UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the transition period from
to
Commission file number: 1-8606
Verizon Communications Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
1095 Avenue of the Americas
New York, New York
(Address of principal executive offices)
23-2259884
(I.R.S. Employer Identification No.)
10036
(Zip Code)
Registrant’s telephone number, including area code: (212) 395-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.10
Common Stock, par value $0.10
1.625% Notes due 2024
4.073% Notes due 2024
0.875% Notes due 2025
3.250% Notes due 2026
1.375% Notes due 2026
0.875% Notes due 2027
1.375% Notes due 2028
1.125% Notes due 2028
1.875% Notes due 2029
1.250% Notes due 2030
1.875% Notes due 2030
2.625% Notes due 2031
2.500% Notes due 2031
0.875% Notes due 2032
1.300% Notes due 2033
4.750% Notes due 2034
3.125% Notes due 2035
3.375% Notes due 2036
2.875% Notes due 2038
1.875% Notes due 2038
1.500% Notes due 2039
3.500% Fixed Rate Notes due 2039
1.850% Notes due 2040
Trading Symbol(s)
VZ
VZ
VZ24B
VZ24C
VZ25
VZ26
VZ26B
VZ27E
VZ28
VZ28A
VZ29B
VZ30
VZ30A
VZ31
VZ31A
VZ32
VZ33B
VZ34
VZ35
VZ36A
VZ38B
VZ38C
VZ39C
VZ39D
VZ40
Name of Each Exchange on Which Registered
New York Stock Exchange
The NASDAQ Global Select Market
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company,"
and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
☐ No
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
At June 30, 2020, the aggregate market value of the registrant’s voting stock held by non-affiliates was approximately $228,143,965,409.
At January 29, 2021, 4,138,148,588 shares of the registrant’s common stock were outstanding, after deducting 153,285,058 shares held in
treasury.
Documents Incorporated By Reference:
Portions of the registrant’s definitive Proxy Statement to be delivered to shareholders in connection with the registrant’s 2021 Annual
Meeting of Shareholders (Part III).
TABLE OF CONTENTS
Item No.
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
Certifications
Page
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14
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18
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19
47
50
104
104
104
105
106
106
106
106
107
112
112
PART I
Item 1. Business
General
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, technology, information and entertainment products and services to consumers, businesses and
government entities. With a presence around the world, we offer data, video and voice services and solutions on our networks and platforms
that are designed to meet customers’ demand for mobility, reliable network connectivity, security and control.
Our principal executive offices are located at 1095 Avenue of the Americas, New York, New York 10036 (telephone number 212-395-1000).
We have two reportable segments that we operate and manage as strategic business units - Verizon Consumer Group (Consumer) and Verizon
Business Group (Business).
Verizon Consumer Group
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are
provided across one of the most extensive wireless networks in the United States (U.S.) under the Verizon brand and through wholesale and
other arrangements. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C.,
over our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who
are not served by Fios. In 2020, the Consumer segment’s revenues were $88.5 billion, representing approximately 69% of Verizon’s
consolidated revenues. As of December 31, 2020, Consumer had approximately 94 million wireless retail connections, approximately
7 million broadband connections, which includes Fios and Digital Subscriber Line (DSL) internet connections, and approximately 4 million
Fios video connections.
Verizon Business Group
Our Business segment provides wireless and wireline communications services and products, including data, video and conferencing services,
corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver
various Internet of Things (IoT) services and products. We provide these products and services to businesses, government customers and
wireless and wireline carriers across the U.S. and select products and services to customers around the world. In 2020, the Business segment's
revenues were $31.0 billion, representing approximately 24% of Verizon’s consolidated revenues. As of December 31, 2020, Business had
approximately 27 million wireless retail postpaid connections and approximately 482 thousand broadband connections, which includes Fios
and DSL internet connections.
Additional discussion of our reportable segments is included in Item 7. under the headings "Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Overview" and - "Segment Results of Operations" and in Note 13 to the consolidated
financial statements of Verizon Communications Inc. and Subsidiaries.
Service and Product Offerings
Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as resellers that purchase
wireless network access from us on a wholesale basis. Our Business segment’s wireless and wireline products and services are organized by
the primary customer groups targeted by these offerings: Small and Medium Business, Global Enterprise, Public Sector and Other, and
Wholesale.
Wireless
We offer wireless services and equipment to customers of both Consumer and Business.
Wireless Services
Our Consumer and Business segments provide a wide variety of wireless services accessible on a broad range of devices. Customers can
obtain our wireless services on a postpaid or prepaid basis. Retail (non-wholesale) postpaid accounts primarily represent retail customers that
are directly served and managed by Verizon and use Verizon branded services. A single account may include monthly wireless services for a
variety of connected devices. Our postpaid service is generally billed one month in advance for a monthly access charge in return for access to
and usage of network services. Our prepaid service is offered only to Consumer customers and enables individuals to obtain wireless services
without credit verification by paying for all services in advance. Approximately 96% of our Consumer retail connections were postpaid
connections as of December 31, 2020.
We offer various postpaid and prepaid service plans tailored to the needs of our customers. Depending on those needs at a particular time, our
plans may include features related to, among other things: unlimited or metered domestic and/or international voice, data, and texting; the
ability to share data allowances and/or use data allowances in different periods; high definition voice and video features; the ability to use a
device as a Wi-Fi hotspot; and varying data rates depending on the plan and usage on that plan. Our service offerings vary from time to time
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Verizon 2020 Annual Report on Form 10-K
based on customer needs, technology changes and market conditions and may be provided as standard plans or as part of limited time
promotional offers.
Access to the internet is available on all smartphones and nearly all basic phones. In addition, our customers can access the internet at
broadband speeds on notebook computers and tablets that are either wireless-enabled or that are used in conjunction with separate dedicated
devices that provide a mobile Wi-Fi connection.
We no longer offer Consumer customers new fixed-term, subsidized service plans for devices; however, we continue to offer subsidized plans
to our Business customers. We also continue to service existing plans for customers who have not yet purchased and activated devices under
the Verizon device payment program.
Wireless Equipment
Consumer and Business offer several categories of wireless equipment to customers, including a variety of smartphones and other handsets,
wireless-enabled internet devices, such as tablets and other wireless-enabled connected devices, such as smart watches. In certain cases, we
permit customers to acquire equipment from us using device payment plans, which permit the customer to pay for the device in installments
over time.
Verizon Consumer Group
In addition to the wireless services and equipment discussed above, Consumer sells residential fixed connectivity solutions, including internet,
video and voice services, and wireless network access to resellers on a wholesale basis.
Residential Fixed Services. We provide residential fixed connectivity solutions to customers over our 100% fiber-optic network through our
Verizon Fios product portfolio, and over a traditional copper-based network to customers who are not served by Fios. As of December 31,
2020, we have commercially launched fifth-generation (5G) fixed wireless technology for the home (5G Home) in 12 U.S. markets. In
addition, in 2020, we launched our Long-Term Evolution (LTE) Home fixed wireless access internet service in rural parts of 189 markets
across 48 U.S. states.
We offer residential fixed services tailored to the needs of our customers. Depending on those needs at a particular time, our services may
include features related to, among other things: internet access at different speed tiers using fiber-optic, copper or wireless technology; video
services that may feature a variety of channel options, video on demand products, cloud-based services and digital video recording
capabilities; over-the-top video services; and voice services.
Network Access Services. We sell network access to mobile virtual network operators (MVNOs) on a wholesale basis, who in turn resell
wireless service under their own brand(s) to consumers. Our largest such arrangement is with TracFone Wireless Inc. (Tracfone), a provider
of prepaid and value mobile services in the U.S. In September 2020, we entered into a purchase agreement with América Móvil to acquire
Tracfone. The transaction is subject to regulatory approvals and closing conditions and is expected to close in the second half of 2021.
Verizon Business Group
In addition to the wireless services and equipment discussed above, our Business segment provides wireless and wireline communications
services and products, including data, video and conferencing services, corporate networking solutions, security and managed network
services, local and long distance voice services and network access to deliver various IoT products and services.
Small and Medium Business
Small and Medium Business offers wireless services and equipment, conferencing services, tailored voice and networking products, Fios
services, Internet Protocol (IP) networking, advanced voice solutions and security and managed information technology (IT) services to our
U.S.-based small and medium businesses that do not meet the requirements to be categorized as Global Enterprise, as described below. In
2020, Small and Medium Business revenues were $11.1 billion, representing approximately 36% of Business’s total revenues.
In addition to the wireless services and equipment discussed above, Small and Medium Business provides fixed connectivity solutions
comparable to the residential fixed services provided by Consumer, as well as business services and connectivity similar to the products and
services offered by Global Enterprise, in each case with features and pricing designed to address the needs of small and medium businesses.
Global Enterprise
Global Enterprise offers services to large businesses, which are identified based on their size and volume of business with Verizon, as well as
non-U.S. public sector customers. In 2020, Global Enterprise revenues were $10.4 billion, representing approximately 34% of Business’s total
revenues.
Global Enterprise offers a broad portfolio of connectivity, security and professional services designed to enable our customers to optimize
their business operations, mitigate business risks and capitalize on data. These services include the following:
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Verizon 2020 Annual Report on Form 10-K
•
•
•
•
•
Network Services. We offer a portfolio of network connectivity products to help our customers connect with their employees,
partners, vendors and customers. These products include private networking services, private cloud connectivity services, virtual
and software defined networking services and internet access services.
Advanced Communications Services. We offer a suite of services to our customers to help them communicate with their employees,
partners, vendors, constituents and customers. These products include IP-based voice and video services, unified communications
and collaboration tools and customer contact center solutions.
Security services. We offer a suite of management and data security services that help our customers protect, detect and respond to
security threats to their networks, data, applications and infrastructure.
Core services. We provide a portfolio of domestic and global voice and data solutions utilizing traditional telecommunications
technology, including voice calling, messaging services, conferencing, contact center solutions and private line and data access
networks. Core services also include the provision of customer premises equipment, and installation, maintenance and site services.
IoT services. We provide the network access required to deliver various IoT products and services. We work with companies that
purchase network access from us to connect their devices, bundled together with their own solutions, which they sell to end users.
We are building IoT capabilities by leveraging business models that monetize usage on our networks at the connectivity, platform
and solution layers.
Public Sector and Other
Public Sector and Other offers wireless products and services as well as wireline connectivity and managed solutions to U.S. federal, state and
local governments and educational institutions. These services include business services and connectivity similar to the products and services
offered by Global Enterprise, in each case, with features and pricing designed to address the needs of governments and educational
institutions. In 2020, Public Sector and Other revenues were $6.4 billion, representing approximately 21% of Business’s total revenues.
Public Sector and Other also includes solutions that support fleet tracking management, compliance management, field service management,
asset tracking and other types of mobile resource management in the U.S. and around the world.
Wholesale
Wholesale offers wireline communications services including data, voice, local dial tone and broadband services primarily to local, long
distance, and wireless carriers that use our facilities to provide services to their customers. In 2020, Wholesale revenues were $3.1 billion,
representing approximately 10% of Business’s total revenues. A portion of Wholesale revenues are generated by a few large
telecommunications companies, most of which compete directly with us. Wholesale's services include:
• Data services. We offer a portfolio of data services to enhance our Wholesale customers’ networks and provide connections to their
end-users and subscribers.
•
•
Voice services. We provide switched access services that allow carriers to complete their end-user calls that originate or terminate
within our territory. In addition, we provide originating and terminating voice services throughout the U.S. and globally utilizing
our time-division multiplexing and Voice over Internet Protocol (VoIP) networks.
Local services. We offer an array of local dial tone and broadband services to competitive local exchange carriers, some of which
are offered to comply with telecommunications regulations. In addition, we offer services such as colocation, resale and unbundled
network elements in compliance with applicable regulations.
Distribution
We use a combination of direct, indirect and alternative distribution channels to market and distribute our products and services to Consumer
customers.
Our direct channel, including our company-operated stores, is a core component of our distribution strategy. Our sales and service centers and
business direct sales teams also represent significant distribution channels for our services. In addition, we have a robust digital channel and
omni-channel experience for our customers in order to offer choice and convenience.
Our indirect channel includes agents that sell our wireless and wireline products and services at retail locations throughout the U.S., as well as
through the internet. The majority of these sales are made under exclusive selling arrangements with us. We also have relationships with high-
profile national retailers that sell our wireless and wireline products and services, as well as convenience store chains that sell our wireless
prepaid products and services.
In addition to our direct channel, our Business segment has additional distribution channels that include business solution fulfillment provided
by resellers, non-stocked device fulfillment performed by distributors and integrated mobility services provided by system integrators and
resellers.
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Verizon 2020 Annual Report on Form 10-K
Competition and Related Trends
The telecommunications industry is highly competitive. We expect competition to remain intense as traditional and non-traditional
participants seek increased market share.
With respect to our wireless connectivity products and services, we compete against other national wireless service providers, including
AT&T Inc. and T-Mobile USA, Inc., as well as various regional wireless service providers. We also compete for retail activations with
resellers that buy bulk wholesale service from wireless service providers, including Verizon, and resell it to their customers. Resellers include
cable companies and others. Competition remains intense as a result of high rates of smartphone penetration in the wireless market, increased
network investment by our competitors, the development and deployment of new technologies, such as 5G, the introduction of new products
and services, offerings that include additional bundled premium content, new market entrants, the availability of additional licensed and
unlicensed spectrum and regulatory changes. Competition may also increase as smaller, stand-alone wireless service providers merge or
transfer licenses to larger, better capitalized wireless service providers and as MVNOs resell wireless communication services. In addition,
DISH Network has committed to deploy a facilities-based 5G broadband network in each of its license areas capable of serving at least 70
percent of the U.S. population by June 2023, which could result in additional competitive pressures in the U.S. wireless industry.
We also face competition from other communications and technology companies seeking to increase their brand recognition and capture
customer revenue with respect to the provision of wireless products and services, in addition to non-traditional offerings in mobile data. For
example, Microsoft Corporation, Alphabet Inc., Apple Inc. and others are offering alternative means for making wireless voice calls that, in
certain cases, can be used in lieu of the wireless provider’s voice service, as well as alternative means of accessing video content.
With respect to our wireline connectivity services, we compete against cable companies, wireless service providers, domestic and foreign
telecommunications providers, satellite television companies, internet service providers, over-the-top (OTT) providers and other companies
that offer network services and managed enterprise solutions. Cable operators have increased the size and capacity of their networks in order
to deliver digital products and services. Several major cable operators offer bundles with wireless services through strategic relationships.
Customers have an increasing number of choices for obtaining video content from various online services. We expect the market will
continue to shift from traditional linear video to OTT offerings. We expect customer migration from traditional voice services to wireless
services to continue as a growing number of customers place greater value on mobility and wireless companies position their services as a
landline alternative. We also face increasing competition from cable operators and other providers of VoIP services as well as internet portal
providers.
We believe that the following are the most important competitive factors and trends in the telecommunications industry:
•
•
•
•
Network reliability, speed and coverage. We consider networks that consistently provide high-quality, fast and reliable service to be
a key differentiator in the market and driver of customer satisfaction. Lower prices, improved service quality and new service
offerings, which in many cases include video content, have led to increased customer usage of connectivity services. We and other
network-based providers must ensure that our networks can meet these increasing capacity usage requirements and offer highly
reliable national coverage.
Pricing. With respect to wireless services and equipment, pricing plays an important role in the wireless competitive landscape. As
the demand for wireless services continues to grow, wireless service providers are offering a range of service plans at competitive
prices. Many wireless service providers also bundle wireless service offerings with other content and offer promotional pricing and
incentives, some of which may be targeted specifically to customers of Verizon. We and other wireless service providers, as well as
equipment manufacturers, offer device payment options, which provide customers with the ability to pay for their device over a
period of time, and some providers offer device leasing arrangements. In addition, aggressive device promotions have become more
common in an effort to gain a greater share of subscribers interested in changing carriers. Pricing also plays an important role in the
wireline competitive landscape, as traditional service providers compete aggressively in offerings such as IP Networking, Core
Voice and other legacy products. In addition, as non-traditional modes of providing wireline communication services emerge, new
entrants attempt to capture market share from incumbents using competitive pricing. For example, VoIP and portal-based voice and
video calling is often free or nearly free for customers and supported by advertising revenues.
Customer service. We believe that high-quality customer service is a key factor in retaining customers and attracting new
customers, including those of other providers. Our customer service, retention and satisfaction programs are based on providing
customers with convenient and easy-to-use products and services and focusing on their needs in order to promote long-term
relationships and minimize churn.
Customer service is highly valued by our Business customers. We provide Global Enterprise and Public Sector and Other customers
with ready access to their system and performance information, and we conduct proactive testing of our networks to identify issues
before they affect our customers. We service our Small and Medium Business customers through service representatives and online
support, as well as through store-based representatives for small business customers. For Wholesale customers, we pursue service
improvement through continued system automation initiatives.
Product differentiation. Customer and revenue growth are increasingly dependent on the development of new and enhanced
products and services, as the delivery of new and innovative products and services has been accelerating. Customers are shifting
their focus from access to applications and are seeking ways to leverage their broadband, video and wireless connections. To
compete effectively, providers need to continuously review, improve and refine their product portfolio and develop and rapidly
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Verizon 2020 Annual Report on Form 10-K
deploy new products and services tailored to the needs of customers. We continue to pursue the development and rapid deployment
of new and innovative products and services, both independently and in collaboration with application providers, content providers
and device manufacturers. Features such as wireless and wireline inter-operability are becoming increasingly important, driven by
both customer demand and technological advancement.
•
Sales and distribution. A key to achieving sales success in the consumer and small and medium business sectors of the wireless
industry is the reach and quality of sales channels and distribution points. We seek to optimally vary distribution channels among
our company-operated stores selling wireless products and services, outside sales teams and telemarketing, web-based sales and
fulfillment capabilities, our extensive indirect distribution network of retail outlets and our sale of wireless service to resellers,
which resell wireless services to their end-users.
In addition to these competitive factors and trends, companies with a global presence are increasingly competing with us in our Business
segment. A relatively small number of telecommunications and integrated service providers with global operations serve customers in the
global enterprise market and, to a lesser extent, the global wholesale market. We compete with these providers for large contracts to provide
integrated solutions to global enterprises and government customers. Many of these companies have strong market presence, brand
recognition and existing customer relationships, all of which contribute to intensifying competition that may affect our future revenue growth.
In the Small and Medium Business market, customer purchasing behaviors and preferences continue to evolve. Solution speed and simplicity
with user interfaces that have a consumer-like "look and feel" are becoming key differentiators for customers who are seeking full life-cycle
offers that simplify the process of starting, running and growing their businesses. Several major cable operators also offer bundles with
wireless services through strategic relationships.
In the Global Enterprise and Public Sector and Other markets, competition levels remain high, primarily as a result of increased industry focus
on technology convergence. We compete in this area with system integrators, carriers, and hardware and software providers. In addition,
some of the largest information technology services companies are making strategic acquisitions, divesting non-strategic assets and forging
new alliances to improve their cost structure. Many new alliances and acquisitions have focused on emerging fields, such as cloud computing,
software defined networking, communication applications and other computing tasks via networks, rather than by the use of in-house
machines.
Our Wholesale business competes with traditional carriers for long-haul, voice and IP services. In addition, mobile video and data needs are
driving a greater need for wireless backhaul. Network providers, cable companies and niche players are competitors for this business
opportunity.
Verizon Media
Our media business, Verizon Media Group (Verizon Media), includes diverse media and technology brands that serve both consumers and
businesses. Verizon Media provides consumers with owned and operated and third-party search properties as well as mail, news, finance,
sports and entertainment offerings, and provides other businesses and partners access to consumers through digital advertising, content
delivery and video streaming platforms. In 2020, Verizon Media's revenues were $7.0 billion.
Verizon Media Products and Solutions
Ad Platform
Our Verizon Media Ad Platform provides advertisers and publishers with a simplified suite of intelligent advertising solutions across desktop,
mobile and television devices. Verizon Media's business is comprised primarily of search advertising, display advertising and Ecommerce.
•
Search advertising. Our search properties serve as a guide for users to discover information on the internet. Verizon Media serves
click-based search advertisements generated by proprietary algorithmic technology, as well as advertisements from partners.
Verizon Media provides the underlying search products that facilitate user searches within Verizon Media and third-party partner
properties.
• Display advertising. Display advertising is made up of both graphical and performance-based advertising and takes the form of
impression-based contracts, time-based contracts and performance-based contracts. Verizon Media display ads leverage proprietary
data signals to identify and engage users on Verizon Media properties and across the web. Through the Verizon Media Ad Platform,
we provide customers the ability to buy advertising inventory and measure campaigns across screens and advertising formats using
self-serve technology or our managed services. We also provide publishers with the ability to monetize their ad inventory.
•
Ecommerce. Our Ecommerce offering includes different types of business models, including facilitating transactions between
businesses and consumers, enabling businesses that facilitate transactions for other businesses and facilitating transactions between
consumers.
Subscription Memberships
Our paid subscription offerings include premium content and services across our mail, news, finance, sports and entertainment properties,
privacy and security solutions and computer protection.
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Verizon 2020 Annual Report on Form 10-K
Verizon Media Platform
As the digital platform reshapes the delivery of media and entertainment content, there is an increasing need for stable, high-quality video
delivery platforms. Our Media Platform offers a scalable platform for delivering content, including live broadcasts, video on demand, games,
software and websites to our customers on their devices at any time. This platform is targeted at media and entertainment companies and other
businesses that deliver their digital products and services through the internet.
Global Network and Technology
Our global network architecture is used by Consumer, Business and Verizon Media. Our network technology platforms include both wireless
and wireline technologies.
Network Evolution
We are evolving the architecture of our networks to a next-generation multi-use platform, providing improved efficiency and virtualization,
increased automation and opportunities for edge computing services that will support both our fiber-based and radio access network
technologies. We call this the Intelligent Edge Network. We expect that this new architecture will simplify operations by eliminating legacy
network elements, speed the deployment of 5G wireless technology and create new opportunities in the business market in a cost efficient
manner.
5G Deployment
Over the past several years, we have been leading the development of 5G wireless technology industry standards and the ecosystems for fixed
and mobile 5G wireless services. We expect that 5G technology will provide higher throughput and lower latency than the current fourth-
generation (4G) (LTE) technology and enable our networks to handle more traffic as the number of internet-connected devices grows. As of
December 31, 2020, we have launched our 5G Ultra Wideband Network in 61 U.S. markets. We have commercially launched 5G Home in 12
of those markets.
We also launched our 5G Nationwide Network in October 2020, which is available in over 2,700 cities across the U.S. covering
approximately 230 million people. 5G Nationwide uses low and mid-band spectrum and dynamic spectrum sharing (DSS) technology, which
allows 5G service to run simultaneously with 4G LTE on multiple spectrum bands. With DSS, whenever customers move outside Verizon’s
high-band Ultra Wideband coverage area, their 5G-enabled devices will remain on 5G technology using the lower spectrum bands where the
5G Nationwide network is available. This allows us to more fully and effectively utilize our current spectrum resources to serve both 4G and
5G customers.
4G LTE
The wireless network technology platform that carries the majority of our wireless traffic is 4G LTE, which provides higher data throughput
performance for data services at a lower cost compared to that offered by 3G technology. As of December 31, 2020, our 4G LTE network is
available in over 700 markets covering approximately 327 million people, including those in areas served by our LTE in Rural America
partners. Under this program, we have collaborated with wireless carriers in rural areas to build and operate a 4G LTE network using each
carrier’s network assets with our core 4G LTE equipment and 700 Megahertz (MHz) C Block and Advanced Wireless Services (AWS)
spectrum. In 2020, we launched LTE Home Internet, a home broadband internet service that leverages the Verizon 4G LTE network.
Wireless Network Reliability and Build-Out
We consider the reliability, coverage and speed of our wireless network to be key factors for our continued success. We believe that steady
and consistent network and platform investments provide the foundation for innovative products and services. As we design and deploy our
network, we focus on the number of successful data sessions the network enables, delivering on our advertised throughput speeds, and the
number of calls that are connected on the first attempt and completed without being dropped. We utilize three strategies to maintain the
quality of our network: increasing the density of our network elements, deploying new technologies as they are developed and putting
additional wireless spectrum into service.
We have been densifying our network by utilizing small cell technology, in-building solutions and distributed antenna systems. Network
densification enables us to add capacity to address increasing mobile video consumption and the growing demand for IoT products and
services on our 4G LTE and 5G networks. We are also utilizing existing network capabilities to handle increased traffic without interrupting
the quality of the customer experience. We continue to deploy advanced technologies to increase both network capacity and data rates.
In order to build and upgrade our existing 4G LTE network and deploy our 5G network, we must complete a variety of steps, which can
include securing rights to a large number of sites as well as obtaining zoning and other governmental approvals and fiber facilities, for our
macro and small cells, in-building systems and antennas and related radio equipment that comprise distributed antenna systems. We have
relationships with a wide variety of vendors that supply various products and services that support our wireless network operations. We utilize
tower site management firms as lessors or managers of a portion of our existing leased and owned tower sites.
Our networks in the U.S. include various elements of redundancy designed to enhance the reliability of the services provided to our
customers. To mitigate the impact of power disruptions on our operations, we have battery backup at every switch and every macro cell. We
also utilize backup generators at a majority of our macro cells and at every switch location. In addition, we have a fleet of portable backup
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Verizon 2020 Annual Report on Form 10-K
generators that can be deployed, if needed. We further enhance reliability by using a fully redundant Multiprotocol Label Switching backbone
network in critical locations.
In addition to our own network coverage, we have roaming agreements with a number of wireless service providers to enable our customers
to receive wireless service in nearly all other areas in the U.S. where wireless service is available. We also offer a variety of international
wireless voice and data services to our customers through roaming arrangements with wireless service providers outside the U.S.
Fios
Residential broadband service has seen significant growth in bandwidth demand over the past several years, and we believe that demand will
continue to grow. We expect the continued emergence of new video services, new data applications and the proliferation of IP devices in the
home will continue to drive new network requirements for increased data speeds and throughput. We believe that the Passive Optical Network
(PON) technology underpinning Fios positions us well to meet these demands in a cost-effective and efficient manner.
While deployed initially as a consumer broadband network, our PON infrastructure is also experiencing more widespread application in the
Business segment, especially as businesses increasingly migrate to Ethernet-based access services.
Global IP
Verizon owns and operates one of the largest global fiber-optic networks in the world, providing connectivity to Business customers in more
than 180 countries. Our global IP network includes long-haul, metro and submarine assets that span over 1 million route miles and enable and
support international operations.
Global business is rapidly evolving to an "everything-as-a-service" model in which Business customers seek cloud-based, converged
enterprise solutions delivered securely via managed and professional services. We are continuing to deploy packet optical transport
technology in order to create a global network platform to meet this demand.
Spectrum
The spectrum licenses we hold can be used for mobile wireless voice, video and data communications services. We are licensed by the
Federal Communications Commission (FCC) to provide these wireless services on portions of the 800 MHz band, also known as cellular
spectrum, the 1800-1900 MHz band, also known as Personal Communication Services (PCS) spectrum, portions of the 700 MHz upper C
band and AWS 1 and 3 spectrum in the 1700 and 2100 MHz bands, in areas that, collectively, cover nearly all of the population of the U.S.
We have also deployed 4G technologies in 3.5 Gigahertz (GHz) shared spectrum, using LTE/Citizens Broadband Radio Service, and in 5
GHz unlicensed spectrum, using LTE/Licensed Assisted Access. All of this spectrum is collectively called low and mid-band spectrum. We
are using our low and mid-band spectrum to provide 3G, 4G LTE and 5G wireless services. We are increasingly reallocating spectrum
previously used for 3G service to provide 4G LTE service. We are also utilizing low and mid-band spectrum, through DSS, for 5G to
complement our spectrum licenses in the 28 and 39 GHz band, collectively called millimeter wave spectrum.
Millimeter wave and low and mid-band spectrum are being used for our 5G technology deployment. We anticipate that we will need
additional spectrum to meet future demand. This increasing demand is driven by growth in customer connections and the increased usage of
wireless broadband services that use more bandwidth and require faster rates of speed, as well as the wider deployment of 5G mobile and
fixed services. We can meet our future 4G and 5G spectrum needs by acquiring licenses or leasing spectrum from other licensees, or by
acquiring new spectrum licenses from the FCC, if and when future FCC spectrum auctions occur.
From time to time we have exchanged spectrum licenses with other wireless service providers through secondary market swap transactions.
We expect to continue to pursue similar opportunities to trade spectrum licenses in order to meet capacity and expansion needs in the future.
In certain cases, we have entered into intra-market spectrum swaps designed to increase the amount of contiguous spectrum within frequency
bands in a specific market. Contiguous spectrum improves network performance and efficiency. These swaps, as well as any spectrum
purchases, require us to obtain governmental approvals.
Information regarding spectrum license transactions is included in Note 3 to the consolidated financial statements of Verizon
Communications Inc. and Subsidiaries.
Human Capital Resources
At Verizon, we know that our people are one of our most valuable assets. In order to realize our core business strategy, we have developed
human capital programs and practices that support, develop and care for our employees from the time they join our team through the entirety
of their careers with Verizon. These programs are centered on the following principles:
• Attract the right talent for our future and maintain a diverse workforce that has a capacity for learning and brings high-value skills
and expertise to the Company.
• Develop our employees to their full potential through best-in-class educational programs and exceptional development experiences,
creating a culture of continuous learning and engagement.
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Verizon 2020 Annual Report on Form 10-K
•
Inspire individuals to build a career at Verizon by providing meaningful work and upskilling opportunities and establishing an
inspiring and inclusive work environment for all.
Verizon is committed to being an employer of choice. With approximately 132,200 employees measured on a full-time equivalent basis as of
December 31, 2020, we know that we need employees with diverse backgrounds, experiences and perspectives to help us understand and
connect more meaningfully to the diverse customers and communities we serve. Our human capital programs and practices are designed to
create a workplace where employees are empowered to share their authentic selves and feel seen and heard as vital contributors to Verizon’s
corporate purpose. In addition, Verizon has extensive on-the-job training opportunities, tuition reimbursement programs and career
development support to enable our employees to maximize their potential and thrive professionally. Guided by our long-standing commitment
to diversity and inclusion, our hiring and outreach programs have resulted in a strong representation of women and people of color. As of
December 31, 2020, Verizon's global workforce was approximately 66.2% male, 33.7% female and 0.1% unknown or undeclared, and the
race/ethnicity of our U.S. workforce was 53.9% White, 19.3% Black, 11.3% Hispanic, 9.4% Asian, 0.4% American Indian/Alaskan Native,
0.3% Native Hawaiian/Pacific Islander, 2.5% two or more races, and 2.9% unknown or undeclared. Women represented 37.9% of U.S. senior
leadership (vice president level and above). People of color represented 34.6% of U.S. senior leadership.
Verizon respects our employees’ rights to freedom of association and collective bargaining in compliance with applicable law, including the
right to join or not join labor unions. We have a long history of working with the Communications Workers of America and the International
Brotherhood of Electrical Workers—the two unions that in total represent approximately 22.5% of our employees as of December 31, 2020.
In addition, where applicable outside of the U.S., we engage with employee representative bodies such as works council. Verizon meets with
U.S. national and local union leaders, as well as works council leaders outside the U.S., to talk about key business topics, including safety,
customer service, plans to improve operational processes, our business performance and the impacts that changing technology and
competition are having on our customers, employees and business strategy.
In 2020, Verizon employees across the Company came together in new ways in response to the health and humanitarian crisis brought on by
the novel coronavirus (COVID-19) pandemic. Soon after COVID-19 was first identified, Verizon took many broad-ranging steps to support
our employees and their families so that the Company could continue providing our essential services to our customers and communities.
Some of these measures included temporarily moving over 115,000 of our employees to remote work arrangements and temporarily closing
nearly 70% of our Company-owned retail store locations or moving to appointment-only store access; limiting our customer-focused field
operations for a period of time; enhancing safety protocols for employees working outside their homes; launching a COVID-19 leave of
absence policy and expanded family care assistance for employees; and providing additional compensation to employees in front line roles
that could not be done from home for a period of time. In an effort to foster transparency and provide support during this unprecedented time,
Verizon launched a daily live webcast with current information on the Company’s actions to address the impacts of COVID-19 as well as a
number of broad ranging resources for employees. In addition, Verizon re-trained over 20,000 frontline employees to temporarily serve in
other roles, such as customer service or telesales, which not only promoted the health and safety of our employees, but also provided
opportunities for learning and career development.
For a discussion of the oversight provided by the Verizon Board of Directors over the Company’s human capital management practices, see
the section entitled "Governance — Our Approach to Governance — Our Approach to Strategy and Risk Oversight — Oversight of Human
Capital Management" in our definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to
shareholders in connection with our 2021 Annual Meeting of Shareholders.
Patents, Trademarks and Licenses
We own or have licenses to various patents, copyrights, trademarks, domain names and other intellectual property rights necessary to conduct
our business. We actively pursue the filing and registration of patents, copyrights, trademarks and domain names to protect our intellectual
property rights within the United States and abroad. We also actively grant licenses, in exchange for appropriate fees or other consideration
and subject to appropriate safeguards and restrictions, to other companies that enable them to utilize certain of our intellectual property rights
and proprietary technology as part of their products and services. Such licenses enable the licensees to take advantage of Verizon's brands and
the results of Verizon’s research and development efforts. While these licenses result in valuable consideration for Verizon, we do not believe
that the loss of such consideration, or the expiration of any of our intellectual property rights, would have a material effect on our results of
operations.
We periodically receive offers from third parties to purchase or obtain licenses for patents and other intellectual property rights in exchange
for royalties or other payments. We also periodically receive notices alleging that our products or services infringe on third-party patents or
other intellectual property rights. These claims, whether against us directly or against third-party suppliers of products or services that we sell
to our customers, if successful, could require us to pay damages or royalties, rebrand, or cease offering the relevant products or services.
Regulatory and Competitive Trends
Regulatory and Competitive Landscape
Verizon operates in a regulated and highly competitive market, as described above. Some of our competitors are subject to fewer regulatory
constraints than Verizon. For many services offered by Verizon, the FCC is our primary regulator. The FCC has jurisdiction over interstate
telecommunications services and other matters under the Communications Act of 1934, as amended (Communications Act or Act). Other
Verizon services are subject to state and local regulation.
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Verizon 2020 Annual Report on Form 10-K
Federal, State and Local Regulation
Wireless Services
The FCC regulates several aspects of our wireless operations. Generally, the FCC has jurisdiction over the construction, operation, acquisition
and transfer of wireless communications systems. All wireless services require use of radio frequency spectrum, the assignment and
distribution of which is subject to FCC oversight. Verizon anticipates that it will need additional spectrum to meet future demand. We can
meet our needs for licensed spectrum by purchasing licenses or leasing spectrum from others, or by participating in a competitive bidding
process to acquire new spectrum from the FCC. Those processes are subject to certain reviews, approvals and potential conditions.
Today, Verizon holds FCC spectrum licenses that allow it to provide a wide range of mobile and fixed communications services, including
both voice and data services. FCC spectrum licenses typically have a term of 10 years, at which time they are subject to renewal. While the
FCC has routinely renewed all of Verizon’s wireless licenses, challenges could be raised in the future. If a wireless license was revoked or not
renewed, Verizon would not be permitted to provide services on the spectrum covered by that license. Some of our licenses require us to
comply with so-called "open access" FCC regulations, which generally require licensees of particular spectrum to allow customers to use
devices and applications of their choice, subject to certain technical limitations. The FCC has also imposed certain specific mandates on
wireless carriers, including construction and geographic coverage requirements, technical operating standards, provision of enhanced 911
services, roaming obligations and requirements for wireless tower and antenna facilities.
The Act generally preempts regulation by state and local governments of the entry of, or the rates charged by, wireless carriers. The Act does
not prohibit states from regulating the other "terms and conditions" of wireless service. For example, some states impose reporting
requirements. Several states also have laws or regulations that address safety issues (e.g., use of wireless handsets while driving) and taxation
matters. In addition, wireless tower and antenna facilities are often subject to state and local zoning and land use regulation, and securing
approvals for new or modified facilities is often a lengthy and expensive process.
Broadband
Verizon offers many different broadband services. The FCC recognizes broadband internet access services as "information services" subject
to a "light touch" regulatory approach rather than to the traditional, utilities-style regulations. However, a number of states have taken steps to
regulate broadband and two of those cases related to regulations in California and Vermont are being litigated in the courts. Regardless of
regulation, Verizon remains committed to the open internet, which provides consumers with competitive choices and unblocked access to
lawful websites and content. Our commitment to our customers can be found on our website at https://www.verizon.com/about/our-company/
verizon-broadband-commitment.
Wireline Voice
Verizon offers many different wireline voice services, including traditional telephone service and other services that rely on technologies such
as VoIP. For regulatory purposes, legacy telephone services are generally considered to be "common carrier" services. Common carrier
services are subject to heightened regulatory oversight with respect to rates, terms and conditions and other aspects of the services. The FCC
has not decided the regulatory classification of VoIP but has said VoIP service providers must comply with certain rules, such as 911
capabilities and law enforcement assistance requirements.
State public utility commissions regulate Verizon’s telephone operations with respect to certain telecommunications intrastate matters.
Verizon operates as an "incumbent local exchange carrier" in nine states and the District of Columbia. These incumbent operations are subject
to various levels of pricing flexibility and other state oversight and requirements. Verizon also has other wireline operations that are more
lightly regulated.
Video
Verizon offers a multichannel video service that is regulated like traditional cable service. The FCC has a body of rules that apply to cable
operators, and these rules also generally apply to Verizon. In areas where Verizon offers its facilities-based multichannel video services,
Verizon has been required to obtain a cable franchise from local government entities, or in some cases a state-wide franchise, and comply
with certain one-time and ongoing obligations as a result.
Privacy and Data Security
We are subject to local, state, federal, and international laws and regulations relating to privacy and data security that impact all parts of our
business, including wireline, wireless, broadband and the development and roll out of new products, such as those in the media and IoT space.
At the federal level, our voice business is subject to the FCC's privacy requirements. Oversight of broadband internet access privacy and data
security is governed by the Federal Trade Commission (FTC). Europe's General Data Protection Regulation, which went into effect in May
2018, and the California Consumer Privacy Act, which went into effect in January 2020, both include significant penalties for non-
compliance. In addition, other new privacy laws took effect in 2020, including in Brazil and Maine. Generally, attention to privacy and data
security requirements is increasing at all levels of government globally, and privacy-related legislation has been introduced or is under
consideration in many locations. These regulations could have a significant impact on our businesses.
Public Safety and Cybersecurity
The FCC plays a role in addressing public safety concerns by regulating emergency communications services and mandating widespread
availability of both media (broadcast/cable) and wireless emergency alerting services. In response to cyber attacks that have occurred or could
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Verizon 2020 Annual Report on Form 10-K occur in the future, however, the FCC or other regulators may attempt to increase regulation of the cybersecurity practices of providers. The
FCC is also addressing the use by American companies of equipment produced by certain companies deemed to cause potential national
security risks. Verizon does not currently use equipment in its networks from vendors under such restrictions. In addition, due to recent
natural disasters, federal and state agencies may attempt to impose regulations to ensure continuity of service during disasters; for example,
the California Public Utilities Commission has imposed regulations on back-up power for communications facilities.
Intercarrier Compensation and Network Access
The FCC regulates some of the rates that carriers pay each other for the exchange of voice traffic (particularly traditional wireline traffic) over
different networks and other aspects of interconnection for some voice services. The FCC also regulates some of the rates and terms and
conditions for certain wireline "business data services" and other services and network facilities. Verizon is both a seller and a buyer of these
services, and both makes and receives interconnection payments. The FCC has focused in recent years on whether changes in the rates, terms
and conditions for both the exchange of traffic and for business data services may be appropriate.
Regulatory Response to the COVID-19 Pandemic
Since the time that COVID-19 began to spread throughout the world in 2020, Verizon has been subject to various international, federal, state
and local policies, regulations and initiatives aimed at reducing the transmission of the disease and protecting the health and safety of the
world’s population. In addition, governments have imposed a wide variety of consumer protection measures that limit how certain businesses,
including telecommunications companies, can operate their business and interact with their customers. Because the severity, magnitude and
duration of the COVID-19 pandemic and its economic consequences are uncertain and rapidly changing, the impact of the crisis and the
governmental responses to the crisis on our business in 2021 and beyond remains uncertain and difficult to predict.
Information About Our Executive Officers
See Part III, Item 10. "Directors, Executive Officers and Corporate Governance" of this Annual Report on Form 10-K for information about
our executive officers.
Information on Our Internet Website
We make available, free of charge on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments to those reports at https://www.verizon.com/about/investors as soon as reasonably practicable after such reports are
electronically filed with the Securities and Exchange Commission (SEC). These reports and other information are also available on the SEC's
website at https://www.sec.gov. We periodically provide other information for investors on our website, including news and announcements
regarding our financial performance, information on corporate governance and details related to our annual meeting of shareholders. We
encourage investors, the media, our customers, business partners and other stakeholders to review the information we post on this channel.
Website references in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference
of the information contained on, or available through, the websites. Therefore, such information should not be considered part of this report.
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," "expects," "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. We undertake no obligation to revise or publicly release the results of any revision to these
forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance
on such forward-looking statements.
The following important factors, along with those discussed elsewhere in this report and in other filings with the SEC, could affect future
results and could cause those results to differ materially from those expressed in the forward-looking statements:
•
•
•
•
cyber attacks impacting our networks or systems and any resulting financial or reputational impact;
natural disasters, terrorist attacks or acts of war, or significant litigation and any resulting financial or reputational impact;
the impact of the COVID-19 pandemic on our operations, our employees and the ways in which our customers use our networks
and other products and services;
disruption of our key suppliers’ or vendors' provisioning of products or services, including as a result of the COVID-19 pandemic;
• material adverse changes in labor matters and any resulting financial or operational impact;
•
•
the effects of competition in the markets in which we operate;
failure to take advantage of developments in technology and address changes in consumer demand;
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Verizon 2020 Annual Report on Form 10-K •
•
•
•
•
•
•
•
•
performance issues or delays in the deployment of our 5G network resulting in significant costs or a reduction in the anticipated
benefits of the enhancement to our networks;
the inability to implement our business strategy;
adverse conditions in the U.S. and international economies;
changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our
networks or businesses;
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;
significant increases in benefit plan costs or lower investment returns on plan assets;
changes in tax laws or treaties, or in their interpretation; and
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.
Item 1A. Risk Factors
The following discussion of "Risk Factors" identifies factors that may adversely affect our business, operations, financial condition or future
performance. This information should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and
Result of Operations" and the consolidated financial statements and related notes. The following discussion of risks is not all-inclusive but is
designed to highlight what we believe are the material factors to consider when evaluating our business and expectations. These factors could
cause our future results to differ materially from our historical results and from expectations reflected in forward-looking statements.
Operational Risks
Cyber attacks impacting our networks or systems could have an adverse effect on our business.
Cyber attacks, including through the use of malware, computer viruses, dedicated denial of services attacks, credential harvesting, social
engineering and other means for obtaining unauthorized access to or disrupting the operation of our networks and systems and those of our
suppliers, vendors and other service providers, could have an adverse effect on our business. Cyber attacks may cause equipment failures, loss
of information, including sensitive personal information of customers or employees or valuable technical and marketing information, as well
as disruptions to our or our customers’ operations. Cyber attacks against companies, including Verizon, have increased in frequency, scope
and potential harm in recent years. They may occur alone or in conjunction with physical attacks, especially where disruption of service is an
objective of the attacker. The development and maintenance of systems to prevent such attacks is costly and requires ongoing monitoring and
updating to address their increasing prevalence and sophistication. While, to date, we have not been subject to cyber attacks that, individually
or in the aggregate, have been material to Verizon's operations or financial condition, the preventive actions we take to reduce the risks
associated with cyber attacks, including protection of our systems and networks, may be insufficient to repel or mitigate the effects of a major
cyber attack in the future.
The inability to operate or use our networks and systems or those of our suppliers, vendors and other service providers as a result of cyber
attacks, even for a limited period of time, may result in significant expenses to Verizon and/or a loss of market share to other communications
providers. The costs associated with a major cyber attack on Verizon could include expensive incentives offered to existing customers and
business partners to retain their business, increased expenditures on cybersecurity measures and the use of alternate resources, lost revenues
from business interruption and litigation. Further, certain of Verizon’s businesses, such as those offering security solutions and infrastructure
and cloud services to business customers, could be negatively affected if our ability to protect our own networks and systems is called into
question as a result of a cyber attack. Our presence in the IoT industry, which includes offerings of telematics products and services, could
also increase our exposure to potential costs and expenses and reputational harm in the event of cyber attacks impacting these products or
services. In addition, a compromise of security or a theft or other compromise of valuable information, such as financial data and sensitive or
private personal information, could result in lawsuits and government claims, investigations or proceedings. Any of these occurrences could
damage our reputation, adversely impact customer and investor confidence and result in a material adverse effect on Verizon’s results of
operation or financial condition.
Natural disasters, terrorist acts or acts of war could cause damage to our infrastructure and result in significant
disruptions to our operations.
Our business operations are subject to interruption by power outages, terrorist attacks, other hostile acts and natural disasters, including an
increasing prevalence of wildfires and intensified storm activities. Such events could cause significant damage to our infrastructure upon
which our business operations rely, resulting in degradation or disruption of service to our customers, as well as significant recovery time and
expenditures to resume operations. Our system redundancy may be ineffective or inadequate to sustain our operations through all such events.
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Verizon 2020 Annual Report on Form 10-K
We are implementing, and will continue to implement, measures to protect our infrastructure and operations from the impacts of these events
in the future, but these measures and our overall disaster recovery planning may not be sufficient for all eventualities. These events could also
damage the infrastructure of the suppliers that provide us with the equipment and services that we need to operate our business and provide
products to our customers. These occurrences could result in lost revenues from business interruption, damage to our reputation and reduced
profits.
Public health crises, including the COVID-19 pandemic, could materially adversely affect our business, financial
condition and results of operations.
We are subject to risks related to public health crises, such as the COVID-19 pandemic, which had an adverse effect on our operating results
in 2020. Our business is based on our ability to provide products and services to customers throughout the United States and around the world
and the ability of those customers to use and pay for those products and services for their businesses and in their daily lives. As a result, our
business, financial condition and results of operations could be materially adversely affected by a crisis, like the COVID-19 pandemic, that
significantly impacts the way customers use and are able to pay for our products and services, the way our employees are able to provide
services to our customers, and the ways that our partners and suppliers are able to provide products and services to us. For example, public
and private sector policies and initiatives to reduce the transmission of COVID-19 and initiatives Verizon has taken in response to the health
crisis to promote the health and safety of our employees and provide critical infrastructure and connectivity to our customers, along with the
related global slowdown in economic activity, resulted in decreased revenues, increased costs and lower earnings per share during 2020. In
addition, such a crisis could significantly increase the probability or consequences of the risks our business faces in ordinary circumstances,
such as risks associated with our supplier and vendor relationships, risks of an economic slowdown, regulatory risks, and the costs and
availability of financing. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are
uncertain and rapidly changing, the impact on our business, financial condition and results of operations in 2021 and beyond remains
uncertain and difficult to predict. In addition, the ultimate impact of the COVID-19 pandemic on our business, financial condition and results
of operations depends on many factors, including those discussed above, that are not within our control.
We depend on key suppliers and vendors to provide equipment that we need to operate our business.
We depend on various key suppliers and vendors to provide us, directly or through other suppliers, with equipment and services, such as fiber,
switch and network equipment, smartphones and other wireless devices that we need in order to operate our business and provide products to
our customers. For example, our smartphone and other device suppliers often rely on one vendor for the manufacture and supply of critical
components, such as chipsets, used in their devices, and there are a limited number of companies capable of supplying the network
infrastructure equipment on which we depend. These suppliers or vendors could fail to provide equipment or service on a timely basis, or fail
to meet our performance expectations, for a number of reasons, including, for example, disruption to the global supply chain as a result of the
COVID-19 pandemic. If such failures occur, we may be unable to provide products and services as and when requested by our customers, or
we may be unable to continue to maintain or upgrade our networks. Because of the cost and time lag that can be associated with transitioning
from one supplier to another, our business could be substantially disrupted if we were required to, or chose to, replace the products or services
of one or more major suppliers with products or services from another source, especially if the replacement became necessary on short notice.
Any such disruption could increase our costs, decrease our operating efficiencies and have a material adverse effect on our business, results of
operations and financial condition.
The suppliers and vendors on which we rely may also be subject to litigation with respect to technology on which we depend, including
litigation involving claims of patent infringement. Such claims are frequently made in the communications industry. We are unable to predict
whether our business will be affected by any such litigation. We expect our dependence on key suppliers to continue as we develop and
introduce more advanced generations of technology.
A significant portion of our workforce is represented by labor unions, and we could incur additional costs or experience
work stoppages as a result of the renegotiation of our labor contracts.
As of December 31, 2020, approximately 22.5% of our workforce is represented by the Communications Workers of America or the
International Brotherhood of Electrical Workers. While we have labor contracts in place with these unions, with subsequent negotiations we
could incur additional costs and/or experience work stoppages, which could adversely affect our business operations. In addition, while a
small percentage of the workforce of our wireless and other businesses outside of wireline is represented by unions for bargaining, we cannot
predict what level of success unions may have in further organizing this workforce or the potentially negative impact it could have on our
operations.
Economic and Strategic Risks
We face significant competition that may reduce our profits.
We face significant competition in our industries. The rapid development of new technologies, services and products has eliminated many of
the traditional distinctions among wireless, cable, internet and local and long distance communication services and brought new competitors
to our markets, including other telecommunications companies, cable companies, wireless service providers, satellite providers and
application and device providers. While these changes have enabled us to offer new types of products and services, they have also allowed
other providers to broaden the scope of their own competitive offerings. If we are unable to compete effectively, we could experience lower
than expected revenues and earnings. A projected sustained decline in any of our reporting units' revenues and earnings could have a
significant impact on its fair value and has caused us in the past, and may cause us in the future, to record goodwill impairment charges. The
amount of any impairment charge could be significant and could have a material adverse impact on our results of operations for the period in
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Verizon 2020 Annual Report on Form 10-K
which the charge is taken. In addition, wireless service providers are significantly altering the financial relationships with their customers
through commercial offers that vary service and device pricing, promotions, incentives and levels of service provided – in some cases
specifically targeting our customers. Our ability to compete effectively will depend on, among other things, our network quality, capacity and
coverage, the pricing of our products and services, the quality of our customer service, our development of new and enhanced products and
services, the reach and quality of our sales and distribution channels, our ability to market our products and services effectively and our
capital resources. It will also depend on how successfully we anticipate and respond to various factors affecting our industries, including new
technologies and business models, changes in consumer preferences and demand for existing services, demographic trends and economic
conditions. If we are not able to respond successfully to these competitive challenges, we could experience reduced profits.
If we are not able to take advantage of developments in technology and address changing consumer demand on a timely
basis, we may experience a decline in the demand for our services, be unable to implement our business strategy and
experience reduced profits.
Our industries are rapidly changing as new technologies are developed that offer consumers an array of choices for their communications
needs and allow new entrants into the markets we serve. In order to grow and remain competitive, we will need to adapt to future changes in
technology, enhance our existing offerings and introduce new offerings to address our customers’ changing demands. If we are unable to meet
future challenges from competing technologies on a timely basis or at an acceptable cost, we could lose customers to our competitors. We
may not be able to accurately predict technological trends or the success of new services in the market.
The deployment of our 5G network is subject to a variety of risks, including those related to equipment and spectrum availability, unexpected
costs, and regulatory permitting requirements that could cause deployment delays or network performance issues. These issues could result in
significant costs or reduce the anticipated benefits of the enhancements to our networks. If our services fail to gain acceptance in the
marketplace, or if costs associated with the implementation and introduction of these services materially increase, our ability to retain and
attract customers could be adversely affected.
In addition to introducing new offerings and technologies, such as 5G technology, we must phase out outdated and unprofitable technologies
and services. If we are unable to do so on a cost-effective basis, we could experience reduced profits. In addition, there could be legal or
regulatory restraints on our ability to phase out current services.
Adverse conditions in the U.S. and international economies could impact our results of operations.
Unfavorable economic conditions, such as a recession or economic slowdown in the U.S. or elsewhere, could negatively affect the
affordability of and demand for some of our products and services. In difficult economic conditions, consumers may seek to reduce
discretionary spending by forgoing purchases of our products, electing to use fewer higher margin services, dropping down in price plans or
obtaining lower-cost products and services offered by other companies. Similarly, under these conditions, the business customers that we
serve may delay purchasing decisions, delay full implementation of service offerings or reduce their use of services. In addition, adverse
economic conditions may lead to an increased number of our consumer and business customers that are unable to pay for services. If these
events were to occur, it could have a material adverse effect on our results of operations.
Regulatory and Legal Risks
Changes in the regulatory framework under which we operate could adversely affect our business prospects or results
of operations.
Our domestic operations are subject to regulation by the FCC and other federal, state and local agencies, and our international operations are
regulated by various foreign governments and international bodies. These regulatory regimes frequently restrict or impose conditions on our
ability to operate in designated areas and provide specified products or services. We are frequently required to maintain licenses for our
operations and conduct our operations in accordance with prescribed standards. We are often involved in regulatory and other governmental
proceedings or inquiries related to the application of these requirements. It is impossible to predict with any certainty the outcome of pending
federal and state regulatory proceedings relating to our operations, or the reviews by federal or state courts of regulatory rulings. Without
relief, existing laws and regulations may inhibit our ability to expand our business and introduce new products and services. Similarly, we
cannot guarantee that we will be successful in obtaining the licenses needed to carry out our business plan or in maintaining our existing
licenses. For example, the FCC grants wireless licenses for terms generally lasting 10 years, subject to renewal. The loss of, or a material
limitation on, certain of our licenses could have a material adverse effect on our business, results of operations and financial condition.
New laws or regulations or changes to the existing regulatory framework at the federal, state and local, or international level, such as those
described below, new laws or regulations enacted to address the potential impacts of climate change, or requirements limiting our ability to
discontinue service to customers could restrict the ways in which we manage our wireline and wireless networks and operate our Consumer,
Business and Verizon Media businesses, impose additional costs, impair revenue opportunities and potentially impede our ability to provide
services in a manner that would be attractive to us and our customers.
•
Privacy and data protection - we are subject to federal, state and international laws related to privacy and data protection. Europe's
General Data Protection Regulation, which went into effect in May 2018, and the California Consumer Privacy Act, which went
into effect in January 2020, both include significant penalties for non-compliance. In addition, other new privacy laws took effect in
2020, including in Brazil and Maine. Generally, attention to privacy and data security requirements is increasing at all levels of
16
Verizon 2020 Annual Report on Form 10-K
•
•
government globally, and privacy-related legislation has been introduced or is under consideration in many locations. These
regulations could have a significant impact on our businesses.
Regulation of broadband internet access services - In its 2015 Title II Order, the FCC nullified its longstanding "light touch"
approach to regulating broadband internet access services and "reclassified" these services as telecommunications services subject
to utilities-style common carriage regulation. The FCC repealed the 2015 Title II Order in December 2017, and returned to its
traditional light-touch approach for these services. The 2017 order has been affirmed in part by the D.C. Circuit but may be
revisited by future FCC commissions or by Congress and further appeals and challenges are possible; the outcome and timing of
these or any other challenge remains uncertain. Several states have also adopted or are considering adopting laws or executive
orders that would impose net neutrality and other requirements on some of our services (in some cases different from the FCC’s
2015 rules). The enforceability and effect of these state rules is uncertain.
"Open Access" - we hold certain wireless licenses that require us to comply with so-called "open access" FCC regulations, which
generally require licensees of particular spectrum to allow customers to use devices and applications of their choice. Moreover,
certain services could be subject to conflicting regulation by the FCC and/or various state and local authorities, which could
significantly increase the cost of implementing and introducing new services.
The further regulation of broadband, wireless and our other activities and any related court decisions could restrict our ability to compete in
the marketplace and limit the return we can expect to achieve on past and future investments in our networks.
We are subject to a significant amount of litigation, which could require us to pay significant damages or settlements.
We are subject to a substantial amount of litigation, including, from time to time, shareholder derivative suits, patent infringement lawsuits,
antitrust class actions, wage and hour class actions, personal injury claims, property claims, and lawsuits relating to our advertising, sales,
billing and collection practices. In addition, our wireless business also faces personal injury and wrongful death lawsuits relating to alleged
health effects of wireless phones or radio frequency transmitters. We may incur significant expenses in defending these lawsuits. In addition,
we may be required to pay significant awards or settlements.
Financial Risks
Verizon has significant debt, which could increase further if Verizon incurs additional debt in the future and does not
retire existing debt.
As of December 31, 2020, Verizon had approximately $118.5 billion of outstanding unsecured indebtedness, $9.4 billion of unused borrowing
capacity under our existing revolving credit facility and $10.6 billion of outstanding secured indebtedness. Verizon’s debt level and related
debt service obligations could have negative consequences, including:
•
requiring Verizon to dedicate significant cash flow from operations to the payment of principal, interest and other amounts payable
on our debt, which would reduce the funds we have available for other purposes, such as working capital, capital expenditures,
dividend payments and acquisitions;
• making it more difficult or expensive for Verizon to obtain any necessary future financing for working capital, capital expenditures,
debt service requirements, debt refinancing, acquisitions or other purposes;
•
reducing Verizon’s flexibility in planning for or reacting to changes in our industries and market conditions;
• making Verizon more vulnerable in the event of a downturn in our business; and
•
exposing Verizon to increased interest rate risk to the extent that our debt obligations are subject to variable interest rates.
Adverse changes in the credit markets and other factors could increase our borrowing costs and the availability of
financing.
We require a significant amount of capital to operate and grow our business. We fund our capital needs in part through borrowings in the
public and private credit markets. Adverse changes in the credit markets, including increases in interest rates, could increase our cost of
borrowing and/or make it more difficult for us to obtain financing for our operations or refinance existing indebtedness. In addition, our
ability to obtain funding under asset-backed debt transactions is subject to our ability to continue to originate a sufficient amount of assets
eligible to be securitized. Our borrowing costs also can be affected by short- and long-term debt ratings assigned by independent rating
agencies, which are based, in significant part, on our performance as measured by customary credit metrics. A decrease in these ratings would
likely increase our cost of borrowing and/or make it more difficult for us to obtain financing. A severe disruption in the global financial
markets could impact some of the financial institutions with which we do business, and such instability could also affect our access to
financing.
17
Verizon 2020 Annual Report on Form 10-K
Increases in costs for pension benefits and active and retiree healthcare benefits may reduce our profitability and
increase our funding commitments.
With approximately 132,200 employees and approximately 190,000 retirees as of December 31, 2020 eligible to participate in Verizon’s
benefit plans, the costs of pension benefits and active and retiree healthcare benefits have a significant impact on our profitability. Our costs
of maintaining these plans, and the future funding requirements for these plans, are affected by several factors, including the legislative and
regulatory uncertainty regarding the potential modification of the Patient Protection and Affordable Care Act, increases in healthcare costs,
decreases in investment returns on funds held by our pension and other benefit plan trusts and changes in the discount rate and mortality
assumptions used to calculate pension and other postretirement expenses. If we are unable to limit future increases in the costs of our benefit
plans, those costs could reduce our profitability and increase our funding commitments.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal properties do not lend themselves to simple description by character and location. Our total gross investment in property, plant
and equipment was approximately $280 billion at December 31, 2020 and $266 billion at December 31, 2019, including the effect of
retirements, but before deducting accumulated depreciation. Our gross investment in property, plant and equipment consisted of the
following:
At December 31,
Network equipment
Land, buildings and building equipment
Furniture and other
2020
77.6%
12.0%
10.4%
100.0%
2019
77.3%
12.0%
10.7%
100.0%
Network equipment consists primarily of cable (aerial, buried, underground or undersea) and the related support structures of poles and
conduit, wireless plant, switching equipment, network software, transmission equipment and related facilities. Land, buildings and building
equipment consists of land and land improvements, central office buildings or any other buildings that house network equipment, and
buildings that are used for administrative and other purposes. Substantially all the switching centers are located on land and in buildings we
own due to their critical role in the networks and high set-up and relocation costs. We also maintain facilities throughout the U.S. comprised
of administrative and sales offices, customer care centers, retail sales locations, garage work centers, switching centers, cell sites and data
centers. Furniture and other consists of telephone equipment, furniture, data processing equipment, office equipment, motor vehicles, plant
under construction and leasehold improvements.
Item 3. Legal Proceedings
Verizon is not subject to any administrative or judicial proceeding arising under any Federal, State or local provisions that have been enacted
or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that is likely
to result in monetary sanctions of $1 million or more.
Item 4. Mine Safety Disclosures
None.
18
Verizon 2020 Annual Report on Form 10-K
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market for trading in the common stock of Verizon is the New York Stock Exchange under the symbol "VZ". As of
December 31, 2020, there were 510,654 shareholders of record.
Stock Repurchases
In February 2020, the Verizon Board of Directors authorized a share buyback program to repurchase up to 100 million shares of Verizon's
common stock. The program will terminate when the aggregate number of shares purchased reaches 100 million, or a new share repurchase
plan superseding the current plan is authorized, whichever is sooner. Under the program, shares may be repurchased in privately negotiated
transactions, on the open market, or otherwise, including through plans complying with Rule 10b5-1 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.
During the years ended December 31, 2020 and 2019, Verizon did not repurchase any shares of Verizon’s common stock under our current or
previously authorized share buyback programs. At December 31, 2020, the maximum number of shares that could be purchased by or on
behalf of Verizon under our share buyback program was 100 million.
Stock Performance Graph
Verizon
S&P 500
S&P 500 Telecom Services
The graph compares the cumulative total returns of Verizon, the S&P 500 Stock Index and the S&P 500 Telecommunications Services Index
over a five-year period. It assumes $100 was invested on December 31, 2015 with dividends being reinvested.
171.4
141.5
2015
100.0 $
100.0
100.0
2016
120.7 $
112.0
123.5
2017
125.6 $
136.4
121.9
2019
2018
139.7 $ 159.1 $
130.4
106.7
2020
158.9
203.0
174.9
$
Item 6. Selected Financial Data
None.
Item 7. 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, technology, information and entertainment products and services to consumers, businesses and
government entities. With a presence around the world, we offer data, video and voice services and solutions on our networks and platforms
that are designed to meet customers’ demand for mobility, reliable network connectivity, security and control.
19
Verizon 2020 Annual Report on Form 10-KComparison of Five-Year Total Return Among Verizon, S&P 500 and S&P 500 Telecommunications Services IndexVerizonS&P 500S&P 500 Telecom Services201520162017201820192020$75$100$125$150$175$200$225
To compete effectively in today’s dynamic marketplace, we are focused on the capabilities of our high-performing networks to drive growth
based on delivering what customers want and need in the new digital world. During 2020, we focused on leveraging our network leadership;
retaining and growing our high-quality customer base while balancing profitability; enhancing ecosystems in growth businesses; and driving
monetization of our networks, platforms and solutions. We are creating business value by earning customers', employees' and shareholders'
trust, limiting our environmental impact and continuing our customer base growth while creating social benefit through our products and
services. 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 that supports our businesses, evolve and 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.
We are consistently deploying new network architecture and technologies to secure our leadership in both fourth-generation (4G) and fifth-
generation (5G) wireless networks. We expect that our next-generation multi-use platform, which we call the Intelligent Edge Network, will
simplify operations by eliminating legacy network elements, speed the deployment of 5G wireless technology and create new opportunities in
the business market in a cost efficient manner. Our network leadership is the hallmark of our brand and the foundation for the connectivity,
platforms and solutions upon which we build our competitive advantage.
Highlights of Our 2020 Financial Results
(dollars in millions)
Impacts of the Novel Coronavirus (COVID-19) Pandemic
This disclosure discusses the actions Verizon has taken in response to the COVID-19 pandemic and the impacts it has had on our business,
as well as related known or expected trends. The disclosure in the remainder of this Management's Discussion & Analysis of Financial
Condition and Results of Operations is qualified by the disclosure in this section on the impacts of the COVID-19 pandemic and, to the
extent that the disclosure in the remainder of Management's Discussion & Analysis refers to a financial or performance metric that has been
affected by a trend or activity, that reference is in addition to any impact discussed in this section on the impacts of the pandemic.
COVID-19 was identified in late 2019 and in 2020 spread throughout the world, including throughout the United States (U.S.). Public and
private sector policies and initiatives to reduce the transmission of COVID-19 have varied significantly across the U.S., but at various times
during the year ended December 31, 2020 a significant percentage of the U.S. population was subject to meaningful restrictions on activities,
which included limitations on the operation of businesses including retail operations, requirements that individuals remain in or close to their
homes, school closures, travel restrictions, limitations on large gatherings and other policies to promote or enforce physical distancing.
20
Verizon 2020 Annual Report on Form 10-KOperating Revenues$128,292$131,86820202019Operating Income$28,798$30,37820202019Net Income$18,348$19,78820202019Cash Flows from Operations$41,768$35,74620202019Capital Expenditures$18,192$17,93920202019
Similar restrictions have been implemented in many other countries in which we operate. As described below, these restrictions and our
responses to them have significantly impacted how our customers use our products and services, how they interact with us, and how our
employees work and provide services to our customers. In addition, governments have imposed a wide variety of consumer protection
measures that limit how certain businesses, including telecommunications companies, can operate their businesses and interact with their
customers. The pandemic and governmental responses to the pandemic have also resulted in a slowdown of global economic activity, which
has significantly impacted our customers. As a result, prior trends in our business may not be applicable to our operations during the
pendency of the pandemic.
The impact of COVID-19 in the future will depend on the duration and severity of the pandemic and the related public policy actions,
additional initiatives we may undertake in response to employee, market or regulatory needs or demands, the length and severity of the global
economic slowdown, and whether and how our customers change their behaviors over the longer term.
Operations
In response to the pandemic beginning in the first quarter 2020, we began executing our business continuity plans and evolving our
operations to protect the safety of our employees and customers and to continue to provide critical infrastructure and connectivity to our
customers as they changed their ways of working and living. Some of the initiatives we took include:
• Moving over 115,000 of our 132,200 employees to remote work arrangements.
•
Temporarily closing nearly 70% of our company-owned retail store locations and moving to appointment-only access to our
remaining store locations.
Limiting our customer-focused field operations based on the criticality of the services being provided or repaired.
Enhancing our safety protocols for employees working outside their homes.
Providing temporary additional compensation to employees in front line roles that cannot be done from home.
•
•
•
• Adjusting other compensation and benefits programs to address circumstances created by the pandemic.
•
Taking the Federal Communication Commission's (FCC's) "Keep Americans Connected" pledge, through which we pledged to
waive late fees for, and not terminate service to, any of our consumer or small business customers who informed us that they had
been impacted financially by the COVID-19 pandemic through May 13, which we extended to June 30, 2020.
Providing additional data allocations to permit wireless consumer and small business customers to remain connected during the first
several months of the pandemic.
Temporarily waiving activation and upgrade fees through digital distribution channels.
•
•
• Working with business customers to address payment needs during the crisis.
• Maintaining effective governance and internal controls in a remote work environment.
As some of the restrictions on physical movement and limitations on business and other activities described above eased to varying degrees in
the second half of 2020, we resumed certain of our operations, with the health and safety of our employees and customers as our utmost
priority, and modified some of our temporary policies. These initiatives include:
Transitioning to facility access at limited capacity where feasible for those with remote work arrangements.
•
• Optimizing our sales channels to drive more activity through online and telesales to serve customers.
•
Reopening temporarily closed company-owned retail store locations and introducing social distancing measures for employee and
customer safety, such as touch-less retail, appointment scheduling and curbside pickup options.
Continuous monitoring of stores, as well as temporary closures and cleaning of stores that have an identified COVID-19 exposure.
Starting July 1, customers who had notified us that they had been financially impacted by the pandemic and had an unpaid balance
were automatically enrolled in our "Stay Connected" repayment program, which allows customers to pay off their service balance
over six months and extends any unpaid device payment plan agreements by the number of months unpaid.
Resuming most customer-focused field operations.
•
• Discontinuing certain of our temporary compensation and benefits arrangements.
•
•
We expect that we will continue to revise our approach to these initiatives as the circumstances surrounding the pandemic evolve in 2021 in
order to meet the needs of our employees, customers and the Company and continue to provide our innovative products and services.
Liquidity and Capital Resources
Verizon finished the fourth quarter 2020 in a strong financial position. As of December 31, 2020, our balance sheet included:
$ 22.2 billion
$ 118.5 billion
Cash and cash equivalents
Unsecured debt
As of December 31, 2020, our Cash and cash equivalents balance was $22.2 billion compared to $2.6 billion as of December 31, 2019. We
made the decision at the beginning of the COVID-19 pandemic to maintain a higher cash balance in order to further protect the Company
against the economic uncertainties associated with the COVID-19 pandemic and to opportunistically raise cash to finance future obligations at
a time when we believed that market conditions were favorable. During the three months ended December 31, 2020, we redeemed $566
million of unsecured notes maturing in 2021. As of December 31, 2020, we have less than $150 million of unsecured notes maturing in 2021.
As of December 31, 2020, we had not drawn down on our $9.5 billion revolving credit facility and the unused borrowing capacity was
approximately $9.4 billion. The revolving credit facility does not require us to comply with financial covenants or maintain specified credit
ratings, and it permits us to borrow even if our business has incurred a material adverse change. During the three months ended December 31,
2020, we issued $12.0 billion aggregate principal amount of U.S dollar-denominated unsecured notes and £1.2 billion aggregate principal
21
Verizon 2020 Annual Report on Form 10-K
amount of Pound Sterling-denominated unsecured notes. In addition, we completed exchange offers with respect to 17 series of unsecured
notes issued by Verizon, allowing us to exchange the notes accepted in the exchange offers for new unsecured Verizon notes having a later
maturity date and, for certain of the accepted series of notes, cash. We also amended our revolving credit facility to extend the maturity date
to 2024. We had no outstanding commercial paper as of December 31, 2020.
The COVID-19 pandemic, together with other dynamics in the marketplace, has caused borrowing costs to fluctuate significantly and, in
certain cases, restricted the ability of borrowers to access the capital markets and other sources of financing. In order to provide financial
flexibility and finance certain investments and projects, we may continue to utilize external financing arrangements that have been or may be
affected by these market conditions. However, we believe that our cash on hand, the cash we expect to generate from our operations, and cash
from other sources of financing available to us are, and will continue to be, sufficient to meet our ongoing operating, capital expenditure, debt
service and investing requirements.
We expect to continue to have sufficient cash to fund our operations, although we could experience significant fluctuations in our cash flows
from period to period during the pendency of the pandemic. The net cash generated from our operations provides our primary source of cash
flows. While we have historically experienced consistently low levels of payment delinquencies among our consumer and business accounts,
beginning late in the first quarter 2020, we started to see increases in delinquencies across our retail customer base and our small and medium
business accounts. This change in delinquency rate moderated during the second quarter and improved to levels seen before the COVID-19
pandemic during the third and fourth quarters of 2020. Accordingly, our provision for credit losses increased in the first quarter 2020, but
decreased in the second quarter of 2020 and remained flat in the third and fourth quarters of 2020. If these levels of delinquencies begin to
grow again, they could have a material adverse impact on our cash flows. We could also experience fluctuations in our cash flows resulting
from the ongoing impacts of the pandemic on macroeconomic conditions in the U.S. and our customers working to become current on their
bills in the first quarter of 2021 and beyond.
In addition, we issue asset-backed debt secured by our device payment plan agreement receivables and the collections on such receivables.
These transactions require us to comply with various tests, including delinquency and loss-related tests, which, if not met, would cause the
asset-backed debt to amortize earlier and faster than otherwise expected. The holders of our asset-backed debt do not have any recourse to
Verizon with respect to the payment of principal and interest on the debt. However, if an early amortization of our asset-backed debt occurs,
including as a result of increased customer delinquencies or losses relating to the COVID-19 pandemic, all collections on the securitized
device payment plan agreement receivables would be used to pay principal and interest on the asset-backed debt, and our financing cash
flow requirements would increase for the twelve months immediately following an early amortization event.
Impacts on Financial Results
Our revenues and expenses in 2020 were impacted by the COVID-19 pandemic as a result of the actions we took to care for our employees
and to keep our customers connected and as a result of our customers’ changing activities as well as the restrictions on activities and the
global economic slowdown, as described below. The impact of the COVID-19 pandemic on our 2020 results was primarily a result of
decreases in wireless service revenue, wireless equipment revenue and advertising and search revenue at Verizon Media Group (Verizon
Media), and the operational actions we took, as described above.
Revenues
The year ended December 31, 2020 included lower overage revenues and lower fees from activations and upgrades and fewer fees, as well
as lower roaming revenues as our customers significantly reduced travel during the year. As a result of our decision to keep our customers
connected during the crisis, we experienced fewer step ups in data plans in the first half of 2020. We saw the rate of step ups increase during
the second half of 2020. During the first half of 2020, we also saw a reduction in advertising and search revenue in Verizon Media, as
customers scaled back their advertising campaigns. This reduction moderated during the third quarter of 2020 and turned to revenue growth
during the fourth quarter of 2020.
We have seen considerably less churn in the consumer wireless base and lower equipment volumes and upgrade rates since the beginning of
the pandemic. As a result of changing customer behaviors, we experienced significantly lower equipment revenue during the year ended
December 31, 2020.
Expenses
While certain expenses, such as wireless equipment cost, were lower during the year ended December 31, 2020 as a result of the revenue
impacts discussed above, these decreases were partially offset by an increase in commission expense. The increase in commission expense
was a result of an expansion of our compensation programs for both employees and agents early in the pandemic. This COVID-19 relief
program did not qualify for deferral treatment as defined by Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with
Customers;" however the costs were not materially different on a cash basis.
As a result of waiving late fees and keeping customers connected during the pandemic pursuant to our pledge, and pursuant to various state
orders and laws, we saw increases in delinquencies across our retail customer base and certain of our business accounts. This change in the
delinquency rate has since moderated, as discussed above; however, if the levels of delinquencies for our consumer and small and medium
business customers begin to grow again, additional provisions to our allowance for credit losses may be required, which could be significant.
We continue to monitor customer behavior and our expected loss assumptions and estimates.
22
Verizon 2020 Annual Report on Form 10-K
Other
Equity and debt markets experienced significant volatility during 2020 partially as a result of the pandemic, and federal governmental
actions to stimulate the economy have significantly impacted interest rates. These circumstances could affect the funding level of our
pension plans and our calculated liabilities under our pension and other postemployment benefit plans. Other impacts from the pandemic on
our financial results in the first quarter of 2021 and beyond could result from a further slowdown in the global economy, additional
regulatory or legislative initiatives that impact our relationships with our customers, and other initiatives we undertake to respond to the
needs of our employees and our customers.
Business Overview
We have two reportable segments that we operate and manage as strategic business units - Verizon Consumer Group (Consumer) and Verizon
Business Group (Business).
Revenue by Segment
2020
2019
24.0%
68.7%
23.8%
68.8%
7.3%
7.4%
Consumer
Business
Corporate and Other
———
Note: Excludes eliminations.
Verizon Consumer Group
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are
provided across one of the most extensive wireless networks in the U.S. under the Verizon brand and through wholesale and other
arrangements. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over
our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who are
not served by Fios. Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as
resellers that purchase wireless network access from us on a wholesale basis.
Customers can obtain our wireless services on a postpaid or prepaid basis. Our postpaid service is generally billed one month in advance for a
monthly access charge in return for access to and usage of network services. Our prepaid service is offered only to Consumer customers and
enables individuals to obtain wireless services without credit verification by paying for all services in advance. The Consumer segment also
offers several categories of wireless equipment to customers, including a variety of smartphones and other handsets, wireless-enabled internet
devices, such as tablets and other wireless-enabled connected devices, such as smart watches.
In addition to the wireless services and equipment discussed above, Consumer sells residential fixed connectivity solutions, including internet,
video and voice services, and wireless network access to resellers on a wholesale basis. The Consumer segment's operating revenues for the
year ended December 31, 2020 totaled $88.5 billion, a decrease of $2.5 billion, or 2.8%, compared to the year ended December 31, 2019. See
"Segment Results of Operations" for additional information regarding our Consumer segment’s operating performance and selected operating
statistics.
Verizon Business Group
Our Business segment provides wireless and wireline communications services and products, including data, video and conferencing services,
corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver
various Internet of Things (IoT) services and products, including solutions that support fleet tracking management, compliance management,
field service management, asset tracking and other types of mobile resource management. We provide these products and services to
businesses, government customers and wireless and wireline carriers across the U.S. and select products and services to customers around the
world. The Business segment's operating revenues for the year ended December 31, 2020 totaled $31.0 billion, a decrease of $481 million, or
1.5%, compared to the year ended December 31, 2019. See "Segment Results of Operations" for additional information regarding our
Business segment’s operating performance and selected operating statistics.
23
Verizon 2020 Annual Report on Form 10-K
Corporate and Other
Corporate and other includes the results of our media business, Verizon Media, and other businesses, investments in unconsolidated
businesses, insurance captives, unallocated corporate expenses, certain pension and other employee benefit related costs and interest and
financing expenses. Corporate and other also includes the historical results of divested businesses and other adjustments and gains and losses
that are not allocated in assessing segment performance due to their nature. Although such transactions are excluded from the business
segment results, they are included in reported consolidated earnings. Gains and losses from transactions that are not individually significant
are included in segment results as these items are included in the chief operating decision maker’s assessment of segment performance.
Verizon Media includes diverse media and technology brands that serve both consumers and businesses. Verizon Media provides consumers
with owned and operated and third-party search properties as well as mail, news, finance, sports and entertainment offerings, and provides
other businesses and partners access to consumers through digital advertising, content delivery and video streaming platforms. Verizon
Media's total operating revenues were $7.0 billion for the year ended December 31, 2020. This was a decrease of 5.6% from the year ended
December 31, 2019.
Capital Expenditures and Investments
We continue to invest in our wireless networks, high-speed fiber and other advanced technologies to position ourselves at the center of growth
trends for the future. During the year ended December 31, 2020, these investments included $18.2 billion for capital expenditures. See "Cash
Flows Used in Investing Activities" and "Operating Environment and Trends" for additional information. We believe that our investments
aimed at expanding our portfolio of products and services will provide our customers with an efficient, reliable infrastructure for competing in
the information economy.
Global Network and Technology
We are focusing our capital spending on adding capacity and density to our 4G LTE network, while also building our next generation 5G
network. We are densifying our network by utilizing small cell technology, in-building solutions and distributed antenna systems. Network
densification enables us to add capacity to address increasing mobile video consumption and the growing demand for IoT products and
services on our 4G LTE and 5G networks. Over the past several years, we have been leading the development of 5G wireless technology
industry standards and the ecosystems for fixed and mobile 5G wireless services. We expect that 5G technology will provide higher
throughput and lower latency than the current 4G LTE technology and enable our networks to handle more traffic as the number of internet-
connected devices grows. As of December 31, 2020, we have launched our 5G Ultra Wideband Network in 61 U.S. markets. We have
commercially launched 5G Home in 12 of those markets. We also launched our 5G Nationwide Network in October 2020, which is available
in over 2,700 cities across the U.S. covering approximately 230 million people. 5G Nationwide uses low and mid-band spectrum and dynamic
spectrum sharing (DSS) technology, which allows 5G service to run simultaneously with 4G LTE on multiple spectrum bands. With DSS,
whenever customers move outside Verizon’s high-band Ultra Wideband coverage area, their 5G-enabled devices will remain on 5G
technology using the lower spectrum bands where the 5G Nationwide network is available. This allows us to more fully and effectively utilize
our current spectrum resources to serve both 4G and 5G customers.
To compensate for the shrinking market for traditional copper-based products, we continue to build fiber-based networks supporting data,
video and advanced business services - areas where demand for reliable high-speed connections is growing. We are evolving the architecture
of our networks to a next-generation multi-use platform, providing improved efficiency and virtualization, increased automation and
opportunities for edge computing services that will support both our fiber-based and radio access network technologies. We call this the
Intelligent Edge Network. We expect that this new architecture will simplify operations by eliminating legacy network elements, speed the
deployment of 5G wireless technology and create new opportunities in the business market in a cost efficient manner.
Wireless Spectrum
In September 2020, Cellco Partnership (Cellco), a wholly-owned subsidiary of Verizon, filed an application to participate in FCC Auction
107, which relates to mid-band wireless spectrum known as C-Band. The auction commenced on December 8, 2020. On February 24, 2021,
the FCC issued a final notice announcing the conclusion and results of the auction. In its final notice, the FCC announced that Cellco was the
winning bidder with respect to approximately $45.5 billion of licenses. Down payments, in the amount of 20% of the cost of the spectrum
licenses less the amount of the upfront payment made by bidders in October 2020, with respect to the auction are due on March 10, 2021, and
final payments in the amount of 80% of the cost of the spectrum licenses are due on March 24, 2021. In accordance with the rules applicable
to the auction, licensees also must pay their allocable shares of an estimated $13.1 billion in associated clearing and incentive costs at the
times contemplated by the auction rules.
Consolidated Results of Operations
In this section, we discuss our overall results of operations and highlight special items that are not included in our segment results. Our
revenues and expenses in 2020 were impacted by the COVID-19 pandemic as a result of the actions we took to care for our employees and
keep our customers connected and as a result of our customers’ changing activities, restrictions on activities and the global economic
slowdown. See "Overview" for more information. In "Segment Results of Operations," we review the performance of our two reportable
segments in more detail. A detailed discussion of 2018 items and year-over-year comparisons between 2019 and 2018 that are not included in
this Form 10-K can be found in the "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, 2019.
24
Verizon 2020 Annual Report on Form 10-K
Consolidated Revenues
Years Ended December 31,
Consumer
Business
Corporate and other
Eliminations
Consolidated Revenues
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
2019
$
2020
88,533 $
30,962
9,334
(537)
91,056 $ (2,523)
(481)
31,443
(478)
9,812
(94)
(443)
$ 128,292 $ 131,868 $ (3,576)
(2.8)
%
(1.5)
(4.9)
21.2
(2.7)
Consolidated revenues decreased during 2020 compared to 2019, due to decreases in our Consumer segment, Business segment and
Corporate and other.
Revenues for our segments are discussed separately below under the heading "Segment Results of Operations."
Corporate and other revenues decreased during 2020 compared to 2019, primarily due to a decrease of $417 million in revenues within
Verizon Media.
Consolidated Operating Expenses
Years Ended December 31,
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Media goodwill impairment
Consolidated Operating Expenses
nm - not meaningful
$
$
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
2020
31,401 $
19,800
31,573
16,720
—
2019
31,772 $
22,954
29,896
16,682
186
(371)
(3,154)
1,677
38
(186)
99,494 $ 101,490 $ (1,996)
(1.2) %
(13.7)
5.6
0.2
nm
(2.0)
Operating expenses for our segments are discussed separately below under the heading "Segment Results of Operations."
Cost of Services
Cost of services includes the following costs directly attributable to a service: salaries and wages, benefits, materials and supplies, content
costs, contracted services, network access and transport costs, customer provisioning costs, computer systems support, costs to support our
outsourcing contracts and technical facilities and traffic acquisition costs. Aggregate customer service costs, which include billing and service
provisioning, are allocated between Cost of services and Selling, general and administrative expense.
Cost of services decreased during 2020 compared to 2019, primarily due to decreases in traffic acquisition costs due to the COVID-19
pandemic, as well as decreases in costs related to the device protection offerings to our wireless retail postpaid customers, roaming costs
resulting from decreased travel due to the COVID-19 pandemic, regulatory fees and personnel costs. These decreases were partially offset by
increases in customer premise equipment, digital content, other direct costs and rent expense as a result of adding capacity to the networks to
support demand.
Cost of Wireless Equipment
Cost of wireless equipment decreased during 2020 compared to 2019, primarily as a result of declines in the number of wireless devices sold
as a result of an elongation of the handset upgrade cycle as well as lower gross adds and upgrade volumes partially due to the COVID-19
pandemic. The decreases were partially offset by a shift to higher priced devices in the mix of wireless devices sold.
Selling, General and Administrative Expense
Selling, general and administrative expense includes salaries and wages and benefits not directly attributable to a service or product, the
provision for credit losses, taxes other than income taxes, advertising and sales commission costs, call center and information technology
costs, regulatory fees, professional service fees and rent and utilities for administrative space. Also included is a portion of the aggregate
customer care costs as discussed above in "Cost of Services."
Selling, general and administrative expense increased during 2020 compared to 2019, primarily due to a $1.2 billion loss resulting from the
Auction 103 spectrum license auction and a net gain from dispositions of assets and businesses during 2019 (see "Special Items"), as well as
an increase in sales commission expense. These increases were partially offset by decreases in personnel costs, advertising expenses and the
provision for credit losses. The increase in sales commission expense during 2020 compared to 2019 was inclusive of a lower net deferral of
25
Verizon 2020 Annual Report on Form 10-K
commission costs in the current year compared to the prior year, as well as sales compensation while certain of our stores and agent locations
were closed due to the COVID-19 pandemic.
Depreciation and Amortization Expense
Depreciation and amortization expense increased during 2020 compared to 2019, primarily due to the change in the mix of net depreciable
assets.
Media Goodwill Impairment
The goodwill impairment charge recorded in 2019 for Verizon Media was a result of the Company's annual impairment test performed in the
fourth quarter (see "Critical Accounting Estimates").
Other Consolidated Results
Other Income (Expense), Net
Additional information relating to Other income (expense), net is as follows:
Years Ended December 31,
Interest income
Other components of net periodic benefit (cost) income
Early debt extinguishment costs
Other, net
Total
nm - not meaningful
2020
65 $
(425)
(129)
(50)
(539) $
$
$
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
2019
121 $
627
(3,604)
(44)
(56)
(1,052)
3,475
(6)
(2,900) $ 2,361
(46.3) %
nm
96.4
(13.6)
81.4
Other income (expense), net reflects certain items not directly related to our core operations, including interest income, gains and losses from
non-operating asset dispositions, debt extinguishment costs, components of net periodic pension and postretirement benefit costs and foreign
exchange gains and losses. The change in Other income (expense), net during 2020 compared to 2019, was primarily driven by early debt
redemption costs of $129 million recorded during 2020, compared to $3.6 billion recorded during 2019 (see "Special Items"), partially offset
by pension and benefit charges of $1.6 billion recorded during 2020, compared to pension and benefit charges of $126 million recorded
during 2019 (see "Special Items"). See Note 11 to the consolidated financial statements for additional information on the other components of
net periodic benefit (cost) income.
Interest Expense
Years Ended December 31,
Total interest costs on debt balances
Less capitalized interest costs
Total
2020
4,802 $
555
4,247 $
$
$
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
(584)
(101)
(483)
(10.8) %
(15.4)
(10.2)
2019
5,386 $
656
4,730 $
Average debt outstanding (1) (3)
Effective interest rate (2) (3)
(1) The average debt outstanding is a financial measure and is calculated by applying a simple average of prior thirteen-month end balances of
$ 116,888 $ 112,901
4.8 %
4.1 %
total short-term and long-term debt, net of discounts, premiums and unamortized debt issuance costs.
(2) The effective interest rate is the rate of actual interest incurred on debt. It is calculated by dividing the total interest costs on debt balances
by the average debt outstanding.
(3) We believe that this measure is useful to management, investors and other users of our financial information in evaluating our debt
financing cost and trends in our debt leverage management.
Total interest expense decreased during 2020 primarily due to lower interest rates as a result of our refinancing activities.
Provision for Income Taxes
Years Ended December 31,
Provision for income taxes
Effective income tax rate
$
2020
5,619 $
23.4 %
26
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
90.8 %
2019
2,945 $ 2,674
13.0 %
Verizon 2020 Annual Report on Form 10-K
The effective income tax rate is calculated by dividing the provision for income taxes by income before the provision for income taxes. The
increase in the effective income tax rate and the provision for income taxes was primarily due to the recognition of a $2.2 billion tax benefit in
connection with the disposition of preferred stock representing a minority interest in a foreign affiliate in 2019 that did not reoccur in 2020.
See "Cash Flows Provided by Operating Activities" for discussion of the receipt of the cash tax benefit in 2020.
A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is included in Note 12 to the
consolidated financial statements.
Consolidated Net Income, Consolidated EBITDA and Consolidated Adjusted EBITDA
Consolidated earnings before interest, taxes, depreciation and amortization expenses (Consolidated EBITDA) and Consolidated Adjusted
EBITDA, which are presented below, are non-generally accepted accounting principles (GAAP) measures that we believe are useful to
management, 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 Verizon’s competitors. Consolidated EBITDA is calculated by adding back interest,
taxes, and depreciation and amortization expenses to net income.
Consolidated Adjusted EBITDA is calculated by excluding from Consolidated EBITDA the effect of the following non-operational items:
equity in losses of unconsolidated businesses and other income and expense, net, as well as the effect of special items. We believe that this
measure is useful to management, investors and other users of our financial information in evaluating the effectiveness of our operations and
underlying business trends in a manner that is consistent with management’s evaluation of business performance. We believe that
Consolidated Adjusted EBITDA is widely used by investors to compare a company’s operating performance to its competitors by minimizing
impacts caused by differences in capital structure, taxes, and depreciation and amortization policies. Further, the exclusion of non-operational
items and special items enables comparability to prior period performance and trend analysis. See "Special Items" for additional information.
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. We believe that providing these non-GAAP measures in addition to the GAAP measures allows
management, investors and other users of our financial information to more fully and accurately assess both consolidated and segment
performance. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be
directly comparable to that of other companies.
Years Ended December 31,
Consolidated Net Income
Add:
Provision for income taxes
Interest expense(1)
Depreciation and amortization expense
Consolidated EBITDA
Add (Less):
Other expense, net(2)
Equity in losses of unconsolidated businesses(3)
Severance charges
Loss on spectrum license transaction
Impairment charges
Net (gain) loss from dispositions of assets and businesses
(dollars in millions)
2019
19,788
2020
18,348 $
$
5,619
4,247
16,720
44,934
2,945
4,730
16,682
44,145
539
45
221
1,195
—
126
47,060
2,900
15
204
—
186
(261)
47,189
Consolidated Adjusted EBITDA
(1) Includes Early debt redemption costs, where applicable. See "Special Items" for additional information.
(2) Includes Pension and benefits mark-to-market adjustments and Early debt redemption costs, where applicable. See "Special Items" for
$
$
additional information
(3) Includes impairment charges, where applicable.
The changes in Consolidated Net Income, Consolidated EBITDA and Consolidated Adjusted EBITDA in the table above during 2020
compared to 2019, were primarily a result of the factors described in connection with operating revenues and operating expenses.
Segment Results of Operations
We have three segments that we operate and manage as strategic business units, Consumer, Business and Media, of which Consumer and
Business are our reportable segments. We measure and evaluate our 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.
27
Verizon 2020 Annual Report on Form 10-K
To aid in the understanding of segment performance as it relates to segment operating income, management uses the following operating
statistics to evaluate the overall effectiveness of our segments. We believe these operating statistics are useful to investors and other users of
our financial information because they provide additional insight into drivers of our segments’ operating results, key trends and performance
relative to our peers. These operating statistics may be determined or calculated differently by other companies and may not be directly
comparable to those statistics of other companies.
Wireless retail connections are retail customer device postpaid and prepaid connections as of the end of the period. Retail connections under
an account may include those from smartphones and basic phones (collectively, phones), as well as tablets and other internet devices,
including wearables and retail IoT devices. Wireless retail connections are calculated by adding total retail postpaid and prepaid new
connections in the period to prior period retail connections, and subtracting total retail postpaid and prepaid disconnects in the period.
Wireless retail postpaid connections are retail postpaid customer device connections as of the end of the period. Retail connections under an
account may include those from phones, as well as tablets and other internet devices, including wearables and retail IoT devices. Wireless
retail postpaid connections are calculated by adding retail postpaid new connections in the period to prior period retail postpaid connections,
and subtracting retail postpaid disconnects in the period.
Fios internet connections are the total number of connections to the internet using Fios internet services as of the end of the period. Fios
internet connections are calculated by adding Fios internet new connections in the period to prior period Fios internet connections, and
subtracting Fios internet disconnects in the period.
Fios video connections are the total number of connections to traditional linear video programming using Fios video services as of the end of
the period. Fios video connections are calculated by adding Fios video net additions in the period to prior period Fios video connections. Fios
video net additions are calculated by subtracting the Fios video disconnects from the Fios video new connections.
Broadband connections are the total number of connections to the internet using Digital Subscriber Line (DSL) and Fios internet services as
of the end of the period. Broadband connections are calculated by adding broadband net additions in the period to prior period broadband
connections. Broadband net additions are calculated by subtracting the broadband disconnects from the broadband new connections.
Wireless retail connections, net additions are the total number of additional retail customer device postpaid and prepaid connections, less the
number of device disconnects in the period. Wireless retail connections, net additions in each period presented are calculated by subtracting
the total retail postpaid and prepaid disconnects, net of certain adjustments, from the total retail postpaid and prepaid new connections in the
period.
Wireless retail postpaid connections, net additions are the total number of additional retail customer device postpaid connections, less the
number of device disconnects in the period. Wireless retail postpaid connections, net additions in each period presented are calculated by
subtracting the retail postpaid disconnects, net of certain adjustments, from the retail postpaid new connections in the period.
Wireless retail postpaid phone connections, net additions are the total number of additional retail customer postpaid phone connections, less
the number of phone disconnects in the period. Wireless retail postpaid phone connections, net additions in each period presented are
calculated by subtracting the retail postpaid phone disconnects, net of certain adjustments, from the retail postpaid phone new connections in
the period.
Fios internet, net additions are the total number of additional Fios internet connections, less the number of disconnects in the period. Fios
internet, net additions are calculated by subtracting the Fios internet disconnects from the Fios internet new connections in the period.
Wireless Churn is the rate at which service to retail, retail postpaid, or retail postpaid phone connections is terminated on average in the
period. The churn rate in each period presented is calculated by dividing retail disconnections, retail postpaid disconnections, or retail
postpaid phone disconnections by the average retail connections, average retail postpaid connections, or average retail postpaid phone
connections, respectively, in the period.
Wireless retail postpaid ARPA is the calculated average retail postpaid service revenue per account (ARPA) from retail postpaid accounts in
the period. Wireless retail postpaid service revenue does not include recurring device payment plan billings related to the Verizon device
payment program, plan billings related to Total Mobile Protection packages or regulatory fees. Wireless retail postpaid ARPA in each period
presented is calculated by dividing retail postpaid service revenue by the average retail postpaid accounts in the period.
Wireless retail postpaid accounts are wireless retail customers that are directly served and managed under the Verizon brand and use its
services as of the end of the period. Accounts include unlimited plans, shared data 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. Wireless retail
postpaid accounts are calculated by adding retail postpaid new accounts to the prior period retail postpaid accounts.
Wireless retail postpaid connections per account is the calculated average number of retail postpaid connections per retail postpaid account as
of the end of the period. Wireless 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.
28
Verizon 2020 Annual Report on Form 10-K
Wireless retail postpaid gross additions are new retail postpaid connections that have activated service on the wireless network in the period.
Wireless retail postpaid gross additions are calculated as the total number of new retail postpaid phone, tablet and other device connections in
the period.
Segment operating income margin reflects the profitability of the segment as a percentage of revenue. Segment operating income margin is
calculated by dividing total segment operating income by total segment operating revenues.
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 (loss) as a measure of operating performance. We believe this measure
is useful to management, 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 (loss). Segment EBITDA margin is calculated by dividing Segment
EBITDA by total segment operating revenues. You can find additional information about our segments in Note 13 to the consolidated
financial statements.
Verizon Consumer Group
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are
provided across one of the most extensive wireless networks in the U.S. under the Verizon brand and through wholesale and other
arrangements. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over
our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who are
not served by Fios.
Our revenues and expenses in 2020 were impacted by the COVID-19 pandemic as a result of the actions we took to care for our employees
and keep our customers connected and as a result of our customers’ changing activities, restrictions on activities and the global economic
slowdown. See "Overview" for more information.
29
Verizon 2020 Annual Report on Form 10-K
Operating Revenues and Selected Operating Statistics
Years Ended December 31,
Service
Wireless equipment
Other
Total Operating Revenues
Connections (‘000):(1)
Wireless retail connections
Wireless retail postpaid connections
Fios internet connections
Fios video connections
Broadband connections
Net Additions in Period (‘000):(2)
Wireless retail
Wireless retail postpaid
Wireless retail postpaid phones
Churn Rate:
Wireless retail
Wireless retail postpaid
Wireless retail postpaid phones
Account Statistics:
Wireless retail postpaid ARPA
Wireless retail postpaid accounts (‘000)(1)
Wireless retail postpaid connections per account(1)
(1) As of end of period
(2) Includes certain adjustments
nm - not meaningful
(dollars in millions,
except ARPA)
Increase/(Decrease)
2020 vs. 2019
2020
64,884 $
15,492
8,157
88,533 $
$
$
2019
65,383 $
(499)
(2,556)
18,048
532
7,625
91,056 $ (2,523)
(0.8) %
(14.2)
7.0
(2.8)
94,373
90,346
6,202
3,854
6,647
94,544
90,481
5,902
4,152
6,467
(171)
(135)
300
(298)
180
(0.2)
(0.1)
5.1
(7.2)
2.8
(5)
40
95
379
970
737
(384)
(930)
(642)
nm
(95.9)
(87.1)
1.03 %
0.87 %
0.67 %
1.28 %
1.05 %
0.79 %
$
118.40 $
33,659
2.68
118.13 $
33,875
2.67
0.27
(216)
0.01
0.2
(0.6)
0.4
Consumer's total operating revenues decreased during 2020 compared to 2019, as a result of decreases in Service and Wireless equipment
revenues, partially offset by an increase in Other revenue.
Service Revenue
Service revenue decreased during 2020 compared to 2019, primarily due to decreases in wireless service and wireline voice and video
services.
Wireless service revenue decreased $186 million, or 0.3%, during 2020 compared to 2019, primarily due to decreases in roaming and
TravelPass revenues due to customers' changing activities during the COVID-19 pandemic and waived fees as part of customer assistance
initiatives that we undertook during the COVID-19 pandemic. The decrease was further driven by a decrease in data overage revenues
resulting from waived charges as part of customer assistance initiatives we undertook to address the impacts of the COVID-19 pandemic and
the shift of customer accounts to unlimited plans. These decreases were partially offset by growth from reseller accounts, increases in access
revenues, customers shifting to higher priced plans, and growth in mobile security products included in certain protection packages. The
growth from reseller accounts was partially due to customers' changing activities during the COVID-19 pandemic.
For the year ended December 31, 2020, Fios service revenue totaled $10.4 billion and decreased $95 million, or 0.9%, compared to 2019.
This decrease was due to decreases in Fios video and voice revenues. The decrease in Fios video revenue reflects a one-time credit provided
to customers related to regional sport networks during the COVID-19 pandemic and the ongoing shift from traditional linear video to over-
the-top offerings. These decreases were partially offset by an increase in Fios internet connections, reflecting increased demand for higher
broadband speeds as consumers work and learn from home during the COVID-19 pandemic.
Wireless Equipment Revenue
Wireless equipment revenue decreased during 2020 compared to 2019, as a result of overall declines in wireless device sales partially due to
an elongation of the handset upgrade cycle as well as lower gross adds and upgrade volumes primarily due to the impacts of the COVID-19
30
Verizon 2020 Annual Report on Form 10-K
pandemic on our customers. These decreases were partially offset by a shift to higher priced units in the mix of wireless devices sold and a
decline in promotions.
Other Revenue
Other revenue includes non-service revenues such as regulatory fees, cost recovery surcharges, revenues associated with our device protection
offerings, leasing and interest on equipment financed under a device payment plan agreement when sold to the customer by an authorized
agent.
Other revenue increased during 2020 compared to 2019, primarily due to pricing and subscriber increases related to our wireless device
protection offerings, as well as cost recovery surcharges. These increases were partially offset by decreases in regulatory fees.
Operating Expenses
Years Ended December 31,
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
Cost of Services
2020
15,610 $
15,736
16,936
11,395
59,677 $
$
$
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
2019
(274)
15,884 $
(2,483)
18,219
297
16,639
42
11,353
62,095 $ (2,418)
(1.7) %
(13.6)
1.8
0.4
(3.9)
Cost of services decreased during 2020 compared to 2019, primarily due to decreases in costs related to the device protection offerings to our
wireless retail postpaid customers, roaming costs, which were primarily driven by a significant decrease in international travel due to the
COVID-19 pandemic, and regulatory fees. These decreases were partially offset by increases in digital content costs, other direct costs and
rent expense as a result of adding capacity to the networks to support demand.
Cost of Wireless Equipment
Cost of wireless equipment decreased during 2020 compared to 2019, primarily as a result of declines in the number of wireless devices sold
due to an elongation of the handset upgrade cycle as well as lower gross adds and upgrade volumes primarily due to the COVID-19
pandemic, and declines in the number of accessories sold partly due to the COVID-19 pandemic. These decreases were partially offset by a
shift to higher priced devices and accessories in the mix of products sold.
Selling, General and Administrative Expense
Selling, general and administrative expense increased during 2020 compared to 2019, primarily due to increases in sales commission and
advertising expenses, partially offset by decreases in the provision for credit losses and personnel costs. The increase in sales commission
expense during 2020 compared to 2019 was inclusive of a lower net deferral of commission costs in the current year compared to the prior
year, as well as sales compensation while certain of our stores and agent locations were closed due to the COVID-19 pandemic.
Depreciation and Amortization Expense
Depreciation and amortization expense increased during 2020 compared to 2019, driven by the change in the mix of total Verizon depreciable
assets and Consumer's usage of those assets.
Segment Operating Income and EBITDA
Years Ended December 31,
Segment Operating Income
Add Depreciation and amortization expense
Segment EBITDA
Segment operating income margin
Segment EBITDA margin
2020
28,856 $
11,395
40,251 $
$
$
2019
28,961 $
11,353
40,314 $
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
(105)
42
(63)
(0.4) %
0.4
(0.2)
32.6 %
45.5 %
31.8 %
44.3 %
The changes in the table above during the periods presented were primarily a result of the factors described in connection with operating
revenues and operating expenses.
31
Verizon 2020 Annual Report on Form 10-K
Verizon Business Group
Our Business segment provides wireless and wireline communications services and products, including data, video and conferencing services,
corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver
various IoT services and products. We provide these products and services to businesses, government customers and wireless and wireline
carriers across the U.S. and select products and services to customers around the world. The Business segment is organized in four customer
groups: Small and Medium Business, Global Enterprise, Public Sector and Other, and Wholesale.
Our revenues and expenses in 2020 were impacted by the COVID-19 pandemic as a result of the actions we took to care for our employees
and keep our customers connected and as a result of our customers’ changing activities, restrictions on activities and the global economic
slowdown. See "Overview" for more information.
Operating Revenues and Selected Operating Statistics
Years Ended December 31,
Small and Medium Business
Global Enterprise
Public Sector and Other
Wholesale
Total Operating Revenues(1)
Connections (‘000):(2)
Wireless retail postpaid connections
Fios internet connections
Fios video connections
Broadband connections
Net Additions in Period ('000):(3)
Wireless retail postpaid
Wireless retail postpaid phones
$
2020
11,132 $
10,410
6,362
3,058
2019
11,464 $
10,818
5,922
3,239
$
30,962 $
31,443 $
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
(332)
(408)
440
(181)
(481)
(2.9) %
(3.8)
7.4
(5.6)
(1.5)
26,507
335
73
482
25,148
326
77
489
1,359
9
(4)
(7)
5.4
2.8
(5.2)
(1.4)
1,518
572
1,413
700
105
(128)
7.4
(18.3)
Churn Rate:
Wireless retail postpaid
Wireless retail postpaid phones
(1) Service and other revenues included in our Business segment amounted to approximately $28.1 billion and $27.9 billion for the years
ended December 31, 2020 and 2019, respectively. Wireless equipment revenues included in our Business segment amounted to
approximately $2.9 billion and $3.5 billion for the years ended December 31, 2020 and 2019, respectively.
1.20%
0.96%
1.23%
0.99%
(2) As of end of period
(3) Includes certain adjustments
Business's total operating revenues decreased during 2020 compared to 2019, as a result of decreases in Small and Medium Business, Global
Enterprise and Wholesale revenues, partially offset by an increase in Public Sector and Other revenue.
Small and Medium Business
Small and Medium Business offers wireless services and equipment, conferencing services, tailored voice and networking products, Fios
services, Internet Protocol (IP) networking, advanced voice solutions and security and managed information technology services to our U.S.-
based small and medium businesses that do not meet the requirements to be categorized as Global Enterprise, as described below.
Small and Medium Business revenues decreased during 2020 compared to 2019, primarily due to a decrease in wireless equipment revenue,
declines related to the loss of voice and DSL service connections and a decrease in IP networking. Wireless equipment revenue decreased as a
result of declines in the number of wireless devices sold primarily due to an elongation of the handset upgrade cycle as well as declines in
activation volumes due to decreased demand and store closures resulting from the COVID-19 pandemic. The decreases were partially offset
by a shift to higher priced units in the mix of wireless devices sold. These revenue decreases were partially offset by an increase in wireless
retail postpaid service revenue of 4.4% during 2020 compared to 2019, as a result of increases in the amount of wireless retail postpaid
connections, partially offset by lower roaming and usage due to the COVID-19 pandemic. Also contributing to the partial offset was an
increase in revenue related to our wireless device protection package as well as an increase in revenue related to Fios services.
Fios revenues totaled $926 million, which represents an increase of 1.2% during 2020 compared to 2019. The increase in Fios revenues
during 2020 compared to 2019 reflects the increase in total connections, as well as increased demand for higher broadband speeds as a result
of the transition to work and learn from home during the COVID-19 pandemic.
32
Verizon 2020 Annual Report on Form 10-K
Global Enterprise
Global Enterprise offers services to large businesses, which are identified based on their size and volume of business with Verizon, as well as
non-U.S. public sector customers.
Global Enterprise revenues decreased during 2020 compared to 2019, primarily due to declines in traditional data and voice communication
services as a result of competitive price pressures, as well as a decrease in wireless equipment revenue. Wireless equipment revenue decreased
as a result of declines in the number of wireless devices sold due to an elongation of the handset upgrade cycle as well as declines in
activation volumes partially due to the COVID-19 pandemic. In addition, wireless equipment revenue decreased due to a shift to lower priced
units in the mix of wireless devices sold. The decreases in revenue were partially offset by an increase in advanced communication services
revenue resulting primarily from the COVID-19 pandemic and the Blue Jeans Network, Inc. (BlueJeans) acquisition, and an increase in
customer premise equipment revenues. See Note 3 to the consolidated financial statements for additional information on the BlueJeans
acquisition.
Public Sector and Other
Public Sector and Other offers wireless products and services as well as wireline connectivity and managed solutions to U.S. federal, state and
local governments and educational institutions. These services include business services and connectivity similar to the products and services
offered by Global Enterprise, in each case, with features and pricing designed to address the needs of governments and educational
institutions.
Public Sector and Other revenues increased during 2020 compared to 2019, driven by increases in wireless retail postpaid service revenue as a
result of an increase in gross additions partially due to federal, state and educational agencies responding to the COVID-19 pandemic. In
addition, the increases were driven by increases in wireless equipment revenue and advanced communication services revenues. Wireless
equipment revenue increased as a result of an increase in the number of wireless devices sold primarily due to the COVID-19 pandemic,
partially offset by a shift to lower priced units in the mix of wireless devices sold. The increases in revenue were partially offset by decreases
in networking revenue and traditional voice communication services.
Wholesale
Wholesale offers wireline communications services including data, voice, local dial tone and broadband services primarily to local, long
distance, and wireless carriers that use our facilities to provide services to their customers.
Wholesale revenues decreased during 2020 compared to 2019, primarily due to declines in core data resulting from the effect of technology
substitution and continuing contraction of market rates due to competition, partially offset by an increase in traditional voice communication
services due to the COVID-19 pandemic.
Operating Expenses
Years Ended December 31,
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
Cost of Services
2020
10,659 $
4,064
8,380
4,086
27,189 $
$
$
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
4
(669)
192
(19)
(492)
— %
(14.1)
2.3
(0.5)
(1.8)
2019
10,655 $
4,733
8,188
4,105
27,681 $
Cost of services were unchanged during 2020 compared to 2019, which was due to an increase in customer premise equipment and other
direct costs, which was fully offset by lower roaming costs primarily driven by a significant decrease in international travel due to the
COVID-19 pandemic and decreases in costs related to the device protection offerings to our wireless retail postpaid customers and personnel
costs.
Cost of Wireless Equipment
Cost of wireless equipment decreased during 2020 compared to 2019, primarily due to lower overall postpaid sales and a shift to lower priced
units in the mix of wireless devices sold, partially offset by an increase in the net number of wireless devices sold to support distance learning
programs.
Selling, General and Administrative Expense
Selling, general and administrative expense increased during 2020 compared to 2019, primarily driven by increases in personnel costs and
sales commission expense. The increase in sales commission expense during 2020 compared to 2019 inclusive of a lower net deferral of
commission costs in the current year compared to the prior year, as well as sales compensation while certain of our stores and agent locations
were closed due to the COVID-19 pandemic. These increases were partially offset by a one-time international tax benefit.
33
Verizon 2020 Annual Report on Form 10-K
Depreciation and Amortization Expense
Depreciation and amortization expense decreased during 2020 compared to 2019, driven by the change in the mix of total Verizon depreciable
assets and the Business segment's usage of those assets.
Segment Operating Income and EBITDA
Years Ended December 31,
Segment Operating Income
Add Depreciation and amortization expense
Segment EBITDA
Segment operating income margin
Segment EBITDA margin
2020
3,773 $
4,086
7,859 $
$
$
$
2019
3,762
4,105
7,867 $
(dollars in millions)
Increase/(Decrease)
2020 vs. 2019
11
(19)
(8)
0.3 %
(0.5)
(0.1)
12.2%
25.4%
12.0%
25.0%
The changes in the table above during the periods presented were primarily a result of the factors described in connection with operating
revenues and operating expenses.
Special Items
Special items included in Income Before Provision For Income Taxes were as follows:
Years Ended December 31,
Severance, pension and benefits charges
Selling, general and administrative expense
Other income (expense), net
Loss on spectrum license auction
Selling, general and administrative expense
Impairment charges
Media goodwill impairment
Equity in losses of unconsolidated businesses
Early debt redemption costs
Other income (expense), net
Interest expense
Net (gain) loss from dispositions of assets and businesses
Selling, general and administrative expense
Other income (expense), net
Total
(dollars in millions)
2019
2020
$
221 $
1,610
1,195
—
—
129
(27)
126
(7)
3,247 $
$
204
126
—
186
50
3,604
—
(261)
—
3,909
The Consolidated Adjusted EBITDA non-GAAP measure presented in the Consolidated Net Income, Consolidated EBITDA and
Consolidated Adjusted EBITDA discussion (see "Consolidated Results of Operations") excludes all of the amounts included above, as
described below.
The income and expenses related to special items included in our consolidated results of operations were as follows:
Years Ended December 31,
Within Total Operating Expenses
Within Equity in losses of unconsolidated businesses
Within Other income (expense), net
Within Interest expense
Total
Severance, Pension and Benefits Charges
(dollars in millions)
2019
129
50
3,730
—
3,909
2020
1,542 $
—
1,732
(27)
3,247 $
$
$
During 2020, in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur, we recorded
net pre-tax pension and benefits charges of $1.6 billion in our pension and postretirement benefit plans. The charges were recorded in Other
income (expense), net in our consolidated statement of income and were primarily driven by a decrease in our discount rate assumption used
to determine the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of 3.3% at December
34
Verizon 2020 Annual Report on Form 10-K
31, 2019 to a weighted-average of 2.6% at December 31, 2020 ($3.2 billion), partially offset by the difference between our estimated return
on assets and our actual return on assets ($1.6 billion). During 2020, we also recorded net pre-tax severance charges of $221 million related to
a voluntary offer under our existing separation plans in Selling, general and administrative expense in our consolidated statements of income.
During 2019, in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur, we recorded
net pre-tax pension and benefits charges of $126 million in our pension and postretirement benefit plans. The charges were recorded in Other
income (expense), net in our consolidated statements of income and were primarily driven by a decrease in our discount rate assumption used
to determine the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of 4.4% at December
31, 2018 to a weighted-average of 3.3% at December 31, 2019 ($4.3 billion), partially offset by the difference between our estimated return
on assets and our actual return on assets ($2.3 billion) and other assumption adjustments of $1.9 billion, of which $1.6 billion related to
healthcare claims experience. During 2019, we also recorded net pre-tax severance charges of $204 million in Selling, general and
administrative expense in our consolidated statements of income.
Due to the presentation of the other components of net periodic benefit cost, we recognize a portion of the pension and benefits charges in
Other income (expense), net in our consolidated statements of income.
See Note 11 to the consolidated financial statements for additional information related to severance, pension and benefits charges.
Loss on Spectrum License Auction
During 2020, we recorded a pre-tax net loss of $1.2 billion as a result of the conclusion of the FCC incentive auction, Auction 103, for
spectrum licenses in the upper 37 Gigahertz (GHz), 39 GHz and 47 GHz bands. See Note 3 to the consolidated financial statements for
additional information.
Impairment Charges
The impairment charges consist of write-downs of goodwill and other investments or assets. The goodwill impairment charge of $186 million
recorded during 2019 for Verizon Media was a result of the Company's annual impairment test performed in the fourth quarter (see "Critical
Accounting Estimates"). In addition, we recorded an impairment charge of $50 million in Equity in losses of unconsolidated businesses
related to a media joint venture investment during 2019.
Early Debt Redemption Costs
During 2020 and 2019, we recorded early debt redemption costs of $102 million and $3.6 billion, respectively.
See Note 7 to the consolidated financial statements for additional information related to our early debt redemptions.
Net (Gain) Loss from Dispositions of Assets and Businesses
During 2020, we recorded a pre-tax net loss of $119 million, primarily in connection with the sale of our Huffington Post business. During
2019, we recorded pre-tax net gains from dispositions of assets and businesses of $261 million in connection with the sale of various real
estate properties and businesses.
See Note 3 to the consolidated financial statements for additional information related to dispositions of assets and businesses.
Operating Environment and Trends
The telecommunications industry is highly competitive. We expect competition to remain intense as traditional and non-traditional
participants seek increased market share. Our high-quality customer base and networks differentiate us from our competitors and give us the
ability to plan and manage through changing economic and competitive conditions. We remain focused on executing on the fundamentals of
the business: maintaining a high-quality customer base, delivering strong financial and operating results and strengthening our balance sheet.
We will continue to invest for growth, which we believe is the key to creating value for our shareholders. We continue to lead in 4G LTE
performance while building momentum for our 5G network. Our strategy lays the foundation for the future through investments in our
Intelligent Edge Network that enable efficiencies throughout our core infrastructure and deliver flexibility to meet customer requirements.
The U.S. wireless market has achieved a high penetration of smartphones, which reduces the opportunity for new phone connection growth
for the industry. We expect future revenue growth in the industry to be driven by expanding existing customer relationships, increasing the
number of ways customers can connect with wireless networks and services and increasing the penetration of other connected devices
including wearables, tablets and IoT devices. We expect 5G technology will provide a significant opportunity for growth in the industry in
2021 and beyond. With respect to our wireless connectivity products and services, we compete against other national wireless service
providers, including AT&T Inc. and T-Mobile USA, Inc., as well as various regional wireless service providers. We also compete for retail
activations with resellers that buy bulk wholesale service from wireless service providers, including Verizon, and resell it to their customers.
Resellers include cable companies and others. We face competition from other communications and technology companies seeking to
increase their brand recognition and capture customer revenue with respect to the provision of wireless products and services, in addition to
non-traditional offerings in mobile data. For example, Microsoft Corporation, Alphabet Inc., Apple Inc. and others are offering alternative
35
Verizon 2020 Annual Report on Form 10-K
means for making wireless voice calls that, in certain cases, can be used in lieu of the wireless provider’s voice service, as well as alternative
means of accessing video content.
With respect to wireless services and equipment, pricing plays an important role in the wireless competitive landscape. We compete in this
area by offering our customers services and devices that we believe they will regard as the best available value for the price. As the demand
for wireless services continues to grow, wireless service providers are offering a range of service plans at competitive prices. These service
offerings will vary from time to time based on customer needs, technology changes and market conditions and may be provided as standard
plans or as part of limited time promotional offers.
We expect future service revenue growth opportunities to arise from increased access revenue as customers shift to higher access plans,
driven in part by attractive bundled content with premium brands, as well as from increased connections per account. Future service revenue
growth opportunities will be dependent on expanding the penetration of our services, increasing the number of ways that our customers can
connect with our networks and services and the development of new ecosystems. We and other wireless service providers, as well as
equipment manufacturers, offer device payment options, which provide customers with the ability to pay for their device over a period of
time, and some providers offer device leasing arrangements.
Current and potential competitors in the wireline service market include cable companies, wireless service providers, domestic and foreign
telecommunications providers, satellite television companies, internet service providers, over-the-top providers and other companies that offer
network services and managed enterprise solutions.
In addition, companies with a global presence are increasingly competing with us in our wireline services. A relatively small number of
telecommunications and integrated service providers with global operations serve customers in the global enterprise market and, to a lesser
extent, the global wholesale market. We compete with these providers for large contracts to provide integrated solutions to global enterprises
and government customers. Many of these companies have strong market presence, brand recognition and existing customer relationships, all
of which contribute to intensifying competition that may affect our future revenue growth.
Despite this challenging environment, we expect that we will be able to grow key aspects of our wireline services. We continue to provide
network reliability and offer products, which include fiber-optic internet access, several video services, and voice services. Further, we will
continue to offer our business and government customers more robust IP products and services, and advance our IoT strategies by leveraging
business models that monetize usage on our networks at the connectivity, platform and solution layers.
The online advertising market continues to evolve as online users are migrating from traditional desktop to mobile and multiple-device usage.
Also, there is a continued shift towards programmatic advertising which presents opportunities to connect online advertisers with the
appropriate online users in a rapid environment. Our media business competes with other online search engines, advertising platforms, digital
video services and social networks. We are experiencing pressure from search and desktop usage and believe the pressure in these sectors will
continue. We are implementing initiatives to realize synergies across all of our media assets and build services around our core content pillars
to diversify revenue and return to growth.
We will also continue to focus on cost efficiencies to ensure we have the maximum flexibility to adjust to changes in the competitive and
economic environments and maximize returns to shareholders.
2021 Connection Trends
In our Consumer segment, we expect to continue to attract new customers and maintain high-quality retail postpaid customers, capitalizing on
demand for data services and providing our customers new ways of using wireless services in their daily lives. We expect that future
connection growth will be driven by smartphones, tablets and other connected devices such as wearables. We believe the combination of our
wireless network performance and Mix & Match unlimited plans provides a superior customer experience, supporting increased penetration
of data services and the continued attraction and retention of higher valued retail postpaid connections. We expect to manage churn by
providing a consistent, reliable experience on our wireless service and focusing on improving the customer experience through simplified
pricing and continued focus in our distribution channels. We expect to continue to grow our Fios internet connections as we seek to increase
our penetration rates within our Fios service areas, further supported by the demand for higher speed internet connections. In Fios video, the
business continues to face ongoing pressure as observed throughout the linear television market. We expect to manage market pressure by
offering customers a choice of video service, including options such as Mix & Match on Fios and other offerings. We have experienced
continuing access line and DSL losses as customers have disconnected both primary and secondary lines and switched to alternative
technologies such as wireless, Voice over Internet Protocol, and cable for voice and data services.
In our Business segment, we offer wireless products and services to business and government customers across the U.S. We continue to grow
our retail connections while operating in a competitive environment. We expect to maintain connection growth in part by adding capacity and
density to our 4G LTE network, in addition to leading the build-out of our 5G network. We expect this connection growth, combined with our
industry-leading network assets, will provide additional opportunities to sell solutions, such as those around security, advanced
communications and professional services. We expect to expand our existing services offered to business customers through our Intelligent
Edge Network, our multi-use platform.
36
Verizon 2020 Annual Report on Form 10-K
2021 Operating Revenue Trends
In our Consumer segment, we expect to see an acceleration of service revenue growth in 2021 as customers shift to higher access plans with
additional services and increase the number of devices they connect with our networks and services. We expect Fios revenue to benefit in
2021 as growth in our broadband customer base offsets the impact of the shift from the triple-play bundle to standalone service.
In our Business segment, we expect wireless revenue to expand, driven by an increase in the number of connections. We expect that our Fios
products, through increased penetration, will also contribute to revenue growth. Legacy traditional wireline services will continue to face
secular pressures. In addition, certain products and services provided by our Public Sector and Global Enterprise groups experienced elevated
demand during 2020 as a result of the COVID-19 pandemic. Demand for those products and services may return to more historical levels in
2021.
Our media business, Verizon Media, is primarily made up of digital advertising products. We expect Verizon Media revenue to grow in 2021
as the strong advertising trends from 2020 are expected to continue, with the exception of political advertising spend. We will continue the
implementation of initiatives to realize synergies across all of our media assets and build services around our core content pillars. We expect
positive growth in mobile services and products.
2021 Operating Expense and Cash Flow from Operations Trends
We expect our consolidated operating income margin and adjusted consolidated EBITDA margin to remain strong as we continue to
undertake initiatives to reduce our overall cost structure by improving productivity and gaining efficiencies in our operations throughout the
business in 2021 and beyond. Business Excellence initiatives include the adoption of the zero-based budgeting methodology, driving capital
efficiencies from the architecture of the networks, evolving our Information Technology strategy and the continuing benefit from the
Voluntary Separation Program. We believe our additional investments in our Business segment in both product simplification and continued
focus on process improvements and new work tools will drive cost savings and create incremental growth opportunities in areas such as 5G
and One Fiber. The goal of the Business Excellence initiative is to take $10 billion of cumulative cash outflows out of the business over four
years, beginning in 2018. As part of this initiative, we are focusing on both operating expenses and capital expenditures. Our Business
Excellence initiatives produced cumulative cash savings of $9.5 billion through the end of 2020 from a mix of capital and operational
expenditure activities. The program remains on track to achieve our goal in 2021. We will continue to explore opportunities for additional
savings beyond the program.
We create value for our shareholders by investing the cash flows generated by our business in opportunities and transactions that support
continued profitable growth, thereby increasing customer satisfaction and usage of our products and services. In addition, we have used our
cash flows to maintain and grow our dividend payout to shareholders. Verizon’s Board of Directors increased the Company’s quarterly
dividend by 2.0% during 2020, making this the fourteenth consecutive year in which we have raised our dividend.
Our goal is to use our cash to create long-term value for our shareholders. We will continue to look for investment opportunities that will help
us to grow the business, strengthen our balance sheet, acquire spectrum licenses (see "Cash Flows from Investing Activities"), pay dividends
to our shareholders and, when appropriate, buy back shares of our outstanding common stock (see "Cash Flows from Financing Activities").
Capital Expenditures
Our 2021 capital program includes capital to fund advanced networks and services, including expanding our core networks, adding capacity
and density to our 4G LTE network in order to stay ahead of our customers’ increasing data demands and deploying our 5G network,
transforming our structure to deploy the Intelligent Edge Network while reducing the cost to deliver services to our customers, and pursuing
other opportunities to drive operating efficiencies. We expect that the new network architecture will simplify operations by eliminating legacy
network elements, improve our 4G LTE coverage, speed the deployment of 5G technology, and create new enterprise opportunities in the
business market. The level and the timing of the Company’s capital expenditures within these broad categories can vary significantly as a
result of a variety of factors outside of our control, such as material weather events, equipment availability from vendors and permits from
local governments. We believe that we have significant discretion over the amount and timing of our capital expenditures on a Company-wide
basis as we are not subject to any agreement that would require significant capital expenditures on a designated schedule or upon the
occurrence of designated events.
Consolidated Financial Condition
Years Ended December 31,
Cash flows provided by (used in)
Operating activities
Investing activities
Financing activities
Increase in cash, cash equivalents and restricted cash
(dollars in millions)
2019
2020
$
$
41,768 $
(23,512)
1,325
19,581 $
35,746
(17,581)
(18,164)
1
We use the net cash generated from our operations to fund expansion and modernization of our networks, service and repay external
financing, pay dividends, invest in new businesses and spectrum 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
37
Verizon 2020 Annual Report on Form 10-K
ongoing operating and investing requirements. We made the decision at the beginning of the COVID-19 pandemic to maintain a higher cash
balance in order to further protect the Company against the economic uncertainties associated with the COVID-19 pandemic and to
opportunistically raise cash to finance future obligations at a time when we believed that market conditions were favorable. 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, including, for example, to complete our acquisition of TracFone Wireless,
Inc. (Tracfone) or to acquire additional wireless spectrum, or to maintain an appropriate capital structure to ensure our financial flexibility.
Our cash and cash equivalents are held both domestically and internationally, and are invested to maintain principal and provide liquidity. 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, U.S. retail medium-term notes and other
capital market securities that are privately-placed or offered overseas. In addition, we monetize our device payment plan agreement
receivables through asset-backed debt transactions.
Cash Flows Provided By Operating Activities
Our primary source of funds continues to be cash generated from operations. Net cash provided by operating activities increased by
$6.0 billion during 2020 compared to 2019, primarily due to improvements in working capital, which includes the receipt of the $2.2 billion
cash tax benefit related to preferred shares in a foreign affiliate sold during the fourth quarter 2019 and lower wireless volumes, as well as the
receipt of $764 million relating to the settlement of interest rate swaps during 2020. In addition, an employee benefits contribution as well as
severance payments as a result of the Voluntary Separation Program in 2019 did not repeat in 2020. These comparative increases were
partially offset by lower earnings in 2020. We made a $300 million discretionary employee benefits contribution during the first quarter 2019
to our defined benefit pension plan. As a result of the 2019 discretionary pension contribution and higher actual asset returns than expected
returns in both 2019 and 2020, we expect that there will be no required pension funding through 2030, subject to changes in market
conditions. The 2019 contribution also improved the funded status of our qualified pension plan.
Cash Flows Used In Investing Activities
Capital Expenditures
Capital expenditures continue to relate primarily to the use of capital resources to increase the operating efficiency and productivity of our
networks, maintain our existing infrastructure, facilitate the introduction of new products and services and enhance responsiveness to
competitive challenges.
Capital expenditures, including capitalized software, were $18.2 billion and $17.9 billion for 2020 and 2019, respectively. Capital
expenditures increased approximately $253 million, or 1.4%, during 2020 compared to 2019, primarily due to increased focus on 5G
technology deployment.
Acquisitions of Wireless Licenses
During 2020 and 2019, we invested $2.1 billion and $898 million, respectively, in acquisitions of wireless licenses.
In March 2020, the FCC completed an incentive auction, Auction 103, for spectrum licenses. Through December 31, 2020, we paid
approximately $1.6 billion, including $101 million paid in December 2019.
In 2019, the FCC completed two millimeter wave spectrum license auctions, Auction 101 and Auction 102. We paid approximately
$521 million for spectrum licenses in connection with these auctions.
During 2020 and 2019, we entered into and completed various other wireless license acquisitions for cash consideration of $360 million and
an insignificant amount, respectively.
Acquisitions of Businesses, Net of Cash Acquired
During 2020 and 2019, we invested $520 million and an insignificant amount, respectively, in acquisitions of businesses, net of cash acquired.
In April 2020, we entered into a definitive purchase agreement to acquire BlueJeans, an enterprise-grade video conferencing and event
platform, whose services are sold to Business customers globally. The transaction closed in May 2020. The aggregate cash consideration paid
by Verizon at the closing of the transaction was approximately $397 million, net of cash acquired.
During 2020, we completed various other acquisitions for approximately $127 million in cash consideration.
See "Acquisitions and Divestitures" for information on our acquisitions.
Other, Net
In September 2020, the FCC completed Auction 105 for Priority Access Licenses. Through December 31, 2020, we paid a cash deposit of
approximately $1.9 billion for the licenses. See Note 3 to the consolidated financial statements for additional information.
38
Verizon 2020 Annual Report on Form 10-K
During 2019, we received gross proceeds of approximately $1.0 billion for a sale-leaseback transaction for buildings and real estate. See Note
6 to the consolidated financial statements for additional information.
Cash Flows Provided by (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 2020, net cash provided by financing activities was
$1.3 billion. During 2019, net cash used in financing activities was $18.2 billion.
2020
During 2020, our net cash provided by financing activities of $1.3 billion was primarily driven by $31.5 billion provided by proceeds from
long-term borrowings, which included $5.6 billion of proceeds from our asset-backed debt transactions. These cash flows provided by
financing activities were partially offset by $17.2 billion used for repayments, redemptions and repurchases of long-term borrowings and
finance lease obligations, which included $7.4 billion used for prepayments and repayments of asset-backed long-term borrowings,
$10.2 billion used for dividend payments and $2.7 billion used for other financing activities.
Proceeds from and Repayments, Redemptions, and Repurchases of Long-Term Borrowings
At December 31, 2020, our total debt increased to $129.1 billion as compared to $111.5 billion at December 31, 2019. Our effective interest
rate was 4.1% and 4.8% during the years ended December 31, 2020 and 2019, respectively. The substantial majority of our total debt portfolio
consists of fixed rate indebtedness, therefore, changes in interest rates do not have a material effect on our interest payments. See also "Market
Risk" and Note 7 to the consolidated financial statements for additional information.
At December 31, 2020, approximately $29.0 billion, or 22.5%, of the aggregate principal amount of our total debt portfolio consisted of
foreign denominated debt, primarily Euro and British Pound Sterling. We have entered into cross currency swaps on substantially all of our
foreign denominated debt 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, redemptions,
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.
Other, Net
Other, net financing activities during 2020 includes $827 million in payments related to vendor financing arrangements and $748 million in
cash paid on debt exchanges. See Note 15 to the consolidated financial statements for additional information.
Dividends
The Verizon Board of Directors assesses the level of our dividend payments on a periodic basis taking into account such factors as long-term
growth opportunities, internal cash requirements and the expectations of our shareholders. During the third quarter of 2020, the Board
increased our quarterly dividend payment by 2.0% to $0.6275 from $0.6150 per share from the previous quarter. This is the fourteenth
consecutive year that Verizon’s Board of Directors has approved a quarterly dividend increase.
As in prior periods, dividend payments were a significant use of capital resources. During 2020, we paid $10.2 billion in dividends.
2019
During 2019, our net cash used in financing activities of $18.2 billion was primarily driven by:
•
•
•
$23.9 billion used for repayments, redemptions and repurchases of long-term borrowings and finance lease obligations, which
included $6.3 billion used for prepayments and repayments of asset-backed long-term borrowings;
$10.0 billion used for dividend payments; and
$1.8 billion used for net debt related costs.
These uses of cash were partially offset by proceeds from long-term borrowings of $18.7 billion, which included $8.6 billion of proceeds
from our asset-backed debt transactions.
Proceeds from and Repayments, Redemptions, and Repurchases of Long-Term Borrowings
At December 31, 2019, our total debt was $111.5 billion, and during the year ended December 31, 2019, our effective interest rate was 4.8%.
The substantial majority of our total debt portfolio consisted of fixed rate indebtedness, therefore, changes in interest rates did not have a
material effect on our interest payments. See "Market Risk" and Note 7 to the consolidated financial statements for additional information.
At December 31, 2019, approximately $23.5 billion, or 21.1%, of the aggregate principal amount of our total debt portfolio consisted of
foreign denominated debt, primarily Euro and British Pound Sterling. We have entered into cross currency swaps on substantially all of our
foreign denominated debt 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.
39
Verizon 2020 Annual Report on Form 10-K
Other, Net
Other, net financing activities during 2019, included early debt redemption costs. See "Special Items" for additional information, as well as
cash paid on debt exchanges and derivative-related transactions. See Note 15 to the consolidated financial statements for additional
information.
Dividends
During the third quarter of 2019, the Board increased our quarterly dividend payment by 2.1% to $0.6150 per share.
As in prior periods, dividend payments were a significant use of capital resources. During 2019, we paid $10.0 billion in dividends.
Asset-Backed Debt
As of December 31, 2020, the carrying value of our asset-backed debt was $10.6 billion. Our asset-backed debt includes Asset-Backed Notes
(ABS Notes) issued to third-party investors (Investors) and loans (ABS Financing Facilities) received from banks and their conduit facilities
(collectively, the Banks). Our consolidated asset-backed debt bankruptcy remote legal entities (each, an ABS Entity or collectively, the ABS
Entities) issue the debt or are otherwise party to the transaction documentation in connection with our asset-backed debt transactions. Under
the terms of our asset-backed debt, Cellco and certain other affiliates of Verizon (collectively, the Originators) transfer device payment plan
agreement receivables to one of the ABS Entities, which in turn transfers such receivables to another ABS Entity that issues the debt. Verizon
entities retain the equity interests in the ABS Entities, which represent the rights to all funds not needed to make required payments on the
asset-backed debt and other related payments and expenses.
Our asset-backed debt is secured by the transferred device payment plan agreement receivables and future collections on such receivables.
The device payment plan agreement receivables transferred to the ABS Entities and related assets, consisting primarily of restricted cash, will
only be available for payment of asset-backed debt and expenses related thereto, payments to the Originators in respect of additional transfers
of device payment plan agreement receivables, and other obligations arising from our asset-backed debt transactions, and will not be available
to pay other obligations or claims of Verizon’s creditors until the associated asset-backed debt and other obligations are satisfied. The
Investors or Banks, as applicable, which hold our asset-backed debt have legal recourse to the assets securing the debt, but do not have any
recourse to Verizon with respect to the payment of principal and interest on the debt. Under a parent support agreement, Verizon has agreed to
guarantee certain of the payment obligations of Cellco and the Originators to the ABS Entities.
Cash collections on the device payment plan agreement receivables collateralizing our asset-backed debt securities are required at certain
specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in
Prepaid expenses and other, and Other assets in our consolidated balance sheets.
Proceeds from our asset-backed debt transactions are reflected in Cash flows from financing activities in our consolidated statements of cash
flows. The asset-backed debt issued and the assets securing this debt are included in our consolidated balance sheets.
See Note 7 to the consolidated financial statements for additional information.
In May 2020, we amended and restated our outstanding ABS financing facility originally entered into in 2016, and previously amended and
restated in 2019, with a number of financial institutions (ABS Financing Facility). One loan agreement is outstanding in connection with the
ABS Financing Facility, and such loan agreement was amended and restated in May 2020. Under the loan agreement, we have the right to
prepay all or a portion of the advances at any time without penalty, but in certain cases, with breakage costs. During 2020, we borrowed
$1.3 billion and prepaid $4.0 billion under the loan agreement.
Long-Term Credit Facilities
(dollars in millions)
Verizon revolving credit facility (1)
Various export credit facilities (2)
Total
Maturities
2024
2022-2028
Facility
Capacity
9,500 $
7,500
17,000 $
$
$
At December 31, 2020
Principal
Amount
Outstanding
Unused
Capacity
9,392
1,000 $
10,392 $
N/A
4,882
4,882
N/A - not applicable
(1) The revolving credit facility does not require us to comply with financial covenants or maintain specified credit ratings, and it permits us to
borrow even if our business has incurred a material adverse change. The revolving credit facility provides for the issuance of letters of
credit.
(2) During 2020 and 2019, we drew down $1.0 billion and $1.5 billion from these facilities, respectively. These credit facilities are used to
finance equipment-related purchases. Borrowings under certain of these facilities amortize semi-annually in equal installments up to the
applicable maturity dates. Maturities reflect maturity dates of principal amounts outstanding. Any amounts borrowed under these facilities
and subsequently repaid cannot be reborrowed.
40
Verizon 2020 Annual Report on Form 10-K
2021 Credit Agreement
Delayed Draw Term Loan Credit Agreement
On February 24, 2021 (the Effective Date), Verizon entered into a $25.0 billion Delayed Draw Term Loan Credit Agreement (the Credit
Agreement) with two financial institutions, which includes initial commitments of $12.5 billion from each of these parties. The Credit
Agreement provides Verizon with the ability to borrow up to $25.0 billion for general corporate purposes, including any potential acquisition
of spectrum. The loans under the Credit Agreement are available during the period (the Availability Period) beginning on the Effective Date
and ending on the earlier of (i) May 28, 2021, and (ii) the receipt by the two financial institutions of written notice by Verizon of its election
to terminate commitments pursuant to the Credit Agreement. The availability of the loans under the Credit Agreement, which have not yet
been funded, is subject to the satisfaction (or waiver) of the conditions that certain representations of Verizon are accurate in all material
respects and the absence of certain event of default. The loans under the Credit Agreement are to be made in a single borrowing on the
funding date and will mature and be payable in full on the date that is 364 days after the funding date unless extended pursuant to the terms of
the Credit Agreement. The two financial institutions may syndicate their commitments under the Credit Agreement, subject to the terms of the
Credit Agreement.
Interest Rate and Fees
The loans under the Credit Agreement will bear interest at a rate equal to, at the option of Verizon, (i) the base rate (defined as the greater of
the rate last quoted by the Wall Street Journal as the "prime rate", the federal funds rate plus 0.500%, and the one-month London Inter-Bank
Offered Rate (LIBOR) plus 1.000%, subject to a floor of 1.000%) or (ii) LIBOR, in each case plus a margin to be determined by reference to
Verizon’s credit ratings and ranging from 0.000% to 0.125% in the case of base rate loans and 0.625% to 1.125% in the case of LIBOR loans.
Additional margin of 0.125% is added to the loan on December 31, 2021.
Verizon will pay a commitment fee on the daily actual unused commitment of each lender starting on the date that is 60 days after the
Effective Date through the last day of the Availability Period. This fee accrues at a rate determined by reference to Verizon’s credit ratings
and ranges from 0.070% to 0.125% per annum.
Prepayments
The Credit Agreement requires Verizon to reduce unused commitments and prepay the loans with 100% of the net cash proceeds received
from issuances or sales of equity and incurrences of borrowed money indebtedness, subject to certain exceptions.
Covenants and Events of Default
The Credit Agreement contains certain negative covenants, including a negative pledge covenant, a merger or similar transaction covenant
and an accounting changes covenant, and affirmative covenants and events of default that are customary for companies maintaining an
investment grade credit rating. An event of default may result in the inability to borrow in certain circumstances or the acceleration of any
outstanding loan under the Credit Agreement, as applicable.
Common Stock
Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareholder plans. During the
years ended December 31, 2020 and 2019, we issued 2.3 million and 3.8 million common shares from Treasury stock, respectively, which had
an insignificant aggregate value.
In February 2020, the Verizon Board of Directors authorized a share buyback program to repurchase up to 100 million shares of Verizon's
common stock. The program will terminate when the aggregate number of shares purchased reaches 100 million, or a new share repurchase
plan superseding the current plan is authorized, whichever is sooner. The program permits Verizon to repurchase shares over time, with the
amount and timing of repurchases depending on market conditions and corporate needs. There were no repurchases of common stock during
2020 and 2019 under our current or previously authorized share buyback program.
Credit Ratings
Verizon’s credit ratings did not change in 2020 or 2019.
Securities ratings assigned by rating organizations are expressions of opinion and are not recommendations to buy, sell or hold securities. A
securities rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated
independently of any other rating.
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.
We and our consolidated subsidiaries are in compliance with all of our restrictive covenants in our debt agreements.
41
Verizon 2020 Annual Report on Form 10-K
Change In Cash, Cash Equivalents and Restricted Cash
Our Cash and cash equivalents at December 31, 2020 totaled $22.2 billion, a $19.6 billion increase compared to December 31, 2019,
primarily as a result of the factors discussed above.
Restricted cash at December 31, 2020 totaled $1.3 billion, relatively flat compared to restricted cash at December 31, 2019, primarily related
to cash collections on the device payment plan agreement receivables that are required at certain specified times to be placed into segregated
accounts.
Free Cash Flow
Free cash flow is a non-GAAP financial measure that reflects an additional way of viewing our liquidity that, we believe, when viewed with
our GAAP results, provides management, investors and other users of our financial information with a more complete understanding of
factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures (including capitalized software)
from net cash provided by operating activities. We believe it is a more conservative measure of cash flow since purchases of fixed assets are
necessary for ongoing operations. Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for
discretionary expenditures. For example, free cash flow does not incorporate payments made on finance lease obligations or cash payments
for business acquisitions or wireless licenses. Therefore, we believe it is important to view free cash flow as a complement to our entire
consolidated statements of cash flows.
The following table reconciles net cash provided by operating activities to free cash flow:
Years Ended December 31,
Net cash provided by operating activities
Less Capital expenditures (including capitalized software)
Free cash flow
The increase in free cash flow during 2020 is a reflection of the increase in operating cash flows, partially offset by the increase in capital
expenditures discussed above.
2020
41,768 $
18,192
23,576 $
$
$
(dollars in millions)
2019
35,746
17,939
17,807
Employee Benefit Plans Funded Status and Contributions
Employer Contributions
We operate numerous qualified and nonqualified pension plans and other postretirement benefit plans. These plans primarily relate to our
domestic business units. We made no discretionary contribution to our qualified pension plan in 2020. In 2019, we made contributions of
$300 million to our qualified pension plans. During 2020 and 2019 we made contributions of $57 million and $71 million to our nonqualified
pension plans, respectively.
The Company’s overall investment strategy is to achieve a mix of assets that allows us to meet projected benefit payments while taking into
consideration risk and return. In an effort to reduce the risk of our portfolio strategy and better align assets with liabilities, we have adopted a
liability driven pension strategy that seeks to better match the interest rate sensitivity of the liability hedging assets with the interest rate
sensitivity of the liability. We expect that the strategy will reduce the likelihood that assets will decline at a time when liabilities increase
(referred to as liability hedging), with the goal to reduce the risk of underfunding to the plan and its participants and beneficiaries; however,
we also expect the strategy to result in lower asset returns. Nonqualified pension contributions are estimated to be approximately $70 million
in 2021.
Contributions to our other postretirement benefit plans generally relate to payments for benefits on an as-incurred basis since these other
postretirement benefit plans do not have funding requirements similar to the pension plans. We contributed $709 million and $449 million to
our other postretirement benefit plans in 2020 and 2019, respectively. Contributions to our other postretirement benefit plans are estimated to
be approximately $800 million in 2021.
Leasing Arrangements
See Note 6 to the consolidated financial statements for a discussion of leasing arrangements.
42
Verizon 2020 Annual Report on Form 10-K
Contractual Obligations
The following table provides a summary of our contractual obligations and commercial commitments at December 31, 2020. Additional detail
about these items is included in the notes to the consolidated financial statements.
Payments Due By Period
(dollars in millions)
More than
5 years
93,865
101
Less than
1 year
5,227 $
373
$
1 to 3 years
Total
128,062 $
1,366
Contractual Obligations
Long-term debt(1)
Finance lease obligations(2)
Total long-term debt, including current
maturities
Interest on long-term debt(1)
Operating lease obligations(2)
Purchase obligations(3)
Other long-term liabilities(4)
Finance obligations(5)
Total contractual obligations
(1) Items included in long-term debt with variable coupon rates exclude unamortized debt issuance costs, and are described in Note 7 to the
129,428
73,688
24,994
24,585
4,076
1,256
258,027 $
13,115
8,131
5,212
4,051
1,619
380
32,508 $
16,747
8,941
7,485
10,835
1,659
590
46,257 $
5,600
4,702
4,327
8,179
798
286
23,892 $
93,966
51,914
7,970
1,520
—
—
155,370
16,156 $
591
12,814 $
301
3 to 5 years
$
consolidated financial statements.
(2) See Note 6 to the consolidated financial statements for additional information.
(3) Items included in purchase obligations are primarily commitments to purchase content and network services, equipment, software and
marketing services, which will be used or sold in the ordinary course of business. These amounts do not represent our entire anticipated
purchases in the future, but represent only those items that are the subject of contractual obligations. We also purchase products and
services as needed with no firm commitment. For this reason, the amounts presented in this table alone do not provide a reliable indicator
of our expected future cash outflows or changes in our expected cash position. See Note 16 to the consolidated financial statements for
additional information.
(4) Other long-term liabilities represent estimated postretirement benefit and qualified pension plan contributions. Estimated qualified pension
plan contributions include expected minimum funding contributions, which commence after 2030 based on the plan's current funded status.
Estimated postretirement benefit payments include expected future postretirement benefit payments. These estimated amounts: (1) are
subject to change based on changes to assumptions and future plan performance, which could impact the timing or amounts of these
payments; and (2) exclude expectations beyond 5 years due to uncertainty of the timing and amounts. See Note 11 to the consolidated
financial statements for additional information.
(5) Represents future minimum payments under the sublease arrangement for our tower transaction. See Note 6 to the consolidated financial
statements for additional information.
We are not able to make a reasonable estimate of when the unrecognized tax benefits balance of $2.9 billion and related interest and penalties
will be settled with the respective taxing authorities until issues or examinations are further developed. See Note 12 to the consolidated
financial statements for additional information.
Guarantees
We guarantee the debentures of our operating telephone company subsidiaries as well as the debt obligations of GTE LLC, as successor in
interest to GTE Corporation, that were issued and outstanding prior to July 1, 2003. See Note 7 to the consolidated financial statements for
additional information.
In connection with the execution of agreements for the sale 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 financial
losses. See Note 16 to the consolidated financial statements for additional information.
As of December 31, 2020, letters of credit totaling approximately $677 million, which were executed in the normal course of business and
support several financing arrangements and payment obligations to third parties, were outstanding. See Note 16 to the consolidated financial
statements for additional information.
Other Future Obligations
During 2020, Verizon entered into 12 renewable energy purchase agreements (REPAs) with third parties, in addition to one signed in 2019.
See Note 16 to the consolidated financial statements for additional information. Under our REPA arrangements, we plan to purchase up to an
aggregate of nearly 1.7 gigawatts of capacity across multiple states, including Illinois, Indiana, Maryland, New York, North Carolina, Ohio,
Pennsylvania, Texas and West Virginia.
43
Verizon 2020 Annual Report on Form 10-K
Critical Accounting Estimates and Recently Issued Accounting Standards
Critical Accounting Estimates
A summary of the critical accounting estimates used in preparing our financial statements is as follows:
Wireless Licenses and Goodwill
Wireless licenses and Goodwill are a significant component of our consolidated assets. Both our wireless licenses and goodwill are treated as
indefinite-lived intangible assets and, therefore are not amortized, but rather are tested for impairment annually in the fourth fiscal quarter,
unless there are events requiring an earlier assessment or changes in circumstances during an interim period providing impairment indicators
are present. We believe our estimates and assumptions are reasonable and represent appropriate marketplace considerations as of the valuation
date. Although we use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in
our impairment tests, these estimates and assumptions are uncertain by nature, may change over time and can vary from actual results. It is
possible that in the future there may be changes in our estimates and assumptions, including the timing and amount of future cash flows,
margins, growth rates, market participant assumptions, comparable benchmark companies and related multiples and discount rates, which
could result in different fair value estimates. Significant and adverse changes to any one or more of the above-noted estimates and
assumptions could result in a goodwill impairment for one or more of our reporting units.
Wireless Licenses
The carrying value of our wireless licenses was approximately $96.1 billion as of December 31, 2020. We aggregate our wireless licenses into
one single unit of accounting, as we utilize our wireless licenses on an integrated basis as part of our nationwide wireless network. Our
wireless licenses provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communication services.
There are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our wireless licenses.
In the first quarter of 2020, we reclassified substantially all of our 39 GHz wireless licenses, including capitalized interest, with a carrying
value of $2.8 billion to assets held for sale in connection with the FCC's incentive auction, Auction 103. As a result, these wireless licenses
were adjusted down to their fair value of $1.6 billion resulting in a pre-tax loss of $1.2 billion ($914 million after-tax).
During the fourth quarter of 2020 and 2019, we performed a qualitative impairment assessment as our annual impairment test to determine
whether it is more likely than not that the fair value of our wireless licenses was less than the carrying amount. As part of our assessment we
considered several qualitative factors including the business enterprise value of our combined wireless business, macroeconomic conditions
(including changes in interest rates and discount rates), industry and market considerations (including industry revenue and EBITDA margin
results, projections and recent merger and acquisition activity), the recent and projected financial performance of our combined wireless
business as a whole, as well as other factors. Our annual impairment tests in 2020 and 2019 indicated that it is more likely than not that the
fair value of our wireless licenses remained above their carrying value and, therefore, did not result in an impairment.
Goodwill
To determine if goodwill is potentially impaired, we have the option to perform a qualitative assessment to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. If we elect not to conduct the qualitative assessment or if
indications of a potential impairment exist, the determination of whether an impairment has occurred requires the determination of the fair
value of each the reporting unit being assessed.
Under the qualitative assessment, we consider several qualitative factors, including the business enterprise value of the reporting unit from the
last quantitative test and the excess of fair value over carrying value from this test, macroeconomic conditions (including changes in interest
rates and discount rates), industry and market considerations (including industry revenue and EBITDA margin results, projections and recent
merger and acquisition activity), the recent and projected financial performance of the reporting unit, as well as other factors.
Under our quantitative assessment, the fair value of the reporting unit is calculated using a market approach and a discounted cash flow
method, as a form of the income approach. The market approach includes the use of comparative multiples to corroborate discounted cash
flow results. The discounted cash flow method is based on the present value of two components-projected cash flows and a terminal value.
The terminal value represents the expected normalized future cash flows of the reporting unit beyond the cash flows from the discrete
projection period. The fair value of the reporting unit is calculated based on the sum of the present value of the cash flows from the discrete
period and the present value of the terminal value. The discount rate represented our estimate of the weighted-average cost of capital
(WACC), or expected return, that a marketplace participant would have required as of the valuation date. The application of our goodwill
impairment test required key assumptions underlying our valuation model. The discounted cash flow analysis factored in assumptions on
discount rates and terminal growth rates to reflect risk profiles of key strategic revenue and cost initiatives, as well as revenue and EBITDA
growth relative to history and market trends and expectations. The market multiples approach incorporated significant judgment involved in
the selection comparable public company multiples and benchmarks. The selection of companies was influenced by differences in growth and
profitability, and volatility in market prices of peer companies. These valuation inputs are inherently uncertain, and an adverse change in one
or a combination of these inputs could trigger a goodwill impairment loss in the future.
A projected sustained decline in a reporting unit's revenues and earnings could have a significant negative impact on its fair value and may
result in impairment charges. Such a decline could be driven by, among other things: (1) further anticipated decreases in service pricing, sales
volumes and long-term growth rate as a result of competitive pressures or other factors; or (2) the inability to achieve or delays in achieving
44
Verizon 2020 Annual Report on Form 10-K
the goals in strategic initiatives. Also, adverse changes to macroeconomic factors, such as increases to long-term interest rates, would also
negatively impact the fair value of the reporting unit.
At December 31, 2020, the balance of our goodwill was approximately $24.8 billion, of which $17.2 billion was in our Consumer reporting
unit and $7.5 billion was in our Business reporting unit. We performed qualitative impairment assessments for our Consumer and Business
reporting units during the fourth quarter of 2020. Our qualitative assessments indicated that it was more likely than not that the fair values for
our Consumer and Business reporting units exceeded their respective carrying values and, therefore, did not result in an impairment.
In November 2018, we announced a strategic reorganization of our business, which resulted in changes to our segments and reporting units
effective April 1, 2019. As a result, we performed impairment assessments of the reporting units impacted by the strategic reorganization,
specifically our historical Wireless, historical Wireline and historical Connect reporting units on March 31, 2019, immediately before our
strategic reorganization became effective. Our impairment assessments indicated that the fair value for each of our historical Wireless,
historical Wireline and historical Connect reporting units exceeded their respective carrying values, and therefore did not result in a goodwill
impairment. We then performed quantitative assessments of our Consumer and Business reporting units on April 1, 2019, immediately
following our strategic reorganization. Our impairment assessments indicated that the fair value for each of our Consumer and Business
reporting units exceeded their respective carrying values and therefore, did not result in a goodwill impairment. Our Media reporting unit was
not impacted by the strategic reorganization and there was no indicator of impairment as of the reorganization date.
We performed qualitative impairment assessments for our Consumer and Business reporting units during the fourth quarter of 2019. Our
qualitative assessments indicated that it was more likely than not that the fair values of our Consumer and Business reporting units exceeded
their respective carrying values and, therefore, did not result in an impairment.
We performed a quantitative impairment assessment for our Media reporting unit in 2019. In connection with Verizon’s annual budget
process during the fourth quarter of 2019, the leadership at both Verizon Media and Verizon completed a comprehensive five-year strategic
planning review of Verizon Media's business prospects resulting in unfavorable adjustments to Verizon Media's financial projections. These
revised projections were used as a key input into Verizon Media's annual goodwill impairment test performed in the fourth quarter of 2019.
During the fourth quarter of 2019, consistent with our accounting policy, we applied a combination of a market approach and a discounted
cash flow method reflecting current assumptions and inputs, including our revised projections, discount rate and expected growth rates, which
resulted in the determination that the fair value of the Media reporting unit was less than its carrying amount. As a result, we recorded a non-
cash goodwill impairment charge of approximately $186 million ($176 million after-tax) in the fourth quarter of 2019 in our consolidated
statement of income. The goodwill balance of the Media reporting unit had been fully written off as a result of the impairment charge.
At December 31, 2019, the balance of our goodwill was approximately $24.4 billion, of which $17.1 billion was in our Consumer reporting
unit and $7.3 billion was in our Business reporting unit.
Pension and Other Postretirement Benefit Plans
We maintain benefit plans for most of our employees, including, for certain employees, pension and other postretirement benefit plans. At
December 31, 2020, in the aggregate, pension plan benefit obligations exceeded the fair value of pension plan assets, which will result in
future pension plan expense. Other postretirement benefit plans have larger benefit obligations than plan assets, resulting in expense.
Significant benefit plan assumptions, including the discount rate used, the long-term rate of return on plan assets, the determination of the
substantive plan and health care trend rates are periodically updated and impact the amount of benefit plan income, expense, assets and
obligations. Changes to one or more of these assumptions could significantly impact our accounting for pension and other postretirement
benefits. A sensitivity analysis of the impact of changes in these assumptions on the benefit obligations and expense (income) recorded, as
well as on the funded status due to an increase or a decrease in the actual versus expected return on plan assets as of December 31, 2020 and
for the year then ended pertaining to Verizon’s pension and postretirement benefit plans, is provided in the table below.
(dollars in millions)
Pension plans discount rate
Rate of return on pension plan assets
Postretirement plans discount rate
Rate of return on postretirement plan assets
Percentage point
change
Increase/(decrease) at
December 31, 2020*
(1,258)
1,416
(182)
182
(920)
1,032
(6)
6
+0.50 $
-0.50
+1.00
-1.00
+0.50
-0.50
+1.00
-1.00
* In determining its pension and other postretirement obligation, the Company used a weighted-average discount rate of 2.6%. The rate was
selected to approximate the composite interest rates available on a selection of high-quality bonds available in the market at December 31,
2020. The bonds selected had maturities that coincided with the time periods during which benefit payments are expected to occur, were
non-callable and available in sufficient quantities to ensure marketability (at least $300 million par outstanding).
The annual measurement date for both our pension and other postretirement benefits is December 31. We use the full yield curve approach to
estimate the interest cost component of net periodic benefit cost for pension and other postretirement benefits. The full yield curve approach
45
Verizon 2020 Annual Report on Form 10-K
refines our estimate of interest cost by applying the individual spot rates from a yield curve composed of the rates of return on several
hundred high-quality fixed income corporate bonds available at the measurement date. These individual spot rates align with the timing of
each future cash outflow for benefit payments and therefore provide a more precise estimate of interest cost.
Income Taxes
Our current and deferred income taxes and associated valuation allowances are impacted by events and transactions arising in the normal
course of business as well as in connection with the adoption of new accounting standards, changes in tax laws and rates, acquisitions and
dispositions of businesses and non-recurring items. As a global commercial enterprise, our income tax rate and the classification of income
taxes can be affected by many factors, including estimates of the timing and realization of deferred income tax assets and the timing and
amount of income tax payments. We account for tax benefits taken or expected to be taken in our tax returns in accordance with the
accounting standard relating to the uncertainty in income taxes, which requires the use of a two-step approach for recognizing and measuring
tax benefits taken or expected to be taken in a tax return. We review and adjust our liability for unrecognized tax benefits based on our best
judgment given the facts, circumstances and information available at each reporting date. To the extent that the final outcome of these tax
positions is different than the amounts recorded, such differences may impact income tax expense and actual tax payments. We recognize any
interest and penalties accrued related to unrecognized tax benefits in income tax expense. Actual tax payments may materially differ from
estimated liabilities as a result of changes in tax laws as well as unanticipated transactions impacting related income tax balances. See Note 12
to the consolidated financial statements for additional information.
Property, Plant and Equipment
Our Property, plant and equipment balance represents a significant component of our consolidated assets. We record Property, plant and
equipment at cost. We depreciate Property, plant and equipment on a straight-line basis over the estimated useful life of the assets. We expect
that a one year increase in estimated useful lives of our Property, plant and equipment would result in a decrease to our 2020 depreciation
expense of $2.7 billion and that a one year decrease would result in an increase of approximately $4.5 billion in our 2020 depreciation
expense.
Accounts Receivable
Prior to January 1, 2020, accounts receivable were recorded at cost less an allowance for doubtful accounts. The gross amount of accounts
receivable and corresponding allowance for doubtful accounts were presented separately in the consolidated balance sheets. We maintained
allowances for uncollectible accounts receivable, including our direct-channel device payment plan agreement receivables, for estimated
losses resulting from the failure or inability of our customers to make required payments. Indirect-channel device payment receivables are
considered financial instruments and were initially recorded at fair value net of imputed interest, and credit losses were recorded as incurred.
However, receivable balances were assessed quarterly for impairment and an allowance was recorded if the receivable was considered
impaired. Subsequent to January 1, 2020, accounts receivable are recorded at amortized cost less an allowance for credit losses that are not
expected to be recovered. The gross amount of accounts receivable and corresponding allowance for credit losses are presented separately in
the consolidated balance sheets. We maintain allowances for credit losses resulting from the expected failure or inability of our customers to
make required payments. We recognize the allowance for credit losses at inception and reassess quarterly based on management’s expectation
of the asset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the
customer base, the aging of such receivables and current macroeconomic conditions, such as the COVID-19 pandemic, as well as
management’s expectations of conditions in the future, if applicable. Our allowance for credit losses is based on management’s assessment of
the collectability of assets pooled together with similar risk characteristics.
We record an allowance to reduce the receivables to the amount that is expected to be collectible. For device payment plan agreement
receivables, we record bad debt expense based on a default and loss calculation using our proprietary loss model. The expected loss rate is
determined based on customer credit scores and other qualitative factors as noted above. The loss rate is assigned individually on a customer
by customer basis and the custom credit scores are then aggregated by vintage and used in our proprietary loss model to calculate the
weighted-average loss rate used for determining the allowance balance.
We monitor the collectability of our wireless service receivables as one overall pool. Wireline service receivables are disaggregated and
pooled by the following customer groups: consumer, small and medium business, global enterprise, public sector and wholesale. For wireless
service receivables and wireline consumer and small and medium business receivables, the allowance is calculated based on a 12 month
rolling average write-off balance multiplied by the average life-cycle of an account from billing to write-off. The risk of loss is assessed over
the contractual life of the receivables and we adjust the historical loss amounts for current and future conditions based on management’s
qualitative considerations. For global enterprise, public sector and wholesale wireline receivables, the allowance for credit losses is based on
historical write-off experience and individual customer credit risk, if applicable. We consider multiple factors in determining the allowance as
discussed above.
If there is a deterioration of our customers’ financial condition or if future actual default rates on receivables in general differ from those
currently anticipated, we may have to adjust our allowance for credit losses, which would affect earnings in the period the adjustments are
made.
46
Verizon 2020 Annual Report on Form 10-K
Acquisitions and Divestitures
Blue Jeans Network, Inc.
In April 2020, we entered into a definitive purchase agreement to acquire BlueJeans, an enterprise-grade video conferencing and event
platform, whose services are sold to Business customers globally. The transaction closed in May 2020. The aggregate cash consideration paid
by Verizon at the closing of the transaction was approximately $397 million, net of cash acquired. See Note 3 to the consolidated financial
statements for additional information.
TracFone Wireless, Inc.
In September 2020, we entered into a purchase agreement (Tracfone Purchase Agreement) with América Móvil to acquire Tracfone, a
provider of prepaid and value mobile services in the U.S. Under the terms of the Tracfone Purchase Agreement, we will acquire all of the
stock of Tracfone for approximately $3.1 billion in cash and $3.1 billion in Verizon common stock, subject to customary adjustments, at
closing. The number of shares issued will be based on an average trading price determined as of the closing date and is subject to a minimum
number of shares issuable of 47,124,445 and a maximum number of shares issuable of 57,596,544. The Tracfone Purchase Agreement also
includes up to an additional $650 million in future cash consideration related to the achievement of certain performance measures and other
commercial arrangements. The transaction is subject to regulatory approvals and closing conditions and is expected to close in the second half
of 2021.
Bluegrass Cellular
In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass Cellular, a rural wireless operator serving
central Kentucky. Bluegrass Cellular provides wireless service to 210,000 customers in 34 counties in rural service areas 3, 4, and 5 in Central
Kentucky. The transaction is subject to regulatory approvals and closing conditions and is expected to close in the first quarter of 2021.
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 wireless network while also resulting in a more efficient use of spectrum. See Note 3
to the consolidated financial statements for additional information regarding our spectrum license transactions.
Other
From time to time, we enter into strategic agreements to acquire various other businesses and investments. See Note 3 to the consolidated
financial statements for additional information.
In November 2020, Verizon entered into an agreement to sell our Huffington Post business. In connection with this transaction, we recorded a
pre-tax loss of $126 million in Selling, general and administrative expense in our consolidated statement of income for the year ended
December 31, 2020. The transaction closed in February 2021.
Item 7A. Quantitative and Qualitative Disclosures About 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, forward starting interest rate
swaps, interest rate swaps, interest rate caps, treasury rate locks and foreign exchange forwards. 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.
Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA
master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. The CSA agreements contain
rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding
positions as compared to established thresholds and changes in credit ratings. We do not offset fair value amounts recognized for derivative
instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from
derivative instruments recognized at fair value. At December 31, 2020, we held $0.2 billion of collateral related to derivative contracts under
collateral exchange agreements, which were recorded as Other current liabilities in our consolidated balance sheet. At December 31, 2019, we
held an insignificant amount of collateral related to derivative contracts under collateral exchange arrangements, which were recorded as
Other current liabilities in our consolidated balance sheet. While we may be exposed to credit losses due to the nonperformance of our
counterparties, we consider the risk remote and do not expect that any such nonperformance would result in a significant effect on our results
of operations or financial condition due to our diversified pool of counterparties. See Note 9 to the consolidated financial statements for
additional information regarding the derivative portfolio.
47
Verizon 2020 Annual Report on Form 10-K
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 December 31, 2020, approximately 83% 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 $227 million. The interest rates on our existing long-term debt obligations are unaffected by changes
to our credit ratings.
Certain of our floating rate debt and our interest rate derivative transactions utilize interest rates that are linked to LIBOR as the benchmark
rate. LIBOR is the subject of recent U.S. and international regulatory guidance and proposals for reform. These reforms and other pressures
may cause LIBOR to become unavailable or to perform or be reported differently than in the past. The consequences of these developments
cannot be entirely predicted but could include an increase in the cost of our floating rate debt or exposure under our interest rate derivative
transactions. We do not anticipate a significant impact to our financial position given our current mix of variable and fixed-rate debt, taking
into account the impact of our interest rate hedging.
The table that follows summarizes the fair values of our long-term debt, including current maturities, and interest rate swap derivatives as of
December 31, 2020 and 2019. The table also provides a sensitivity analysis of the estimated fair values of these financial instruments
assuming 100-basis-point upward and downward shifts in the yield curve. Our sensitivity analysis does not include the fair values of our
commercial paper and bank loans, if any, because they are not significantly affected by changes in market interest rates.
Long-term debt and related derivatives
At December 31, 2020
At December 31, 2019
Interest Rate Swaps
$
Fair Value
Fair Value assuming
+ 100 basis point shift
155,695 $
128,633
142,420 $
119,288
(dollars in millions)
Fair Value assuming
- 100 basis point shift
170,423
139,980
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable
rates that are currently based on LIBOR, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value
hedges and hedge against interest rate risk exposure of designated debt issuances. At December 31, 2020, the fair value of the asset and
liability of these contracts were $787 million and $303 million, respectively. At December 31, 2019, the fair value of the asset and liability of
these contracts were $568 million and $173 million, respectively. At December 31, 2020 and 2019, the total notional amount of the interest
rate swaps was $17.8 billion and $17.0 billion, respectively.
Forward Starting Interest Rate Swaps
We have entered into forward starting interest rate swaps designated as cash flow hedges in order to manage our exposure to interest rate
changes on future forecasted transactions. At December 31, 2020 and 2019, the fair value of the liability of these contracts was $797 million
and $604 million, respectively. At December 31, 2020 and 2019, the total notional amount of the forward starting interest rate swaps was
$2.0 billion and $3.0 billion, respectively.
Interest Rate Caps
We also have interest rate caps which we use as an economic hedge but for which we have elected not to apply hedge accounting. We enter
into interest rate caps to mitigate our interest exposure to interest rate increases on our ABS Financing Facilities and ABS Notes. The fair
value of the asset and liability of these contracts was insignificant at both December 31, 2020 and 2019. At December 31, 2020, there was no
outstanding total notional amount for these contracts and, at December 31, 2019, the total notional amount of these contracts was
$679 million.
Treasury Rate Locks
We enter into treasury rate locks to mitigate our interest rate risk. There was no outstanding notional amount for treasury rate locks at
December 31, 2020 or 2019.
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 (loss) in our consolidated balance sheets. Gains and losses on foreign currency transactions are recorded in the
consolidated statements of income in Other income (expense), net. At December 31, 2020, our primary translation exposure was to the British
Pound Sterling, Euro, Australian Dollar, Canadian Dollar and Japanese Yen.
48
Verizon 2020 Annual Report on Form 10-K
Cross Currency Swaps
We have entered into cross currency swaps designated as cash flow hedges to exchange our British Pound Sterling, Euro, Swiss Franc,
Canadian Dollar and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to
mitigate the impact of foreign currency transaction gains or losses. The fair value of the asset of these contracts was $1.4 billion and
$211 million at December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, the fair value of the liability of these contracts
was $196 million and $912 million, respectively. At December 31, 2020 and 2019, the total notional amount of the cross currency swaps was
$26.3 billion and $23.1 billion, respectively.
Foreign Exchange Forwards
We also have foreign exchange forwards which we use as an economic hedge but for which we have elected not to apply hedge accounting.
We enter into British Pound Sterling and Euro foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional
currency denominated monetary assets and liabilities of international subsidiaries, as well as foreign exchange risk related to debt settlements.
At both December 31, 2020 and 2019, the fair value of the asset and liability of these contracts was insignificant. At December 31, 2020 and
2019, the total notional amount of the foreign exchange forwards was $1.4 billion and $1.1 billion, respectively.
49
Verizon 2020 Annual Report on Form 10-K
Item 8. Financial Statements and Supplementary Data
Report of Management on Internal Control Over Financial Reporting
We, the management of Verizon Communications Inc., are responsible for establishing and maintaining adequate internal control over
financial reporting of the company. Management has evaluated internal control over financial reporting of the company 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.
Management has assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2020. Based on this
assessment, we believe that the internal control over financial reporting of the company is effective as of December 31, 2020. In connection
with this assessment, there were no material weaknesses in the company’s internal control over financial reporting identified by management.
The company’s financial statements included in this Annual Report have been audited by Ernst & Young LLP, independent registered public
accounting firm. Ernst & Young LLP has also provided an attestation report on the company’s internal control over financial reporting.
/s/ Hans E. Vestberg
Hans E. Vestberg
Chairman and Chief Executive Officer
/s/ Matthew D. Ellis
Matthew D. Ellis
Executive Vice President and Chief Financial Officer
/s/ Anthony T. Skiadas
Anthony T. Skiadas
Senior Vice President and Controller
50
Verizon 2020 Annual Report on Form 10-K
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Verizon Communications Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Verizon Communications Inc. and subsidiaries’ (Verizon) internal control over financial reporting as of December 31, 2020,
based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Verizon maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of Verizon as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive
income, cash flows, and changes in equity for each of the three years in the period ended December 31, 2020, and the related notes and
financial statement schedule listed in the Index at Item 15(a) and our report dated February 25, 2021 expressed an unqualified opinion
thereon.
Basis for Opinion
Verizon’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on Verizon’s internal control over financial reporting based on our audit. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to Verizon in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/
Ernst & Young LLP
Ernst & Young LLP
New York, New York
February 25, 2021
51
Verizon 2020 Annual Report on Form 10-K
Reporting of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Verizon Communications Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Verizon Communications Inc. and subsidiaries (Verizon) as of
December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and changes in equity for
each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at
Item 15(a) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Verizon at December 31, 2020 and 2019, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
Verizon’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
February 25, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2019, Verizon changed its method of accounting for
leases due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments, using the
modified retrospective method.
Basis for Opinion
These financial statements are the responsibility of Verizon’s management. Our responsibility is to express an opinion on Verizon’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to Verizon in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit
matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
52
Verizon 2020 Annual Report on Form 10-K
Valuation of Employee Benefit Obligations
Description of the Matter The Company sponsors several pension plans and other post-employment benefit plans. At December 31, 2020,
the Company’s aggregate defined benefit pension obligation was $22.2 billion and exceeded the fair value of
pension plan assets of $20.1 billion, resulting in an unfunded defined benefit pension obligation of $2.1 billion.
Also, at December 31, 2020, the other postretirement benefits obligation was approximately $16.2 billion. As
explained in Note 11 of the consolidated financial statements, the Company updates the estimates used to
measure employee benefit obligations and plan assets in the fourth quarter and upon a remeasurement event to
reflect the actual return on plan assets and updated actuarial assumptions.
How We Addressed the
Matter in Our Audit
Auditing the employee benefit obligations was complex due to the highly judgmental nature of the actuarial
assumptions (e.g., discount rate, health care cost trends, per capita claims cost trends and mortality rates) used in
the measurement process. These assumptions had a significant effect on the projected benefit obligation.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the
employee benefits obligation valuation process. For example, we tested controls over management’s review of
the employee benefit obligation calculations, the significant actuarial assumptions and the data inputs provided
to the actuary.
To test the employee benefit obligations, our audit procedures included, among others, evaluating the
methodologies used, the significant actuarial assumptions discussed above and the underlying data used by the
Company. We compared the actuarial assumptions used by management to historical trends, current economic
factors and evaluated the change in the employee benefit obligations from prior year due to the change in service
cost, interest cost, actuarial gains and losses, benefit payments, contributions and other activities. In addition, we
involved an actuarial specialist to assist in evaluating management’s methodology for determining the discount
rate that reflects the maturity and duration of the benefit payments and is used to measure the employee benefit
obligations. As part of this assessment, we compared the projected cash flows to prior year projections and
compared the current year benefits paid to the prior year projected cash flows. To evaluate the health care cost
trends, per capita claims cost trends and the mortality rates, we involved an actuarial specialist to assist in
evaluating the assumptions and assessed whether the information was consistent with publicly available
information, and whether any market data adjusted for entity-specific adjustments were applied. We also tested
the completeness and accuracy of the underlying data, including the participant data provided to management’s
actuarial specialists.
/s/
Ernst & Young LLP
Ernst & Young LLP
We have served as Verizon's auditor since 2000.
New York, New York
February 25, 2021
53
Verizon 2020 Annual Report on Form 10-K
Consolidated Statements of Income
Verizon Communications Inc. and Subsidiaries
Years Ended December 31,
Operating Revenues
Service revenues and other
Wireless equipment revenues
Total Operating Revenues
Operating Expenses
Cost of services (exclusive of items shown below)
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Media goodwill impairment
Total Operating Expenses
Operating Income
Equity in losses of unconsolidated businesses
Other income (expense), net
Interest expense
Income Before Provision For Income Taxes
Provision for income taxes
Net Income
Net income attributable to noncontrolling interests
Net income attributable to Verizon
Net Income
Basic Earnings Per Common Share
Net income attributable to Verizon
Weighted-average shares outstanding (in millions)
Diluted Earnings Per Common Share
Net income attributable to Verizon
Weighted-average shares outstanding (in millions)
(dollars in millions, except per share amounts)
2018
2020
2019
$
109,872 $
18,420
128,292
110,305 $
21,563
131,868
108,605
22,258
130,863
31,401
19,800
31,573
16,720
—
99,494
28,798
(45)
(539)
(4,247)
23,967
(5,619)
18,348 $
547 $
17,801
18,348 $
31,772
22,954
29,896
16,682
186
101,490
30,378
(15)
(2,900)
(4,730)
22,733
(2,945)
19,788 $
523 $
19,265
19,788 $
32,185
23,323
31,083
17,403
4,591
108,585
22,278
(186)
2,364
(4,833)
19,623
(3,584)
16,039
511
15,528
16,039
4.30 $
4,140
4.66 $
4,138
3.76
4,128
4.30 $
4,142
4.65 $
4,140
3.76
4,132
$
$
$
$
$
See Notes to Consolidated Financial Statements
54
Verizon 2020 Annual Report on Form 10-K
Consolidated Statements of Comprehensive Income
Verizon Communications Inc. and Subsidiaries
Years Ended December 31,
Net Income
Other Comprehensive Loss, Net of Tax (Expense) Benefit
Foreign currency translation adjustments, net of tax of $19, $(21) and $(11)
Unrealized gain (loss) on cash flow hedges, net of tax of $197, $265 and $(19)
Unrealized gain (loss) on marketable securities, net of tax of $(2), $(2) and $0
Defined benefit pension and postretirement plans, net of tax of $221, $219 and $284
Other comprehensive loss attributable to Verizon
Total Comprehensive Income
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Verizon
Total Comprehensive Income
See Notes to Consolidated Financial Statements
2020
(dollars in millions)
2018
2019
$
18,348 $
19,788 $
16,039
180
(571)
(2)
(676)
(1,069)
17,279 $
16
(736)
7
(659)
(1,372)
18,416 $
(117)
55
1
(858)
(919)
15,120
547 $
523 $
16,732
17,279 $
17,893
18,416 $
511
14,609
15,120
$
$
$
55
Verizon 2020 Annual Report on Form 10-K
Consolidated Balance Sheets
Verizon Communications Inc. and Subsidiaries
At December 31,
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Less Allowance for credit losses
Less Allowance for doubtful accounts
Accounts receivable, net (Note 1)
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment
Less Accumulated depreciation
Property, plant and equipment, net
Investments in unconsolidated businesses
Wireless licenses
Goodwill
Other intangible assets, net
Operating lease right-of-use assets
Other assets
Total assets
Liabilities and Equity
Current liabilities
Debt maturing within one year
Accounts payable and accrued liabilities
Current operating lease liabilities
Other current liabilities
Total current liabilities
Long-term debt
Employee benefit obligations
Deferred income taxes
Non-current operating lease liabilities
Other liabilities
Total long-term liabilities
Commitments and Contingencies (Note 16)
Equity
(dollars in millions, except per share amounts)
2019
2020
$
$
$
22,171 $
25,169
1,252
—
23,917
1,796
6,710
54,594
279,737
184,904
94,833
589
96,097
24,773
9,413
22,531
13,651
316,481 $
5,889 $
20,658
3,485
9,628
39,660
123,173
18,657
35,711
18,000
12,008
207,549
2,594
26,162
—
733
25,429
1,422
8,028
37,473
265,734
173,819
91,915
558
95,059
24,389
9,498
22,694
10,141
291,727
10,777
21,806
3,261
9,024
44,868
100,712
17,952
34,703
18,393
12,264
184,024
Series preferred stock ($0.10 par value; 250,000,000 shares authorized; none issued)
Common stock ($0.10 par value; 6,250,000,000 shares authorized in each period; 4,291,433,646
shares issued in each period)
Additional paid in capital
Retained earnings
Accumulated other comprehensive income (loss)
Common stock in treasury, at cost (153,304,088 and 155,605,527 shares outstanding)
Deferred compensation – employee stock ownership plans and other
Noncontrolling interests
Total equity
Total liabilities and equity
—
—
429
13,404
60,464
(71)
(6,719)
335
1,430
69,272
$
316,481 $
429
13,419
53,147
998
(6,820)
222
1,440
62,835
291,727
See Notes to Consolidated Financial Statements
56
Verizon 2020 Annual Report on Form 10-K
Consolidated Statements of Cash Flows
Verizon Communications Inc. and Subsidiaries
Years Ended December 31,
Cash Flows from Operating Activities
Net Income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
Employee retirement benefits
Deferred income taxes
Provision for expected credit losses
Equity in losses of unconsolidated businesses, net of dividends received
Media goodwill impairment
Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses:
Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable and accrued liabilities and Other current liabilities
Discretionary employee benefits contributions
Other, net
Net cash provided by operating activities
Cash Flows from Investing Activities
Capital expenditures (including capitalized software)
Acquisitions of businesses, net of cash acquired
Acquisitions of wireless licenses
Proceeds from dispositions of businesses
Other, net
Net cash used in investing activities
Cash Flows from Financing Activities
Proceeds from long-term borrowings
Proceeds from asset-backed long-term borrowings
Repayments of long-term borrowings and finance lease obligations
Repayments of asset-backed long-term borrowings
Dividends paid
Other, net
Net cash provided by (used in) financing activities
Increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period (Note 1)
See Notes to Consolidated Financial Statements
2020
(dollars in millions)
2018
2019
$
18,348 $
19,788 $ 16,039
16,720
840
1,553
1,380
91
—
189
(369)
1,202
(966)
—
2,780
41,768
(18,192)
(520)
(2,126)
—
(2,674)
(23,512)
25,822
5,635
(9,775)
(7,413)
(10,232)
(2,712)
1,325
16,682
(284)
1,232
1,588
74
186
(1,471)
(76)
(2,807)
(2,359)
(300)
3,493
35,746
(17,939)
(29)
(898)
28
1,257
(17,581)
10,079
8,576
(17,584)
(6,302)
(10,016)
(2,917)
(18,164)
17,403
(2,657)
389
980
231
4,591
(2,667)
(324)
37
1,777
(1,679)
219
34,339
(16,658)
(230)
(1,429)
—
383
(17,934)
5,967
4,810
(10,923)
(3,635)
(9,772)
(1,824)
(15,377)
19,581
3,917
23,498 $
1
3,916
3,917 $
1,028
2,888
3,916
$
57
Verizon 2020 Annual Report on Form 10-K
Consolidated Statements of Changes in Equity
Verizon Communications Inc. and Subsidiaries
Years Ended December 31,
Common Stock
Balance at beginning of year
Common shares issued
Balance at end of year
Additional Paid In Capital
Balance at beginning of year
Other
Balance at end of year
Retained Earnings
Balance at beginning of year
Opening balance sheet adjustment (Note 1)
Adjusted opening balance
Net income attributable to Verizon
Dividends declared ($2.485, $2.435, $2.385 per share)
Balance at end of year
Accumulated Other Comprehensive Income
Balance at beginning of year attributable to Verizon
Opening balance sheet adjustment (Note 1)
Adjusted opening balance
Foreign currency translation adjustments
Unrealized gain (loss) on cash flow hedges
Unrealized gain (loss) on marketable securities
Defined benefit pension and postretirement plans
Other comprehensive loss
Balance at end of year attributable to Verizon
Treasury Stock
Balance at beginning of year
Employee plans (Note 14)
Shareholder plans (Note 14)
Balance at end of year
Deferred Compensation-ESOPs and Other
Balance at beginning of year
Restricted stock equity grant
Amortization
Balance at end of year
Noncontrolling Interests
Balance at beginning of year
Opening balance sheet adjustment (Note 1)
Adjusted opening balance
Total comprehensive income
Distributions and other
Balance at end of year
Total Equity
(dollars in millions, except per share amounts, and shares in thousands)
2018
Amount
2020
Amount
2019
Amount
Shares
Shares
Shares
4,291,434 $
—
4,291,434
429
—
429
4,291,434 $
—
4,291,434
429
—
429
4,242,374 $
49,060
4,291,434
424
5
429
13,419
(15)
13,404
53,147
(200)
52,947
17,801
(10,284)
60,464
998
—
998
180
(571)
(2)
(676)
(1,069)
(71)
13,437
(18)
13,419
43,542
410
43,952
19,265
(10,070)
53,147
2,370
—
2,370
16
(736)
7
(659)
(1,372)
998
11,101
2,336
13,437
35,635
2,232
37,867
15,528
(9,853)
43,542
2,659
630
3,289
(117)
55
1
(858)
(919)
2,370
(155,606)
2,298
4
(153,304)
(6,820)
101
—
(6,719)
(159,400)
3,790
4
(155,606)
(6,986)
166
—
(6,820)
(162,898)
3,494
4
(159,400)
(7,139)
153
—
(6,986)
222
275
(162)
335
1,440
—
1,440
547
(557)
1,430
$ 69,272
353
140
(271)
222
1,565
1
1,566
523
(649)
1,440
$ 62,835
416
162
(225)
353
1,591
44
1,635
511
(581)
1,565
$ 54,710
See Notes to Consolidated Financial Statements
58
Verizon 2020 Annual Report on Form 10-K
Notes to Consolidated Financial Statements
Verizon Communications Inc. and Subsidiaries
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
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, technology, information and entertainment products and services to consumers, businesses and
government entities. With a presence around the world, we offer data, video and voice services and solutions on our networks and platforms
that are designed to meet customers’ demand for mobility, reliable network connectivity, security and control.
We have two reportable segments that we operate and manage as strategic business units - Verizon Consumer Group (Consumer) and Verizon
Business Group (Business).
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are
provided across one of the most extensive wireless networks in the United States (U.S.) under the Verizon brand and through wholesale and
other arrangements. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C.,
over our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who
are not served by Fios. Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as
resellers that purchase wireless network access from us on a wholesale basis.
Our Business segment provides wireless and wireline communications services and products, including data, video and conferencing services,
corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver
various Internet of Things (IoT) services and products. We provide these products and services to businesses, government customers and
wireless and wireline carriers across the U.S. and select products and services to customers around the world.
Consolidation
The method of accounting applied to investments, whether consolidated or equity, involves an evaluation of all significant terms of the
investments that explicitly grant or suggest evidence of control or influence over the operations of the investee. The consolidated financial
statements include our controlled subsidiaries, as well as variable interest entities (VIE) where we are deemed to be the primary beneficiary.
For controlled subsidiaries that are not wholly-owned, the noncontrolling interests are included in Net income and Total equity. Investments
in businesses that we do not control, but have the ability to exercise significant influence over operating and financial policies, are accounted
for using the equity method. Equity method investments are included in Investments in unconsolidated businesses in our consolidated balance
sheets. All significant intercompany accounts and transactions have been eliminated.
Basis of Presentation
We have reclassified certain prior year amounts to conform to the current year presentation.
Use of Estimates
We prepare our financial statements using U.S. generally accepted accounting principles (GAAP), which requires management to make
estimates and assumptions that affect reported amounts and disclosures. These estimates and assumptions take into account historical and
forward-looking factors that the Company believes are reasonable, including but not limited to the potential impacts arising from the novel
coronavirus (COVID-19) pandemic and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and
duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual
results could differ significantly from those estimates.
Examples of significant estimates include the allowance for credit losses, the recoverability of intangible assets, property, plant and
equipment, and other long-lived assets, the incremental borrowing rate for the lease liability, fair value measurements, including those related
to financial instruments, goodwill, spectrum licenses and intangible assets, unrecognized tax benefits, valuation allowances on tax assets,
pension and postretirement benefit obligations, contingencies and the identification and valuation of assets acquired and liabilities assumed in
connection with business combinations.
Revenue Recognition
We earn revenue from contracts with customers, primarily through the provision of telecommunications and other services and through the
sale of wireless equipment. These services include a variety of communication and connectivity services for our Consumer and Business
customers including other carriers that use our facilities to provide services to their customers, as well as professional and integrated managed
services for our large enterprises and government customers. We account for these revenues under Accounting Standards Update (ASU)
2014-09, "Revenue from Contracts with Customers" (Topic 606), which we adopted on January 1, 2018, using the modified retrospective
approach. This standard update, along with related subsequently issued updates, clarifies the principles for recognizing revenue and develops
a common revenue standard for GAAP. The standard update also amended prior guidance for the recognition of costs to obtain and fulfill
59
Verizon 2020 Annual Report on Form 10-K
contracts with customers such that incremental costs of obtaining and direct costs of fulfilling contracts with customers are deferred and
amortized consistent with the transfer of the related good or service.
We also earn revenues that are not accounted for under Topic 606 from leasing arrangements (such as those for towers and equipment),
captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed under a device
payment plan agreement when sold to the customer by an authorized agent.
Nature of Products and Services
Telecommunications
Service
We offer wireless services through a variety of plans on a postpaid or prepaid basis. For wireless service, we recognize revenue using an
output method, either as the service allowance units are used or as time elapses, because it reflects the pattern by which we satisfy our
performance obligation through the transfer of service to the customer. Monthly service is generally billed in advance, which results in a
contract liability. See Note 2 for additional information. For postpaid plans, where monthly usage exceeds the allowance, the overage usage
represents options held by the customer for incremental services and the usage-based fee is recognized when the customer exercises the
option (typically on a month-to-month basis).
For our contracts related to wireline communication and connectivity services, in general, fixed monthly fees for service are billed one month
in advance, which results in a contract liability, and service revenue is recognized over the enforceable contract term as the service is
rendered, as the customer simultaneously receives and consumes the benefits of the services through network access and usage. While
substantially all of our wireline service revenue contracts are the result of providing access to our networks, revenue from services that are not
fixed in amount and, instead, are based on usage are generally billed in arrears and recognized as the usage occurs.
Equipment
We sell wireless devices and accessories under the Verizon brand and other brands. Equipment revenue is generally recognized when the
products are delivered to and accepted by the customer, as this is when control passes to the customer. In addition to offering the sale of
equipment on a standalone basis, we have two primary offerings through which customers pay for a wireless device, in connection with a
service contract: fixed-term plans and device payment plans.
Under a fixed-term plan, the customer is sold the wireless device without any upfront charge or at a discounted price in exchange for entering
into a fixed-term service contract (typically for a term of 24 months or less).
Under a device payment plan, the customer is sold the wireless device in exchange for a non-interest-bearing installment note, which is repaid
by the customer, typically over a 24-month term, and concurrently enters into a month-to-month contract for wireless service. We may offer
certain promotions that provide billing credits applied over a specified term, contingent upon the customer maintaining service. The credits
are included in the transaction price, which are allocated to the performance obligations based on their relative selling price and are
recognized when earned.
A financing component exists in both our fixed-term plans and device payment plans because the timing of the payment for the device, which
occurs over the contract term, differs from the satisfaction of the performance obligation, which occurs at contract inception upon transfer of
the device to the customer. We periodically assess, at the contract level, the significance of the financing component inherent in our fixed-
term and device payment plan receivable based on qualitative and quantitative considerations related to our customer classes. These
considerations include assessing the commercial objective of our plans, the term and duration of financing provided, interest rates prevailing
in the marketplace, and credit risks of our customer classes, all of which impact our selection of appropriate discount rates. Based on current
facts and circumstances, we determined that the financing component in our existing wireless device payments and fixed-term contracts sold
through the direct channel is not significant and therefore is not accounted for separately. See Note 8 for additional information on the interest
on equipment financed on a device payment plan agreement when sold to the customer by an authorized agent in our indirect channel.
Wireless Contracts
For our wireless contracts, total contract revenue, which represents the transaction price for wireless service and wireless equipment, is
allocated between service and equipment revenue based on their estimated standalone selling prices. We estimate the standalone selling price
of the device or accessory to be its retail price excluding subsidies or conditional purchase discounts. We estimate the standalone selling price
of wireless service to be the price that we offer to customers on month-to-month contracts that can be cancelled at any time without penalty
(i.e., when there is no fixed-term for service) or when service is procured without the concurrent purchase of a wireless device. In addition, we
also assess whether the service term is impacted by certain legally enforceable rights and obligations in our contract with customers, such as
penalties that a customer would have to pay to early terminate a fixed-term contract or billing credits that would cease if the month-to-month
wireless service is canceled. The assessment of these legally enforceable rights and obligations involves judgment and impacts our
determination of the transaction price and related disclosures.
From time to time, we may offer certain promotions that provide our customers on device payment plans with the right to upgrade to a new
device after paying a specified portion of their device payment plan agreement amount and trading in their device in good working order. We
account for this trade-in right as a guarantee obligation. The full amount of the trade-in right's fair value is recognized as a guarantee liability
and results in a reduction to the revenue recognized upon the sale of the device. The guarantee liability was insignificant at December 31,
60
Verizon 2020 Annual Report on Form 10-K
2020 and 2019. The total transaction price is reduced by the guarantee, which is accounted for outside the scope of Topic 606, and the
remaining transaction price is allocated between the performance obligations within the contract.
Our fixed-term plans generally include the sale of a wireless device at subsidized prices. This results in the creation of a contract asset at the
time of sale, which represents the recognition of equipment revenue in excess of amounts billed.
For our device payment plans, billing credits are accounted for as consideration payable to a customer and are included in the determination
of total transaction price, resulting in a contract liability.
We may provide a right of return on our products and services for a short time period after a sale. These rights are accounted for as variable
consideration when determining the transaction price, and accordingly we recognize revenue based on the estimated amount to which we
expect to be entitled after considering expected returns. Returns and credits are estimated at contract inception and updated at the end of each
reporting period as additional information becomes available. We also may provide credits or incentives on our products and services for
contracts with resellers, which are accounted for as variable consideration when estimating the amount of revenue to recognize.
Wireline Contracts
Total consideration for wireline services that are bundled in a single contract is allocated to each performance obligation based on our
standalone selling price for each service. While many contracts include one or more service performance obligations, the revenue recognition
pattern is generally not impacted by the allocation since the services are generally satisfied over the same period of time. We estimate the
standalone selling price to be the price of the services when sold on a standalone basis without any promotional discount. In addition, we also
assess whether the service term is impacted by certain legally enforceable rights and obligations in our contract with customers such as
penalties that a customer would have to pay to early terminate a fixed-term contract. The assessment of these legally enforceable rights and
obligations involves judgment and impacts our determination of transaction price and related disclosures.
We may provide performance-based credits or incentives on our products and services for contracts with our Business customers, which are
accounted for as variable consideration when estimating the transaction price. Credits are estimated at contract inception and are updated at
the end of each reporting period as additional information becomes available.
Wireless and Wireline Contracts
For offers that include third-party providers, we evaluate whether we are acting as the principal or as the agent with respect to the goods or
services provided to the customer. This principal-versus-agent assessment involves judgment and focuses on whether the facts and
circumstances of the arrangement indicate that the goods or services were controlled by us prior to transferring them to the customer. To
evaluate if we have control, we consider various factors including whether we are primarily responsible for fulfillment, bear risk of loss and
have discretion over pricing.
Other
Advertising revenues are generated through display advertising and search advertising. Display advertising revenue is generated by the
display of graphical advertisements and other performance-based advertising. Search advertising revenue is generated when a consumer clicks
on a text-based advertisement on the search results page. Our media business, Verizon Media Group (Verizon Media), primarily earns
revenue through display advertising on Verizon Media properties, as well as on third-party properties through our advertising platforms,
search advertising and subscription arrangements. Revenue for display and search advertising contracts is recognized as ads are delivered,
while subscription contracts are recognized over time. We are generally the principal in transactions carried out through our advertising
platforms, and therefore report gross revenue based on the amount billed to our customers. The control and transfer of digital advertising
inventory occurs in a rapid, real-time environment, where our proprietary technology enables us to identify, enhance, verify and solely control
digital advertising inventory that we then sell to our customers. Our control is further supported by us being primarily responsible to our
customers for fulfillment and the fact that we can exercise a level of discretion over pricing.
We offer telematics services including smart fleet management and optimization software. Telematics service revenue is generated primarily
through subscription contracts. We recognize revenue over time for our subscription contracts.
We report taxes collected from customers on behalf of governmental authorities on revenue-producing transactions on a net basis.
Maintenance and Repairs
We charge the cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments,
principally to Cost of services as these costs are incurred.
Advertising Costs
Costs for advertising products and services, as well as other promotional and sponsorship costs, are charged to Selling, general and
administrative expense in the periods in which they are incurred. See Note 15 for additional information.
61
Verizon 2020 Annual Report on Form 10-K Earnings Per Common Share
Basic earnings per common share are based on the weighted-average number of shares outstanding during the period. Where appropriate,
diluted earnings per common share include the dilutive effect of shares issuable under our stock-based compensation plans.
There were a total of approximately 2 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the
computation of diluted earnings per common share for the years ended December 31, 2020 and 2019. There were a total of approximately
4 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per
common share for the years ended December 31, 2018.
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. Cash
equivalents are stated at cost, which approximates quoted market value and includes amounts held in money market funds.
Cash collections on the device payment plan agreement receivables collateralizing asset-backed debt securities are required at certain
specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in
Prepaid expenses and other and Other assets in our consolidated balance sheets.
Cash, cash equivalents and restricted cash are included in the following line items in the consolidated balance sheets:
At December 31,
Cash and cash equivalents
Restricted cash:
Prepaid expenses and other
Other assets
Cash, cash equivalents and restricted cash
Investments in Debt and Equity Securities
$
$
2020
22,171 $
1,195
132
23,498 $
(dollars in millions)
Increase /
(Decrease)
19,577
2019
2,594 $
1,221
102
3,917 $
(26)
30
19,581
Investments in equity securities that are not accounted for under equity method accounting or result in consolidation are to be measured at fair
value. For investments in equity securities without readily determinable fair values, Verizon elects the measurement alternative permitted
under GAAP to measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in
orderly transactions for an identical or similar investment of the same issuer. For investments in debt securities without quoted prices, Verizon
uses an alternative matrix pricing method. Investments in equity securities that do not result in consolidation of the investee are included in
Investments in unconsolidated businesses and debt securities are included in Other assets in our consolidated balance sheets.
Allowance for Credit Losses
Prior to January 1, 2020, accounts receivable were recorded at cost less an allowance for doubtful accounts. The gross amount of accounts
receivable and corresponding allowance for doubtful accounts were presented separately in the consolidated balance sheets. We maintained
allowances for uncollectible accounts receivable, including our direct-channel device payment plan agreement receivables, for estimated
losses resulting from the failure or inability of our customers to make required payments. Indirect-channel device payment receivables are
considered financial instruments and were initially recorded at fair value net of imputed interest, and credit losses were recorded as incurred.
However, receivable balances were assessed quarterly for impairment and an allowance was recorded if the receivable was considered
impaired. Subsequent to January 1, 2020, accounts receivable are recorded at amortized cost less an allowance for credit losses that are not
expected to be recovered. The gross amount of accounts receivable and corresponding allowance for credit losses are presented separately in
the consolidated balance sheets. We maintain allowances for credit losses resulting from the expected failure or inability of our customers to
make required payments. We recognize the allowance for credit losses at inception and reassess quarterly based on management’s expectation
of the asset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the
customer base, the aging of such receivables and current macroeconomic conditions, such as the COVID-19 pandemic, as well as
management’s expectations of conditions in the future, if applicable. Our allowance for credit losses is based on management’s assessment of
the collectability of assets pooled together with similar risk characteristics.
We pool our device payment plan agreement receivables based on the credit quality indicators and shared risk characteristics of "new
customers" and "existing customers." New customers are defined as customers who have been with Verizon for less than 210 days if they are
classified as a Consumer segment customer, or less than 12 months if they are classified as a Business segment customer. Existing customers
are defined as customers who have been with Verizon for more than 210 days if they are in Consumer, or more than 12 months if they are in
Business. We record an allowance to reduce the receivables to the amount that is expected to be collectible. For device payment plan
agreement receivables, we record bad debt expense based on a default and loss calculation using our proprietary loss model. The expected
loss rate is determined based on customer credit scores and other qualitative factors as noted above. The loss rate is assigned individually on a
customer by customer basis and the custom credit scores are then aggregated by vintage and used in our proprietary loss model to calculate
the weighted-average loss rate used for determining the allowance balance.
62
Verizon 2020 Annual Report on Form 10-K
We monitor the collectability of our wireless service receivables as one overall pool. Wireline service receivables are disaggregated and
pooled by the following customer groups: consumer, small and medium business, global enterprise, public sector and wholesale. For wireless
service receivables and wireline consumer and small and medium business receivables, the allowance is calculated based on a 12 month
rolling average write-off balance multiplied by the average life-cycle of an account from billing to write-off. The risk of loss is assessed over
the contractual life of the receivables and we adjust the historical loss amounts for current and future conditions based on management’s
qualitative considerations. For global enterprise, public sector and wholesale wireline receivables, the allowance for credit losses is based on
historical write-off experience and individual customer credit risk, if applicable. We consider multiple factors in determining the allowance as
discussed above.
Inventories
Inventory consists of wireless and wireline equipment held for sale, which is carried at the lower of cost (determined principally on either an
average cost or first-in, first-out basis) or net realizable value.
Plant and Depreciation
We record property, plant and equipment at cost. Property, plant and equipment are generally depreciated on a straight-line basis.
Leasehold improvements are amortized over the shorter of the estimated life of the improvement or the remaining term of the related lease,
calculated from the time the asset was placed in service.
When depreciable assets are retired or otherwise disposed of, the related cost and accumulated depreciation are deducted from the property,
plant and equipment accounts and any gains or losses on disposition are recognized in Selling, general and administrative expense.
We capitalize and depreciate network software purchased or developed within property, plant and equipment assets. We also capitalize
interest associated with the acquisition or construction of network-related assets. Capitalized interest is reported as a reduction in interest
expense and depreciated as part of the cost of the network-related assets.
In connection with our ongoing review of the estimated useful lives of property, plant and equipment during 2018, we determined that the
average useful lives of certain assets would be increased. These changes in estimates were applied prospectively in 2018 and resulted in a
decrease to depreciation expense of $271 million for the year ended December 31, 2018. While the timing and extent of current deployment
plans are subject to ongoing analysis and modification, we believe that the current estimates of useful lives are reasonable.
Computer Software and Cloud Computing Costs
We capitalize the cost of internal-use network and non-network software and defer the costs associated with cloud computing arrangements
that have a useful life and term in excess of one year. Subsequent additions, modifications or upgrades to internal-use network and non-
network software are capitalized only to the extent that they add significant new functionality. Planning, software maintenance and training
costs for internal-use software and cloud computing arrangements are expensed in the period in which they are incurred. We capitalize
interest associated with the development of internal-use network and non-network software. Capitalized non-network internal-use software
costs are amortized using the straight-line method over a period of 5 to 7 years and are included in Other intangible assets, net in our
consolidated balance sheets. Costs incurred in implementing a cloud computing arrangement are deferred during the application-development
stage and recorded as Prepaid expense and Other in our consolidated balance sheets. Once a project is substantially complete and ready for its
intended use, we stop deferring the related cloud computing arrangement costs.
For a discussion of our impairment policy for capitalized software costs, see "Goodwill and Other Intangible Assets" below. Also, see Note 4
for additional information of internal-use non-network software reflected in our consolidated balance sheets. Similar to capitalized software
costs, deferred costs associated with cloud computing arrangements are subject to impairment testing.
Goodwill and Other Intangible Assets
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment testing for
goodwill is performed annually in the fourth quarter or more frequently if impairment indicators are present.
To determine if goodwill is potentially impaired, we have the option to perform a qualitative assessment. However, we may elect to bypass
the qualitative assessment and perform a quantitative impairment test even if no indications of a potential impairment exist.
Under the qualitative assessment, we consider several qualitative factors, including the business enterprise value of the reporting unit from the
last quantitative test and the excess of fair value over carrying value from this test, macroeconomic conditions (including changes in interest
rates and discount rates), industry and market considerations (including industry revenue and Earnings before interest, taxes, depreciation and
amortization (EBITDA) margin results, projections and recent merger and acquisition activity), the recent and projected financial performance
of the reporting unit, as well as other factors.
The quantitative impairment test for goodwill is performed at the reporting unit level and compares the fair value of the reporting unit
(calculated using a combination of a market approach and a discounted cash flow method, as a form of the income approach) to its carrying
63
Verizon 2020 Annual Report on Form 10-K
value. Estimated fair values of reporting units are Level 3 measures in the fair value hierarchy, see Fair Value Measurements discussion
below for additional information. The market approach includes the use of comparative multiples of guideline companies to corroborate
discounted cash flow results. The discounted cash flow method is based on the present value of two components, a projected cash flows and a
terminal value. The terminal value represents the expected normalized future cash flows of the reporting unit beyond the cash flows from the
discrete projection period. The fair value of the reporting unit is calculated based on the sum of the present value of the cash flows from the
discrete period and the present value of the terminal value. The discount rate represents our estimate of the weighted-average cost of capital,
or expected return, that a marketplace participant would have required as of the valuation date. If the carrying value exceeds the fair value, an
impairment charge is booked for the excess carrying value over fair value, limited to the total amount of goodwill of that reporting unit.
During the fourth quarter each year, we update our five-year strategic planning review for each of our reporting units. Those plans consider
current economic conditions and trends, estimated future operating results, our view of growth-rates and anticipated future economic and
regulatory conditions.
See Note 4 for additional information regarding our goodwill impairment testing.
Intangible Assets Not Subject to Amortization
A significant portion of our intangible assets are wireless licenses that provide our wireless operations with the exclusive right to utilize
designated radio frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time, generally
ten years, such licenses are subject to renewal by the Federal Communications Commission (FCC). License renewals have occurred routinely
and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other
factors that limit the useful life of our wireless licenses. As a result, we treat the wireless licenses as an indefinite-lived intangible asset. We
re-evaluate the useful life determination for wireless licenses each year to determine whether events and circumstances continue to support an
indefinite useful life. We aggregate our wireless licenses into one single unit of accounting, as we utilize our wireless licenses on an
integrated basis as part of our nationwide wireless network.
We test our wireless licenses for potential impairment annually or more frequently if impairment indicators are present. We have the option to
first perform a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. However, we may elect
to bypass the qualitative assessment in any period and proceed directly to performing the quantitative impairment test.
As part of our qualitative assessment, we consider several qualitative factors including the business enterprise value of our combined wireless
business, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including
industry revenue and EBITDA margin results, projections and recent merger and acquisition activity), the recent and projected financial
performance of our combined wireless business, as well as other factors. See Note 4 for additional information regarding our impairment
tests.
Our quantitative assessment consists of comparing the estimated fair value of our aggregate wireless licenses to the aggregated carrying
amount as of the test date. Using a quantitative assessment, we estimate the fair value of our aggregate wireless licenses using the Greenfield
approach. The Greenfield approach is an income based valuation approach that values the wireless licenses by calculating the cash flow
generating potential of a hypothetical start-up company that goes into business with no assets except the wireless licenses to be valued. A
discounted cash flow analysis is used to estimate what a marketplace participant would be willing to pay to purchase the aggregated wireless
licenses as of the valuation date. If the estimated fair value of the aggregated wireless licenses is less than the aggregated carrying amount of
the wireless licenses, then an impairment charge is recognized.
Interest expense incurred while qualifying activities are performed to ready wireless licenses for their intended use is capitalized as part of
wireless licenses. The capitalization period ends when the development is discontinued or substantially completed and the license is ready for
its intended use.
Wireless licenses can be purchased through public auctions conducted by the FCC. Deposits required to participate in these auctions and
purchase licenses are recorded within Other assets in our consolidated balance sheets until the corresponding licenses are received and within
Net cash used in investing activities in our consolidated statements of cash flows.
Intangible Assets Subject to Amortization and Long-Lived Assets
Our intangible assets that do not have indefinite lives (primarily customer lists and non-network internal-use software) are amortized over
their estimated useful lives. All of our intangible assets subject to amortization and other long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indications of
impairment are present, we would test for recoverability by comparing the carrying amount of the asset group to the net undiscounted cash
flows expected to be generated from the asset group. If those net undiscounted cash flows do not exceed the carrying amount, we would
perform the next step, which is to determine the fair value of the asset and record an impairment, if any. We re-evaluate the useful life
determinations for these intangible assets each year to determine whether events and circumstances warrant a revision to their remaining
useful lives.
For information related to the carrying amount of goodwill, wireless licenses and other intangible assets, as well as the major components and
average useful lives of our other acquired intangible assets, see Note 4.
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Verizon 2020 Annual Report on Form 10-K
Leases
We lease network equipment including towers, distributed antenna systems, small cells, real estate, connectivity mediums which include dark
fiber, equipment, and other various types of assets for use in our operations under both operating and finance leases. We assess whether an
arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for
separately, we determine the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement
date, which is the date that the underlying asset becomes available for use.
For both operating and finance leases, we recognize a right-of-use asset, which represents our right to use the underlying asset for the lease
term, and a lease liability, which represents the present value of our obligation to make payments arising over the lease term. The present
value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases. The incremental borrowing
rate is determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to
the lease payments on a collateralized basis over a similar term. Management uses the unsecured borrowing rate and risk-adjusts that rate to
approximate a collateralized rate, which is updated on a quarterly basis.
In those circumstances where the Company is the lessee, we account for non-lease components associated with our leases (e.g., common area
maintenance costs) and lease components as a single lease component for substantially all of our asset classes. Additionally, in arrangements
where we are the lessor, we have customer premise equipment for which we account for non-lease components (e.g., service revenue) and
lease components as combined components under the revenue recognition guidance in Topic 606 as the service revenues are the predominant
components in the arrangements.
Rent expense for operating leases is recognized on a straight-line basis over the term of the lease and is included in either Cost of services or
Selling, general and administrative expense in our consolidated statements of income, based on the use of the facility or equipment on which
rent is being paid. Variable rent payments related to both operating and finance leases are expensed in the period incurred. Our variable lease
payments consist of payments dependent on various external indicators, including real estate taxes, common area maintenance charges and
utility usage.
Operating leases with a term of 12 months or less are not recorded on the balance sheet; we recognize rent expense for these leases on a
straight-line basis over the lease term.
We recognize the amortization of the right-of-use asset for our finance leases on a straight-line basis over the shorter of the lease term or the
useful life of the right-of-use asset in Depreciation and amortization expense in our consolidated statements of income. The interest expense
related to finance leases is recognized using the effective interest method based on the discount rate determined at lease commencement and is
included within Interest expense in our consolidated statements of income.
See Note 6 for additional information related to leases, including disclosure required under ASU 2016-02, ASU 2018-01, ASU 2018-10, ASU
2018-11, ASU 2018-20 and ASU 2019-01, Leases (Topic 842).
Fair Value Measurements
Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in
measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 — Unobservable pricing inputs in the market
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the
valuation of the assets and liabilities being measured and their categorization within the fair value hierarchy.
Income Taxes
Our effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations and tax planning strategies available to us in the
various jurisdictions in which we operate.
Deferred income taxes are provided for temporary differences in the basis between financial statement and income tax assets and liabilities.
Deferred income taxes are recalculated annually at tax rates in effect for the years in which those tax assets and liabilities are expected to be
realized or settled. We record valuation allowances to reduce our deferred tax assets to the amount that is more likely than not to be realized.
We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is
recognition: we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of
any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the
more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority that has full
knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition
65
Verizon 2020 Annual Report on Form 10-K
threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest
amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in
a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability
for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset or an increase in a deferred tax
liability.
Significant management judgment is required in evaluating our tax positions and in determining our effective tax rate.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based compensation awards made to employees and directors based on
estimated fair values. See Note 10 for additional information.
Foreign Currency Translation and Transactions
The functional currency of our foreign operations is generally the local currency. For these foreign entities, we translate their financial
statements into U.S. dollars using average exchange rates for the period for income statement amounts and using end-of-period exchange rates
for assets and liabilities. We record these translation adjustments in Accumulated other comprehensive income (loss), a separate component
of Equity, in our consolidated balance sheets. We record exchange gains and losses resulting from the conversion of transaction currency to
functional currency as a component of Other income (expense), net.
Employee Benefit Plans
Pension and postretirement health care and life insurance benefits earned during the year, as well as interest on projected benefit obligations,
are accrued. Prior service costs and credits resulting from changes in plan benefits are generally amortized over the average remaining service
period of the employees expected to receive benefits. Expected return on plan assets is determined by applying the return on assets
assumption to the actual fair value of plan assets. Actuarial gains and losses are recognized in Other income (expense), net in the year in
which they occur. These gains and losses are measured annually as of December 31 or upon a remeasurement event. Verizon management
employees no longer earn pension benefits or earn service towards the Company retiree medical subsidy. See Note 11 for additional
information.
We recognize a pension or a postretirement plan’s funded status as either an asset or liability in the consolidated balance sheets. Also, we
measure any unrecognized prior service costs and credits that arise during the period as a component of Accumulated other comprehensive
income, net of applicable income tax.
Derivative Instruments
We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates and interest rates.
We employ risk management strategies, which may include the use of a variety of derivatives including cross currency swaps, forward
starting interest rate swaps, interest rate swaps, treasury rate locks, interest rate caps and foreign exchange forwards. We do not hold
derivatives for trading purposes.
We measure all derivatives at fair value and recognize them as either assets or liabilities in our consolidated balance sheets. Our derivative
instruments are valued primarily using models based on readily observable market parameters for all substantial terms of our derivative
contracts and thus are classified as Level 2. Changes in the fair values of derivative instruments applied as economic hedges are recognized in
earnings in the current period. For fair value hedges, the change in the fair value of the derivative instruments is recognized in earnings, along
with the change in the fair value of the hedged item. For cash flow hedges, the change in the fair value of the derivative instruments is
reported in Other comprehensive income (loss) and recognized in earnings when the hedged item is recognized in earnings. For net
investment hedges of certain of our foreign operations, the change in the fair value of the hedging instruments is reported in Other
comprehensive income (loss) as part of the cumulative translation adjustment and partially offsets the impact of foreign currency changes on
the value of our net investment.
Cash flows from derivatives, which are designated as accounting hedges or applied as economic hedges, are presented consistently with the
cash flow classification of the related hedged items. See Note 9 for additional information.
Variable Interest Entities
VIEs are entities that lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from
other parties, have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting
rights, do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. We
consolidate the assets and liabilities of VIEs when we are deemed to be the primary beneficiary. The primary beneficiary is the party that has
the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or
the right to receive benefits that could potentially be significant to the VIE.
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Verizon 2020 Annual Report on Form 10-K
Recently Adopted Accounting Standards
The following ASUs were issued by the Financial Accounting Standards Board (FASB), and have been recently adopted by Verizon.
Description
Date of
Adoption
Effect on Financial Statements
1/1/2020 We adopted Topic 326 beginning on January 1, 2020
ASU 2016-13, ASU 2018-19, ASU 2019-04, and ASU 2019-05, Financial Instruments - Credit Losses (Topic 326)
In June 2016, the FASB issued Topic 326 which requires certain
financial assets to be measured at amortized cost net of an
allowance for estimated credit losses, such that the net receivable
represents the present value of expected cash collection. In
addition, this standard update requires that certain financial assets
be measured at amortized cost reflecting an allowance for
estimated credit losses expected to occur over the life of the
assets. The estimate of credit losses must be based on all relevant
information including historical information, current conditions,
and reasonable and supportable forecasts that affect the
collectability of the amounts. An entity applies the update through
a cumulative effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is
effective (January 1, 2020). A prospective transition approach is
required for debt securities for which an other-than-temporary
impairment has been recognized before the effective date. Early
adoption of this standard is permitted.
using the modified retrospective approach with a
cumulative effect adjustment to opening retained earnings
recorded at the beginning of the period of adoption.
Therefore upon adoption, we recognized and measured
estimated credit losses without revising comparative
period information or disclosures. We recorded the pre-tax
cumulative effect of $265 million ($200 million net of tax)
as a reduction to the January 1, 2020 opening balance of
retained earnings, which was related to the timing of
expected credit loss recognition for certain device
payment plan receivables based upon reasonable and
supportable forecasts of the future economic condition as
of January 1, 2020. Additionally, the adoption of the
standard impacted the consolidated balance sheet by
presenting financial assets measured at amortized cost
separate from the allowance for estimated credit losses.
There is no significant impact to our operating results
upon the adoption of this standard update.
ASU 2020-04, Reference Rate Reform (Topic 848)
Topic 848 provides temporary optional guidance to ease the
potential burden in accounting for reference rate reform. Topic
848 provides optional expedients and exceptions for applying
U.S. GAAP to transactions affected by reference rate reform if
certain criteria are met.
3/12/2020 Topic 848 was effective for the Company beginning on
March 12, 2020, and we will apply the amendments
prospectively through December 31, 2022. There was no
impact to our consolidated financial statements for the
current period as a result of adopting this standard update.
`
The cumulative after-tax effect of the changes made to our consolidated balance sheet for the adoption of Topic 326 were as follows:
(dollars in millions)
Allowance for credit losses
Allowance for doubtful accounts
Other assets
Deferred income taxes
Retained earnings
At December 31,
2019
$
— $
733
10,141
34,703
53,147
Adjustments due to
Topic 326 At January 1, 2020
919
—
10,062
34,638
52,947
919 $
(733)
(79)
(65)
(200)
See Note 8 for additional information related to credit losses, including disclosures required under Topic 326.
Opening Equity Balance Sheet Adjustments from Accounting Standards Adopted in 2019 and 2018
On January 1, 2019, we adopted Topic 842 using the modified retrospective approach. The cumulative after-tax effect of the changes made to
our consolidated balance sheet for the adoption of Topic 842 was as follows:
(dollars in millions)
Retained earnings
Noncontrolling interests
At December 31,
2018
43,542 $
1,565
$
Adjustments due
to Topic 842 At January 1, 2019
43,952
1,566
410 $
1
On January 1, 2018, we adopted Topic 606, ASU 2018-02, Income Statement-Reporting Comprehensive Income and other ASUs. We
adopted Topic 606 using the modified retrospective method. We early adopted ASU 2018-02, which allows a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Tax Cuts and Jobs Act (TCJA). The
67
Verizon 2020 Annual Report on Form 10-K cumulative after-tax effect of the changes made to our consolidated balance sheet for the adoption of Topic 606, ASU 2018-02 and other
ASUs was as follows:
(dollars in millions)
Retained earnings
Accumulated other
comprehensive income
Noncontrolling interests
At December 31,
2017
35,635 $
$
Topic 606
ASU 2018-02
Other ASUs
2,890 $
(652) $
(6) $
At January 1,
2018
37,867
Adjustments due to
2,659
1,591
—
44
652
—
(22)
—
3,289
1,635
Note 2. Revenue and Contract Costs
We earn revenue from contracts with customers, primarily through the provision of telecommunications and other services and through the
sale of wireless equipment.
Revenue by Category
We have two reportable segments that we operate and manage as strategic business units, Consumer and Business. Revenue is disaggregated
by products and services within Consumer, and customer groups (Small and Medium Business, Global Enterprise, Public Sector and Other,
and Wholesale) within Business. See Note 13 for additional information on revenue by segment.
Corporate and other includes the results of our media business, Verizon Media, and other businesses. Verizon Media generated revenues from
contracts with customers under Topic 606 of approximately $7.0 billion, $7.5 billion and $7.7 billion for the years ended December 31, 2020,
2019 and 2018, respectively.
We also earn revenues that are not accounted for under Topic 606 from leasing arrangements (such as those for towers and equipment),
captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed under a device
payment plan agreement when sold to the customer by an authorized agent. As allowed by the practical expedient within Topic 842, we have
elected to combine the lease and non-lease components for those arrangements of customer premise equipment where we are the
lessor as components accounted for under Topic 606. Revenues from arrangements that were not accounted for under Topic 606 were
approximately $3.0 billion, $3.1 billion and $4.5 billion for the years ended December 31, 2020, 2019 and 2018, respectively.
Remaining Performance Obligations
When allocating the total contract transaction price to identified performance obligations, a portion of the total transaction price may relate to
service performance obligations which were not satisfied or are partially satisfied as of the end of the reporting period. Below we disclose
information relating to these unsatisfied performance obligations. We apply the practical expedient available under Topic 606 that provides
the option to exclude the expected revenues arising from unsatisfied performance obligations related to contracts that have an original
expected duration of one year or less. This situation primarily arises with respect to certain month-to-month service contracts. At
December 31, 2020, month-to-month service contracts represented approximately 90% of our wireless postpaid contracts and 75% of our
wireline Consumer and Small and Medium Business contracts, compared to December 31, 2019, for which month-to-month service contracts
represented approximately 88% of our wireless postpaid contracts and 61% of our wireline Consumer and Small and Medium Business
contracts.
Additionally, certain contracts provide customers the option to purchase additional services. The fees related to these additional services are
recognized when the customer exercises the option (typically on a month-to-month basis).
Contracts for wireless services are generally either month-to-month and cancellable at any time (typically under a device payment plan) or
contain terms ranging from greater than one month to up to two years (typically under a fixed-term plan). Additionally, customers may incur
charges based on usage or additional optional services purchased in conjunction with entering into a contract that can be cancelled at any time
and therefore are not included in the transaction price. The transaction price allocated to service performance obligations, which are not
satisfied or are partially satisfied as of the end of the reporting period, are generally related to contracts that are not accounted for as month-to-
month contracts.
Our Consumer group customers also include traditional wholesale resellers that purchase and resell wireless service under their own brands to
their respective customers. Reseller arrangements generally include a stated contract term, which typically extends longer than two years and,
in some cases, include a periodic minimum revenue commitment over the contract term for which revenues will be recognized in future
periods.
Consumer customer contracts for wireline services are generally month-to-month; however, they may have a service term of two years or
shorter than twelve months. Certain contracts with Business customers for wireline services extend into future periods, contain fixed monthly
fees and usage-based fees, and can include annual commitments in each year of the contract or commitments over the entire specified contract
term; however, a significant number of contracts for wireline services with our Business customers have a contract term that is twelve months
or less.
68
Verizon 2020 Annual Report on Form 10-K
Additionally, there are certain contracts with Business customers for wireline and telematics services and certain Verizon Media contracts
with customers that have a contractual minimum fee over the total contract term. We cannot predict the time period when revenue will be
recognized related to those contracts; thus, they are excluded from the time bands below. These contracts have varying terms spanning over
approximately five years ending in July 2026 and have aggregate contract minimum payments totaling $2.6 billion.
At December 31, 2020, the transaction price related to unsatisfied performance obligations for total Verizon that is expected to be recognized
for 2021, 2022 and thereafter was $17.4 billion, $6.9 billion and $1.5 billion, respectively. Remaining performance obligation estimates are
subject to change and are affected by several factors, including terminations and changes in the timing and scope of contracts, arising from
contract modifications.
Accounts Receivable and Contract Balances
The timing of revenue recognition may differ from the time of billing to our customers. Receivables presented in our consolidated balance
sheets represent an unconditional right to consideration. Contract balances represent amounts from an arrangement when either Verizon has
performed, by transferring goods or services to the customer in advance of receiving all or partial consideration for such goods and services
from the customer, or the customer has made payment to Verizon in advance of obtaining control of the goods and/or services promised to the
customer in the contract.
The following table presents information about receivables from contracts with customers:
At January 1,
2019
12,104
8,940
At December 31,
2020(1)
12,029
10,358
At December 31,
2019
12,078
11,741
(dollars in millions)
Receivables(2)
Device payment plan agreement receivables(3)
(1) Balances reflected are subsequent to the adoption of Topic 326 on January 1, 2020.
(2) Balances do not include receivables related to the following contracts: leasing arrangements (such as those for towers and equipment),
captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed under a device
payment plan agreement when sold to the customer by an authorized agent.
$
$
$
(3) Included in device payment plan agreement receivables presented in Note 8. Balances do not include receivables related to contracts
completed prior to January 1, 2018 and receivables derived from the sale of equipment on a device payment plan through an authorized
agent.
The following table presents information about contract balances:
(dollars in millions)
Contract asset
Contract liability
At December 31,
2020
937
5,598
$
At December 31,
2019
1,150 $
5,307
$
At January 1,
2019
1,003
4,943
Contract assets primarily relate to our rights to consideration for goods or services provided to customers but for which we do not have an
unconditional right at the reporting date. Under a fixed-term plan, total contract revenue is allocated between wireless service and equipment
revenues. In conjunction with these arrangements, a contract asset is created, which represents the difference between the amount of
equipment revenue recognized upon sale and the amount of consideration received from the customer when the performance obligation
related to the transfer of control of the equipment is satisfied. The contract asset is reclassified to accounts receivable as wireless services are
provided and billed. We have the right to bill the customer as service is provided over time, which results in our right to the payment being
unconditional. The contract asset balances are presented in our consolidated balance sheets as Prepaid expenses and other and Other assets.
We recognize the allowance for credit losses at inception and reassess quarterly based on management's expectation of the asset's
collectability.
Contract assets decreased $213 million during the year ended December 31, 2020. The change in the contract asset balance was primarily due
to reclassifications to accounts receivable due to billings on existing contracts and impairment charges of $75 million, partially offset by new
contracts driven by customer activity related to wireless. Contract assets increased $147 million during the year ended December 31, 2019.
The change in the contract asset balance was primarily due to new contracts and increases in sales promotions recognized upfront, driven by
customer activity related to wireless and Fios services, partially offset by reclassifications to accounts receivable due to billings on existing
contracts and impairment charges of $113 million.
Contract liabilities arise when we bill our customers and receive consideration in advance of providing the goods or services promised in the
contract. We typically bill service one month in advance, which is the primary component of the contract liability balance. Contract liabilities
are recognized as revenue when services are provided to the customer. The contract liability balances are presented in our consolidated
balance sheets as Other current liabilities and Other liabilities.
Contract liabilities increased $291 million during the year ended December 31, 2020. The change in contract liabilities was primarily due to
increases in sales promotions recognized over time and upfront fees, as well as increases in deferred revenue related to advanced billings,
partially offset by the satisfaction of performance obligations related to wireless and Fios services. Contract liabilities increased $364 million
during the year ended December 31, 2019. The change in contract liabilities was primarily due to increases in sales promotions recognized
69
Verizon 2020 Annual Report on Form 10-K
over time and upfront fees, as well as increases in deferred revenue related to advanced billings, partially offset by the satisfaction of
performance obligations related to wireless and Fios services.
Revenue recognized during the years ended December 31, 2020 and 2019 related to contract liabilities existing at January 1, 2020 and 2019
were $4.3 billion and $4.2 billion, respectively, as performance obligations related to services were satisfied.
The balance of contract assets and contract liabilities recorded in our consolidated balance sheets were as follows:
(dollars in millions)
Assets
Prepaid expenses and other
Other assets
Total
Liabilities
Other current liabilities
Other liabilities
Total
Contract Costs
At December 31,
2020
At December 31,
2019
$
$
$
$
733 $
204
937 $
4,843 $
755
5,598 $
848
302
1,150
4,651
656
5,307
As discussed in Note 1, Topic 606 requires the recognition of an asset for incremental costs to obtain a customer contract, which are then
amortized to expense over the respective periods of expected benefit. We recognize an asset for incremental commission expenses paid to
internal and external sales personnel and agents in conjunction with obtaining customer contracts. We only defer these costs when we have
determined the commissions are incremental costs that would not have been incurred absent the customer contract and are expected to be
recoverable. Costs to obtain a contract are amortized and recorded ratably as commission expense over the period representing the transfer of
goods or services to which the assets relate. Costs to obtain wireless contracts are amortized over both of our Consumer and Business
customers' estimated device upgrade cycles, as such costs are typically incurred each time a customer upgrades. Costs to obtain wireline
contracts are amortized as expense over the estimated customer relationship period for our Consumer customers. Incremental costs to obtain
wireline contracts for our Business customers are insignificant. Costs to obtain contracts are recorded in Selling, general and administrative
expense.
We also defer costs incurred to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used
to satisfy our performance obligation under the contract; and (3) are expected to be recovered through revenue generated under the contract.
Contract fulfillment costs are expensed as we satisfy our performance obligations and recorded in Cost of services. These costs principally
relate to direct costs that enhance our wireline business resources, such as costs incurred to install circuits.
We determine the amortization periods for our costs incurred to obtain or fulfill a customer contract at a portfolio level due to the similarities
within these customer contract portfolios.
Other costs, such as general costs or costs related to past performance obligations, are expensed as incurred.
Collectively, costs to obtain a contract and costs to fulfill a contract are referred to as deferred contract costs, and amortized over a two-to
five-year period. Deferred contract costs are classified as current or non-current within Prepaid expenses and other and Other assets,
respectively.
The balances of deferred contract costs included in our consolidated balance sheets were as follows:
(dollars in millions)
Assets
Prepaid expenses and other
Other assets
Total
At December 31,
2020
At December 31,
2019
$
$
2,472 $
2,070
4,542 $
2,578
1,911
4,489
For the years ended December 31, 2020 and 2019, we recognized expense of $3.1 billion and $2.7 billion, respectively, associated with the
amortization of deferred contract costs, primarily within Selling, general and administrative expense in our consolidated statements of
income.
We assess our deferred contract costs for impairment on a quarterly basis. We recognize an impairment charge to the extent the carrying
amount of a deferred cost exceeds the remaining amount of consideration we expect to receive in exchange for the goods and services related
to the cost, less the expected costs related directly to providing those goods and services that have not yet been recognized as expenses. There
have been no impairment charges recognized for the years ended December 31, 2020 and 2019.
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Verizon 2020 Annual Report on Form 10-K
Note 3. Acquisitions and Divestitures
Spectrum License Transactions
During 2019, the FCC completed two millimeter wave spectrum license auctions, Auction 101 and Auction 102. Verizon participated in these
auctions and was the high bidder on 9 and 1,066 licenses, respectively, in the 24 Gigahertz (GHz) and 28 GHz bands. We submitted an
application to the FCC and paid cash of approximately $521 million for the licenses. We received the licenses during the fourth quarter of
2019.
In March 2020, the FCC's incentive auction, Auction 103, for spectrum licenses in the upper 37 GHz, 39 GHz, and 47 GHz bands concluded.
Verizon participated in this incentive auction and was the high bidder on 4,940 licenses, which primarily consisted of 37 GHz and, to a lesser
extent, 39 GHz spectrum. As an incumbent licensee, our 39 GHz licenses provided us with incentive payments that were applied towards the
purchase price of spectrum in the auction. The value of the licenses won by Verizon amounted to $3.4 billion, of which $1.8 billion was
settled with the relinquished 39 GHz licenses. The remaining balance was settled in cash of $1.6 billion, of which $101 million was paid in
December 2019. In connection with the incentive auction, a pre-tax net loss of $1.2 billion ($914 million after-tax) was recorded in Selling,
general and administrative expense in the consolidated statement of income during 2020 because the exchange of the previously held licenses
for new licenses had commercial substance. See Note 4 for additional information. The new reconfigured licenses were received in the second
quarter 2020 and are included in Wireless licenses in our consolidated balance sheet. The average remaining renewal period for these acquired
licenses was 9.9 years.
The fair value of the licenses represents a Level 2 measurement as defined in Accounting Standards Codification 820, Fair Value
Measurements and Disclosures, and was determined based on the final auction price for each defined geographical area.
In September 2020, the FCC completed Auction 105 for Priority Access Licenses. Verizon participated in the auction and was the high bidder
on 557 licenses in the 3.5 GHz band. We submitted an application to the FCC and paid a cash deposit of approximately $1.9 billion for the
licenses. Deposits required to participate in these auctions and purchase licenses are recorded within Other assets in our consolidated balance
sheet until the corresponding licenses are received, and within Net cash used in investing activities in our consolidated statements of cash
flows. The timing of when the licenses will be issued will be determined by the FCC after all payments have been made.
In September 2020, Cellco Partnership (Cellco), a wholly-owned subsidiary of Verizon, filed an application to participate in FCC Auction
107, which relates to mid-band wireless spectrum known as C-Band. The auction commenced on December 8, 2020. On February 24, 2021,
the FCC issued a final notice announcing the conclusion and results of the auction. In its final notice, the FCC announced that Cellco was the
winning bidder with respect to approximately $45.5 billion of licenses. Down payments, in the amount of 20% of the cost of the spectrum
licenses less the amount of the upfront payment made by bidders in October 2020, with respect to the auction are due on March 10, 2021, and
final payments in the amount of 80% of the cost of the spectrum licenses are due on March 24, 2021. In accordance with the rules applicable
to the auction, licensees also must pay their allocable shares of an estimated $13.1 billion in associated clearing and incentive costs at the
times contemplated by the auction rules.
During 2020 and 2019, we entered into and completed various other wireless license acquisitions for cash consideration of $360 million and
an insignificant amount, respectively. During 2018, we entered into and completed various wireless license transactions, including the
purchase of Straight Path Communications Inc. (Straight Path) and NextLink Wireless LLC (NextLink).
Straight Path
In May 2017, we entered into a purchase agreement to acquire Straight Path, a holder of millimeter wave spectrum configured for fifth-
generation (5G) wireless services, for total consideration reflecting an enterprise value of approximately $3.1 billion. Under the terms of the
purchase agreement, we agreed to pay: (1) Straight Path shareholders $184.00 per share, payable in Verizon shares; and (2) certain transaction
costs payable in cash of approximately $736 million, consisting primarily of a fee to be paid to the FCC. The transaction closed in February
2018 at which time we issued approximately 49 million shares of Verizon common stock, valued at approximately $2.4 billion, and paid the
associated cash consideration.
The acquisition of Straight Path was accounted for as an asset acquisition, as substantially all of the value related to the acquired spectrum.
Upon closing, we recorded approximately $4.5 billion of wireless licenses and $1.4 billion of a deferred tax liability. The spectrum acquired
as part of the transaction is being used for our 5G technology deployment.
Blue Jeans Network, Inc.
In April 2020, we entered into a definitive purchase agreement to acquire Blue Jeans Network, Inc. (BlueJeans), an enterprise-grade video
conferencing and event platform, whose services are sold to Business customers globally. The transaction closed in May 2020. The aggregate
cash consideration paid by Verizon at the closing of the transaction was approximately $397 million, net of cash acquired.
The financial results of BlueJeans are included in the consolidated results of Verizon from the date of acquisition. Revenue related to
BlueJeans was approximately $73 million for the year ended December 31, 2020.
71
Verizon 2020 Annual Report on Form 10-K
The acquisition of BlueJeans was accounted for as a business combination. We are currently assessing the identification and measurement of
the assets acquired and liabilities assumed based on their fair values as of the close of the acquisition, subject to customary closing
adjustments. Preliminarily, we recorded approximately $253 million of goodwill and $190 million of other intangible assets, which primarily
consisted of customer lists and internally developed technology. Goodwill is calculated as the difference between the acquisition date fair
value of the consideration transferred and the fair value of the net assets acquired. The goodwill represents future economic benefits that we
expect to achieve as a result of the acquisition. The goodwill related to this acquisition is included within Business.
TracFone Wireless, Inc.
In September 2020, we entered into a purchase agreement (Tracfone Purchase Agreement) with América Móvil to acquire TracFone Wireless,
Inc. (Tracfone), a provider of prepaid and value mobile services in the U.S. Under the terms of the Tracfone Purchase Agreement, we will
acquire all of the stock of Tracfone for approximately $3.1 billion in cash and $3.1 billion in Verizon common stock, subject to customary
adjustments, at closing. The number of shares issued will be based on an average trading price determined as of the closing date and is subject
to a minimum number of shares issuable of 47,124,445 and a maximum number of shares issuable of 57,596,544. The Tracfone Purchase
Agreement also includes up to an additional $650 million in future cash consideration related to the achievement of certain performance
measures and other commercial arrangements. The transaction is subject to regulatory approvals and closing conditions and is expected to
close in the second half of 2021.
Bluegrass Cellular
In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass Cellular, a rural wireless operator serving
central Kentucky. Bluegrass Cellular provides wireless service to 210,000 customers in 34 counties in rural service areas 3, 4, and 5 in Central
Kentucky. The transaction is subject to regulatory approvals and closing conditions and is expected to close in the first quarter of 2021.
Other
In July 2019, Verizon completed a sale-leaseback transaction for buildings and real estate. See Note 6 for additional information related to the
transaction. In connection with this transaction and other insignificant transactions, we recorded a pre-tax net gain from dispositions of assets
and businesses of $261 million in Selling, general and administrative expense in our consolidated statement of income for the year ended
December 31, 2019.
During 2020, we completed various other acquisitions for approximately $127 million in cash consideration. During 2019 and 2018, we
completed various other acquisitions for an insignificant amount of cash consideration.
In November 2020, Verizon entered into an agreement to sell our Huffington Post business. In connection with this transaction, we recorded a
pre-tax loss of $126 million in Selling, general and administrative expense in our consolidated statement of income for the year ended
December 31, 2020. The transaction closed in February 2021.
Note 4. Wireless Licenses, Goodwill and Other Intangible Assets
Wireless Licenses
The carrying amounts of Wireless licenses are as follows:
At December 31,
Wireless licenses
(dollars in millions)
2019
95,059
2020
96,097 $
$
At December 31, 2020 and 2019, approximately $6.4 billion and $6.2 billion, respectively, of wireless licenses were under development for
commercial service for which we were capitalizing interest costs. We recorded approximately $242 million and $321 million of capitalized
interest on wireless licenses for the years ended December 31, 2020 and 2019, respectively.
In the first quarter of 2020, we reclassified substantially all of our 39 GHz wireless licenses, including capitalized interest, with a carrying
value of $2.8 billion to assets held for sale in connection with the FCC's incentive auction, Auction 103. As a result, these wireless licenses
were adjusted down to their fair value of $1.6 billion resulting in a pre-tax loss of $1.2 billion ($914 million after-tax) in 2020. The new
reconfigured licenses were received in the second quarter 2020 and had a value of $3.4 billion. See Note 3 for additional information
regarding spectrum license transactions in 2020 and 2019.
During 2020, we renewed various wireless licenses in accordance with FCC regulations. The average renewal period for these licenses was 10
years. See Note 1 for additional information.
As discussed in Note 1, we test our wireless licenses for potential impairment annually or more frequently if impairment indicators are
present. In 2020 and 2019, we performed a qualitative assessment to determine whether it was more likely than not that the fair value of our
wireless licenses was less than the carrying amount. In 2018, our quantitative impairment test consisted of comparing the estimated fair value
of our aggregate wireless licenses estimated using the Greenfield approach to the aggregated carrying amount of the licenses as of the test
72
Verizon 2020 Annual Report on Form 10-K
date. Our annual assessments in 2020, 2019 and 2018 indicated that the fair value of our wireless licenses exceeded the carrying value and,
therefore, did not result in impairment.
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 that supports our businesses, evolve and maintain our networks and develop and
maintain significant advanced information technology systems and data system capabilities.
Goodwill
The Company transitioned into our new reporting structure as of April 1, 2019, which resulted in certain changes to our operating segments
and reporting units. Upon the date of reorganization, the goodwill of our historical Wireless reporting unit, historical Wireline reporting unit
and historical Verizon Connect reporting unit were reallocated to our new Consumer and Business reporting units using a relative fair value
approach.
Changes in the carrying amount of Goodwill are as follows:
Consumer
Business
Wireless
Wireline
Other (1)
Balance at January 1, 2019
Acquisitions
Reclassifications, adjustments and other
$
Balance at March 31, 2019
Reporting Unit reallocation (2)
Balance at April 1, 2019
Acquisitions
Media goodwill impairment
Reclassifications, adjustments and other
Balance at December 31, 2019
Acquisitions (3)
Reclassifications, adjustments and other
— $
—
—
—
17,104
17,104
—
—
—
17,104
118
—
17,222 $
— $
—
—
—
7,269
7,269
2
—
(2)
7,269
254
12
7,535 $
18,397 $
—
—
18,397
(18,397)
—
—
—
—
—
—
—
— $
3,871 $
20
1
3,892
(3,892)
—
—
—
—
—
—
—
— $
(dollars in millions)
Total
24,614
20
1
24,635
—
24,635
2
(186)
(62)
24,389
372
12
24,773
2,346 $
—
—
2,346
(2,084)
262
—
(186)
(60)
16
—
—
16 $
$
Balance at December 31, 2020
(1) Other Goodwill is net of accumulated impairment charges of $4.8 billion at December 31, 2019 and December 31, 2020, related to our
Media reporting unit.
(2) Represents the reallocation of goodwill as a result of the Company reorganizing its segments.
(3) Changes in goodwill due to acquisitions is related to BlueJeans and an other insignificant transaction. See Note 3 for additional information.
We performed qualitative impairment assessments for our Consumer and Business reporting units during the fourth quarter of 2020 and 2019.
Our qualitative assessments indicated that it was more likely than not that the fair values for our Consumer and Business reporting units
exceeded their respective carrying values and, therefore, did not result in an impairment.
We performed impairment assessments of the reporting units impacted by the strategic reorganization, specifically our historical Wireless,
historical Wireline and historical Connect reporting units on March 31, 2019, immediately before our strategic reorganization became
effective. Our impairment assessments indicated that the fair value for each of our historical Wireless, historical Wireline and historical
Connect reporting units exceeded their respective carrying values, and therefore did not result in a goodwill impairment. We then performed
quantitative assessments of our Consumer and Business reporting units on April 1, 2019, immediately following our strategic reorganization.
Our impairment assessments indicated that the fair value for each of our Consumer and Business reporting units exceeded their respective
carrying values and therefore, did not result in a goodwill impairment. Our Media reporting unit was not impacted by the strategic
reorganization and there was no indicator of impairment as of the reorganization date.
We performed quantitative impairment assessments for our Media reporting unit in 2019 and 2018. For details on our Media reporting unit,
refer to the discussion below.
Our Media business, Verizon Media, experienced increased competitive and market pressures throughout 2018 that resulted in lower than
expected revenues and earnings. These pressures were expected to continue and have resulted in a loss of market positioning to our
competitors in the digital advertising business. Our Media business also achieved lower than expected benefits from the integration of the
Yahoo and AOL businesses.
In connection with Verizon’s annual budget process during the fourth quarter of 2019 and 2018, the leadership at both Verizon Media and
Verizon completed a comprehensive five-year strategic planning review of Verizon Media's business prospects resulting in unfavorable
adjustments to Verizon Media's financial projections. These revised projections were used as a key input into Verizon Media's annual
goodwill impairment tests performed in the fourth quarter of 2019 and 2018.
During the fourth quarter of 2019 and 2018, consistent with our accounting policy, we applied a combination of a market approach and a
discounted cash flow method reflecting current assumptions and inputs, including our revised projections, discount rate and expected growth
73
Verizon 2020 Annual Report on Form 10-K
rates, which resulted in the determination that the fair value of the Media reporting unit was less than its carrying amount. As a result, we
recorded a non-cash goodwill impairment charge of approximately $186 million ($176 million after-tax) in the fourth quarter of 2019 and a
charge of $4.6 billion ($4.5 billion after-tax) in the fourth quarter of 2018 in our consolidated statement of income. The goodwill balance of
the Media reporting unit has been fully written off as a result of these impairment charges.
We performed a quantitative impairment assessment for all of the other reporting units in 2018. Our impairment tests indicated that the fair
value for each of our historical Wireless, historical Wireline and historical Connect reporting units exceeded their respective carrying value
and, therefore, did not result in an impairment.
Other Intangible Assets
The following table displays the composition of Other intangible assets, net as well as the respective amortization period:
At December 31,
Customer lists (8 to 13 years)
Gross
Amount
Accumulated
Amortization
2020
Net
Amount
Gross
Amount
Accumulated
Amortization
$
4,021 $
(1,961) $
2,060 $
3,896 $
(1,511) $
Non-network internal-use software
(5 to 7 years)
Other (2 to 25 years)
Total
$
21,685
1,771
27,477 $
(15,104)
(999)
(18,064) $
6,581
772
9,413 $
20,530
1,967
26,393 $
(14,418)
(966)
(16,895) $
The amortization expense for Other intangible assets was as follows:
(dollars in millions)
2019
Net
Amount
2,385
6,112
1,001
9,498
Years
2020
2019
2018
Estimated annual amortization expense for Other intangible assets is as follows:
Years
2021
2022
2023
2024
2025
Note 5. Property, Plant and Equipment
The following table displays the details of Property, plant and equipment, which is stated at cost:
$
$
(dollars in millions)
2,445
2,311
2,217
(dollars in millions)
2,337
2,009
1,639
1,210
846
At December 31,
Land
Buildings and equipment
Central office and other network equipment
Cable, poles and conduit
Leasehold improvements
Work in progress
Furniture, vehicles and other
Less accumulated depreciation
Property, plant and equipment, net
Note 6. Leasing Arrangements
Lives (years)
-
7 to 45
3 to 50
7 to 50
5 to 20
-
3 to 20
$
$
2020
608 $
(dollars in millions)
2019
594
31,216
152,733
52,658
9,072
9,234
10,227
265,734
173,819
91,915
32,933
160,369
56,814
9,497
8,576
10,940
279,737
184,904
94,833 $
We enter into various lease arrangements for network equipment including towers, distributed antenna systems, small cells, real estate and
connectivity mediums including dark fiber, equipment, and other various types of assets for use in our operations. Our leases have remaining
lease terms ranging from 1 year to 30 years, some of which include options that we can elect to extend the leases term for up to 25 years, and
some of which include options to terminate the leases. For the majority of leases entered into during the current period, we have concluded it
is not reasonably certain that we would exercise the options to extend the lease or terminate the lease. Therefore, as of the lease
74
Verizon 2020 Annual Report on Form 10-K
commencement date, our lease terms generally do not include these options. We include options to extend the lease when it is reasonably
certain that we will exercise that option.
During March 2015, we completed a transaction with American Tower Corporation (American Tower) pursuant to which American Tower
acquired the exclusive rights to lease and operate approximately 11,300 of our wireless towers for an upfront payment of $5.0 billion. We
have subleased capacity on the towers from American Tower for a minimum of 10 years at current market rates in 2015, with options to
renew. We continue to include the towers in Property, plant and equipment, net in our consolidated balance sheets and depreciate them
accordingly. In addition to the rights to lease and operate the towers, American Tower assumed the interest in the underlying ground leases
related to these towers. While American Tower can renegotiate the terms of and is responsible for paying the ground leases, we are still the
primary obligor for these leases and accordingly, the present value of these ground leases are included in our operating lease right-of-use
assets and operating lease liabilities. We do not expect to be required to make ground lease payments unless American Tower defaults, which
we determined to be remote.
The components of net lease cost were as follows:
Years Ended December 31,
Operating lease cost (1)
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Short-term lease cost (1)
Variable lease cost (1)
Sublease income
Total net lease cost
Classification
Cost of services
Selling, general and administrative expense $
Depreciation and amortization expense
Interest expense
Cost of services
Selling, general and administrative expense
Cost of services
Selling, general and administrative expense
Service revenues and other
(dollars in millions)
2019
2020
5,016 $
4,746
309
39
22
330
38
40
295
(291)
5,390 $
218
(275)
5,097
$
(391)
Gain on sale and leaseback transaction, net
(1) All operating lease costs, including short-term and variable lease costs, are split between Cost of services and Selling, general and
administrative expense in the consolidated statements of income based on the use of the facility or equipment that the rent is being paid on.
See Note 1 for additional information. Variable lease costs represent payments that are dependent on a rate or index, or on usage of the
asset.
Selling, general and administrative expense $
— $
Supplemental disclosure for the statements of cash flows related to operating and finance leases were as follows:
Years Ended December 31,
Cash Flows from Operating Activities
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases
Operating cash flows for finance leases
Cash Flows from Financing Activities
Financing cash flows for finance leases
Supplemental lease cash flow disclosures
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
Right-of-use assets obtained in exchange for new finance lease liabilities
Supplemental disclosures for the balance sheet related to finance leases were as follows:
At December 31,
Assets
Property, plant and equipment, net
Liabilities
Debt maturing within one year
Long-term debt
Total Finance lease liabilities
(dollars in millions)
2019
2020
$
(4,813) $
(39)
(4,392)
(38)
(394)
(352)
3,800
562
3,510
564
(dollars in millions)
2019
2020
1,127 $
939
368 $
916
1,284 $
336
780
1,116
$
$
$
75
Verizon 2020 Annual Report on Form 10-K
The weighted-average remaining lease term and the weighted-average discount rate of our leases were as follows:
At December 31,
Weighted-average remaining lease term (years)
Operating Leases
Finance Leases
Weighted-average discount rate
Operating Leases
Finance Leases
The Company's maturity analysis of operating and finance lease liabilities as of December 31, 2020 were as follows:
Years
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less interest
Present value of lease liabilities
Less current obligation
Long-term obligation at December 31, 2020
Operating Leases
4,327 $
3,924
3,561
3,023
2,189
7,970
24,994
3,509
21,485
3,485
18,000 $
$
$
2020
2019
8
4
9
5
3.5%
2.5%
4.0%
3.2%
(dollars in millions)
Finance Leases
373
324
267
211
90
101
1,366
82
1,284
368
916
As of December 31, 2020, we have contractually obligated lease payments amounting to $1.6 billion primarily for office facility operating
leases and small cell colocation and fiber operating leases that have not yet commenced. We have legally obligated lease payments for various
other operating leases that have not yet commenced for which the total obligation was not significant. We have certain rights and obligations
for these leases, but have not recognized an operating lease right-of-use asset or an operating lease liability since they have not yet
commenced.
Real Estate Transaction
On July 23, 2019, Verizon completed a sale-leaseback transaction for buildings and real estate. We received total gross proceeds of
approximately $1.0 billion. We leased back a portion of the buildings and real estate sold and accounted for it as an operating lease. The term
of the leaseback is for two years with four options to renew for an additional three months each. The proceeds received as a result of this
transaction have been classified in Other, net within Cash Flows from Investing Activities in our consolidated statement of cash flows for the
year ended December 31, 2019. The net gain as a result of this transaction is included in the components of net lease cost table above.
Disclosures Related to Periods Prior to Adoption of Topic 842
Total rent expense under operating leases amounted to $4.1 billion in 2018.
76
Verizon 2020 Annual Report on Form 10-K
Note 7. Debt
Outstanding long-term debt obligations as of December 31, 2020 and 2019 are as follows:
At December 31,
Verizon Communications
Alltel Corporation
Operating telephone company subsidiaries—debentures
GTE LLC
Other subsidiaries—asset-backed debt
Finance lease obligations (average rate of 2.5% and 3.2% in 2020
and 2019, respectively)
Unamortized discount, net of premium
Unamortized debt issuance costs
Total long-term debt, including current maturities
Less long-term debt maturing within one year
Total long-term debt
Maturities
< 5 Years
5-10 Years
> 10 Years
< 5 Years
5-10 Years
5-10 Years
> 10 Years
< 5 Years
5-10 Years
> 10 Years
< 5 Years
5-10 Years
< 5 Years
< 5 Years
Interest
Rates %
0.85 – 5.51
1.38 – 7.75
1.75 – 8.95
Floating
Floating
6.80
7.88
7.88 – 8.00
6.00 – 8.38
5.13 – 8.75
8.75
6.94
0.41 – 3.56
Floating
(1)
(1)
(1)
(dollars in millions)
2020
17,936 $
35,423
65,019
2,917
941
38
58
141
317
308
141
250
9,414
1,216
2019
19,885
30,038
47,777
2,210
1,789
38
58
141
286
339
141
250
8,116
4,277
1,284
(6,057)
(604)
128,742
5,569
123,173 $
1,116
(4,480)
(492)
111,489
10,777
100,712
$
$
111,489
Total long-term debt, including current maturities
—
Plus short-term notes payable
111,489
Total debt
(1) The debt obligations bore interest at a floating rate based on the London Interbank Offered Rate (LIBOR) plus an applicable interest margin
128,742 $
320
129,062 $
$
$
per annum.
Maturities of long-term debt (secured and unsecured) outstanding, including current maturities, excluding unamortized debt issuance costs, at
December 31, 2020 are as follows:
Years
2021
2022
2023
2024
2025
Thereafter
(dollars in millions)
5,227
8,645
7,511
4,286
8,528
93,865
$
During 2020, we received $31.5 billion of proceeds from long-term borrowings, which included $5.6 billion of proceeds from asset-backed
debt transactions. The net proceeds are a result of the liquidity strategy that we pursued at the beginning of the COVID-19 pandemic to
maintain a higher cash balance in order to further protect the Company against the economic uncertainties associated with the COVID-19
pandemic and to opportunistically raise cash to finance future obligations at a time when we believed that market conditions were favorable.
We used $17.2 billion of cash to repay, redeem and repurchase long-term borrowings and finance lease obligations, including $7.4 billion to
prepay and repay asset-backed, long-term borrowings. The net proceeds from the green bond issued in 2020 are expected to be used to fund
certain renewable energy projects.
During 2019, we received $18.7 billion of proceeds from long-term borrowings, which included $8.6 billion of proceeds from asset-backed
debt transactions. The net proceeds were used for general corporate purposes including the repayment of debt and the funding of certain
eligible green projects. We used $23.9 billion of cash to repay, redeem and repurchase long-term borrowings and finance lease obligations,
including $6.3 billion to prepay and repay asset-backed, long-term borrowings.
77
Verizon 2020 Annual Report on Form 10-K
2020 Significant Debt Transactions
Debt or equity financing may be needed to fund additional investments or development activities, including, for example, to complete our
acquisition of Tracfone or to acquire additional wireless spectrum, or to maintain an appropriate capital structure to ensure our financial
flexibility.
The following tables show the significant transactions involving the senior unsecured debt securities of Verizon and its subsidiaries that
occurred during the year ended December 31, 2020.
Exchange Offers
Principal Amount
(dollars in millions)
Issued
Verizon 2.450% - 5.150% notes and floating rate notes, due 2021 - 2024
—
Verizon 1.680% notes due 2030 (1)
1,147
Verizon 5.012% - 6.550% notes, due 2037 - 2049
—
Verizon 2.987% notes due 2056 (1)
4,500
Total (2)
5,647
(1) The principal amount issued in exchange does not include either an insignificant amount of cash paid in lieu of the issuance of fractional
1,047 $
—
3,666
—
4,713 $
Principal Amount
Exchanged
$
$
new notes or accrued and unpaid interest paid on the old notes accepted for exchange to the date of exchange.
(2) The debt exchange offers above meet the criteria to be accounted for as a modification of debt. As a result, the excess of new notes issued
over the notes exchanged of $934 million, and an additional $748 million cash consideration paid were recorded as a discount to Long-term
debt in the consolidated balance sheets. The cash payment was recorded in Other, Net within Cash Flows from Financing activities.
Repayments, Redemptions and Repurchases
Principal Repaid/
Redeemed/
Repurchased
$
(dollars in millions)
Verizon 4.950% notes due 2047
Verizon 5.143% preferred stock due 2020
Verizon floating rate (LIBOR +0.550%) notes due 2020 (2)
Verizon 4.600% notes due 2021
Verizon 3.125% notes due 2022
Verizon 3.450% notes due 2021
Open market repurchases of various Verizon notes
Verizon 2.375% notes due 2022 (3)
Verizon 0.500% notes due 2022 (4)
Total
(1) Represents amount paid to repay, redeem or repurchase, excluding interest or dividend.
(2) The three-month LIBOR.
(3) Principal and premium amount repaid was €980 million. U.S. dollar amount paid includes cash settlement from derivatives entered into in
Amount Paid (1)
1,475
1,650
1,018
949
1,314
575
143
1,199
517
8,840
1,475 $
1,650
1,018
920
1,256
566
121
935
454
€
€
$
connection with the transaction. See Note 9 for information on cross currency swaps.
(4) Principal and premium amount repaid was €463 million. U.S. dollar amount paid includes cash settlement from derivatives entered into in
connection with the transaction. See Note 9 for information on cross currency swaps.
78
Verizon 2020 Annual Report on Form 10-K
Issuances
$
(dollars in millions)
Verizon 3.600% notes due 2060
Verizon 3.000% notes due 2027
Verizon 3.150% notes due 2030
Verizon 4.000% notes due 2050
Verizon 1.500% notes due 2030 (2)
Verizon 3.000% notes due 2060
Verizon 0.850% notes due 2025
Verizon 1.750% notes due 2031
Verizon 2.650% notes due 2040
Verizon 2.875% notes due 2050
Verizon 3.000% notes due 2060
Verizon 2.500% notes due 2030 (3)
Verizon 3.625% notes due 2050 (3)
Verizon 1.300% notes due 2033 (3)
Verizon 1.850% notes due 2040 (3)
Verizon 1.125% notes due 2028 (3)
Verizon 1.875% notes due 2038 (3)
Total
(1) Net proceeds were net of discount and issuance costs.
(2) An amount equal to the net proceeds from this green bond is expected to be used to fund, in whole or in part, certain renewable energy
projects, including new and existing investments made by us during the period from July 1, 2020 through the maturity date of the green
bond.
Principal Amount
Issued
2,385 $
750
1,500
1,250
1,000
1,123
2,000
2,250
3,000
2,750
2,000
1,000
300
1,350
800
600
600
Net Proceeds (1)
2,369
747
1,489
1,241
995
1,115
1,994
2,231
2,979
2,722
1,967
705
209
1,464
869
766
765
24,627
C$
C$
€
€
£
£
$
(3) See Note 9 for information on derivative transactions related to the issuances.
Short-Term Borrowings and Commercial Paper Program
As of December 31, 2020, we had no short-term borrowings or commercial paper outstanding. In April 2020, we issued $3.5 billion in
commercial paper, of which $2.5 billion was repaid during the three months ended June 30, 2020 and the remaining $1.0 billion was repaid
during the three months ended September 30, 2020. These transactions were recorded within Other, net cash flow from financing in our
consolidated statements of cash flows.
Asset-Backed Debt
As of December 31, 2020, the carrying value of our asset-backed debt was $10.6 billion. Our asset-backed debt includes Asset-Backed Notes
(ABS Notes) issued to third-party investors (Investors) and loans (ABS Financing Facilities) received from banks and their conduit facilities
(collectively, the Banks). Our consolidated asset-backed debt bankruptcy remote legal entities (each, an ABS Entity or collectively, the ABS
Entities) issue the debt or are otherwise party to the transaction documentation in connection with our asset-backed debt transactions. Under
the terms of our asset-backed debt, Cellco and certain other affiliates of Verizon (collectively, the Originators) transfer device payment plan
agreement receivables to one of the ABS Entities, which in turn transfers such receivables to another ABS Entity that issues the debt. Verizon
entities retain the equity interests in the ABS Entities, which represent the rights to all funds not needed to make required payments on the
asset-backed debt and other related payments and expenses.
Our asset-backed debt is secured by the transferred device payment plan agreement receivables and future collections on such receivables.
The device payment plan agreement receivables transferred to the ABS Entities and related assets, consisting primarily of restricted cash, will
only be available for payment of asset-backed debt and expenses related thereto, payments to the Originators in respect of additional transfers
of device payment plan agreement receivables, and other obligations arising from our asset-backed debt transactions, and will not be available
to pay other obligations or claims of Verizon’s creditors until the associated asset-backed debt and other obligations are satisfied. The
Investors or Banks, as applicable, which hold our asset-backed debt have legal recourse to the assets securing the debt, but do not have any
recourse to Verizon with respect to the payment of principal and interest on the debt. Under a parent support agreement, Verizon has agreed to
guarantee certain of the payment obligations of Cellco and the Originators to the ABS Entities.
Cash collections on the device payment plan agreement receivables collateralizing our asset-backed debt securities are required at certain
specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in
Prepaid expenses and other, and Other assets in our consolidated balance sheets.
Proceeds from our asset-backed debt transactions are reflected in Cash flows from financing activities in our consolidated statements of cash
flows. The asset-backed debt issued and the assets securing this debt are included in our consolidated balance sheets.
As mentioned above, holders of our asset-backed debt do not have any recourse to Verizon with respect to the payment of principal and
interest on the debt. However, if an early amortization of our asset-backed debt occurs, including as a result of increased customer
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Verizon 2020 Annual Report on Form 10-K
delinquencies or losses relating to the COVID-19 pandemic, all collections on the securitized device payment plan agreement receivables
would be used to pay principal and interest on the asset-backed debt, and our financing cash flow requirements would increase for the twelve
months immediately following an early amortization event.
ABS Notes
During the year ended December 31, 2020, we completed the following ABS Notes transactions:
(dollars in millions)
January 2020
A-1a Senior class notes
A-1b Senior floating rate class notes
B Junior class notes
C Junior class notes
January 2020 total
August 2020
A Senior class notes
B Junior class notes
C Junior class notes
August 2020 total
November 2020
A Senior class notes
B Junior class notes
C Junior class notes
November 2020 total
Total
(1) The one-month LIBOR at December 31, 2020 was 0.144%.
Interest Rates %
1.850
LIBOR + 0.270
(1)
1.980
2.060
0.470
0.680
0.830
0.410
0.670
0.770
Expected
Weighted-average
Life to Maturity
(in years)
Principal Amount
Issued
2.46
2.46
3.18
3.36
2.48
3.18
3.36
2.45
3.19
3.37
$
$
1,326
100
98
76
1,600
1,426
98
76
1,600
1,069
74
57
1,200
4,400
Under the terms of each series of ABS Notes, there is a two year revolving period during which we may transfer additional receivables to the
ABS Entity. During the year ended December 31, 2020, we made aggregate principal repayments of $3.4 billion on ABS notes that have
entered the amortization period, including principal payments made in connection with clean-up redemptions. During the year ended
December 31, 2019, we made aggregate principal repayments of $3.3 billion on ABS notes that had entered the amortization period, including
principal payments made in connection with clean-up redemptions. In January 2021, we made a principal payment of $180 million in
connection with a clean-up redemption.
ABS Financing Facility
In May 2020, we amended and restated our outstanding ABS financing facility originally entered into in 2016, and previously amended and
restated in 2019, with a number of financial institutions (ABS Financing Facility). Under the terms of the ABS Financing Facility, the
financial institutions make advances under asset-backed loans backed by device payment plan agreement receivables of both consumer and
business customers. One loan agreement is outstanding in connection with the ABS Financing Facility, and such loan agreement was
amended and restated in May 2020. The loan agreement has a final maturity date in May 2024 and bears interest at floating rates. There is a
one year revolving period until May 2021, which may be extended with the approval of the financial institutions. Under the loan agreement,
we have the right to prepay all or a portion of the advances at any time without penalty, but in certain cases, with breakage costs. Subject to
certain conditions, we may also remove receivables from the ABS Entity. During 2020, we borrowed $1.3 billion and prepaid $4.0 billion
under the loan agreement. The aggregate outstanding balance under the ABS Financing Facility was $500 million as of December 31, 2020.
Variable Interest Entities
The ABS Entities meet the definition of a VIE for which we have determined that we are the primary beneficiary as we have both the power
to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to
receive benefits of the entity. Therefore, the assets, liabilities and activities of the ABS Entities are consolidated in our financial results and
are included in amounts presented on the face of our consolidated balance sheets.
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Verizon 2020 Annual Report on Form 10-K
The assets and liabilities related to our asset-backed debt arrangements included in our consolidated balance sheets were as follows:
(dollars in millions)
Assets
Accounts receivable, net
Prepaid expenses and other
Other assets
Liabilities
Accounts payable and accrued liabilities
Debt maturing within one year
Long-term debt
At December 31,
2020
At December 31,
2019
$
9,257 $
1,128
2,950
8
4,191
6,413
10,525
1,180
3,856
11
5,578
6,791
See Note 8 for additional information on device payment plan agreement receivables used to secure asset-backed debt.
Long-Term Credit Facilities
(dollars in millions)
Verizon revolving credit facility (1)
Various export credit facilities (2)
Total
Maturities
2024
2022-2028
Facility
Capacity
9,500 $
7,500
17,000 $
$
$
At December 31, 2020
Principal
Amount
Outstanding
Unused
Capacity
9,392
1,000 $
10,392 $
N/A
4,882
4,882
N/A - not applicable
(1) The revolving credit facility does not require us to comply with financial covenants or maintain specified credit ratings, and it permits us to
borrow even if our business has incurred a material adverse change. The revolving credit facility provides for the issuance of letters of
credit.
(2) During 2020 and 2019, we drew down $1.0 billion and $1.5 billion from these facilities, respectively. These credit facilities are used to
finance equipment-related purchases. Borrowings under certain of these facilities amortize semi-annually in equal installments up to the
applicable maturity dates. Maturities reflect maturity dates of principal amounts outstanding. Any amounts borrowed under these facilities
and subsequently repaid cannot be reborrowed.
2021 Credit Agreement
Delayed Draw Term Loan Credit Agreement
On February 24, 2021 (the Effective Date), Verizon entered into a $25.0 billion Delayed Draw Term Loan Credit Agreement (the Credit
Agreement) with two financial institutions, which includes initial commitments of $12.5 billion from each of these parties. The Credit
Agreement provides Verizon with the ability to borrow up to $25.0 billion for general corporate purposes, including any potential acquisition
of spectrum. The loans under the Credit Agreement are available during the period (the Availability Period) beginning on the Effective Date
and ending on the earlier of (i) May 28, 2021, and (ii) the receipt by the two financial institutions of written notice by Verizon of its election
to terminate commitments pursuant to the Credit Agreement. The availability of the loans under the Credit Agreement, which have not yet
been funded, is subject to the satisfaction (or waiver) of the conditions that certain representations of Verizon are accurate in all material
respects and the absence of certain event of default. The loans under the Credit Agreement are to be made in a single borrowing on the
funding date and will mature and be payable in full on the date that is 364 days after the funding date unless extended pursuant to the terms of
the Credit Agreement. The two financial institutions may syndicate their commitments under the Credit Agreement, subject to the terms of the
Credit Agreement.
Interest Rate and Fees
The loans under the Credit Agreement will bear interest at a rate equal to, at the option of Verizon, (i) the base rate (defined as the greater of
the rate last quoted by the Wall Street Journal as the "prime rate", the federal funds rate plus 0.500%, and one-month LIBOR plus 1.000%,
subject to a floor of 1.000%) or (ii) LIBOR, in each case plus a margin to be determined by reference to Verizon’s credit ratings and ranging
from 0.000% to 0.125% in the case of base rate loans and 0.625% to 1.125% in the case of LIBOR loans. Additional margin of 0.125% is
added to the loan on December 31, 2021.
Verizon will pay a commitment fee on the daily actual unused commitment of each lender starting on the date that is 60 days after the
Effective Date through the last day of the Availability Period. This fee accrues at a rate determined by reference to Verizon’s credit ratings
and ranges from 0.070% to 0.125% per annum.
Prepayments
The Credit Agreement requires Verizon to reduce unused commitments and prepay the loans with 100% of the net cash proceeds received
from issuances or sales of equity and incurrences of borrowed money indebtedness, subject to certain exceptions.
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Verizon 2020 Annual Report on Form 10-K
Covenants and Events of Default
The Credit Agreement contains certain negative covenants, including a negative pledge covenant, a merger or similar transaction covenant
and an accounting changes covenant, and affirmative covenants and events of default that are customary for companies maintaining an
investment grade credit rating. An event of default may result in the inability to borrow in certain circumstances or the acceleration of any
outstanding loan under the Credit Agreement, as applicable.
Non-Cash Transactions
During the years ended December 31, 2020, 2019 and 2018, we financed, primarily through vendor financing arrangements, the purchase of
approximately $1.7 billion, $563 million, and $1.1 billion, respectively, of long-lived assets consisting primarily of network equipment. As of
December 31, 2020 and 2019, $1.6 billion and $1.1 billion, respectively, relating to these financing arrangements, including those entered into
in prior years and liabilities assumed through acquisitions, remained outstanding. These purchases are non-cash financing activities and
therefore are not reflected within Capital expenditures in our consolidated statements of cash flows.
Guarantees
We guarantee the debentures of our operating telephone company subsidiaries. As of December 31, 2020, $765 million aggregate principal
amount of these obligations remained outstanding. Each guarantee will remain in place for the life of the obligation unless terminated
pursuant to its terms, including the operating telephone company no longer being a wholly-owned subsidiary of Verizon.
We also guarantee the debt obligations of GTE LLC as successor in interest to GTE Corporation that were issued and outstanding prior to
July 1, 2003. As of December 31, 2020, $391 million aggregate principal amount of these obligations remain outstanding.
Debt Covenants
We and our consolidated subsidiaries are in compliance with all of our restrictive covenants in our debt agreements.
Note 8. Device Payment Plan Agreement and Wireless Service Receivables
The following table presents information about accounts receivable, net of allowances, recorded in our consolidated balance sheet:
At December 31, 2020
Device
payment plan
agreement
Wireless
service
Other
receivables(1)
Total
(dollars in millions)
Accounts receivable(2)
25,169
Less Allowance for credit losses
1,252
Accounts receivable, net of allowance
23,917
(1) Other receivables primarily include wireline receivables, Verizon Media receivables and other receivables, the allowances for which are
12,287 $
686
11,601 $
5,320 $
262
5,058 $
7,562 $
304
7,258 $
$
$
individually insignificant.
(2) Following the adoption of Topic 326 on January 1, 2020, accounts receivable are measured at amortized cost.
Under the Verizon device payment program, our eligible wireless customers purchase wireless devices under a device payment plan
agreement. Customers that activate service on devices purchased under the device payment program pay lower service fees as compared to
those under our fixed-term service plans, and their device payment plan charge is included on their wireless monthly bill. We no longer offer
Consumer customers new fixed-term, subsidized service plans for devices; however, we continue to offer subsidized plans to our Business
customers. We also continue to service existing plans for customers who have not yet purchased and activated devices under the Verizon
device payment program.
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Verizon 2020 Annual Report on Form 10-K
Wireless Device Payment Plan Agreement Receivables
The following table displays device payment plan agreement receivables, net, recognized in our consolidated balance sheets:
At December 31,
Device payment plan agreement receivables, gross
Unamortized imputed interest
Device payment plan agreement receivables, at amortized cost
Allowance (2)
Device payment plan agreement receivables, net
(dollars in millions)
2019 (1)
19,493
(454)
19,039
(472)
18,567
2020
17,959 $
(453)
17,506
(940)
16,566 $
$
$
Classified in our consolidated balance sheets:
Accounts receivable, net
Other assets
Device payment plan agreement receivables, net
(1) Balances reflected are prior to the adoption of Topic 326 on January 1, 2020.
(2) Includes allowance for both short-term and long-term device payment plan agreement receivables. The allowance at December 31, 2020
13,045
5,522
18,567
11,601 $
4,965
16,566 $
$
$
and December 31, 2019 relate to our provision for credit losses and doubtful accounts, respectively.
Included in our device payment plan agreement receivables, net at December 31, 2020 and December 31, 2019, are net device payment plan
agreement receivables of $12.1 billion and $14.3 billion, respectively, which have been transferred to ABS Entities and continue to be
reported in our consolidated balance sheets. See Note 7 for additional information. We believe the carrying value of these receivables
approximate their fair value using a Level 3 expected cash flow model.
For indirect channel wireless contracts with customers, we impute risk adjusted interest on the device payment plan agreement receivables.
We record the imputed interest as a reduction to the related accounts receivable. Interest income, which is included within Service revenues
and other in our consolidated statements of income, is recognized over the financed device payment term.
Promotions
We may offer certain promotions that allow a customer to trade in their owned device in connection with the purchase of a new device. Under
these types of promotions, the customer receives a credit for the value of the trade-in device. In addition, we may provide the customer with
additional future credits that will be applied against the customer’s monthly bill as long as service is maintained. We recognize a liability,
measured at fair value, for the customer's right to trade-in the device which is determined by considering several factors, including the
weighted-average selling prices obtained in recent resales of similar devices eligible for trade-in. Future credits are recognized when earned
by the customer. Device payment plan agreement receivables, net does not reflect the trade-in device liability. At December 31, 2020 and
December 31, 2019, the amount of trade-in liability was $70 million and $103 million, respectively.
From time to time, we offer certain marketing promotions that allow our customers to upgrade to a new device after paying down a certain
specified portion of the required device payment plan agreement amount as well as trading in their device in good working order. When a
customer enters into a device payment plan agreement with the right to upgrade to a new device, we account for this trade-in right as a
guarantee obligation.
Origination of Device Payment Plan Agreements
When originating device payment plan agreements, we use internal and external data sources to create a credit risk score to measure the credit
quality of a customer and to determine eligibility for the device payment program. Verizon’s experience has been that the payment attributes
of longer tenured customers are highly predictive for estimating their reliability to make future payments. Customers with longer tenures tend
to exhibit similar risk characteristics to other customers with longer tenures, and receivables due from customers with longer tenures tend to
perform better than receivables from customers that have not previously been Verizon customers. As a result of this experience, we make
initial lending decisions based upon whether the customers are "established customers" or "short-tenured customers." If a Consumer customer
has been a customer for 45 days or more, or if a Business customer has been a customer for 12 months or more, the customer is considered an
"established customer." For established customers, the credit decision and ongoing credit monitoring processes rely on a combination of
internal and external data sources. If a Consumer customer has been a customer less than 45 days, or a Business customer has been a customer
for less than 12 months, the customer is considered a "short-tenured customer." For short-tenured customers, the credit decision and credit
monitoring processes rely more heavily on external data sources.
Internal data and/or external credit data are obtained from the credit reporting agencies, if available, to create a custom credit risk score for
Consumer customers. The custom credit risk score is generated automatically from the applicant’s credit data using proprietary custom credit
models. The credit risk score measures the likelihood that the potential customer will become severely delinquent and be disconnected for
non-payment. For a small portion of short-tenured customer applications, a traditional credit report is not available from one of the national
credit reporting agencies because the potential customer does not have sufficient credit history. In those instances, alternative credit data is
used for the risk assessment. For Business customers, we also verify the existence of the business with external data sources.
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Verizon 2020 Annual Report on Form 10-K
Based on the custom credit risk score, we assign each customer to a credit class, each of which has specified offers of credit including an
account level spending limit and either a maximum amount of credit allowed per device or a required down payment percentage. During the
fourth quarter 2018, we moved all Consumer customers, short-tenured and established, from a required down payment percentage, between
zero and 100%, to a maximum amount of credit per device.
Credit Quality Information
Subsequent to origination, we assess indicators for the quality of our wireless device payment plan agreement portfolio using two models, one
for new customers and one for existing customers. The model for new customers pools all Consumer and Business wireless customers based
on 210 days and 12 months or less, respectively, as "new customers." The model for existing customers pools all Consumer and Business
wireless customers based on 210 days and 12 months or more, respectively, as "existing customers."
The following table presents device payment plan agreement receivables, at amortized cost, as of December 31, 2020, by credit quality
indicator and year of origination:
Year of Origination
(dollars in millions)
New customers
Existing customers
Total
(1) Includes accounts that have been suspended at a point in time.
$
$
2020
1,914 $
10,662
12,576 $
The data presented in the table above was last updated on December 31, 2020.
2019 Prior to 2019(1)
765 $
4,103
4,868 $
12 $
50
62 $
Total
2,691
14,815
17,506
We assess indicators for the quality of our wireless service receivables portfolio as one overall pool. As of December 31, 2020, wireless
service receivables, at amortized cost, originating in 2020 and 2019 were $5.3 billion and an insignificant amount, respectively.
Allowance for Credit Losses
The credit quality indicators are used in determining the estimated amount and the timing of expected credit losses for the device payment
plan agreement and wireless service receivables portfolios.
Activity in the allowance for credit losses by portfolio segment of receivables were as follows:
(dollars in millions)
Balance at January 1, 2020
Opening balance sheet adjustment related to Topic 326 adoption
Adjusted opening balance, January 1, 2020
Current period provision for expected credit losses
Write-offs charged against the allowance
Recoveries collected
Balance at December 31, 2020
(1) Includes allowance for both short-term and long-term device payment plan agreement receivables.
$
$
Device Payment
Plan Agreement
Receivables(1)
Wireless Service Plan
Receivables
156
—
156
340
(303)
69
262
472 $
265
737
780
(621)
44
940 $
We monitor delinquency and write-off experience based on the quality of our device payment plan agreement and wireless service receivables
portfolios. The extent of our collection efforts with respect to a particular customer are based on the results of our proprietary custom internal
scoring models that analyze the customer’s past performance to predict the likelihood of the customer falling further delinquent. These
custom scoring models assess a number of variables, including origination characteristics, customer account history and payment patterns.
Since our customers’ behaviors may be impacted by general economic conditions, we analyzed whether changes in macroeconomic
conditions impact our credit loss experience and have concluded that our credit loss estimates are generally not materially impacted by
reasonable and supportable forecasts of future economic conditions. Based on the score derived from these models, accounts are grouped by
risk category to determine the collection strategy to be applied to such accounts. For device payment plan agreement receivables, we consider
an account to be delinquent and in default status if there are unpaid charges remaining on the account on the day after the bill’s due date. For
wireless service receivables, an account is considered delinquent 34 days after the bill cycle date. The risk class determines the speed and
severity of the collections effort including initiatives taken to facilitate customer payment.
As of December 31, 2020, our allowance for credit losses considered the current and potential future impacts caused by the COVID-19
pandemic based on available information to date. The impacts also include the Company's commitment to the FCC's "Keep Americans
Connected" pledge, through which we pledged to waive late fees for, and not terminate service to, any of our consumer or small business
customers who informed us that they had been impacted financially by the COVID-19 pandemic through May 13, which we extended to June
30, 2020. Starting July 1, customers who had notified us that they had been financially impacted by the pandemic and had an unpaid balance
were automatically enrolled in our "Stay Connected" repayment program, which allows customers to pay off their service balance over six
months and extends any unpaid device payment plan agreements by the number of months unpaid.
84
Verizon 2020 Annual Report on Form 10-K The balance and aging of the device payment plan agreement receivables, at amortized cost, were as follows:
(dollars in millions)
Unbilled
Billed:
Current
Past due
Device payment plan agreement receivables, at amortized cost
At December 31, 2020
16,333
937
236
17,506
$
$
Collections of Repurchased Wireless Device Payment Plan Agreement Receivables
During 2017, we repurchased all outstanding device payment plan agreement receivables previously sold under the Receivables Purchase
Agreement programs that were terminated in December 2017. Collections following the repurchase of receivables were insignificant during
both 2020 and 2019, and were $195 million during 2018. Collections of repurchased receivables were recorded in Cash flows used in
investing activities in our consolidated statement of cash flows.
Note 9. Fair Value Measurements and Financial Instruments
Recurring Fair Value Measurements
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:
Assets:
Prepaid expenses and other:
Foreign exchange forwards
Other assets:
Fixed income securities
Interest rate swaps
Cross currency swaps
Total
Liabilities:
Other current liabilities:
Forward starting interest rate swaps
Foreign exchange forwards
Other liabilities:
Interest rate swaps
Cross currency swaps
Forward starting interest rate swaps
Level 1(1)
Level 2(2)
(dollars in millions)
Total
Level 3(3)
$
— $
12 $
— $
12
—
—
—
— $
459
787
1,446
2,704 $
— $
—
409 $
2
$
$
—
—
—
— $
303
196
388
1,298 $
—
—
—
— $
— $
—
—
—
—
— $
459
787
1,446
2,704
409
2
303
196
388
1,298
Total
(1) Quoted prices in active markets for identical assets or liabilities
(2) Observable inputs other than quoted prices in active markets for identical assets and liabilities
(3) Unobservable pricing inputs in the market
$
85
Verizon 2020 Annual Report on Form 10-K
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2019:
Level 1 (1)
Level 2 (2)
(dollars in millions)
Total
Level 3 (3)
Assets:
Other assets:
Fixed income securities
Interest rate swaps
Cross currency swaps
Foreign exchange forwards
Total
Liabilities:
Other liabilities:
Interest rate swaps
Cross currency swaps
Forward starting interest rate swaps
$
$
$
Total
(1) Quoted prices in active markets for identical assets or liabilities
(2) Observable inputs other than quoted prices in active markets for identical assets and liabilities
(3) Unobservable pricing inputs in the market
$
— $
—
—
—
— $
— $
—
—
— $
442 $
568
211
5
1,226 $
173 $
912
604
1,689 $
— $
—
—
—
— $
— $
—
—
— $
442
568
211
5
1,226
173
912
604
1,689
Certain of our equity investments do not have readily determinable fair values and are excluded from the tables above. Such investments are
measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical
or similar investment of the same issuer and are included in Investments in unconsolidated businesses in our consolidated balance sheets. As
of December 31, 2020 and December 31, 2019, the carrying amount of our investments without readily determinable fair values were
$402 million and $284 million, respectively. During 2020, there were approximately $101 million of fair value adjustments due to observable
price changes and insignificant impairment charges. Cumulative adjustments due to observable price changes and impairment charges were
approximately $81 million and insignificant, respectively.
Fixed income securities consist primarily of investments in municipal bonds. For fixed income securities that do not have quoted prices in
active markets, we use alternative matrix pricing resulting in these debt securities being classified as Level 2.
Derivative contracts are valued using models based on readily observable market parameters for all substantial terms of our derivative
contracts and thus are classified within Level 2. We use mid-market pricing for fair value measurements of our derivative instruments. Our
derivative instruments are recorded on a gross basis.
We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period.
Fair Value of Short-term and Long-term Debt
The fair value of our debt is determined using various methods, including quoted prices for identical debt instruments, which is a Level 1
measurement, as well as quoted prices for similar debt instruments with comparable terms and maturities, which is a Level 2 measurement.
The fair value of our short-term and long-term debt, excluding finance leases, was as follows:
(dollars in millions)
At December 31, 2019
At December 31, 2020
Derivative Instruments
Fair Value
Carrying
Amount
110,373 $
127,778
$
Level 1
86,712 $
103,967
Level 2
42,488 $
52,785
Level 3
Total
— $ 129,200
156,752
—
We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates and interest rates.
We employ risk management strategies, which may include the use of a variety of derivatives including interest rate swaps, cross currency
swaps, forward starting interest rate swaps, treasury rate locks, interest rate caps and foreign exchange forwards. We do not hold derivatives
for trading purposes.
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Verizon 2020 Annual Report on Form 10-K
The following table sets forth the notional amounts of our outstanding derivative instruments:
At December 31,
Interest rate swaps
Cross currency swaps
Forward starting interest rate swaps
Interest rate caps
Foreign exchange forwards
Interest Rate Swaps
$
2020
17,768 $
26,288
2,000
—
1,405
(dollars in millions)
2019
17,004
23,070
3,000
679
1,130
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable
rates that are currently based on LIBOR, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value
hedges and hedge against interest rate risk exposure of designated debt issuances. We record the interest rate swaps at fair value in our
consolidated balance sheets as assets and liabilities. Changes in the fair value of the interest rate swaps are recorded to Interest expense, which
are offset by changes in the fair value of the hedged debt due to changes in interest rates.
During 2020, we entered into interest rate swaps with a total notional value of $10.2 billion and settled interest rate swaps with a total notional
value of $9.5 billion. During 2020, we received $764 million from the settlement of interest rate swaps, which was recorded in Other, net
within Cash Flow from Operating Activities. During 2019, we entered into interest rate swaps with a total notional value of $510 million and
settled interest rate swaps with a total notional value of $3.3 billion.
The ineffective portion of these interest rate swaps was a gain of an insignificant amount and $54 million for the years ended December 31,
2020 and 2019, respectively.
The following amounts were recorded in Long-term debt in our consolidated balance sheets related to cumulative basis adjustments for fair
value hedges:
At December 31,
Carrying amount of hedged liabilities
Cumulative amount of fair value hedging adjustment included in the carrying amount of the
hedged liabilities
Cumulative amount of fair value hedging adjustment remaining for which hedge accounting
has been discontinued
$
2020
18,849 $
(dollars in millions)
2019
17,337
557
627
433
—
Cross Currency Swaps
We have entered into cross currency swaps designated as cash flow hedges to exchange our British Pound Sterling, Euro, Swiss Franc,
Canadian Dollar and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to
mitigate the impact of foreign currency transaction gains or losses.
During 2020, we entered into cross currency swaps with a total notional value of $4.8 billion and we settled cross currency swaps with a total
notional value of $1.6 billion. A pre-tax gain of $1.8 billion was recognized in Other comprehensive loss with respect to these swaps.
During 2019, we entered into cross currency swaps with a total notional value of $6.4 billion and did not settle any cross currency swaps. A
pre-tax loss of $385 million was recognized in Other comprehensive loss with respect to these swaps.
A portion of the gains and losses recognized in Other comprehensive loss was reclassified to Other income (expense), net to offset the related
pre-tax foreign currency transaction gain or loss on the underlying hedged item. See Note 14 to the consolidated financial statements for
additional information.
Forward Starting Interest Rate Swaps
We have entered into forward starting interest rate swaps designated as cash flow hedges in order to manage our exposure to interest rate
changes on future forecasted transactions. We hedge our exposure to the variability in future cash flows based on the expected maturities of
the related forecasted debt issuance.
During 2020, we did not enter into any forward starting interest rate swaps and we settled forward starting interest rate swaps with a total
notional value of $1.0 billion. A pre-tax loss of $486 million, resulting from interest rate movements was recognized in Other comprehensive
loss with respect to these swaps.
During 2019, we did not enter into any forward starting interest rate swaps and we settled forward starting interest rate swaps with a total
notional value of $1.0 billion. A pre-tax loss of $565 million, resulting from interest rate movements was recognized in Other comprehensive
loss with respect to these swaps.
87
Verizon 2020 Annual Report on Form 10-K
Treasury Rate Locks
We enter into treasury rate locks to mitigate our interest rate risk. During 2020, we entered into and settled treasury rate locks designated as
cash flow hedges with a total notional value of $5.5 billion, and we recognized an insignificant pre-tax loss in Other comprehensive loss.
During 2019, we did not enter into or settle any treasury rate locks designated as cash flow hedges, and we did not recognize any amount in
our consolidated financial statements. In January and February 2021, we entered into treasury rate locks with a total notional value of
$4.3 billion.
Net Investment Hedges
We have designated certain foreign currency debt instruments as net investment hedges to mitigate foreign exchange exposure related to non-
U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. The notional amount of Euro-
denominated debt as a net investment hedge was €750 million as of both December 31, 2020 and 2019.
Undesignated Derivatives
We also have the following derivative contracts which we use as economic hedges but for which we have elected not to apply hedge
accounting.
Interest Rate Caps
We enter into interest rate caps to mitigate our interest exposure to interest rate increases on our ABS Financing Facilities and ABS Notes.
During both 2020 and 2019, we recognized insignificant pre-tax losses in Interest expense related to interest rate caps.
Foreign Exchange Forwards
We enter into British Pound Sterling and Euro foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional
currency denominated monetary assets and liabilities of international subsidiaries, as well as foreign exchange risk related to debt settlements.
During 2020, we entered into foreign exchange forwards with a total notional value of $14.0 billion and settled foreign exchange forwards
with a total notional value of $13.8 billion. During 2019, we entered into foreign exchange forwards with a total notional value of
$12.0 billion and settled foreign exchange forwards with a total notional value of $11.5 billion. During 2020, a pre-tax gain of $142 million
was recognized in Other income (expense), net. During 2019, a pre-tax loss of an insignificant amount was recognized in Other income
(expense), net.
Treasury Rate Locks
We enter into treasury rate locks to mitigate our interest rate risk. During 2020, we entered into and settled treasury rate locks with a total
notional value of $1.6 billion, and we recognized an insignificant pre-tax gain in Interest expense.
During 2019, we entered into treasury rate locks with a total notional value of $1.5 billion to hedge the tender offers conducted in May 2019
for fifteen series of notes issued by Verizon with coupon rates ranging from 4.672% to 5.012% and maturity dates ranging from 2054 to 2055
(May Tender offers). In addition, we entered into treasury rate locks with a total notional value of $1.5 billion to hedge the tender offers
conducted in November and December 2019 for eleven and twenty series of notes and debentures, respectively, issued by Verizon and other
subsidiaries with coupon rates ranging from 3.850% to 8.950% and maturity dates ranging from 2021 to 2055 (November and December
Tender offers). Upon the early settlement of the May, November and December Tender Offers, we settled these hedges and recognized an
insignificant gain in Other income (expense), net.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments, short-term and long-
term investments, trade receivables, including device payment plan agreement receivables, certain notes receivable, including lease
receivables, and derivative contracts.
Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA
master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. The CSA agreements contain
rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding
positions as compared to established thresholds and changes in credit ratings. We do not offset fair value amounts recognized for derivative
instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from
derivative instruments recognized at fair value. At December 31, 2020, we held $0.2 billion of collateral related to derivative contracts under
collateral exchange agreements, which were recorded as Other current liabilities in our consolidated balance sheet. At December 31, 2019, we
held an insignificant amount of collateral related to derivative contracts under collateral exchange arrangements, which were recorded as
Other current liabilities in our consolidated balance sheet. While we may be exposed to credit losses due to the nonperformance of our
counterparties, we consider the risk remote and do not expect that any such nonperformance would result in a significant effect on our results
of operations or financial condition due to our diversified pool of counterparties.
88
Verizon 2020 Annual Report on Form 10-K
Note 10. Stock-Based Compensation
Verizon Long-Term Incentive Plan
In May 2017, Verizon’s shareholders approved the 2017 Long-Term Incentive Plan (the 2017 Plan) and terminated Verizon's authority to
grant new awards under the Verizon 2009 Long-Term Incentive Plan (the 2009 Plan). The 2017 Plan provides for broad-based equity grants
to employees, including executive officers, and permits the granting of stock options, stock appreciation rights, restricted stock, restricted
stock units, performance shares, performance stock units and other awards. Upon approval of the 2017 Plan, Verizon reserved for issuance
under the 2017 Plan the number of shares that were remaining but not issued under the 2009 Plan. Shares subject to outstanding awards under
the 2009 Plan that expire, are canceled or otherwise terminated will also be available for awards under the 2017 Plan. As of December 31,
2020, 83 million shares are reserved for future issuance under the 2017 Plan.
Restricted Stock Units
Restricted Stock Units (RSUs) granted under the 2017 Plan generally vest in three equal installments on each anniversary of the grant date.
The RSUs that are paid in stock upon vesting and are thus classified as 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. The RSUs that are settled in cash are classified as liability awards
and the liability is measured at its fair value at the end of each reporting period. All RSUs granted under the 2017 Plan have dividend
equivalent units, which will be paid to participants at the time the RSU award is paid, and in the same proportion as the RSU award. In 2020,
Verizon announced a broad-based program that provides for the annual award of cash-settled RSUs under the 2017 Plan to all full-time and
part-time employees who meet eligibility requirements on the annual grant date.
In February 2018, Verizon announced a broad-based employee special award of RSUs under the 2017 Plan to eligible full-time and part-time
employees. These RSUs vested in two equal installments on each anniversary of the grant date and paid in cash. The first installment of the
restricted stock units vested and were paid in February 2019 and the remaining restricted stock units vested and were paid in February 2020.
In connection with our acquisition of Yahoo’s operating business, on the closing date of the Transaction each unvested and outstanding
Yahoo RSU award that was held by an employee who became an employee of Verizon was replaced with a Verizon RSU award, which is
generally payable in cash upon the applicable vesting date. These awards are classified as liability awards and are measured at fair value at the
end of each reporting period.
We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
We use historical data to estimate forfeitures and recognize that estimated compensation cost of restricted stock units, net of estimated
forfeitures, on a straight-line basis over the vesting period.
Performance Stock Units
The 2017 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 2017 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 that
are paid in stock upon vesting and are classified as 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. The PSUs that are settled in cash and are classified as liability awards are 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. All PSUs granted under the 2017 Plan have dividend equivalent units, which will be paid to participants at
the time that 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 Verizon’s Restricted Stock Unit and Performance Stock Unit activity:
(shares in thousands)
Outstanding January 1, 2018
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2018
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2019
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2020
Restricted Stock Units
Performance Stock Units
Equity Awards
12,633
4,134
(5,977)
(213)
10,577
3,169
(6,397)
(90)
7,259
3,638
(3,814)
(182)
6,901
Liability Awards
13,991
15,157
(6,860)
(2,362)
19,926
5,814
(9,429)
(1,598)
14,713
15,161
(9,311)
(1,004)
19,559
Equity Awards
—
—
—
—
—
—
—
—
—
4,358
—
(116)
4,242
Liability Awards
18,235
5,779
(4,526)
(2,583)
16,905
4,593
(3,255)
(2,692)
15,551
1,389
(7,160)
(143)
9,637
89
Verizon 2020 Annual Report on Form 10-K
As of December 31, 2020, unrecognized compensation expense related to the unvested portion of Verizon’s RSUs and PSUs was
approximately $881 million and is expected to be recognized over approximately 2 years.
The equity awards granted in 2020 and 2019 have weighted-average grant date fair values of $57.38 and $56.66 per unit, respectively. During
2020, 2019 and 2018, we paid $961 million, $737 million and $773 million, respectively, to settle RSUs and PSUs classified as liability
awards.
Stock-Based Compensation Expense
After-tax compensation expense for stock-based compensation related to RSUs and PSUs described above included in Net income attributable
to Verizon was $780 million, $872 million and $720 million for 2020, 2019 and 2018, respectively.
Note 11. Employee Benefits
We maintain non-contributory defined benefit pension plans for certain employees. In addition, we maintain postretirement health care and
life insurance plans for certain retirees and their dependents, which are both contributory and non-contributory, and include a limit on our
share of the cost for certain current and future retirees. In accordance with our accounting policy for pension and other postretirement
benefits, operating expenses include service costs associated with pension and other postretirement benefits while other credits and/or charges
based on actuarial assumptions, including projected discount rates, an estimated return on plan assets, and impact from health care trend rates
are reported in Other income (expense), net. These estimates are updated in the fourth quarter to reflect actual return on plan assets and
updated actuarial assumptions or upon a remeasurement event. The adjustment is recognized in the income statement during the fourth quarter
or upon a remeasurement event pursuant to our accounting policy for the recognition of actuarial gains and losses.
Pension and Other Postretirement Benefits
Pension and other postretirement benefits for certain employees are subject to collective bargaining agreements. Modifications in benefits
have been bargained from time to time, and we may also periodically amend the benefits in the management plans. The following tables
summarize benefit costs, as well as the benefit obligations, plan assets, funded status and rate assumptions associated with pension and
postretirement health care and life insurance benefit plans.
Obligations and Funded Status
At December 31,
Change in Benefit Obligations
Beginning of year
Service cost
Interest cost
Plan amendments
Actuarial (gain) loss, net
Benefits paid
Settlements paid
End of year
Change in Plan Assets
Beginning of year
Actual return on plan assets
Company contributions
Benefits paid
Settlements paid
End of year
Funded Status - End of year
$
2020
21,248 $
305
505
—
2,308
(842)
(1,288)
22,236
19,451
2,750
57
(842)
(1,288)
20,128
Pension
2019
19,567 $
247
695
—
2,860
(1,248)
(873)
21,248
17,816
3,385
371
(1,248)
(873)
19,451
(dollars in millions)
Health Care and Life
2019
2020
15,669 $
110
429
—
887
(927)
—
16,168
743
47
709
(927)
—
572
16,364
96
629
(22)
(414)
(984)
—
15,669
1,175
103
449
(984)
—
743
$
(2,108) $
(1,797) $
(15,596) $
(14,926)
90
Verizon 2020 Annual Report on Form 10-K
At December 31,
Amounts recognized on the balance sheet
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total
Amounts recognized in Accumulated Other Comprehensive
Income (Pre-tax)
Prior service cost (benefit)
Total
Pension
2019
(dollars in millions)
Health Care and Life
2019
2020
5 $
(67)
(1,735)
(1,797) $
— $
(721)
(14,875)
(15,596) $
—
(603)
(14,323)
(14,926)
2020
5 $
(63)
(2,050)
(2,108) $
463 $
463 $
524 $
524 $
(2,783) $
(2,783) $
(3,749)
(3,749)
$
$
$
$
The accumulated benefit obligation for all defined benefit pension plans was $22.2 billion and $21.2 billion at December 31, 2020 and 2019,
respectively.
Actuarial Loss, Net
The net actuarial loss in 2020 is primarily the result of a $3.2 billion loss due to a decrease in our discount rate assumption used to determine
the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of 3.3% at December 31, 2019 to a
weighted-average of 2.6% at December 31, 2020.
The net actuarial loss in 2019 is primarily the result of a $4.3 billion loss due to a decrease in our discount rate assumption used to determine
the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of 4.4% at December 31, 2018 to a
weighted-average of 3.3% at December 31, 2019, partially offset by other assumption adjustments of $1.9 billion, of which $1.6 billion
related to healthcare claims experience.
Collective Bargaining Negotiations
The extension agreement ratified in August 2018 extended our collective bargaining agreements with the Communications Workers of
America and the International Brotherhood of Electrical Workers that were due to expire on August 3, 2019 for four years until August 5,
2023. Amendments triggered by the collective bargaining negotiations were made to certain pension plans for certain union-represented
employees and retirees. The impact of the plan amendments was an increase in our defined benefit pension plans plan obligations and a net
decrease to Accumulated other comprehensive income of $230 million (net of taxes of $170 million). The annual impact of the amount
recorded in Accumulated other comprehensive income that will be reclassified to net periodic benefit cost is insignificant.
The reclassifications from the amounts recorded in Accumulated other comprehensive income as a result of collective bargaining agreements
and plan amendments made in 2016 and 2017 resulted in a decrease to net periodic benefit cost and increase to pre-tax income of
approximately $729 million during 2020, 2019 and 2018.
Information for pension plans with an accumulated benefit obligation in excess of plan assets follows:
At December 31,
Accumulated benefit obligation
Fair value of plan assets
Information for pension plans with a projected benefit obligation in excess of plan assets follows:
At December 31,
Projected benefit obligation
Fair value of plan assets
(dollars in millions)
2019
21,134
19,388
2020
22,116 $
20,064
(dollars in millions)
2019
21,190
19,388
2020
22,178 $
20,064
$
$
91
Verizon 2020 Annual Report on Form 10-K
Net Periodic Benefit Cost (Income)
The following table summarizes the components of net periodic benefit cost (income) related to our pension and postretirement health care
and life insurance plans:
Years Ended December 31,
Service cost - Cost of services
Service cost - Selling, general and administrative expense
Service cost
$
2020
245 $
60
305
Pension
2018
230 $
54
284
2019
202 $
45
247
2020
2019
(dollars in millions)
Health Care and Life
2018
104
23
127
78 $
18
96
89 $
21
110
Amortization of prior service cost (credit)
Expected return on plan assets
Interest cost
Remeasurement loss (gain), net
Curtailment and termination benefits
Other components
61
(1,186)
505
744
—
124
61
(1,130)
695
606
—
232
48
(1,293)
690
369
181
(5)
(966)
(28)
429
866
—
301
(971)
(37)
629
(480)
—
(859)
(976)
(44)
615
(2,658)
—
(3,063)
Total
$
429 $
479 $
279 $
411 $
(763) $ (2,936)
The service cost component of net periodic benefit cost (income) is recorded in Cost of services and Selling, general and administrative
expense in the consolidated statements of income while the other components, including mark-to-market adjustments, if any, are recorded in
Other income (expense), net.
Other pre-tax changes in plan assets and benefit obligations recognized in other comprehensive (income) loss are as follows:
2020
$ —
2019
$ —
Pension
2018
230
$
2020
$ —
(dollars in millions)
Health Care and Life
2018
(8)
2019
(22)
$
$
At December 31,
Prior service cost (benefit)
Reversal of amortization items
Prior service cost (benefit)
Total recognized in other comprehensive loss (income) (pre-tax)
$
(61)
(61)
$
(61)
(61)
$
(48)
182
$
966
966
$
971
949
$
976
968
Assumptions
The weighted-average assumptions used in determining benefit obligations follow:
At December 31,
Discount Rate
Rate of compensation increases
N/A - not applicable
2020
2.60%
3.00%
Pension
2019
3.30%
3.00%
Health Care and Life
2019
2020
3.20%
2.50%
N/A
N/A
The weighted-average assumptions used in determining net periodic cost follow:
At December 31,
Discount rate in effect for determining service cost
Discount rate in effect for determining interest cost
Expected return on plan assets
Rate of compensation increases
N/A - not applicable
2020
3.30%
2.40
6.50
3.00
2019
4.60%
3.80
6.80
3.00
Pension
2018
4.10%
3.40
7.00
3.00
Health Care and Life
2018
3.90%
3.20
4.80
2019
4.60%
4.00
4.30
2020
3.50%
2.80
4.50
N/A
N/A
N/A
In determining our pension and other postretirement benefit obligations, we used a weighted-average discount rate of 2.6% in 2020. The rates
were selected to approximate the composite interest rates available on a selection of high-quality bonds available in the market at
December 31, 2020. The bonds selected had maturities that coincided with the time periods during which benefits payments are expected to
occur, were non-callable and available in sufficient quantities to ensure marketability (at least $300 million par outstanding).
In order to project the long-term target investment return for the total portfolio, estimates are prepared for the total return of each major asset
class over the subsequent 10-year period. Those estimates are based on a combination of factors including the current market interest rates
and valuation levels, consensus earnings expectations and historical long-term risk premiums. To determine the aggregate return for the
92
Verizon 2020 Annual Report on Form 10-K
pension trust, the projected return of each individual asset class is then weighted according to the allocation to that investment area in the
trust’s long-term asset allocation policy.
The assumed health care cost trend rates are as follows:
At December 31,
Weighted-average healthcare cost trend rate assumed for next year
Rate to which cost trend rate gradually declines
Year the rate reaches the level it is assumed to remain thereafter
Plan Assets
Health Care and Life
2018
6.80 %
4.50
2019
6.30 %
4.50
2020
6.20 %
4.50
2029
2027
2027
The Company’s overall investment strategy is to achieve a mix of assets that allows us to meet projected benefit payments while taking into
consideration risk and return. While target allocation percentages will vary over time, the current target allocation for plan assets is designed
so that 48% to 68% of the assets have the objective of achieving a return in excess of the growth in liabilities (comprised of public equities,
private equities, real estate, hedge funds, high yield bonds and emerging market debt) and 35% to 55% of the assets are invested as liability
hedging assets (where interest rate sensitivity of the liability hedging assets better match the interest rate sensitivity of the liability) and a
maximum of 15% is in cash. This allocation will shift as funded status improves to a higher allocation of liability hedging assets. Target
policies will be revisited periodically to ensure they are in line with fund objectives. Both active and passive management approaches are used
depending on perceived market efficiencies and various other factors. Due to our diversification and risk control processes, there are no
significant concentrations of risk, in terms of sector, industry, geography or company names.
Pension and healthcare and life plans assets do not include significant amounts of Verizon common stock.
Pension Plans
The fair values for the pension plans by asset category at December 31, 2020 are as follows:
Asset Category
Cash and cash equivalents
Equity securities
Fixed income securities
U.S. Treasuries and agencies
Corporate bonds
International bonds
Other
Real estate
Other
Private equity
Hedge funds
Total investments at fair value
Investments measured at NAV
Total
$
$
Total
1,968 $
1,972
Level 1
1,823 $
1,623
Level 2
(dollars in millions)
Level 3
—
2
145 $
347
2,039
4,110
1,548
916
757
414
244
13,968
6,160
20,128 $
1,756
153
17
—
—
—
—
5,372
283
3,781
1,511
916
—
—
106
7,089
—
176
20
—
757
414
138
1,507
5,372 $
7,089 $
1,507
The fair values for the pension plans by asset category at December 31, 2019 are as follows:
Asset Category
Cash and cash equivalents
Equity securities
Fixed income securities
U.S. Treasuries and agencies
Corporate bonds
International bonds
Other
Real estate
Other
Private equity
Hedge funds
Total investments at fair value
Investments measured at NAV
Total
$
Total
1,529 $
2,988
Level 1
1,507 $
2,850
Level 2
(dollars in millions)
Level 3
—
3
22 $
135
1,986
3,818
1,355
768
810
737
293
14,284
5,167
19,451 $
1,768
524
25
—
—
—
—
6,674
218
3,149
1,304
768
—
—
164
5,760
—
145
26
—
810
737
129
1,850
6,674 $
5,760 $
1,850
$
93
Verizon 2020 Annual Report on Form 10-K
The following is a reconciliation of the beginning and ending balance of pension plan assets that are measured at fair value using significant
unobservable inputs:
(dollars in millions)
Balance at January 1, 2019
Actual gain (loss) on plan assets
Purchases (sales)
Transfers out
Balance at December 31, 2019
Actual gain (loss) on plan assets
Purchases (sales)
Transfers out
Balance at December 31, 2020
Health Care and Life Plans
Equity
Securities
$
13 $
1
(11)
—
3
5
(7)
1
2 $
$
Corporate
Bonds
International
Bonds
Real
Estate
Private
Equity
Hedge
Funds
277 $
(1)
18
(149)
145
(8)
39
—
176 $
18 $
(1)
9
—
26
3
(9)
—
20 $
727 $
30
53
—
810
146
(146)
(53)
757 $
664 $
32
41
—
737
57
(134)
(246)
414 $
86 $
—
116
(73)
129
1
69
(61)
138 $
Total
1,785
61
226
(222)
1,850
204
(188)
(359)
1,507
The fair values for the other postretirement benefit plans by asset category at December 31, 2020 are as follows:
Asset Category
Cash and cash equivalents
Equity securities
Fixed income securities
U.S. Treasuries and agencies
Corporate bonds
International bonds
Total investments at fair value
Investments measured at NAV
Total
Asset Category
Cash and cash equivalents
Equity securities
Fixed income securities
U.S. Treasuries and agencies
Corporate bonds
International bonds
Total investments at fair value
Investments measured at NAV
Total
Total
Level 1
Level 2
(dollars in millions)
Level 3
—
—
40 $
—
$
$
40 $
178
83
54
9
364
208
572 $
$
$
220 $
225
28
76
18
567
176
743 $
— $
178
83
54
9
324
167 $
225
28
76
18
514
—
—
—
40
—
—
—
53
514 $
53 $
324 $
40 $
Total
Level 1
Level 2
(dollars in millions)
Level 3
—
—
53 $
—
—
—
—
—
—
—
—
—
—
—
The fair values for the other postretirement benefit plans by asset category at December 31, 2019 are as follows:
The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value
of each major category of assets.
Cash and cash equivalents include short-term investment funds (less than 90 days to maturity), primarily in diversified portfolios of
investment grade money market instruments and are valued using quoted market prices or other valuation methods. The carrying value of
cash equivalents approximates fair value due to the short-term nature of these investments.
Investments in securities traded on national and foreign securities exchanges are valued by the trustee at the last reported sale prices on the
last business day of the year or, if no sales were reported on that date, at the last reported bid prices. Government obligations, corporate bonds,
international bonds and asset-backed debt are valued using matrix prices with input from independent third-party valuation sources. Over-the-
counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published
sources or, if not available, from other sources considered reliable such as multiple broker quotes.
Commingled funds not traded on national exchanges are priced by the custodian or fund's administrator at their net asset value (NAV).
Commingled funds held by third-party custodians appointed by the fund managers provide the fund managers with a NAV. The fund
managers have the responsibility for providing this information to the custodian of the respective plan.
94
Verizon 2020 Annual Report on Form 10-K
The investment manager of the entity values venture capital, corporate finance and natural resource limited partnership investments. Real
estate investments are valued at amounts based upon appraisal reports prepared by either independent real estate appraisers or the investment
manager using discounted cash flows or market comparable data. Loans secured by mortgages are carried at the lesser of the unpaid balance
or appraised value of the underlying properties. The values assigned to these investments are based upon available and current market
information and do not necessarily represent amounts that might ultimately be realized. Because of the inherent uncertainty of valuation,
estimated fair values might differ significantly from the values that would have been used had a ready market for the securities existed. These
differences could be material.
Forward currency contracts, futures, and options are valued by the trustee at the exchange rates and market prices prevailing on the last
business day of the year. Both exchange rates and market prices are readily available from published sources. These securities are classified
by the asset class of the underlying holdings.
Hedge funds are valued by the custodian at NAV based on statements received from the investment manager. These funds are valued in
accordance with the terms of their corresponding offering or private placement memoranda.
Commingled funds, hedge funds, venture capital, corporate finance, natural resource and real estate limited partnership investments for which
fair value is measured using the NAV per share as a practical expedient are not leveled within the fair value hierarchy but are included in total
investments.
Employer Contributions
In 2020, we made no discretionary contribution to our qualified pension plans, $57 million of contributions to our nonqualified pension plans
and $709 million of contributions to our other postretirement benefit plans. No qualified pension plans contributions are expected to be made
in 2021. Nonqualified pension plans contributions are estimated to be approximately $70 million and contributions to our other postretirement
benefit plans are estimated to be approximately $800 million in 2021.
Estimated Future Benefit Payments
The benefit payments to retirees are expected to be paid as follows:
Year
2021
2022
2023
2024
2025
2026 to 2030
$
Pension Benefits
(dollars in millions)
Health Care and Life
889
921
904
887
881
4,437
2,147 $
1,706
1,651
1,107
1,080
5,253
Savings Plan and Employee Stock Ownership Plans
We maintain four leveraged employee stock ownership plans (ESOP). We match a certain percentage of eligible employee contributions to
certain savings plans with shares of our common stock from this ESOP. At December 31, 2020, the number of allocated shares of common
stock in this ESOP was 46 million. There were no unallocated shares of common stock in this ESOP at December 31, 2020. All leveraged
ESOP shares are included in earnings per share computations.
Total savings plan costs were $730 million in 2020, $897 million in 2019 and $1.1 billion in 2018.
Severance Benefits
The following table provides an analysis of our severance liability:
Year
2018
2019
2020
Beginning of
Year
627 $
$
2,156
565
Charged to
Expense
Payments
Other
2,093 $
260
309
(560) $
(1,847)
(248)
(4) $
(4)
(24)
End of Year
2,156
565
602
(dollars in millions)
95
Verizon 2020 Annual Report on Form 10-K
Severance, Pension and Benefits (Credits) Charges
During 2020, in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur, we recorded
net pre-tax pension and benefits charges of $1.6 billion in our pension and postretirement benefit plans. The charges were recorded in Other
income (expense), net in our consolidated statement of income and were primarily driven by a decrease in our discount rate assumption used
to determine the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of 3.3% at December
31, 2019 to a weighted-average of 2.6% at December 31, 2020 ($3.2 billion), partially offset by the difference between our estimated return
on assets and our actual return on assets ($1.6 billion). During 2020, we also recorded net pre-tax severance charges of $309 million in
Selling, general and administrative expense in our consolidated statements of income.
During 2019, in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur, we recorded
net pre-tax pension and benefits charges of $126 million in our pension and postretirement benefit plans. The charges were recorded in Other
income (expense), net in our consolidated statement of income and were primarily driven by a decrease in our discount rate assumption used
to determine the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of 4.4% at December
31, 2018 to a weighted-average of 3.3% at December 31, 2019 ($4.3 billion), partially offset by the difference between our estimated return
on assets and our actual return on assets ($2.3 billion) and other assumption adjustments of $1.9 billion, of which $1.6 billion related to
healthcare claims experience. During 2019, we also recorded net pre-tax severance charges of $260 million in Selling, general and
administrative expense in our consolidated statements of income.
During 2018, we recorded net pre-tax pension and benefits credits of $2.1 billion in accordance with our accounting policy to recognize
actuarial gains and losses in the period in which they occur. The pension and benefits remeasurement credits of $2.3 billion, which were
recorded in Other income (expense), net in our consolidated statements of income, were primarily driven by an increase in our discount rate
assumption used to determine the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of
3.7% at December 31, 2017 to a weighted-average of 4.4% at December 31, 2018 ($2.6 billion), and mortality and other assumption
adjustments of $1.7 billion, $1.6 billion of which related to healthcare claims and trend adjustments, offset by the difference between our
estimated return on assets of 7.0% and our actual return on assets of (2.7)% ($1.9 billion). The credits were partially offset by $177 million
due to the effect of participants retiring under the Voluntary Separation Program.
In September 2018, Verizon announced a Voluntary Separation Program for select U.S.-based management employees. Approximately
10,400 eligible employees separated from the Company under this program as of the end of June 2019. The severance benefit payments to
these employees were substantially completed by the end of September 2019. Principally as a result of this program but also as a result of
other headcount reduction initiatives, the Company recorded a severance charge of $1.8 billion ($1.4 billion after-tax) during the year ended
December 31, 2018, which was recorded in Selling, general and administrative expense in our consolidated statement of income. During
2018, we also recorded $339 million in severance costs under our other existing separation plans.
Note 12. Taxes
The components of income before provision for income taxes are as follows:
Years Ended December 31,
Domestic
Foreign
Total
The components of the provision for income taxes are as follows:
Years Ended December 31,
Current
Federal
Foreign
State and Local
Total
Deferred
Federal
Foreign
State and Local
Total
Total income tax provision
2020
22,844 $
1,123
23,967 $
2020
2,826 $
159
1,081
4,066
1,432
1
120
1,553
5,619 $
$
$
$
$
96
2019
21,655 $
1,078
(dollars in millions)
2018
19,801
(178)
19,623
22,733 $
(dollars in millions)
2018
2019
518 $
221
974
1,713
1,150
(13)
95
1,232
2,945 $
2,187
267
741
3,195
175
30
184
389
3,584
Verizon 2020 Annual Report on Form 10-K
The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax
rate:
Years Ended December 31,
Statutory federal income tax rate
State and local income tax rate, net of federal tax benefits
Preferred stock disposition
Affordable housing credit
Employee benefits including ESOP dividend
Internal restructure
Noncontrolling interests
Non-deductible goodwill
Other, net
Effective income tax rate
2020
21.0 %
3.9
—
(0.2)
(0.2)
(0.1)
(0.5)
—
(0.5)
23.4 %
2018
21.0 %
3.7
—
(0.6)
(0.3)
(9.1)
(0.5)
4.7
(0.6)
18.3 %
2019
21.0 %
3.7
(9.9)
(0.4)
(0.3)
—
(0.5)
0.1
(0.7)
13.0 %
The effective income tax rate for 2020 was 23.4% compared to 13.0% for 2019. The increase in the effective income tax rate and the
provision for income taxes was primarily due to the recognition of a $2.2 billion tax benefit in connection with the disposition of preferred
stock representing a minority interest in a foreign affiliate in 2019 that did not reoccur in 2020.
The effective income tax rate for 2019 was 13.0% compared to 18.3% for 2018. The decrease in the effective income tax rate and the
provision for income taxes was primarily due to the recognition of a $2.2 billion non-recurring tax benefit in connection with the disposition
of preferred stock representing a minority interest in a foreign affiliate in 2019 compared to the non-recurring deferred tax benefit of
approximately $2.1 billion, as a result of an internal reorganization of legal entities within the historical Wireless business, which was offset
by a goodwill charge that is not deductible for tax purposes in 2018.
The amounts of cash taxes paid by Verizon are as follows:
Years Ended December 31,
Income taxes, net of amounts refunded
Employment taxes
Property and other taxes
Total
Deferred Tax Assets and Liabilities
2020
2,725 $
618
2,093
5,436 $
$
$
(dollars in millions)
2018
2,213
1,066
1,598
4,877
2019
3,583 $
1,044
1,551
6,178 $
Deferred taxes arise because of differences in the book and tax bases of certain assets and liabilities. Significant components of deferred tax
assets and liabilities are as follows:
At December 31,
Deferred Tax Assets
Employee benefits
Tax loss and credit carry forwards
Other - assets
Valuation allowances
Deferred tax assets
Deferred Tax Liabilities
Spectrum and other intangible amortization
Depreciation
Other - liabilities
Deferred tax liabilities
Net deferred tax liability
(dollars in millions)
2019
2020
$
$
5,218 $
2,848
6,096
14,162
(2,183)
11,979
22,726
18,009
6,867
47,602
35,623 $
5,048
3,012
5,595
13,655
(2,260)
11,395
22,388
16,884
6,742
46,014
34,619
At December 31, 2020, undistributed earnings of our foreign subsidiaries indefinitely invested outside the U.S. amounted to approximately
$5.0 billion. The majority of Verizon's cash flow is generated from domestic operations and we are not dependent on foreign cash or earnings
to meet our funding requirements, nor do we intend to repatriate these undistributed foreign earnings to fund U.S. operations. Furthermore, a
portion of these undistributed earnings represents amounts that legally must be kept in reserve in accordance with certain foreign
jurisdictional requirements and are unavailable for distribution or repatriation. As a result, we have not provided U.S. deferred taxes on these
undistributed earnings because we intend that they will remain indefinitely reinvested outside of the U.S. and therefore unavailable for use in
97
Verizon 2020 Annual Report on Form 10-K
funding U.S. operations. Determination of the amount of unrecognized deferred taxes related to these undistributed earnings is not
practicable.
At December 31, 2020, we had net after-tax loss and credit carry forwards for income tax purposes of approximately $2.8 billion that
primarily relate to state and foreign taxes. Of these net after-tax loss and credit carry forwards, approximately $1.7 billion will expire between
2021 and 2040 and approximately $1.1 billion may be carried forward indefinitely.
During 2020, the valuation allowance decreased approximately $77 million. The $2.2 billion valuation allowance at December 31, 2020 as
well as the 2020 activity is primarily related to state and foreign taxes.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:
Balance at January 1,
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapses of statutes of limitations
Balance at December 31,
2020
2,870 $
160
258
(166)
(46)
(132)
2,944 $
$
$
(dollars in millions)
2018
2,355
160
699
(248)
(40)
(55)
2,871
2019
2,871 $
149
297
(300)
(58)
(89)
2,870 $
Included in the total unrecognized tax benefits at December 31, 2020, 2019 and 2018 is $2.5 billion, $2.4 billion and $2.3 billion,
respectively, that if recognized, would favorably affect the effective income tax rate.
We recognized the following net after-tax expenses related to interest and penalties in the provision for income taxes:
Years Ended December 31,
2020
2019
2018
$
(dollars in millions)
5
35
75
The after-tax accruals for the payment of interest and penalties in the consolidated balance sheets are as follows:
At December 31,
2020
2019
$
(dollars in millions)
388
385
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 Internal Revenue Service (IRS) and multiple state and foreign jurisdictions for various open tax
years. The IRS is currently examining the Company’s U.S. income tax returns for tax years 2015-2016 and Cellco's U.S. income tax return for
tax year 2017-2018. Tax controversies are ongoing for tax years as early as 2006. The amount of the liability for unrecognized tax benefits
will change in the next twelve months due to the expiration of the statute of limitations in various jurisdictions and it is reasonably possible
that various current tax examinations will conclude or require reevaluations of the Company’s tax positions during this period. An estimate of
the range of the possible change cannot be made until these tax matters are further developed or resolved.
Note 13. Segment Information
Reportable Segments
We have two reportable segments that we operate and manage as strategic business units - Consumer and Business. We measure and evaluate
our reportable segments based on segment operating income, consistent with the chief operating decision maker’s assessment of segment
performance.
98
Verizon 2020 Annual Report on Form 10-K
Our segments and their principal activities consist of the following:
Segment
Verizon
Consumer Group
Description
Our Consumer segment provides consumer-focused wireless and wireline communications services and products.
Our wireless services are provided across one of the most extensive wireless networks in the U.S. under the Verizon
brand and through wholesale and other arrangements. Our wireline services are provided in nine states in the Mid-
Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network through our Verizon
Fios product portfolio and over a traditional copper-based network to customers who are not served by Fios.
Verizon
Business Group
Our Business segment provides wireless and wireline communications services and products, including data, video
and conferencing services, corporate networking solutions, security and managed network services, local and long
distance voice services and network access to deliver various IoT services and products. We provide these products
and services to businesses, government customers and wireless and wireline carriers across the U.S. and select
products and services to customers around the world.
Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as resellers that purchase
wireless network access from us on a wholesale basis. Our Business segment’s wireless and wireline products and services are organized by
the primary customer groups targeted by these offerings: Small and Medium Business, Global Enterprise, Public Sector and Other, and
Wholesale.
Corporate and other includes the results of our media business, Verizon Media, and other businesses, investments in unconsolidated
businesses, unallocated corporate expenses, certain pension and other employee benefit related costs and interest and financing expenses.
Corporate and other also includes the historical results of divested businesses and other adjustments and gains and losses that are not allocated
in assessing segment performance due to their nature. Although such transactions are excluded from the business segment results, they are
included in reported consolidated earnings. Gains and losses from these transactions that are not individually significant are included in
segment results as these items are included in the chief operating decision maker’s assessment of segment performance.
The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below includes the effects of
special items that the chief operating decision maker does not consider in assessing segment performance, primarily because of their nature.
The following tables provides operating financial information for our two reportable segments:
(dollars in millions)
Consumer
Business
Total
Reportable
Segments
$
64,884 $
15,492
7,916
—
—
—
—
241
88,533
— $
—
—
11,112
10,405
6,362
3,013
70
30,962
64,884
15,492
7,916
11,112
10,405
6,362
3,013
311
119,495
15,610
15,736
16,936
11,395
59,677
28,856 $
10,659
4,064
8,380
4,086
27,189
3,773 $
26,269
19,800
25,316
15,481
86,866
32,629
2020
External Operating Revenues
Service
Wireless equipment
Other
Small and Medium Business
Global Enterprise
Public Sector and Other
Wholesale
Intersegment revenues
Total Operating Revenues(1)
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
and $2.9 billion, respectively, for the year ended December 31, 2020.
99
Operating Income
(1) Service and other revenues and Wireless equipment revenues included in our Business segment amounted to approximately $28.1 billion
$
Verizon 2020 Annual Report on Form 10-K
Operating Income
(1) Service and other revenues and Wireless equipment revenues included in our Business segment amounted to approximately $27.9 billion
$
2019
External Operating Revenues
Service
Wireless equipment
Other
Small and Medium Business
Global Enterprise
Public Sector and Other
Wholesale
Intersegment revenues
Total Operating Revenues(1)
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
and $3.5 billion, respectively, for the year ended December 31, 2019.
2018
External Operating Revenues
Service
Wireless equipment
Other
Small and Medium Business
Global Enterprise
Public Sector and Other
Wholesale
Intersegment revenues
Total Operating Revenues(1)
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Total Operating Expenses
(dollars in millions)
$
Consumer
Business
65,384 $
18,048
7,384
—
—
—
—
240
91,056
— $
—
—
11,447
10,815
5,922
3,198
61
31,443
Total
Reportable
Segments
65,384
18,048
7,384
11,447
10,815
5,922
3,198
301
122,499
15,884
18,219
16,639
11,353
62,095
28,961 $
10,655
4,733
8,188
4,105
27,681
3,762 $
26,539
22,952
24,827
15,458
89,776
32,723
(dollars in millions)
$
Consumer
Business
64,207 $
18,874
6,447
—
—
—
—
234
89,762
— $
—
—
10,732
11,197
5,830
3,713
62
31,534
Total
Reportable
Segments
64,207
18,874
6,447
10,732
11,197
5,830
3,713
296
121,296
15,335
18,763
15,701
11,952
61,751
28,011 $
10,859
4,560
7,689
4,258
27,366
4,168 $
26,194
23,323
23,390
16,210
89,117
32,179
Operating Income
(1) Service and other revenues and Wireless equipment revenues included in our Business segment amounted to approximately $28.1 billion
$
and $3.4 billion, respectively, for the year ended December 31, 2018.
The following table provides Fios revenues for our two reportable segments:
Years Ended December 31,
Consumer
Business
Total Fios revenue
2020
11,082 $
1,057
12,139 $
$
$
(dollars in millions)
2018
11,056
883
11,939
2019
11,175 $
967
12,142 $
100
Verizon 2020 Annual Report on Form 10-K The following table provides Wireless service revenue for our reportable segments and includes intersegment activity:
Years Ended December 31,
Consumer
Business
Total Wireless service revenue
2020
53,605 $
11,805
65,410 $
$
$
(dollars in millions)
2018
52,459
10,484
62,943
2019
53,791 $
11,188
64,979 $
Reconciliation to Consolidated Financial Information
A reconciliation of the reportable segment operating revenues to consolidated operating revenues is as follows:
Years Ended December 31,
Operating Revenues
Total reportable segments
Corporate and other
Reconciling items:
Eliminations
Consolidated Operating Revenues
2020
(dollars in millions)
2018
2019
$
$
119,495 $
9,334
122,499 $
9,812
121,296
9,936
(537)
128,292 $
(443)
131,868 $
(369)
130,863
A reconciliation of the total reportable segments’ operating income to consolidated income before provision for income taxes is as follows:
(dollars in millions)
2018
2019
2020
Years Ended December 31,
Operating Income
Total reportable segments
Corporate and other
Reconciling items:
Severance charges
Other components of net periodic pension and benefit (charges) credits (Note 11)
Acquisition and integration related charges (Note 3)
Loss on spectrum license transactions (Note 3)
Impairment charges
Product realignment charges
Net gain (loss) from dispositions of assets and businesses
Consolidated operating income
Equity in losses of unconsolidated businesses
Other income (expense), net
Interest expense
Income Before Provision For Income Taxes
$
32,629 $
(1,472)
32,723 $
(1,403)
(221)
(817)
—
(1,195)
—
—
(126)
28,798
(45)
(539)
(4,247)
23,967 $
(204)
(813)
—
—
(186)
—
261
30,378
(15)
(2,900)
(4,730)
22,733 $
$
32,179
(1,326)
(2,157)
(823)
(553)
—
(4,591)
(451)
—
22,278
(186)
2,364
(4,833)
19,623
No single customer accounted for more than 10% of our total operating revenues during the years ended December 31, 2020, 2019 and 2018.
International operating revenues were not significant during the years ended December 31, 2020, 2019 and 2018. As of December 31, 2020
and December 31, 2019, international long-lived assets were not significant.
The chief operating decision maker does not review disaggregated assets on a segment basis; therefore, such information is not presented.
Depreciation included in the measure of segment profitability is primarily allocated based on proportional usage.
Note 14. Equity and Comprehensive Income
Equity
In December 2019, 46,100 preferred shares of a foreign affiliate of Verizon was sold for cash consideration of $51 million and is reflected in
non-controlling interests. The preferred shares pay cumulative dividends of 8.25% per annum.
Common Stock
In February 2020, the Verizon Board of Directors authorized a share buyback program to repurchase up to 100 million shares of Verizon's
common stock. The program will terminate when the aggregate number of shares purchased reaches 100 million, or a new share repurchase
plan superseding the current plan is authorized, whichever is sooner. During the years ended December 31, 2020, 2019, and 2018, Verizon did
not repurchase any shares of Verizon’s common stock under our current or previously authorized share buyback programs. At December 31,
2020, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 100 million.
101
Verizon 2020 Annual Report on Form 10-K
Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareholder plans. During the
years ended December 31, 2020, 2019, and 2018, we issued 2.3 million, 3.8 million and 3.5 million common shares from Treasury stock,
respectively, which had an insignificant aggregate value.
In connection with our acquisition of Straight Path in February 2018, we issued approximately 49 million shares of Verizon common stock,
valued at approximately $2.4 billion.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income consists of net income and other gains and losses affecting equity that, under U.S. GAAP, are excluded from net
income. Significant changes in the components of Other comprehensive loss, net of provision for income taxes are described below.
The changes in the balances of Accumulated other comprehensive income (loss) by component are as follows:
Foreign
currency
translation
adjustments
Unrealized
gains (losses)
on cash flow
hedges
Unrealized
gains (losses)
on marketable
securities
(dollars in millions)
Balance at January 1, 2018
Opening balance sheet adjustment (Note 1)
Adjusted opening balance
$
Other comprehensive income (loss)
Amounts reclassified to net income
Net other comprehensive income (loss)
Balance at December 31, 2018
Other comprehensive income (loss)
Amounts reclassified to net income
Net other comprehensive income (loss)
Balance at December 31, 2019
Other comprehensive income (loss)
Amounts reclassified to net income
Net other comprehensive income (loss)
Balance at December 31, 2020
$
(468) $
(15)
(483)
(117)
—
(117)
(600)
16
—
16
(584)
180
—
180
(404) $
(111) $
(24)
(135)
(574)
629
55
(80)
(699)
(37)
(736)
(816)
953
(1,524)
(571)
(1,387) $
Defined benefit
pension and
postretirement
plans
3,206 $
682
3,888
(164)
(694)
(858)
3,030
—
(659)
(659)
2,371
—
(676)
(676)
1,695 $
32 $
(13)
19
—
1
1
20
8
(1)
7
27
7
(9)
(2)
25 $
Total
2,659
630
3,289
(855)
(64)
(919)
2,370
(675)
(697)
(1,372)
998
1,140
(2,209)
(1,069)
(71)
The amounts presented above in net other comprehensive income (loss) are net of taxes. The amounts reclassified to net income related to
unrealized gains (losses) on cash flow hedges in the table above are included in Other income (expense), net and Interest expense in our
consolidated statements of income. See Note 9 for additional information. The amounts reclassified to net income related to unrealized gains
(losses) on marketable securities in the table above are included in Other income (expense), net in our consolidated statements of income. The
amounts reclassified to net income related to defined benefit pension and postretirement plans in the table above are included in Cost of
services and Selling, general and administrative expense in our consolidated statements of income. See Note 11 for additional information.
Note 15. Additional Financial Information
The following tables provide additional financial information related to our consolidated financial statements:
Income Statement Information
Years Ended December 31,
Depreciation expense
Interest costs on debt balances
Net amortization of debt discount
Capitalized interest costs
Advertising expense
Other income (expense), net
Interest income
Other components of net periodic benefit (cost) income
Early debt extinguishment costs
Other, net
2020
14,275 $
4,632
170
(555)
3,107
(dollars in millions)
2018
15,186
5,399
174
(740)
2,682
2019
14,371 $
5,221
165
(656)
3,071
65 $
(425)
(129)
(50)
(539) $
121 $
627
(3,604)
(44)
(2,900) $
94
3,068
(725)
(73)
2,364
$
$
$
102
Verizon 2020 Annual Report on Form 10-K
Balance Sheet Information
At December 31,
Prepaid expenses and other
Prepaid taxes
Deferred contract costs
Restricted cash
Other prepaid expense and other
Accounts payable and accrued liabilities
Accounts payable
Accrued expenses
Accrued vacation, salaries and wages
Interest payable
Taxes payable
Other current liabilities
Dividends payable
Contract liability
Other
Cash Flow Information
Years Ended December 31,
Cash Paid
Interest, net of amounts capitalized
Income taxes, net of amounts refunded
Other, net Cash Flows from Operating Activities
Changes in device payment plan agreement non-current receivables
Early debt extinguishment costs
Loss on spectrum license auction
Other, net
Other, net Cash Flows from Financing Activities
Net debt related costs
Change in short-term obligations, excluding current maturities
Other, net
(dollars in millions)
2019
2020
1,200 $
2,472
1,195
1,843
6,710 $
6,667 $
6,050
5,057
1,452
1,432
20,658 $
2,618 $
4,843
2,167
9,628 $
2,438
2,578
1,221
1,791
8,028
7,725
5,984
4,885
1,441
1,771
21,806
2,566
4,651
1,807
9,024
$
$
$
$
$
$
2020
(dollars in millions)
2018
2019
4,420 $
2,725
4,714 $
3,583
4,408
2,213
558 $
129
1,195
898
2,780 $
23 $
3,604
—
(134)
3,493 $
(509)
725
—
3
219
(1,055) $
—
(1,657)
(2,712) $
(1,797) $
—
(1,120)
(2,917) $
(141)
(790)
(893)
(1,824)
$
$
$
$
$
Note 16. Commitments and Contingencies
In the ordinary course of business, Verizon is involved in various commercial litigation and regulatory proceedings at the state and federal
level. Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is probable and estimable in a
given matter, the Company establishes an accrual. In none of the currently pending matters is the amount of accrual material. An estimate of
the reasonably possible loss or range of loss in excess of the amounts already accrued cannot be made at this time due to various factors
typical in contested proceedings, including: (1) uncertain damage theories and demands; (2) a less than complete factual record;
(3) uncertainty concerning legal theories and their resolution by courts or regulators; and (4) the unpredictable nature of the opposing party
and its demands. We continuously monitor these proceedings as they develop and adjust any accrual or disclosure as needed. We do not
expect that the ultimate resolution of any pending regulatory or legal matter in future periods will have a material effect on our financial
condition, but it could have a material effect on our results of operations for a given reporting period.
Verizon is currently involved in approximately 25 federal district court actions alleging that Verizon is infringing various patents. Most of
these cases are brought by non-practicing entities and effectively seek only monetary damages; a small number are brought by companies that
103
Verizon 2020 Annual Report on Form 10-K have sold products and could seek injunctive relief as well. These cases have progressed to various stages and a small number may go to trial
in the coming 12 months if they are not otherwise resolved.
In connection with the execution of agreements for the sales of businesses and investments, Verizon ordinarily provides representations and
warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being sold, as well as
indemnity from certain financial losses. From time to time, counterparties may make claims under these provisions, and Verizon will seek to
defend against those claims and resolve them in the ordinary course of business.
Subsequent to the sale of Verizon Information Services Canada in 2004, we continue to provide a guarantee to publish directories, which was
issued when the directory business was purchased in 2001 and had a 30-year term (before extensions). The preexisting guarantee continues,
without modification, despite the subsequent sale of Verizon Information Services Canada and the spin-off of our domestic print and internet
yellow pages directories business. The possible financial impact of the guarantee, which is not expected to be adverse, cannot be reasonably
estimated as a variety of the potential outcomes available under the guarantee result in costs and revenues or benefits that may offset each
other. We do not believe performance under the guarantee is likely.
As of December 31, 2020, letters of credit totaling approximately $677 million, which were executed in the normal course of business and
support several financing arrangements and payment obligations to third parties, were outstanding.
During 2020, Verizon entered into 12 renewable energy purchase agreements (REPAs) with third parties. Each of the REPAs is based on the
expected operation of a renewable energy-generating facility and has a fixed price term 12 to 18 years from the commencement of the
facility's entry into commercial operation, which is expected to occur in 2021 through 2023, as applicable. The REPAs generally are expected
to be financially settled based on the prevailing market price as energy is generated by the facilities.
We have various commitments, totaling $24.6 billion, primarily to purchase content and network services, equipment, software and marketing
services, which will be used or sold in the ordinary course of business, from a variety of suppliers. Of this total amount, $8.2 billion is
attributable to 2021, $10.8 billion is attributable to 2022 through 2023, $4.1 billion is attributable to 2024 through 2025 and $1.5 billion is
attributable to years thereafter. These amounts do not represent our entire anticipated purchases in the future, but represent only those items
that are the subject of contractual obligations. Our commitments are generally determined based on the noncancellable quantities or
termination amounts. Purchases against our commitments totaled approximately $10.5 billion for 2020, $10.9 billion for 2019 and $9.0 billion
for 2018. Since the commitments to purchase programming services from television networks and broadcast stations have no minimum
volume requirement, we estimated our obligation based on number of subscribers at December 31, 2020, and applicable rates stipulated in the
contracts in effect at that time. We also purchase products and services as needed with no firm commitment.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the registrant’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
Annual 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 December 31, 2020.
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. In the third quarter of 2020, we began a multi-
year implementation of a new global enterprise resource planning (ERP) system, which will replace many of our existing core financial
systems. The new ERP system is designed to enhance the flow of financial information, facilitate data analysis and accelerate information
reporting. The implementation is expected to occur in phases over the next several years.
As the phased implementation of the new ERP system continues, we could have changes to our processes and procedures which, in turn,
could result in changes to our internal controls over financial reporting. As such changes occur, we will evaluate quarterly whether such
changes materially affect our internal control over financial reporting.
There were no changes in the Company's internal control over financial reporting during the fourth quarter 2020 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s report on internal control over financial reporting and the attestation report of Verizon’s independent registered public
accounting firm are included in Item 8. "Financial Statements and Supplementary Data".
Item 9B. Other Information
None.
104
Verizon 2020 Annual Report on Form 10-K
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Set forth below is information with respect to our executive officers.
Name
Hans Vestberg
Ronan Dunne
Matthew D. Ellis
Tami A. Erwin
K. Guru Gowrappan
Kyle Malady
Christine Pambianchi
Rima Qureshi
Craig L. Silliman
Anthony T. Skiadas
Age Office
55 Chairman and Chief Executive Officer
57 Executive Vice President and Group CEO - Verizon Consumer
49 Executive Vice President and Chief Financial Officer
56 Executive Vice President and Group CEO - Verizon Business
40 Executive Vice President and Group CEO - Verizon Media
53 Executive Vice President and Chief Technology Officer
52 Executive Vice President and Chief Human Resources Officer
56 Executive Vice President and Chief Strategy Officer
53 Executive Vice President and Chief Administrative, Legal and Public Policy Officer
52 Senior Vice President and Controller
Held Since
2019
2019
2016
2019
2019
2019
2019
2017
2019
2013
Prior to serving as an executive officer, each of the above officers has held high-level managerial positions with the Company or one of its
subsidiaries for at least five years, with the exception of Hans Vestberg, who has been with the Company since 2017, Ronan Dunne, who has
been with the Company since 2016, K. Guru Gowrappan, who has been with the Company since 2018, Christine Pambianchi, who has been
with the Company since 2019 and Rima Qureshi, who has been with the Company since 2017. Officers are not elected for a fixed term of
office and may be removed from office at any time at the discretion of the Board of Directors.
Hans Vestberg is the Chairman and Chief Executive Officer of Verizon. Mr. Vestberg joined the Company in April 2017 as Executive Vice
President and President - Global Networks and Technology. He began serving in his current role of Chief Executive Officer in August 2018
and was elected Chairman in March 2019. Prior to joining Verizon, Mr. Vestberg served for six years as President and Chief Executive
Officer of Ericsson, a multinational networking and telecommunications equipment and services company headquartered in Sweden.
Ronan Dunne is the Executive Vice President and Group CEO - Verizon Consumer. Mr. Dunne joined the Company in September 2016 as
Executive Vice President and President of Verizon Wireless. Prior to joining Verizon, Mr. Dunne served for eight years as Chief Executive
Officer of Telefónica UK Limited (O2), the second largest wireless operator in the United Kingdom.
K. Guru Gowrappan is the Executive Vice President and Group CEO - Verizon Media. Mr. Gowrappan joined the Company in April 2018 as
the President and Chief Operating Officer of Oath. He began serving in his current role of Executive Vice President and CEO of Verizon's
Media business in October 2018 and assumed his current title in May 2019. Prior to joining Verizon, Mr. Gowrappan served as the Global
Managing Director of Alibaba Inc. from 2015 to 2018 and as the Chief Operating Officer for Quixey, a mobile search engine, from 2012 to
2015.
Christine Pambianchi is the Executive Vice President and Chief Human Resources Officer. Ms. Pambianchi joined the Company in July
2019. Prior to joining Verizon, Ms. Pambianchi led the Human Resources function at Corning Incorporated, a leading innovator in materials
science, where she served as Executive Vice President, People and Digital, from 2018 to 2019 and as Senior Vice President, Human
Resources, from 2010 to 2018.
Rima Qureshi is Executive Vice President and Chief Strategy Officer of Verizon. Ms. Qureshi joined the Company in November 2017. Prior
to joining Verizon, Ms. Qureshi served as President and Chief Executive Officer of Ericsson North America from 2016 to 2017 and as Senior
Vice President and Chief Strategy Officer and head of mergers and acquisitions of Ericsson from 2014 to 2016. Ms. Qureshi also served as
Vice President of Ericsson’s CDMA Mobile Systems Group, Senior Vice President of Strategic Projects, Chairman of Ericsson’s Northern
Europe, Russia and Central Asia Group and Chairman of Ericsson’s Modem division before becoming Chief Strategy Officer.
For other information required by this item, see the sections entitled "Governance — Item 1: Election of Directors — Nominees for Election
and — Election Process, — Our Approach to Governance — Where to Find More Information on Governance at Verizon, — Our Board
Composition and Structure — Board Committees — Audit Committee and — Our Approach to Strategy and Risk Oversight — Other Risk-
Related Matters — Business Conduct and Ethics" in our definitive Proxy Statement to be filed with the Securities and Exchange Commission
and delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders, which are incorporated herein by reference.
105
Verizon 2020 Annual Report on Form 10-K
Item 11. Executive Compensation
For information with respect to executive compensation, see the sections entitled "Governance — Non-Employee Director Compensation"
and "Executive Compensation — Compensation Discussion and Analysis, — Compensation Committee Report and — Compensation Tables"
in our definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to shareholders in connection with
our 2021 Annual Meeting of Shareholders, which are incorporated by reference herein. There were no relationships to be disclosed under
paragraph (e)(4) of Item 407 of Regulation S-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For information with respect to the security ownership of the Directors and Executive Officers, see the section entitled "Stock Ownership —
Security Ownership of Certain Beneficial Owners and Management" in our definitive Proxy Statement to be filed with the SEC and delivered
to shareholders in connection with our 2021 Annual Meeting of Shareholders, which is incorporated herein by reference.
The following table provides information as of December 31, 2020 for (i) all equity compensation plans previously approved by the
Company’s shareholders, and (ii) all equity compensation plans not previously approved by the Company’s shareholders. Since May 4, 2017,
the Company has only issued awards under the 2017 Verizon Communications. Inc. Long-Term Incentive Plan (2017 LTIP), which provides
for awards of stock options, restricted stock, restricted stock units, performance stock units and other equity-based hypothetical stock units to
employees of Verizon and its subsidiaries. No new awards are permitted to be issued under any other equity compensation plan. In
accordance with SEC rules, the table does not include outstanding awards that are payable solely in cash by the terms of the award, and such
awards do not reduce the number of shares remaining for issuance under the 2017 LTIP.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (a)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights (b)
11,142,765 (1) $
111,389 (4)
11,254,154
$
— (2)
—
—
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a)) (c)
82,571,797 (3)
—
82,571,797
(1) This amount includes: 11,142,765 of common stock subject to outstanding restricted stock units and performance stock units, including
dividend equivalents accrued on such awards through December 31, 2020. This does not include performance stock units, deferred stock
units and deferred share equivalents payable solely in cash.
(2) Verizon’s outstanding restricted stock units, performance stock units and deferred stock units do not have exercise prices associated with
the settlement of these awards.
(3) This number reflects the number of shares of common stock that remained available for future issuance under the 2017 LTIP.
(4) This number reflects shares subject to deferred stock units credited to the Verizon Income Deferral Plan, which were awarded in 2002
under the Verizon Communications Broad-Based Incentive Plan. No new awards are permitted to be issued under this plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For information with respect to certain relationships and related transactions and Director independence, see the sections entitled "Governance
— Our Approach to Governance — Our Approach to Strategy and Risk Oversight — Other Risk-Related Matters — Related Person
Transactions and — Our Board Composition and Structure — Our Board's Independence" in our definitive Proxy Statement to be filed with
the Securities and Exchange Commission and delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders, which
are incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
For information with respect to principal accounting fees and services, see the section entitled "Audit Matters — Item 3: Ratification of
Appointment of Independent Registered Public Accounting Firm" in our definitive Proxy Statement to be filed with the Securities and
Exchange Commission and delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders, which are incorporated
herein by reference.
106
Verizon 2020 Annual Report on Form 10-K
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report:
(1) Financial Statements
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements
Financial Statements covered by Report of Independent Registered Public Accounting Firm:
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
II – Valuation and Qualifying Accounts
(3) Exhibits
Exhibits identified in parentheses below, on file with the SEC, are incorporated herein by reference as exhibits
hereto. Unless otherwise indicated, all exhibits so incorporated are from File No. 1-8606.
Page
50
51
52
54
55
56
57
58
59
111
107
Verizon 2020 Annual Report on Form 10-K Exhibit
Number Description
3a
3b
4a
4b
4c
4d
4e
4f
4g
10a
10b
Restated Certificate of Incorporation of Verizon Communications Inc. (Verizon) (filed as Exhibit 3a to Form 10-Q for the
period ended June 30, 2014 and incorporated herein by reference).
Bylaws of Verizon, as amended and restated, effective as of December 3, 2020 (filed as Exhibit 3b to Form 8-K filed on
December 4, 2020 and incorporated herein by reference).
Indenture between Verizon, both individually and as successor in interest to Verizon Global Funding Corp., and U.S. Bank
National Association, as successor trustee to Wachovia Bank, National Association, formerly known as First Union National
Bank, as Trustee, dated as of December 1, 2000 (incorporated by reference to Verizon Global Funding Corp.’s Registration
Statement on Form S-4, Registration No. 333-64792, Exhibit 4.1).
First Supplemental Indenture between Verizon, both individually and as successor in interest to Verizon Global Funding Corp.,
and U.S. Bank National Association, as successor trustee to Wachovia Bank, National Association, formerly known as First
Union National Bank, as Trustee, dated as of May 15, 2001 (incorporated by reference to Verizon Global Funding Corp.’s
Registration Statement on Form S-3, Registration No. 333-67412, Exhibit 4.2).
Second Supplemental Indenture between Verizon, both individually and as successor in interest to Verizon Global Funding
Corp., and U.S. Bank National Association, as successor trustee to Wachovia Bank, National Association, formerly known as
First Union National Bank, as Trustee, dated as of September 29, 2004 (incorporated by reference to Form 8-K filed on
February 9, 2006, Exhibit 4.1).
Third Supplemental Indenture between Verizon, both individually and as successor in interest to Verizon Global Funding Corp.,
and U.S. Bank National Association, as successor trustee to Wachovia Bank, National Association, formerly known as First
Union National Bank, as Trustee, dated as of February 1, 2006 (incorporated by reference to Form 8-K filed on February 9,
2006, Exhibit 4.2).
Fourth Supplemental Indenture between Verizon, both individually and as successor in interest to Verizon Global Funding
Corp., and U.S. Bank National Association, as successor trustee to Wachovia Bank, National Association, formerly known as
First Union National Bank, as Trustee, dated as of April 4, 2016 (incorporated by reference to Verizon Communications Inc.’s
Registration Statement on Form S-4, Registration No. 333-212307, Exhibit 4.5).
Fifth Supplemental Indenture between Verizon, both individually and as successor in interest to Verizon Global Funding Corp.,
and U.S. Bank National Association, as successor trustee to Wachovia Bank, National Association, formerly known as First
Union National Bank, as Trustee, dated as of May 15, 2020 (incorporated by reference to Form 8-K filed on May 15, 2020,
Exhibit 4.1).
Except for Exhibits 4a – 4f above, no other instrument which defines the rights of holders of long-term debt of Verizon and its
consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation,
Verizon hereby agrees to furnish a copy of any such instrument to the SEC upon request.
Description of Verizon's Securities Registered Pursuant to Section 12 of the Securities and Exchange Act of 1934, filed
herewith.
NYNEX Directors’ Charitable Award Program (filed as Exhibit 10i to Form 10-K for the year ended December 31, 2000 and
incorporated herein by reference).**
2017 Verizon Communications Inc. Long-Term Incentive Plan (incorporated by reference to Appendix B of the Registrant’s
Proxy Statement included in Schedule 14A filed on March 20, 2017).**
10b(i)
10b(ii)
10b(iii)
10b(iv)
10b(v)
10b(vi)
Form of 2018 Performance Stock Unit Agreement pursuant to the 2017 Verizon Communications Inc. Long-Term
Incentive Plan (filed as Exhibit 10a to Form 10-Q for the period ended March 31, 2018 and incorporated herein by
reference).**
Form of 2018 Restricted Stock Unit Agreement pursuant to the 2017 Verizon Communications Inc. Long-Term
Incentive Plan. (filed as Exhibit 10b to Form 10-Q for the period ended March 31, 2018 and incorporated herein by
reference).**
2018 Special Performance Stock Unit Agreement pursuant to the 2017 Verizon Communications Inc. Long-Term
Incentive Plan for H. Vestberg (filed as Exhibit 10 to Form 10-Q for the period ended September 30, 2018 and
incorporated herein by reference).**
2018 Restricted Stock Unit Agreement for G. Gowrappan pursuant to the 2017 Verizon Communications Inc.
Long-Term Incentive Plan (filed as Exhibit 10c(viii) to Form 10-K for the period ended December 31, 2018 and
incorporated herein by reference).**
Special Performance Restricted Stock Unit Agreement for R. Dunne pursuant to the 2017 Verizon Communications
Inc. Long-Term Incentive Plan (filed as Exhibit 10c(ix) to Form 10-K for the period ended December 31, 2018 and
incorporated herein by reference).**
Special Performance Restricted Stock Unit Agreement for G. Gowrappan pursuant to the 2017 Verizon
Communications Inc. Long-Term Incentive Plan (filed as Exhibit 10c(x) to Form 10-K for the period ended
December 31, 2018 and incorporated herein by reference).**
10b(vii)
Amendment to Special Performance Restricted Stock Unit Agreement for G. Gowrappan pursuant to the 2017
Verizon Communications Inc. Long-Term Incentive Plan (filed as Exhibit 10c(x)(i) to Form 10-K for the period
ended December 31, 2018 and incorporated herein by reference).**
108
Verizon 2020 Annual Report on Form 10-K 10b(viii)
Form of 2019 Performance Stock Unit Agreement pursuant to the 2017 Verizon Communications Inc. Long-Term
Incentive Plan (filed as Exhibit 10b to Form 10-Q for the period ended March 31, 2019 and incorporated herein by
reference).**
10b(ix)
Form of 2019 Restricted Stock Unit Agreement pursuant to the 2017 Verizon Communications Inc. Long-Term
Incentive Plan (filed as Exhibit 10c to Form 10-Q for the period ended March 31, 2019 and incorporated herein by
reference).**
10b(x)
Form of 2020 Performance Stock Unit Agreement pursuant to the 2017 Verizon Communications Inc. Long-Term
Incentive Plan (filed as Exhibit 10a to Form 10-Q for the period ended March 31, 2020 and incorporated herein by
reference).**
10b(xi)
Form of 2020 Restricted Stock Unit Agreement pursuant to the 2017 Verizon Communications Inc. Long-Term
Incentive Plan (filed as Exhibit 10b to Form 10-Q for the period ended March 31, 2020 and incorporated herein by
reference).**
10c
10d
10e
Verizon Communications Inc. Short-Term Incentive Plan (filed as Exhibit 10a to Form 10-Q for the period ended March 31,
2019 and incorporated herein by reference).**
Verizon Executive Deferral Plan (filed as Exhibit 10e to Form 10-K for the period ended December 31, 2017 and incorporated
herein by reference).**
Verizon Income Deferral Plan (filed as Exhibit 10f to Form 10-Q for the period ended June 30, 2002 and incorporated herein by
reference).**
10e(i)
Description of Amendment to Plan (filed as Exhibit 10o(i) to Form 10-K for the year ended December 31, 2004 and
incorporated herein by reference).**
10f
Verizon Excess Pension Plan (filed as Exhibit 10p to Form 10-K for the year ended December 31, 2004 and incorporated herein
by reference).**
10f(i)
Description of Amendment to Plan (filed as Exhibit 10p(i) to Form 10-K for the year ended December 31, 2004 and
incorporated herein by reference).**
10g
10h
Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended (filed as Exhibit 10h to
Form SE filed on March 27, 1986 and Exhibit 10b(ii) to Form 10-K for the year ended December 31, 1997 and incorporated
herein by reference).**
Verizon Executive Life Insurance Plan, As Amended and Restated September 2009 (filed as Exhibit 10s to Form 10-K for the
year ended December 31, 2010 and incorporated herein by reference).**
10i
Form of Aircraft Time Sharing Agreement, filed herewith.**
10j
Verizon Senior Manager Severance Plan (filed as Exhibit 10d to Form 10-Q for the period ended March 31, 2010 and
incorporated herein by reference).**
21
List of principal subsidiaries of Verizon, filed herewith.
23
Consent of Ernst & Young LLP, filed herewith.
24
Powers of Attorney, filed herewith.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101.INS XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are
embedded within the inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.PRE XBRL Taxonomy Presentation Linkbase Document.
109
Verizon 2020 Annual Report on Form 10-K 101.CAL XBRL Taxonomy Calculation Linkbase Document.
101.LAB XBRL Taxonomy Label Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in
Exhibits 101).
**
Indicates management contract or compensatory plan or arrangement.
110
Verizon 2020 Annual Report on Form 10-K Schedule II - Valuation and Qualifying Accounts
Verizon Communications Inc. and Subsidiaries
For the Years Ended December 31, 2020, 2019 and 2018
Description
Allowance for credit losses deducted from accounts receivable:
Year 2020
Allowance for doubtful accounts deducted from accounts receivable:
Year 2019
Year 2018
930
1,199
$
$
1,125 (d) $
Additions
Charged to
Expenses
Charged to
Other Accounts(a) Deductions(b)
Balance at
End of
Period(c)
(dollars in millions)
Balance at
Beginning of
Period
1,390 $
165
$
1,173 $
1,507
$
1,441 $
776
$
133
216
1,644 $
1,261
860
930
Additions
Balance at
Beginning of
Period
Charged to
Expenses
Charged to
Balance at
End of
Period
Description
Valuation allowance for deferred tax assets:
2,183
Year 2020
2,260
Year 2019
2,741
Year 2018
(a) Charged to Other Accounts primarily includes amounts previously written off which were credited directly to this account when
363 $
891
915
202 $
402
251
2,260
2,741
3,293
Other Accounts(e) Deductions(f)
84
8
112
$
$
$
recovered.
(b) Deductions primarily include amounts written off as uncollectible or transferred to other accounts or utilized.
(c) Allowance for credit losses includes approximately $254 million at December 31, 2020 related to long-term device payment receivables.
Allowance for doubtful accounts includes approximately $127 million and $165 million at December 31, 2019, and 2018, respectively,
related to long-term device payment plan receivables.
(d) Includes opening balance sheet adjustment related to the adoption of Topic 326.
(e) Charged to Other Accounts includes current year increase to valuation allowance charged to equity and reclassifications from other
balance sheet accounts.
(f) Reductions to valuation allowances related to deferred tax assets.
111
Verizon 2020 Annual Report on Form 10-K
Item 16. Form 10-K Summary
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
/s/ Anthony T. Skiadas
Anthony T. Skiadas
Senior Vice President and Controller
Date: February 25, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ Hans E. Vestberg
Hans E. Vestberg
Principal Financial Officer:
/s/ Matthew D. Ellis
Matthew D. Ellis
Principal Accounting Officer:
/s/ Anthony T. Skiadas
Anthony T. Skiadas
Chairman and
Chief Executive Officer
February 25, 2021
Executive Vice President and
Chief Financial Officer
February 25, 2021
Senior Vice President and
Controller
February 25, 2021
112
Verizon 2020 Annual Report on Form 10-K *
Hans E. Vestberg
*
Shellye L. Archambeau
*
Roxanne S. Austin
*
Mark T. Bertolini
*
Melanie L. Healey
*
Clarence Otis, Jr.
*
Daniel H. Schulman
*
Rodney E. Slater
*
Gregory G. Weaver
* By: /s/ Anthony T. Skiadas
Anthony T. Skiadas
(as attorney-in-fact)
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
113
Verizon 2020 Annual Report on Form 10-K Consent of Independent Registered Public Accounting Firm
EXHIBIT 23
We consent to the incorporation by reference in the following Registration Statements:
Form S-4, No. 333-11573; Form S-8, No. 333-41593; Form S-8, No. 333-50146; Form S-4, No. 333-76171; Form S-8, No. 333-76171; Form
S-8, No. 333-53830; Form S-8, No. 333-82690; Form S-4, No. 333-124008; Form S-8, No. 333-124008; Form S-4, No. 333-132651; Form
S-8, No. 333-172501; Form S-8, No. 333-172999; Form S-8, No. 333-200398; Form S-8, No. 333-217717; Form S-8, No. 333-223523; Form
S-3, No. 333-233608; Form S-8, No. 333-238959; and Form S-4, No. 333-252354, all of Verizon Communications Inc. ("Verizon");
of our reports dated February 25, 2021, with respect to the consolidated financial statements of Verizon and the effectiveness of internal
control over financial reporting of Verizon, included in this Annual Report (Form 10-K) for the year ended December 31, 2020.
Ernst & Young LLP
/s/
Ernst & Young LLP
New York, New York
February 25, 2021
Verizon 2020 Annual Report on Form 10-K EXHIBIT 31.1
I, Hans E. Vestberg, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Verizon Communications Inc.;
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;
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;
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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: February 25, 2021
/s/ Hans E. Vestberg
Hans E. Vestberg
Chairman and Chief Executive Officer
Verizon 2020 Annual Report on Form 10-K EXHIBIT 31.2
I, Matthew D. Ellis, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Verizon Communications Inc.;
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;
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;
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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: February 25, 2021
/s/ Matthew D. Ellis
Matthew D. Ellis
Executive Vice President and Chief Financial Officer
Verizon 2020 Annual Report on Form 10-K 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, Hans E. Vestberg, Chairman and Chief Executive Officer of Verizon Communications Inc. (the Company), certify that:
(1)
the report of the Company on Form 10-K for the annual period ending December 31, 2020 (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: February 25, 2021
/s/ Hans E. Vestberg
Hans E. Vestberg
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.
Verizon 2020 Annual Report on Form 10-K
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, Matthew D. Ellis, Executive Vice President and Chief Financial Officer of Verizon Communications Inc. (the Company), certify that:
(1)
the report of the Company on Form 10-K for the annual period ending December 31, 2020 (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: February 25, 2021
/s/ Matthew D. Ellis
Matthew D. Ellis
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.
Verizon 2020 Annual Report on Form 10-K
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