or accrued and unpaid interest paid on the old notes accepted for exchange to the date of exchange.
(2) The debt exchange offers above meet the criteria to be accounted for as a modification of debt. As a result, the excess of the principal amount of new notes issued over the principal amount of notes exchanged of $184 million was recorded as a discount to Long-term debt in the condensed consolidated balance sheets.
Repayments, Redemptions and Repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Principal Repaid/ Redeemed/ Repurchased
|
|
Amount Paid (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
|
|
|
Verizon 2.946% notes due 2022
|
$
|
713
|
|
|
$
|
730
|
|
|
Verizon 2.450% notes due 2022
|
794
|
|
|
819
|
|
|
Verizon 5.150% notes due 2023
|
3,190
|
|
|
3,519
|
|
|
Open market repurchases of various Verizon and subsidiary notes
|
1,994
|
|
|
2,440
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021 total
|
6,691
|
|
|
7,508
|
|
|
Nine Months Ended September 30, 2021 total
|
$
|
6,691
|
|
|
$
|
7,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents amount paid to repay, redeem, or repurchase, excluding interest or dividend.
During October 2021, we notified investors of our intention to redeem in November 2021 all of the approximately $478 million outstanding aggregate principal amount of 4.150% notes due 2024.
Issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in millions)
|
Principal Amount Issued
|
|
Net Proceeds (1)
|
|
Three Months Ended March 31, 2021
|
|
|
|
|
Verizon 0.750% notes due 2024
|
$
|
1,750
|
|
|
$
|
1,746
|
|
|
Verizon floating rate (Compounded SOFR(2) + 0.500%) notes due 2024
|
750
|
|
|
748
|
|
|
Verizon 1.450% notes due 2026
|
2,750
|
|
|
2,737
|
|
|
Verizon floating rate (Compounded SOFR(2) + 0.790%) notes due 2026
|
750
|
|
|
748
|
|
|
Verizon 2.100% notes due 2028
|
3,000
|
|
|
2,988
|
|
|
Verizon 2.550% notes due 2031
|
4,250
|
|
|
4,216
|
|
|
Verizon 3.400% notes due 2041
|
3,750
|
|
|
3,726
|
|
|
Verizon 3.550% notes due 2051
|
4,500
|
|
|
4,426
|
|
|
Verizon 3.700% notes due 2061
|
3,500
|
|
|
3,439
|
|
|
Verizon 0.375% notes due 2029 (3)
|
€
|
1,000
|
|
|
1,186
|
|
|
Verizon 0.750% notes due 2032 (3)
|
€
|
1,000
|
|
|
1,181
|
|
|
Verizon 1.125% notes due 2035 (3)
|
€
|
750
|
|
|
878
|
|
|
Verizon 2.375% notes due 2028 (3)
|
C$
|
1,000
|
|
|
800
|
|
|
Verizon 4.050% notes due 2051 (3)
|
C$
|
500
|
|
|
399
|
|
|
Verizon 2.350% notes due 2028 (3)
|
A$
|
600
|
|
|
463
|
|
|
Verizon 3.000% notes due 2031 (3)
|
A$
|
500
|
|
|
385
|
|
|
Verizon 3.850% notes due 2041 (3)
|
A$
|
150
|
|
|
116
|
|
|
Verizon 0.193% bonds due 2028 (3)
|
CHF
|
375
|
|
|
403
|
|
|
Verizon 0.555% bonds due 2031 (3)
|
CHF
|
325
|
|
|
349
|
|
|
Three Months Ended March 31, 2021 total
|
|
|
$
|
30,934
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
|
|
|
Verizon 2.850% notes due 2041 (4)
|
$
|
1,000
|
|
|
$
|
991
|
|
|
Three Months Ended September 30, 2021 total
|
$
|
1,000
|
|
|
$
|
991
|
|
|
Nine Months Ended September 30, 2021 total
|
|
|
$
|
31,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Net proceeds were net of underwriting discounts and other issuance costs. In addition, for securities denominated in a currency other than the U.S. dollar, net proceeds are shown on a U.S. dollar equivalent basis.
(2) Compounded Secured Overnight Financing Rate (SOFR) is calculated using the SOFR Index published by the Federal Reserve Bank of New York in accordance with the terms of the notes. The Compounded SOFR for the interest period ending in September 2021 was 0.050%.
(3) See Note 8 for information on derivative transactions related to the issuances.
(4) An amount equal to the net proceeds from this green bond is expected to be used to fund, in whole or in part, certain renewable energy projects, including new and existing investments made by us during the period from December 1, 2020 through the maturity date of the green bond.
Asset-Backed Debt
As of September 30, 2021, the carrying value of our asset-backed debt was $9.4 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), a wholly-owned subsidiary of Verizon, 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 and residual interests, as applicable, 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 our 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, 2021, we completed the following ABS Notes transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Interest Rates %
|
|
Expected Weighted-average Life to Maturity (in years)
|
Principal Amount Issued
|
|
May 2021
|
|
|
|
|
|
A Senior class notes
|
0.500
|
|
2.99
|
$
|
1,500
|
|
|
B Junior class notes
|
0.690
|
|
2.99
|
119
|
|
|
C Junior class notes
|
0.890
|
|
2.99
|
81
|
|
|
Total
|
|
|
|
$
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the terms of each series of ABS Notes, there is a revolving period that is two years or up to three years, as applicable, during which we may transfer additional receivables to the ABS Entity. During the three and nine months ended September 30, 2021, we made aggregate principal repayments of $894 million and $2.4 billion, respectively, on ABS Notes that have entered the amortization period, including principal payments made in connection with clean-up redemptions.
ABS Financing Facility
In March 2021, we borrowed an additional $1.0 billion under the loan agreement outstanding in connection with the ABS Financing Facility. In May 2021, the aggregate outstanding balance of $1.5 billion was fully repaid and there was no outstanding balance under the ABS Financing Facility as of September 30, 2021.
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)
|
2021
|
|
2020
|
|
Assets
|
|
|
|
|
Account receivable, net
|
$
|
8,845
|
|
|
$
|
9,257
|
|
|
Prepaid expenses and other
|
1,073
|
|
|
1,128
|
|
|
Other assets
|
3,309
|
|
|
2,950
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
7
|
|
|
8
|
|
|
Debt maturing within one year
|
4,429
|
|
|
4,191
|
|
|
Long-term debt
|
4,996
|
|
|
6,413
|
|
See Note 7 for additional information on device payment plan agreement receivables used to secure asset-backed debt.
Long-Term Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2021
|
|
(dollars in millions)
|
Maturities
|
|
Facility Capacity
|
|
Unused Capacity
|
|
Principal Amount Outstanding
|
|
Verizon revolving credit facility (1)
|
2024
|
|
$
|
9,500
|
|
|
$
|
9,413
|
|
|
N/A
|
|
Various export credit facilities (2)
|
2022 - 2029
|
|
7,500
|
|
|
530
|
|
|
$
|
4,823
|
|
|
Total
|
|
|
$
|
17,000
|
|
|
$
|
9,943
|
|
|
$
|
4,823
|
|
N/A - not applicable
(1) The revolving 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. The revolving credit facility provides for the issuance of letters of credit.
(2) During the nine months ended September 30, 2021, we drew down $470 million from these facilities. These credit facilities are used to finance equipment-related purchases. Borrowings under certain of these facilities amortize semi-annually in equal installments up to the applicable maturity dates. Maturities reflect maturity dates of principal amounts outstanding. Any amounts borrowed under these facilities and subsequently repaid cannot be reborrowed.
In September 2021, we submitted an irrevocable request to borrow the remaining $530 million available under our export credit facilities in November 2021.
Non-Cash Transactions
During the nine months ended September 30, 2021 and 2020, we financed, primarily through alternative financing arrangements, the purchase of approximately $337 million and $1.3 billion, respectively, of long-lived assets consisting primarily of network equipment. As of September 30, 2021 and December 31, 2020, $1.3 billion and $1.6 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.
Debt Extinguishment Losses
During both the three months ended September 30, 2021 and September 30, 2020, we did not record debt extinguishment losses. During the nine months ended September 30, 2021 and 2020, we recorded debt extinguishment losses of $1.1 billion and $102 million, respectively. The losses are recorded 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, 2021, $765 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, 2021, $391 million aggregate principal amount of these obligations remained outstanding.
Covenants
We and our consolidated subsidiaries are in compliance with all of our restrictive covenants in our debt agreements.
|
|
|
|
|
Note 7. Device Payment Plan Agreement and Wireless Service Receivables
|
The following table presents information about accounts receivable, net of allowances, recorded in our condensed consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2021
|
|
(dollars in millions)
|
Device payment plan agreement
|
|
Wireless
service
|
|
Other receivables(1)
|
|
Total
|
|
Accounts receivable
|
$
|
12,370
|
|
|
$
|
5,055
|
|
|
$
|
5,740
|
|
|
$
|
23,165
|
|
|
Less Allowance for credit losses
|
573
|
|
|
140
|
|
|
257
|
|
|
970
|
|
|
Accounts receivable, net of allowance
|
$
|
11,797
|
|
|
$
|
4,915
|
|
|
$
|
5,483
|
|
|
$
|
22,195
|
|
(1) Other receivables primarily include wireline receivables and other receivables, the allowances for which are individually insignificant.
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. We no longer offer Consumer customers new fixed-term, subsidized service plans for devices; 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.
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)
|
2021
|
|
2020
|
|
Device payment plan agreement receivables, gross
|
$
|
18,991
|
|
|
$
|
17,959
|
|
|
Unamortized imputed interest
|
(365)
|
|
|
(453)
|
|
|
Device payment plan agreement receivables, at amortized cost
|
18,626
|
|
|
17,506
|
|
|
Allowance (1)
|
(838)
|
|
|
(940)
|
|
|
Device payment plan agreement receivables, net
|
$
|
17,788
|
|
|
$
|
16,566
|
|
|
|
|
|
|
|
Classified in our condensed consolidated balance sheets:
|
|
|
|
|
Accounts receivable, net
|
$
|
11,797
|
|
|
$
|
11,601
|
|
|
Other assets
|
5,991
|
|
|
4,965
|
|
|
Device payment plan agreement receivables, net
|
$
|
17,788
|
|
|
$
|
16,566
|
|
(1) Includes allowance for both short-term and long-term device payment plan agreement receivables.
Included in our device payment plan agreement receivables at both September 30, 2021 and December 31, 2020, are net device payment plan agreement receivables of $12.1 billion, 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 these receivables approximate their fair value using a Level 3 expected cash flow model.
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.
Promotions
In connection with certain device payment plan agreements, we may offer a promotion to 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. We recognize a liability measured at fair value for the customer’s right to trade in the device which is determined by considering several factors, including the weighted-average selling prices obtained in recent resales of similar devices eligible for trade-in. At September 30, 2021 and December 31, 2020, the amount of the guarantee liability was $66 million and insignificant, respectively.
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. At September 30, 2021 and December 31, 2020, the amount of trade-in liability was $192 million and $70 million, respectively.
In addition, we may provide the customer with additional future billing credits that will be applied against the customer’s monthly bill as long as service is maintained. These future billing credits are accounted for as consideration payable to a customer and are included in the determination of total transaction price, resulting in a contract liability.
Device payment plan agreement receivables, net, does not reflect the trade-in liability, additional future credits or the guarantee liability.
Origination of Device Payment Plan Agreements
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. Verizon’s experience has been that the payment attributes of longer tenured customers are highly predictive for estimating their reliability to make future payments. Customers with longer tenures tend to exhibit similar risk characteristics to other customers with longer tenures, and receivables due from customers with longer tenures tend to perform better than receivables from customers that have not previously been Verizon customers. As a result of this experience, we make initial lending decisions based upon whether the customers are "established customers" or "short-tenured customers." If a Consumer customer has been a customer for 45 days or more, or if a Business customer has been a customer for 12 months or more, the customer is considered an "established customer." For established customers, the credit decision and ongoing credit monitoring processes rely on a combination of internal and external data sources. If a Consumer customer has been a customer less than 45 days, or a Business customer has been a customer for less than 12 months, the customer is considered a "short-tenured customer." For short-tenured customers, the credit decision and credit monitoring processes rely more heavily on external data sources.
Internal data and/or external credit data are obtained from the credit reporting agencies, if available, to create a custom credit risk score for Consumer customers. The custom credit risk score is generated automatically from the applicant’s credit data using proprietary custom credit models. 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 short-tenured 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. For Business customers, we also verify the existence of the business with external data sources.
Based on the custom credit risk score, we assign each customer a credit class, each of which has specified offers of credit. This includes an account level spending limit and a maximum amount of credit allowed per device for Consumer customers or a required down payment percentage for Business customers.
Credit Quality Information
Subsequent to origination, we assess indicators for the quality of our wireless device payment plan agreement portfolio using two models, one for new customers and one for existing customers. The model for new customers pools all Consumer and Business wireless customers based on 210 days or less as "new customers." The model for existing customers pools all Consumer and Business wireless customers based on 210 days or more as "existing customers."
The following table presents device payment plan agreement receivables, at amortized cost, as of September 30, 2021, by credit quality indicator and year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Origination
|
|
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
Prior to 2020(1)
|
|
|
|
Total
|
|
New customers
|
$
|
1,846
|
|
|
$
|
869
|
|
|
$
|
75
|
|
|
|
|
$
|
2,790
|
|
|
Existing customers
|
9,980
|
|
|
5,388
|
|
|
468
|
|
|
|
|
15,836
|
|
|
Total
|
$
|
11,826
|
|
|
$
|
6,257
|
|
|
$
|
543
|
|
|
|
|
$
|
18,626
|
|
(1) Includes accounts that have been suspended at a point in time.
The data presented in the table above was last updated on September 30, 2021.
We assess indicators for the quality of our wireless service receivables portfolio as one overall pool. As of September 30, 2021, wireless service receivables, at amortized cost, originating in 2021 and 2020 were $5.0 billion and an insignificant amount, respectively.
Allowance for Credit Losses
The credit quality indicators are used in determining the estimated amount and the timing of expected credit losses for the device payment plan agreement and wireless service receivables portfolios.
For device payment plan agreement receivables, we record bad debt expense based on a default and loss calculation using our proprietary loss model. The expected loss rate is determined based on customer credit scores and other qualitative factors as noted above. The loss rate is assigned individually on a customer by customer basis and the custom credit scores are then aggregated by vintage and used in our proprietary loss model to calculate the weighted-average loss rate used for determining the allowance balance.
We monitor the collectability of our wireless service receivables as one overall pool. Wireline service receivables are disaggregated and pooled by the following customer groups: consumer, small and medium business, global enterprise, public sector and wholesale. For wireless service receivables and wireline consumer and small and medium business receivables, the allowance is calculated based on a 12 month rolling average write-off balance multiplied by the average life-cycle of an account from billing to write-off. The risk of loss is assessed over the contractual life of the receivables and is adjusted based on the historical loss amounts for current and future conditions based on management’s qualitative considerations. For global enterprise, public sector and wholesale wireline receivables, the allowance for credit losses is based on historical write-off experience and individual customer credit risk, if applicable.
Activity in the allowance for credit losses by portfolio segment of receivables were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Device Payment
Plan Agreement Receivables(1)
|
|
Wireless Service Plan Receivables
|
|
Balance at January 1, 2021
|
$
|
940
|
|
|
$
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period provision for expected credit losses
|
349
|
|
|
126
|
|
|
Write-offs charged against the allowance
|
(482)
|
|
|
(296)
|
|
|
Recoveries collected
|
31
|
|
|
48
|
|
|
Balance at September 30, 2021
|
$
|
838
|
|
|
$
|
140
|
|
(1) Includes allowance for both short-term and long-term device payment plan agreement receivables.
We monitor delinquency and write-off experience based on the quality of our device payment plan agreement and wireless service receivables portfolios. The extent of our collection efforts with respect to a particular customer are based on the results of our proprietary custom internal scoring models that analyze the customer’s past performance to predict the likelihood of the customer falling further delinquent. These custom scoring models assess a number of variables, including origination characteristics, customer account history and payment patterns. Since our customers’ behaviors may be impacted by general economic conditions, we analyzed whether changes in macroeconomic conditions impact our credit loss experience and have concluded that our credit loss estimates are generally not materially impacted by reasonable and supportable forecasts of future economic conditions. 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. For device payment plan agreement receivables and wireless service receivables, we consider 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 risk class determines the speed and severity of the collections effort including initiatives taken to facilitate customer payment.
The balance and aging of the device payment plan agreement receivables, at amortized cost, were as follows:
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
|
(dollars in millions)
|
2021
|
|
|
|
Unbilled
|
$
|
17,473
|
|
|
|
|
Billed:
|
|
|
|
|
Current
|
973
|
|
|
|
|
Past due
|
180
|
|
|
|
|
Device payment plan agreement receivables, at amortized cost
|
$
|
18,626
|
|
|
|
|
|
|
|
|
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, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Level 1(1)
|
|
Level 2(2)
|
|
Level 3(3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
217
|
|
|
$
|
—
|
|
|
$
|
217
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
—
|
|
|
448
|
|
|
—
|
|
|
448
|
|
|
Interest rate swaps
|
—
|
|
|
283
|
|
|
—
|
|
|
283
|
|
|
Cross currency swaps
|
—
|
|
|
620
|
|
|
—
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
1,578
|
|
|
$
|
—
|
|
|
$
|
1,578
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
Foreign exchange forwards
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
|
Cross currency swaps
|
—
|
|
|
197
|
|
|
—
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
Forward starting interest rate swaps
|
—
|
|
|
281
|
|
|
—
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
612
|
|
|
—
|
|
|
612
|
|
|
Cross currency swaps
|
—
|
|
|
1,165
|
|
|
—
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
2,271
|
|
|
$
|
—
|
|
|
$
|
2,271
|
|
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Level 1(1)
|
|
Level 2(2)
|
|
Level 3(3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
—
|
|
|
459
|
|
|
—
|
|
|
459
|
|
|
Interest rate swaps
|
—
|
|
|
787
|
|
|
—
|
|
|
787
|
|
|
Cross currency swaps
|
—
|
|
|
1,446
|
|
|
—
|
|
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
2,704
|
|
|
$
|
—
|
|
|
$
|
2,704
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward starting interest rate swaps
|
$
|
—
|
|
|
$
|
409
|
|
|
$
|
—
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
303
|
|
|
—
|
|
|
303
|
|
|
Cross currency swaps
|
—
|
|
|
196
|
|
|
—
|
|
|
196
|
|
|
Forward starting interest rate swaps
|
—
|
|
|
388
|
|
|
—
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
1,298
|
|
|
$
|
—
|
|
|
$
|
1,298
|
|
(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, 2021 and December 31, 2020, the carrying amount of our investments without readily determinable fair values were $843 million and $402 million, respectively. During both the three and nine months ended September 30, 2021, there were insignificant adjustments due to observable price changes and there were insignificant impairment charges. Cumulative adjustments due to observable price changes and impairment charges were $115 million and $50 million, respectively.
Fixed income securities consist primarily of investments in municipal bonds. The valuation of the fixed income securities are based on the quoted prices for similar assets in active markets or identical assets in inactive markets or models that apply inputs from observable market data. The valuation determines that these securities are 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.
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 debt instruments, which is a Level 1 measurement, as well as quoted prices for similar debt instruments with comparable terms and maturities, which is a Level 2 measurement.
The fair value of our short-term and long-term debt, excluding finance leases, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
(dollars in millions)
|
Carrying
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
At December 31, 2020
|
$
|
127,778
|
|
|
$
|
103,967
|
|
|
$
|
52,785
|
|
|
$
|
—
|
|
|
$
|
156,752
|
|
|
At September 30, 2021
|
149,674
|
|
|
113,042
|
|
|
59,177
|
|
|
—
|
|
|
172,219
|
|
Derivative Instruments
We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates and interest rates. We employ risk management strategies, which may include the use of a variety of derivatives including interest rate swaps, cross currency swaps, forward starting interest rate swaps, treasury rate locks, interest rate caps, swaptions and foreign exchange forwards. We do not hold derivatives for trading purposes.
The following table sets forth the notional amounts of our outstanding derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
At December 31,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
Interest rate swaps
|
$
|
17,756
|
|
|
$
|
17,768
|
|
|
Cross currency swaps
|
32,502
|
|
|
26,288
|
|
|
Forward starting interest rate swaps
|
1,000
|
|
|
2,000
|
|
|
|
|
|
|
|
Foreign exchange forwards
|
870
|
|
|
1,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 three months ended September 30, 2021, we did not enter into any interest rate swaps and we settled interest rate swaps with a total notional value of $851 million. During the nine months ended September 30, 2021, we entered into and settled interest rate swaps with a total notional value of $2.6 billion and $3.5 billion, respectively. During the three months ended September 30, 2020, we entered into interest rate swaps with a total notional value of $1.1 billion and we did not settle any interest rate swaps. During the nine months ended September 30, 2020, we entered into and settled interest rate swaps with a total notional value of $3.5 billion and $2.4 billion, respectively.
The ineffective portion of these interest rate swaps were zero and an insignificant amount of gains for the three and nine months ended September 30, 2021, respectively. The ineffective portion of these interest rate swaps were insignificant losses and gains for the three and nine months ended September 30, 2020, respectively.
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)
|
2021
|
|
2020
|
|
Carrying amount of hedged liabilities
|
$
|
17,223
|
|
|
$
|
18,849
|
|
|
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities
|
(29)
|
|
|
557
|
|
|
Cumulative amount of fair value hedging adjustment remaining for which hedge accounting has been discontinued
|
603
|
|
|
627
|
|
Cross Currency Swaps
We have entered into cross currency swaps designated as cash flow hedges to exchange our British Pound Sterling, Euro, Swiss Franc, Canadian Dollar 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 months ended September 30, 2021, we did not enter into or settle any cross currency swaps. During the nine months ended September 30, 2021, we entered into cross currency swaps with a total notional value of $6.2 billion and we did not settle any cross currency swaps. During the three and nine months ended September 30, 2021, a pre-tax loss of $1.1 billion and $2.0 billion, respectively, was recognized in Other comprehensive income (loss). During the three months ended September 30, 2020, we did not enter into or settle any cross currency swaps. During the nine months ended September 30, 2020, we entered into cross currency swaps with a total notional value of $3.3 billion and we settled cross currency swaps with a total notional value of $1.6 billion. During the three and nine months ended September 30, 2020, a pre-tax gain of $1.5 billion and a pre-tax loss of $420 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. See Note 10 for additional information.
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. We hedge our exposure to the variability in future cash flows based on the expected maturities of the related forecasted debt issuance.
During both the three and nine months ended September 30, 2021, we did not enter into any new forward starting interest rate swaps. During the three months ended September 30, 2021, we did not settle any forward starting interest rate swaps. During the nine months ended September 30, 2021, we settled forward starting interest rate swaps with a total notional value of $1.0 billion. During both the three and nine months ended September 30, 2020, we did not enter into any new forward starting interest rate swaps. During the three months ended September 30, 2020, we did not settle any forward starting interest rate swaps. During the nine months ended September 30, 2020, we settled forward starting interest rate swaps with a total notional value of $1.0 billion. During the nine months ended September 30, 2021 and 2020,
we paid $237 million and $293 million, respectively, for the settlement of forward starting interest rate swaps, which was recorded in Other, net within Cash Flow from Operating Activities. During the three and nine months ended September 30, 2021, an insignificant pre-tax gain and pre-tax gain of $279 million, respectively, were recognized in Other comprehensive income (loss), resulting from interest rate movements. During the three and nine months ended September 30, 2020, a pre-tax gain of $141 million and a pre-tax loss of $668 million, respectively, were recognized in Other comprehensive income (loss), resulting from interest rate movements.
Treasury Rate Locks
We enter into treasury rate locks to mitigate our future interest rate risk. During both the three months ended September 30, 2021 and 2020, we did not enter into or settle any treasury rate locks designated as cash flow hedges, and we did not recognize any amount in Other comprehensive income (loss). During the nine months ended September 30, 2021, we entered into and settled treasury rate locks designated as cash flow hedges with a total notional value of $4.7 billion, and we recognized $251 million in Other comprehensive income (loss). During the nine months ended September 30, 2021, we received $251 million from the settlement of treasury rate locks designated as cash flow hedges, which was recorded in Other, net within Cash Flow from Operating Activities. During the nine months ended September 30, 2020, we entered into and settled treasury rate locks designated as cash flow hedges with a total notional value of $500 million, and we recognized an insignificant pre-tax loss in Other comprehensive income (loss).
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. In March 2021, we de-designated the existing net investment hedge and designated a new net investment hedge using a different Euro-denominated note. The notional amount of Euro-denominated debt designated as a net investment hedge was €750 million as of both September 30, 2021 and December 31, 2020.
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.
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, as well as foreign exchange risk related to debt settlements. During the three months ended September 30, 2021, we entered into and settled foreign exchange forwards with a total notional value of $2.7 billion and $3.4 billion, respectively. During the nine months ended September 30, 2021, we entered into and settled foreign exchange forwards with a total notional value of $10.0 billion and $10.5 billion, respectively. During the three months ended September 30, 2020, we entered into and settled foreign exchange forwards with a total notional value of $3.4 billion and $3.1 billion, respectively. During the nine months ended September 30, 2020, we entered into and settled foreign exchange forwards with a total notional value of $10.3 billion and $10.2 billion, respectively. During the three and nine months ended September 30, 2021, pre-tax losses of an insignificant amount and $51 million, respectively, were recognized in Other income (expense), net. During the three and nine months ended September 30, 2020, pre-tax gains of an insignificant amount and $89 million, respectively, were recognized in Other income (expense), net.
Treasury Rate Locks
We enter into treasury rate locks to mitigate our future interest rate risk. During both the three and nine months ended September 30, 2021, we did not enter into or settle any treasury rate locks that were not designated in hedging relationships, and we did not recognize any amount in our condensed consolidated financial statements. During the three months ended September 30, 2020, we did not enter into or settle any treasury rate locks, and we did not recognize any amount in our condensed consolidated financial statements. During the nine months ended September 30, 2020, we entered into and settled treasury rate locks with a total notional value of $1.6 billion, and we recognized an insignificant pre-tax gain in Interest expense.
Swaptions
We enter into swaptions to achieve a targeted mix of fixed and variable rate debt. During both the three and nine months ended September 30, 2021, we sold payer swaptions with a notional amount of $1.0 billion to enter into future pay-floating interest rate swaps indexed to SOFR that were not designated in hedging relationships. Losses for both the three and nine months ended September 30, 2021 were insignificant.
In October 2021, we sold payer swaptions with a notional amount of $1.0 billion to enter into future pay-floating interest rate swaps indexed to SOFR that were not designated in hedging relationships.
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. The 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. We do not offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value. At September 30, 2021, we held and posted an insignificant amount of collateral related to derivative contracts under collateral exchange agreements, which were recorded as Other current liabilities and Prepaid expenses and other, respectively, in our condensed consolidated balance sheet. At December 31, 2020, we held $0.2 billion of collateral related to derivative contracts under collateral exchange arrangements, which were recorded as Other current liabilities in our condensed consolidated balance sheet. 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,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service cost - Cost of services
|
$
|
59
|
|
|
$
|
61
|
|
|
$
|
24
|
|
|
$
|
22
|
|
|
Service cost - Selling, general and administrative expense
|
8
|
|
|
15
|
|
|
4
|
|
|
5
|
|
|
Service cost
|
$
|
67
|
|
|
$
|
76
|
|
|
$
|
28
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
(223)
|
|
|
$
|
(242)
|
|
|
Expected return on plan assets
|
(309)
|
|
|
(295)
|
|
|
(6)
|
|
|
(7)
|
|
|
Interest cost
|
102
|
|
|
124
|
|
|
72
|
|
|
108
|
|
|
Remeasurement loss, net
|
144
|
|
|
1,092
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other components
|
$
|
(47)
|
|
|
$
|
937
|
|
|
$
|
(157)
|
|
|
$
|
(141)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
20
|
|
|
$
|
1,013
|
|
|
$
|
(129)
|
|
|
$
|
(114)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Pension
|
|
Health Care and Life
|
|
Nine months ended September 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service cost - Cost of services
|
$
|
186
|
|
|
$
|
179
|
|
|
$
|
71
|
|
|
$
|
67
|
|
|
Service cost - Selling, general and administrative expense
|
26
|
|
|
43
|
|
|
14
|
|
|
15
|
|
|
Service cost
|
$
|
212
|
|
|
$
|
222
|
|
|
$
|
85
|
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
$
|
46
|
|
|
$
|
46
|
|
|
$
|
(670)
|
|
|
$
|
(725)
|
|
|
Expected return on plan assets
|
(927)
|
|
|
(888)
|
|
|
(17)
|
|
|
(20)
|
|
|
Interest cost
|
296
|
|
|
401
|
|
|
217
|
|
|
322
|
|
|
Remeasurement loss (gain), net
|
(1,170)
|
|
|
1,427
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other components
|
$
|
(1,755)
|
|
|
$
|
986
|
|
|
$
|
(470)
|
|
|
$
|
(423)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(1,543)
|
|
|
$
|
1,208
|
|
|
$
|
(385)
|
|
|
$
|
(341)
|
|
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 remeasurement adjustments, if any, are recorded in Other income (expense), net.
Severance Payments
During the three and nine months ended September 30, 2021, we paid severance benefits of an insignificant amount and $169 million, respectively. During the three and nine months ended September 30, 2021, we recorded pre-tax severance charges of $109 million and $124 million, respectively, both primarily due to a $103 million charge related to voluntary separations under our existing plans. At
September 30, 2021, we had a remaining severance liability of $529 million, a portion of which includes future contractual payments to separated employees.
Employer Contributions
During both the three and nine months ended September 30, 2021 and September 30, 2020, we made no contributions to our qualified pension plans and made insignificant contributions to our nonqualified pension plans. We do not expect mandatory pension funding through December 31, 2021. There have been no significant changes with respect to the nonqualified pension and other postretirement benefit plans contributions in 2021.
Remeasurement loss (gain), net
During the three and nine months ended September 30, 2021, we recorded a net pre-tax remeasurement loss of $144 million and a net pre-tax remeasurement gain of $1.2 billion, respectively in our pension plans triggered by settlements.
During the three months ended September 30, 2021, we recorded a pre-tax remeasurement loss of $144 million in our pension plans driven by a $667 million charge due to changes in our discount rate and other assumption changes, offset by a $523 million credit resulting from the difference between our estimated and our actual return on assets.
During the three months ended June 30, 2021, we recorded a pre-tax remeasurement gain of $1.3 billion in our pension plans triggered by settlements, primarily driven by a $1.2 billion credit mainly due to changes in our discount rate and changes in our lump sum interest rate assumptions used to determine the current year liabilities of our pension plans and a $122 million credit resulting from the difference between our estimated and our actual return on assets.
During the three and nine months ended September 30, 2020, we recorded net pre-tax remeasurement losses of $1.1 billion and $1.4 billion, respectively, in our pension plans triggered by settlements.
During the three months ended September 30, 2020, we recorded a net pre-tax remeasurement loss of $1.1 billion primarily driven by a $1.8 billion 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 $689 million credit resulting from the difference between our estimated and our actual return on assets.
During the three months ended June 30, 2020, we recorded a net pre-tax remeasurement loss of $153 million primarily driven by a $163 million charge mainly resulting from the difference between our estimated and our actual return on assets and changes in our lump sum interest rate assumptions used to determine the current year liabilities of our pension plans, offset by a credit due to changes in our discount rate.
During the three months ended March 31, 2020, we recorded a net pre-tax remeasurement loss of $182 million primarily driven by a $196 million charge mainly 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 credit resulting from the difference between our estimated and our actual return on assets.
|
|
|
|
|
Note 10. Equity and Accumulated Other Comprehensive Income (Loss)
|
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,
|
2021
|
|
|
|
2020
|
|
|
|
|
|
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
|
|
|
13,403
|
|
|
|
|
13,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1)
|
|
|
|
|
123
|
|
|
|
Balance at end of period
|
|
|
13,402
|
|
|
|
|
13,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
66,310
|
|
|
|
|
56,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Verizon
|
|
|
6,407
|
|
|
|
|
4,357
|
|
|
|
Dividends declared ($0.6400, $0.6275 per share)
|
|
|
(2,651)
|
|
|
|
|
(2,597)
|
|
|
|
Other
|
|
|
(4)
|
|
|
|
|
(33)
|
|
|
|
Balance at end of period
|
|
|
70,062
|
|
|
|
|
58,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period attributable to Verizon
|
|
|
(234)
|
|
|
|
|
(1,274)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(146)
|
|
|
|
|
124
|
|
|
|
Unrealized gain (loss) on cash flow hedges
|
|
|
(174)
|
|
|
|
|
505
|
|
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
|
2
|
|
|
|
Defined benefit pension and postretirement plans
|
|
|
(155)
|
|
|
|
|
(169)
|
|
|
|
Other comprehensive income (loss)
|
|
|
(475)
|
|
|
|
|
462
|
|
|
|
Balance at end of period attributable to Verizon
|
|
|
(709)
|
|
|
|
|
(812)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
(151,318)
|
|
|
(6,632)
|
|
|
(153,380)
|
|
|
(6,722)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee plans
|
48
|
|
|
2
|
|
|
41
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
(151,270)
|
|
|
(6,630)
|
|
|
(153,339)
|
|
|
(6,721)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Compensation-ESOPs and Other
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
408
|
|
|
|
|
237
|
|
|
|
Restricted stock equity grant
|
|
|
85
|
|
|
|
|
62
|
|
|
|
Amortization
|
|
|
(3)
|
|
|
|
|
(3)
|
|
|
|
Balance at end of period
|
|
|
490
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
1,428
|
|
|
|
|
1,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
147
|
|
|
|
|
147
|
|
|
|
Distributions and other
|
|
|
(130)
|
|
|
|
|
(102)
|
|
|
|
Balance at end of period
|
|
|
1,445
|
|
|
|
|
1,461
|
|
|
|
Total Equity
|
|
|
$
|
78,489
|
|
|
|
|
$
|
66,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts, and shares in thousands)
|
|
Nine months ended September 30,
|
2021
|
|
|
|
2020
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
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 year
|
|
|
13,404
|
|
|
|
|
13,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(2)
|
|
|
|
|
(15)
|
|
|
|
Balance at end of period
|
|
|
13,402
|
|
|
|
|
13,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
60,464
|
|
|
|
|
53,147
|
|
|
|
Opening balance sheet adjustment
|
|
|
—
|
|
|
|
|
(200)
|
|
(1)
|
|
Adjusted opening balance
|
|
|
60,464
|
|
|
|
|
52,947
|
|
|
|
Net income attributable to Verizon
|
|
|
17,452
|
|
|
|
|
13,213
|
|
|
|
Dividends declared ($1.8950, $1.8575 per share)
|
|
|
(7,850)
|
|
|
|
|
(7,687)
|
|
|
|
Other
|
|
|
(4)
|
|
|
|
|
—
|
|
|
|
Balance at end of period
|
|
|
70,062
|
|
|
|
|
58,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year attributable to Verizon
|
|
|
(71)
|
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(126)
|
|
|
|
|
81
|
|
|
|
Unrealized loss on cash flow hedges
|
|
|
(42)
|
|
|
|
|
(1,391)
|
|
|
|
Unrealized gain (loss) on marketable securities
|
|
|
(5)
|
|
|
|
|
7
|
|
|
|
Defined benefit pension and postretirement plans
|
|
|
(465)
|
|
|
|
|
(507)
|
|
|
|
Other comprehensive loss
|
|
|
(638)
|
|
|
|
|
(1,810)
|
|
|
|
Balance at end of period attributable to Verizon
|
|
|
(709)
|
|
|
|
|
(812)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
(153,304)
|
|
|
(6,719)
|
|
|
(155,606)
|
|
|
(6,820)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee plans
|
2,031
|
|
|
89
|
|
|
2,263
|
|
|
99
|
|
|
|
Shareholder plans
|
3
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
(151,270)
|
|
|
(6,630)
|
|
|
(153,339)
|
|
|
(6,721)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Compensation-ESOPs and Other
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
335
|
|
|
|
|
222
|
|
|
|
Restricted stock equity grant
|
|
|
315
|
|
|
|
|
234
|
|
|
|
Amortization
|
|
|
(160)
|
|
|
|
|
(160)
|
|
|
|
Balance at end of period
|
|
|
490
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
1,430
|
|
|
|
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
429
|
|
|
|
|
417
|
|
|
|
Distributions and other
|
|
|
(414)
|
|
|
|
|
(396)
|
|
|
|
Balance at end of period
|
|
|
1,445
|
|
|
|
|
1,461
|
|
|
|
Total Equity
|
|
|
$
|
78,489
|
|
|
|
|
$
|
66,530
|
|
|
(1) Opening balance sheet adjustment for the nine months ended September 30, 2020 is due to the adoption of Topic 326, ASU 2016-13, Financial Instruments-Credit Losses and other ASUs on January 1, 2020. Refer to the consolidated financial statements included in Verizon's Annual Report on Form 10-K for the year ended December 31, 2020 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, 2021. At September 30, 2021, 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 2.0 million common shares issued from Treasury stock during the nine months ended September 30, 2021.
Accumulated Other Comprehensive Income (Loss)
The changes in the balances of Accumulated other comprehensive income (loss) by component were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Foreign
currency
translation
adjustments
|
|
Unrealized loss on cash flow hedges
|
|
Unrealized gain (loss) on marketable securities
|
|
Defined
benefit
pension and
postretirement
plans
|
|
Total
|
|
Balance at January 1, 2021
|
$
|
(404)
|
|
|
$
|
(1,387)
|
|
|
$
|
25
|
|
|
$
|
1,695
|
|
|
$
|
(71)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
(126)
|
|
|
(1,077)
|
|
|
(5)
|
|
|
—
|
|
|
(1,208)
|
|
|
Amounts reclassified to net income
|
—
|
|
|
1,035
|
|
|
—
|
|
|
(465)
|
|
|
570
|
|
|
Net other comprehensive loss
|
(126)
|
|
|
(42)
|
|
|
(5)
|
|
|
(465)
|
|
|
(638)
|
|
|
Balance at September 30, 2021
|
$
|
(530)
|
|
|
$
|
(1,429)
|
|
|
$
|
20
|
|
|
$
|
1,230
|
|
|
$
|
(709)
|
|
The amounts presented above in Net other comprehensive loss are net of taxes. The amounts reclassified to net income related to unrealized loss on cash flow hedges in the table above are included in Other income (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 Other income (expense), net in our condensed consolidated statements of income. See Note 9 for additional information.
|
|
|
|
|
Note 11. Segment Information
|
Reportable Segments
We have two reportable segments that we operate and manage as strategic business units - Consumer and Business. 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 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 through our Verizon Fios product portfolio 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, including data, video and conferencing 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: Small and Medium Business, Global Enterprise, Public Sector and Other, and Wholesale.
Corporate and other primarily includes insurance captives, investments in unconsolidated businesses and development stage businesses that support our strategic initiatives, as well as 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 including Verizon Media, 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 business 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.
We completed the sale of Verizon Media on September 1, 2021. Refer to Note 3 for additional information on the sale of Verizon Media.
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)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
External Operating Revenues
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Service
|
$
|
16,889
|
|
|
$
|
16,255
|
|
|
$
|
50,159
|
|
|
$
|
48,496
|
|
|
Wireless equipment
|
4,530
|
|
|
3,403
|
|
|
13,461
|
|
|
9,989
|
|
|
Other
|
1,852
|
|
|
2,014
|
|
|
5,807
|
|
|
5,946
|
|
|
Total Consumer
|
23,271
|
|
|
21,672
|
|
|
69,427
|
|
|
64,431
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
|
Small and Medium Business
|
2,929
|
|
|
2,737
|
|
|
8,644
|
|
|
8,132
|
|
|
Global Enterprise
|
2,551
|
|
|
2,594
|
|
|
7,690
|
|
|
7,811
|
|
|
|
|
|
|
|
|
|
|
|
Public Sector and Other
|
1,548
|
|
|
1,639
|
|
|
4,807
|
|
|
4,636
|
|
|
Wholesale
|
645
|
|
|
763
|
|
|
2,038
|
|
|
2,279
|
|
|
Total Business
|
7,673
|
|
|
7,733
|
|
|
23,179
|
|
|
22,858
|
|
|
Total reportable segments
|
$
|
30,944
|
|
|
$
|
29,405
|
|
|
$
|
92,606
|
|
|
$
|
87,289
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues
|
|
|
|
|
|
|
|
|
Consumer
|
$
|
57
|
|
|
$
|
64
|
|
|
$
|
176
|
|
|
$
|
183
|
|
|
Business
|
16
|
|
|
16
|
|
|
53
|
|
|
54
|
|
|
Total reportable segments
|
$
|
73
|
|
|
$
|
80
|
|
|
$
|
229
|
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
|
Consumer
|
$
|
23,328
|
|
|
$
|
21,736
|
|
|
$
|
69,603
|
|
|
$
|
64,614
|
|
|
Business(1)
|
7,689
|
|
|
7,749
|
|
|
23,232
|
|
|
22,912
|
|
|
Total reportable segments
|
$
|
31,017
|
|
|
$
|
29,485
|
|
|
$
|
92,835
|
|
|
$
|
87,526
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
Consumer
|
$
|
7,590
|
|
|
$
|
7,437
|
|
|
$
|
22,606
|
|
|
$
|
21,783
|
|
|
Business
|
886
|
|
|
923
|
|
|
2,641
|
|
|
2,823
|
|
|
Total reportable segments
|
$
|
8,476
|
|
|
$
|
8,360
|
|
|
$
|
25,247
|
|
|
$
|
24,606
|
|
(1) Service and other revenues included in our Business segment amounted to approximately $6.9 billion and $7.0 billion for the three months ended September 30, 2021 and 2020, respectively. Service and other revenues included in our Business segment amounted to approximately $20.9 billion for both the nine months ended September 30, 2021 and 2020. Wireless equipment revenues included in our Business segment amounted to approximately $820 million and $709 million for the three months ended September 30, 2021 and 2020, respectively. Wireless equipment revenues included in our Business segment amounted to approximately $2.4 billion and $2.0 billion for the nine months ended September 30, 2021 and 2020, 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)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Consumer
|
$
|
2,893
|
|
|
$
|
2,773
|
|
|
$
|
8,648
|
|
|
$
|
8,326
|
|
|
Business
|
287
|
|
|
263
|
|
|
844
|
|
|
785
|
|
|
Total Fios revenue
|
$
|
3,180
|
|
|
$
|
3,036
|
|
|
$
|
9,492
|
|
|
$
|
9,111
|
|
The following table provides Wireless service revenue for our reportable segments and includes intersegment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Consumer
|
$
|
13,982
|
|
|
$
|
13,442
|
|
|
$
|
41,460
|
|
|
$
|
40,005
|
|
|
Business
|
3,097
|
|
|
2,990
|
|
|
9,247
|
|
|
8,732
|
|
|
Total Wireless service revenue
|
$
|
17,079
|
|
|
$
|
16,432
|
|
|
$
|
50,707
|
|
|
$
|
48,737
|
|
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)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Total reportable segment operating revenues
|
$
|
31,017
|
|
|
$
|
29,485
|
|
|
$
|
92,835
|
|
|
$
|
87,526
|
|
|
Corporate and other
|
2,009
|
|
|
2,203
|
|
|
7,093
|
|
|
6,442
|
|
|
Eliminations
|
(111)
|
|
|
(145)
|
|
|
(382)
|
|
|
(368)
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating revenues
|
$
|
32,915
|
|
|
$
|
31,543
|
|
|
$
|
99,546
|
|
|
$
|
93,600
|
|
A reconciliation of the total reportable segment's 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)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Total reportable segment operating income
|
$
|
8,476
|
|
|
$
|
8,360
|
|
|
$
|
25,247
|
|
|
$
|
24,606
|
|
|
Corporate and other
|
621
|
|
|
(479)
|
|
|
392
|
|
|
(1,183)
|
|
|
|
|
|
|
|
|
|
|
|
Other components of net periodic benefit charges (Note 9)
|
(192)
|
|
|
(203)
|
|
|
(576)
|
|
|
(610)
|
|
|
Loss on spectrum licenses (Note 3)
|
—
|
|
|
—
|
|
|
(223)
|
|
|
(1,195)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating income
|
8,905
|
|
|
7,678
|
|
|
24,840
|
|
|
21,618
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (losses) of unconsolidated businesses
|
1
|
|
|
(9)
|
|
|
10
|
|
|
(34)
|
|
|
Other income (expense), net
|
269
|
|
|
(774)
|
|
|
1,172
|
|
|
(703)
|
|
|
Interest expense
|
(801)
|
|
|
(1,044)
|
|
|
(2,746)
|
|
|
(3,167)
|
|
|
Income Before Provision For Income Taxes
|
$
|
8,374
|
|
|
$
|
5,851
|
|
|
$
|
23,276
|
|
|
$
|
17,714
|
|
No single customer accounted for more than 10% of our total operating revenues during the three and nine months ended September 30, 2021 or 2020.
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 primarily allocated 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 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.
Verizon is currently involved in approximately 20 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.
During the nine months ended September 30, 2021, Verizon entered into a renewable energy purchase agreement (REPA) with a third party. The REPA is based on the expected operation of a renewable energy-generating facility and has a fixed price term of 15 years from the commencement of the facility's entry into commercial operation, which is expected to occur in 2022. The REPA generally is expected to be financially settled based on the prevailing market price as energy is generated by the facility.