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Form 10-Q VERIZON COMMUNICATIONS For: Mar 31

April 28, 2016 12:25 PM EDT
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

  (Mark one)    
  x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  
    OF THE SECURITIES EXCHANGE ACT OF 1934  
    For the quarterly period ended March 31, 2016  
   

 

OR

 

 
  ¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  
    OF THE SECURITIES EXCHANGE ACT OF 1934  
    For the transition period from             to  

Commission file number: 1-8606

Verizon Communications Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   23-2259884
(State or other jurisdiction
of incorporation or organization)
  (I.R.S. Employer Identification No.)

1095 Avenue of the Americas

New York, New York

  10036
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (212) 395-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                  x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

At March 31, 2016, 4,076,288,055 shares of the registrant’s common stock were outstanding, after deducting 166,086,185 shares held in treasury.

 

 

 


Table of Contents
Table of Contents

 

         Page  
PART I – FINANCIAL INFORMATION   
Item 1.   Financial Statements (Unaudited)   
 

Condensed Consolidated Statements of Income

Three months ended March 31, 2016 and 2015

     3   
 

Condensed Consolidated Statements of Comprehensive Income

Three months ended March 31, 2016 and 2015

     4   
 

Condensed Consolidated Balance Sheets

At March 31, 2016 and December 31, 2015

     5   
 

Condensed Consolidated Statements of Cash Flows

Three months ended March 31, 2016 and 2015

     6   
 

Notes to Condensed Consolidated Financial Statements

     7   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      27   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      46   
Item 4.   Controls and Procedures      46   
PART II – OTHER INFORMATION   
Item 1.   Legal Proceedings      46   
Item 1A.   Risk Factors      46   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      46   
Item 6.   Exhibits      47   
Signature      48   
Certifications   


Table of Contents
Part I - Financial Information

Item 1. Financial Statements

Condensed Consolidated Statements of Income

Verizon Communications Inc. and Subsidiaries

 

    

Three Months Ended

March 31,

 
(dollars in millions, except per share amounts) (unaudited)    2016     2015  

Operating Revenues

    

Service revenues and other

   $   28,217      $   28,611   

Wireless equipment revenues

     3,954        3,373   
  

 

 

 

Total Operating Revenues

     32,171        31,984   

Operating Expenses

    

Cost of services (exclusive of items shown below)

     7,614        6,988   

Wireless cost of equipment

     4,998        5,108   

Selling, general and administrative expense

     7,600        7,939   

Depreciation and amortization expense

     4,017        3,989   
  

 

 

 

Total Operating Expenses

     24,229        24,024   

Operating Income

     7,942        7,960   

Equity in losses of unconsolidated businesses

     (20     (34

Other income, net

     32        75   

Interest expense

     (1,188     (1,332
  

 

 

 

Income Before Provision For Income Taxes

     6,766        6,669   

Provision for income taxes

     (2,336     (2,331
  

 

 

 

Net Income

   $ 4,430      $ 4,338   
  

 

 

 

Net income attributable to noncontrolling interests

   $ 120      $ 119   

Net income attributable to Verizon

     4,310        4,219   
  

 

 

 

Net Income

   $ 4,430      $ 4,338   
  

 

 

 

Basic Earnings Per Common Share

    

Net income attributable to Verizon

   $ 1.06      $ 1.03   

Weighted-average shares outstanding (in millions)

     4,080        4,116   

Diluted Earnings Per Common Share

    

Net income attributable to Verizon

   $ 1.06      $ 1.02   

Weighted-average shares outstanding (in millions)

     4,085        4,121   

Dividends declared per common share

   $ 0.565      $ 0.550   

See Notes to Condensed Consolidated Financial Statements

 

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Condensed Consolidated Statements of Comprehensive Income

Verizon Communications Inc. and Subsidiaries

 

     Three Months Ended
March 31,
 
(dollars in millions) (unaudited)    2016     2015  

Net Income

   $   4,430      $   4,338   

Other comprehensive loss, net of taxes

    

Foreign currency translation adjustments

     30        (141

Unrealized loss on cash flow hedges

     (58     (13

Unrealized (loss) gain on marketable securities

     (18     3   

Defined benefit pension and postretirement plans

     (45     (44
  

 

 

 

Other comprehensive loss attributable to Verizon

     (91     (195
  

 

 

 

Total Comprehensive Income

   $ 4,339      $ 4,143   
  

 

 

 

Comprehensive income attributable to noncontrolling interests

   $ 120      $ 119   

Comprehensive income attributable to Verizon

     4,219        4,024   
  

 

 

 

Total Comprehensive Income

   $ 4,339      $ 4,143   
  

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

Condensed Consolidated Balance Sheets

Verizon Communications Inc. and Subsidiaries

 

(dollars in millions, except per share amounts) (unaudited)   

At March 31,

2016

   

At December 31,

2015

 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 5,846      $ 4,470   

Short-term investments

            350   

Accounts receivable, net of allowances of $900 and $882

     12,485        13,457   

Inventories

     1,142        1,252   

Assets held for sale

     720        792   

Prepaid expenses and other

     3,422        1,959   
  

 

 

 

Total current assets

     23,615        22,280   
  

 

 

 

Plant, property and equipment

     222,669        220,163   

Less accumulated depreciation

     139,658        136,622   
  

 

 

 

Plant, property and equipment, net

     83,011        83,541   
  

 

 

 

Investments in unconsolidated businesses

     821        796   

Wireless licenses

     86,830        86,575   

Goodwill

     25,364        25,331   

Other intangible assets, net

     8,216        8,338   

Non-current assets held for sale

     10,432        10,267   

Other assets

     6,298        7,047   
  

 

 

 

Total assets

   $ 244,587      $ 244,175   
  

 

 

 

Liabilities and Equity

    

Current liabilities

    

Debt maturing within one year

   $ 6,265      $ 6,489   

Accounts payable and accrued liabilities

     18,118        19,362   

Liabilities related to assets held for sale

     452        463   

Other

     8,477        8,738   
  

 

 

 

Total current liabilities

     33,312        35,052   
  

 

 

 

Long-term debt

     103,615        103,240   

Employee benefit obligations

     29,665        29,957   

Deferred income taxes

     45,568        45,484   

Non-current liabilities related to assets held for sale

     974        959   

Other liabilities

     11,350        11,641   

Equity

    

Series preferred stock ($.10 par value; none issued)

              

Common stock ($.10 par value; 4,242,374,240 shares issued in each period)

     424        424   

Contributed capital

     11,191        11,196   

Reinvested earnings

     13,253        11,246   

Accumulated other comprehensive income

     459        550   

Common stock in treasury, at cost

     (7,279     (7,416

Deferred compensation – employee stock ownership plans and other

     593        428   

Noncontrolling interests

     1,462        1,414   
  

 

 

 

Total equity

     20,103        17,842   
  

 

 

 

Total liabilities and equity

   $ 244,587      $ 244,175   
  

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Condensed Consolidated Statements of Cash Flows

Verizon Communications Inc. and Subsidiaries

 

    

Three Months Ended

March 31,

 
(dollars in millions) (unaudited)    2016     2015  

Cash Flows from Operating Activities

    

Net Income

   $ 4,430      $ 4,338   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization expense

     4,017        3,989   

Employee retirement benefits

     356        284   

Deferred income taxes

     167        823   

Provision for uncollectible accounts

     353        383   

Equity in losses of unconsolidated businesses, net of dividends received

     29        44   

Changes in current assets and liabilities, net of
effects from acquisition/disposition of businesses

     (1,162     (888

Other, net

     (771     1,196   
  

 

 

 

Net cash provided by operating activities

     7,419        10,169   
  

 

 

 

Cash Flows from Investing Activities

    

Capital expenditures (including capitalized software)

     (3,387     (3,665

Acquisitions of investments and businesses, net of cash acquired

     (161     (2

Acquisitions of wireless licenses

     (131     (9,555

Other, net

     243        46   
  

 

 

 

Net cash used in investing activities

     (3,436     (13,176
  

 

 

 

Cash Flows from Financing Activities

    

Proceeds from long-term borrowings

            6,497   

Repayments of long-term borrowings and capital lease obligations

     (376     (5,576

Increase (decrease) in short-term obligations, excluding current maturities

     (40     482   

Dividends paid

     (2,302     (2,153

Proceeds from sale of common stock

     3          

Purchase of common stock for treasury

            (5,000

Other, net

     108        2,545   
  

 

 

 

Net cash used in financing activities

     (2,607     (3,205
  

 

 

 

Increase (decrease) in cash and cash equivalents

     1,376        (6,212

Cash and cash equivalents, beginning of period

     4,470        10,598   
  

 

 

 

Cash and cash equivalents, end of period

   $ 5,846      $ 4,386   
  

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Notes to Condensed Consolidated Financial Statements

Verizon Communications Inc. and Subsidiaries

(Unaudited)

 

1.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (SEC) rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements included in the Verizon Communications Inc. (Verizon or the Company) Annual Report on Form 10-K for the year ended December 31, 2015. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. We have reclassified certain prior year amounts to conform to the current year presentation.

Earnings Per Common Share

There were a total of approximately 5 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for the three months ended March 31, 2016 and 2015, respectively. There were no outstanding options to purchase shares that would have been anti-dilutive for the three months ended March 31, 2016 and 2015, respectively.

Recently Adopted Accounting Standards

During the first quarter of 2016, we adopted the accounting standard update related to the simplification of the accounting for measurement-period adjustments in business combinations. This standard update requires an acquirer to recognize measurement-period adjustments in the reporting period in which the adjustments are determined and to record the effects on earnings of any changes resulting from the change in provisional amounts, calculated as if the accounting had been completed at the acquisition date. The prospective adoption of this standard update did not have a significant impact on our condensed consolidated financial statements.

During the first quarter of 2016, we adopted the accounting standard update related to disclosures for investments in certain entities that calculate net asset value per share. This standard update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The standard update limits the required disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. The retrospective adoption of this standard update did not have a significant impact on our condensed consolidated financial statements.

During the first quarter of 2016, we adopted the accounting standard update related to the simplification of the presentation of debt issuance costs. This standard update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. During the first quarter of 2016, we also adopted the accounting standard update related to the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. This standard adds SEC paragraphs pursuant to an SEC Staff Announcement that the SEC staff would not object to an entity deferring and presenting debt issuance costs associated with a line-of-credit arrangement as an asset and subsequently amortizing the costs ratably over the term of the arrangement. We applied the amendments in these accounting standard updates retrospectively to all periods presented. The adoption of these standard updates did not have a significant impact on our condensed consolidated financial statements.

During the first quarter of 2016, we adopted the accounting standard update related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The standard requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The prospective adoption of this standard update did not have an impact on our condensed consolidated financial statements.

Recently Issued Accounting Standards

In February 2016, the accounting standard update related to leases was issued. This standard update intends to increase transparency and improve comparability by requiring entities to recognize assets and liabilities on the balance sheet for all leases, with certain exceptions. In addition, through improved disclosure requirements, the standard update will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. This standard update is effective as of the first quarter of 2019; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our condensed consolidated financial statements.

 

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In May 2014, the accounting standard update related to the recognition of revenue from contracts with customers was issued. This standard update clarifies the principles for recognizing revenue and develops a common revenue standard for generally accepted accounting principles in the United States (U.S. GAAP) and International Financial Reporting Standards. The standard update intends to provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and provide more useful information to users of financial statements through improved disclosure requirements. Upon adoption of this standard update, we expect that the allocation and timing of revenue recognition will be impacted. In August 2015, an accounting standard update was issued that delays the effective date of this standard until the first quarter of 2018. Companies are permitted to early adopt the standard in the first quarter of 2017.

There are two adoption methods available for implementation of the standard update related to the recognition of revenue from contracts with customers. Under one method, the guidance is applied retrospectively to contracts for each reporting period presented, subject to allowable practical expedients. Under the other method, the guidance is applied only to the most current period presented, recognizing the cumulative effect of the change as an adjustment to the beginning balance of retained earnings, and also requires additional disclosures comparing the results to the previous guidance. We are currently evaluating these adoption methods and the impact that this standard update will have on our condensed consolidated financial statements.

 

2.

Acquisitions and Divestitures

 

Wireless

Spectrum License Transactions

During the fourth quarter of 2015, we entered into a license exchange agreement with affiliates of AT&T Inc. to exchange certain Advanced Wireless Services (AWS) and Personal Communication Services (PCS) spectrum licenses. This non-cash exchange was completed in March 2016. As a result, we received $0.4 billion of AWS and PCS spectrum licenses at fair value and recorded a pre-tax gain of $0.1 billion in Selling, general and administrative expense on our condensed consolidated statement of income for the three months ended March 31, 2016.

During the first quarter of 2016, we entered into a license exchange agreement with affiliates of Sprint Corporation, which provides for the exchange of certain AWS and PCS spectrum licenses. This non-cash exchange is expected to be completed in the third quarter of 2016 and we expect to record an immaterial gain.

During the first quarter of 2016, we acquired various other wireless licenses for cash consideration that was not significant.

Wireline

Access Line Sale

On February 5, 2015, we entered into a definitive agreement with Frontier Communications Corporation (Frontier) pursuant to which Verizon agreed to sell its local exchange business and related landline activities in California, Florida and Texas, including Fios Internet and video customers, switched and special access lines and high-speed Internet service and long distance voice accounts in these three states for approximately $10.5 billion (approximately $7.5 billion net of income taxes), subject to certain adjustments and including the assumption of $0.6 billion of indebtedness from Verizon by Frontier. The transaction, which includes the acquisition by Frontier of the equity interests of Verizon’s incumbent local exchange carriers (ILECs) in California, Florida and Texas, does not involve any assets or liabilities of Verizon Wireless. The transaction closed on April 1, 2016.

Based on the number of voice connections and Fios Internet and video subscribers, respectively, as of March 31, 2016, the transaction resulted in Frontier acquiring approximately 3.3 million voice connections, 1.6 million Fios Internet subscribers, 1.2 million Fios video subscribers and the related ILEC businesses from Verizon. The assets and liabilities that were sold were included in Verizon’s continuing operations and classified as assets held for sale and liabilities related to assets held for sale on our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015. The operating results of these businesses, collectively, are included within our Wireline segment for all periods presented.

 

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The following table summarizes the major classes of assets and liabilities of our local exchange and related landline activities in California, Florida and Texas which are classified as held for sale on our condensed consolidated balance sheet as of March 31, 2016:

 

      (dollars in millions)  

Assets held for sale:

  

Accounts receivable

   $ 341   

Prepaid expense and other

     62   
  

 

 

 

Total current assets held for sale

     403   

Plant, property and equipment, net

     9,033   

Goodwill

     1,328   

Other assets

     71   
  

 

 

 

Total non-current assets held for sale

     10,432   
  

 

 

 

Total assets held for sale

   $   10,835   
  

 

 

 

Liabilities related to assets held for sale:

  

Accounts payable and accrued liabilities

   $ 262   

Other current liabilities

     190   
  

 

 

 

Total current liabilities related to assets held for sale

     452   

Long-term debt

     597   

Employee benefit obligations

     258   

Other liabilities

     119   
  

 

 

 

Total non-current liabilities related to assets held for sale

     974   
  

 

 

 

Total liabilities related to assets held for sale

   $ 1,426   
  

 

 

 

Other

Acquisition of AOL Inc.

On May 12, 2015, we entered into an Agreement and Plan of Merger (the Merger Agreement) with AOL Inc. (AOL) pursuant to which we commenced a tender offer to acquire all of the outstanding shares of common stock of AOL at a price of $50.00 per share, net to the seller in cash, without interest and less any applicable withholding taxes.

On June 23, 2015, we completed the tender offer and merger, and AOL became a wholly-owned subsidiary of Verizon. The aggregate cash consideration paid by Verizon at the closing of these transactions was approximately $3.8 billion. Holders of approximately 6.6 million shares exercised appraisal rights under Delaware law. If they had not exercised these rights, Verizon would have paid an additional $330 million for such shares at the closing.

AOL is a leader in the digital content and advertising platform space. Verizon has been investing in emerging technology that taps into the market shift to digital content and advertising. AOL’s business model aligns with this approach, and we believe that its combination of owned and operated content properties plus a digital advertising platform enhances our ability to further develop future revenue streams.

The acquisition of AOL has been accounted for as a business combination. The identification of the assets acquired and liabilities assumed are finalized and we are in the process of finalizing our valuations for deferred taxes. These adjustments are not expected to have a material impact on our condensed consolidated financial statements. The valuations will be finalized within 12 months following the close of the acquisition.

The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in Accounting Standards Codification (ASC) 820, other than long-term debt assumed in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of acquired technology and customer relationships. The income approach indicates value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

 

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The following table summarizes the consideration to AOL’s shareholders and the identification of the assets acquired, including cash acquired of $0.5 billion, and liabilities assumed as of the close of the acquisition, as well as the fair value at the acquisition date of AOL’s noncontrolling interests:

 

(dollars in millions)    As of June 23, 2015  

Cash payment to AOL’s equity holders

   $ 3,764   

Estimated liabilities to be paid(1)

     377   
  

 

 

 

Total consideration

   $ 4,141   
  

 

 

 

Assets acquired:

  

Goodwill

   $ 1,903   

Intangible assets subject to amortization

     2,504   

Other

     1,551   
  

 

 

 

Total assets acquired

     5,958   

Liabilities assumed:

  

Total liabilities assumed

     1,816   

Net assets acquired:

     4,142   

Noncontrolling interest

     (1
  

 

 

 

Total consideration

   $ 4,141   
  

 

 

 

 

(1) 

During the three months ended March 31, 2016, we made cash payments of $126 million in respect of acquisition-date estimated liabilities to be paid. As of March 31, 2016, the remaining balance of estimated liabilities to be paid was $251 million.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired. The goodwill recorded as a result of the AOL transaction represents future economic benefits we expect to achieve as a result of combining the operations of AOL and Verizon as well as assets acquired that could not be individually identified and separately recognized. The goodwill related to this acquisition is included within Corporate and other.

Other

On February 20, 2016, Verizon entered into a purchase agreement to acquire XO Holdings’ wireline business which owns and operates one of the largest fiber-based IP and Ethernet networks outside of Verizon’s footprint for approximately $1.8 billion, subject to adjustment. The transaction is subject to customary regulatory approvals and is expected to close in the first half of 2017. Separately, Verizon entered into an agreement to lease certain wireless spectrum from XO Holdings and has an option, exercisable under certain circumstances, to buy XO Holdings’ entity that owns its wireless spectrum.

During the first quarter of 2016, we acquired various other businesses and investments for cash consideration that was not significant.

 

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3.

Wireless Licenses, Goodwill and Other Intangible Assets

 

Wireless Licenses

Changes in the carrying amount of Wireless licenses are as follows:

 

(dollars in millions)        

Balance at January 1, 2016

   $   86,575   

Acquisitions (Note 2)

     3   

Capitalized interest on wireless licenses

     128   

Reclassifications, adjustments and other

     124   
  

 

 

 

Balance at March 31, 2016

   $ 86,830   
  

 

 

 

Reclassifications, adjustments and other includes $0.4 billion received in exchanges of wireless licenses in 2016 as well as $0.3 billion of Wireless licenses that are classified as Assets held for sale on our condensed consolidated balance sheet at March 31, 2016 (see Note 2 for additional details).

At March 31, 2016, approximately $10.4 billion of wireless licenses were under development for commercial service for which we were capitalizing interest costs.

The average remaining renewal period for our wireless licenses portfolio was 5.6 years as of March 31, 2016.

Goodwill

Changes in the carrying amount of Goodwill are as follows:

 

(dollars in millions)    Wireless      Wireline      Other      Total  

Balance at January 1, 2016

   $   18,393       $   4,331       $   2,607       $   25,331   

Acquisitions (Note 2)

                     31         31   

Reclassifications, adjustments and other

             1         1         2   
  

 

 

 

Balance at March 31, 2016

   $ 18,393       $ 4,332       $ 2,639       $ 25,364   
  

 

 

 

Other Intangible Assets

The following table displays the composition of Other intangible assets, net:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Gross
Amount
     Accumulated
Amortization
    Net
Amount
     Gross
Amount
     Accumulated
Amortization
    Net
Amount
 

Customer lists (5 to 14 years)

   $ 4,136       $ (2,421   $ 1,715       $ 4,139       $ (2,365   $ 1,774   

Non-network internal-use software (3 to 8 years)

     14,769         (9,921     4,848         14,542         (9,620     4,922   

Other (5 to 25 years)

     2,302         (649     1,653         2,220         (578     1,642   
  

 

 

 

Total

   $   21,207       $   (12,991   $   8,216       $   20,901       $   (12,563   $   8,338   
  

 

 

 

The amortization expense for Other intangible assets was as follows:

 

(dollars in millions)   

Three Months Ended

March 31,

 

2016

     $        435   

2015

     381   

 

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The estimated future amortization expense for Other intangible assets is as follows:

 

Years    (dollars in millions)  

Remainder of 2016

     $    1,309   

2017

     1,561   

2018

     1,379   

2019

     1,149   

2020

     857   

 

4.

Debt

 

Changes to debt during the three months ended March 31, 2016 are as follows:

 

(dollars in millions)    Debt Maturing
within One Year
    Long-term
Debt
    Total  

Balance at January 1, 2016

   $ 6,489      $ 103,240      $   109,729   

Repayments of long-term borrowings and capital leases obligations

     (376            (376

Decrease in short-term obligations, excluding current maturities

     (40            (40

Reclassifications of long-term debt

     81        (81       

Other

     111        456        567   
  

 

 

 

Balance at March 31, 2016

   $ 6,265      $ 103,615      $ 109,880   
  

 

 

 

April Tender Offers

On March 4, 2016, we announced the commencement of three concurrent, but separate, tender offers (the April Tender Offers) to purchase for cash (1) any and all of the series of notes listed below in the Group 1 Any and All Offer, (2) any and all of the series of notes listed below in the Group 2 Any and All Offer and (3) up to $5.5 billion aggregate purchase price, excluding accrued and unpaid interest and any fees or commissions, of the series of notes listed below in the Group 3 Offer.

The April Tender Offers for each series of notes were conditioned upon the closing of the sale of our local exchange business and related landline activities in California, Florida and Texas to Frontier and the receipt of at least $9.5 billion of the purchase price cash at closing (the Sale Condition). The Sale Condition was satisfied and the April Tender Offers were settled on April 4, 2016, resulting in the notes listed below being repurchased and cancelled for $10.2 billion, inclusive of accrued interest of $0.1 billion.

The table below lists the series of notes included in the Group 1 Any and All Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Communications Inc.

     2.50     2016       $ 2,182       $   1,007.60       $ 1,272   
     2.00     2016         1,250         1,007.20         731   
     6.35     2019         1,750         1,133.32         970   
             

 

 

 
              $ 2,973   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.

 

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The table below lists the series of notes included in the Group 2 Any and All Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Delaware LLC

     8.375     2019       $ 15       $     1,182.11       $ 15   
     8.625     2031         15         1,365.39         5   

Verizon Maryland LLC

     8.00     2029         50         1,301.32         22   
     8.30     2031         100         1,347.26         76   
     5.125     2033         350         1,012.50         171   

Verizon New England Inc.

     7.875     2029         349         1,261.63         176   

Verizon New Jersey Inc.

     8.00     2022         200         1,238.65         54   
     7.85     2029         149         1,311.32         63   

Verizon New York Inc.

     6.50     2028         100         1,151.71         28   
     7.375     2032         500         1,201.92         256   

Verizon Pennsylvania LLC

     6.00     2028         125         1,110.47         57   
     8.35     2030         175         1,324.10         127   
     8.75     2031         125         1,356.47         72   

Verizon Virginia LLC

     7.875     2022         100         1,227.79         43   
     8.375     2029         100         1,319.78         81   
             

 

 

 
              $ 1,246   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.

The table below lists the series of notes included in the Group 3 Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Communications Inc.

     8.95     2039       $ 353       $     1,506.50       $ 63   
     7.75     2032         251         1,315.19         33   
     7.35     2039         480         1,293.50         68   
     7.75     2030         1,206         1,377.92         276   
     6.55     2043         6,585         1,291.74         2,340   
     6.40     2033         2,196         1,220.28         466   
     6.90     2038         477         1,243.29         92   
     6.25     2037         750         1,167.66         114   
     6.40     2038         866         1,176.52         116   
     5.85     2035         1,500         1,144.68         250   
     6.00     2041         1,000         1,164.56           
     5.15     2023         8,517         1,152.83           

Alltel Corporation

     7.875     2032         452         1,322.92         115   
     6.80     2029         235         1,252.93         47   

GTE Corporation

     6.94     2028         800         1,261.35         237   
     8.75     2021         300         1,307.34         93   
             

 

 

 
              $ 4,310   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes

 

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April Early Debt Redemption

On April 8, 2016, we redeemed in whole the following series of outstanding notes which were called for redemption on April 5, 2016 (collectively, April Early Debt Redemption): $0.9 billion aggregate principal amount of Verizon Communications 2.50% Notes due 2016 at 100.8% of the principal amount of such notes, $0.5 billion aggregate principal amount of Verizon Communications 2.00% Notes due 2016 at 100.8% of the principal amount of such notes, and $0.8 billion aggregate principal amount of Verizon Communications 6.35% Notes due 2019 at 113.5% of the principal amount of such notes. These notes were repurchased and cancelled for $2.3 billion, inclusive of an immaterial amount of accrued interest.

During the second quarter of 2016, we expect to record a net pre-tax loss on early debt redemption of $1.8 billion in connection with the April Tender Offers and the April Early Debt Redemption.

Credit Facility

As of March 31, 2016, the unused borrowing capacity under our $8.0 billion credit facility was approximately $7.9 billion.

Additional Financing Activities (Non-Cash Transaction)

During the three months ended March 31, 2016, we financed, primarily through vendor financing arrangements, the purchase of approximately $0.1 billion of long-lived assets, consisting primarily of network equipment. At March 31, 2016, $1.0 billion relating to vendor financing arrangements, including those entered into in prior years, remained outstanding. These purchases are non-cash financing activities and therefore not reflected within Capital expenditures on our condensed consolidated statement of cash flows.

Guarantees

We guarantee the debentures and first mortgage bonds of our operating telephone company subsidiaries. As of March 31, 2016, $3.1 billion aggregate principal amount of these obligations remained outstanding. Each guarantee will remain in place for the life of the obligation unless terminated pursuant to its terms, including the operating telephone company no longer being a wholly-owned subsidiary of Verizon.

As a result of the closing of the Frontier transaction, as of April 1, 2016, GTE Southwest Inc., Verizon California Inc. and Verizon Florida LLC are no longer wholly-owned subsidiaries of Verizon, and the guarantees of $0.6 billion aggregate principal amount of debentures and first mortgage bonds of those entities have terminated pursuant to their terms. In addition, in connection with the Group 2 Any and All Offer, as of April 4, 2016, approximately $1.2 billion aggregate principal amount of debentures of our operating telephone company subsidiaries were repurchased and retired. Accordingly, as of April 4, 2016, guarantees remain in place with respect to approximately $1.2 billion aggregate principal amount of outstanding telephone company subsidiary debentures.

We also guarantee the debt obligations of GTE Corporation that were issued and outstanding prior to July 1, 2003. As of March 31, 2016, $1.4 billion aggregate principal amount of these obligations were outstanding. In connection with the Group 3 Offer, as of April 4, 2016, approximately $0.3 billion aggregate principal amount of debt obligations of GTE Corporation were repurchased and retired. Accordingly, as of April 4, 2016, guarantees remain in place with respect to approximately $1.1 billion aggregate principal amount of GTE Corporation debt obligations.

 

5.

Wireless Device Installment Plans

 

Under the Verizon device payment program, our eligible wireless customers purchase phones or tablets at unsubsidized prices on an installment basis (a device installment plan). 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 installment charge is included in their standard wireless monthly bill. We have ongoing programs to sell certain device installment receivables to financial institutions. The outstanding portfolio of device installment plan receivables derecognized from our condensed consolidated balance sheet but which we continue to service was $9.6 billion at March 31, 2016. As of March 31, 2016, the total portfolio of device installment plan receivables, including derecognized device installment receivables, we are servicing was $12.9 billion.

 

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Wireless Device Installment Plan Receivables

The following table displays device installment plan receivables, net, that continue to be recognized in our condensed consolidated balance sheets:

 

(dollars in millions)   At March 31,
2016
        At December 31,
2015
 

Device installment plan receivables, gross

  $ 3,346        $ 3,720   

Unamortized imputed interest

    (135       (142
 

 

 

     

 

 

 

Device installment plan receivables, net of unamortized imputed interest

    3,211          3,578   

Allowance for credit losses

    (513       (444
 

 

 

     

 

 

 

Device installment plan receivables, net

  $ 2,698        $ 3,134   
 

 

 

     

 

 

 

Classified on our condensed consolidated balance sheets:

     

Accounts receivable, net

  $ 1,663        $ 1,979   

Other assets

    1,035          1,155   
 

 

 

     

 

 

 

Device installment plan receivables, net

  $   2,698        $   3,134   
 

 

 

     

 

 

 

At the time of sale of devices to our customers, we impute risk adjusted interest on the device installment plan receivables. We record the imputed interest as a reduction to the related accounts receivable. Interest income, which is included within Service revenues and other on our condensed consolidated statements of income, is recognized over the financed installment term.

We assess the collectability of our device installment plan receivables based upon a variety of factors, including the credit quality of the customer base, payment trends and other qualitative factors. We use custom empirical risk models to measure the credit quality of a customer and determine eligibility for the device payment program. Based upon the risk assessed by the models, a customer may be subject to lower limits on the total amount financed and be required to provide a down payment to enter into the program in accordance with the credit risk assessment. The down payment will vary in accordance with the risk assessed. We update our risk assessments monthly based on payment trends and other qualitative factors in order to monitor the overall quality of our receivables. The credit quality of our customers is consistent throughout the periods presented.

Activity in the allowance for credit losses for the device installment plan receivables was as follows:

 

(dollars in millions)        

Balance at January 1, 2016

   $   444   

Bad debt expense

     163   

Write-offs

     (95

Allowance related to receivables sold

     (2

Other

     3   
  

 

 

 

Balance at March 31, 2016

   $ 513   
  

 

 

 

Customers that entered into device installment agreements prior to May 31, 2015 have the right to upgrade their device, subject to certain conditions, including making a stated portion of the required device payments and trading in their device. Generally, customers entering into device installment agreements on or after June 1, 2015 are required to repay all amounts due under their device installment agreement before being eligible to upgrade their device. However, on select devices, certain marketing promotions allow customers to upgrade to a new device after paying down the required device payment installment amount as well as trading in their device. When a customer enters into a device installment agreement with the right to upgrade to a new device, we record a guarantee liability in accordance with our accounting policy. The gross guarantee liability related to the upgrade program, which was approximately $0.1 billion at March 31, 2016 and $0.2 billion at December 31, 2015, was included in Other current liabilities on our condensed consolidated balance sheets.

 

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Sales of Wireless Device Installment Plan Receivables

Wireless Device Installment Plan Receivables Purchase Agreement

During 2015, we established a program (Receivables Purchase Agreement, or RPA) to sell from time to time, on an uncommitted basis, eligible device installment plan receivables to a group of primarily relationship banks (Purchasers). Under the program, we transfer the eligible receivables to wholly-owned subsidiaries that are bankruptcy remote special purpose entities (Sellers or SPEs). The Sellers then sell the receivables to the Purchasers for upfront cash proceeds and additional consideration upon settlement of the receivables (the deferred purchase price). The receivables sold under the program are no longer considered assets of Verizon. We continue to bill and collect on the receivables in exchange for a monthly servicing fee, which is not material. Eligible receivables under the RPA exclude device installment plans where a customer was required to provide a down payment.

Revolving Sale of Wireless Device Installment Plan Receivables

During the fourth quarter of 2015 and first quarter of 2016, we entered into separate uncommitted facilities under our existing RPA with the Purchasers to sell eligible device installment plan receivables on a revolving basis (Revolving Programs), subject to a maximum funding limit, to the Purchasers. The revolving period of both facilities ends in December 2016. Sales of eligible receivables by the Sellers, once initiated, generally occur and are settled on a monthly basis. The receivables sold under the Revolving Programs are no longer considered assets of Verizon. We continue to bill and collect on the receivables in exchange for a monthly servicing fee, which is not material. Customer installment payments made towards receivables sold under the Revolving Programs will be available to purchase additional eligible installment plan receivables originated over the revolving period of each facility. Eligible receivables under the Revolving Programs exclude device installment plans where a customer was required to provide a down payment.

The sales of receivables under the RPA and Revolving Programs did not have a material impact on our condensed consolidated statements of income. The cash proceeds received from the Purchasers are recorded within Cash flows provided by operating activities on our condensed consolidated statements of cash flows.

The following table provides a summary of device installment receivables sold under the RPA and the Revolving Programs:

 

(dollars in millions)    RPA          Revolving Programs  
Three Months Ended March 31,    2016      2015           2016      2015  

Device installment plan receivables sold, net (1)

   $         –       $   1,925         $   2,617       $   –   

Cash proceeds received from new transfers

             1,271           1,978           

Cash proceeds received from reinvested collections

                       244           

Deferred purchase price recorded

             695           395           

 

(1) 

Device installment plan receivables net of allowances, imputed interest and the device trade-in right.

Variable Interest Entities

Under both the RPA and the Revolving Programs, the SPE’s sole business consists of the acquisition of the receivables from Verizon and the resale of the receivables to the Purchasers. The assets of the SPEs are not available to be used to satisfy obligations of any Verizon entities other than the Sellers. We determined that the SPEs are variable interest entities as they lack sufficient equity to finance their activities. Given that we have the power to direct the activities of the SPEs that most significantly impact the SPE’s economic performance, we are deemed to be the primary beneficiary of the SPEs. As a result, we consolidate the assets and liabilities of the SPEs into our condensed consolidated financial statements.

Deferred Purchase Price

Under both the RPA and the Revolving Programs, the deferred purchase price was initially recorded at fair value, based on the remaining installment amounts expected to be collected, adjusted, as applicable, for the time value of money and by the timing and estimated value of the device trade-in. The estimated value of the device trade-in considers prices expected to be offered to us by independent third parties. This estimate contemplates changes in value after the launch of a device. The fair value measurements are considered to be Level 3 measurements within the fair value hierarchy. The collection of the deferred purchase price is contingent on collections from customers. At March 31, 2016, our deferred purchase price receivable, which is held by the SPEs, was comprised of $1.3 billion included within Prepaid expenses and other and $1.3 billion included within Other assets in our condensed consolidated balance sheet. At December 31, 2015, our deferred purchase price receivable was $2.2 billion, which was included within Other assets in our condensed consolidated balance sheet.

 

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Table of Contents

Continuing Involvement

Verizon has continuing involvement with the sold receivables as it services the receivables. We continue to service the customer and their related receivables on behalf of the Purchasers, including facilitating customer payment collection, in exchange for a monthly servicing fee. While servicing the receivables, the same policies and procedures are applied to the sold receivables that apply to owned receivables, and we continue to maintain normal relationships with our customers. The credit quality of the customers we continue to service is consistent throughout the periods presented. To date, we have collected and remitted approximately $2.6 billion, net of fees, of which an immaterial amount was returned as deferred purchase price. To date, cash proceeds received, net of remittances, were $6.9 billion. During the three months ended March 31, 2016, credit losses on receivables sold were an immaterial amount.

In addition, we have continuing involvement related to the sold receivables as we may be responsible for absorbing additional credit losses pursuant to the agreements. The Company’s maximum exposure to loss related to the involvement with the SPEs is limited to the amount of the deferred purchase price, which was $2.6 billion as of March 31, 2016. The maximum exposure to loss represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby the Company would not receive the portion of the proceeds withheld by the Purchasers. As we believe the probability of these circumstances occurring is remote, the maximum exposure to loss is not an indication of the Company’s expected loss.

 

6.

Fair Value Measurements

 

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2016:

 

(dollars in millions)    Level 1 (1)      Level 2 (2)      Level 3 (3)      Total  

Assets:

           

Other assets:

           

Equity securities

   $ 171       $       $       $ 171   

Fixed income securities

             622                 622   

Interest rate swaps

             296                 296   

Net investment hedges

             4                 4   
  

 

 

 

Total

   $   171       $   922       $   –       $   1,093   
  

 

 

 

Liabilities:

           

Other current liabilities:

           

Cross currency swaps

   $       $ 2       $       $ 2   

Other liabilities:

           

Interest rate swaps

             1                 1   

Net investment hedge

             2                 2   

Cross currency swaps

             1,411                 1,411   

Forward interest rate swaps

             118                 118   
  

 

 

 

Total

   $       $   1,534       $       $ 1,534   
  

 

 

 

 

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The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2015:

 

(dollars in millions)    Level 1 (1)      Level 2 (2)      Level 3 (3)      Total  

Assets:

           

Short-term investments:

           

Equity securities

   $ 265       $       $       $ 265   

Fixed income securities

             85                 85   

Other current assets:

           

Fixed income securities

     250                         250   

Other assets:

           

Fixed income securities

             928                 928   

Interest rate swaps

             128                 128   

Net investment hedges

             13                 13   

Cross currency swaps

             1                 1   
  

 

 

 

Total

   $   515       $ 1,155       $       $ 1,670   
  

 

 

 

Liabilities:

           

Other liabilities:

           

Interest rate swaps

   $       $ 19       $       $ 19   

Cross currency swaps

             1,638                 1,638   

Forward interest rate swaps

             24                 24   
  

 

 

 

Total

   $       $   1,681       $   –       $   1,681   
  

 

 

 

 

(1) 

quoted prices in active markets for identical assets or liabilities

(2) 

observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) 

no observable pricing inputs in the market

Equity securities consist of investments in common stock of domestic and international corporations measured using quoted prices in active markets.

Fixed income securities consist primarily of investments in municipal bonds as well as U.S. Treasury securities. We use quoted prices in active markets for our U.S. Treasury securities, therefore these securities are classified as Level 1. For all other fixed income securities that do not have quoted prices in active markets, we use alternative matrix pricing resulting in these debt securities being classified as Level 2.

Derivative contracts are valued using models based on readily observable market parameters for all substantial terms of our derivative contracts and thus are classified within Level 2. We use mid-market pricing for fair value measurements of our derivative instruments. Our derivative instruments are recorded on a gross basis.

We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the fair value hierarchy during the three months ended March 31, 2016.

Fair Value of Short-term and Long-term Debt

The fair value of our debt is determined using various methods, including quoted prices for identical terms and maturities, which is a Level 1 measurement, as well as quoted prices for similar terms and maturities in inactive markets and future cash flows discounted at current rates, which are Level 2 measurements. The fair value of our short-term and long-term debt, excluding capital leases, was as follows:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Short- and long-term debt, excluding capital leases

   $   108,911       $   124,405       $   108,772       $   118,216   

 

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Table of Contents

Derivative Instruments

We enter into derivative transactions to manage our exposure to fluctuations in foreign currency exchange rates, interest rates, and equity and commodity prices. We employ risk management strategies, which may include the use of a variety of derivatives including cross currency swaps, foreign currency and prepaid forwards and collars, interest rate swap agreements, commodity swap and forward agreements and interest rate locks. We do not hold derivatives for trading purposes. We posted collateral of approximately $0.1 billion related to derivative contracts under collateral exchange arrangements at March 31, 2016 and December 31, 2015, respectively, which was recorded as Prepaid expenses and other on our condensed consolidated balance sheets. During 2015, we paid an immaterial amount of cash to enter into amendments to certain collateral exchange arrangements. These amendments suspend cash collateral posting for a specified period of time by both counterparties.

We measure all derivatives at fair value and recognize them as either assets or liabilities on our condensed consolidated balance sheets. Changes in the fair values of derivative instruments not qualifying as hedges or any ineffective portion of hedges are recognized in earnings in the current period. Changes in the fair values of derivative instruments used effectively as fair value hedges are recognized in earnings, along with changes in the fair value of the hedged item. Changes in the fair value of the effective portions of cash flow hedges are reported in Other comprehensive loss and recognized in earnings when the hedged item is recognized in earnings. Changes in the fair value of the effective portion of net investment hedges of certain of our foreign operations are reported in Other comprehensive loss as part of the cumulative translation adjustment and partially offset the impact of foreign currency changes on the value of our net investment.

Interest Rate Swaps

We enter into domestic interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates based on the London Interbank Offered Rate, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against changes in the fair value of our debt portfolio. The ineffective portion of these interest rate swaps was not material for the three months ended March 31, 2016 and 2015, respectively.

Forward Interest Rate Swaps

In order to manage our exposure to future interest rate changes, we have entered into forward interest rate swaps. We designated these contracts as cash flow hedges. During the first quarter of 2016, we entered into forward interest rate swaps with a total notional value of $1.3 billion. During the three months ended March 31, 2016 and 2015, pre-tax losses of $0.1 billion, respectively, were recognized in Other comprehensive loss.

Cross Currency Swaps

We enter into cross currency swaps to exchange British Pound Sterling and Euro-denominated debt into U.S. dollars and to fix our future interest and principal payments in U.S. dollars, as well as to mitigate the effect of foreign currency transaction gains or losses. These swaps are designated as cash flow hedges. A portion of the gains and losses recognized in Other comprehensive loss was reclassified to Other income, net to offset the related pre-tax foreign currency transaction gain or loss on the underlying debt obligations. During the three months ended March 31, 2016 and 2015, a pre-tax gain of $0.2 billion and a pre-tax loss of $0.9 billion, respectively, were recognized in Other comprehensive loss.

Net Investment Hedges

We enter into foreign currency forward contracts that are designated as net investment hedges to mitigate foreign exchange exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates.

The following table sets forth the notional amounts of our outstanding derivative instruments:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Notional Amount      Notional Amount  

Interest rate swaps

   $   7,620       $   7,620   

Forward interest rate swaps

     2,000         750   

Cross currency swaps

     9,675         9,675   

Net investment hedge

     864         864   

 

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Table of Contents
7.

Stock-Based Compensation

 

Verizon Communications Long-Term Incentive Plan

The Verizon Communications Inc. Long-Term Incentive Plan (the Plan) permits the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other awards. The maximum number of shares available for awards from the Plan is 119.6 million shares.

Restricted Stock Units

The Plan provides for grants of Restricted Stock Units (RSUs) that generally vest at the end of the third year after the grant. The RSUs are classified as equity awards because the RSUs will be paid in Verizon common stock upon vesting. The RSU equity awards are measured using the grant date fair value of Verizon common stock and are not remeasured at the end of each reporting period. Dividend equivalent units are also paid to participants at the time the RSU award is paid, and in the same proportion as the RSU award.

Performance Stock Units

The Plan also provides for grants of Performance Stock Units (PSUs) that generally vest at the end of the third year after the grant. As defined by the Plan, the Human Resources Committee of the Board of Directors determines the number of PSUs a participant earns based on the extent to which the corresponding performance goals have been achieved over the three-year performance cycle. The PSUs are classified as liability awards because the PSU awards are paid in cash upon vesting. The PSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the price of Verizon common stock as well as performance relative to the targets. Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award. The granted and cancelled activity for the PSU award includes adjustments for the performance goals achieved.

The following table summarizes the Restricted Stock Unit and Performance Stock Unit activity:

 

(shares in thousands)    Restricted
Stock Units
    Performance
Stock Units
 

Outstanding, January 1, 2016

     13,903        17,203   

Granted

     3,622        5,487   

Payments

     (4,548     (4,213

Cancelled/Forfeited

     (32     (43

Adjustments

            170   
  

 

 

 

Outstanding, March 31, 2016

     12,945        18,604   
  

 

 

 

As of March 31, 2016, unrecognized compensation expense related to the unvested portion of Verizon’s RSUs and PSUs was approximately $0.6 billion and is expected to be recognized over approximately two years.

The RSUs granted in 2016 have a weighted-average grant date fair value of $51.81 per unit.

 

8.

Employee Benefits

 

We maintain non-contributory defined benefit pension plans for many of our employees. In addition, we maintain postretirement health care and life insurance plans for our retirees and their dependents, which are both contributory and non-contributory, and include a limit on our share of the cost for certain recent and future retirees. In accordance with our accounting policy for pension and other postretirement benefits, operating expenses include pension and benefit related credits and/or charges based on actuarial assumptions, including projected discount rates and an estimated return on plan assets. These estimates are updated in the fourth quarter or upon a remeasurement event to reflect actual return on plan assets and updated actuarial assumptions. The adjustment will be recognized in our consolidated statement of income during the fourth quarter or upon a remeasurement event pursuant to our accounting policy for the recognition of actuarial gains and losses.

 

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Table of Contents

Net Periodic Cost

The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans:

 

(dollars in millions)    Pension     Health Care and Life  
Three Months Ended March 31,          2016           2015           2016           2015  

Service cost

   $ 80      $ 94      $ 61      $ 81   

Amortization of prior service credit

     (1     1        (73     (72

Expected return on plan assets

       (271       (317     (15     (25

Interest cost

     186        243        224        279   

Remeasurement loss, net

     165                        
  

 

 

 

Total

   $ 159      $ 21      $   197      $   263   
  

 

 

 

Effective January 1, 2016, we changed the method we use to estimate the interest component of net periodic benefit cost for pension and other postretirement benefits. Historically, we estimated the interest cost component utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to utilize a full yield curve approach in the estimation of interest cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We have made this change to provide a more precise measurement of interest cost by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate and accordingly will account for it prospectively.

For the three months ended March 31, 2016, the impact of this change was a reduction of the interest cost component of net periodic benefit cost and an increase to Net income of approximately $0.1 billion. The use of the full yield curve approach does not impact how we measure our total benefit obligations at December 31 or our annual net periodic benefit cost as any change in the interest cost component is completely offset by the actuarial gain or loss measured at year end which is immediately recognized in our consolidated statement of income. Accordingly, this change in estimate will not impact our income from continuing operations, net income or earnings per share as measured on an annual basis.

Pension Remeasurement

During the three months ended March 31, 2016, we recorded a net pre-tax pension remeasurement charge of approximately $0.2 billion in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur. The pension remeasurement charge relates to settlements for employees who received lump-sum distributions in one of Verizon’s seven defined benefit pension plans. The pension remeasurement charge was primarily driven by an approximately 43 basis point decrease in our discount rate assumption used to determine the current year liabilities of this pension plan. Our weighted-average discount rate assumption decreased from 4.60% at December 31, 2015 to 4.21% at March 31, 2016.

Severance Payments

During the three months ended March 31, 2016, we paid severance benefits of $0.3 billion. At March 31, 2016, we had a remaining severance liability of $0.5 billion, a portion of which includes future contractual payments to employees separated as of March 31, 2016.

Employer Contributions

During the three months ended March 31, 2016, we contributed $0.3 billion to our other postretirement benefit plans and $0.1 billion to our qualified pension plans. The contributions to our nonqualified pension plans were not material during the three months ended March 31, 2016. There have been no material changes with respect to the qualified and nonqualified pension contributions in 2016 as previously disclosed in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

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9.

Equity and Accumulated Other Comprehensive Income

 

Equity

Changes in the components of Total equity were as follows:

 

(dollars in millions)    Attributable
to Verizon
    Noncontrolling
Interests
    Total
Equity
 

Balance at January 1, 2016

   $ 16,428      $ 1,414      $ 17,842   

Net income

     4,310        120        4,430   

Other comprehensive loss

     (91            (91
  

 

 

 

Comprehensive income

     4,219        120        4,339   
  

 

 

 

Contributed capital

     (5            (5

Dividends declared

     (2,303            (2,303

Common stock in treasury

     137               137   

Distributions and other

     165        (72     93   
  

 

 

 

Balance at March 31, 2016

   $   18,641      $   1,462      $   20,103   
  

 

 

 

Common Stock

Verizon did not repurchase any shares of Verizon common stock through its previously authorized share buyback program during the three months ended March 31, 2016. At March 31, 2016, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 97.2 million.

Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareowner plans, including 3.1 million common shares issued from Treasury stock during the three months ended March 31, 2016.

Accumulated Other Comprehensive Income

The changes in the balances of Accumulated other comprehensive income by component are as follows:

 

(dollars in millions)    Foreign currency
translation
adjustments
    Unrealized
loss on cash
flow hedges
   

Unrealized

loss on
marketable
securities

   

Defined benefit

pension and
postretirement
plans

    Total  

Balance at January 1, 2016

   $   (554   $   (278   $   101      $   1,281      $    550   

Other comprehensive income (loss)

     30        75        (2            103   

Amounts reclassified to net income

            (133     (16     (45     (194
  

 

 

 

Net other comprehensive income (loss)

     30        (58     (18     (45     (91
  

 

 

 

Balance at March 31, 2016

   $ (524   $ (336   $ 83      $ 1,236      $ 459   
  

 

 

 

The amounts presented above in net other comprehensive income (loss) are net of taxes and noncontrolling interests, which are not significant. For the three months ended March 31, 2016, the amounts reclassified to net income related to defined benefit pension and postretirement plans in the table above are included in Cost of services and Selling, general and administrative expense on our condensed consolidated statement of income. For the three months ended March 31, 2016, all other amounts reclassified to net income in the table above are included in Other income, net on our condensed consolidated statement of income.

 

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10.

Segment Information

 

Reportable Segments

We have two reportable segments, Wireless and Wireline, which we operate and manage as strategic business units and organize by products and services. We measure and evaluate our reportable segments based on segment operating income, consistent with the chief operating decision maker’s assessment of segment performance.

Corporate and other includes the operations of AOL and related businesses, unallocated corporate expenses, the results of other businesses, such as our investments in unconsolidated businesses, pension and other employee benefit related costs and lease financing. Corporate and other also includes other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-operational nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results as these items are included in the chief operating decision maker’s assessment of segment performance.

The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below also includes those items of a non-operational nature. We exclude from segment results the effects of certain items that management does not consider in assessing segment performance, primarily because of their non-operational nature.

We have adjusted prior period consolidated and segment information, where applicable, to conform to current period presentation.

Our reportable segments and their principal activities consist of the following:

 

Segment      Description
Wireless     

Wireless’ communications products and services include wireless voice and data services and equipment sales, which are provided to consumer, business and government customers across the United States.

Wireline     

Wireline’s voice, data and video communications products and enhanced services include broadband video and data, corporate networking solutions, data center and cloud services, security and managed network services and local and long distance voice services. We provide these products and services to consumers in the United States, as well as to carriers, businesses and government customers both in the United States and around the world.

 

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The following table provides operating financial information for our two reportable segments:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016      2015  

External Operating Revenues

     

Wireless

     

Service revenue

   $ 16,769       $ 17,896   

Equipment

     3,954         3,373   

Other

     1,196         1,033   
  

 

 

 

Total Wireless

     21,919         22,302   

Wireline

     

Consumer retail

     4,022         3,992   

Small business

     568         600   
  

 

 

 

Mass Markets

     4,590         4,592   

Global Enterprise

     3,161         3,263   

Global Wholesale

     1,213         1,266   

Other

     76         87   
  

 

 

 

Total Wireline

     9,040         9,208   
  

 

 

 

Total reportable segments

   $   30,959       $   31,510   
  

 

 

 

Intersegment Revenues

     

Wireless

   $ 85       $ 26   

Wireline

     250         261   
  

 

 

 

Total reportable segments

   $ 335       $ 287   
  

 

 

 

Total Operating Revenues

     

Wireless

   $ 22,004       $ 22,328   

Wireline

     9,290         9,469   
  

 

 

 

Total reportable segments

   $ 31,294       $ 31,797   
  

 

 

 

Operating Income

     

Wireless

   $ 7,880       $ 7,810   

Wireline

     589         405   
  

 

 

 

Total reportable segments

   $ 8,469       $ 8,215   
  

 

 

 

 

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(dollars in millions)    At March 31,
2016
    At December 31,
2015
 

Assets

    

Wireless

   $ 190,892      $ 185,405   

Wireline

     73,221        78,305   
  

 

 

 

Total reportable segments

     264,113        263,710   

Corporate and other

     210,199        205,476   

Eliminations

     (229,725     (225,011
  

 

 

 

Total consolidated – reported

   $    244,587      $    244,175   
  

 

 

 

A reconciliation of the reportable segment operating revenues to consolidated operating revenues is as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Total reportable segment operating revenues

   $ 31,294      $ 31,797   

Corporate and other

     1,232        474   

Eliminations

     (355     (287
  

 

 

 

Total consolidated operating revenues

   $   32,171      $   31,984   
  

 

 

 

Fios revenues are included within our Wireline segment and amounted to approximately $3.5 billion and $3.4 billion for the three months ended March 31, 2016 and 2015, respectively.

A reconciliation of the total of the reportable segments’ operating income to consolidated income before provision for income taxes is as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Total reportable segment operating income

   $ 8,469      $ 8,215   

Corporate and other

     (504     (255

Pension remeasurement (Note 8)

     (165       

Gain on spectrum license transaction (Note 2)

     142          
  

 

 

 

Total consolidated operating income

     7,942        7,960   

Equity in losses of unconsolidated businesses

     (20     (34

Other income, net

     32        75   

Interest expense

     (1,188     (1,332
  

 

 

 

Income Before Provision For Income Taxes

   $    6,766      $    6,669   
  

 

 

 

No single customer accounted for more than 10% of our total operating revenues during the three months ended March 31, 2016 and 2015.

 

11.

Commitments and Contingencies

 

In the ordinary course of business Verizon is involved in various commercial litigation and regulatory proceedings at the state and federal level. Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is probable and estimable in a given matter, the Company establishes an accrual. In none of the currently pending matters is the amount of accrual material. An estimate of the reasonably possible loss or range of loss in excess of the amounts already accrued cannot be made at this time due to various factors typical in contested proceedings, including (1) uncertain damage theories and demands; (2) a less than complete factual record; (3) uncertainty concerning legal theories and their resolution by courts or regulators; and (4) the unpredictable nature of the opposing party and its demands. We continuously monitor these proceedings as they develop and adjust any accrual or disclosure as needed. We do not expect that the ultimate resolution of any pending regulatory or legal matter in future periods, including the Hicksville matter described below, will have a material effect on our financial condition, but it could have a material effect on our results of operations for a given reporting period.

 

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Reserves have been established to cover environmental matters relating to discontinued businesses and past telecommunications activities. These reserves include funds to address contamination at the site of a former Sylvania facility in Hicksville, NY, which had processed nuclear fuel rods in the 1950s and 1960s. In September 2005, the Army Corps of Engineers (ACE) accepted the site into its Formerly Utilized Sites Remedial Action Program. As a result, the ACE has taken primary responsibility for addressing the contamination at the site. An adjustment to the reserves may be made after a cost allocation is conducted with respect to the past and future expenses of all of the parties. Adjustments to the environmental reserve may also be made based upon the actual conditions found at other sites requiring remediation.

Verizon is currently involved in approximately 50 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 seek injunctive relief as well. These cases have progressed to various stages and a small number may go to trial in the coming 12 months if they are not otherwise resolved.

In connection with the execution of agreements for the sales of businesses and investments, Verizon ordinarily provides representations and warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being sold, as well as indemnity from certain financial losses. From time to time, counterparties may make claims under these provisions, and Verizon will seek to defend against those claims and resolve them in the ordinary course of business.

Subsequent to the sale of Verizon Information Services Canada in 2004, we continue to provide a guarantee to publish directories, which was issued when the directory business was purchased in 2001 and had a 30-year term (before extensions). The preexisting guarantee continues, without modification, despite the subsequent sale of Verizon Information Services Canada and the spin-off of our domestic print and Internet yellow pages directories business. The possible financial impact of the guarantee, which is not expected to be adverse, cannot be reasonably estimated as a variety of the potential outcomes available under the guarantee result in costs and revenues or benefits that may offset each other. We do not believe performance under the guarantee is likely.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

Verizon Communications Inc. (Verizon or the Company) is a holding company that, acting through its subsidiaries, is one of the world’s leading providers of communications, information and entertainment products and services to consumers, businesses and governmental agencies. With a presence around the world, we offer voice, data and video services and solutions on our wireless and wireline networks that are designed to meet customers’ demand for mobility, reliable network connectivity, security and control. We have two reportable segments, Wireless and Wireline. Our wireless business, operating as Verizon Wireless, provides voice and data services and equipment sales across the United States (U.S.) using one of the most extensive and reliable wireless networks. Our wireline business provides consumer, business and government customers with communications products and enhanced services, including broadband data and video, corporate networking solutions, data center and cloud services, security and managed network services and local and long distance voice services, and also owns and operates one of the most expansive end-to-end global Internet Protocol (IP) networks. We have a highly skilled, diverse and dedicated workforce of approximately 173,300 employees as of March 31, 2016.

To compete effectively in today’s dynamic marketplace, we are focused on transforming around the capabilities of our high-performing networks with a goal of future growth based on delivering what customers want and need in the new digital world. Our three tier strategy is to lead at the network connectivity level in the markets we serve, develop new business models through global platforms in video and Internet of Things (IoT) and create certain opportunities in applications and content for incremental monetization. Our strategy requires significant capital investments primarily to acquire wireless spectrum, put the spectrum into service, provide additional capacity for growth in our networks, invest in the fiber optic network that supports our businesses, maintain our networks and develop and maintain significant advanced information technology systems and data system capabilities. We believe that steady and consistent investments in our networks and platforms will drive innovative products and services and fuel our growth. Our network leadership will continue to be the hallmark of our brand, and provide the fundamental strength at the connectivity, platform and solutions layers upon which we build our competitive advantage.

Business Overview

Wireless

In our Wireless business, revenues decreased 1.5% during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of a 6.2% decline in service revenue, partially offset by a 17.2% increase in equipment revenue. We continue to manage through revenue transformation while growing high-quality retail postpaid connections. At March 31, 2016, retail postpaid connections were 4.4% higher than at March 31, 2015. Under the Verizon device payment program, our eligible wireless customers purchase phones or tablets at unsubsidized prices on an installment basis (a device installment plan). Customers that activate service on devices purchased under the device payment program or on a compatible device that they already own pay lower service fees (unsubsidized service pricing) as compared to those under our fixed-term service plans. The decline in service revenue was driven by customer migration to plans with unsubsidized service pricing. At March 31, 2016, approximately 48% of our retail postpaid phone connections were on unsubsidized service pricing compared to approximately 18% at March 31, 2015. The migration to unsubsidized service pricing was driven primarily by an increase in activations of devices purchased under the Verizon device payment program on plans with unsubsidized service pricing. The increase in equipment revenue was driven by an increase in device sales, primarily smartphones, under the Verizon device payment program and the resulting recognition of a higher amount of equipment revenue at the time of sale of devices under the device payment program. During the three months ended March 31, 2016 and 2015, the percentage of phone activations under the Verizon device payment program was approximately 68% and 39%, respectively. At March 31, 2016, approximately 33% of our retail postpaid phone connections participated in the Verizon device payment program compared to approximately 12% at March 31, 2015.

We are focusing our wireless capital spending on adding capacity and density to our fourth generation (4G) Long Term Evolution (LTE) network. Approximately 92% of our total data traffic in March 2016 was carried on our 4G LTE network. We are investing in the densification of our network by utilizing small cell technology, in-building solutions and distributed antenna solutions. Densification enables us to add capacity to manage mobile video consumption and demand for IoT, as well as position us for future fifth-generation (5G) technology. We are committed to developing and deploying 5G wireless technology and we are working with key partners to ensure the aggressive pace of innovation, standards development and appropriate requirements for this next generation of wireless technology.

 

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Wireline

In our Wireline business, revenues declined 1.9% during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to revenue declines in Global Enterprise and Global Wholesale resulting from lower voice services and data networking revenues. To compensate for the shrinking market for traditional voice service, we continue to build our Wireline segment around data, video and advanced business services – areas where demand for reliable high-speed connections is growing. We continue to experience revenue increases in Consumer retail driven by Fios. During the three months ended March 31, 2016, Fios represented approximately 81% of Consumer retail revenue compared to approximately 78% during the similar period in 2015. As the penetration of Fios products increases, we continue to seek ways to increase revenue and further realize operating and capital efficiencies as well as maximize profitability. As more applications are developed for this high-speed service, we expect that Fios will become a hub for managing multiple home services that will eventually be part of the digital grid, including not just entertainment and communications, but also IoT technology in areas such as home monitoring, health monitoring, and energy management.

We continue to enhance offerings on our Fios platform. During the first quarter of 2016, we introduced the next generation of our Fios Custom TV package to appeal to an even wider range of value-conscious customers, by expanding the content and value provided by the original Custom TV offer. Customers now have a choice between selecting an Essentials plan and a Sports and More plan, with the option to select up to three additional genre packs.

On February 5, 2015, we entered into a definitive agreement with Frontier Communications Corporation (Frontier) pursuant to which Verizon agreed to sell its local exchange business and related landline activities in California, Florida and Texas, including Fios Internet and video customers, switched and special access lines and high-speed Internet service and long distance voice accounts in these three states for approximately $10.5 billion (approximately $7.5 billion net of income taxes), subject to certain adjustments and including the assumption of $0.6 billion of indebtedness from Verizon by Frontier. The transaction, which includes the acquisition by Frontier of the equity interests of Verizon’s incumbent local exchange carriers (ILECs) in California, Florida and Texas, does not involve any assets or liabilities of Verizon Wireless. The transaction closed on April 1, 2016.

Based on the number of voice connections and Fios Internet and video subscribers, respectively, as of March 31, 2016, the transaction resulted in Frontier acquiring approximately 3.3 million voice connections, 1.6 million Fios Internet subscribers, 1.2 million Fios video subscribers and the related ILEC businesses from Verizon. Approximately 9,300 Verizon employees who served customers in California, Florida and Texas are continuing employment with Frontier. The assets and liabilities that were sold were included in Verizon’s continuing operations and classified as assets held for sale and liabilities related to assets held for sale on our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015. The operating results of these businesses, collectively, are included within our Wireline segment for all periods presented.

Capital Expenditures and Investments

We continue to invest in our wireless network, high-speed fiber and other advanced technologies to position ourselves at the center of growth trends for the future. During the three months ended March 31, 2016, these investments included $3.4 billion for capital expenditures. We believe that our investments aimed at expanding our portfolio of products and services will provide our customers with an even more efficient, reliable infrastructure for competing in the information economy.

Trends

Except to the extent described above, there have been no significant changes to the information related to trends affecting our business that was disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015.

 

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Consolidated Results of Operations

In this section, we discuss our overall results of operations and highlight items of a non-operational nature that are not included in our segment results. We have two reportable segments, Wireless and Wireline, which we operate and manage as strategic business units and organize by products and services. In “Segment Results of Operations,” we review the performance of our two reportable segments.

Corporate and other includes the operations of AOL Inc. (AOL) and related businesses, unallocated corporate expenses, the results of other businesses, such as our investments in unconsolidated businesses, pension and other employee benefit related costs and lease financing. Corporate and other also includes other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-operational nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results as these items are included in the chief operating decision maker’s assessment of segment performance. We believe that this presentation assists users of our financial statements in better understanding our results of operations and trends from period to period.

 

Consolidated Revenues

 

     Three Months Ended
March 31,
    Increase/  
(dollars in millions)    2016     2015     (Decrease)  

Wireless

        

Service

   $   16,809      $   17,914      $   (1,105     (6.2 )% 

Equipment

     3,954        3,373        581        17.2   

Other

     1,241        1,041        200        19.2   
  

 

 

   

 

 

   

Total

     22,004        22,328        (324     (1.5

Wireline

        

Mass Markets

     4,590        4,592        (2       

Global Enterprise

     3,161        3,263        (102     (3.1

Global Wholesale

     1,463        1,524        (61     (4.0

Other

     76        90        (14     (15.6
  

 

 

   

 

 

   

Total

     9,290        9,469        (179     (1.9

Corporate and other

     1,232        474        758        nm   

Eliminations

     (355     (287     (68     23.7   
  

 

 

   

 

 

   

Consolidated Revenues

   $ 32,171      $ 31,984      $ 187        0.6   
  

 

 

   

 

 

   

nm – not meaningful

The increase in consolidated revenues during the three months ended March 31, 2016, compared to the similar period in 2015, was primarily due to higher revenues within Corporate and other as well as higher equipment revenues at our Wireless segment, partially offset by a decline in service revenues at our Wireless segment and declines in Global Enterprise and Global Wholesale revenues at our Wireline segment.

Corporate and other revenues increased $0.8 billion during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of the acquisition of AOL on June 23, 2015.

Wireless’ revenues decreased $0.3 billion, or 1.5% during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of a decline in service revenue, partially offset by increases in equipment and other revenues. Service revenue, which does not include recurring device installment billings related to the Verizon device payment program, decreased by $1.1 billion, or 6.2%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily driven by lower retail postpaid service revenue. Retail postpaid service revenue was negatively impacted as a result of customer migrations to plans with unsubsidized service pricing. At March 31, 2016, approximately 48% of our retail postpaid phone connections were on unsubsidized servicing pricing compared to approximately 18% at March 31, 2015. Equipment revenue increased by $0.6 billion, or 17.2%, during the three months ended March 31, 2016, compared to the similar period in

 

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2015, as a result of an increase in device sales, primarily smartphones, under the Verizon device payment program, partially offset by a decline in device sales under the traditional fixed-term service plans. During the three months ended March 31, 2016 and 2015, the percentage of phone activations under the Verizon device payment program was approximately 68% and 39%, respectively.

Wireline’s revenue decreased $0.2 billion, or 1.9%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of declines in Global Enterprise and Global Wholesale, partially offset by an increase in Fios revenues. Fios revenues were $3.5 billion and $3.4 billion during the three months ended March 31, 2016 and 2015, respectively. Global Enterprise revenues decreased $0.1 billion, or 3.1%, during the three months ended March 31, 2016, compared to the similar period in 2015, due to declines in traditional data and advanced networking solutions, Cloud and IT services and voice communications services. Global Wholesale revenues decreased $0.1 billion, or 4.0%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to declines in data revenues and traditional voice revenues driven by the effect of technology substitution as well as continuing contraction of market rates due to competition.

 

Consolidated Operating Expenses

 

     Three Months Ended
March 31,
     Increase/  
(dollars in millions)    2016      2015      (Decrease)  

Cost of services `

   $ 7,614       $ 6,988       $ 626        9.0

Wireless cost of equipment

     4,998         5,108         (110     (2.2

Selling, general and administrative expense

     7,600         7,939         (339     (4.3

Depreciation and amortization expense

     4,017         3,989         28        0.7   
  

 

 

    

 

 

   

Consolidated Operating Expenses

   $   24,229       $   24,024       $    205        0.9   
  

 

 

    

 

 

   

Cost of Services

Cost of services increased during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to an increase in costs as a result of the acquisition of AOL on June 23, 2015 and the launch of go90 in the third quarter of 2015, as well as increases in rent expense for macro and small cell sites and volume-driven costs related to our device protection package at our Wireless segment and higher content costs at our Wireline segment. Partially offsetting these increases were decreases in employee costs and declines in access costs at our Wireline segment during the three months ended March 31, 2016, compared to the similar period in 2015.

Wireless Cost of Equipment

Wireless cost of equipment decreased $0.1 billion, or 2.2%, at our Wireless segment during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of a decline in the number of smartphone units sold, partially offset by an increase in the average cost per unit for smartphones, driven by a shift to higher priced units in the mix of devices sold.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to a decline in sales commission expense at our Wireless segment, a gain recorded in the first quarter of 2016 related to the completion of a wireless license transaction and declines in employee costs, transaction taxes and regulatory expenses at our Wireline segment. The decrease is partially offset by a pension remeasurement charge recorded in the first quarter of 2016, an increase in costs as a result of the acquisition of AOL on June 23, 2015 and an increase in costs as a result of the launch of go90 in the third quarter of 2015.

Depreciation and Amortization Expense

Depreciation and amortization expense increased slightly during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to an increase in net depreciable assets partially offset by depreciation and amortization expense not being recorded on our depreciable Wireline assets in California, Florida and Texas which were classified as held for sale as of February 5, 2015. During the three months ended March 31, 2016 and 2015, depreciation and amortization not recorded on our assets in California, Florida and Texas was $0.2 billion and $0.1 billion, respectively.

We did not record depreciation and amortization expense on our depreciable Wireline assets in California, Florida and Texas through the closing of the transaction with Frontier, which closed April 1, 2016.

 

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Non-operational Credits (Charges)

Non-operational credits (charges) included in operating expenses were as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Pension remeasurement

   $   (165   $   –   

Gain on spectrum license transaction

     142          

See “Other Items” for a description of non-operational items.

Consolidated Operating Income and EBITDA

Consolidated earnings before interest, taxes, depreciation and amortization expenses (Consolidated EBITDA) and Consolidated Adjusted EBITDA, which are presented below, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. Management believes that these measures are useful to investors and other users of our financial information in evaluating operating profitability on a more variable cost basis as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Consolidated EBITDA is calculated by adding back interest, taxes, depreciation and amortization expense, other income, net and equity in losses of unconsolidated businesses to net income.

Consolidated Adjusted EBITDA is calculated by excluding the effect of non-operational items from the calculation of Consolidated EBITDA. Management believes that this measure provides additional relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. See “Other Items” for additional details regarding these non-operational items.

Operating expenses include pension and benefit related credits and/or charges based on actuarial assumptions, including projected discount rates and an estimated return on plan assets. These estimates will be updated in the fourth quarter or upon a remeasurement event to reflect actual return on plan assets and updated actuarial assumptions. The adjustment will be recognized in the income statement during the fourth quarter or upon a remeasurement event pursuant to our accounting policy for the recognition of actuarial gains/losses. During the first quarter of 2016, we recorded a pension remeasurement charge in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur. In the remaining quarters of 2016, we will remeasure certain of our pension and other postretirement assets and liabilities, when required, based on updated actuarial assumptions. These remeasurements could result in significant charges or credits to one or more of our pension plans.

It is management’s intent to provide non-GAAP financial information to enhance the understanding of Verizon’s GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.

 

     Three Months Ended
March 31,
 
(dollars in millions)    2016     2015  

Consolidated Operating Income

   $ 7,942      $ 7,960   

Add Depreciation and amortization expense

     4,017        3,989   
  

 

 

 

Consolidated EBITDA

   $   11,959      $   11,949   
  

 

 

 

Add Pension remeasurement

     165          

Less Gain on spectrum license transaction

     (142       
  

 

 

 

Consolidated Adjusted EBITDA

   $ 11,982      $ 11,949   
  

 

 

 

The changes in the table above during the three months ended March 31, 2016, compared to the similar period in 2015, were a result of the factors described in connection with operating revenues and operating expenses.

 

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Other Consolidated Results

Other Income, Net

Additional information relating to Other income, net is as follows:

 

     Three Months Ended
March 31,
    Increase/  
(dollars in millions)    2016     2015     (Decrease)  

Interest income

   $ 15      $ 43      $ (28     (65.1 )% 

Other, net

     17        32        (15     (46.9
  

 

 

   

 

 

   

Total

   $   32      $   75      $       (43     (57.3
  

 

 

   

 

 

   
Interest Expense       
     Three Months Ended
March 31,
    Increase/  
(dollars in millions)    2016     2015     (Decrease)  

Total interest costs on debt balances

   $ 1,356      $ 1,383      $ (27     (2.0 )% 

Less capitalized interest costs

     168        51        117        nm   
  

 

 

   

 

 

   

Total

   $ 1,188      $ 1,332      $ (144     (10.8
  

 

 

   

 

 

   

Average debt outstanding

   $   109,693      $   114,993       

Effective interest rate

     4.9     4.8    

nm – not meaningful

        

Total interest costs on debt balances decreased during the three months ended March 31, 2016, compared to the similar period in 2015. The decrease during the three months ended March 31, 2016 was primarily due to lower average debt balances (see “Consolidated Financial Condition”). Capitalized interest costs were higher during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to an increase in wireless licenses that are currently under development, which was a result of our winning bid in the FCC spectrum license auction during 2015. The FCC granted us those wireless licenses on April 8, 2015.

Provision for Income Taxes

 

     Three Months Ended
March 31,
    Increase/  
(dollars in millions)    2016     2015     (Decrease)  

Provision for income taxes

   $   2,336      $   2,331      $       5         0.2%   

Effective income tax rate

     34.5     35.0     

The effective income tax rate is calculated by dividing the provision for income taxes by income before the provision for income taxes. The effective income tax rate and provision for income taxes for the three months ended March 31, 2016 is comparable to the similar period in 2015.

Unrecognized Tax Benefits

Unrecognized tax benefits were $1.7 billion at March 31, 2016 and $1.6 billion at December 31, 2015. Interest and penalties related to unrecognized tax benefits were $0.1 billion (after-tax) at March 31, 2016 and December 31, 2015, respectively.

Verizon and/or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. As a large taxpayer, we are under audit by the IRS and multiple state and foreign jurisdictions for various open tax years. It is reasonably possible that the amount of the liability for unrecognized tax benefits could change by a significant amount in the next twelve months. An estimate of the range of the possible change cannot be made until these tax matters are further developed or resolved.

 

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Segment Results of Operations

We have two reportable segments, Wireless and Wireline, which we operate and manage as strategic business units and organize by products and services. We measure and evaluate our reportable segments based on segment operating income. The use of segment operating income is consistent with the chief operating decision maker’s assessment of segment performance.

Segment earnings before interest, taxes, depreciation and amortization (Segment EBITDA), which is presented below, is a non-GAAP measure and does not purport to be an alternative to operating income as a measure of operating performance. Management believes that this measure is useful to investors and other users of our financial information in evaluating operating profitability on a more variable cost basis as it excludes the depreciation and amortization expenses related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Segment EBITDA is calculated by adding back depreciation and amortization expense to segment operating income. Segment EBITDA margin is calculated by dividing Segment EBITDA by total segment operating revenues. You can find additional information about our segments in Note 10 to the condensed consolidated financial statements.

 

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Wireless

Our Wireless segment, doing business as Verizon Wireless, provides wireless communications services across one of the most extensive wireless networks in the United States. We provide these services and equipment sales to consumer, business and government customers in the United States on a postpaid and prepaid basis. Postpaid connections represent individual lines of service for which a customer is billed in advance a monthly access charge in return for a monthly network service allowance, and usage beyond the allowance is billed monthly in arrears. Our prepaid service enables individuals to obtain wireless services without credit verification by paying for all services in advance.

Operating Revenues and Selected Operating Statistics

 

     Three Months Ended
March 31,
    Increase/  
(dollars in millions, except ARPA and I-ARPA)    2016     2015     (Decrease)  

Service

   $ 16,809      $ 17,914      $ (1,105     (6.2 )% 

Equipment

     3,954        3,373        581        17.2   

Other

     1,241        1,041        200        19.2   
  

 

 

   

 

 

   

Total Operating Revenues

   $    22,004      $    22,328      $ (324     (1.5
  

 

 

   

 

 

   

Connections (‘000):(1)

        

Retail connections

     112,573        108,582           3,991        3.7   

Retail postpaid connections

     107,171        102,637        4,534        4.4   

Net additions in period (‘000):(2)

        

Retail connections

     463        377        86        22.8   

Retail postpaid connections

     640        565        75        13.3   

Churn Rate:

        

Retail connections

     1.23     1.33    

Retail postpaid connections

     0.96     1.03    

Account Statistics:

        

Retail postpaid ARPA

   $ 145.34      $ 156.14      $ (10.80     (6.9

Retail postpaid I-ARPA

   $ 165.03      $ 162.78      $ 2.25        1.4   

Retail postpaid accounts (‘000)(1)

     35,720        35,516        204        0.6   

Retail postpaid connections per account(1)

     3.00        2.89        0.11        3.8   

(1) As of end of period

(2) Excluding acquisitions and adjustments

Wireless’ total operating revenues decreased by $0.3 billion, or 1.5%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of a decline in service revenue, partially offset by increases in equipment and other revenues.

Accounts and Connections

Retail postpaid accounts primarily represent retail customers with Verizon Wireless that are directly served and managed by Verizon Wireless and use its branded services. Accounts include shared data plans, such as our Verizon Plan and More Everything plans, and corporate accounts, as well as legacy single connection plans and family plans. A single account may include monthly wireless services for a variety of connected devices. Retail connections represent our retail customer device connections. Churn is the rate at which service to connections is terminated.

Retail connections under an account may include: smartphones and basic phones (collectively, phones) as well as tablets, LTE Internet (Installed) and other connected devices, including retail IoT connections. Retail postpaid connection net additions increased during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to a lower retail postpaid connection churn rate.

 

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Retail Postpaid Connections per Account

Retail postpaid connections per account is calculated by dividing the total number of retail postpaid connections by the number of retail postpaid accounts as of the end of the period. Retail postpaid connections per account increased 3.8% as of March 31, 2016, compared to March 31, 2015. The increase in retail postpaid connections per account is primarily due to increases in Internet devices, which represented 17.3% of our retail postpaid connection base as of March 31, 2016, compared to 14.8% as of March 31, 2015.

Service Revenue

Service revenue, which does not include recurring device installment billings related to the Verizon device payment program, decreased by $1.1 billion, or 6.2%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily driven by lower retail postpaid service revenue. Retail postpaid service revenue was negatively impacted as a result of customer migration to plans with unsubsidized service pricing. Customer migration to unsubsidized service pricing is driven in part by an increase in the activation of devices purchased under the Verizon device payment program on plans with unsubsidized service pricing. At March 31, 2016, approximately 48% of our retail postpaid phone connections were on unsubsidized service pricing compared to approximately 18% at March 31, 2015. At March 31, 2016, approximately 33% of our retail postpaid phone connections participated in the Verizon device payment program compared to approximately 12% at March 31, 2015. The decrease in service revenues was partially offset by the impact of an increase in retail postpaid connections as well as an increase in the penetration of smartphones and tablets through our shared data plans compared the prior year period. Service revenue plus recurring device installment billings related to the Verizon device payment program increased 1.6% during the three months ended March 31, 2016, compared to the similar period in 2015.

Retail postpaid ARPA (the average service revenue per account from retail postpaid accounts), which does not include recurring device installment billings related to the Verizon device payment program, was negatively impacted during the three months ended March 31, 2016, compared to the similar period in 2015, as a result of customer migration to plans with unsubsidized pricing. Retail postpaid I-ARPA (the average service revenue per account from retail postpaid accounts plus recurring device installment billings), which represents the monthly recurring value received on a per account basis from our retail postpaid accounts, increased 1.4% during the three months ended March 31, 2016, compared to the similar period in 2015.

Equipment Revenue

Equipment revenue increased by $0.6 billion, or 17.2%, during the three months ended March 31, 2016, compared to the similar period in 2015, as a result of an increase in device sales, primarily smartphones, under the Verizon device payment program, partially offset by a decline in device sales under the traditional fixed-term service plans. For the three months ended March 31, 2016, phone activations under the Verizon device payment program represented approximately 68% of retail postpaid phones activated compared to approximately 39% during the three months ended March 31, 2015. The increase in these activations resulted in a relative shift of revenue from service revenue to equipment revenue, and caused a change in the timing of the recognition of revenue. This shift in revenue was the result of recognizing a higher amount of equipment revenue at the time of sale of devices under the device payment program.

Other Revenue

Other revenue includes non-service revenues such as regulatory fees, cost recovery surcharges, revenues associated with our device protection package, sublease rentals and financing revenue. Other revenue increased $0.2 billion, or 19.2%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to cost recovery surcharges, financing revenues from our device payment program and a volume-driven increase in revenues related to our device protection package.

Operating Expenses

 

    

Three Months Ended

March 31,

     Increase/  
(dollars in millions)    2016      2015      (Decrease)  

Cost of services

   $ 1,942       $ 1,851       $ 91        4.9

Cost of equipment

     4,998         5,108         (110     (2.2

Selling, general and administrative expense

     4,891         5,369         (478     (8.9

Depreciation and amortization expense

     2,293         2,190         103        4.7   
  

 

 

    

 

 

   

Total Operating Expenses

   $   14,124       $   14,518       $   (394     (2.7
  

 

 

    

 

 

   

Cost of Services

Cost of services increased $0.1 billion, or 4.9%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to higher rent expense as a result of an increase in macro and small cell sites, as well as a volume-driven increase in costs related to the device protection package offered to our customers.

 

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Cost of Equipment

Cost of equipment decreased $0.1 billion, or 2.2%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of a decline in the number of smartphone units sold, partially offset by an increase in the average cost per unit for smartphones, driven by a shift to higher priced units in the mix of devices sold.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased $0.5 billion, or 8.9%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to a decline in sales commission expense. The decline in sales commission expense was driven by an increase in activations under the Verizon device payment program, which has a lower commission per unit than activations under traditional fixed-term service plans.

Depreciation and Amortization Expense

Depreciation and amortization expense increased during the three months ended March 31, 2016, compared to the similar period in 2015, primarily driven by an increase in net depreciable assets.

Segment Operating Income and EBITDA

 

    

Three Months Ended

March 31,

    Increase/  
(dollars in millions)    2016     2015     (Decrease)  

Segment Operating Income

   $ 7,880      $ 7,810      $ 70         0.9

Add Depreciation and amortization expense

     2,293        2,190        103         4.7   
  

 

 

   

 

 

    

Segment EBITDA

   $   10,173      $   10,000      $   173         1.7   
  

 

 

   

 

 

    

Segment operating income margin

     35.8     35.0     

Segment EBITDA margin

     46.2     44.8     

The changes in the table above during the three months ended March 31, 2016, compared to the similar period in 2015, were primarily a result of the factors described in connection with operating revenues and operating expenses.

Non-operational items excluded from our Wireless segment Operating income were as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016      2015  

Gain on spectrum license transaction

   $ 142       $  –   

 

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Wireline

 

Our Wireline segment provides voice, data and video communications products and enhanced services including broadband video and data, corporate networking solutions, data center and cloud services, security and managed network services and local and long distance voice services. We provide these products and services to consumers in the United States, as well as to carriers, businesses and government customers both in the United States and around the world.

The operating results of Verizon’s local exchange business and related landline activities in California, Florida and Texas, which were sold to Frontier, were included within our Wireline segment for all periods presented. The assets and liabilities that were sold were included in Verizon’s continuing operations and classified as assets held for sale and liabilities related to assets held for sale on our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015. This transaction closed on April 1, 2016.

Operating Revenues and Selected Operating Statistics

 

     Three Months Ended
March 31,
     Increase/  
(dollars in millions)    2016      2015      (Decrease)  

Consumer retail

   $ 4,022       $ 3,992       $ 30        0.8

Small business

     568         600         (32     (5.3
  

 

 

    

 

 

   

Mass Markets

     4,590         4,592         (2       

Global Enterprise

     3,161         3,263         (102     (3.1

Global Wholesale

     1,463         1,524         (61     (4.0

Other

     76         90         (14     (15.6
  

 

 

    

 

 

   

Total Operating Revenues

   $ 9,290       $ 9,469       $ (179     (1.9
  

 

 

    

 

 

   

Connections (‘000):(1)

          

Total voice connections

       18,037           19,475           (1,438     (7.4

Total Broadband connections

     9,218         9,246         (28     (0.3

Fios Internet subscribers

     7,132         6,749         383        5.7   

Fios video subscribers

     5,863         5,739         124        2.2   

(1) As of end of period

Wireline’s revenues decreased $0.2 billion, or 1.9%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily as a result of declines in Global Enterprise and Global Wholesale, partially offset by an increase in Fios revenues. Fios revenues were $3.5 billion during the three months ended March 31, 2016, compared to $3.4 billion during the similar period in 2015.

Mass Markets

Mass Markets operations provide broadband Internet and video services (including high-speed Internet, Fios Internet and Fios video services), local exchange (basic service and end-user access) and long distance (including regional toll) voice services to residential and small business subscribers.

Mass Markets revenues were unchanged during the three months ended March 31, 2016, compared to the similar period in 2015, as increases in Fios revenues due to Fios services (voice, Internet and video) growth, including our Fios Quantum offerings, were offset by the continued decline of local exchange revenues.

We grew our subscriber base by 0.4 million Fios Internet subscribers and 0.1 million Fios video subscribers, while also improving penetration rates within our Fios service areas for Fios Internet. As of March 31, 2016, we achieved a penetration rate of 41.9% for Fios Internet, compared to a penetration rate of 41.5% for Fios Internet as of March 31, 2015. During 2016, Consumer Fios revenues increased $0.1 billion, or 4.7%. Fios represented approximately 81% of Consumer retail revenue during the three months ended March 31, 2016 compared to approximately 78% during the similar period in 2015.

 

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The decline of local exchange revenues was primarily due to a 7.2% decline in Consumer retail voice connections resulting primarily from competition and technology substitution with wireless, competing VoIP (voice over IP) and cable telephony services. Total voice connections include traditional switched access lines in service as well as Fios digital voice connections. There was also a 7.1% decline in Small business retail voice connections, reflecting competition and a shift to both IP and high-speed circuits, primarily in areas outside of our Fios footprint.

Global Enterprise

Global Enterprise offers advanced information and communication technology services and other traditional communications services to medium and large business customers, multinational corporations and state and federal government customers.

Global Enterprise revenues decreased $0.1 billion, or 3.1%, during the three months ended March 31, 2016, compared to the similar period in 2015, due to declines in traditional data and advanced networking solutions, Cloud and IT services and voice communications services. Also contributing to the decrease was the negative impact of foreign exchange rates. Traditional data networking services, which consist of traditional circuit-based services such as frame relay, private line and legacy data networking services and advanced networking solutions, which include Private IP, Public Internet, Ethernet and optical network services, and Cloud and IT services, declined as a result of competitive pressures.

Global Wholesale

Global Wholesale provides communications services including data, voice and local dial tone and broadband services primarily to local, long distance and other carriers that use our facilities to provide services to their customers.

Global Wholesale revenues decreased $0.1 billion, or 4.0%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to declines in data revenues and traditional voice revenues driven by the effect of technology substitution as well as continuing contraction of market rates due to competition. The decline in traditional voice revenue is driven by a 6.4% decline in domestic wholesale connections at March 31, 2016, compared to March 31, 2015. As a result of technology substitution, the number of core data circuits at March 31, 2016 experienced a 14.4% decline compared to March 31, 2015.

Operating Expenses

 

    

Three Months Ended

March 31,

     Increase/  
(dollars in millions)    2016      2015      (Decrease)  

Cost of services

   $   5,163       $   5,287       $   (124     (2.3 )% 

Selling, general and administrative expense

     1,950         2,031         (81     (4.0

Depreciation and amortization expense

     1,588         1,746         (158     (9.0
  

 

 

    

 

 

   

Total Operating Expenses

   $ 8,701       $ 9,064       $ (363     (4.0
  

 

 

    

 

 

   

Cost of Services

Cost of services decreased $0.1 billion, or 2.3%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to declines in employee costs as a result of reduced headcount as well as a decline in access costs, driven by declines in overall wholesale long distance volumes. Partially offsetting these decreases was an increase in content costs associated with continued Fios subscriber growth and programming license fee increases.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased $0.1 billion, or 4.0%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to declines in employee costs as a result of reduced headcount as well as decreases in transaction taxes and regulatory expenses.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased $0.2 billion, or 9.0%, during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to depreciation and amortization expense not being recorded on our assets in California, Florida and Texas, which were classified as held for sale as of February 5, 2015, as well as decreases in net depreciable assets. During the three months ended March 31, 2016 and 2015, depreciation and amortization not recorded on our assets in California, Florida and Texas was $0.2 billion and $0.1 billion, respectively.

 

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We did not record depreciation and amortization expense on our depreciable Wireline assets in California, Florida and Texas through the closing of the transaction with Frontier, which closed on April 1, 2016.

Segment Operating Income and EBITDA

 

    

Three Months Ended

March 31,

    Increase/  
(dollars in millions)    2016     2015     (Decrease)  

Segment Operating Income

   $ 589      $ 405      $ 184        45.4

Add Depreciation and amortization expense

     1,588        1,746        (158     (9.0
  

 

 

   

 

 

   

Segment EBITDA

   $   2,177      $   2,151      $ 26        1.2   
  

 

 

   

 

 

   

Segment operating income margin

     6.3     4.3    

Segment EBITDA margin

     23.4     22.7    

The changes in the table above during the three months ended March 31, 2016, compared to the similar period in 2015, were primarily a result of the factors described in connection with operating revenues and operating expenses.

 

Other Items

 

Pension Remeasurement

During the three months ended March 31, 2016, we recorded a net pre-tax pension remeasurement charge of approximately $0.2 billion in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur. The pension remeasurement charge relates to settlements for employees who received lump-sum distributions in one of Verizon’s seven defined benefit pension plans. The pension remeasurement charge was primarily driven by an approximately 43 basis point decrease in our discount rate assumption used to determine the current year liabilities of this pension plan. Our weighted-average discount rate assumption decreased from 4.60% at December 31, 2015 to 4.21% at March 31, 2016.

In accordance with our accounting policy for pension and other postretirement benefits, in the remaining quarters of 2016 we will remeasure certain of our pension and other postretirement assets and liabilities, when required, based on updated actuarial assumptions. These remeasurements could result in significant charges or credits to one or more of our pension and other postretirement benefit plans.

The Consolidated Adjusted EBITDA non-GAAP measure presented in the Consolidated Operating Income and EBITDA discussion (See “Consolidated Results of Operations”) excludes the pension remeasurement described above.

 

Gain on Spectrum License Transaction

During the first quarter of 2016, we completed a license exchange transaction with affiliates of AT&T Inc. to exchange certain Advanced Wireless Services (AWS) and Personal Communication Services (PCS) spectrum licenses. As a result of this non-cash exchange, we received $0.4 billion of AWS and PCS spectrum licenses at fair value and we recorded a pre-tax gain of approximately $0.1 billion in Selling, general and administrative expense on our condensed consolidated statement of income for the three months ended March 31, 2016.

The Consolidated Adjusted EBITDA non-GAAP measure presented in the Consolidated Operating Income and EBITDA discussion (See “Consolidated Results of Operations”) excludes the gain on the spectrum license transaction described above.

 

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Consolidated Financial Condition

 

    

Three Months Ended

March 31,

       
(dollars in millions)    2016     2015     Change  

Cash Flows Provided By (Used In)

      

Operating activities

   $ 7,419      $ 10,169      $ (2,750

Investing activities

     (3,436     (13,176     9,740   

Financing activities

     (2,607     (3,205     598   
  

 

 

 

Increase (Decrease) In Cash and Cash Equivalents

   $ 1,376      $ (6,212   $ 7,588   
  

 

 

 

We use the net cash generated from our operations to fund network expansion and modernization, service and repay external financing, pay dividends, invest in new businesses and, when appropriate, buy back shares of our outstanding common stock. Our sources of funds, primarily from operations and, to the extent necessary, from external financing arrangements, are sufficient to meet ongoing operating and investing requirements. We expect that our capital spending requirements will continue to be financed primarily through internally generated funds. 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. Our cash and cash equivalents are primarily held domestically and are invested to maintain principal and provide liquidity. Accordingly, we do not have significant exposure to foreign currency fluctuations. See “Market Risk” for additional information regarding our foreign currency risk management strategies.

Our available external financing arrangements include an active commercial paper program, credit available under credit facilities and other bank lines of credit, vendor financing arrangements, issuances of registered debt or equity securities and privately-placed capital market securities. In addition, in 2015, we established an active program to sell selected device installment plan receivables under the Verizon device payment program to a group of primarily relationship banks (Purchasers).

 

Cash Flows Provided By Operating Activities

Our primary source of funds continues to be cash generated from operations, primarily from our Wireless segment. Net cash provided by operating activities during the three months ended March 31, 2016 decreased by $2.8 billion, compared to the similar period in 2015, primarily due to $2.4 billion of proceeds received in the three months ended March 31, 2015 as a result of our transaction (Tower Monetization Transaction) with American Tower Corporation (American Tower) and a reduction in working capital levels, partially offset by proceeds related to the sale of wireless device installment plan receivables. We completed the Tower Monetization Transaction in March 2015, pursuant to which American Tower acquired the exclusive rights to lease and operate approximately 11,300 of our wireless towers for an upfront payment of $5.0 billion, of which $2.4 billion related to a portion of the towers for which the right-of-use has passed to the tower operator.

During 2015, we established an on-going program to sell from time to time, on an uncommitted basis, selected device installment plan receivables under the Verizon device payment program to the Purchasers. Under the program, we transfer the receivables to wholly-owned subsidiaries that are bankruptcy remote special purpose entities (Sellers). The Sellers then sell the receivables to the Purchasers for cash and additional consideration upon settlement of the receivables (the deferred purchase price). The receivables sold under the program are no longer considered assets of Verizon. We continue to bill and collect on the receivables in exchange for a monthly servicing fee, which is not material. During the three months ended March 31, 2016 and 2015, we received cash proceeds related to new sales of wireless device installment receivables of $2.0 billion and $1.3 billion, respectively.

 

Cash Flows Used In Investing Activities

Capital Expenditures

Capital expenditures continue to be a primary use of capital resources as they facilitate the introduction of new products and services, enhance responsiveness to competitive challenges and increase the operating efficiency and productivity of our networks.

 

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Capital expenditures, including capitalized software, were as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Wireless

   $ 2,190      $ 2,419   

Wireline

     1,006        1,077   

Other

     191        169   
  

 

 

 
   $   3,387      $   3,665   
  

 

 

 

Total as a percentage of revenue

     10.5     11.5

Capital expenditures decreased at Wireless during the three months ended March 31, 2016, compared to the similar period in 2015, primarily due to the timing of investments to increase the capacity of our 4G LTE network. Capital expenditures declined at Wireline as a result of decreased legacy spending.

 

Cash Flows Used In Financing Activities

We seek to maintain a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow volatility resulting from changes in market conditions. During the three months ended March 31, 2016 and 2015, net cash used in financing activities was $2.6 billion and $3.2 billion, respectively.

During the three months ended March 31, 2016, our net cash used in financing activities of $2.6 billion was primarily driven by $2.3 billion paid in cash dividends.

Proceeds from and Repayments of Long-Term Borrowings

At March 31, 2016, our total debt was $109.9 billion compared to $109.7 billion at December 31, 2015. Since the substantial majority of our total debt portfolio consists of fixed rate indebtedness, changes in interest rates do not have a material effect on our interest payments. During the three months ended March 31, 2016 and 2015, our effective interest rate was 4.9% and 4.8%, respectively. See Note 4 to the condensed consolidated financial statements for additional details regarding our debt activity.

At March 31, 2016, approximately $8.4 billion, or 7.7%, of the aggregate principal amount of our total debt portfolio consisted of foreign denominated debt, primarily the Euro and British Pound Sterling. We have entered into cross currency swaps in order to fix our future interest and principal payments in U.S. dollars and mitigate the impact of foreign currency transaction gains or losses. See “Market Risk” for additional information.

Verizon may continue to acquire debt securities issued by Verizon and its affiliates in the future through open market purchases, privately negotiated transactions, tender offers, exchange offers, or otherwise, upon such terms and at such prices as Verizon may from time to time determine for cash or other consideration.

Credit Facility

As of March 31, 2016, the unused borrowing capacity under our $8.0 billion credit facility was approximately $7.9 billion.

Dividends

As in prior periods, dividend payments were a significant use of capital resources. During the three months ended March 31, 2016, we paid $2.3 billion in cash dividends.

Covenants

Our credit agreements contain covenants that are typical for large, investment grade companies. These covenants include requirements to pay interest and principal in a timely fashion, pay taxes, maintain insurance with responsible and reputable insurance companies, preserve our corporate existence, keep appropriate books and records of financial transactions, maintain our properties, provide financial and other reports to our lenders, limit pledging and disposition of assets and mergers and consolidations, and other similar covenants. Additionally, our term loan credit agreement requires us to maintain a leverage ratio (as such term is defined in the agreement) not in excess of 3.50:1.00 until our credit ratings are equal to or higher than A3 and A-.

We and our consolidated subsidiaries are in compliance with all of our financial and restrictive covenants.

 

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Increase In Cash and Cash Equivalents

Our Cash and cash equivalents at March 31, 2016 totaled $5.8 billion, a $1.4 billion increase compared to Cash and cash equivalents at December 31, 2015, primarily as a result of the factors discussed above.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that management believes is useful to investors and other users of Verizon’s financial information in evaluating cash available to pay debt and dividends. Free cash flow is calculated by subtracting capital expenditures from net cash provided by operating activities. The following table reconciles net cash provided by operating activities to Free cash flow:

 

    

Three Months Ended

March 31,

        
(dollars in millions)    2016      2015      Change  

Net cash provided by operating activities

   $   7,419       $   10,169       $   (2,750

Less Capital expenditures (including capitalized software)

     3,387         3,665         (278
  

 

 

 

Free cash flow

   $ 4,032       $ 6,504       $ (2,472
  

 

 

 

The change in Free cash flow during the three months ended March 31, 2016, compared to the similar period in 2015, was primarily due to $2.4 billion of proceeds received in the three months ended March 31, 2015 related to the Tower Monetization Transaction attributable to the portion of the towers for which the right-of-use has passed to the tower operator and a reduction in working capital levels, partially offset by proceeds related to the sale of wireless device installment plan receivables and a $0.3 decrease in capital expenditures. During the three months ended March 31, 2016 and 2015, we received cash proceeds related to new sales of wireless device installment receivables of $2.0 billion and $1.3 billion, respectively.

 

Market Risk

We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes, foreign currency exchange rate fluctuations, changes in investment, equity and commodity prices and changes in corporate tax rates. We employ risk management strategies, which may include the use of a variety of derivatives including cross currency swaps, foreign currency and prepaid forwards and collars, interest rate swap agreements, commodity swap and forward agreements and interest rate locks. We do not hold derivatives for trading purposes.

It is our general policy to enter into interest rate, foreign currency and other derivative transactions only to the extent necessary to achieve our desired objectives in optimizing exposure to various market risks. Our objectives include maintaining a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow volatility resulting from changes in market conditions. We do not hedge our market risk exposure in a manner that would completely eliminate the effect of changes in interest rates and foreign exchange rates on our earnings. We posted collateral of approximately $0.1 billion related to derivative contracts under collateral exchange arrangements at March 31, 2016 and December 31, 2015, respectively. During 2015, we paid an immaterial amount of cash to enter into amendments to certain collateral exchange arrangements. These amendments suspend cash collateral posting for a specified period of time by both counterparties. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote. As such, we do not expect that our results of operations or financial condition will be materially affected by these risk management strategies.

 

Interest Rate Risk

We are exposed to changes in interest rates, primarily on our short-term debt and the portion of long-term debt that carries floating interest rates. As of March 31, 2016, approximately 81% of the aggregate principal amount of our total debt portfolio consisted of fixed rate indebtedness, including the effect of interest rate swap agreements designated as hedges. The impact of a 100 basis point change in interest rates affecting our floating rate debt would result in a change in annual interest expense, including our interest rate swap agreements that are designated as hedges, of approximately $0.2 billion. The interest rates on substantially all of our existing long-term debt obligations are unaffected by changes to our credit ratings.

 

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Interest Rate Swaps

We enter into domestic interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates based on the London Interbank Offered Rate, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against changes in the fair value of our debt portfolio. At March 31, 2016 and December 31, 2015, the fair value of these contracts was $0.3 billion and $0.1 billion, respectively, which was primarily included within Other assets on our condensed consolidated balance sheets. At March 31, 2016 and December 31, 2015, the total notional amount of the interest rate swaps was $7.6 billion, respectively.

Forward Interest Rate Swaps

In order to manage our exposure to future interest rate changes, we have entered into forward interest rate swaps. We designated these contracts as cash flow hedges. The fair value of these contracts, which was included within Other liabilities on our condensed consolidated balance sheets, was $0.1 billion at March 31, 2016 and was not material at December 31, 2015. At March 31, 2016 and December 31, 2015, these swaps had a notional value of $2.0 billion and $0.8 billion, respectively.

 

Foreign Currency Translation

The functional currency for our foreign operations is primarily the local currency. The translation of income statement and balance sheet amounts of our foreign operations into U.S. dollars is recorded as cumulative translation adjustments, which are included in Accumulated other comprehensive income in our condensed consolidated balance sheets. Gains and losses on foreign currency transactions are recorded in the condensed consolidated statements of income in Other income, net. At March 31, 2016, our primary translation exposure was to the British Pound Sterling, Euro and Australian Dollar.

Cross Currency Swaps

We enter into cross currency swaps to exchange British Pound Sterling and Euro-denominated debt into U.S. dollars and to fix our future interest and principal payments in U.S. dollars, as well as to mitigate the effect of foreign currency transaction gains or losses. These swaps are designated as cash flow hedges. The fair value of the outstanding swaps, which was primarily included within Other liabilities on our condensed consolidated balance sheets, was $1.4 billion at March 31, 2016 and $1.6 billion at December 31, 2015. At March 31, 2016 and December 31, 2015, the total notional amount of the cross currency swaps was $9.7 billion, respectively.

Net Investment Hedges

We enter into foreign currency forward contracts that are designated as net investment hedges to mitigate foreign exchange exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. The fair value of these contracts was not material at March 31, 2016 and December 31, 2015, respectively. At March 31, 2016 and December 31, 2015, the total notional value of these contracts was $0.9 billion, respectively.

 

Acquisitions and Divestitures

Wireless

Spectrum License Transactions

From time to time, we enter into agreements to buy, sell or exchange spectrum licenses. We believe these spectrum license transactions have allowed us to continue to enhance the reliability of our network while also resulting in a more efficient use of spectrum. See Note 2 to the condensed consolidated financial statements for additional details regarding our spectrum license transactions.

Wireline

Access Line Sale

On February 5, 2015, we entered into a definitive agreement with Frontier pursuant to which Verizon agreed to sell its local exchange business and related landline activities in California, Florida and Texas, including Fios Internet and video customers, switched and special access lines and high-speed Internet service and long distance voice accounts in these three states for approximately $10.5 billion (approximately $7.5 billion net of income taxes), subject to certain adjustments and including the assumption of $0.6 billion of indebtedness from Verizon by Frontier. The transaction, which included the acquisition by Frontier of the equity interests of Verizon’s ILECs in California, Florida and Texas, did not involve any assets or liabilities of Verizon Wireless. The transaction closed on April 1, 2016. See Note 2 to the condensed consolidated financial statements for additional information.

 

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Other

On February 20, 2016, Verizon entered into a purchase agreement to acquire XO Holdings’ wireline business which owns and operates one of the largest fiber-based IP and Ethernet networks outside of Verizon’s footprint for approximately $1.8 billion, subject to adjustment. The transaction is subject to customary regulatory approvals and is expected to close in the first half of 2017. Separately, Verizon entered into an agreement to lease certain wireless spectrum from XO Holdings and has an option, exercisable under certain circumstances, to buy XO Holdings’ entity that owns its wireless spectrum.

 

Other Factors That May Affect Future Results

 

Regulatory and Competitive Trends

There have been no material changes to Regulatory and Competitive Trends as previously disclosed in Part I, Item 1. “Business” in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Environmental Matters

Reserves have been established to cover environmental matters relating to discontinued businesses and past telecommunications activities. These reserves include funds to address contamination at the site of a former Sylvania facility in Hicksville, NY, which had processed nuclear fuel rods in the 1950s and 1960s. In September 2005, the Army Corps of Engineers (ACE) accepted the site into its Formerly Utilized Sites Remedial Action Program. As a result, the ACE has taken primary responsibility for addressing the contamination at the site. An adjustment to the reserves may be made after a cost allocation is conducted with respect to the past and future expenses of all of the parties. Adjustments to the environmental reserve may also be made based upon the actual conditions found at other sites requiring remediation.

 

Recently Issued Accounting Standards

See Note 1 to the condensed consolidated financial statements for a discussion of recently issued accounting standard updates not yet adopted as of March 31, 2016.

 

Recent Developments

On August 1, 2015, labor contracts covering approximately 36,000 employees of our wireline business expired. We have continued to engage in negotiations with our unions regarding new contracts. On April 13, 2016, the unions initiated a work stoppage. As of the date of this filing, we continue to negotiate new agreements with the unions.

 

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Cautionary Statement Concerning Forward-Looking Statements

In this report we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

The following important factors, along with those discussed elsewhere in this report and in other filings with the Securities and Exchange Commission (SEC), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:

 

  §  

adverse conditions in the U.S. and international economies;

 

  §  

the effects of competition in the markets in which we operate;

 

  §  

material changes in technology or technology substitution;

 

  §  

disruption of our key suppliers’ provisioning of products or services;

 

  §  

changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks;

 

  §  

breaches of network or information technology security, natural disasters, terrorist attacks or acts of war or significant litigation and any resulting financial impact not covered by insurance;

 

  §  

our high level of indebtedness;

 

  §  

an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing;

 

  §  

material adverse changes in labor matters, including labor negotiations, and any resulting financial and/or operational impact;

 

  §  

significant increases in benefit plan costs or lower investment returns on plan assets;

 

  §  

changes in tax laws or treaties, or in their interpretation;

 

  §  

changes in accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; and

 

  §  

the inability to implement our business strategies.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information relating to market risk is included in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Market Risk.”

Item 4. Controls and Procedures

Our chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this quarterly report that ensure that information relating to the registrant which is required to be disclosed in this report is recorded, processed, summarized and reported within required time periods using the criteria for effective internal control established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, our chief executive officer and chief financial officer have concluded that the registrant’s disclosure controls and procedures were effective as of March 31, 2016.

In the ordinary course of business, we routinely review our system of internal control over financial reporting and make changes to our systems and processes that are intended to ensure an effective internal control environment. We are also continuing an initiative to standardize and centralize transaction-processing activities within our accounting processes, which we expect to continue over the next several years. These initiatives will incorporate certain changes in personnel as well. In connection with these initiatives and the resulting changes in our financial systems and transaction-processing activities, the Company continues to review the design and documentation of our internal control system and to enhance our processes as needed to ensure that controls over our financial reporting remain effective.

Except as noted above, there were no changes in the Company’s internal control over financial reporting during the first quarter of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II - Other Information

Item 1. Legal Proceedings

In October 2013, the California Attorney General’s Office notified Verizon California Inc. and other Verizon companies of potential violations of California state hazardous waste statutes primarily arising from the disposal of electronic components, batteries and aerosol cans at certain California facilities. We are cooperating with this investigation and continue to review our operations relating to the management of hazardous waste. While penalties relating to the alleged violations could exceed $100,000, we do not expect that any penalties ultimately incurred will be material. On April 1, 2016, we completed the sale to Frontier of our landline business operated by Verizon California Inc. and certain other Verizon landline companies. As a result of this transaction, Frontier now owns and operates Verizon California Inc. and has assumed the liabilities of Verizon California Inc. that may arise as a result of these alleged violations.

Item 1A. Risk Factors

There have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In March 2014, the Verizon Board of Directors authorized a three-year share buyback program to repurchase up to 100 million shares of the Company’s common stock. Under the program, shares may be repurchased in privately negotiated transactions and on the open market, including through plans complying with Rule 10b5-1(c) under the Exchange Act. The timing and number of shares purchased under the program, if any, will depend on market conditions and the Company’s capital allocation priorities.

Verizon did not repurchase any shares of Verizon common stock during the three months ended March 31, 2016. At March 31, 2016, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 97.2 million.

 

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Item 6. Exhibits

 

Exhibit
Number

  

Description

10a    Verizon Communications Inc. Long-Term Incentive Plan - Performance Stock Unit Agreement 2016-2018 Award Cycle.
10b    Verizon Communications Inc. Long-Term Incentive Plan - Restricted Stock Unit Agreement 2016-2018 Award Cycle.
12    Computation of Ratio of Earnings to Fixed Charges.
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.PRE    XBRL Taxonomy Presentation Linkbase Document.
101.CAL    XBRL Taxonomy Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Label Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.

 

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Signature

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    VERIZON COMMUNICATIONS INC.
Date: April 28, 2016     By   /s/ Anthony T. Skiadas
           Anthony T. Skiadas
           Senior Vice President and Controller
           (Principal Accounting Officer)

 

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Exhibit Index

 

Exhibit
Number

  

Description

10a    Verizon Communications Inc. Long-Term Incentive Plan - Performance Stock Unit Agreement 2016-2018 Award Cycle.
10b    Verizon Communications Inc. Long-Term Incentive Plan - Restricted Stock Unit Agreement 2016-2018 Award Cycle.
12    Computation of Ratio of Earnings to Fixed Charges.
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.PRE    XBRL Taxonomy Presentation Linkbase Document.
101.CAL    XBRL Taxonomy Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Label Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.

 

49

Exhibit 10a

VERIZON COMMUNICATIONS INC. LONG-TERM INCENTIVE PLAN

PERFORMANCE STOCK UNIT AGREEMENT

2016–2018 AWARD CYCLE

AGREEMENT between Verizon Communications Inc. (“Verizon” or the “Company”) and you (the “Participant”) and your heirs and beneficiaries.

1. Purpose of Agreement. The purpose of this Agreement is to provide a grant of performance stock units (“PSUs”) to the Participant.

2. Agreement. This Agreement is entered into pursuant to the 2009 Verizon Communications Inc. Long-Term Incentive Plan, as amended and restated (the “Plan”), and evidences the grant of a performance stock unit award in the form of PSUs pursuant to the Plan. In consideration of the benefits described in this Agreement, which Participant acknowledges are good, valuable and sufficient consideration, the Participant agrees to comply with the terms and conditions of this Agreement, including the Participant’s obligations and restrictions set forth in Exhibit A to this Agreement and the Participant’s non-competition, non-solicitation, confidentiality and other obligations and restrictions set forth in Exhibit B to this Agreement, both of which are incorporated into and are a part of the Agreement. The PSUs and this Agreement are subject to the terms and provisions of the Plan. By executing this Agreement, the Participant agrees to be bound by the terms and provisions of the Plan and this Agreement, including but not limited to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement. In addition, the Participant agrees to be bound by the actions of the Human Resources Committee of Verizon Communication’s Board of Directors or any successor thereto (the “Committee”), and any designee of the Committee (to the extent that such actions are exercised in accordance with the terms of the Plan and this Agreement). If there is a conflict between the terms of the Plan and the terms of this Agreement, the terms of this Agreement shall control.

3. Contingency. The grant of PSUs is contingent on the Participant’s timely acceptance of this Agreement and satisfaction of the other conditions contained in it. Acceptance shall be through execution of the Agreement as set forth in paragraph 21. If the Participant does not accept this Agreement by the close of business on May 27, 2016, the Participant shall not be entitled to this grant of PSUs regardless of the extent to which the requirements in paragraph 5 (“Vesting”) are satisfied. In addition, to the extent a Participant is on a Company approved leave of absence, including but not limited to short-term disability leave, he or she will not be entitled to this grant of PSUs until such time as he or she returns to active employment with Verizon or a Related Company (as defined in paragraph 13) and accepts this Agreement within the time period established by the Company.

4. Number of Units. The Participant is granted the number of PSUs as specified in the Participant’s account under the 2016 PSU grant, administered by Fidelity Investments or any successor thereto (“Fidelity”). A PSU is a hypothetical share of Verizon’s common stock. The value of a PSU on any given date shall be equal to the closing price of Verizon’s common stock on the New York Stock Exchange (“NYSE”) as of such date. A Dividend Equivalent Unit (“DEU”) or fraction thereof shall be added to each PSU each time that a dividend is paid on Verizon’s common stock. The amount of each DEU shall be equal to the corresponding dividend paid on a share of Verizon’s common stock. The DEU shall be converted into PSUs or fractions thereof based upon the closing price of Verizon’s common stock traded on the NYSE on the dividend payment date of each declared dividend on Verizon’s common stock, and such PSUs or fractions thereof shall be added to the Participant’s PSU balance. To the extent that Fidelity or the Company makes an error, including but not limited to an administrative error with respect to the number or value of the PSUs granted to the Participant under this Agreement, the DEUs credited to the Participant’s account or the amount of the final award payment, the Company or Fidelity specifically reserves the right to correct such error at any time and the Participant agrees that he or she shall be legally bound by any corrective action taken by the Company or Fidelity.


5. Vesting.

(a) General. The Participant shall vest in the PSUs to the extent provided in paragraph 5(b) (“Performance Requirement”) only if the Participant satisfies the requirements of paragraph 5(c) (“Three-Year Continuous Employment Requirement”), except as otherwise provided in paragraph 7 (“Early Cancellation/Accelerated Vesting of PSUs”).

(b) Performance Requirement.

(1) General. The number of PSUs granted to the Participant, as specified in the Participant’s account under the 2016 PSU grant, is referred to as the “Target Number of PSUs.” The vesting of two-thirds (2/3) of the Target Number of PSUs (the “Target Number of TSR PSUs”) will be determined with reference to total shareholder return metrics as provided in paragraph 5(b)(2). The vesting of one-third (1/3) of the Target Number of PSUs (the “Target Number of FCF PSUs”) will be determined with reference to free cash flow metrics as provided in paragraph 5(b)(3). The total number of PSUs that vest will range from 0 to 200% of the Target Number of PSUs and will equal the sum of the Target Number of TSR PSUs that are eligible to vest pursuant to paragraph 5(b)(2) plus the Target Number of FCF PSUs that are eligible to vest pursuant to paragraph 5(b)(3). Notwithstanding anything in this paragraph 5(b), in all cases vesting remains subject to the requirements of paragraphs 5(c) and 7.

(2) TSR Metric. The percentage of the Target Number of TSR PSUs that shall vest will be based on the TSR (as defined below) of Verizon’s common stock during the three-year period beginning January 1, 2016, and ending at the close of business on December 31, 2018 (the “Award Cycle”), relative to the TSR of the common stock of each of the companies in the Related Dow Peers for the Award Cycle. The “Related Dow Peers” are the companies (other than Verizon) in the Dow Jones Industrial Average (Dow) Index and also including the five largest industry companies that are not in the Dow, as determined by the Committee and as constituted at the close of business on March 6, 2016. Notwithstanding paragraph 5(c), no portion of the Target Number of TSR PSUs shall vest unless the Committee determines that the Verizon Relative TSR Position (as defined below) is greater than 26. If the Committee determines that the Verizon Relative TSR Position is greater than 26, the percentage of the Target Number of TSR PSUs that shall vest (plus any additional PSUs added with respect to DEUs credited on the Target Number of TSR PSUs over the Award Cycle) will equal the Verizon TSR Vested Percentage (as defined below). For example, if (a) the Participant is granted 1,000 PSUs, and (b) those PSUs are credited with an additional 200 PSUs as a result of DEUs paid over the Award Cycle, and (c) the Verizon TSR Vested Percentage is 74%, 592 PSUs shall vest based on TSR (which is the 1,000 PSUs + 200 PSUs from DEUs, times 2/3 to reflect the portion of the total PSUs that will become eligible to vest with reference to TSR, times the Verizon TSR Vested Percentage of 74%).

(3) FCF Metric. The percentage of the Target Number of FCF PSUs that shall vest will be based on Verizon’s FCF (as defined below) for the Award Cycle. Notwithstanding paragraph 5(c), no portion of the Target Number of FCF PSUs shall vest unless the Committee determines that Verizon’s FCF for the Award Cycle is greater than or equal to $XXB. If the Committee determines that Verizon’s FCF for the Award Cycle is greater than or equal to $XXB, the percentage of the Target Number of FCF PSUs that shall vest (plus any additional PSUs added with respect to DEUs credited on the Target Number of FCF PSUs over the Award Cycle) will

 

2


equal the Verizon FCF Vested Percentage (as defined below). For example, if (a) the Participant is granted 1,000 PSUs, and (b) those PSUs are credited with an additional 200 PSUs as a result of DEUs paid over the Award Cycle, and (c) the Verizon FCF Vested Percentage is 125%, 500 PSUs shall vest based on FCF (which is the 1,000 PSUs + 200 PSUs from DEUs, times 1/3 to reflect the portion of the total PSUs that will become eligible to vest with reference to FCF, times the Verizon FCF Vested Percentage of 125%).

(4) Definitions. For purposes of the performance requirement and payout formula set forth in paragraphs 5(b)(1) through 5(b)(3)—

(i) “Verizon TSR Vested Percentage” shall be an amount (between 0% and 200%), which is based on Verizon’s Relative TSR Position, as provided in the following table:

 

Verizon Relative TSR Position    Verizon TSR Vested Percentage

1 through 4

   200%

5

   172%

6

   165%

7

   158%

8

   151%

9

   144%

10

   137%

11

   130%

12

   123%

13

   116%

14

   109%

15

   102%

16

   95%

17

   88%

18

   81%

19

   74%

20

   67%

21

   60%

22

   53%

23

   46%

24

   39%

25

   32%

26 through 35

   0%

(ii) “Verizon Relative TSR Position” shall be based upon Verizon’s rank during the Award Cycle among the Related Dow Peers in terms of TSR. The Committee shall determine the Verizon TSR Vested Percentage and the Verizon Relative TSR Position for the period. The Committee will make adjustments to preserve the intended incentives, and to the extent consistent with Section 162(m) of the Code (as defined in the Plan), should the common stock of any Related Dow Peer cease to be publicly traded during the Award Cycle. The Committee’s determinations shall be final and binding.

 

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(iii) “TSR” or “Total Shareholder Return” shall mean the change in the price of a share of common stock from the beginning of a period until the end of the applicable period, adjusted to reflect the reinvestment of dividends (if any) and as may be necessary to take into account stock splits or other events similar to those described in Section 4.3 of the Plan. The Committee shall determine TSR in accordance with its standard practice and its determinations shall be final and binding.

(iv) “Verizon FCF Vested Percentage” shall be an amount (between 0% and 200%), which is based on Verizon’s FCF, as provided in the following table:

 

Verizon FCF (in Billions)    Verizon FCF Vested Percentage

Greater than $XX

   200%

$XX

   150%

$XX

   100%

$XX

   50%

Less than $XX

   0%

If the Verizon FCF is $XXB or less but greater than $XXB, or less than $XXB but greater than $XXB, or less than $XXB but greater than $XXB, the Verizon FCF Vested Percentage will be interpolated on a straight-line basis between the respective levels (for example, if the Verizon FCF is $XXB, the Verizon FCF Vested Percentage will be 75%).

(v) “FCF” shall mean (a) the sum of Verizon’s net cash provided by operating activities and Verizon’s net cash provided by financing activities attributable to device installment plan receivable securitizations minus (b) capital expenditures, as such terms are used in Verizon’s consolidated financial statements, on a consolidated basis for the Award Cycle. The Committee will (to the extent necessary and without duplication) adjust such net cash less capital expenditures to eliminate the financial impact of (i) acquisitions, divestitures or changes in business structure; (ii) changes in legal, tax, accounting or regulatory policy; and (iii) other items that are extraordinary in nature or not deemed to be in the ordinary course of business. The Committee’s determination of whether, and the extent to which, any such adjustment is necessary shall be final and binding.

(c) Three-Year Continuous Employment Requirement. Except as otherwise determined by the Committee, or except as otherwise provided in paragraph 7 (“Early Cancellation/Accelerated Vesting of PSUs”), the PSUs shall vest only if the Participant is continuously employed by the Company or a Related Company (as defined in paragraph 13) from the date the PSUs are granted through the end of the Award Cycle.

(d) Effect of a Termination for Cause. Notwithstanding paragraph 5(b), paragraph 5(c) or paragraph 7, if the Participant’s employment by the Company or a Related Company is terminated by the Company or a Related Company for Cause at any time prior to the date that the PSUs are paid pursuant to paragraph 6, the PSUs (whether vested or not) shall automatically terminate and be cancelled as of the applicable termination date without payment of any consideration by the Company and without any other action by the Participant. For purposes of this Agreement, “Cause” means (i) incompetence or negligence in the discharge of, or inattention to or neglect of or failure to perform,

 

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the duties and responsibilities assigned to the Participant; fraud, misappropriation or embezzlement; or a material breach of the Verizon Code of Conduct (as in effect at the relevant time) or any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, all as determined by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee) in his or her discretion, or (ii) commission of any felony of which the Participant is finally adjudged guilty by a court of competent jurisdiction.

(e) Transfer. Transfer of employment from Verizon to a Related Company, from a Related Company to Verizon, or from one Related Company to another Related Company shall not constitute a separation from employment hereunder, and service with a Related Company shall be treated as service with the Company for purposes of the three-year continuous employment requirement in paragraph 5(c). If the Participant transfers employment pursuant to this paragraph 5(e), the Participant will still be required to satisfy the definition of “Retire” under paragraph 7 of this Agreement in order to be eligible for the accelerated vesting provisions in connection with a retirement.

6. Payment. All payments under this Agreement shall be made in cash. Subject to paragraph 5(d), as soon as practicable after the end of the Award Cycle (but in no event later than March 15, 2019), the value of the vested PSUs (minus any withholding for taxes) shall be paid to the Participant (subject, however, to any deferral election that the Participant has made under the deferral plan (if any) then available to the Participant). The amount of cash that shall be paid (plus withholding for taxes and any applicable deferral amount) shall equal the number of vested PSUs (as provided in paragraph 5(b)) times the closing price of Verizon’s common stock on the NYSE as of the last trading day in the Award Cycle. If the Participant dies before any payment due hereunder is made, such payment shall be made to the Participant’s beneficiary, as designated under paragraph 11. Once a payment has been made with respect to a PSU, the PSU shall be canceled; however, all other terms of the Agreement, including but not limited to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, shall remain in effect.

7. Early Cancellation/Accelerated Vesting of PSUs. Notwithstanding the provisions of paragraph 5, PSUs may vest or be forfeited before the end of the Award Cycle as follows:

(a) Retirement Before July 1, 2016, Voluntary Separation On or Before December 31, 2018, or Other Separation Not Described in Paragraph 7(b). If the Participant (i) Retires (as defined in paragraph 7(b)(4)) before July 1, 2016, (ii) voluntarily separates from employment on or before December 31, 2018 for any reason other than Retirement, or (iii) otherwise separates from employment on or before December 31, 2018 under circumstances not described in paragraph 7(b), all the PSUs shall automatically terminate and be cancelled as of the applicable termination date without payment of any consideration by the Company and without any other action by the Participant.

(b) Retirement After June 30, 2016, Involuntary Termination Without Cause On or Before December 31, 2018, Termination Due to Death or Disability On or Before December 31, 2018.

(1) This paragraph 7(b) shall apply if the Participant:

(i) Retires (as defined below) after June 30, 2016, or

(ii) Separates from employment by reason of an involuntary termination without Cause (as determined by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee)), death, or Disability (as defined below) on or before December 31, 2018. “Disability” shall mean the total and permanent disability of the Participant as defined by, or determined under, the Company’s long-term disability benefit plan.

 

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(2) If the Participant separates from employment on or before December 31, 2018 under circumstances described in paragraph 7(b)(1), the Participant’s PSUs shall be subject to the vesting provisions set forth in paragraph 5(a) and 5(b) (without prorating the award), except that the three-year continuous employment requirement set forth in paragraph 5(c) shall not apply, provided that the Participant has not and does not commit a breach of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement and provided that the Participant executes, within the time prescribed by Verizon, a release satisfactory to Verizon waiving any claims he or she may have against Verizon and any Related Company (otherwise, paragraph 7(a) shall apply).

(3) Any PSUs that vest pursuant to paragraph 7(b)(2) shall be payable as soon as practicable after the end of the Award Cycle (but in no event later than March 15, 2019).

(4) For purposes of this Agreement, “Retire” and “Retirement” means (i) to retire after having attained at least 15 years of vesting service (as defined under the applicable Verizon tax-qualified 401(k) savings plan) and a combination of age and years of vesting service that equals or exceeds 75 points, or (ii) retirement under any other circumstances determined in writing by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee), provided that, in the case of either (i) or (ii) in this paragraph, the retirement was not occasioned by a discharge for Cause. Notwithstanding the preceding sentence, if the Participant is employed in the United Kingdom, “Retire” or “Retirement” shall mean: (A) subject to applicable law, a termination of employment on the grounds of age, provided that the Participant has attained at least age 65; or (B) retirement under any other circumstances determined in writing by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee), provided that, in the case of either (A) or (B) in this paragraph, the retirement was not occasioned by a discharge for Cause.

(c) Change in Control. If a Participant is involuntarily terminated without Cause within twelve (12) months following the occurrence of a Change in Control of Verizon (as defined in the Plan) and before the end of the Award Cycle, the PSUs shall vest and become payable (without prorating the award) by applying a Verizon TSR Vested Percentage of 100%, and a Verizon FCF Vested Percentage of 100%, to the PSUs without regard to the performance requirements in paragraph 5(b) or the three-year continuous employment requirement in paragraph 5(c); however, all other terms of the Agreement, including but not limited to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, shall remain in effect. A Change in Control or an involuntary termination without Cause that occurs after the end of the Award Cycle shall have no effect on whether any PSUs vest or become payable under this paragraph 7(c). If both paragraph 7(b) and this paragraph 7(c) would otherwise apply in the circumstances, this paragraph 7(c) shall control. All payments provided in this paragraph 7(c) shall be made at their regularly scheduled time as specified in paragraph 6.

(d) Vesting Schedule. Except and to the extent provided in paragraphs 7(b) and (c), nothing in this paragraph 7 shall alter the vesting schedule prescribed by paragraph 5.

8. Shareholder Rights. The Participant shall have no rights as a shareholder with respect to the PSUs. Except as provided in the Plan or in this Agreement, no adjustment shall be made for dividends or other rights for which the record date occurs while the PSUs are outstanding.

 

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9. Amendment of Agreement. Except to the extent required by law or specifically contemplated under this Agreement, neither the Committee nor the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee) may, without the written consent of the Participant, change any term, condition or provision affecting the PSUs if the change would have a material adverse effect upon the PSUs or the Participant’s rights thereto. Nothing in the preceding sentence shall preclude the Committee or the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee) from exercising administrative discretion with respect to the Plan or this Agreement, and the exercise of such discretion shall be final, conclusive and binding. This discretion includes, but is not limited to, corrections of any errors, including but not limited to any administrative errors, determining the total percentage of PSUs that become payable, and determining whether the Participant has been discharged for Cause, has a disability, has Retired, has breached any of the Participant’s obligations or restrictions set forth in Exhibits A and B to this Agreement or has satisfied the requirements for vesting and payment under paragraphs 5 and 7 of this Agreement.

10. Assignment. The PSUs shall not be assigned, pledged or transferred except by will or by the laws of descent and distribution. During the Participant’s lifetime, the PSUs may be deferred only by the Participant or by the Participant’s guardian or legal representative in accordance with the deferral regulations, if any, established by the Company.

11. Beneficiary. The Participant shall designate a beneficiary in writing and in such manner as is acceptable to the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee). Each such designation shall revoke all prior designations by the Participant with respect to the Participant’s benefits under the Plan and shall be effective only when filed by the Participant with the Company during the Participant’s lifetime. If the Participant fails to so designate a beneficiary, or if no such designated beneficiary survives the Participant, the Participant’s beneficiary shall be the Participant’s estate.

12. Other Plans and Agreements. Any payment received (or deferred) by the Participant pursuant to this Agreement shall not be taken into account as compensation in the determination of the Participant’s benefits under any pension, savings, life insurance, severance or other benefit plan maintained by Verizon or a Related Company. The Participant acknowledges that this Agreement or any prior PSU agreement shall not entitle the Participant to any other benefits under the Plan or any other plans maintained by the Company or a Related Company.

13. Company and Related Company. For purposes of this Agreement, “Company” means Verizon Communications Inc. “Related Company” means (a) any corporation, partnership, joint venture, or other entity in which Verizon Communications Inc. holds a direct or indirect ownership or proprietary interest of 50 percent or more at any time during the term of this Agreement, or (b) any corporation, partnership, joint venture, or other entity in which Verizon Communications Inc. holds a direct or indirect ownership or other proprietary interest of less than 50 percent at any time during the term of this Agreement but which, in the discretion of the Committee, is treated as a Related Company for purposes of this Agreement.

14. Employment Status. The grant of the PSUs shall not be deemed to constitute a contract of employment for a particular term between the Company or a Related Company and the Participant, nor shall it constitute a right to remain in the employ of any such Company or Related Company.

15. Withholding. The Participant acknowledges that he or she shall be responsible for any taxes that arise in connection with this grant of PSUs, and the Company shall make such arrangements as it deems necessary for withholding of any taxes it determines are required to be withheld pursuant to any applicable law or regulation.

 

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16. Securities Laws. The Company shall not be required to make payment with respect to any shares of common stock prior to the admission of such shares to listing on any stock exchange on which the stock may then be listed and the completion of any registration or qualification of such shares under any federal or state law or rulings or regulations of any government body that the Company, in its discretion, determines to be necessary or advisable.

17. Committee Authority. The Committee shall have complete discretion in the exercise of its rights, powers, and duties under this Agreement. Any interpretation or construction of any provision of, and the determination of any question arising under, this Agreement shall be made by the Committee in its discretion, as described in paragraph 9. The Committee and the Audit Committee may designate any individual or individuals to perform any of its functions hereunder and utilize experts to assist in carrying out their duties hereunder.

18. Successors. This Agreement shall be binding upon, and inure to the benefit of, any successor or successors of the Company and the person or entity to whom the PSUs may have been transferred by will, the laws of descent and distribution, or beneficiary designation. All terms and conditions of this Agreement imposed upon the Participant shall, unless the context clearly indicates otherwise, be deemed, in the event of the Participant’s death, to refer to and be binding upon the Participant’s heirs and beneficiaries.

19. Construction. In the event that any provision of this Agreement is held invalid or unenforceable, such provision shall be considered separate and apart from the remainder of this Agreement, which shall remain in full force and effect. In the event that any provision, including any of the Participant’s obligations or restrictions set forth in Exhibits A and B to this Agreement, is held to be unenforceable for being unduly broad as written, such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to applicable law and shall be enforced as amended. The PSUs are intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, and to not be subject to any tax, interest or penalty under Section 409A of the Code, and this Agreement shall be construed and interpreted consistent with such intents.

20. Defined Terms. Except where the context clearly indicates otherwise, all capitalized terms used herein shall have the definitions ascribed to them by the Plan, and the terms of the Plan shall apply where appropriate.

21. Execution of Agreement. The Participant shall indicate his or her consent and acknowledgment to the terms of this Agreement (including the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement) and the Plan by executing this Agreement pursuant to the instructions provided and otherwise shall comply with the requirements of paragraph 3. In addition, by consenting to the terms of this Agreement and the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, the Participant expressly agrees and acknowledges that Fidelity may deliver all documents, statements and notices associated with the Plan and this Agreement to the Participant in electronic form. The Participant and Verizon hereby expressly agree that the use of electronic media to indicate confirmation, consent, signature, acceptance, agreement and delivery shall be legally valid and have the same legal force and effect as if the Participant and Verizon executed this Agreement (including the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement) in paper form.

22. Confidentiality. Except to the extent otherwise required by law, the Participant shall not disclose, in whole or in part, any of the terms of this Agreement. This paragraph 22 does not prevent the Participant from disclosing the terms of this Agreement to the Participant’s spouse or beneficiary or to the Participant’s legal, tax, or financial adviser, provided that the Participant take all reasonable measures to assure that the individual to whom disclosure is made does not disclose the terms of this Agreement to a third party except as otherwise required by law.

 

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23. Applicable Law. Except as expressly provided in Exhibit B, the validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

24. Notice. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of the Executive Vice President and Chief Administrative Officer of Verizon at 1095 Avenue of the Americas, New York, New York 10036 and any notice to the Participant shall be addressed to the Participant at the current address shown on the payroll of the Company, or to such other address as the Participant may designate to the Company in writing. Any notice shall be delivered by hand, sent by telecopy, sent by overnight carrier, or enclosed in a properly sealed envelope as stated above, registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

25. Dispute Resolution.

(a) General. Except as otherwise provided in paragraph 26 below, all disputes arising under or related to the Plan or this Agreement and all claims in which a Participant seeks damages or other relief that relate in any way to PSUs or other benefits of the Plan are subject to the dispute resolution procedure described below in this paragraph 25.

(i) For purposes of this Agreement, the term “Units Award Dispute” shall mean any claim against the Company or a Related Company, other than Units Damages Disputes described in paragraph (a)(ii) below, regarding (A) the interpretation of the Plan or this Agreement, (B) any of the terms or conditions of the PSUs issued under this Agreement, or (C) allegations of entitlement to PSUs or additional PSUs, or any other benefits, under the Plan or this Agreement; provided, however, that any dispute relating to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement or to the forfeiture of an award as a result of a breach of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement shall not be subject to the dispute resolution procedures provided for in this paragraph 25.

(ii) For purposes of this Agreement, the term “Units Damages Dispute” shall mean any claims between the Participant and the Company or a Related Company (or against the past or present directors, officers, employees, representatives, or agents of the Company or a Related Company, whether acting in their capacity as such or otherwise), that are related in any way to the Participant’s employment or former employment, including claims of alleged employment discrimination, wrongful termination, or violations of Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, 42 U.S.C. § 1981, the Fair Labor Standards Act, the Family Medical Leave Act, the Sarbanes-Oxley Act, or any other U.S. federal, state or local law, statute, regulation, or ordinance relating to employment or any common law theories of recovery relating to employment, such as breach of contract, tort, or public policy claims, in which the damages or other relief sought relate in any way to PSUs or other benefits of the Plan or this Agreement.

(b) Internal Dispute Resolution Procedure. All Units Award Disputes, and all Units Damages Dispute alleging breach of contract, tort, or public policy claims with respect to the Plan or this Agreement (collectively, “Plan Disputes”), shall be referred in the first instance to the Verizon

 

9


Employee Benefits Committee (“EB Committee”) for resolution internally within Verizon. Except where otherwise prohibited by law, all Plan Disputes must be filed in writing with the EB Committee no later than one year from the date that the dispute accrues. Consistent with paragraph 25(c)(i) of this Agreement, all decisions relating to the enforceability of the limitations period contained herein shall be made by the arbitrator. To the fullest extent permitted by law, the EB Committee shall have full power, discretion, and authority to interpret the Plan and this Agreement and to decide all Plan Disputes brought under this Plan and Agreement. Determinations made by the EB Committee shall be final, conclusive and binding, subject only to review by arbitration pursuant to paragraph (c) below under the arbitrary and capricious standard of review. A Participant’s failure to refer a Plan Dispute to the EB Committee for resolution will in no way impair the Company’s right to compel arbitration or the enforceability of the waiver in paragraph 25(c)(ii).

(c) Arbitration. All appeals from determinations by the EB Committee as described in paragraph (b) above, and any Units Damages Dispute, shall be fully and finally settled by arbitration administered by the American Arbitration Association (“AAA”) on an individual basis (and not on a collective or class action basis) before a single arbitrator pursuant to the AAA’s Commercial Arbitration Rules in effect at the time any such arbitration is initiated. Any such arbitration must be initiated in writing pursuant to the aforesaid rules of the AAA no later than one year from the date that the claim accrues, except where a longer limitations period is required by applicable law. However, a Participant’s failure to initiate arbitration within one year will in no way impair the Company’s right, exercised at its discretion, to compel arbitration or the enforceability of the waiver in paragraph 25(c)(ii). Decisions about the applicability of the limitations period contained herein shall be made by the arbitrator. A copy of the AAA’s Commercial Arbitration Rules may be obtained from Human Resources. The Participant agrees that the arbitration shall be held at the office of the AAA nearest the place of the Participant’s most recent employment by the Company or a Related Company, unless the parties agree in writing to a different location. All claims by the Company or a Related Company against the Participant, except for breaches of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, may also be raised in such arbitration proceedings.

(i) The arbitrator shall have the authority to determine whether any dispute submitted for arbitration hereunder is arbitrable. The arbitrator shall decide all issues submitted for arbitration according to the terms of the Plan, this Agreement (except for breaches of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement), existing Company policy, and applicable substantive Delaware State and U.S. federal law and shall have the authority to award any remedy or relief permitted by such laws. The final decision of the EB Committee with respect to a Plan Dispute shall be upheld unless such decision was arbitrary or capricious. The decision of the arbitrator shall be final, conclusive, not subject to appeal, and binding and enforceable in any applicable court.

(ii) The Participant understands and agrees that, pursuant to this Agreement, both the Participant and the Company or a Related Company waive any right to sue each other in a court of law or equity, to have a trial by jury, or to resolve disputes on a collective, or class, basis (except for breaches of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement), and that the sole forum available for the resolution of Units Award Disputes and Units Damages Disputes is arbitration as provided in this paragraph 25. If an arbitrator or court finds that the arbitration provisions of this Agreement are not enforceable, both Participant and the Company or a Related Company understand and agree to waive their right to trial by jury of any Units Award Dispute or Units Damages Dispute.

 

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This dispute resolution procedure shall not prevent either the Participant or the Company or a Related Company from commencing an action in any court of competent jurisdiction for the purpose of obtaining injunctive relief to prevent irreparable harm pending and in aid of arbitration hereunder; in such event, both the Participant and the Company or a Related Company agree that the party who commences the action may proceed without necessity of posting a bond.

(iii) In consideration of the Participant’s agreement in paragraph (ii) above, the Company or a Related Company will pay all filing, administrative and arbitrator’s fees incurred in connection with the arbitration proceedings. If the AAA requires the Participant to pay the initial filing fee, the Company or a Related Company will reimburse the Participant for that fee. All other fees incurred in connection with the arbitration proceedings, including but not limited to each party’s attorney’s fees, will be the responsibility of such party.

(iv) The parties intend that the arbitration procedure to which they hereby agree shall be the exclusive means for resolving all Units Award Disputes and Units Damages Disputes (subject to the mandatory EB Committee procedure provided for in paragraph 25(b) above). Their agreement in this regard shall be interpreted as broadly and inclusively as reason permits to realize that intent.

(v) The Federal Arbitration Act (“FAA”) shall govern the enforceability of this paragraph 25. If for any reason the FAA is held not to apply, or if application of the FAA requires consideration of state law in any dispute arising under this Agreement or subject to this dispute resolution provision, the laws of the State of Delaware shall apply without giving effect to the conflicts of laws provisions thereof.

(vi) To the extent an arbitrator determines that the Participant was not terminated for Cause and is entitled to the PSUs or any other benefits under the Plan pursuant to the provisions applicable to an involuntary termination without Cause, the Participant’s obligation to execute a release satisfactory to Verizon as provided under paragraph 7(b)(2) shall remain applicable in order to receive the benefit of any PSUs pursuant to this Agreement.

26. Additional Remedies. Notwithstanding the dispute resolution procedures, including arbitration, of paragraph 25 of this Agreement, and in addition to any other rights or remedies, whether legal, equitable, or otherwise, that each of the parties to this Agreement may have (including the right of the Company to terminate the Participant for Cause or to involuntarily terminate the Participant without Cause), the Participant acknowledges that—

(a) The Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement are essential to the continued goodwill and profitability of the Company and any Related Company;

(b) The Participant has broad-based skills that will serve as the basis for other employment opportunities that are not prohibited by the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement;

(c) When the Participant’s employment with the Company or any Related Company terminates, the Participant shall be able to earn a livelihood without violating any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement;

 

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(d) Irreparable damage to the Company or any Related Company shall result in the event that the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement are not specifically enforced and that monetary damages will not adequately protect the Company and any Related Company from a breach of such Participant obligations and restrictions;

(e) If any dispute arises concerning the violation or anticipated or threatened violation by the Participant of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, an injunction may be issued restraining such violation pending the determination of such controversy, and no bond or other security shall be required in connection therewith;

(f) The Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement shall continue to apply after any expiration, termination, or cancellation of this Agreement;

(g) The Participant’s breach of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, including, for example, any breach of the Participant’s non-competition, non-solicitation or confidentiality restrictions, shall result in the Participant’s immediate forfeiture of all rights and benefits, including all PSUs and DEUs, under this Agreement; and

(h) All disputes relating to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, including their interpretation and enforceability and any damages (including but not limited to damages resulting in the forfeiture of an award or benefits under this Agreement) that may result from the breach of such Participant obligations and restrictions shall not be subject to the dispute resolution procedures, including arbitration, of paragraph 25 of this Agreement, but shall instead be determined in a court of competent jurisdiction.

 

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Exhibit A – Participant’s Obligations

As part of the Agreement to which this Exhibit A is attached, you, the Participant, agree to the following obligations:

1. Effect of a Material Restatement of Financial Results; Recoupment; Company Policies Regarding Securities Transactions.

(a) General. Notwithstanding anything in this Agreement to the contrary, you agree that, with respect to all PSUs granted to you on or after January 1, 2007 and all short-term incentive awards made to you on or after January 1, 2007, to the extent the Company or any Related Company is required to materially restate any financial results based upon your willful misconduct or gross negligence while employed by the Company or any Related Company (and where such restatement would have resulted in a lower payment being made to you), you will be required to repay all previously paid or deferred (i) PSUs and (ii) short-term incentive awards that were provided to you during the performance periods that are the subject of the restated financial results, plus a reasonable rate of interest. For purposes of this paragraph, “willful misconduct” and “gross negligence” shall be as determined by the Committee. The Audit Committee of the Verizon Board of Directors shall determine whether a material restatement of financial results has occurred. If you do not repay the entire amount required under this paragraph, the Company may, to the extent permitted by applicable law, offset your obligation to repay against any source of income available to it, including but not limited to any money you may have in your nonqualified deferral accounts.

(b) Requirements of Recoupment Policy or Applicable Law. The repayment rights contained in paragraph 1(a) of Exhibit A shall be in addition to, and shall not limit, any other rights or remedies that the Company may have under law or in equity, including, without limitation, (i) any right that the Company may have under any Company recoupment policy that may apply to you, or (ii) any right or obligation that the Company may have regarding the clawback of “incentive-based compensation” under Section 10D of the Securities Exchange Act of 1934, as amended (as determined by the applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission) or under any other applicable law. By accepting this award of PSUs, you agree and consent to the Company’s application, implementation and enforcement of any such Company recoupment policy (as it may be in effect from time to time) that may apply to you and any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation and expressly agree that the Company may take such actions as are permitted under any such policy (as applicable to you) or applicable law, such as the cancellation of PSUs and repayment of amounts previously paid or deferred with respect to any previously granted PSUs or short-term incentive awards, without further consent or action being required by you.

(c) Company Policies Regarding Securities Transactions. By accepting this award of PSUs, you agree to comply with all Company policies regarding trading in securities or derivative securities (including, without limitation, the Company’s policies prohibiting trading on material inside information regarding the Company or any business with which the Company does business, the Company’s policies prohibiting engaging in financial transactions that would allow you to benefit from a devaluation of the Company’s securities, and any additional policy that the Company may adopt prohibiting you from hedging your economic exposure to the Company’s securities), as such policies are in effect from time to time and for as long as such policies are applicable to you.

 

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2. Definitions. Except where clearly provided to the contrary or as otherwise defined in this Exhibit A, all capitalized terms used in this Exhibit A shall have the definitions given to those terms in the Agreement to which this Exhibit A is attached.

3. Agreement to Participant’s Obligations. You shall indicate your agreement to the obligations and restrictions set forth in this Exhibit A in accordance with the instructions provided in the Agreement, and your acceptance of the Agreement shall include your acceptance of such obligations and restrictions. As stated in paragraph 21 of the Agreement, you and Verizon hereby expressly agree that the use of electronic media to indicate confirmation, consent, signature, acceptance, agreement and delivery shall be legally valid and have the same legal force and effect as if you and Verizon executed this Exhibit A in paper form.

 

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Exhibit B – Non-Competition, Non-Solicitation, Confidentiality and Other Obligations

As part of the Agreement to which this Exhibit B is attached, you, the Participant, and the Company or any Related Company which employs or employed you, agree to the following obligations:

1. Noncompetition.

(a) Prohibited Conduct. During the period of your employment with the Company or any Related Company, and for a period ending twelve (12) months following a termination of your employment for any reason with the Company or any Related Company, you shall not, without the prior written consent of the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee):

(1) personally engage in Competitive Activities (as defined below); or

(2) work for, own, manage, operate, control, or participate in the ownership, management, operation, or control of, or provide consulting or advisory services to, any person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, or any company or person affiliated with such person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities; provided that your purchase or holding, for investment purposes, of securities of a publicly traded company shall not constitute “ownership” or “participation in the ownership” for purposes of this paragraph so long as your equity interest in any such company is less than a controlling interest;

provided that this paragraph (a) shall not prohibit you from (i) being employed by, or providing services to, a consulting firm, provided that you do not personally engage in Competitive Activities or provide consulting or advisory services to any person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, or any person or entity affiliated with such person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, or (ii) engaging in the practice of law as an in-house counsel, sole practitioner or as a partner in (or as an employee of or counsel to) a corporation or law firm in accordance with applicable legal and professional standards. Exception (ii), however, does not apply to any Participant that may be engaging in Competitive Activities or providing services to any person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, wherein such engagement or services being provided are not primarily the practice of law.

(b) Competitive Activities. For purposes of the Agreement, to which this Exhibit B is attached, “Competitive Activities” means any activities relating to products or services of the same or similar type as the products or services (1) which were or are sold (or, pursuant to an existing business plan, will be sold) to paying customers of the Company or any Related Company, and (2) for which you have any direct or indirect responsibility or any involvement to plan, develop, manage, market, sell, oversee, support, implement or perform, or had any such responsibility or involvement within your most recent 24 months of employment with the Company or any Related Company. Notwithstanding the previous sentence, an activity shall not be treated as a Competitive Activity if the geographic marketing area of such same or similar products or services does not overlap with the geographic marketing area for the applicable products and services of the Company or any Related Company.

 

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2. Interference With Business Relations. During the period of your employment with the Company or any Related Company, and for a period ending twelve (12) months following a termination of your employment for any reason with the Company or any Related Company, you shall not, without the prior written consent of the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee):

(a) recruit, induce or solicit, directly or indirectly, any employee of the Company or Related Company who was employed by the Company or any Related Company as of your termination date and whom you worked with or had contact with, or had confidential information about, while employed by the Company or any Related Company for employment or for retention as a consultant or service provider to any person or entity;

(b) hire or participate (with another person or entity) in the process of recruiting, soliciting or hiring, directly or indirectly, (other than for the Company or any Related Company) any person who is then an employee of the Company or any Related Company whom you worked with or had contact with, or had confidential information about, while employed by the Company or any Related Company, or provide, directly or indirectly, names or other information about any employees of the Company or Related Company whom you worked with or had contact with, or had confidential information about, while employed by the Company or any Related Company to any person or entity (other than to the Company or any Related Company) under circumstances that could lead to the use of any such information for purposes of recruiting, soliciting or hiring any such employee for any person or entity;

(c) interfere, or attempt to interfere, directly or indirectly, with any relationship of the Company or any Related Company with any of its employees, agents, or representatives;

(d) solicit or induce, or in any manner attempt to solicit or induce, directly or indirectly, any client, customer, or Prospect (defined below) of the Company or any Related Company (1) to cease being, or not to become, a customer of the Company or any Related Company, or (2) to divert any business of such customer or Prospect from the Company or any Related Company; or

(e) otherwise interfere with, disrupt, or attempt to interfere with or disrupt, directly or indirectly, the relationship, contractual or otherwise, between the Company or any Related Company and any of its customers, clients, Prospects, suppliers, vendors, service providers, developers, joint ventures, equity investments or partners, inventors, consultants, employees, agents, or representatives.

For purposes of this paragraph 2, “Prospect” shall mean any person or entity from whom or which any business was being solicited by Verizon or any Related Company within the most recent 12 month period of your employment.

3. Proprietary And Confidential Information. You shall at all times, including after any termination of your employment with the Company or any Related Company, preserve the confidentiality of all Proprietary Information (defined below) and trade secrets of the Company or any Related Company, and you shall not use for the benefit of yourself or any person, other than the Company or a Related Company, or disclose to any person, except and to the extent that disclosure of such information is legally required, any Proprietary Information or trade secrets of the Company or any Related Company. “Proprietary Information” means any information or data related to the Company or any Related Company, including information entrusted to the Company or a Related Company by others, which has not been fully disclosed to the public by the Company or a Related Company, which is treated as confidential or otherwise protected within the Company or any Related Company or is of value to competitors, such as strategic or tactical business plans; undisclosed business, operational or financial data; ideas, processes, methods, techniques, systems, models, devices, programs, computer software, or related information; documents relating to regulatory matters or correspondence with governmental

 

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entities; information concerning any past, pending, or threatened legal dispute; pricing or cost data; the identity, reports or analyses of business prospects; business transactions (including those that are contemplated or planned); research data; personnel information or data; identities of suppliers to the Company or any Related Company or users or purchasers of the Company’s or Related Company’s products or services; the Agreement to which this Exhibit B is attached; and any other non-public information pertaining to or known by the Company or a Related Company, including confidential or non-public information of a third party that you know or should know the Company or a Related Company is obligated to protect.

4. Return Of Company Property; Ownership of Intellectual Property Rights. You agree that on or before termination of your employment for any reason with the Company or any Related Company, you shall return to the Company all property owned by the Company or any Related Company or in which the Company or any Related Company has an interest or to which the Company or any Related Company has any obligation, including any and all files, documents, data, records and any other non-public information (whether on paper or in tapes, disks, memory devices, or other machine-readable form), office equipment, credit cards, and employee identification cards. You acknowledge that the Company (or, as applicable, a Related Company) is the rightful owner of, and you hereby do grant and assign, all right, title and interest in and to any programs; ideas, inventions and discoveries (patentable or unpatentable); works of authorship, data, information, and other copyrightable material; and trademarks that you may have originated, created or developed, or assisted or participated in originating, creating or developing, during your period of employment with the Company or a Related Company, including all intellectual property rights in or based on the foregoing, where any such origination, creation or development (a) involved any use of Company or Related Company time, information or resources, (b) was made in the exercise of any of your duties or responsibilities for or on behalf of the Company or a Related Company, or (c) was related to (i) the Company’s or a Related Company’s past, present or future business, or (ii) the Company’s or a Related Company’s actual or demonstrably anticipated research, development or procurement activities. You shall at all times, both before and after termination of your employment, cooperate with the Company (or, as applicable, any Related Company) and its representatives in executing and delivering documents requested by the Company or a Related Company, and taking any other actions, that are necessary or requested by the Company or a Related Company to assist the Company or any Related Company in patenting, copyrighting, protecting, registering, or enforcing any programs; ideas, inventions and discoveries (patentable or unpatentable); works of authorship, data, information, and other copyrightable material; trademarks; or other intellectual property rights, and to vest title thereto solely in the Company (or, as applicable, a Related Company).

5. Definitions. Except where clearly provided to the contrary or as otherwise defined in this Exhibit B, all capitalized terms used in this Exhibit B shall have the definitions given to those terms in the Agreement to which this Exhibit B is attached.

6. Agreement to Non-Competition, Non-Solicitation, Confidentiality and Other Obligations. You shall indicate your agreement to the obligations and restrictions set forth in this Exhibit B in accordance with the instructions provided in the Agreement, and your acceptance of the Agreement shall include your acceptance of such obligations and restrictions. As stated in paragraph 21 of the Agreement, you and Verizon hereby expressly agree that the use of electronic media to indicate confirmation, consent, signature, acceptance, agreement and delivery shall be legally valid and have the same legal force and effect as if you and Verizon executed this Exhibit B in paper form.

7. Governing Law and Non-exclusive Forum. The parties expressly agree: (a) that, because the Plan is centrally administered in the State of New Jersey by employees of a Verizon Communications Inc. affiliate, the subject matter of this Exhibit B bears a reasonable relationship to the State of New Jersey; (b) that this Exhibit B is made under, shall be construed in accordance with, and governed in all respects

 

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by the laws of the State of New Jersey without giving effect to that jurisdiction’s choice of law rules; and (c) the parties consent to the non-exclusive jurisdiction and venue of the courts of the State of New Jersey, and the federal courts of the United States of America located in the State of New Jersey, over any action, claim, controversy or proceeding arising under this Exhibit B, and irrevocably waive any objection they may now or hereafter have to the non-exclusive jurisdiction and venue of such courts.

 

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Exhibit 10b

VERIZON COMMUNICATIONS INC. LONG-TERM INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

2016–2018 AWARD CYCLE

AGREEMENT between Verizon Communications Inc. (“Verizon” or the “Company”) and you (the “Participant”) and your heirs and beneficiaries.

1. Purpose of Agreement. The purpose of this Agreement is to provide a grant of restricted stock units (“RSUs”) to the Participant.

2. Agreement. This Agreement is entered into pursuant to the 2009 Verizon Communications Inc. Long-Term Incentive Plan, as amended and restated (the “Plan”), and evidences the grant of a restricted stock unit award in the form of RSUs pursuant to the Plan. In consideration of the benefits described in this Agreement, which Participant acknowledges are good, valuable and sufficient consideration, the Participant agrees to comply with the terms and conditions of this Agreement, including the Participant’s obligations and restrictions set forth in Exhibit A to this Agreement and the Participant’s non-competition, non-solicitation, confidentiality and other obligations and restrictions set forth in Exhibit B to this Agreement, both of which are incorporated into and are a part of the Agreement. The RSUs and this Agreement are subject to the terms and provisions of the Plan. By executing this Agreement, the Participant agrees to be bound by the terms and provisions of the Plan and this Agreement, including but not limited to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement. In addition, the Participant agrees to be bound by the actions of the Human Resources Committee of Verizon Communication’s Board of Directors or any successor thereto (the “Committee”), and any designee of the Committee (to the extent that such actions are exercised in accordance with the terms of the Plan and this Agreement). If there is a conflict between the terms of the Plan and the terms of this Agreement, the terms of this Agreement shall control.

3. Contingency. The grant of RSUs is contingent on the Participant’s timely acceptance of this Agreement and satisfaction of the other conditions contained in it. Acceptance shall be through execution of the Agreement as set forth in paragraph 21. If the Participant does not accept this Agreement by the close of business on May 27, 2016, the Participant shall not be entitled to this grant of RSUs regardless of the extent to which the requirements in paragraph 5 (“Vesting”) are satisfied. In addition, to the extent a Participant is on a Company approved leave of absence, including but not limited to short-term disability leave, he or she will not be entitled to this grant of RSUs until such time as he or she returns to active employment with Verizon or a Related Company (as defined in paragraph 13) and accepts this Agreement within the time period established by the Company.

4. Number of Units. The Participant is granted the number of RSUs as specified in the Participant’s account under the 2016 RSU grant, administered by Fidelity Investments or any successor thereto (“Fidelity”). A RSU is a hypothetical share of Verizon’s common stock. The value of a RSU on any given date shall be equal to the closing price of Verizon’s common stock on the New York Stock Exchange (“NYSE”) as of such date. A Dividend Equivalent Unit (“DEU”) or fraction thereof shall be added to each RSU each time that a dividend is paid on Verizon’s common stock. The amount of each DEU shall be equal to the corresponding dividend paid on a share of Verizon’s common stock. The DEU shall be converted into RSUs or fractions thereof based upon the closing price of Verizon’s common stock traded on the NYSE on the dividend payment date of each declared dividend on Verizon’s common stock, and such RSUs or fractions thereof shall be added to the Participant’s RSU balance. To the extent that Fidelity or the Company makes an error, including but not limited to an administrative error with respect to the number or value of the RSUs granted to the Participant under this Agreement, the DEUs credited to the Participant’s account or the amount of the final award payment, the Company or Fidelity specifically reserves the right to correct such error at any time and the Participant agrees that he or she shall be legally bound by any corrective action taken by the Company or Fidelity.


5. Vesting.

(a) General. The Participant shall vest in the RSUs only if the Participant is continuously employed by the Company or a Related Company (as defined in paragraph 13) from the date the RSUs are granted through the end of the Award Cycle, except as otherwise provided in paragraph 7 (“Early Cancellation/Accelerated Vesting of RSUs”) or as otherwise provided by the Committee. For purposes of these RSUs, “Award Cycle” shall mean the three-year period beginning on January 1, 2016, and ending at the close of business on December 31, 2018.

(b) Effect of a Termination for Cause. Notwithstanding paragraph 5(a) or paragraph 7, if the Participant’s employment by the Company or a Related Company is terminated by the Company or a Related Company for Cause at any time prior to the date that the RSUs are paid pursuant to paragraph 6, the RSUs (whether vested or not) shall automatically terminate and be cancelled as of the applicable termination date without payment of any consideration by the Company and without any other action by the Participant. For purposes of this Agreement, “Cause” means (i) incompetence or negligence in the discharge of, or inattention to or neglect of or failure to perform, the duties and responsibilities assigned to the Participant; fraud, misappropriation or embezzlement; or a material breach of the Verizon Code of Conduct (as in effect at the relevant time) or any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, all as determined by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee) in his or her discretion, or (ii) commission of any felony of which the Participant is finally adjudged guilty by a court of competent jurisdiction.

(c) Transfer. Transfer of employment from Verizon to a Related Company, from a Related Company to Verizon, or from one Related Company to another Related Company shall not constitute a separation from employment hereunder, and service with a Related Company shall be treated as service with the Company for purposes of the three-year continuous employment requirement in paragraph 5(a). If the Participant transfers employment pursuant to this paragraph 5(c), the Participant will still be required to satisfy the definition of “Retire” under paragraph 7 of this Agreement in order to be eligible for the accelerated vesting provisions in connection with a retirement.

6. Payment. All payments under this Agreement shall be made in shares of Verizon common stock. Subject to paragraph 5(b), as soon as practicable after the end of the Award Cycle (but in no event later than March 15, 2019), the number of shares of the vested RSUs (minus any withholding for taxes) shall be paid to the Participant (subject, however, to any deferral election that the Participant has made under the deferral plan (if any) then available to the Participant). The number of shares that shall be paid (plus withholding for taxes and any applicable deferral amount) shall equal the number of vested RSUs. If the Participant dies before any payment due hereunder is made, such payment shall be made to the Participant’s beneficiary, as designated under paragraph 11. Once a payment has been made with respect to a RSU, the RSU shall be cancelled; however, all other terms of the Agreement, including but not limited to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, shall remain in effect.

 

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7. Early Cancellation/Accelerated Vesting of RSUs. Notwithstanding the provisions of paragraph 5, RSUs may vest or be forfeited before the end of the Award Cycle as follows:

(a) Retirement Before July 1, 2016, Voluntary Separation On or Before December 31, 2018, or Other Separation Not Described in Paragraph 7(b). If the Participant (i) Retires (as defined in paragraph 7(b)(4)) before July 1, 2016, (ii) voluntarily separates from employment on or before December 31, 2018 for any reason other than Retirement, or (iii) otherwise separates from employment on or before December 31, 2018 under circumstances not described in paragraph 7(b), all the RSUs shall automatically terminate and be cancelled as of the applicable termination date without payment of any consideration by the Company and without any other action by the Participant.

(b) Retirement After June 30, 2016, Involuntary Termination Without Cause On or Before December 31, 2018, Termination Due to Death or Disability On or Before December 31, 2018.

(1) This paragraph 7(b) shall apply if the Participant:

(i) Retires (as defined below) after June 30, 2016, or

(ii) Separates from employment by reason of an involuntary termination without Cause (as determined by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee)), death, or Disability (as defined below) on or before December 31, 2018. “Disability” shall mean the total and permanent disability of the Participant as defined by, or determined under, the Company’s long-term disability benefit plan.

(2) If the Participant separates from employment on or before December 31, 2018 under circumstances described in paragraph 7(b)(1), the Participant’s RSUs shall vest (without prorating the award) without regard to the three-year continuous employment requirement set forth in paragraph 5(a), provided that the Participant has not and does not commit a breach of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement and provided that the Participant executes, within the time prescribed by Verizon, a release satisfactory to Verizon waiving any claims he or she may have against Verizon and any Related Company (otherwise, paragraph 7(a) shall apply).

(3) Any RSUs that vest pursuant to paragraph 7(b)(2) shall be payable as soon as practicable after the end of the Award Cycle (but in no event later than March 15, 2019).

(4) For purposes of this Agreement, “Retire” and “Retirement” means: (i) to retire after having attained at least 15 years of vesting service (as defined under the applicable Verizon tax-qualified 401(k) savings plan) and a combination of age and years of vesting service that equals or exceeds 75 points, or (ii) retirement under any other circumstances determined in writing by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee), provided that, in the case of either (i) or (ii) in this paragraph, the retirement was not occasioned by a discharge for Cause. Notwithstanding the preceding sentence, if the Participant is employed in the United Kingdom, “Retire” or “Retirement” shall mean: (A) subject to applicable law, a termination of employment on the grounds of age, provided that the Participant has attained at least age 65; or (B) retirement under any other circumstances determined in writing by the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee), provided that, in the case of either (A) or (B) in this paragraph, the retirement was not occasioned by a discharge for Cause.

(c) Change in Control. If a Participant is involuntarily terminated without Cause within twelve (12) months following the occurrence of a Change in Control of Verizon (as defined in the Plan) and before the end of the Award Cycle, the RSUs shall vest and become payable (without prorating the

 

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award) without regard to the three-year continuous employment requirement in paragraph 5(a); however, all other terms of the Agreement, including but not limited to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, shall remain in effect. A Change in Control or an involuntary termination without Cause that occurs after the end of the Award Cycle shall have no effect on whether any RSUs vest or become payable under this paragraph 7(c). If both paragraph 7(b) and this paragraph 7(c) would otherwise apply in the circumstances, this paragraph 7(c) shall control. All payments provided in this paragraph 7(c) shall be made at their regularly scheduled time as specified in paragraph 6.

(d) Vesting Schedule. Except and to the extent provided in paragraphs 7(b) and (c), nothing in this paragraph 7 shall alter the vesting schedule prescribed by paragraph 5.

8. Shareholder Rights. The Participant shall have no rights as a shareholder with respect to the RSUs until the date on which the Participant becomes the holder of record with respect to any shares of Verizon common stock to which this grant relates. Except as provided in the Plan or in this Agreement, no adjustment shall be made for dividends or other rights for which the record date occurs while the RSUs are outstanding.

9. Amendment of Agreement. Except to the extent required by law or specifically contemplated under this Agreement, neither the Committee nor the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee) may, without the written consent of the Participant, change any term, condition or provision affecting the RSUs if the change would have a material adverse effect upon the RSUs or the Participant’s rights thereto. Nothing in the preceding sentence shall preclude the Committee or the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee) from exercising administrative discretion with respect to the Plan or this Agreement, and the exercise of such discretion shall be final, conclusive and binding. This discretion includes, but is not limited to, corrections of any errors, including but not limited to any administrative errors, and determining whether the Participant has been discharged for Cause, has a disability, has Retired, has breached any of the Participant’s obligations or restrictions set forth in Exhibits A and B to this Agreement or has satisfied the requirements for vesting and payment under paragraphs 5 and 7 of this Agreement.

10. Assignment. The RSUs shall not be assigned, pledged or transferred except by will or by the laws of descent and distribution. During the Participant’s lifetime, the RSUs may be deferred only by the Participant or by the Participant’s guardian or legal representative in accordance with the deferral regulations, if any, established by the Company.

11. Beneficiary. The Participant shall designate a beneficiary in writing and in such manner as is acceptable to the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee). Each such designation shall revoke all prior designations by the Participant with respect to the Participant’s benefits under the Plan and shall be effective only when filed by the Participant with the Company during the Participant’s lifetime. If the Participant fails to so designate a beneficiary, or if no such designated beneficiary survives the Participant, the Participant’s beneficiary shall be the Participant’s estate.

12. Other Plans and Agreements. Any payment received (or deferred) by the Participant pursuant to this Agreement shall not be taken into account as compensation in the determination of the Participant’s benefits under any pension, savings, life insurance, severance or other benefit plan maintained by Verizon or a Related Company. The Participant acknowledges that this Agreement or any prior RSU agreement shall not entitle the Participant to any other benefits under the Plan or any other plans maintained by the Company or a Related Company.

 

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13. Company and Related Company. For purposes of this Agreement, “Company” means Verizon Communications Inc. “Related Company” means (a) any corporation, partnership, joint venture, or other entity in which Verizon Communications Inc. holds a direct or indirect ownership or proprietary interest of 50 percent or more at any time during the term of this Agreement, or (b) any corporation, partnership, joint venture, or other entity in which Verizon Communications Inc. holds a direct or indirect ownership or other proprietary interest of less than 50 percent at any time during the term of this Agreement but which, in the discretion of the Committee, is treated as a Related Company for purposes of this Agreement.

14. Employment Status. The grant of the RSUs shall not be deemed to constitute a contract of employment for a particular term between the Company or a Related Company and the Participant, nor shall it constitute a right to remain in the employ of any such Company or Related Company.

15. Withholding. The Participant acknowledges that he or she shall be responsible for any taxes that arise in connection with this grant of RSUs, and the Company shall make such arrangements as it deems necessary for withholding of any taxes it determines are required to be withheld pursuant to any applicable law or regulation.

16. Securities Laws. The Company shall not be required to make payment with respect to any shares of common stock prior to the admission of such shares to listing on any stock exchange on which the stock may then be listed and the completion of any registration or qualification of such shares under any federal or state law or rulings or regulations of any government body that the Company, in its discretion, determines to be necessary or advisable.

17. Committee Authority. The Committee shall have complete discretion in the exercise of its rights, powers, and duties under this Agreement. Any interpretation or construction of any provision of, and the determination of any question arising under, this Agreement shall be made by the Committee in its discretion, as described in paragraph 9. The Committee and the Audit Committee may designate any individual or individuals to perform any of its functions hereunder and utilize experts to assist in carrying out their duties hereunder.

18. Successors. This Agreement shall be binding upon, and inure to the benefit of, any successor or successors of the Company and the person or entity to whom the RSUs may have been transferred by will, the laws of descent and distribution, or beneficiary designation. All terms and conditions of this Agreement imposed upon the Participant shall, unless the context clearly indicates otherwise, be deemed, in the event of the Participant’s death, to refer to and be binding upon the Participant’s heirs and beneficiaries.

19. Construction. In the event that any provision of this Agreement is held invalid or unenforceable, such provision shall be considered separate and apart from the remainder of this Agreement, which shall remain in full force and effect. In the event that any provision, including any of the Participant’s obligations or restrictions set forth in Exhibits A and B to this Agreement, is held to be unenforceable for being unduly broad as written, such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to applicable law and shall be enforced as amended. The RSUs are intended not to be subject to any tax, interest or penalty under Section 409A of the Code, and this Agreement shall be construed and interpreted consistent with such intent.

20. Defined Terms. Except where the context clearly indicates otherwise, all capitalized terms used herein shall have the definitions ascribed to them by the Plan, and the terms of the Plan shall apply where appropriate.

 

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21. Execution of Agreement. The Participant shall indicate his or her consent and acknowledgment to the terms of this Agreement (including the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement) and the Plan by executing this Agreement pursuant to the instructions provided and otherwise shall comply with the requirements of paragraph 3. In addition, by consenting to the terms of this Agreement and the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, the Participant expressly agrees and acknowledges that Fidelity may deliver all documents, statements and notices associated with the Plan and this Agreement to the Participant in electronic form. The Participant and Verizon hereby expressly agree that the use of electronic media to indicate confirmation, consent, signature, acceptance, agreement and delivery shall be legally valid and have the same legal force and effect as if the Participant and Verizon executed this Agreement (including the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement) in paper form.

22. Confidentiality. Except to the extent otherwise required by law, the Participant shall not disclose, in whole or in part, any of the terms of this Agreement. This paragraph 22 does not prevent the Participant from disclosing the terms of this Agreement to the Participant’s spouse or beneficiary or to the Participant’s legal, tax, or financial adviser, provided that the Participant take all reasonable measures to assure that the individual to whom disclosure is made does not disclose the terms of this Agreement to a third party except as otherwise required by law.

23. Applicable Law. Except as expressly provided in Exhibit B, the validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

24. Notice. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of the Executive Vice President and Chief Administrative Officer of Verizon at 1095 Avenue of the Americas, New York, New York 10036 and any notice to the Participant shall be addressed to the Participant at the current address shown on the payroll of the Company, or to such other address as the Participant may designate to the Company in writing. Any notice shall be delivered by hand, sent by telecopy, sent by overnight carrier, or enclosed in a properly sealed envelope as stated above, registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

25. Dispute Resolution.

(a) General. Except as otherwise provided in paragraph 26 below, all disputes arising under or related to the Plan or this Agreement and all claims in which a Participant seeks damages or other relief that relate in any way to RSUs or other benefits of the Plan are subject to the dispute resolution procedure described below in this paragraph 25.

(i) For purposes of this Agreement, the term “Units Award Dispute” shall mean any claim against the Company or a Related Company, other than Units Damages Disputes described in paragraph (a)(ii) below, regarding (A) the interpretation of the Plan or this Agreement, (B) any of the terms or conditions of the RSUs issued under this Agreement, or (C) allegations of entitlement to RSUs or additional RSUs, or any other benefits, under the Plan or this Agreement; provided, however, that any dispute relating to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement or to the forfeiture of an award as a result of a breach of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement shall not be subject to the dispute resolution procedures provided for in this paragraph 25.

 

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(ii) For purposes of this Agreement, the term “Units Damages Dispute” shall mean any claims between the Participant and the Company or a Related Company (or against the past or present directors, officers, employees, representatives, or agents of the Company or a Related Company, whether acting in their capacity as such or otherwise), that are related in any way to the Participant’s employment or former employment, including claims of alleged employment discrimination, wrongful termination, or violations of Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, 42 U.S.C. § 1981, the Fair Labor Standards Act, the Family Medical Leave Act, the Sarbanes-Oxley Act, or any other U.S. federal, state or local law, statute, regulation, or ordinance relating to employment or any common law theories of recovery relating to employment, such as breach of contract, tort, or public policy claims, in which the damages or other relief sought relate in any way to RSUs or other benefits of the Plan or this Agreement.

(b) Internal Dispute Resolution Procedure. All Units Award Disputes, and all Units Damages Dispute alleging breach of contract, tort, or public policy claims with respect to the Plan or this Agreement (collectively, “Plan Disputes”), shall be referred in the first instance to the Verizon Employee Benefits Committee (“EB Committee”) for resolution internally within Verizon. Except where otherwise prohibited by law, all Plan Disputes must be filed in writing with the EB Committee no later than one year from the date that the dispute accrues. Consistent with paragraph 25(c)(i) of this Agreement, all decisions relating to the enforceability of the limitations period contained herein shall be made by the arbitrator. To the fullest extent permitted by law, the EB Committee shall have full power, discretion, and authority to interpret the Plan and this Agreement and to decide all Plan Disputes brought under this Plan and Agreement. Determinations made by the EB Committee shall be final, conclusive and binding, subject only to review by arbitration pursuant to paragraph (c) below under the arbitrary and capricious standard of review. A Participant’s failure to refer a Plan Dispute to the EB Committee for resolution will in no way impair the Company’s right to compel arbitration or the enforceability of the waiver in paragraph 25(c)(ii).

(c) Arbitration. All appeals from determinations by the EB Committee as described in paragraph (b) above, and any Units Damages Dispute, shall be fully and finally settled by arbitration administered by the American Arbitration Association (“AAA”) on an individual basis (and not on a collective or class action basis) before a single arbitrator pursuant to the AAA’s Commercial Arbitration Rules in effect at the time any such arbitration is initiated. Any such arbitration must be initiated in writing pursuant to the aforesaid rules of the AAA no later than one year from the date that the claim accrues, except where a longer limitations period is required by applicable law. However, a Participant’s failure to initiate arbitration within one year will in no way impair the Company’s right, exercised at its discretion, to compel arbitration or the enforceability of the waiver in paragraph 25(c)(ii). Decisions about the applicability of the limitations period contained herein shall be made by the arbitrator. A copy of the AAA’s Commercial Arbitration Rules may be obtained from Human Resources. The Participant agrees that the arbitration shall be held at the office of the AAA nearest the place of the Participant’s most recent employment by the Company or a Related Company, unless the parties agree in writing to a different location. All claims by the Company or a Related Company against the Participant, except for breaches of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, may also be raised in such arbitration proceedings.

(i) The arbitrator shall have the authority to determine whether any dispute submitted for arbitration hereunder is arbitrable. The arbitrator shall decide all issues submitted for arbitration according to the terms of the Plan, this Agreement (except for breaches of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this

 

7


Agreement), existing Company policy, and applicable substantive Delaware State and U.S. federal law and shall have the authority to award any remedy or relief permitted by such laws. The final decision of the EB Committee with respect to a Plan Dispute shall be upheld unless such decision was arbitrary or capricious. The decision of the arbitrator shall be final, conclusive, not subject to appeal, and binding and enforceable in any applicable court.

(ii) The Participant understands and agrees that, pursuant to this Agreement, both the Participant and the Company or a Related Company waive any right to sue each other in a court of law or equity, to have a trial by jury, or to resolve disputes on a collective, or class, basis (except for breaches of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement), and that the sole forum available for the resolution of Units Award Disputes and Units Damages Disputes is arbitration as provided in this paragraph 25. If an arbitrator or court finds that the arbitration provisions of this Agreement are not enforceable, both Participant and the Company or a Related Company understand and agree to waive their right to trial by jury of any Units Award Dispute or Units Damages Dispute. This dispute resolution procedure shall not prevent either the Participant or the Company or a Related Company from commencing an action in any court of competent jurisdiction for the purpose of obtaining injunctive relief to prevent irreparable harm pending and in aid of arbitration hereunder; in such event, both the Participant and the Company or a Related Company agree that the party who commences the action may proceed without necessity of posting a bond.

(iii) In consideration of the Participant’s agreement in paragraph (ii) above, the Company or a Related Company will pay all filing, administrative and arbitrator’s fees incurred in connection with the arbitration proceedings. If the AAA requires the Participant to pay the initial filing fee, the Company or a Related Company will reimburse the Participant for that fee. All other fees incurred in connection with the arbitration proceedings, including but not limited to each party’s attorney’s fees, will be the responsibility of such party.

(iv) The parties intend that the arbitration procedure to which they hereby agree shall be the exclusive means for resolving all Units Award Disputes and Units Damages Disputes (subject to the mandatory EB Committee procedure provided for in paragraph 25(b) above). Their agreement in this regard shall be interpreted as broadly and inclusively as reason permits to realize that intent.

(v) The Federal Arbitration Act (“FAA”) shall govern the enforceability of this paragraph 25. If for any reason the FAA is held not to apply, or if application of the FAA requires consideration of state law in any dispute arising under this Agreement or subject to this dispute resolution provision, the laws of the State of Delaware shall apply without giving effect to the conflicts of laws provisions thereof.

(vi) To the extent an arbitrator determines that the Participant was not terminated for Cause and is entitled to the RSUs or any other benefits under the Plan pursuant to the provisions applicable to an involuntary termination without Cause, the Participant’s obligation to execute a release satisfactory to Verizon as provided under paragraph 7(b)(2) shall remain applicable in order to receive the benefit of any RSUs pursuant to this Agreement.

 

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26. Additional Remedies. Notwithstanding the dispute resolution procedures, including arbitration, of paragraph 25 of this Agreement, and in addition to any other rights or remedies, whether legal, equitable, or otherwise, that each of the parties to this Agreement may have (including the right of the Company to terminate the Participant for Cause or to involuntarily terminate the Participant without Cause), the Participant acknowledges that—

(a) The Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement are essential to the continued goodwill and profitability of the Company and any Related Company;

(b) The Participant has broad-based skills that will serve as the basis for other employment opportunities that are not prohibited by the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement;

(c) When the Participant’s employment with the Company or any Related Company terminates, the Participant shall be able to earn a livelihood without violating any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement;

(d) Irreparable damage to the Company or any Related Company shall result in the event that the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement are not specifically enforced and that monetary damages will not adequately protect the Company and any Related Company from a breach of any of such Participant obligations and restrictions;

(e) If any dispute arises concerning the violation or anticipated or threatened violation by the Participant of any of the Participant’s obligations and restrictions set forth in Exhibits A or B, an injunction may be issued restraining such violation pending the determination of such controversy, and no bond or other security shall be required in connection therewith;

(f) The Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement shall continue to apply after any expiration, termination, or cancellation of this Agreement;

(g) The Participant’s breach of any of the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, including, for example, any breach of the Participant’s non-competition, non-solicitation or confidentiality restrictions, shall result in the Participant’s immediate forfeiture of all rights and benefits, including all RSUs and DEUs, under this Agreement; and

(h) All disputes relating to the Participant’s obligations and restrictions set forth in Exhibits A and B to this Agreement, including their interpretation and enforceability and any damages (including but not limited to damages resulting in the forfeiture of an award or benefits under this Agreement) that may result from the breach of such Participant obligations and restrictions shall not be subject to the dispute resolution procedures, including arbitration, of paragraph 25 of this Agreement, but shall instead be determined in a court of competent jurisdiction.

 

9


Exhibit A – Participant’s Obligations

As part of the Agreement to which this Exhibit A is attached, you, the Participant, agree to the following obligations:

1. Effect of a Material Restatement of Financial Results; Recoupment; Company Policies Regarding Securities Transactions.

(a) General. Notwithstanding anything in this Agreement to the contrary, you agree that, with respect to all RSUs granted to you on or after January 1, 2007 and all short-term incentive awards made to you on or after January 1, 2007, to the extent the Company or any Related Company is required to materially restate any financial results based upon your willful misconduct or gross negligence while employed by the Company or any Related Company (and where such restatement would have resulted in a lower payment being made to you), you will be required to repay all previously paid or deferred (i) RSUs and (ii) short-term incentive awards that were provided to you during the performance periods that are the subject of the restated financial results, plus a reasonable rate of interest. For purposes of this paragraph, “willful misconduct” and “gross negligence” shall be as determined by the Committee. The Audit Committee of the Verizon Board of Directors shall determine whether a material restatement of financial results has occurred. If you do not repay the entire amount required under this paragraph, the Company may, to the extent permitted by applicable law, offset your obligation to repay against any source of income available to it, including but not limited to any money you may have in your nonqualified deferral accounts.

(b) Requirements of Recoupment Policy or Applicable Law. The repayment rights contained in paragraph 1(a) of Exhibit A shall be in addition to, and shall not limit, any other rights or remedies that the Company may have under law or in equity, including, without limitation, (i) any right that the Company may have under any Company recoupment policy that may apply to you, or (ii) any right or obligation that the Company may have regarding the clawback of “incentive-based compensation” under Section 10D of the Securities Exchange Act of 1934, as amended (as determined by the applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission) or under any other applicable law. By accepting this award of RSUs, you agree and consent to the Company’s application, implementation and enforcement of any such Company recoupment policy (as it may be in effect from time to time) that may apply to you and any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation and expressly agree that the Company may take such actions as are permitted under any such policy (as applicable to you) or applicable law, such as the cancellation of RSUs and repayment of amounts previously paid or deferred with respect to any previously granted RSUs or short-term incentive awards, without further consent or action being required by you.

(c) Company Policies Regarding Securities Transactions. By accepting this award of RSUs, you agree to comply with all Company policies regarding trading in securities or derivative securities (including, without limitation, the Company’s policies prohibiting trading on material inside information regarding the Company or any business with which the Company does business, the Company’s policies prohibiting engaging in financial transactions that would allow you to benefit from a devaluation of the Company’s securities, and any additional policy that the Company may adopt prohibiting you from hedging your economic exposure to the Company’s securities), as such policies are in effect from time to time and for as long as such policies are applicable to you.

 

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2. Definitions. Except where clearly provided to the contrary or as otherwise defined in this Exhibit A, all capitalized terms used in this Exhibit A shall have the definitions given to those terms in the Agreement to which this Exhibit A is attached.

3. Agreement to Participant’s Obligations. You shall indicate your agreement to the obligations and restrictions set forth in this Exhibit A in accordance with the instructions provided in the Agreement, and your acceptance of the Agreement shall include your acceptance of such obligations and restrictions. As stated in paragraph 21 of the Agreement, you and Verizon hereby expressly agree that the use of electronic media to indicate confirmation, consent, signature, acceptance, agreement and delivery shall be legally valid and have the same legal force and effect as if you and Verizon executed this Exhibit A in paper form.

 

11


Exhibit B – Non-Competition, Non-Solicitation, Confidentiality and Other Obligations

As part of the Agreement to which this Exhibit B is attached, you, the Participant, and the Company or any Related Company which employs or employed you, agree to the following obligations:

1. Noncompetition.

(a) Prohibited Conduct. During the period of your employment with the Company or any Related Company, and for a period ending twelve (12) months following a termination of your employment for any reason with the Company or any Related Company, you shall not, without the prior written consent of the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee):

(1) personally engage in Competitive Activities (as defined below); or

(2) work for, own, manage, operate, control, or participate in the ownership, management, operation, or control of, or provide consulting or advisory services to, any person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, or any company or person affiliated with such person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities; provided that your purchase or holding, for investment purposes, of securities of a publicly traded company shall not constitute “ownership” or “participation in the ownership” for purposes of this paragraph so long as your equity interest in any such company is less than a controlling interest;

provided that this paragraph (a) shall not prohibit you from (i) being employed by, or providing services to, a consulting firm, provided that you do not personally engage in Competitive Activities or provide consulting or advisory services to any person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, or any person or entity affiliated with such person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, or (ii) engaging in the practice of law as an in-house counsel, sole practitioner or as a partner in (or as an employee of or counsel to) a corporation or law firm in accordance with applicable legal and professional standards. Exception (ii), however, does not apply to any Participant that may be engaging in Competitive Activities or providing services to any person, partnership, firm, corporation, institution or other entity engaged in Competitive Activities, wherein such engagement or services being provided are not primarily the practice of law.

(b) Competitive Activities. For purposes of the Agreement, to which this Exhibit B is attached, “Competitive Activities” means any activities relating to products or services of the same or similar type as the products or services (1) which were or are sold (or, pursuant to an existing business plan, will be sold) to paying customers of the Company or any Related Company, and (2) for which you have any direct or indirect responsibility or any involvement to plan, develop, manage, market, sell, oversee, support, implement or perform, or had any such responsibility or involvement within your most recent 24 months of employment with the Company or any Related Company. Notwithstanding the previous sentence, an activity shall not be treated as a Competitive Activity if the geographic marketing area of such same or similar products or services does not overlap with the geographic marketing area for the applicable products and services of the Company or any Related Company.

 

12


2. Interference With Business Relations. During the period of your employment with the Company or any Related Company, and for a period ending twelve (12) months following a termination of your employment for any reason with the Company or any Related Company, you shall not, without the prior written consent of the Executive Vice President and Chief Administrative Officer of Verizon (or his or her designee):

(a) recruit, induce or solicit, directly or indirectly, any employee of the Company or Related Company who was employed by the Company or any Related Company as of your termination date and whom you worked with or had contact with, or had confidential information about, while employed by the Company or any Related Company for employment or for retention as a consultant or service provider to any person or entity;

(b) hire or participate (with another person or entity) in the process of recruiting, soliciting or hiring, directly or indirectly, (other than for the Company or any Related Company) any person who is then an employee of the Company or any Related Company whom you worked with or had contact with, or had confidential information about, while employed by the Company or any Related Company, or provide, directly or indirectly, names or other information about any employees of the Company or Related Company whom you worked with or had contact with, or had confidential information about, while employed by the Company or any Related Company to any person or entity (other than to the Company or any Related Company) under circumstances that could lead to the use of any such information for purposes of recruiting, soliciting or hiring any such employee for any person or entity;

(c) interfere, or attempt to interfere, directly or indirectly, with any relationship of the Company or any Related Company with any of its employees, agents, or representatives;

(d) solicit or induce, or in any manner attempt to solicit or induce, directly or indirectly, any client, customer, or Prospect (defined below) of the Company or any Related Company (1) to cease being, or not to become, a customer of the Company or any Related Company, or (2) to divert any business of such customer or Prospect from the Company or any Related Company; or

(e) otherwise interfere with, disrupt, or attempt to interfere with or disrupt, directly or indirectly, the relationship, contractual or otherwise, between the Company or any Related Company and any of its customers, clients, Prospects, suppliers, vendors, service providers, developers, joint ventures, equity investments or partners, inventors, consultants, employees, agents, or representatives.

For purposes of this paragraph 2, “Prospect” shall mean any person or entity from whom or which any business was being solicited by Verizon or any Related Company within the most recent 12 month period of your employment.

3. Proprietary And Confidential Information. You shall at all times, including after any termination of your employment with the Company or any Related Company, preserve the confidentiality of all Proprietary Information (defined below) and trade secrets of the Company or any Related Company, and you shall not use for the benefit of yourself or any person, other than the Company or a Related Company, or disclose to any person, except and to the extent that disclosure of such information is legally required, any Proprietary Information or trade secrets of the Company or any Related Company. “Proprietary Information” means any information or data related to the Company or any Related Company, including information entrusted to the Company or a Related Company by others, which has not been fully disclosed to the public by the Company or a Related Company, which is treated as confidential or otherwise protected within the Company or any Related Company or is of value to competitors, such as strategic or tactical business plans; undisclosed business, operational or financial

 

13


data; ideas, processes, methods, techniques, systems, models, devices, programs, computer software, or related information; documents relating to regulatory matters or correspondence with governmental entities; information concerning any past, pending, or threatened legal dispute; pricing or cost data; the identity, reports or analyses of business prospects; business transactions (including those that are contemplated or planned); research data; personnel information or data; identities of suppliers to the Company or any Related Company or users or purchasers of the Company’s or Related Company’s products or services; the Agreement to which this Exhibit B is attached; and any other non-public information pertaining to or known by the Company or a Related Company, including confidential or non-public information of a third party that you know or should know the Company or a Related Company is obligated to protect.

4. Return Of Company Property; Ownership of Intellectual Property Rights. You agree that on or before termination of your employment for any reason with the Company or any Related Company, you shall return to the Company all property owned by the Company or any Related Company or in which the Company or any Related Company has an interest or to which the Company or any Related Company has any obligation, including any and all files, documents, data, records and any other non-public information (whether on paper or in tapes, disks, memory devices, or other machine-readable form), office equipment, credit cards, and employee identification cards. You acknowledge that the Company (or, as applicable, a Related Company) is the rightful owner of, and you hereby do grant and assign, all right, title and interest in and to any programs; ideas, inventions and discoveries (patentable or unpatentable); works of authorship, data, information, and other copyrightable material; and trademarks that you may have originated, created or developed, or assisted or participated in originating, creating or developing, during your period of employment with the Company or a Related Company, including all intellectual property rights in or based on the foregoing, where any such origination, creation or development (a) involved any use of Company or Related Company time, information or resources, (b) was made in the exercise of any of your duties or responsibilities for or on behalf of the Company or a Related Company, or (c) was related to (i) the Company’s or a Related Company’s past, present or future business, or (ii) the Company’s or a Related Company’s actual or demonstrably anticipated research, development or procurement activities. You shall at all times, both before and after termination of your employment, cooperate with the Company (or, as applicable, any Related Company) and its representatives in executing and delivering documents requested by the Company or a Related Company, and taking any other actions, that are necessary or requested by the Company or a Related Company to assist the Company or any Related Company in patenting, copyrighting, protecting, registering, or enforcing any programs; ideas, inventions and discoveries (patentable or unpatentable); works of authorship, data, information, and other copyrightable material; trademarks; or other intellectual property rights, and to vest title thereto solely in the Company (or, as applicable, a Related Company).

5. Definitions. Except where clearly provided to the contrary or as otherwise defined in this Exhibit B, all capitalized terms used in this Exhibit B shall have the definitions given to those terms in the Agreement to which this Exhibit B is attached.

6. Agreement to Non-Competition, Non-Solicitation, Confidentiality and Other Obligations. You shall indicate your agreement to the obligations and restrictions set forth in this Exhibit B in accordance with the instructions provided in the Agreement, and your acceptance of the Agreement shall include your acceptance of such obligations and restrictions. As stated in paragraph 21 of the Agreement, you and Verizon hereby expressly agree that the use of electronic media to indicate confirmation, consent, signature, acceptance, agreement and delivery shall be legally valid and have the same legal force and effect as if you and Verizon executed this Exhibit B in paper form.

 

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7. Governing Law and Non-exclusive Forum. The parties expressly agree: (a) that, because the Plan is centrally administered in the State of New Jersey by employees of a Verizon Communications Inc. affiliate, the subject matter of this Exhibit B bears a reasonable relationship to the State of New Jersey; (b) that this Exhibit B is made under, shall be construed in accordance with, and governed in all respects by the laws of the State of New Jersey without giving effect to that jurisdiction’s choice of law rules; and (c) the parties consent to the non-exclusive jurisdiction and venue of the courts of the State of New Jersey, and the federal courts of the United States of America located in the State of New Jersey, over any action, claim, controversy or proceeding arising under this Exhibit B, and irrevocably waive any objection they may now or hereafter have to the non-exclusive jurisdiction and venue of such courts.

 

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EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges

Verizon Communications Inc. and Subsidiaries

 

(dollars in millions)   

Three Months Ended

March 31, 2016

 

Earnings:

  

Income before provision for income taxes

   $   6,766   

Equity in losses of unconsolidated businesses

     20   

Dividends from unconsolidated businesses

     9   

Interest expense (1)

     1,188   

Portion of rent expense representing interest

     278   

Amortization of capitalized interest

     47   
  

 

 

 

Earnings, as adjusted

   $ 8,308   
  

 

 

 

Fixed Charges:

  

Interest expense (1)

   $ 1,188   

Portion of rent expense representing interest

     278   

Capitalized interest

     168   
  

 

 

 

Fixed charges

   $ 1,634   
  

 

 

 

Ratio of earnings to fixed charges

     5.08   
  

 

 

 

 

(1) 

We classify interest expense recognized on uncertain tax positions as income tax expense and therefore such interest expense is not included in the Ratio of Earnings to Fixed Charges.

EXHIBIT 31.1

I, Lowell C. McAdam, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Verizon Communications Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: April 28, 2016     /s/ Lowell C. McAdam
         Lowell C. McAdam
         Chairman and Chief Executive Officer

EXHIBIT 31.2

I, Francis J. Shammo, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Verizon Communications Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: April 28, 2016     /s/ Francis J. Shammo
         Francis J. Shammo
   

     Executive Vice President

          and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

I, Lowell C. McAdam, Chairman and Chief Executive Officer of Verizon Communications Inc. (the Company), certify that:

 

(1)

the report of the Company on Form 10-Q for the quarterly period ending March 31, 2016 (the Report) fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (the Exchange Act); and

 

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods referred to in the Report.

 

Date: April 28, 2016     /s/ Lowell C. McAdam
         Lowell C. McAdam
         Chairman and Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Verizon Communications Inc. and will be retained by Verizon Communications Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE

I, Francis J. Shammo, Executive Vice President and Chief Financial Officer of Verizon Communications Inc. (the Company), certify that:

 

(1)

the report of the Company on Form 10-Q for the quarterly period ending March 31, 2016 (the Report) fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (the Exchange Act); and

 

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods referred to in the Report.

 

Date: April 28, 2016     /s/ Francis J. Shammo
         Francis J. Shammo
   

     Executive Vice President

         and Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Verizon Communications Inc. and will be retained by Verizon Communications Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

v3.4.0.3
Document and Entity Information
3 Months Ended
Mar. 31, 2016
shares
Document Information [Line Items]  
Document Type 10-Q
Amendment Flag false
Document Period End Date Mar. 31, 2016
Document Fiscal Year Focus 2016
Document Fiscal Period Focus Q1
Trading Symbol VZ
Entity Registrant Name VERIZON COMMUNICATIONS INC
Entity Central Index Key 0000732712
Current Fiscal Year End Date --12-31
Entity Filer Category Large Accelerated Filer
Entity Common Stock, Shares Outstanding 4,076,288,055
v3.4.0.3
Condensed Consolidated Statements of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating Revenues    
Service revenues and other $ 28,217 $ 28,611
Wireless equipment revenues 3,954 3,373
Total Operating Revenues 32,171 31,984
Operating Expenses    
Cost of services (exclusive of items shown below) 7,614 6,988
Wireless cost of equipment 4,998 5,108
Selling, general and administrative expense 7,600 7,939
Depreciation and amortization expense 4,017 3,989
Total Operating Expenses 24,229 24,024
Operating Income 7,942 7,960
Equity in losses of unconsolidated businesses (20) (34)
Other income, net 32 75
Interest expense (1,188) (1,332)
Income Before Provision For Income Taxes 6,766 6,669
Provision for income taxes (2,336) (2,331)
Net Income 4,430 4,338
Net income attributable to noncontrolling interests 120 119
Net income attributable to Verizon $ 4,310 $ 4,219
Basic Earnings Per Common Share    
Net income attributable to Verizon $ 1.06 $ 1.03
Weighted-average shares outstanding (in millions) 4,080 4,116
Diluted Earnings Per Common Share    
Net income attributable to Verizon $ 1.06 $ 1.02
Weighted-average shares outstanding (in millions) 4,085 4,121
Dividends declared per common share $ 0.565 $ 0.550
v3.4.0.3
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Net Income $ 4,430 $ 4,338
Other comprehensive loss, net of taxes    
Foreign currency translation adjustments 30 (141)
Unrealized loss on cash flow hedges (58) (13)
Unrealized (loss) gain on marketable securities (18) 3
Defined benefit pension and postretirement plans (45) (44)
Other comprehensive loss attributable to Verizon (91) (195)
Total Comprehensive Income 4,339 4,143
Comprehensive income attributable to noncontrolling interests 120 119
Comprehensive income attributable to Verizon $ 4,219 $ 4,024
v3.4.0.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Current assets    
Cash and cash equivalents $ 5,846 $ 4,470
Short-term investments   350
Accounts receivable, net of allowances of $900 and $882 12,485 13,457
Inventories 1,142 1,252
Assets held for sale 720 792
Prepaid expenses and other 3,422 1,959
Total current assets 23,615 22,280
Plant, property and equipment 222,669 220,163
Less accumulated depreciation 139,658 136,622
Plant, property and equipment, net 83,011 83,541
Investments in unconsolidated businesses 821 796
Wireless licenses 86,830 86,575
Goodwill 25,364 25,331
Other intangible assets, net 8,216 8,338
Non-current assets held for sale 10,432 10,267
Other assets 6,298 7,047
Total assets 244,587 244,175
Current liabilities    
Debt maturing within one year 6,265 6,489
Accounts payable and accrued liabilities 18,118 19,362
Liabilities related to assets held for sale 452 463
Other 8,477 8,738
Total current liabilities 33,312 35,052
Long-term debt 103,615 103,240
Employee benefit obligations 29,665 29,957
Deferred income taxes 45,568 45,484
Non-current liabilities related to assets held for sale 974 959
Other liabilities $ 11,350 $ 11,641
Equity    
Series preferred stock ($.10 par value; none issued)
Common stock ($.10 par value; 4,242,374,240 shares issued in each period) $ 424 $ 424
Contributed capital 11,191 11,196
Reinvested earnings 13,253 11,246
Accumulated other comprehensive income 459 550
Common stock in treasury, at cost (7,279) (7,416)
Deferred compensation - employee stock ownership plans and other 593 428
Noncontrolling interests 1,462 1,414
Total equity 20,103 17,842
Total liabilities and equity $ 244,587 $ 244,175
v3.4.0.3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Accounts receivable, allowances $ 900 $ 882
Series preferred stock, par value $ 0.10 $ 0.10
Series preferred stock, issued 0 0
Common stock, par value $ 0.1 $ 0.1
Common stock, shares issued 4,242,374,240 4,242,374,240
v3.4.0.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash Flows from Operating Activities    
Net Income $ 4,430 $ 4,338
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization expense 4,017 3,989
Employee retirement benefits 356 284
Deferred income taxes 167 823
Provision for uncollectible accounts 353 383
Equity in losses of unconsolidated businesses, net of dividends received 29 44
Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses (1,162) (888)
Other, net (771) 1,196
Net cash provided by operating activities 7,419 10,169
Cash Flows from Investing Activities    
Capital expenditures (including capitalized software) (3,387) (3,665)
Acquisitions of investments and businesses, net of cash acquired (161) (2)
Acquisitions of wireless licenses (131) (9,555)
Other, net 243 46
Net cash used in investing activities (3,436) (13,176)
Cash Flows from Financing Activities    
Proceeds from long-term borrowings   6,497
Repayments of long-term borrowings and capital lease obligations (376) (5,576)
Increase (decrease) in short-term obligations, excluding current maturities (40) 482
Dividends paid (2,302) (2,153)
Proceeds from sale of common stock 3  
Purchase of common stock for treasury   (5,000)
Other, net 108 2,545
Net cash used in financing activities (2,607) (3,205)
Increase (decrease) in cash and cash equivalents 1,376 (6,212)
Cash and cash equivalents, beginning of period 4,470 10,598
Cash and cash equivalents, end of period $ 5,846 $ 4,386
v3.4.0.3
Basis of Presentation
3 Months Ended
Mar. 31, 2016
Basis of Presentation
1.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (SEC) rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements included in the Verizon Communications Inc. (Verizon or the Company) Annual Report on Form 10-K for the year ended December 31, 2015. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. We have reclassified certain prior year amounts to conform to the current year presentation.

Earnings Per Common Share

There were a total of approximately 5 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for the three months ended March 31, 2016 and 2015, respectively. There were no outstanding options to purchase shares that would have been anti-dilutive for the three months ended March 31, 2016 and 2015, respectively.

Recently Adopted Accounting Standards

During the first quarter of 2016, we adopted the accounting standard update related to the simplification of the accounting for measurement-period adjustments in business combinations. This standard update requires an acquirer to recognize measurement-period adjustments in the reporting period in which the adjustments are determined and to record the effects on earnings of any changes resulting from the change in provisional amounts, calculated as if the accounting had been completed at the acquisition date. The prospective adoption of this standard update did not have a significant impact on our condensed consolidated financial statements.

During the first quarter of 2016, we adopted the accounting standard update related to disclosures for investments in certain entities that calculate net asset value per share. This standard update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The standard update limits the required disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. The retrospective adoption of this standard update did not have a significant impact on our condensed consolidated financial statements.

During the first quarter of 2016, we adopted the accounting standard update related to the simplification of the presentation of debt issuance costs. This standard update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. During the first quarter of 2016, we also adopted the accounting standard update related to the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. This standard adds SEC paragraphs pursuant to an SEC Staff Announcement that the SEC staff would not object to an entity deferring and presenting debt issuance costs associated with a line-of-credit arrangement as an asset and subsequently amortizing the costs ratably over the term of the arrangement. We applied the amendments in these accounting standard updates retrospectively to all periods presented. The adoption of these standard updates did not have a significant impact on our condensed consolidated financial statements.

During the first quarter of 2016, we adopted the accounting standard update related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The standard requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The prospective adoption of this standard update did not have an impact on our condensed consolidated financial statements.

Recently Issued Accounting Standards

In February 2016, the accounting standard update related to leases was issued. This standard update intends to increase transparency and improve comparability by requiring entities to recognize assets and liabilities on the balance sheet for all leases, with certain exceptions. In addition, through improved disclosure requirements, the standard update will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. This standard update is effective as of the first quarter of 2019; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our condensed consolidated financial statements.

 

In May 2014, the accounting standard update related to the recognition of revenue from contracts with customers was issued. This standard update clarifies the principles for recognizing revenue and develops a common revenue standard for generally accepted accounting principles in the United States (U.S. GAAP) and International Financial Reporting Standards. The standard update intends to provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and provide more useful information to users of financial statements through improved disclosure requirements. Upon adoption of this standard update, we expect that the allocation and timing of revenue recognition will be impacted. In August 2015, an accounting standard update was issued that delays the effective date of this standard until the first quarter of 2018. Companies are permitted to early adopt the standard in the first quarter of 2017.

There are two adoption methods available for implementation of the standard update related to the recognition of revenue from contracts with customers. Under one method, the guidance is applied retrospectively to contracts for each reporting period presented, subject to allowable practical expedients. Under the other method, the guidance is applied only to the most current period presented, recognizing the cumulative effect of the change as an adjustment to the beginning balance of retained earnings, and also requires additional disclosures comparing the results to the previous guidance. We are currently evaluating these adoption methods and the impact that this standard update will have on our condensed consolidated financial statements.

v3.4.0.3
Acquisitions and Divestitures
3 Months Ended
Mar. 31, 2016
Acquisitions and Divestitures
2.

Acquisitions and Divestitures

 

Wireless

Spectrum License Transactions

During the fourth quarter of 2015, we entered into a license exchange agreement with affiliates of AT&T Inc. to exchange certain Advanced Wireless Services (AWS) and Personal Communication Services (PCS) spectrum licenses. This non-cash exchange was completed in March 2016. As a result, we received $0.4 billion of AWS and PCS spectrum licenses at fair value and recorded a pre-tax gain of $0.1 billion in Selling, general and administrative expense on our condensed consolidated statement of income for the three months ended March 31, 2016.

During the first quarter of 2016, we entered into a license exchange agreement with affiliates of Sprint Corporation, which provides for the exchange of certain AWS and PCS spectrum licenses. This non-cash exchange is expected to be completed in the third quarter of 2016 and we expect to record an immaterial gain.

During the first quarter of 2016, we acquired various other wireless licenses for cash consideration that was not significant.

Wireline

Access Line Sale

On February 5, 2015, we entered into a definitive agreement with Frontier Communications Corporation (Frontier) pursuant to which Verizon agreed to sell its local exchange business and related landline activities in California, Florida and Texas, including Fios Internet and video customers, switched and special access lines and high-speed Internet service and long distance voice accounts in these three states for approximately $10.5 billion (approximately $7.5 billion net of income taxes), subject to certain adjustments and including the assumption of $0.6 billion of indebtedness from Verizon by Frontier. The transaction, which includes the acquisition by Frontier of the equity interests of Verizon’s incumbent local exchange carriers (ILECs) in California, Florida and Texas, does not involve any assets or liabilities of Verizon Wireless. The transaction closed on April 1, 2016.

Based on the number of voice connections and Fios Internet and video subscribers, respectively, as of March 31, 2016, the transaction resulted in Frontier acquiring approximately 3.3 million voice connections, 1.6 million Fios Internet subscribers, 1.2 million Fios video subscribers and the related ILEC businesses from Verizon. The assets and liabilities that were sold were included in Verizon’s continuing operations and classified as assets held for sale and liabilities related to assets held for sale on our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015. The operating results of these businesses, collectively, are included within our Wireline segment for all periods presented.

 

The following table summarizes the major classes of assets and liabilities of our local exchange and related landline activities in California, Florida and Texas which are classified as held for sale on our condensed consolidated balance sheet as of March 31, 2016:

 

      (dollars in millions)  

Assets held for sale:

  

Accounts receivable

   $ 341   

Prepaid expense and other

     62   
  

 

 

 

Total current assets held for sale

     403   

Plant, property and equipment, net

     9,033   

Goodwill

     1,328   

Other assets

     71   
  

 

 

 

Total non-current assets held for sale

     10,432   
  

 

 

 

Total assets held for sale

   $   10,835   
  

 

 

 

Liabilities related to assets held for sale:

  

Accounts payable and accrued liabilities

   $ 262   

Other current liabilities

     190   
  

 

 

 

Total current liabilities related to assets held for sale

     452   

Long-term debt

     597   

Employee benefit obligations

     258   

Other liabilities

     119   
  

 

 

 

Total non-current liabilities related to assets held for sale

     974   
  

 

 

 

Total liabilities related to assets held for sale

   $ 1,426   
  

 

 

 

Other

Acquisition of AOL Inc.

On May 12, 2015, we entered into an Agreement and Plan of Merger (the Merger Agreement) with AOL Inc. (AOL) pursuant to which we commenced a tender offer to acquire all of the outstanding shares of common stock of AOL at a price of $50.00 per share, net to the seller in cash, without interest and less any applicable withholding taxes.

On June 23, 2015, we completed the tender offer and merger, and AOL became a wholly-owned subsidiary of Verizon. The aggregate cash consideration paid by Verizon at the closing of these transactions was approximately $3.8 billion. Holders of approximately 6.6 million shares exercised appraisal rights under Delaware law. If they had not exercised these rights, Verizon would have paid an additional $330 million for such shares at the closing.

AOL is a leader in the digital content and advertising platform space. Verizon has been investing in emerging technology that taps into the market shift to digital content and advertising. AOL’s business model aligns with this approach, and we believe that its combination of owned and operated content properties plus a digital advertising platform enhances our ability to further develop future revenue streams.

The acquisition of AOL has been accounted for as a business combination. The identification of the assets acquired and liabilities assumed are finalized and we are in the process of finalizing our valuations for deferred taxes. These adjustments are not expected to have a material impact on our condensed consolidated financial statements. The valuations will be finalized within 12 months following the close of the acquisition.

The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in Accounting Standards Codification (ASC) 820, other than long-term debt assumed in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of acquired technology and customer relationships. The income approach indicates value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

 

The following table summarizes the consideration to AOL’s shareholders and the identification of the assets acquired, including cash acquired of $0.5 billion, and liabilities assumed as of the close of the acquisition, as well as the fair value at the acquisition date of AOL’s noncontrolling interests:

 

(dollars in millions)    As of June 23, 2015  

Cash payment to AOL’s equity holders

   $ 3,764   

Estimated liabilities to be paid(1)

     377   
  

 

 

 

Total consideration

   $ 4,141   
  

 

 

 

Assets acquired:

  

Goodwill

   $ 1,903   

Intangible assets subject to amortization

     2,504   

Other

     1,551   
  

 

 

 

Total assets acquired

     5,958   

Liabilities assumed:

  

Total liabilities assumed

     1,816   

Net assets acquired:

     4,142   

Noncontrolling interest

     (1
  

 

 

 

Total consideration

   $ 4,141   
  

 

 

 

 

(1) 

During the three months ended March 31, 2016, we made cash payments of $126 million in respect of acquisition-date estimated liabilities to be paid. As of March 31, 2016, the remaining balance of estimated liabilities to be paid was $251 million.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired. The goodwill recorded as a result of the AOL transaction represents future economic benefits we expect to achieve as a result of combining the operations of AOL and Verizon as well as assets acquired that could not be individually identified and separately recognized. The goodwill related to this acquisition is included within Corporate and other.

Other

On February 20, 2016, Verizon entered into a purchase agreement to acquire XO Holdings’ wireline business which owns and operates one of the largest fiber-based IP and Ethernet networks outside of Verizon’s footprint for approximately $1.8 billion, subject to adjustment. The transaction is subject to customary regulatory approvals and is expected to close in the first half of 2017. Separately, Verizon entered into an agreement to lease certain wireless spectrum from XO Holdings and has an option, exercisable under certain circumstances, to buy XO Holdings’ entity that owns its wireless spectrum.

During the first quarter of 2016, we acquired various other businesses and investments for cash consideration that was not significant.

v3.4.0.3
Wireless Licenses, Goodwill and Other Intangible Assets
3 Months Ended
Mar. 31, 2016
Wireless Licenses, Goodwill and Other Intangible Assets
3.

Wireless Licenses, Goodwill and Other Intangible Assets

 

Wireless Licenses

Changes in the carrying amount of Wireless licenses are as follows:

 

(dollars in millions)        

Balance at January 1, 2016

   $   86,575   

Acquisitions (Note 2)

     3   

Capitalized interest on wireless licenses

     128   

Reclassifications, adjustments and other

     124   
  

 

 

 

Balance at March 31, 2016

   $ 86,830   
  

 

 

 

Reclassifications, adjustments and other includes $0.4 billion received in exchanges of wireless licenses in 2016 as well as $0.3 billion of Wireless licenses that are classified as Assets held for sale on our condensed consolidated balance sheet at March 31, 2016 (see Note 2 for additional details).

At March 31, 2016, approximately $10.4 billion of wireless licenses were under development for commercial service for which we were capitalizing interest costs.

The average remaining renewal period for our wireless licenses portfolio was 5.6 years as of March 31, 2016.

Goodwill

Changes in the carrying amount of Goodwill are as follows:

 

(dollars in millions)    Wireless      Wireline      Other      Total  

Balance at January 1, 2016

   $   18,393       $   4,331       $   2,607       $   25,331   

Acquisitions (Note 2)

                     31         31   

Reclassifications, adjustments and other

             1         1         2   
  

 

 

 

Balance at March 31, 2016

   $ 18,393       $ 4,332       $ 2,639       $ 25,364   
  

 

 

 

Other Intangible Assets

The following table displays the composition of Other intangible assets, net:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Gross
Amount
     Accumulated
Amortization
    Net
Amount
     Gross
Amount
     Accumulated
Amortization
    Net
Amount
 

Customer lists (5 to 14 years)

   $ 4,136       $ (2,421   $ 1,715       $ 4,139       $ (2,365   $ 1,774   

Non-network internal-use software (3 to 8 years)

     14,769         (9,921     4,848         14,542         (9,620     4,922   

Other (5 to 25 years)

     2,302         (649     1,653         2,220         (578     1,642   
  

 

 

 

Total

   $   21,207       $   (12,991   $   8,216       $   20,901       $   (12,563   $   8,338   
  

 

 

 

The amortization expense for Other intangible assets was as follows:

 

(dollars in millions)   

Three Months Ended

March 31,

 

2016

     $        435   

2015

     381   

 

The estimated future amortization expense for Other intangible assets is as follows:

 

Years    (dollars in millions)  

Remainder of 2016

     $    1,309   

2017

     1,561   

2018

     1,379   

2019

     1,149   

2020

     857   

v3.4.0.3
Debt
3 Months Ended
Mar. 31, 2016
Debt
4.

Debt

 

Changes to debt during the three months ended March 31, 2016 are as follows:

 

(dollars in millions)    Debt Maturing
within One Year
    Long-term
Debt
    Total  

Balance at January 1, 2016

   $ 6,489      $ 103,240      $   109,729   

Repayments of long-term borrowings and capital leases obligations

     (376            (376

Decrease in short-term obligations, excluding current maturities

     (40            (40

Reclassifications of long-term debt

     81        (81       

Other

     111        456        567   
  

 

 

 

Balance at March 31, 2016

   $ 6,265      $ 103,615      $ 109,880   
  

 

 

 

April Tender Offers

On March 4, 2016, we announced the commencement of three concurrent, but separate, tender offers (the April Tender Offers) to purchase for cash (1) any and all of the series of notes listed below in the Group 1 Any and All Offer, (2) any and all of the series of notes listed below in the Group 2 Any and All Offer and (3) up to $5.5 billion aggregate purchase price, excluding accrued and unpaid interest and any fees or commissions, of the series of notes listed below in the Group 3 Offer.

The April Tender Offers for each series of notes were conditioned upon the closing of the sale of our local exchange business and related landline activities in California, Florida and Texas to Frontier and the receipt of at least $9.5 billion of the purchase price cash at closing (the Sale Condition). The Sale Condition was satisfied and the April Tender Offers were settled on April 4, 2016, resulting in the notes listed below being repurchased and cancelled for $10.2 billion, inclusive of accrued interest of $0.1 billion.

The table below lists the series of notes included in the Group 1 Any and All Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Communications Inc.

     2.50     2016       $ 2,182       $   1,007.60       $ 1,272   
     2.00     2016         1,250         1,007.20         731   
     6.35     2019         1,750         1,133.32         970   
             

 

 

 
              $ 2,973   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.

The table below lists the series of notes included in the Group 2 Any and All Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Delaware LLC

     8.375     2019       $ 15       $     1,182.11       $ 15   
     8.625     2031         15         1,365.39         5   

Verizon Maryland LLC

     8.00     2029         50         1,301.32         22   
     8.30     2031         100         1,347.26         76   
     5.125     2033         350         1,012.50         171   

Verizon New England Inc.

     7.875     2029         349         1,261.63         176   

Verizon New Jersey Inc.

     8.00     2022         200         1,238.65         54   
     7.85     2029         149         1,311.32         63   

Verizon New York Inc.

     6.50     2028         100         1,151.71         28   
     7.375     2032         500         1,201.92         256   

Verizon Pennsylvania LLC

     6.00     2028         125         1,110.47         57   
     8.35     2030         175         1,324.10         127   
     8.75     2031         125         1,356.47         72   

Verizon Virginia LLC

     7.875     2022         100         1,227.79         43   
     8.375     2029         100         1,319.78         81   
             

 

 

 
              $ 1,246   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.

The table below lists the series of notes included in the Group 3 Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Communications Inc.

     8.95     2039       $ 353       $     1,506.50       $ 63   
     7.75     2032         251         1,315.19         33   
     7.35     2039         480         1,293.50         68   
     7.75     2030         1,206         1,377.92         276   
     6.55     2043         6,585         1,291.74         2,340   
     6.40     2033         2,196         1,220.28         466   
     6.90     2038         477         1,243.29         92   
     6.25     2037         750         1,167.66         114   
     6.40     2038         866         1,176.52         116   
     5.85     2035         1,500         1,144.68         250   
     6.00     2041         1,000         1,164.56           
     5.15     2023         8,517         1,152.83           

Alltel Corporation

     7.875     2032         452         1,322.92         115   
     6.80     2029         235         1,252.93         47   

GTE Corporation

     6.94     2028         800         1,261.35         237   
     8.75     2021         300         1,307.34         93   
             

 

 

 
              $ 4,310   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes

 

April Early Debt Redemption

On April 8, 2016, we redeemed in whole the following series of outstanding notes which were called for redemption on April 5, 2016 (collectively, April Early Debt Redemption): $0.9 billion aggregate principal amount of Verizon Communications 2.50% Notes due 2016 at 100.8% of the principal amount of such notes, $0.5 billion aggregate principal amount of Verizon Communications 2.00% Notes due 2016 at 100.8% of the principal amount of such notes, and $0.8 billion aggregate principal amount of Verizon Communications 6.35% Notes due 2019 at 113.5% of the principal amount of such notes. These notes were repurchased and cancelled for $2.3 billion, inclusive of an immaterial amount of accrued interest.

During the second quarter of 2016, we expect to record a net pre-tax loss on early debt redemption of $1.8 billion in connection with the April Tender Offers and the April Early Debt Redemption.

Credit Facility

As of March 31, 2016, the unused borrowing capacity under our $8.0 billion credit facility was approximately $7.9 billion.

Additional Financing Activities (Non-Cash Transaction)

During the three months ended March 31, 2016, we financed, primarily through vendor financing arrangements, the purchase of approximately $0.1 billion of long-lived assets, consisting primarily of network equipment. At March 31, 2016, $1.0 billion relating to vendor financing arrangements, including those entered into in prior years, remained outstanding. These purchases are non-cash financing activities and therefore not reflected within Capital expenditures on our condensed consolidated statement of cash flows.

Guarantees

We guarantee the debentures and first mortgage bonds of our operating telephone company subsidiaries. As of March 31, 2016, $3.1 billion aggregate principal amount of these obligations remained outstanding. Each guarantee will remain in place for the life of the obligation unless terminated pursuant to its terms, including the operating telephone company no longer being a wholly-owned subsidiary of Verizon.

As a result of the closing of the Frontier transaction, as of April 1, 2016, GTE Southwest Inc., Verizon California Inc. and Verizon Florida LLC are no longer wholly-owned subsidiaries of Verizon, and the guarantees of $0.6 billion aggregate principal amount of debentures and first mortgage bonds of those entities have terminated pursuant to their terms. In addition, in connection with the Group 2 Any and All Offer, as of April 4, 2016, approximately $1.2 billion aggregate principal amount of debentures of our operating telephone company subsidiaries were repurchased and retired. Accordingly, as of April 4, 2016, guarantees remain in place with respect to approximately $1.2 billion aggregate principal amount of outstanding telephone company subsidiary debentures.

We also guarantee the debt obligations of GTE Corporation that were issued and outstanding prior to July 1, 2003. As of March 31, 2016, $1.4 billion aggregate principal amount of these obligations were outstanding. In connection with the Group 3 Offer, as of April 4, 2016, approximately $0.3 billion aggregate principal amount of debt obligations of GTE Corporation were repurchased and retired. Accordingly, as of April 4, 2016, guarantees remain in place with respect to approximately $1.1 billion aggregate principal amount of GTE Corporation debt obligations.


 

v3.4.0.3
Wireless Device Installment Plans
3 Months Ended
Mar. 31, 2016
Wireless Device Installment Plans
5.

Wireless Device Installment Plans

 

Under the Verizon device payment program, our eligible wireless customers purchase phones or tablets at unsubsidized prices on an installment basis (a device installment plan). 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 installment charge is included in their standard wireless monthly bill. We have ongoing programs to sell certain device installment receivables to financial institutions. The outstanding portfolio of device installment plan receivables derecognized from our condensed consolidated balance sheet but which we continue to service was $9.6 billion at March 31, 2016. As of March 31, 2016, the total portfolio of device installment plan receivables, including derecognized device installment receivables, we are servicing was $12.9 billion.

 

Wireless Device Installment Plan Receivables

The following table displays device installment plan receivables, net, that continue to be recognized in our condensed consolidated balance sheets:

 

(dollars in millions)   At March 31,
2016
        At December 31,
2015
 

Device installment plan receivables, gross

  $ 3,346        $ 3,720   

Unamortized imputed interest

    (135       (142
 

 

 

     

 

 

 

Device installment plan receivables, net of unamortized imputed interest

    3,211          3,578   

Allowance for credit losses

    (513       (444
 

 

 

     

 

 

 

Device installment plan receivables, net

  $ 2,698        $ 3,134   
 

 

 

     

 

 

 

Classified on our condensed consolidated balance sheets:

     

Accounts receivable, net

  $ 1,663        $ 1,979   

Other assets

    1,035          1,155   
 

 

 

     

 

 

 

Device installment plan receivables, net

  $   2,698        $   3,134   
 

 

 

     

 

 

 

At the time of sale of devices to our customers, we impute risk adjusted interest on the device installment plan receivables. We record the imputed interest as a reduction to the related accounts receivable. Interest income, which is included within Service revenues and other on our condensed consolidated statements of income, is recognized over the financed installment term.

We assess the collectability of our device installment plan receivables based upon a variety of factors, including the credit quality of the customer base, payment trends and other qualitative factors. We use custom empirical risk models to measure the credit quality of a customer and determine eligibility for the device payment program. Based upon the risk assessed by the models, a customer may be subject to lower limits on the total amount financed and be required to provide a down payment to enter into the program in accordance with the credit risk assessment. The down payment will vary in accordance with the risk assessed. We update our risk assessments monthly based on payment trends and other qualitative factors in order to monitor the overall quality of our receivables. The credit quality of our customers is consistent throughout the periods presented.

Activity in the allowance for credit losses for the device installment plan receivables was as follows:

 

(dollars in millions)        

Balance at January 1, 2016

   $   444   

Bad debt expense

     163   

Write-offs

     (95

Allowance related to receivables sold

     (2

Other

     3   
  

 

 

 

Balance at March 31, 2016

   $ 513   
  

 

 

 

Customers that entered into device installment agreements prior to May 31, 2015 have the right to upgrade their device, subject to certain conditions, including making a stated portion of the required device payments and trading in their device. Generally, customers entering into device installment agreements on or after June 1, 2015 are required to repay all amounts due under their device installment agreement before being eligible to upgrade their device. However, on select devices, certain marketing promotions allow customers to upgrade to a new device after paying down the required device payment installment amount as well as trading in their device. When a customer enters into a device installment agreement with the right to upgrade to a new device, we record a guarantee liability in accordance with our accounting policy. The gross guarantee liability related to the upgrade program, which was approximately $0.1 billion at March 31, 2016 and $0.2 billion at December 31, 2015, was included in Other current liabilities on our condensed consolidated balance sheets.

 

Sales of Wireless Device Installment Plan Receivables

Wireless Device Installment Plan Receivables Purchase Agreement

During 2015, we established a program (Receivables Purchase Agreement, or RPA) to sell from time to time, on an uncommitted basis, eligible device installment plan receivables to a group of primarily relationship banks (Purchasers). Under the program, we transfer the eligible receivables to wholly-owned subsidiaries that are bankruptcy remote special purpose entities (Sellers or SPEs). The Sellers then sell the receivables to the Purchasers for upfront cash proceeds and additional consideration upon settlement of the receivables (the deferred purchase price). The receivables sold under the program are no longer considered assets of Verizon. We continue to bill and collect on the receivables in exchange for a monthly servicing fee, which is not material. Eligible receivables under the RPA exclude device installment plans where a customer was required to provide a down payment.

Revolving Sale of Wireless Device Installment Plan Receivables

During the fourth quarter of 2015 and first quarter of 2016, we entered into separate uncommitted facilities under our existing RPA with the Purchasers to sell eligible device installment plan receivables on a revolving basis (Revolving Programs), subject to a maximum funding limit, to the Purchasers. The revolving period of both facilities ends in December 2016. Sales of eligible receivables by the Sellers, once initiated, generally occur and are settled on a monthly basis. The receivables sold under the Revolving Programs are no longer considered assets of Verizon. We continue to bill and collect on the receivables in exchange for a monthly servicing fee, which is not material. Customer installment payments made towards receivables sold under the Revolving Programs will be available to purchase additional eligible installment plan receivables originated over the revolving period of each facility. Eligible receivables under the Revolving Programs exclude device installment plans where a customer was required to provide a down payment.

The sales of receivables under the RPA and Revolving Programs did not have a material impact on our condensed consolidated statements of income. The cash proceeds received from the Purchasers are recorded within Cash flows provided by operating activities on our condensed consolidated statements of cash flows.

The following table provides a summary of device installment receivables sold under the RPA and the Revolving Programs:

 

(dollars in millions)    RPA          Revolving Programs  
Three Months Ended March 31,    2016      2015           2016      2015  

Device installment plan receivables sold, net (1)

   $         –       $   1,925         $   2,617       $   –   

Cash proceeds received from new transfers

             1,271           1,978           

Cash proceeds received from reinvested collections

                       244           

Deferred purchase price recorded

             695           395           

 

(1) 

Device installment plan receivables net of allowances, imputed interest and the device trade-in right.

Variable Interest Entities

Under both the RPA and the Revolving Programs, the SPE’s sole business consists of the acquisition of the receivables from Verizon and the resale of the receivables to the Purchasers. The assets of the SPEs are not available to be used to satisfy obligations of any Verizon entities other than the Sellers. We determined that the SPEs are variable interest entities as they lack sufficient equity to finance their activities. Given that we have the power to direct the activities of the SPEs that most significantly impact the SPE’s economic performance, we are deemed to be the primary beneficiary of the SPEs. As a result, we consolidate the assets and liabilities of the SPEs into our condensed consolidated financial statements.

Deferred Purchase Price

Under both the RPA and the Revolving Programs, the deferred purchase price was initially recorded at fair value, based on the remaining installment amounts expected to be collected, adjusted, as applicable, for the time value of money and by the timing and estimated value of the device trade-in. The estimated value of the device trade-in considers prices expected to be offered to us by independent third parties. This estimate contemplates changes in value after the launch of a device. The fair value measurements are considered to be Level 3 measurements within the fair value hierarchy. The collection of the deferred purchase price is contingent on collections from customers. At March 31, 2016, our deferred purchase price receivable, which is held by the SPEs, was comprised of $1.3 billion included within Prepaid expenses and other and $1.3 billion included within Other assets in our condensed consolidated balance sheet. At December 31, 2015, our deferred purchase price receivable was $2.2 billion, which was included within Other assets in our condensed consolidated balance sheet.

 

Continuing Involvement

Verizon has continuing involvement with the sold receivables as it services the receivables. We continue to service the customer and their related receivables on behalf of the Purchasers, including facilitating customer payment collection, in exchange for a monthly servicing fee. While servicing the receivables, the same policies and procedures are applied to the sold receivables that apply to owned receivables, and we continue to maintain normal relationships with our customers. The credit quality of the customers we continue to service is consistent throughout the periods presented. To date, we have collected and remitted approximately $2.6 billion, net of fees, of which an immaterial amount was returned as deferred purchase price. To date, cash proceeds received, net of remittances, were $6.9 billion. During the three months ended March 31, 2016, credit losses on receivables sold were an immaterial amount.

In addition, we have continuing involvement related to the sold receivables as we may be responsible for absorbing additional credit losses pursuant to the agreements. The Company’s maximum exposure to loss related to the involvement with the SPEs is limited to the amount of the deferred purchase price, which was $2.6 billion as of March 31, 2016. The maximum exposure to loss represents an estimated loss that would be incurred under severe, hypothetical circumstances whereby the Company would not receive the portion of the proceeds withheld by the Purchasers. As we believe the probability of these circumstances occurring is remote, the maximum exposure to loss is not an indication of the Company’s expected loss.


 

v3.4.0.3
Fair Value Measurements
3 Months Ended
Mar. 31, 2016
Fair Value Measurements
6.

Fair Value Measurements

 

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2016:

 

(dollars in millions)    Level 1 (1)      Level 2 (2)      Level 3 (3)      Total  

Assets:

           

Other assets:

           

Equity securities

   $ 171       $       $       $ 171   

Fixed income securities

             622                 622   

Interest rate swaps

             296                 296   

Net investment hedges

             4                 4   
  

 

 

 

Total

   $   171       $   922       $   –       $   1,093   
  

 

 

 

Liabilities:

           

Other current liabilities:

           

Cross currency swaps

   $       $ 2       $       $ 2   

Other liabilities:

           

Interest rate swaps

             1                 1   

Net investment hedge

             2                 2   

Cross currency swaps

             1,411                 1,411   

Forward interest rate swaps

             118                 118   
  

 

 

 

Total

   $       $   1,534       $       $ 1,534   
  

 

 

 

 

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2015:

 

(dollars in millions)    Level 1 (1)      Level 2 (2)      Level 3 (3)      Total  

Assets:

           

Short-term investments:

           

Equity securities

   $ 265       $       $       $ 265   

Fixed income securities

             85                 85   

Other current assets:

           

Fixed income securities

     250                         250   

Other assets:

           

Fixed income securities

             928                 928   

Interest rate swaps

             128                 128   

Net investment hedges

             13                 13   

Cross currency swaps

             1                 1   
  

 

 

 

Total

   $   515       $ 1,155       $       $ 1,670   
  

 

 

 

Liabilities:

           

Other liabilities:

           

Interest rate swaps

   $       $ 19       $       $ 19   

Cross currency swaps

             1,638                 1,638   

Forward interest rate swaps

             24                 24   
  

 

 

 

Total

   $       $   1,681       $   –       $   1,681   
  

 

 

 

 

(1) 

quoted prices in active markets for identical assets or liabilities

(2) 

observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) 

no observable pricing inputs in the market

Equity securities consist of investments in common stock of domestic and international corporations measured using quoted prices in active markets.

Fixed income securities consist primarily of investments in municipal bonds as well as U.S. Treasury securities. We use quoted prices in active markets for our U.S. Treasury securities, therefore these securities are classified as Level 1. For all other fixed income securities that do not have quoted prices in active markets, we use alternative matrix pricing resulting in these debt securities being classified as Level 2.

Derivative contracts are valued using models based on readily observable market parameters for all substantial terms of our derivative contracts and thus are classified within Level 2. We use mid-market pricing for fair value measurements of our derivative instruments. Our derivative instruments are recorded on a gross basis.

We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the fair value hierarchy during the three months ended March 31, 2016.

Fair Value of Short-term and Long-term Debt

The fair value of our debt is determined using various methods, including quoted prices for identical terms and maturities, which is a Level 1 measurement, as well as quoted prices for similar terms and maturities in inactive markets and future cash flows discounted at current rates, which are Level 2 measurements. The fair value of our short-term and long-term debt, excluding capital leases, was as follows:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Short- and long-term debt, excluding capital leases

   $   108,911       $   124,405       $   108,772       $   118,216   

 

Derivative Instruments

We enter into derivative transactions to manage our exposure to fluctuations in foreign currency exchange rates, interest rates, and equity and commodity prices. We employ risk management strategies, which may include the use of a variety of derivatives including cross currency swaps, foreign currency and prepaid forwards and collars, interest rate swap agreements, commodity swap and forward agreements and interest rate locks. We do not hold derivatives for trading purposes. We posted collateral of approximately $0.1 billion related to derivative contracts under collateral exchange arrangements at March 31, 2016 and December 31, 2015, respectively, which was recorded as Prepaid expenses and other on our condensed consolidated balance sheets. During 2015, we paid an immaterial amount of cash to enter into amendments to certain collateral exchange arrangements. These amendments suspend cash collateral posting for a specified period of time by both counterparties.

We measure all derivatives at fair value and recognize them as either assets or liabilities on our condensed consolidated balance sheets. Changes in the fair values of derivative instruments not qualifying as hedges or any ineffective portion of hedges are recognized in earnings in the current period. Changes in the fair values of derivative instruments used effectively as fair value hedges are recognized in earnings, along with changes in the fair value of the hedged item. Changes in the fair value of the effective portions of cash flow hedges are reported in Other comprehensive loss and recognized in earnings when the hedged item is recognized in earnings. Changes in the fair value of the effective portion of net investment hedges of certain of our foreign operations are reported in Other comprehensive loss as part of the cumulative translation adjustment and partially offset the impact of foreign currency changes on the value of our net investment.

Interest Rate Swaps

We enter into domestic interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates based on the London Interbank Offered Rate, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against changes in the fair value of our debt portfolio. The ineffective portion of these interest rate swaps was not material for the three months ended March 31, 2016 and 2015, respectively.

Forward Interest Rate Swaps

In order to manage our exposure to future interest rate changes, we have entered into forward interest rate swaps. We designated these contracts as cash flow hedges. During the first quarter of 2016, we entered into forward interest rate swaps with a total notional value of $1.3 billion. During the three months ended March 31, 2016 and 2015, pre-tax losses of $0.1 billion, respectively, were recognized in Other comprehensive loss.

Cross Currency Swaps

We enter into cross currency swaps to exchange British Pound Sterling and Euro-denominated debt into U.S. dollars and to fix our future interest and principal payments in U.S. dollars, as well as to mitigate the effect of foreign currency transaction gains or losses. These swaps are designated as cash flow hedges. A portion of the gains and losses recognized in Other comprehensive loss was reclassified to Other income, net to offset the related pre-tax foreign currency transaction gain or loss on the underlying debt obligations. During the three months ended March 31, 2016 and 2015, a pre-tax gain of $0.2 billion and a pre-tax loss of $0.9 billion, respectively, were recognized in Other comprehensive loss.

Net Investment Hedges

We enter into foreign currency forward contracts that are designated as net investment hedges to mitigate foreign exchange exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates.

The following table sets forth the notional amounts of our outstanding derivative instruments:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Notional Amount      Notional Amount  

Interest rate swaps

   $   7,620       $   7,620   

Forward interest rate swaps

     2,000         750   

Cross currency swaps

     9,675         9,675   

Net investment hedge

     864         864   
v3.4.0.3
Stock-Based Compensation
3 Months Ended
Mar. 31, 2016
Stock-Based Compensation
7.

Stock-Based Compensation

 

Verizon Communications Long-Term Incentive Plan

The Verizon Communications Inc. Long-Term Incentive Plan (the Plan) permits the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other awards. The maximum number of shares available for awards from the Plan is 119.6 million shares.

Restricted Stock Units

The Plan provides for grants of Restricted Stock Units (RSUs) that generally vest at the end of the third year after the grant. The RSUs are classified as equity awards because the RSUs will be paid in Verizon common stock upon vesting. The RSU equity awards are measured using the grant date fair value of Verizon common stock and are not remeasured at the end of each reporting period. Dividend equivalent units are also paid to participants at the time the RSU award is paid, and in the same proportion as the RSU award.

Performance Stock Units

The Plan also provides for grants of Performance Stock Units (PSUs) that generally vest at the end of the third year after the grant. As defined by the Plan, the Human Resources Committee of the Board of Directors determines the number of PSUs a participant earns based on the extent to which the corresponding performance goals have been achieved over the three-year performance cycle. The PSUs are classified as liability awards because the PSU awards are paid in cash upon vesting. The PSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the price of Verizon common stock as well as performance relative to the targets. Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award. The granted and cancelled activity for the PSU award includes adjustments for the performance goals achieved.

The following table summarizes the Restricted Stock Unit and Performance Stock Unit activity:

 

(shares in thousands)    Restricted
Stock Units
    Performance
Stock Units
 

Outstanding, January 1, 2016

     13,903        17,203   

Granted

     3,622        5,487   

Payments

     (4,548     (4,213

Cancelled/Forfeited

     (32     (43

Adjustments

            170   
  

 

 

 

Outstanding, March 31, 2016

     12,945        18,604   
  

 

 

 

As of March 31, 2016, unrecognized compensation expense related to the unvested portion of Verizon’s RSUs and PSUs was approximately $0.6 billion and is expected to be recognized over approximately two years.

The RSUs granted in 2016 have a weighted-average grant date fair value of $51.81 per unit.

v3.4.0.3
Employee Benefits
3 Months Ended
Mar. 31, 2016
Employee Benefits
8.

Employee Benefits

 

We maintain non-contributory defined benefit pension plans for many of our employees. In addition, we maintain postretirement health care and life insurance plans for our retirees and their dependents, which are both contributory and non-contributory, and include a limit on our share of the cost for certain recent and future retirees. In accordance with our accounting policy for pension and other postretirement benefits, operating expenses include pension and benefit related credits and/or charges based on actuarial assumptions, including projected discount rates and an estimated return on plan assets. These estimates are updated in the fourth quarter or upon a remeasurement event to reflect actual return on plan assets and updated actuarial assumptions. The adjustment will be recognized in our consolidated statement of income during the fourth quarter or upon a remeasurement event pursuant to our accounting policy for the recognition of actuarial gains and losses.

 

Net Periodic Cost

The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans:

 

(dollars in millions)    Pension     Health Care and Life  
Three Months Ended March 31,          2016           2015           2016           2015  

Service cost

   $ 80      $ 94      $ 61      $ 81   

Amortization of prior service credit

     (1     1        (73     (72

Expected return on plan assets

       (271       (317     (15     (25

Interest cost

     186        243        224        279   

Remeasurement loss, net

     165                        
  

 

 

 

Total

   $ 159      $ 21      $   197      $   263   
  

 

 

 

Effective January 1, 2016, we changed the method we use to estimate the interest component of net periodic benefit cost for pension and other postretirement benefits. Historically, we estimated the interest cost component utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to utilize a full yield curve approach in the estimation of interest cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We have made this change to provide a more precise measurement of interest cost by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate and accordingly will account for it prospectively.

For the three months ended March 31, 2016, the impact of this change was a reduction of the interest cost component of net periodic benefit cost and an increase to Net income of approximately $0.1 billion. The use of the full yield curve approach does not impact how we measure our total benefit obligations at December 31 or our annual net periodic benefit cost as any change in the interest cost component is completely offset by the actuarial gain or loss measured at year end which is immediately recognized in our consolidated statement of income. Accordingly, this change in estimate will not impact our income from continuing operations, net income or earnings per share as measured on an annual basis.

Pension Remeasurement

During the three months ended March 31, 2016, we recorded a net pre-tax pension remeasurement charge of approximately $0.2 billion in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur. The pension remeasurement charge relates to settlements for employees who received lump-sum distributions in one of Verizon’s seven defined benefit pension plans. The pension remeasurement charge was primarily driven by an approximately 43 basis point decrease in our discount rate assumption used to determine the current year liabilities of this pension plan. Our weighted-average discount rate assumption decreased from 4.60% at December 31, 2015 to 4.21% at March 31, 2016.

Severance Payments

During the three months ended March 31, 2016, we paid severance benefits of $0.3 billion. At March 31, 2016, we had a remaining severance liability of $0.5 billion, a portion of which includes future contractual payments to employees separated as of March 31, 2016.

Employer Contributions

During the three months ended March 31, 2016, we contributed $0.3 billion to our other postretirement benefit plans and $0.1 billion to our qualified pension plans. The contributions to our nonqualified pension plans were not material during the three months ended March 31, 2016. There have been no material changes with respect to the qualified and nonqualified pension contributions in 2016 as previously disclosed in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2015.

v3.4.0.3
Equity and Accumulated Other Comprehensive Income
3 Months Ended
Mar. 31, 2016
Equity and Accumulated Other Comprehensive Income
9.

Equity and Accumulated Other Comprehensive Income

 

Equity

Changes in the components of Total equity were as follows:

 

(dollars in millions)    Attributable
to Verizon
    Noncontrolling
Interests
    Total
Equity
 

Balance at January 1, 2016

   $ 16,428      $ 1,414      $ 17,842   

Net income

     4,310        120        4,430   

Other comprehensive loss

     (91            (91
  

 

 

 

Comprehensive income

     4,219        120        4,339   
  

 

 

 

Contributed capital

     (5            (5

Dividends declared

     (2,303            (2,303

Common stock in treasury

     137               137   

Distributions and other

     165        (72     93   
  

 

 

 

Balance at March 31, 2016

   $   18,641      $   1,462      $   20,103   
  

 

 

 

Common Stock

Verizon did not repurchase any shares of Verizon common stock through its previously authorized share buyback program during the three months ended March 31, 2016. At March 31, 2016, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 97.2 million.

Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareowner plans, including 3.1 million common shares issued from Treasury stock during the three months ended March 31, 2016.

Accumulated Other Comprehensive Income

The changes in the balances of Accumulated other comprehensive income by component are as follows:

 

(dollars in millions)    Foreign currency
translation
adjustments
    Unrealized
loss on cash
flow hedges
   

Unrealized

loss on
marketable
securities

   

Defined benefit

pension and
postretirement
plans

    Total  

Balance at January 1, 2016

   $   (554   $   (278   $   101      $   1,281      $    550   

Other comprehensive income (loss)

     30        75        (2            103   

Amounts reclassified to net income

            (133     (16     (45     (194
  

 

 

 

Net other comprehensive income (loss)

     30        (58     (18     (45     (91
  

 

 

 

Balance at March 31, 2016

   $ (524   $ (336   $ 83      $ 1,236      $ 459   
  

 

 

 

The amounts presented above in net other comprehensive income (loss) are net of taxes and noncontrolling interests, which are not significant. For the three months ended March 31, 2016, the amounts reclassified to net income related to defined benefit pension and postretirement plans in the table above are included in Cost of services and Selling, general and administrative expense on our condensed consolidated statement of income. For the three months ended March 31, 2016, all other amounts reclassified to net income in the table above are included in Other income, net on our condensed consolidated statement of income.

v3.4.0.3
Segment Information
3 Months Ended
Mar. 31, 2016
Segment Information
10.

Segment Information

 

Reportable Segments

We have two reportable segments, Wireless and Wireline, which we operate and manage as strategic business units and organize by products and services. We measure and evaluate our reportable segments based on segment operating income, consistent with the chief operating decision maker’s assessment of segment performance.

Corporate and other includes the operations of AOL and related businesses, unallocated corporate expenses, the results of other businesses, such as our investments in unconsolidated businesses, pension and other employee benefit related costs and lease financing. Corporate and other also includes other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-operational nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results as these items are included in the chief operating decision maker’s assessment of segment performance.

The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below also includes those items of a non-operational nature. We exclude from segment results the effects of certain items that management does not consider in assessing segment performance, primarily because of their non-operational nature.

We have adjusted prior period consolidated and segment information, where applicable, to conform to current period presentation.

Our reportable segments and their principal activities consist of the following:

 

Segment      Description
Wireless     

Wireless’ communications products and services include wireless voice and data services and equipment sales, which are provided to consumer, business and government customers across the United States.

Wireline     

Wireline’s voice, data and video communications products and enhanced services include broadband video and data, corporate networking solutions, data center and cloud services, security and managed network services and local and long distance voice services. We provide these products and services to consumers in the United States, as well as to carriers, businesses and government customers both in the United States and around the world.

 

The following table provides operating financial information for our two reportable segments:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016      2015  

External Operating Revenues

     

Wireless

     

Service revenue

   $ 16,769       $ 17,896   

Equipment

     3,954         3,373   

Other

     1,196         1,033   
  

 

 

 

Total Wireless

     21,919         22,302   

Wireline

     

Consumer retail

     4,022         3,992   

Small business

     568         600   
  

 

 

 

Mass Markets

     4,590         4,592   

Global Enterprise

     3,161         3,263   

Global Wholesale

     1,213         1,266   

Other

     76         87   
  

 

 

 

Total Wireline

     9,040         9,208   
  

 

 

 

Total reportable segments

   $   30,959       $   31,510   
  

 

 

 

Intersegment Revenues

     

Wireless

   $ 85       $ 26   

Wireline

     250         261   
  

 

 

 

Total reportable segments

   $ 335       $ 287   
  

 

 

 

Total Operating Revenues

     

Wireless

   $ 22,004       $ 22,328   

Wireline

     9,290         9,469   
  

 

 

 

Total reportable segments

   $ 31,294       $ 31,797   
  

 

 

 

Operating Income

     

Wireless

   $ 7,880       $ 7,810   

Wireline

     589         405   
  

 

 

 

Total reportable segments

   $ 8,469       $ 8,215   
  

 

 

 

 

(dollars in millions)    At March 31,
2016
    At December 31,
2015
 

Assets

    

Wireless

   $ 190,892      $ 185,405   

Wireline

     73,221        78,305   
  

 

 

 

Total reportable segments

     264,113        263,710   

Corporate and other

     210,199        205,476   

Eliminations

     (229,725     (225,011
  

 

 

 

Total consolidated – reported

   $    244,587      $    244,175   
  

 

 

 

A reconciliation of the reportable segment operating revenues to consolidated operating revenues is as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Total reportable segment operating revenues

   $ 31,294      $ 31,797   

Corporate and other

     1,232        474   

Eliminations

     (355     (287
  

 

 

 

Total consolidated operating revenues

   $   32,171      $   31,984   
  

 

 

 

Fios revenues are included within our Wireline segment and amounted to approximately $3.5 billion and $3.4 billion for the three months ended March 31, 2016 and 2015, respectively.

A reconciliation of the total of the reportable segments’ operating income to consolidated income before provision for income taxes is as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Total reportable segment operating income

   $ 8,469      $ 8,215   

Corporate and other

     (504     (255

Pension remeasurement (Note 8)

     (165       

Gain on spectrum license transaction (Note 2)

     142          
  

 

 

 

Total consolidated operating income

     7,942        7,960   

Equity in losses of unconsolidated businesses

     (20     (34

Other income, net

     32        75   

Interest expense

     (1,188     (1,332
  

 

 

 

Income Before Provision For Income Taxes

   $    6,766      $    6,669   
  

 

 

 

No single customer accounted for more than 10% of our total operating revenues during the three months ended March 31, 2016 and 2015.


 

v3.4.0.3
Commitments and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies
11.

Commitments and Contingencies

 

In the ordinary course of business Verizon is involved in various commercial litigation and regulatory proceedings at the state and federal level. Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is probable and estimable in a given matter, the Company establishes an accrual. In none of the currently pending matters is the amount of accrual material. An estimate of the reasonably possible loss or range of loss in excess of the amounts already accrued cannot be made at this time due to various factors typical in contested proceedings, including (1) uncertain damage theories and demands; (2) a less than complete factual record; (3) uncertainty concerning legal theories and their resolution by courts or regulators; and (4) the unpredictable nature of the opposing party and its demands. We continuously monitor these proceedings as they develop and adjust any accrual or disclosure as needed. We do not expect that the ultimate resolution of any pending regulatory or legal matter in future periods, including the Hicksville matter described below, will have a material effect on our financial condition, but it could have a material effect on our results of operations for a given reporting period.

 

Reserves have been established to cover environmental matters relating to discontinued businesses and past telecommunications activities. These reserves include funds to address contamination at the site of a former Sylvania facility in Hicksville, NY, which had processed nuclear fuel rods in the 1950s and 1960s. In September 2005, the Army Corps of Engineers (ACE) accepted the site into its Formerly Utilized Sites Remedial Action Program. As a result, the ACE has taken primary responsibility for addressing the contamination at the site. An adjustment to the reserves may be made after a cost allocation is conducted with respect to the past and future expenses of all of the parties. Adjustments to the environmental reserve may also be made based upon the actual conditions found at other sites requiring remediation.

Verizon is currently involved in approximately 50 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 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.

v3.4.0.3
Acquisitions and Divestitures (Tables)
3 Months Ended
Mar. 31, 2016
Major Classes of Assets and Liabilities of Local Exchange and Related Landline Activities in California, Florida and Texas

The following table summarizes the major classes of assets and liabilities of our local exchange and related landline activities in California, Florida and Texas which are classified as held for sale on our condensed consolidated balance sheet as of March 31, 2016:

 

      (dollars in millions)  

Assets held for sale:

  

Accounts receivable

   $ 341   

Prepaid expense and other

     62   
  

 

 

 

Total current assets held for sale

     403   

Plant, property and equipment, net

     9,033   

Goodwill

     1,328   

Other assets

     71   
  

 

 

 

Total non-current assets held for sale

     10,432   
  

 

 

 

Total assets held for sale

   $   10,835   
  

 

 

 

Liabilities related to assets held for sale:

  

Accounts payable and accrued liabilities

   $ 262   

Other current liabilities

     190   
  

 

 

 

Total current liabilities related to assets held for sale

     452   

Long-term debt

     597   

Employee benefit obligations

     258   

Other liabilities

     119   
  

 

 

 

Total non-current liabilities related to assets held for sale

     974   
  

 

 

 

Total liabilities related to assets held for sale

   $ 1,426   
  

 

 

 
AOL Inc  
Purchase Price Identified Based on Fair Value of Assets Acquired and Liabilities Assumed

The following table summarizes the consideration to AOL’s shareholders and the identification of the assets acquired, including cash acquired of $0.5 billion, and liabilities assumed as of the close of the acquisition, as well as the fair value at the acquisition date of AOL’s noncontrolling interests:

 

(dollars in millions)    As of June 23, 2015  

Cash payment to AOL’s equity holders

   $ 3,764   

Estimated liabilities to be paid(1)

     377   
  

 

 

 

Total consideration

   $ 4,141   
  

 

 

 

Assets acquired:

  

Goodwill

   $ 1,903   

Intangible assets subject to amortization

     2,504   

Other

     1,551   
  

 

 

 

Total assets acquired

     5,958   

Liabilities assumed:

  

Total liabilities assumed

     1,816   

Net assets acquired:

     4,142   

Noncontrolling interest

     (1
  

 

 

 

Total consideration

   $ 4,141   
  

 

 

 

 

(1) 

During the three months ended March 31, 2016, we made cash payments of $126 million in respect of acquisition-date estimated liabilities to be paid. As of March 31, 2016, the remaining balance of estimated liabilities to be paid was $251 million.

v3.4.0.3
Wireless Licenses, Goodwill and Other Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2016
Changes in Carrying Amount of Wireless Licenses

Changes in the carrying amount of Wireless licenses are as follows:

 

(dollars in millions)        

Balance at January 1, 2016

   $   86,575   

Acquisitions (Note 2)

     3   

Capitalized interest on wireless licenses

     128   

Reclassifications, adjustments and other

     124   
  

 

 

 

Balance at March 31, 2016

   $ 86,830   
  

 

 

 

Changes in Carrying Amount of Goodwill

Changes in the carrying amount of Goodwill are as follows:

 

(dollars in millions)    Wireless      Wireline      Other      Total  

Balance at January 1, 2016

   $   18,393       $   4,331       $   2,607       $   25,331   

Acquisitions (Note 2)

                     31         31   

Reclassifications, adjustments and other

             1         1         2   
  

 

 

 

Balance at March 31, 2016

   $ 18,393       $ 4,332       $ 2,639       $ 25,364   
  

 

 

 

 

Composition of Other Intangible Assets, Net

The following table displays the composition of Other intangible assets, net:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Gross
Amount
     Accumulated
Amortization
    Net
Amount
     Gross
Amount
     Accumulated
Amortization
    Net
Amount
 

Customer lists (5 to 14 years)

   $ 4,136       $ (2,421   $ 1,715       $ 4,139       $ (2,365   $ 1,774   

Non-network internal-use software (3 to 8 years)

     14,769         (9,921     4,848         14,542         (9,620     4,922   

Other (5 to 25 years)

     2,302         (649     1,653         2,220         (578     1,642   
  

 

 

 

Total

   $   21,207       $   (12,991   $   8,216       $   20,901       $   (12,563   $   8,338   
  

 

 

 

Amortization Expense for Other Intangible Assets

The amortization expense for Other intangible assets was as follows:

 

(dollars in millions)   

Three Months Ended

March 31,

 

2016

     $        435   

2015

     381   
Estimated Future Amortization Expense for Other Intangible Assets

The estimated future amortization expense for Other intangible assets is as follows:

 

Years    (dollars in millions)  

Remainder of 2016

     $    1,309   

2017

     1,561   

2018

     1,379   

2019

     1,149   

2020

     857   
v3.4.0.3
Debt (Tables)
3 Months Ended
Mar. 31, 2016
Combined Schedule of Current and Noncurrent Debt and Capital Lease Obligations

Changes to debt during the three months ended March 31, 2016 are as follows:

 

(dollars in millions)    Debt Maturing
within One Year
    Long-term
Debt
    Total  

Balance at January 1, 2016

   $ 6,489      $ 103,240      $   109,729   

Repayments of long-term borrowings and capital leases obligations

     (376            (376

Decrease in short-term obligations, excluding current maturities

     (40            (40

Reclassifications of long-term debt

     81        (81       

Other

     111        456        567   
  

 

 

 

Balance at March 31, 2016

   $ 6,265      $ 103,615      $ 109,880   
  

 

 

 

Schedule of Notes included in the Tender Offers

The table below lists the series of notes included in the Group 1 Any and All Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Communications Inc.

     2.50     2016       $ 2,182       $   1,007.60       $ 1,272   
     2.00     2016         1,250         1,007.20         731   
     6.35     2019         1,750         1,133.32         970   
             

 

 

 
              $ 2,973   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.

The table below lists the series of notes included in the Group 2 Any and All Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Delaware LLC

     8.375     2019       $ 15       $     1,182.11       $ 15   
     8.625     2031         15         1,365.39         5   

Verizon Maryland LLC

     8.00     2029         50         1,301.32         22   
     8.30     2031         100         1,347.26         76   
     5.125     2033         350         1,012.50         171   

Verizon New England Inc.

     7.875     2029         349         1,261.63         176   

Verizon New Jersey Inc.

     8.00     2022         200         1,238.65         54   
     7.85     2029         149         1,311.32         63   

Verizon New York Inc.

     6.50     2028         100         1,151.71         28   
     7.375     2032         500         1,201.92         256   

Verizon Pennsylvania LLC

     6.00     2028         125         1,110.47         57   
     8.35     2030         175         1,324.10         127   
     8.75     2031         125         1,356.47         72   

Verizon Virginia LLC

     7.875     2022         100         1,227.79         43   
     8.375     2029         100         1,319.78         81   
             

 

 

 
              $ 1,246   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.

The table below lists the series of notes included in the Group 3 Offer:

 

(dollars in millions, except for Purchase Price)    Interest
Rate
    Maturity      Principal
Amount
Outstanding
    

Purchase

Price (1)

     Principal
Amount
Purchased
 

Verizon Communications Inc.

     8.95     2039       $ 353       $     1,506.50       $ 63   
     7.75     2032         251         1,315.19         33   
     7.35     2039         480         1,293.50         68   
     7.75     2030         1,206         1,377.92         276   
     6.55     2043         6,585         1,291.74         2,340   
     6.40     2033         2,196         1,220.28         466   
     6.90     2038         477         1,243.29         92   
     6.25     2037         750         1,167.66         114   
     6.40     2038         866         1,176.52         116   
     5.85     2035         1,500         1,144.68         250   
     6.00     2041         1,000         1,164.56           
     5.15     2023         8,517         1,152.83           

Alltel Corporation

     7.875     2032         452         1,322.92         115   
     6.80     2029         235         1,252.93         47   

GTE Corporation

     6.94     2028         800         1,261.35         237   
     8.75     2021         300         1,307.34         93   
             

 

 

 
              $ 4,310   
             

 

 

 

 

(1) 

Per $1,000 principal amount of notes


v3.4.0.3
Wireless Device Installment Plans (Tables)
3 Months Ended
Mar. 31, 2016
Device Installment Plan Receivables

The following table displays device installment plan receivables, net, that continue to be recognized in our condensed consolidated balance sheets:

 

(dollars in millions)   At March 31,
2016
        At December 31,
2015
 

Device installment plan receivables, gross

  $ 3,346        $ 3,720   

Unamortized imputed interest

    (135       (142
 

 

 

     

 

 

 

Device installment plan receivables, net of unamortized imputed interest

    3,211          3,578   

Allowance for credit losses

    (513       (444
 

 

 

     

 

 

 

Device installment plan receivables, net

  $ 2,698        $ 3,134   
 

 

 

     

 

 

 

Classified on our condensed consolidated balance sheets:

     

Accounts receivable, net

  $ 1,663        $ 1,979   

Other assets

    1,035          1,155   
 

 

 

     

 

 

 

Device installment plan receivables, net

  $   2,698        $   3,134   
 

 

 

     

 

 

 
Activity in Allowance for Credit Losses for Device Installment Plan Receivables

Activity in the allowance for credit losses for the device installment plan receivables was as follows:

 

(dollars in millions)        

Balance at January 1, 2016

   $   444   

Bad debt expense

     163   

Write-offs

     (95

Allowance related to receivables sold

     (2

Other

     3   
  

 

 

 

Balance at March 31, 2016

   $ 513   
  

 

 

 
Summary of Device Installment Receivables Sold under RPA and Revolving Program

The following table provides a summary of device installment receivables sold under the RPA and the Revolving Programs:

 

(dollars in millions)    RPA          Revolving Programs  
Three Months Ended March 31,    2016      2015           2016      2015  

Device installment plan receivables sold, net (1)

   $         –       $   1,925         $   2,617       $   –   

Cash proceeds received from new transfers

             1,271           1,978           

Cash proceeds received from reinvested collections

                       244           

Deferred purchase price recorded

             695           395           

 

(1) 

Device installment plan receivables net of allowances, imputed interest and the device trade-in right.


v3.4.0.3
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2016
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2016:

 

(dollars in millions)    Level 1 (1)      Level 2 (2)      Level 3 (3)      Total  

Assets:

           

Other assets:

           

Equity securities

   $ 171       $       $       $ 171   

Fixed income securities

             622                 622   

Interest rate swaps

             296                 296   

Net investment hedges

             4                 4   
  

 

 

 

Total

   $   171       $   922       $   –       $   1,093   
  

 

 

 

Liabilities:

           

Other current liabilities:

           

Cross currency swaps

   $       $ 2       $       $ 2   

Other liabilities:

           

Interest rate swaps

             1                 1   

Net investment hedge

             2                 2   

Cross currency swaps

             1,411                 1,411   

Forward interest rate swaps

             118                 118   
  

 

 

 

Total

   $       $   1,534       $       $ 1,534   
  

 

 

 

 

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2015:

 

(dollars in millions)    Level 1 (1)      Level 2 (2)      Level 3 (3)      Total  

Assets:

           

Short-term investments:

           

Equity securities

   $ 265       $       $       $ 265   

Fixed income securities

             85                 85   

Other current assets:

           

Fixed income securities

     250                         250   

Other assets:

           

Fixed income securities

             928                 928   

Interest rate swaps

             128                 128   

Net investment hedges

             13                 13   

Cross currency swaps

             1                 1   
  

 

 

 

Total

   $   515       $ 1,155       $       $ 1,670   
  

 

 

 

Liabilities:

           

Other liabilities:

           

Interest rate swaps

   $       $ 19       $       $ 19   

Cross currency swaps

             1,638                 1,638   

Forward interest rate swaps

             24                 24   
  

 

 

 

Total

   $       $   1,681       $   –       $   1,681   
  

 

 

 

 

(1) 

quoted prices in active markets for identical assets or liabilities

(2) 

observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) 

no observable pricing inputs in the market

Schedule of Fair Value of Short-Term and Long-Term Debt, Excluding Capital Leases

The fair value of our short-term and long-term debt, excluding capital leases, was as follows:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value  

Short- and long-term debt, excluding capital leases

   $   108,911       $   124,405       $   108,772       $   118,216   
Notional Amounts of Outstanding Derivative Instruments

The following table sets forth the notional amounts of our outstanding derivative instruments:

 

     At March 31, 2016      At December 31, 2015  
(dollars in millions)    Notional Amount      Notional Amount  

Interest rate swaps

   $   7,620       $   7,620   

Forward interest rate swaps

     2,000         750   

Cross currency swaps

     9,675         9,675   

Net investment hedge

     864         864   
v3.4.0.3
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2016
Schedule of Restricted and Performance Stock Unit Activity

The following table summarizes the Restricted Stock Unit and Performance Stock Unit activity:

 

(shares in thousands)    Restricted
Stock Units
    Performance
Stock Units
 

Outstanding, January 1, 2016

     13,903        17,203   

Granted

     3,622        5,487   

Payments

     (4,548     (4,213

Cancelled/Forfeited

     (32     (43

Adjustments

            170   
  

 

 

 

Outstanding, March 31, 2016

     12,945        18,604   
  

 

 

 
v3.4.0.3
Employee Benefits (Tables)
3 Months Ended
Mar. 31, 2016
Benefit or (Income) Cost Related to Pension and Postretirement Health Care and Life Insurance

The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans:

 

(dollars in millions)    Pension     Health Care and Life  
Three Months Ended March 31,          2016           2015           2016           2015  

Service cost

   $ 80      $ 94      $ 61      $ 81   

Amortization of prior service credit

     (1     1        (73     (72

Expected return on plan assets

       (271       (317     (15     (25

Interest cost

     186        243        224        279   

Remeasurement loss, net

     165                        
  

 

 

 

Total

   $ 159      $ 21      $   197      $   263   
  

 

 

 
v3.4.0.3
Equity and Accumulated Other Comprehensive Income (Tables)
3 Months Ended
Mar. 31, 2016
Schedule of Changes in Components of Total Equity

Changes in the components of Total equity were as follows:

 

(dollars in millions)    Attributable
to Verizon
    Noncontrolling
Interests
    Total
Equity
 

Balance at January 1, 2016

   $ 16,428      $ 1,414      $ 17,842   

Net income

     4,310        120        4,430   

Other comprehensive loss

     (91            (91
  

 

 

 

Comprehensive income

     4,219        120        4,339   
  

 

 

 

Contributed capital

     (5            (5

Dividends declared

     (2,303            (2,303

Common stock in treasury

     137               137   

Distributions and other

     165        (72     93   
  

 

 

 

Balance at March 31, 2016

   $   18,641      $   1,462      $   20,103   
  

 

 

 
Schedule of Components in Accumulated Other Comprehensive Income

The changes in the balances of Accumulated other comprehensive income by component are as follows:

 

(dollars in millions)    Foreign currency
translation
adjustments
    Unrealized
loss on cash
flow hedges
   

Unrealized

loss on
marketable
securities

   

Defined benefit

pension and
postretirement
plans

    Total  

Balance at January 1, 2016

   $   (554   $   (278   $   101      $   1,281      $    550   

Other comprehensive income (loss)

     30        75        (2            103   

Amounts reclassified to net income

            (133     (16     (45     (194
  

 

 

 

Net other comprehensive income (loss)

     30        (58     (18     (45     (91
  

 

 

 

Balance at March 31, 2016

   $ (524   $ (336   $ 83      $ 1,236      $ 459   
  

 

 

 
v3.4.0.3
Segment Information (Tables)
3 Months Ended
Mar. 31, 2016
Summary of Operating Financial Information for Reportable Segments

The following table provides operating financial information for our two reportable segments:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016      2015  

External Operating Revenues

     

Wireless

     

Service revenue

   $ 16,769       $ 17,896   

Equipment

     3,954         3,373   

Other

     1,196         1,033   
  

 

 

 

Total Wireless

     21,919         22,302   

Wireline

     

Consumer retail

     4,022         3,992   

Small business

     568         600   
  

 

 

 

Mass Markets

     4,590         4,592   

Global Enterprise

     3,161         3,263   

Global Wholesale

     1,213         1,266   

Other

     76         87   
  

 

 

 

Total Wireline

     9,040         9,208   
  

 

 

 

Total reportable segments

   $   30,959       $   31,510   
  

 

 

 

Intersegment Revenues

     

Wireless

   $ 85       $ 26   

Wireline

     250         261   
  

 

 

 

Total reportable segments

   $ 335       $ 287   
  

 

 

 

Total Operating Revenues

     

Wireless

   $ 22,004       $ 22,328   

Wireline

     9,290         9,469   
  

 

 

 

Total reportable segments

   $ 31,294       $ 31,797   
  

 

 

 

Operating Income

     

Wireless

   $ 7,880       $ 7,810   

Wireline

     589         405   
  

 

 

 

Total reportable segments

   $ 8,469       $ 8,215   
  

 

 

 
Summary of Reconciliation of Segment Assets
(dollars in millions)    At March 31,
2016
    At December 31,
2015
 

Assets

    

Wireless

   $ 190,892      $ 185,405   

Wireline

     73,221        78,305   
  

 

 

 

Total reportable segments

     264,113        263,710   

Corporate and other

     210,199        205,476   

Eliminations

     (229,725     (225,011
  

 

 

 

Total consolidated – reported

   $    244,587      $    244,175   
  

 

 

 

Summary of Reconciliation of Segment Operating Revenues

A reconciliation of the reportable segment operating revenues to consolidated operating revenues is as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Total reportable segment operating revenues

   $ 31,294      $ 31,797   

Corporate and other

     1,232        474   

Eliminations

     (355     (287
  

 

 

 

Total consolidated operating revenues

   $   32,171      $   31,984   
  

 

 

 
Summary of Reconciliation of Segment Operating Income

A reconciliation of the total of the reportable segments’ operating income to consolidated income before provision for income taxes is as follows:

 

    

Three Months Ended

March 31,

 
(dollars in millions)    2016     2015  

Total reportable segment operating income

   $ 8,469      $ 8,215   

Corporate and other

     (504     (255

Pension remeasurement (Note 8)

     (165       

Gain on spectrum license transaction (Note 2)

     142          
  

 

 

 

Total consolidated operating income

     7,942        7,960   

Equity in losses of unconsolidated businesses

     (20     (34

Other income, net

     32        75   

Interest expense

     (1,188     (1,332
  

 

 

 

Income Before Provision For Income Taxes

   $    6,766      $    6,669   
  

 

 

 
v3.4.0.3
Basis of Presentation - Additional Information (Detail) - shares
shares in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Basis of Presentation [Line Items]    
Restricted stock units outstanding to purchase shares included in diluted earnings per common share 5 5
v3.4.0.3
Acquisitions and Divestitures - Additional Information (Detail)
$ / shares in Units, shares in Millions, $ in Millions
3 Months Ended
Feb. 20, 2016
USD ($)
Jun. 23, 2015
USD ($)
shares
Feb. 05, 2015
USD ($)
Mar. 31, 2016
USD ($)
Customer
Unit
Mar. 31, 2015
USD ($)
May. 12, 2015
$ / shares
Business Acquisition [Line Items]            
Pre-tax gain on sale of wireless licenses       $ 142    
Payments to acquire businesses, net of cash acquired       $ 161 $ 2  
Access Line Sale with Frontier            
Business Acquisition [Line Items]            
Proceeds from dispositions of businesses     $ 10,500      
Net consideration from disposition of businesses     7,500      
Debt assumed by Frontier     $ 600      
Number of FiOS Internet subscribers to be divested | Customer       1,600,000    
Number of voice connections to be divested | Unit       3,300,000    
Number of FiOS Video subscribers to be divested | Customer       1,200,000    
Advanced Wireless Services Spectrum Licenses            
Business Acquisition [Line Items]            
Pre-tax gain on sale of wireless licenses       $ 100    
Acquisitions       400    
AOL Inc            
Business Acquisition [Line Items]            
Business acquisition, share price | $ / shares           $ 50.00
Business acquisition, purchase price in cash   $ 3,764   $ 126    
Number of shares exercised under appraisal rights of Delaware law | shares   6.6        
Business acquisition, potential additional payment   $ 330        
Cash acquired   $ 500        
XO Holdings            
Business Acquisition [Line Items]            
Payments to acquire businesses, net of cash acquired $ 1,800          
v3.4.0.3
Major Classes of Assets and Liabilities of Local Exchange and Related Landline Activities in California, Florida and Texas (Detail) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Assets held for sale:    
Total current assets held for sale $ 720 $ 792
Total non-current assets held for sale 10,432 10,267
Liabilities related to assets held for sale:    
Total current liabilities related to assets held for sale 452 463
Total non-current liabilities related to assets held for sale 974 $ 959
Held for Sale    
Assets held for sale:    
Accounts receivable 341  
Prepaid expense and other 62  
Total current assets held for sale 403  
Plant, property and equipment, net 9,033  
Goodwill 1,328  
Other assets 71  
Total non-current assets held for sale 10,432  
Total assets held for sale 10,835  
Liabilities related to assets held for sale:    
Accounts payable and accrued liabilities 262  
Other current liabilities 190  
Total current liabilities related to assets held for sale 452  
Long-term debt 597  
Employee benefit obligations 258  
Other liabilities 119  
Total non-current liabilities related to assets held for sale 974  
Total liabilities related to assets held for sale $ 1,426  
v3.4.0.3
Consideration and Preliminary Identification of Assets Acquired, Including Cash Acquired and Liabilities Assumed as well as Fair Value Of Noncontrolling Interests (Detail) - USD ($)
$ in Millions
3 Months Ended
Jun. 23, 2015
Mar. 31, 2016
Dec. 31, 2015
Assets acquired:      
Goodwill   $ 25,364 $ 25,331
AOL Inc      
Business Acquisition [Line Items]      
Cash payment to AOL's equity holders $ 3,764 126  
Estimated liabilities to be paid 377 [1] $ 251  
Total consideration 4,141    
Assets acquired:      
Goodwill 1,903    
Intangible assets subject to amortization 2,504    
Other 1,551    
Total assets acquired 5,958    
Liabilities assumed:      
Total liabilities assumed 1,816    
Net assets acquired: 4,142    
Noncontrolling interest (1)    
Total consideration $ 4,141    
[1] During the three months ended March 31, 2016, we made cash payments of $126 million in respect of acquisition-date estimated liabilities to be paid. As of March 31, 2016, the remaining balance of estimated liabilities to be paid was $251 million.
v3.4.0.3
Consideration and Preliminary Identification of Assets Acquired, Including Cash Acquired and Liabilities Assumed as well as Fair Value Of Noncontrolling Interests (Parenthetical) (Detail) - AOL Inc - USD ($)
$ in Millions
3 Months Ended
Jun. 23, 2015
Mar. 31, 2016
Business Acquisition [Line Items]    
Cash payment to AOL's equity holders $ 3,764 $ 126
Estimated liabilities to be paid $ 377 [1] $ 251
[1] During the three months ended March 31, 2016, we made cash payments of $126 million in respect of acquisition-date estimated liabilities to be paid. As of March 31, 2016, the remaining balance of estimated liabilities to be paid was $251 million.
v3.4.0.3
Changes in Carrying Amount of Wireless Licenses (Detail)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
Indefinite-lived Intangible Assets [Line Items]  
Beginning balance $ 86,575
Ending balance 86,830
Wireless Licenses  
Indefinite-lived Intangible Assets [Line Items]  
Beginning balance 86,575
Acquisitions (Note 2) 3
Capitalized interest on wireless licenses 128
Reclassifications, adjustments and other 124
Ending balance $ 86,830
v3.4.0.3
Wireless Licenses, Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Indefinite-lived Intangible Assets [Line Items]    
Assets held for sale $ 720 $ 792
Wireless Licenses    
Indefinite-lived Intangible Assets [Line Items]    
Assets held for sale 300  
Acquisitions 3  
Wireless licenses under development $ 10,400  
Average remaining renewal period of wireless license portfolio (in years) 5 years 7 months 6 days  
Advanced Wireless Services Spectrum Licenses    
Indefinite-lived Intangible Assets [Line Items]    
Acquisitions $ 400  
v3.4.0.3
Changes in Carrying Amount of Goodwill (Detail)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
Goodwill [Line Items]  
Beginning balance $ 25,331
Acquisitions (Note 2) 31
Reclassifications, adjustments and other 2
Ending balance 25,364
Wireless  
Goodwill [Line Items]  
Beginning balance 18,393
Ending balance 18,393
Wireline  
Goodwill [Line Items]  
Beginning balance 4,331
Reclassifications, adjustments and other 1
Ending balance 4,332
Other Operating Segments  
Goodwill [Line Items]  
Beginning balance 2,607
Acquisitions (Note 2) 31
Reclassifications, adjustments and other 1
Ending balance $ 2,639
v3.4.0.3
Composition of Other Intangible Assets Net (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]    
Gross Amount $ 21,207 $ 20,901
Accumulated Amortization (12,991) (12,563)
Net Amount 8,216 8,338
Customer Lists    
Finite-Lived Intangible Assets [Line Items]    
Gross Amount 4,136 4,139
Accumulated Amortization (2,421) (2,365)
Net Amount $ 1,715 1,774
Customer Lists | Minimum    
Finite-Lived Intangible Assets [Line Items]    
Useful life for finite-lived intangible assets, years 5 years  
Customer Lists | Maximum    
Finite-Lived Intangible Assets [Line Items]    
Useful life for finite-lived intangible assets, years 14 years  
Non-Network Internal-Use Software    
Finite-Lived Intangible Assets [Line Items]    
Gross Amount $ 14,769 14,542
Accumulated Amortization (9,921) (9,620)
Net Amount $ 4,848 4,922
Non-Network Internal-Use Software | Minimum    
Finite-Lived Intangible Assets [Line Items]    
Useful life for finite-lived intangible assets, years 3 years  
Non-Network Internal-Use Software | Maximum    
Finite-Lived Intangible Assets [Line Items]    
Useful life for finite-lived intangible assets, years 8 years  
Other Intangible Assets    
Finite-Lived Intangible Assets [Line Items]    
Gross Amount $ 2,302 2,220
Accumulated Amortization (649) (578)
Net Amount $ 1,653 $ 1,642
Other Intangible Assets | Minimum    
Finite-Lived Intangible Assets [Line Items]    
Useful life for finite-lived intangible assets, years 5 years  
Other Intangible Assets | Maximum    
Finite-Lived Intangible Assets [Line Items]    
Useful life for finite-lived intangible assets, years 25 years  
v3.4.0.3
Amortization Expense for Other Intangible Assets (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Finite-Lived Intangible Assets [Line Items]    
Amortization expense for other intangible assets $ 435 $ 381
v3.4.0.3
Estimated Future Amortization Expense for Other Intangible Assets (Detail)
$ in Millions
Mar. 31, 2016
USD ($)
Finite-Lived Intangible Assets [Line Items]  
Remainder of 2016 $ 1,309
2017 1,561
2018 1,379
2019 1,149
2020 $ 857
v3.4.0.3
Changes to Debt (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Debt Instrument [Line Items]    
Balance at January 1, 2016 $ 6,489  
Balance at January 1, 2016 103,240  
Balance at January 1, 2016 109,729  
Repayments of long-term borrowings and capital leases obligations (376) $ (5,576)
Decrease in short-term obligations, excluding current maturities (40) $ 482
Other 567  
Balance at March 31, 2016 6,265  
Balance at March 31, 2016 103,615  
Balance at March 31, 2016 109,880  
Debt Maturing Within One Year    
Debt Instrument [Line Items]    
Balance at January 1, 2016 6,489  
Repayments of long-term borrowings and capital leases obligations (376)  
Decrease in short-term obligations, excluding current maturities (40)  
Reclassifications of long-term debt 81  
Other 111  
Balance at March 31, 2016 6,265  
Long-term Debt    
Debt Instrument [Line Items]    
Balance at January 1, 2016 103,240  
Reclassifications of long-term debt 81  
Other 456  
Balance at March 31, 2016 $ 103,615  
v3.4.0.3
Debt - Additional Information (Detail) - USD ($)
3 Months Ended
Apr. 08, 2016
Apr. 05, 2016
Apr. 04, 2016
Apr. 01, 2016
Mar. 04, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]                
Principal amount outstanding in connection with the guarantee of debt obligations             $ 109,880,000,000 $ 109,729,000,000
Credit Facility                
Debt Instrument [Line Items]                
Borrowing capacity             8,000,000,000  
Amount of unused borrowing capacity under credit facility             7,900,000,000  
Scenario, Forecast                
Debt Instrument [Line Items]                
Expected net pre-tax loss on early debt redemption           $ 1,800,000,000    
Network Equipment | Vendor Financing Facility                
Debt Instrument [Line Items]                
Value of purchase assets financed             100,000,000  
Long-term debt maturing within one year             1,000,000,000  
Guarantee Of Debentures And First Mortgage Bonds Of Operating Telephone Company Subsidiaries                
Debt Instrument [Line Items]                
Principal amount outstanding in connection with the guarantee of debt obligations             3,100,000,000  
Guarantee Of Debentures And First Mortgage Bonds Of Operating Telephone Company Subsidiaries | Subsequent Event                
Debt Instrument [Line Items]                
Principal amount outstanding in connection with the guarantee of debt obligations     $ 1,200,000,000          
Termination of guarantee for aggregate principal amount of debentures       $ 600,000,000        
Guarantee Of Debentures And First Mortgage Bonds Of Operating Telephone Company Subsidiaries | Subsequent Event | Group 2                
Debt Instrument [Line Items]                
Extinguishment of Debt, Amount     1,200,000,000          
2016 Tender Offers                
Debt Instrument [Line Items]                
Aggregate purchase price         $ 9,500,000,000      
Tender offer for notes, settlement date         Apr. 04, 2016      
Repayment of debt         $ 10,200,000,000      
Accrued interest paid         100,000,000      
2016 Tender Offers | Maximum                
Debt Instrument [Line Items]                
Aggregate purchase price         $ 5,500,000,000      
2.50% Notes due 2016 | Subsequent Event                
Debt Instrument [Line Items]                
Amount of notes repaid $ 900,000,000              
Stated interest rate on debt instrument 2.50%              
Debt instrument maturity date 2016              
Notes purchased price of principal amount of note, percentage   100.80%            
2.00% Notes due 2016 | Subsequent Event                
Debt Instrument [Line Items]                
Amount of notes repaid $ 500,000,000              
Stated interest rate on debt instrument 2.00%              
Debt instrument maturity date 2016              
Notes purchased price of principal amount of note, percentage   100.80%            
6.35% Notes due 2019 | Subsequent Event                
Debt Instrument [Line Items]                
Amount of notes repaid $ 800,000,000              
Stated interest rate on debt instrument 6.35%              
Debt instrument maturity date 2019              
Notes purchased price of principal amount of note, percentage   113.50%            
April Early Debt Redemption | Subsequent Event                
Debt Instrument [Line Items]                
Extinguishment of Debt, Amount $ 2,300,000,000              
Guarantee of Debt Obligations of GTE Corporation                
Debt Instrument [Line Items]                
Principal amount outstanding in connection with the guarantee of debt obligations             $ 1,400,000,000  
Guarantee of Debt Obligations of GTE Corporation | Subsequent Event                
Debt Instrument [Line Items]                
Principal amount outstanding in connection with the guarantee of debt obligations     1,100,000,000          
Guarantee of Debt Obligations of GTE Corporation | Subsequent Event | Group 3                
Debt Instrument [Line Items]                
Extinguishment of Debt, Amount     $ 300,000,000          
v3.4.0.3
Tender Offer to Purchase for Cash any and all of the Group 1 Any and All Notes (Detail)
$ in Millions
Mar. 04, 2016
USD ($)
Verizon Communications | 2.50% Notes due 2016  
Debt Instrument [Line Items]  
Interest Rate 2.50%
Maturity 2016
Principal Amount Outstanding $ 2,182
Purchase Price 1,007.60 [1]
Principal Amount Purchased $ 1,272
Verizon Communications | 2.0% Notes due 2016  
Debt Instrument [Line Items]  
Interest Rate 2.00%
Maturity 2016
Principal Amount Outstanding $ 1,250
Purchase Price 1,007.20 [1]
Principal Amount Purchased $ 731
Verizon Communications | 6.35% Notes due 2019  
Debt Instrument [Line Items]  
Interest Rate 6.35%
Maturity 2019
Principal Amount Outstanding $ 1,750
Purchase Price 1,133.32 [1]
Principal Amount Purchased $ 970
Tender Offer to Purchase for Cash Any and All of the Group 1 Any and All Notes  
Debt Instrument [Line Items]  
Principal Amount Purchased $ 2,973
[1] Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.
v3.4.0.3
Tender Offer to Purchase for Cash Any and All of the Group 2 Any and All Notes (Detail)
$ in Millions
Mar. 04, 2016
USD ($)
Verizon Delaware LLC | 8.375% Debentures due 2019  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.375%
Debt instrument maturity date 2019
Principal Amount Outstanding $ 15
Purchase Price 1,182.11 [1]
Principal Amount Purchased $ 15
Verizon Delaware LLC | 8.625% Debentures due 2031  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.625%
Debt instrument maturity date 2031
Principal Amount Outstanding $ 15
Purchase Price 1,365.39 [1]
Principal Amount Purchased $ 5
Verizon Maryland LLC | 8.00% Debentures due 2029  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.00%
Debt instrument maturity date 2029
Principal Amount Outstanding $ 50
Purchase Price 1,301.32 [1]
Principal Amount Purchased $ 22
Verizon Maryland LLC | 8.30% Debentures due 2031  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.30%
Debt instrument maturity date 2031
Principal Amount Outstanding $ 100
Purchase Price 1,347.26 [1]
Principal Amount Purchased $ 76
Verizon Maryland LLC | 5.125% Debentures due 2033  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 5.125%
Debt instrument maturity date 2033
Principal Amount Outstanding $ 350
Purchase Price 1,012.50 [1]
Principal Amount Purchased $ 171
Verizon New England Inc | 7.875% Debentures due 2029  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 7.875%
Debt instrument maturity date 2029
Principal Amount Outstanding $ 349
Purchase Price 1,261.63 [1]
Principal Amount Purchased $ 176
Verizon New Jersey Inc | 8.00% Debentures due 2022  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.00%
Debt instrument maturity date 2022
Principal Amount Outstanding $ 200
Purchase Price 1,238.65 [1]
Principal Amount Purchased $ 54
Verizon New Jersey Inc | 7.85% Debentures due 2029  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 7.85%
Debt instrument maturity date 2029
Principal Amount Outstanding $ 149
Purchase Price 1,311.32 [1]
Principal Amount Purchased $ 63
Verizon New York Inc | 6.50% Debentures due 2028  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 6.50%
Debt instrument maturity date 2028
Principal Amount Outstanding $ 100
Purchase Price 1,151.71 [1]
Principal Amount Purchased $ 28
Verizon New York Inc | 7.375% Debentures due 2032  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 7.375%
Debt instrument maturity date 2032
Principal Amount Outstanding $ 500
Purchase Price 1,201.92 [1]
Principal Amount Purchased $ 256
Verizon Pennsylvania LLC | 6.00% Debentures due 2028  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 6.00%
Debt instrument maturity date 2028
Principal Amount Outstanding $ 125
Purchase Price 1,110.47 [1]
Principal Amount Purchased $ 57
Verizon Pennsylvania LLC | 8.35% Debentures due 2030  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.35%
Debt instrument maturity date 2030
Principal Amount Outstanding $ 175
Purchase Price 1,324.10 [1]
Principal Amount Purchased $ 127
Verizon Pennsylvania LLC | 8.75% Debentures due 2031  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.75%
Debt instrument maturity date 2031
Principal Amount Outstanding $ 125
Purchase Price 1,356.47 [1]
Principal Amount Purchased $ 72
Verizon Virginia LLC | 7.875% Debentures due 2022  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 7.875%
Debt instrument maturity date 2022
Principal Amount Outstanding $ 100
Purchase Price 1,227.79 [1]
Principal Amount Purchased $ 43
Verizon Virginia LLC | 8.375% Debentures due 2029  
Debt Instrument [Line Items]  
Stated interest rate on debt instrument 8.375%
Debt instrument maturity date 2029
Principal Amount Outstanding $ 100
Purchase Price 1,319.78 [1]
Principal Amount Purchased $ 81
Tender Offer to Purchase for Cash Any and All of the Group 2 Any and All Notes  
Debt Instrument [Line Items]  
Principal Amount Purchased $ 1,246
[1] Per $1,000 principal amount of notes tendered and not withdrawn prior to early expiration.
v3.4.0.3
Tender Offer to Purchase for Cash Group 3 Notes (Detail)
$ in Millions
Mar. 04, 2016
USD ($)
Verizon Communications | 8.95% Notes due 2039  
Debt Instrument [Line Items]  
Interest Rate 8.95%
Maturity 2039
Principal Amount Outstanding $ 353
Purchase Price 1,506.50 [1]
Principal Amount Purchased $ 63
Verizon Communications | 7.75% Notes due 2032  
Debt Instrument [Line Items]  
Interest Rate 7.75%
Maturity 2032
Principal Amount Outstanding $ 251
Purchase Price 1,315.19 [1]
Principal Amount Purchased $ 33
Verizon Communications | 7.35% Notes due 2039  
Debt Instrument [Line Items]  
Interest Rate 7.35%
Maturity 2039
Principal Amount Outstanding $ 480
Purchase Price 1,293.50 [1]
Principal Amount Purchased $ 68
Verizon Communications | 7.75% Notes due 2030  
Debt Instrument [Line Items]  
Interest Rate 7.75%
Maturity 2030
Principal Amount Outstanding $ 1,206
Purchase Price 1,377.92 [1]
Principal Amount Purchased $ 276
Verizon Communications | 6.55% Notes due 2043  
Debt Instrument [Line Items]  
Interest Rate 6.55%
Maturity 2043
Principal Amount Outstanding $ 6,585
Purchase Price 1,291.74 [1]
Principal Amount Purchased $ 2,340
Verizon Communications | 6.40% Notes due 2033  
Debt Instrument [Line Items]  
Interest Rate 6.40%
Maturity 2033
Principal Amount Outstanding $ 2,196
Purchase Price 1,220.28 [1]
Principal Amount Purchased $ 466
Verizon Communications | 6.90% Notes due 2038  
Debt Instrument [Line Items]  
Interest Rate 6.90%
Maturity 2038
Principal Amount Outstanding $ 477
Purchase Price 1,243.29 [1]
Principal Amount Purchased $ 92
Verizon Communications | 6.25% Notes due 2037  
Debt Instrument [Line Items]  
Interest Rate 6.25%
Maturity 2037
Principal Amount Outstanding $ 750
Purchase Price 1,167.66 [1]
Principal Amount Purchased $ 114
Verizon Communications | 6.40% Notes due 2038  
Debt Instrument [Line Items]  
Interest Rate 6.40%
Maturity 2038
Principal Amount Outstanding $ 866
Purchase Price 1,176.52 [1]
Principal Amount Purchased $ 116
Verizon Communications | 5.85% Notes due 2035  
Debt Instrument [Line Items]  
Interest Rate 5.85%
Maturity 2035
Principal Amount Outstanding $ 1,500
Purchase Price 1,144.68 [1]
Principal Amount Purchased $ 250
Verizon Communications | 6.00% Notes due 2041  
Debt Instrument [Line Items]  
Interest Rate 6.00%
Maturity 2041
Principal Amount Outstanding $ 1,000
Purchase Price 1,164.56 [1]
Verizon Communications | 5.15% Notes Due 2023  
Debt Instrument [Line Items]  
Interest Rate 5.15%
Maturity 2023
Principal Amount Outstanding $ 8,517
Purchase Price 1,152.83 [1]
Alltel Corporation | 7.875% Debentures due 2032  
Debt Instrument [Line Items]  
Interest Rate 7.875%
Maturity 2032
Principal Amount Outstanding $ 452
Purchase Price 1,322.92 [1]
Principal Amount Purchased $ 115
Alltel Corporation | 6.80% Debentures Due 2029  
Debt Instrument [Line Items]  
Interest Rate 6.80%
Maturity 2029
Principal Amount Outstanding $ 235
Purchase Price 1,252.93 [1]
Principal Amount Purchased $ 47
GTE Corporation | 6.94% Debentures due 2028  
Debt Instrument [Line Items]  
Interest Rate 6.94%
Maturity 2028
Principal Amount Outstanding $ 800
Purchase Price 1,261.35 [1]
Principal Amount Purchased $ 237
GTE Corporation | 8.75% Debentures due 2021  
Debt Instrument [Line Items]  
Interest Rate 8.75%
Maturity 2021
Principal Amount Outstanding $ 300
Purchase Price 1,307.34 [1]
Principal Amount Purchased $ 93
Tender Offer to Purchase for Cash Waterfall Series of Notes  
Debt Instrument [Line Items]  
Principal Amount Purchased $ 4,310
[1] Per $1,000 principal amount of notes
v3.4.0.3
Wireless Equipment Installment Plans - Additional Information (Detail) - USD ($)
$ in Billions
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Total portfolio of device installment plan receivables $ 12.9  
Receivables derecognized under receivable securitization program 9.6  
Guarantee liability 0.1 $ 0.2
Finance receivables collected and remitted, net of fees 2.6  
Cash proceeds received, net of remittances 6.9  
Maximum exposure to loss related to involvement with sellers 2.6  
Other Assets    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Deferred purchase price receivable 1.3 $ 2.2
Prepaid Expenses and Other Assets    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Deferred purchase price receivable $ 1.3  
v3.4.0.3
Device Installment Plan Receivables, Net (Detail) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Device installment plan receivables, gross $ 3,346 $ 3,720
Unamortized imputed interest (135) (142)
Device installment plan receivables, net of unamortized imputed interest 3,211 3,578
Allowance for credit losses (513) (444)
Device installment plan receivables, net 2,698 3,134
Accounts Receivable    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Device installment plan receivables, net 1,663 1,979
Other Assets    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Device installment plan receivables, net $ 1,035 $ 1,155
v3.4.0.3
Activity in Allowance for Credit Losses for Device Installment Plan Receivables (Detail)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
Financing Receivable, Allowance for Credit Losses [Line Items]  
Balance at January 1, 2016 $ 444
Bad debt expense 163
Write-offs (95)
Allowance related to receivables sold (2)
Other 3
Balance at March 31, 2016 $ 513
v3.4.0.3
Summary of Device Installment Receivables Sold under RPA and Revolving Program (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Receivables Purchase Agreement    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Device installment plan receivables sold, net [1]   $ 1,925
Cash proceeds received from new transfers   1,271
Deferred purchase price recorded   $ 695
Revolving Program    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Device installment plan receivables sold, net [1] $ 2,617  
Cash proceeds received from new transfers 1,978  
Cash proceeds received from reinvested collections 244  
Deferred purchase price recorded $ 395  
[1] Device installment plan receivables net of allowances, imputed interest and the device trade-in right.
v3.4.0.3
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis $ 1,093 $ 1,670
Fair value of liabilities measured on a recurring basis 1,534 1,681
Short-term Investments | Equity Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis   265
Short-term Investments | Fixed Income Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis   85
Other current assets | Fixed Income Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis   250
Other Assets | Equity Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis 171  
Other Assets | Fixed Income Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis 622 928
Other Assets | Interest Rate Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis 296 128
Other Assets | Net Investment Hedges    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis 4 13
Other Assets | Cross Currency Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis   1
Other Liabilities | Interest Rate Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis 1 19
Other Liabilities | Cross Currency Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis 1,411 1,638
Other Liabilities | Forward Interest Rate Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis 118 24
Other Liabilities | Net Investment Hedges    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis 2  
Other Current Liabilities | Cross Currency Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis 2  
Level 1    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [1] 171 515
Level 1 | Short-term Investments | Equity Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [1]   265
Level 1 | Other current assets | Fixed Income Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [1]   250
Level 1 | Other Assets | Equity Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [1] 171  
Level 2    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [2] 922 1,155
Fair value of liabilities measured on a recurring basis [2] 1,534 1,681
Level 2 | Short-term Investments | Fixed Income Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [2]   85
Level 2 | Other Assets | Fixed Income Securities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [2] 622 928
Level 2 | Other Assets | Interest Rate Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [2] 296 128
Level 2 | Other Assets | Net Investment Hedges    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [2] 4 13
Level 2 | Other Assets | Cross Currency Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of assets measured on a recurring basis [2]   1
Level 2 | Other Liabilities | Interest Rate Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis [2] 1 19
Level 2 | Other Liabilities | Cross Currency Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis [2] 1,411 1,638
Level 2 | Other Liabilities | Forward Interest Rate Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis [2] 118 $ 24
Level 2 | Other Liabilities | Net Investment Hedges    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis [2] 2  
Level 2 | Other Current Liabilities | Cross Currency Swaps    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair value of liabilities measured on a recurring basis [2] $ 2  
[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
v3.4.0.3
Fair Value of Short Term and Long Term Debt Excluding Capital Leases (Detail) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Short- and long-term debt $ 109,880 $ 109,729
Carrying Amount, Fair Value Disclosure | Excluding Capital Leases    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Short- and long-term debt 108,911 108,772
Estimate of Fair Value Measurement | Excluding Capital Leases    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Short- and long-term debt $ 124,405 $ 118,216
v3.4.0.3
Fair Value Measurements and Financial Instruments - Additional Information (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Derivatives, Fair Value [Line Items]      
Derivative liability fair value of collateral $ 100   $ 100
Cross Currency Swaps      
Derivatives, Fair Value [Line Items]      
Notional amount 9,675   9,675
Pre-tax gain (loss) recognized in other comprehensive income (loss) 200 $ (900)  
New Forward Interest Rate Swaps      
Derivatives, Fair Value [Line Items]      
Notional amount 1,300    
Forward Interest Rate Swaps      
Derivatives, Fair Value [Line Items]      
Notional amount 2,000   $ 750
Pre-tax gain (loss) recognized in other comprehensive income (loss) $ (100) $ (100)  
v3.4.0.3
Notional Amounts of Outstanding Derivative Instruments (Detail) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Net Investment Hedges    
Derivative [Line Items]    
Notional amount $ 864 $ 864
Interest Rate Swaps    
Derivative [Line Items]    
Notional amount 7,620 7,620
Forward Interest Rate Swaps    
Derivative [Line Items]    
Notional amount 2,000 750
Cross Currency Swaps    
Derivative [Line Items]    
Notional amount $ 9,675 $ 9,675
v3.4.0.3
Stock Based Compensation - Additional Information (Detail)
$ / shares in Units, $ in Billions
3 Months Ended
Mar. 31, 2016
USD ($)
$ / shares
shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Maximum number of shares available for awards under the Long-Term Incentive Plan | shares 119,600,000
Restricted Stock Units and Performance Stock Units  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Unrecognized compensation expense related to the unvested portion of RSUs and PSUs | $ $ 0.6
Weighted-average period of unrecognized compensation expense related to the unvested portion of RSUs and PSUs (in years) 2 years
Restricted Stock Units  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Weighted average grant date fair value per unit | $ / shares $ 51.81
v3.4.0.3
Restricted and Performance Stock Unit Activity (Detail)
shares in Thousands
3 Months Ended
Mar. 31, 2016
shares
Restricted Stock Units  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Beginning Balance 13,903
Granted 3,622
Payments (4,548)
Cancelled/Forfeited (32)
Ending Balance 12,945
Performance Stock Units  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Beginning Balance 17,203
Granted 5,487
Payments (4,213)
Cancelled/Forfeited (43)
Adjustments 170
Ending Balance 18,604
v3.4.0.3
Benefit or Income Cost Related to Pension and Postretirement Health Care and Life Insurance Plans (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Pension    
Defined Benefit Plan Disclosure [Line Items]    
Service cost $ 80 $ 94
Amortization of prior service credit (1) 1
Expected return on plan assets (271) (317)
Interest cost 186 243
Remeasurement loss, net 165  
Total 159 21
Health Care And Life    
Defined Benefit Plan Disclosure [Line Items]    
Service cost 61 81
Amortization of prior service credit (73) (72)
Expected return on plan assets (15) (25)
Interest cost 224 279
Total $ 197 $ 263
v3.4.0.3
Employee Benefits - Additional Information (Detail)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
plan
Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]    
Number of defined benefit pension plans | plan 7  
Basis point decrease in discount rate assumption 0.43%  
Amount paid in severance benefits over the period $ 300  
Post employment benefits liability $ 500  
Weighted Average    
Defined Benefit Plan Disclosure [Line Items]    
Discount rate assumption 4.21% 4.60%
Pension    
Defined Benefit Plan Disclosure [Line Items]    
Pension remeasurement credit (charge) $ (165)  
Other Postretirement Benefit Plan    
Defined Benefit Plan Disclosure [Line Items]    
Defined benefit plan contributions by employer 300  
Qualified pension plans    
Defined Benefit Plan Disclosure [Line Items]    
Defined benefit plan contributions by employer 100  
Change method used to estimate interest component of net periodic benefit cost for pension and other Postretirement benefits    
Defined Benefit Plan Disclosure [Line Items]    
Interest cost (100)  
Increase to Net income $ 100  
v3.4.0.3
Changes in Components of Total equity (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Equity Note [Line Items]    
Balance at January 1, 2016 $ 17,842  
Net Income 4,430 $ 4,338
Other comprehensive loss (91)  
Total Comprehensive Income 4,339 $ 4,143
Contributed capital (5)  
Dividends declared (2,303)  
Common stock in treasury 137  
Distributions and other 93  
Balance at March 31, 2016 20,103  
Verizon    
Equity Note [Line Items]    
Balance at January 1, 2016 16,428  
Net Income 4,310  
Other comprehensive loss (91)  
Total Comprehensive Income 4,219  
Contributed capital (5)  
Dividends declared (2,303)  
Common stock in treasury 137  
Distributions and other 165  
Balance at March 31, 2016 18,641  
Noncontrolling Interests    
Equity Note [Line Items]    
Balance at January 1, 2016 1,414  
Net Income 120  
Total Comprehensive Income 120  
Distributions and other (72)  
Balance at March 31, 2016 $ 1,462  
v3.4.0.3
Equity and Accumulated Other Comprehensive Income - Additional Information (Detail)
3 Months Ended
Mar. 31, 2016
shares
Equity and Comprehensive Income [Line Items]  
Common shares issued from Treasury stock 3,100,000
Share Buyback Program  
Equity and Comprehensive Income [Line Items]  
Number of shares repurchased 0
Share Buyback Program | Maximum  
Equity and Comprehensive Income [Line Items]  
Number of shares authorized for repurchase 97,200,000
v3.4.0.3
Changes in Balances of Accumulated Other Comprehensive Income by Component (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Equity And Accumulated Other Comprehensive Income [Line Items]    
Balance at January 1, 2016 $ 550  
Other comprehensive income (loss) 103  
Amounts reclassified to net income (194)  
Other comprehensive loss attributable to Verizon (91) $ (195)
Balance at March 31, 2016 459  
Foreign currency translation adjustments    
Equity And Accumulated Other Comprehensive Income [Line Items]    
Balance at January 1, 2016 (554)  
Other comprehensive income (loss) 30  
Other comprehensive loss attributable to Verizon 30  
Balance at March 31, 2016 (524)  
Unrealized loss on cash flow hedges    
Equity And Accumulated Other Comprehensive Income [Line Items]    
Balance at January 1, 2016 (278)  
Other comprehensive income (loss) 75  
Amounts reclassified to net income (133)  
Other comprehensive loss attributable to Verizon (58)  
Balance at March 31, 2016 (336)  
Unrealized loss on marketable securities    
Equity And Accumulated Other Comprehensive Income [Line Items]    
Balance at January 1, 2016 101  
Other comprehensive income (loss) (2)  
Amounts reclassified to net income (16)  
Other comprehensive loss attributable to Verizon (18)  
Balance at March 31, 2016 83  
Defined benefit pension and postretirement plans    
Equity And Accumulated Other Comprehensive Income [Line Items]    
Balance at January 1, 2016 1,281  
Amounts reclassified to net income (45)  
Other comprehensive loss attributable to Verizon (45)  
Balance at March 31, 2016 $ 1,236  
v3.4.0.3
Segment Information - Additional Information (Detail)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
Segment
Mar. 31, 2015
USD ($)
Segment Reporting Information [Line Items]    
Number of reportable segments | Segment 2  
Segment reporting information, revenue $ 32,171 $ 31,984
Number of customers individually accounting for more than ten percent of total operating revenues No single customer accounted for more than 10% of our total operating revenues during the three months ended March 31, 2016 and 2015.  
Wireline    
Segment Reporting Information [Line Items]    
Segment reporting information, revenue $ 9,290 9,469
Fios revenues | Wireline    
Segment Reporting Information [Line Items]    
Segment reporting information, revenue $ 3,500 $ 3,400
v3.4.0.3
Operating Financial Information for Reportable Segments (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Segment Reporting Information [Line Items]    
Operating Revenues $ 32,171 $ 31,984
Operating income 7,942 7,960
Wireless    
Segment Reporting Information [Line Items]    
Operating Revenues 22,004 22,328
Operating income 7,880 7,810
Wireline    
Segment Reporting Information [Line Items]    
Operating Revenues 9,290 9,469
Operating income 589 405
Operating Segments    
Segment Reporting Information [Line Items]    
Operating Revenues 31,294 31,797
Operating income 8,469 8,215
Operating Segments | Wireless    
Segment Reporting Information [Line Items]    
Operating Revenues 21,919 22,302
Operating Segments | Wireless | Service Revenue    
Segment Reporting Information [Line Items]    
Operating Revenues 16,769 17,896
Operating Segments | Wireless | Equipment Revenue    
Segment Reporting Information [Line Items]    
Operating Revenues 3,954 3,373
Operating Segments | Wireless | Other External Operating Non-Service Revenues    
Segment Reporting Information [Line Items]    
Operating Revenues 1,196 1,033
Operating Segments | Wireline    
Segment Reporting Information [Line Items]    
Operating Revenues 9,040 9,208
Operating Segments | Wireline | Mass Markets Consumer Retail    
Segment Reporting Information [Line Items]    
Operating Revenues 4,022 3,992
Operating Segments | Wireline | Mass Markets Small Business    
Segment Reporting Information [Line Items]    
Operating Revenues 568 600
Operating Segments | Wireline | Mass Markets    
Segment Reporting Information [Line Items]    
Operating Revenues 4,590 4,592
Operating Segments | Wireline | Global Enterprise    
Segment Reporting Information [Line Items]    
Operating Revenues 3,161 3,263
Operating Segments | Wireline | Global Wholesale    
Segment Reporting Information [Line Items]    
Operating Revenues 1,213 1,266
Operating Segments | Wireline | Other    
Segment Reporting Information [Line Items]    
Operating Revenues 76 87
Operating Segments | Reportable Segment    
Segment Reporting Information [Line Items]    
Operating Revenues 30,959 31,510
Intersegment Revenues | Wireless    
Segment Reporting Information [Line Items]    
Operating Revenues 85 26
Intersegment Revenues | Wireline    
Segment Reporting Information [Line Items]    
Operating Revenues 250 261
Intersegment Revenues | Reportable Segment    
Segment Reporting Information [Line Items]    
Operating Revenues $ 335 $ 287
v3.4.0.3
Reconciliation of Segment Assets (Detail) - USD ($)
$ in Millions
Mar. 31, 2016
Dec. 31, 2015
Segment Reporting Information [Line Items]    
Assets $ 244,587 $ 244,175
Operating Segments    
Segment Reporting Information [Line Items]    
Assets 264,113 263,710
Operating Segments | Wireless    
Segment Reporting Information [Line Items]    
Assets 190,892 185,405
Operating Segments | Wireline    
Segment Reporting Information [Line Items]    
Assets 73,221 78,305
Corporate and Other    
Segment Reporting Information [Line Items]    
Assets 210,199 205,476
Eliminations    
Segment Reporting Information [Line Items]    
Assets $ (229,725) $ (225,011)
v3.4.0.3
Summary of Reconciliation of Segment Operating Revenues (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Segment Reporting, Revenue Reconciling Item [Line Items]    
Segment reporting information, revenue $ 32,171 $ 31,984
Operating Segments    
Segment Reporting, Revenue Reconciling Item [Line Items]    
Segment reporting information, revenue 31,294 31,797
Corporate and Other    
Segment Reporting, Revenue Reconciling Item [Line Items]    
Segment reporting information, revenue 1,232 474
Eliminations    
Segment Reporting, Revenue Reconciling Item [Line Items]    
Segment reporting information, revenue $ (355) $ (287)
v3.4.0.3
Reconciliation of Total Reportable Segments Operating Income to Consolidated Income before Provision for Income Taxes (Detail) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Segment Reporting Information [Line Items]    
Gain on spectrum license transaction (Note 2) $ 142  
Operating income 7,942 $ 7,960
Equity in losses of unconsolidated businesses (20) (34)
Other income, net 32 75
Interest expense (1,188) (1,332)
Income Before Provision For Income Taxes 6,766 6,669
Pension    
Segment Reporting Information [Line Items]    
Pension remeasurement (Note 8) (165)  
Operating Segments    
Segment Reporting Information [Line Items]    
Operating income 8,469 8,215
Corporate and Other    
Segment Reporting Information [Line Items]    
Operating income $ (504) $ (255)
v3.4.0.3
Commitments and Contingencies - Additional Information (Detail)
3 Months Ended
Mar. 31, 2016
LegalMatter
Loss Contingencies [Line Items]  
Approximate number of federal district court actions alleged for patent infringement 50
Guarantee obligations, year term (in years) 30 years
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/**
 * Rivet Software Inc.
 *
 * @copyright Copyright (c) 2006-2011 Rivet Software, Inc. All rights reserved.
 * Version 2.4.0.3
 *
 */

var Show = {};
Show.LastAR = null,

Show.hideAR = function(){	
	Show.LastAR.style.display = 'none';
};

Show.showAR = function ( link, id, win ){
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};
	
Show.toggleNext = function( link ){
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};

/* Updated 2009-11-04 */
/* v2.2.0.24 */

/* DefRef Styles */
.report table.authRefData{
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.report table.authRefData a {
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}

.report table.authRefData p {
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}

.report table.authRefData .hide {
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.report table.authRefData .hide a:hover {
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}

.report table.authRefData .body {
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}

.report table.authRefData table{
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}

/* Report Styles */
.pl a, .pl a:visited {
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}

/* table */
.report {
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}

.report hr {
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}

/* Top labels */
.report th {
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.report th.void	{
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.report .pl {
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.report td.pl a.a {
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.report td.pl div.a {
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/* Even rows... */
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.report .text .small {
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.report sup {
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.report .outerFootnotes {
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