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, 2021
☐
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
2.350% Fixed Rate Notes due 2028
1.875% Notes due 2029
0.375% Notes due 2029
1.250% Notes due 2030
1.875% Notes due 2030
2.625% Notes due 2031
2.500% Notes due 2031
3.000% Fixed Rate Notes due 2031
0.875% Notes due 2032
0.750% Notes due 2032
1.300% Notes due 2033
4.750% Notes due 2034
3.125% Notes due 2035
1.125% Notes due 2035
3.375% Notes due 2036
Trading Symbol(s)
VZ
VZ
VZ24B
VZ24C
VZ25
VZ26
VZ26B
VZ27E
VZ28
VZ28A
VZ28C
VZ29B
VZ29D
VZ30
VZ30A
VZ31
VZ31A
VZ31D
VZ32
VZ32A
VZ33B
VZ34
VZ35
VZ35A
VZ36A
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(b) of the Act (continued):
Title of Each Class
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
3.850% Fixed Rate Notes due 2041
Trading Symbol(s)
VZ38B
VZ38C
VZ39C
VZ39D
VZ40
VZ41C
Name of Each Exchange on Which Registered
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 ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐
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.
Yes ☒ 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, 2021, the aggregate market value of the registrant’s voting stock held by non-affiliates was approximately $232,001,885,386.
At January 31, 2022, 4,197,823,662 shares of the registrant’s common stock were outstanding, after deducting 93,609,984 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 2022 Annual
Meeting of Shareholders (Part III).
Item No.
TABLE OF CONTENTS
Business
PART I
Item 1.
Item 1A.
Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Legal Proceedings
Properties
Securities
[Reserved]
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Directors, Executive Officers and Corporate Governance
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Signatures
Certifications
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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).
On September 1, 2021, we completed the sale of our media business, Verizon Media Group (Verizon Media), to an affiliate of Apollo Global
Management Inc. Additional information is included in Note 3 to the consolidated financial statements of Verizon Communications Inc. and
Subsidiaries.
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. We also provide fixed wireless access (FWA) broadband through our wireless networks. 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. On November 23,
2021, we completed the acquisition of TracFone Wireless, Inc. (Tracfone), a provider of prepaid and value mobile services in the U.S.
Additional information is included in Note 3 to the consolidated financial statements of Verizon Communications Inc. and Subsidiaries.
In 2021, the Consumer segment’s revenues were $95.3 billion, representing approximately 71% of Verizon’s consolidated revenues. As of
December 31, 2021, Consumer had approximately 115 million wireless retail connections, approximately 7 million wireline 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 also provide FWA broadband through our wireless networks. 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 2021, the Business segment's revenues were $31.0 billion, representing approximately 23% of Verizon’s consolidated revenues. As of
December 31, 2021, Business had approximately 27 million wireless retail postpaid connections and approximately 477 thousand wireline
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 both Consumer customers and Business customers.
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
4
Verizon 2021 Annual Report on Form 10-K
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. As of December 31, 2021, we had 24 million prepaid connections, which
include approximately 20 million Consumer prepaid connections due to the Tracfone acquisition. Approximately 79% of our Consumer
wireless retail connections were postpaid connections as of December 31, 2021.
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; premium content; 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 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.
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. 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. Consumer also provides non-connectivity services
including device protection, cloud storage, and other products.
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,
2021, fifth-generation (5G) fixed wireless technology for the home (5G Home) is available in parts of 65 U.S. cities. In addition, as of
December 31, 2021, our Long-Term Evolution (LTE) Home fixed wireless access internet service is available in parts of all 50 states across
the United 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; voice services; and other home solutions.
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 was with Tracfone, until we acquired Tracfone from
América Móvil in November 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 services and products.
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
2021, Small and Medium Business revenues were $11.8 billion, representing approximately 38% 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.
5
Verizon 2021 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. In 2021, Global Enterprise revenues were $10.2 billion, representing approximately 33% 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:
•
•
•
•
•
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 2021, Public Sector and Other revenues were $6.3 billion, representing approximately 20% 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 2021, Wholesale revenues were $2.7 billion,
representing approximately 9% 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
and Business 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.
6
Verizon 2021 Annual Report on Form 10-K 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.
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, including 5G, the introduction of new
products and services, offerings that include additional bundled premium content, increased levels of promotions and service plan discounts,
new market entrants, the availability of additional licensed and unlicensed spectrum and regulatory changes. In addition, increasing
government incentives related to network deployment may enhance the ability of certain of our competitors to compete with us. 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., Meta Platforms, Inc. and others are offering alternative means for messaging and
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. In addition, we expect to see increasing competition in the provisioning of internet access by low Earth orbit satellite
companies.
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.
Traditional wireless carriers are also bundling broadband internet offerings with wireless services while increasing their broadband internet
footprint. 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.
7
Verizon 2021 Annual Report on Form 10-K •
•
•
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
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, web-based sales and fulfillment capabilities, outside sales
teams and telemarketing, 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.
Global Network and Technology
Our global network architecture is used by Consumer and Business. Our network technology platforms include both wireless and wireline
technologies.
Network Evolution
We are transforming the architecture of our networks into our Intelligent Edge Network, providing improved efficiency and virtualization,
increased automation and opportunities for edge computing services that will support our fiber-based and radio access network technologies.
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, 2021, 5G Ultra Wideband is available in parts of 87 U.S. cities and 5G Home is available in parts of 65 U.S. cities. Our FWA
8
Verizon 2021 Annual Report on Form 10-K broadband service continued to grow during the year with a customer base of approximately 223 thousand as of December 31, 2021. In
January 2022, we successfully deployed C-Band spectrum, reaching approximately 100 million people in the U.S. as of February 2022.
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, 2021, our 4G LTE network
covers approximately 328 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. LTE Home Internet, our home
broadband internet service, 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 secure rights to a large number of sites and
obtain 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
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 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.
9
Verizon 2021 Annual Report on Form 10-K Spectrum
The spectrum licenses we hold can be used for mobile and fixed 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. In 2021, we acquired an average of 161 MHz of
new mid-band spectrum in the continental United States in the 3700-3980 MHz band, also known as C-Band. We began using C-Band for 5G
service in January 2022.
Millimeter wave spectrum is being used in conjunction with low and mid-band spectrum for our 5G technology deployment. We own
millimeter wave spectrum predominantly in the 28 GHz and 37/39 GHz bands. Millimeter wave spectrum is currently being used to increase
capacity for mobile and fixed wireless services in areas of high demand. We anticipate that demand will continue to increase over time, 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 expect to meet the demand for 4G and 5G spectrum needs with
our existing spectrum assets. If demand continues to increase or if new spectrum is required for a future generation of technology, we can
meet that demand 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 Resources1
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 with high-value skills and expertise.
Develop our employees to their full potential through best-in-class educational programs and exceptional development experiences
and create a culture of continuous learning and engagement.
Inspire individuals to build a career at Verizon by providing meaningful work and upskilling opportunities and establishing an
inclusive work environment for all.
Verizon is committed to being an employer of choice. With approximately 118,400 employees, including approximately 800 Tracfone
employees, on a full-time equivalent basis as of December 31, 2021, 89% of whom are based in the U.S., 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, 2021, Verizon's global workforce was
approximately 66.9% male and 33.1% female, and the race/ethnicity of our U.S. workforce was 53.9% White, 20.1% Black, 11.9% Hispanic,
8.0% Asian, 0.4% American Indian/Alaskan Native, 0.3% Native Hawaiian/Pacific Islander, 2.6% two or more races, and 2.8% unknown or
undeclared. Women represented 38.7% of U.S. senior leadership (vice president level and above). People of color represented 34.9% of U.S.
senior leadership.
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1 Unless otherwise specified, the workforce metrics disclosed in this discussion do not include employees who joined Verizon in connection with the acquisition
of Tracfone in November 2021.
10
Verizon 2021 Annual Report on Form 10-K 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 24.0% of our employees as of December 31, 2021.
The current collective bargaining agreements covering our union- represented employees who serve customers in our Mid-Atlantic and
Northeast service areas extend through August 5, 2023. 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.
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 2022 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.
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. If demand continues to increase or if new spectrum is required for a future generation of
technology, 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.
11
Verizon 2021 Annual Report on Form 10-K Broadband
Verizon offers many different broadband services. The FCC currently recognizes broadband internet access services as "information services"
subject to a "light touch" regulatory approach rather than to the traditional, utilities-style regulations. However, the FCC could return to a
more utilities-style regulation of broadband. Additionally, a number of states have taken steps to attempt 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 artificial intelligence
and IoT space. At the federal level, our business is governed by the FCC or the Federal Trade Commission (FTC), depending on the product
or service. 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 states and countries have
continued to adopt new privacy laws that apply to us. 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
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 2022 and beyond remains uncertain and difficult to predict.
12
Verizon 2021 Annual Report on Form 10-K 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,"
"forecasts," "plans" 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;
damage to our infrastructure or disruption of our operations from natural disasters, extreme weather conditions or terrorist attacks
and any resulting financial or reputational impact;
the impact of public health crises, including 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 geopolitical factors, the
COVID-19 pandemic or the potential impacts of global climate change;
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;
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;
significant litigation and any resulting material expenses incurred in defending against lawsuits or paying awards or settlements;
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;
13
Verizon 2021 Annual Report on Form 10-K •
•
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, distributed denial of services attacks, ransomware 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 our competitors. 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, extreme weather conditions or terrorist or other hostile acts 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 or other hostile acts, natural disasters or the potential impacts of
climate change, including the increasing prevalence and intensity of hurricanes, wildfires, flooding, hail and storms. 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. 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 took 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
14
Verizon 2021 Annual Report on Form 10-K
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 2022 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
geopolitical factors, the COVID-19 pandemic, natural disasters or the potential impacts of global climate change. 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.1
As of December 31, 2021, approximately 24.0% 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 outside of our traditional wireline operations is represented by unions for bargaining, we cannot predict
what impact increased union density in this workforce 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, technology
companies 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. 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.
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1 Workforce profile metrics do not include employees who joined Verizon in connection with the acquisition of Tracfone in November 2021.
15
Verizon 2021 Annual Report on Form 10-K If we are not able to take advantage of developments in technology and address changing consumer demand on a timely
basis, or if the deployment of our 5G network is delayed or hindered for any reason, 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. If our new 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, 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 matters that could cause deployment delays or network performance issues. These issues could result in
significant costs, put us at a competitive disadvantage, or reduce the anticipated benefits of the enhancements to our networks.
As we introduce 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, or inflation in the markets in which
we operate, could negatively affect the affordability of and demand for some of our products and services and our cost of doing business. 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, those that incentivize business models or technologies different from ours 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 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 states and countries have
continued to adopt new privacy laws that apply to us. 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.
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 the FCC or by Congress. Several states have also adopted or are considering adopting laws or executive orders that
16
Verizon 2021 Annual Report on Form 10-K •
•
would impose net neutrality and other requirements on some of our services (in some cases different from the FCC’s 2015 rules).
Although some of these have been challenged in court, the ultimate 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.
Climate-Related Regulation and Policy – Due to the nature of our operations, we may be impacted by regulatory developments
related to climate change, including, for example, the direct regulation of greenhouse gas emissions or carbon policies that could
result in a tax on such emissions. In addition, policy-driven changes in the prices of fuel or energy in geographies in which we
operate could make it more expensive for us to purchase energy to power our networks and data centers, and any increase in taxes
on fuel could increase our costs associated with operating those vehicles in our fleet that are dependent on traditional fuels.
These developments and the further regulation of broadband, wireless, and our other activities and any related court decisions could result in
significant increases in costs for us or 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 substantial 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, 2021, Verizon had approximately $136.7 billion of outstanding unsecured indebtedness, $9.4 billion of unused borrowing
capacity under our existing revolving credit facility and $14.2 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.
Increases in costs for pension benefits and active and retiree healthcare benefits may reduce our profitability and
increase our funding commitments.
With approximately 118,400 employees, including approximately 800 Tracfone employees, and approximately 187,000 retirees as of
December 31, 2021 eligible to participate in Verizon’s benefit plans, the costs of pension benefits and active and retiree healthcare benefits
17
Verizon 2021 Annual Report on Form 10-K 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 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 $290 billion at December 31, 2021 and $280 billion at December 31, 2020, 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
2021
76.9%
11.7%
11.4%
100.0%
2020
77.6%
12.0%
10.4%
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,
construction in process, 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 2021 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, 2021, there were 484,764 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, 2021 and 2020, Verizon did not repurchase any shares of Verizon’s common stock under our current or
previously authorized share buyback programs. At December 31, 2021, 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
Comparison of Five-Year Total Return Among Verizon, S&P 500 and S&P 500 Telecommunications Services Index
Verizon
S&P 500
S&P 500 Telecom Services
$250
$225
$200
$175
$150
$125
$100
$75
2016
2017
2018
2019
2020
2021
Verizon
S&P 500
S&P 500 Telecom Services
$
2016
100.0 $
100.0
100.0
2017
104.0 $
121.8
98.7
2018
115.7 $
116.5
86.4
2020
2019
131.8 $ 131.6 $
153.1
114.6
181.3
141.7
2021
121.7
233.3
172.2
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, 2016 with dividends being reinvested.
Item 6. [Reserved]
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 2021 Annual Report on Form 10-K
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 2021, 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 2021 Financial Results
(dollars in millions)
Operating Revenues
Operating Income
Net Income
$133,613
$128,292
$32,448
$28,798
$22,618
$18,348
2021
2020
2021
2020
2021
2020
Cash Flows from Operations
Capital Expenditures
$39,539
$41,768
$20,286
$18,192
2021
2020
2021
2020
20
Verizon 2021 Annual Report on Form 10-K 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
2021
2020
23.2%
71.1%
24.0%
68.7%
5.7%
7.3%
———
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 United States (U.S.) under the Verizon brand and through wholesale and
other arrangements. We also provide fixed wireless access (FWA) broadband through our wireless networks. 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. On November 23, 2021, we completed the
acquisition of TracFone Wireless, Inc. (Tracfone), a provider of prepaid and value mobile services in the U.S. Additional information is
included in Note 3 to the consolidated financial statements of Verizon Communications Inc. and Subsidiaries.
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, 2021 totaled $95.3 billion, an increase of $6.8 billion, or 7.6%, compared to the year ended December 31, 2020. 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 also provide FWA broadband through our
wireless networks. 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, 2021 totaled $31.0 billion, an increase of $80 million, or 0.3%, compared to the year ended December 31, 2020. See "Segment
Results of Operations" for additional information regarding our Business segment’s operating performance and selected operating statistics.
Corporate and Other
Corporate and other primarily includes insurance captives, investments in unconsolidated businesses and development stage businesses that
support our strategic initiatives, as well as unallocated corporate expenses, certain pension and other employee benefit related costs and
interest and financing expenses. Corporate and other also includes the historical results of divested businesses including Verizon Media Group
(Verizon Media), and other adjustments and gains and losses that are not allocated in assessing segment performance due to their nature.
Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and
21
Verizon 2021 Annual Report on Form 10-K 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.
On May 2, 2021, Verizon entered into a definitive agreement with an affiliate of Apollo Global Management Inc. (the Apollo Affiliate)
pursuant to which we agreed to sell Verizon Media to the affiliate. The transaction closed on September 1, 2021. See Note 3 to the
consolidated financial statements for additional information. Under our ownership, Verizon Media's total operating revenues were $5.3 billion
for the year ended December 31, 2021.
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, 2021, these investments included $20.3 billion for capital expenditures, inclusive of
approximately $2.1 billion in C-Band related capital expenditures. See "Cash Flows Used in Investing Activities" and "Liquidity and Capital
Resources" 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 Long-Term Evolution (LTE) network, while also building our
next generation 5G network. We are densifying our networks 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, 2021, 5G Ultra Wideband is available in parts of 87 U.S. cities and 5G Home is
available in parts of 65 U.S. cities. 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 transforming the
architecture of our networks into our Intelligent Edge Network, providing improved efficiency and virtualization, increased automation and
opportunities for edge computing services that will support our fiber-based and radio access network technologies. 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.
Impact of the COVID-19 Pandemic
The impacts from the COVID-19 pandemic on our operations were significant during 2020, which affects the comparability of the results
from 2021 to 2020. The COVID-19 pandemic continues to be dynamic, and near-term challenges across the economy remain, including the
recent surge of new virus variants across the U.S. We remain committed to caring for the health and safety of our employees and our
customers through this challenge while supporting the communities in which we operate. While we have not experienced a material impact on
our business from these new variants thus far, we cannot predict with certainty the ultimate impact they may have on our results of operations
in the future, and will continue to monitor their daily evolution. For a discussion of the risks to our business from COVID-19, refer to Item 1A
Risk Factors.
Recent Development
In January 2022, we successfully deployed C-Band spectrum, reaching approximately 100 million people in the U.S. as of February 2022.
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. In
"Segment Results of Operations," we review the performance of our two reportable segments in more detail. A detailed discussion of 2019
items and year-over-year comparisons between 2020 and 2019 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, 2020.
22
Verizon 2021 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)
2021 vs. 2020
2020
$
2021
95,300 $
31,042
7,722
(451)
88,533 $ 6,767
80
30,962
(1,612)
9,334
86
(537)
$ 133,613 $ 128,292 $ 5,321
7.6 %
0.3
(17.3)
(16.0)
4.1
Consolidated revenues increased during 2021 compared to 2020, due to increases in our Consumer and Business segments, partially offset by
a decrease in Corporate and other.
Corporate and other revenues decreased during 2021 compared to 2020, primarily due to a decrease of $1.7 billion within Verizon Media. We
had four less months of operating revenues from Verizon Media as a result of the sale completed on September 1, 2021. See Note 3 to the
consolidated financial statements for additional information on the Verizon Media sale.
Revenues for our segments are discussed separately below under the heading "Segment Results of Operations."
Consolidated Operating Expenses
Years Ended December 31,
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
Consolidated Operating Expenses
$
2021
31,234 $
25,067
28,658
16,206
$ 101,165 $
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
2020
(167)
31,401 $
5,267
19,800
(2,915)
31,573
16,720
(514)
99,494 $ 1,671
(0.5) %
26.6
(9.2)
(3.1)
1.7
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 2021 compared to 2020 and was primarily due to:
•
•
•
•
•
•
•
a decrease of $576 million in traffic acquisition primarily related to the sale of Verizon Media;
a decrease of $294 million in personnel costs primarily related to the sale of Verizon Media;
a decrease of $220 million in access costs primarily related to a decline in voice services offset by the inclusion of Tracfone results
since the acquisition date;
an increase of $349 million in rent expense related to both adding capacity to the networks to support demand and lease
modifications for certain existing cell towers to support the build out of our 5G wireless network;
an increase of $205 million related to the device protection offerings to our wireless retail postpaid customers;
an increase of $185 million in buildings and facilities costs primarily driven by higher utility rates; and
an increase of $164 million in regulatory fees related to a higher Federal Universal Service Fund (FUSF) rate.
See Note 3 to the consolidated financial statements for additional information on the sale of Verizon Media.
Cost of Wireless Equipment
Cost of wireless equipment increased during 2021 compared to 2020 and was primarily due to:
•
•
an increase of $3.6 billion related to a shift to higher priced equipment in the mix of wireless devices sold, partly driven by the
increased demand for 5G enabled devices; and
an increase of $1.3 billion driven by a higher volume of wireless devices and accessories 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
23
Verizon 2021 Annual Report on Form 10-K 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 decreased during 2021 compared to 2020 and was primarily due to:
•
•
•
•
•
the $651 million net gain related to the sale of Verizon Media in 2021, compared to the $126 million loss related to the sale of
Huffington Post in 2020. In 2021, we recorded a pre-tax gain on sale of approximately $1.0 billion and $346 million of various
costs associated with the sale of Verizon Media;
the $1.2 billion loss during 2020 resulting from the exchange of spectrum licenses in connection with Auction 103, compared to the
$223 million loss recognized during 2021 resulting from agreements we entered into to sell certain wireless licenses;
a decrease of $857 million in personnel expense primarily related to the sale of Verizon Media in 2021 and additional sales
commission expense resulting from actions taken in 2020 in response to the COVID-19 pandemic;
a decrease of $591 million in provision for credit losses related to both improvement in payment trends in 2021 as well as actions
taken in 2020 in response to the COVID-19 pandemic; and
an increase of $364 million in advertising and promotion costs related to brand messaging in 2021 as well as lower expenses in
2020 related to customer behavior during the COVID-19 pandemic.
See Note 3 to the consolidated financial statements for additional information on both the sale of Verizon Media and loss on spectrum
licenses.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased during 2021 compared to 2020, primarily as a result of the Verizon Media sale. See Note 3
to the consolidated financial statements for additional information.
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
2021
48 $
3,785
(3,541)
20
312 $
$
$
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
2020
65 $
(425)
(129)
(50)
(539) $
(17)
4,210
(3,412)
70
851
(26.2) %
nm
nm
nm
nm
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 cost and income
and foreign exchange gains and losses.
Other income (expense), net changed during 2021 compared to 2020 and was primarily due to:
•
•
a net pension and postretirement benefits remeasurement gain of $2.4 billion recorded during 2021, compared with a net pension
and postretirement benefits remeasurement loss of $1.6 billion recorded during 2020; and
an increase of $3.4 billion in early debt redemption costs driven by tender offers, the redemptions of securities issued by Verizon
and open market repurchases of Verizon and subsidiary notes in 2021.
24
Verizon 2021 Annual Report on Form 10-K Interest Expense
Years Ended December 31,
Total interest costs on debt balances
Less capitalized interest costs
Total
2021
2020
$ 5,326
1,841
$ 3,485
$
$
4,802
555
4,247
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
$
$
524
1,286
(762)
10.9 %
nm
(17.9)
Average debt outstanding (1) (3)
Effective interest rate (2) (3)
nm - not meaningful
(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
$ 147,035
4.1 %
3.6 %
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 2021 compared to 2020 and was primarily due to:
•
•
an increase in capitalized interest costs as a result of qualifying activities performed on C-Band licenses won; and
an increase in interest costs on debt balances as a result of higher average debt balances, partially offset by lower average interest
rates as a result of our continuing focus on optimizing our debt footprint and total borrowing costs.
See Note 4 and Note 7 to the consolidated financial statements for additional information on spectrum licenses and debt transactions,
respectively.
Provision for Income Taxes
Years Ended December 31,
Provision for income taxes
Effective income tax rate
2021
2020
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
$ 6,802
$
5,619
$ 1,183
21.1 %
23.1 %
23.4 %
The effective income tax rate is calculated by dividing the provision for income taxes by income before the provision for income taxes. The
decrease in the effective income tax rate was primarily due to the sale of Verizon Media in the current period, partially offset by the non-
recurring tax benefit recognized in 2020 from a series of legal entity restructurings. The increase in the provision for income taxes was
primarily due to the increase in income before income taxes in the current period.
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, 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 earnings and 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
25
Verizon 2021 Annual Report on Form 10-K
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 (income) expense, net(2)
Equity in (earnings) losses of unconsolidated businesses(3)
Severance charges
Loss on spectrum licenses
Net (gain) loss from dispositions of businesses
(dollars in millions)
2020
18,348
2021
22,618 $
6,802
3,485
16,206
49,111 $
5,619
4,247
16,720
44,934
$
$
(312)
(145)
209
223
(706)
48,380 $
539
45
221
1,195
126
47,060
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 Net gains from dispositions of assets, where applicable. See "Special Items" for additional information.
The changes in Consolidated Net Income, Consolidated EBITDA and Consolidated Adjusted EBITDA in the table above during 2021
compared to 2020, were primarily a result of the factors described in connection with operating revenues and operating expenses.
Segment Results of Operations
We have two reportable segments that we operate and manage as strategic business units - Consumer and Business. 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.
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.
Wireline 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. Wireline broadband connections are calculated by adding wireline broadband net additions in the period
to prior period wireline broadband connections. Wireline broadband net additions are calculated by subtracting the wireline broadband
disconnects from the wireline broadband new connections.
26
Verizon 2021 Annual Report on Form 10-K 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.
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 device warranty and insurance 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 multi-connection 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.
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. See Note 13 to the consolidated financial statements for additional information.
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.
27
Verizon 2021 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
Wireline 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
2021
2020
$ 67,733
19,781
7,786
$ 95,300
$ 64,884
15,492
8,157
$ 88,533
(dollars in millions,
except ARPA)
Increase/(Decrease)
2021 vs. 2020
$ 2,849
4,289
(371)
$ 6,767
4.4 %
27.7
(4.5)
7.6
115,395
91,543
6,541
3,573
6,888
1,062
1,114
575
94,373
90,346
6,202
3,854
6,647
21,022
1,197
339
(281)
241
22.3
1.3
5.5
(7.3)
3.6
(5)
40
95
1,067
1,074
480
nm
nm
nm
1.10 %
0.89 %
0.71 %
1.03 %
0.87 %
0.67 %
$ 122.30
33,651
2.72
$ 118.40
33,659
2.68
$
3.90
(8)
0.04
3.3
—
1.5
Consumer's total operating revenues increased during 2021 compared to 2020, as a result of increases in Service and Wireless equipment
revenues, partially offset by a decrease in Other revenue. The increase in Consumer total operating revenues includes the net impact of
approximately $680 million in the fourth quarter of 2021 as a result of our acquisition of Tracfone.
Service Revenue
Service revenue increased during 2021 compared to 2020, primarily driven by increases in wireless and Fios service revenues.
Wireless service revenue increased $2.5 billion during 2021 compared to 2020 and was primarily due to:
•
•
•
an increase of $1.3 billion in access revenues related to our postpaid plans driven by additional subscribers and migrations to higher
priced plans as well as growth related to content offerings, cloud services and mobile security products included in certain
protection packages;
an increase of $544 million, representing the net impact as a result of the acquisition of Tracfone in the fourth quarter of 2021; and
an increase of $464 million related to growth in non-retail service revenue.
For the year ended December 31, 2021, Fios service revenue totaled $10.8 billion, representing an increase of $462 million compared to 2020
primarily resulting from an increase in Fios internet connections, reflecting increased demand for higher broadband speeds, partially offset by
a decrease in Fios voice revenues.
See Note 3 to the consolidated financial statements for additional information on the acquisition of Tracfone.
Wireless Equipment Revenue
Wireless equipment revenue increased during 2021 compared to 2020 and was primarily due to:
•
an increase of $2.6 billion related to a shift to higher priced equipment in the mix of wireless devices sold, partly driven by the
increased demand for 5G enabled devices; and
28
Verizon 2021 Annual Report on Form 10-K
•
an increase of $1.6 billion driven by a higher volume of wireless devices and accessories sold, partially offset by related
promotions.
Other Revenue
Other revenue includes non-service revenues such as regulatory fees, cost recovery surcharges, revenues associated with certain products
included in 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 decreased during 2021 compared to 2020 and was primarily due to:
•
•
a decrease of $462 million that resulted from an update to our device protection offering which increased the price of the bundled
offering and changed the product mix within the offering such that a smaller amount of the overall device protection revenue is
recognized in Other revenue; and
an increase of $128 million related to cost recovery surcharges.
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
2021
16,581 $
20,523
16,562
11,679
65,345 $
$
$
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
2020
971
15,610 $
4,787
15,736
(374)
16,936
11,395
284
59,677 $ 5,668
6.2 %
30.4
(2.2)
2.5
9.5
Cost of services increased during 2021 compared to 2020 and was primarily due to:
•
•
•
•
an increase in rent expense of $323 million related to adding capacity to the networks to support demand and lease modifications for
certain existing cell towers to support the build out of our 5G wireless network;
an increase in digital content costs of $209 million driven by additional streaming service subscriptions, partially offset by a decline
in traditional linear content costs;
an increase of $197 million related to the device protection offerings to our wireless retail postpaid customers; and
an increase of $133 million in network access costs primarily driven by the inclusion of Tracfone results since acquisition date.
Cost of Wireless Equipment
Cost of wireless equipment increased during 2021 compared to 2020 and was primarily due to:
•
•
an increase of $2.3 billion driven by a higher volume of wireless devices and accessories sold; and
an increase of $2.2 billion related to a shift to higher priced equipment in the mix of wireless devices sold, partly driven by the
increased demand for 5G enabled devices.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased during 2021 compared to 2020 and was primarily due to:
•
•
•
•
a decrease in provision for credit losses of $564 million related to both improvement in payment trends in 2021 as well as actions
taken in 2020 in response to the COVID-19 pandemic;
a decrease in personnel expense of $237 million primarily driven by additional sales commission expense related to actions taken in
2020 in response to the COVID-19 pandemic;
an increase in advertising expenses of $390 million related to brand messaging in 2021 as well as lower expenses in 2020 related to
customer behavior during the COVID-19 pandemic; and
an increase in building and facilities of $121 million primarily driven by higher utility rates.
Depreciation and Amortization Expense
Depreciation and amortization expense increased during 2021 compared to 2020, driven by the change in the mix of total Verizon depreciable
assets and Consumer's usage of those assets.
29
Verizon 2021 Annual Report on Form 10-K 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
2021
2020
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
$ 29,955
11,679
$ 41,634
$ 28,856
11,395
$ 40,251
$ 1,099
284
$ 1,383
3.8 %
2.5
3.4
31.4 %
43.7 %
32.6 %
45.5 %
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.
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.
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
Wireline broadband connections
Net Additions in Period ('000):(3)
Wireless retail postpaid
Wireless retail postpaid phones
2021
2020
$ 11,774
10,224
6,324
2,720
$ 31,042
$ 11,132
10,410
6,362
3,058
$ 30,962
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
$
$
642
(186)
(38)
(338)
80
5.8 %
(1.8)
(0.6)
(11.1)
0.3
27,411
356
71
477
1,001
509
26,507
335
73
482
904
21
(2)
(5)
3.4
6.3
(2.7)
(1.0)
1,518
572
(517)
(63)
(34.1)
(11.0)
Churn Rate:
Wireless retail postpaid
Wireless retail postpaid phones
(1) Service and other revenues included in our Business segment amounted to approximately $27.7 billion and $28.1 billion for the years
ended December 31, 2021 and 2020, respectively. Wireless equipment revenues included in our Business segment amounted to
approximately $3.4 billion and $2.9 billion for the years ended December 31, 2021 and 2020, respectively.
As of end of period
Includes certain adjustments
1.27%
1.03%
1.20%
0.96%
(2)
(3)
Business's total operating revenues increased during 2021 compared to 2020, as a result of an increase in Small and Medium Business
revenue, partially offset by decreases in Global Enterprise, Public Sector and Other and Wholesale revenues.
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.
30
Verizon 2021 Annual Report on Form 10-K
Small and Medium Business revenues increased during 2021 compared to 2020 and was primarily due to:
•
•
•
an increase in wireless equipment revenue of $392 million driven by a shift to higher priced equipment in the mix of devices sold
and higher volumes, partially offset by an increase in promotions;
an increase in wireless service revenue of $331 million driven by an increase in the amount of wireless retail postpaid connections,
as well as increases in usage and non-recurring fees related to the impacts of the COVID-19 pandemic in the prior year; and
a decrease of $127 million related to the loss of voice and DSL service connections.
Fios revenues totaled $984 million, which represents an increase of $58 million during 2021 compared to 2020. The increase was primarily
related to increases in total connections, as well as increased demand for higher broadband speeds.
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 2021 compared to 2020 and was primarily due to:
•
•
•
•
a decrease of $467 million in traditional data and voice communication services related to secular pressures in the marketplace;
an increase of $106 million in wireless equipment revenue driven by a shift to higher priced equipment in the mix of devices sold
and higher volumes;
an increase of $90 million in customer premise equipment related to increased volumes; and
an increase of $58 million related to professional services revenue.
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 decreased during 2021 compared to 2020 and was primarily due to:
•
•
•
•
a decrease of $248 million due to customers migrating to new solutions, customer premise equipment volumes and other
miscellaneous activity;
a decrease of $42 million in wireless equipment revenue primarily driven by a decrease in the number of wireless devices sold as a
result of a reduction in activations partly related to COVID-19 impacts in the prior year. The decrease is partially offset by a shift to
higher priced equipment in the mix of wireless devices sold;
an increase in wireless service revenue of $217 million primarily related to a higher volume of wireless connections driven by
shifting technology needs in remote business environments, particularly in education; and
an increase of $52 million in professional services revenue.
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 2021 compared to 2020 and was primarily due to:
•
a decrease of $338 million related to declines in traditional voice communication and network connectivity as a result of technology
substitution.
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
2021
10,653 $
4,544
8,324
4,084
27,605 $
$
$
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
(6)
480
(56)
(2)
416
(0.1) %
11.8
(0.7)
—
1.5
2020
10,659 $
4,064
8,380
4,086
27,189 $
Cost of services were relatively flat during 2021 compared to 2020 primarily due to:
•
•
•
•
a decrease in access costs of $317 million related to a decline in voice services;
an increase in direct costs of $128 million related to professional services;
an increase in building and facilities costs of $119 million primarily driven by higher utility rates; and
an increase in regulatory fees of $81 million related to a higher FUSF rate.
31
Verizon 2021 Annual Report on Form 10-K
Cost of Wireless Equipment
Cost of wireless equipment increased during 2021 compared to 2020 and was primarily due to:
•
•
an increase of $987 million related to a shift to higher priced equipment in the mix of wireless devices sold; and
a decrease of $578 million driven by a lower volume of wireless devices sold.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased during 2021 compared to 2020, and was primarily due to:
•
•
a decrease in personnel expense of $140 million primarily driven by additional sales commission expense related to actions taken in
2020 in response to the COVID-19 pandemic and lower consulting fees; and
an increase of $71 million in data and network systems related to IT and technology contracts.
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
(dollars in millions)
Increase/(Decrease)
2021 vs. 2020
$
$
(336)
(2)
(338)
(8.9) %
—
(4.3)
2021
2020
$ 3,437
4,084
$ 7,521
$
$
3,773
4,086
7,859
11.1%
24.2%
12.2%
25.4%
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 (credits)
Selling, general and administrative expense
Other income (expense), net
Loss on spectrum licenses
Selling, general and administrative expense
Net early debt redemption costs
Other income (expense), net
Interest expense
Net (gain) loss from dispositions of assets and businesses
Selling, general and administrative expense
Equity in earnings (losses) of unconsolidated businesses
Other income (expense), net
Total
(dollars in millions)
2020
2021
$
209 $
(2,379)
223
3,541
—
(706)
(131)
—
757 $
$
221
1,610
1,195
129
(27)
126
—
(7)
3,247
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.
32
Verizon 2021 Annual Report on Form 10-K
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 earnings (losses) of unconsolidated businesses
Within Other income (expense), net
Within Interest expense
Total
Severance, Pension and Benefits Charges (Credits)
(dollars in millions)
2020
1,542
—
1,732
(27)
3,247
2021
(274) $
(131)
1,162
—
757 $
$
$
During 2021, 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 credits of $2.4 billion in our pension and postretirement benefit plans. The credits were recorded in Other
income (expense), net in our consolidated statement of income and were primarily driven by a credit of $1.1 billion due to 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 2.6% at December 31, 2020 to a weighted-average of 2.9% at December 31, 2021, a credit of $847 million due to the difference
between our estimated and our actual return on assets and a credit of $453 million due to other actuarial assumption adjustments. During
2021, we also recorded net pre-tax severance charges of $209 million related to voluntary separations under our existing plans in Selling,
general and administrative expense in our consolidated statements of income.
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 statements of income and were primarily driven by a charge of $3.2 billion 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, partially offset by a credit of $1.6 billion due to
the difference between our estimated and our actual return on assets. 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.
Due to the presentation of the other components of net periodic benefit cost, we recognize a portion of the pension and benefits charges
(credits) 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 (credits).
Loss on Spectrum Licenses
During 2021, we recognized a pre-tax loss of $223 million as a result of signing two agreements to sell certain wireless licenses.
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.
Net Early Debt Redemption Costs
During 2021, we recorded pre-tax early debt redemption costs of $3.5 billion in connection with tender offers, the redemptions of securities
issued by Verizon and open market repurchases of various Verizon and subsidiary notes.
During 2020, we recorded net pre-tax early debt redemption costs of $102 million in connection with the redemptions of securities issued by
Verizon and open market repurchases.
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 2021, we recorded a pre-tax net gain of $837 million, primarily in connection with the sales of Verizon Media and our investment in
the Complex Media business. During 2020, we recorded a pre-tax net loss of $119 million, primarily in connection with the sale of our
Huffington Post business.
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.
33
Verizon 2021 Annual Report on Form 10-K 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
2022 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., Meta Platforms, Inc. and others are
offering alternative means for messaging and 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.
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.
2022 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 anticipate continued pressure in
2022 related to Tracfone subscribers as we seek to improve the customer retention rate that has declined over the prior two years, however
expect to grow the Tracfone customer base over time by furthering our investment and increasing our product and service offerings within the
business. 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. At the same time, we expect accelerating fixed wireless access connections to complement strong Fios results as
demand for services continues to grow. 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
34
Verizon 2021 Annual Report on Form 10-K 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 that 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 also expect to expand our existing services offered to business customers through our Intelligent Edge Network, our
multi-use platform.
In addition, in both our Consumer and our Business segments, we expect to support connection growth in part by adding capacity and density
to our 4G LTE network, and by leading the build-out of our 5G network. We also anticipate the continued migration of 3G connections onto
4G and 5G technologies with the expected cessation of 3G services.
2022 Operating Revenue Trends
In our Consumer segment, we expect to see a continuation of service revenue growth in 2022 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 continued growth in wireless
service revenue, driven by Tracfone contributions, migrations to higher priced plans and increases in fixed wireless access connections. We
expect Fios revenue to benefit in 2022 as growth in our broadband customer base and increases in demand for higher speed internet
connections 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 growth from increases in wireless volumes and fixed wireless
access contributions. We expect that Fios, through increased penetration, will also contribute to revenue growth. Legacy traditional wireline
services will continue to face secular pressures.
On September 1, 2021, we completed the sale of Verizon Media. We expect to see a decrease in operating revenues as a result of this
divestiture.
2022 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 drive
revenue growth and undertake initiatives to reduce our overall cost structure by improving productivity and gaining efficiencies in our
operations throughout the business in 2022 and beyond. Business Excellence initiatives include zero-based budgeting methodology, driving
capital efficiencies from the architecture of the networks and evolving our Information Technology strategy. 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.
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 2021, making this the fifteenth 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").
Liquidity and Capital Resources
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
ongoing operating and investing requirements over the next 12 months and beyond.
Our cash and cash equivalents balance is $2.9 billion as of December 31, 2021, consistent with historical pre-pandemic levels. 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.
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, such as the completion of business acquisitions, the
acquisition of additional wireless spectrum, or to maintain an appropriate capital structure to ensure our financial flexibility. 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.
35
Verizon 2021 Annual Report on Form 10-K Capital Expenditures
Our 2022 capital program includes capital to fund advanced networks and services, including expanding our core networks, adding capacity
and density to our 5G network in order to stay ahead of our customers’ increasing data demands and deploying C-Band, 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. We
anticipate cash requirements for our 2022 capital program to be between $16.5 billion and $17.5 billion. Furthermore, we expect an additional
$5.0 billion to $6.0 billion in capital expenditures related to C-Band, as we continue to build out the initial markets and begin preparations for
deploying phase two spectrum.
Contractual Obligations and Commitments
We have various contractual obligations and commitments. The following represent our anticipated material cash requirements from known
contractual and other obligations as of December 31, 2021:
•
•
•
Long-term debt, including current maturities, commitments of $150.2 billion and related interest payments of $78.0 billion, of
which $7.1 billion and $4.9 billion, respectively, are expected to be due within the next twelve months. Items included in long-term
debt with variable coupon rates exclude unamortized debt issuance costs, and are described in Note 7 to the consolidated financial
statements.
Operating lease obligations of $31.5 billion and Finance lease obligations of $1.4 billion, of which $4.4 billion and $402 million,
respectively, are expected to be due within the next twelve months. In addition, the Company has an obligation of $969 million
representing future minimum payments under the sublease arrangement for our cell towers, of which $292 million is expected to be
due within the next twelve months. See Note 6 to the consolidated financial statements for additional information.
Unconditional purchase obligations, with terms in excess of one year, amount to $29.8 billion, of which $10.2 billion is expected to
be due within the next twelve months. Items included in unconditional purchase obligations are primarily commitments to purchase
network equipment, software and services, content, marketing services and other items 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. See Note 16
to the consolidated financial statements for additional information.
Other long-term liabilities, including current maturities, of $4.2 billion, of which $864 million is expected to be due within the next
twelve months. Other long-term liabilities represent estimated postretirement benefit and qualified pension plan contributions.
Qualified pension plan contributions include estimated minimum funding contributions. We expect that there will be no required
pension funding through 2031, subject to changes in market conditions. Postretirement benefit payments include estimated 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 and/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.
• We are not able to make a reasonable estimate of when the unrecognized tax benefits balance of $3.1 billion and related interest and
penalties will be settled with the respective taxing authorities until the related tax audits are further developed or resolved. See Note
12 to the consolidated financial statements for additional information.
•
Consolidated Financial Condition
Years Ended December 31,
Cash flows provided by (used in)
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash Flows Provided By Operating Activities
(dollars in millions)
2020
2021
$
$
39,539 $
(67,153)
8,277
(19,337) $
41,768
(23,512)
1,325
19,581
Our primary source of funds continues to be cash generated from operations. Net cash provided by operating activities decreased by
$2.2 billion during 2021 compared to 2020, primarily due to changes in working capital, which includes higher wireless volumes, and slightly
higher cash taxes in 2021. These decreases were partially offset by an increase in earnings of $4.3 billion. As a result of prior years'
discretionary contributions and the fact that actual asset returns have been higher than expected, we expect that there will be no required
pension funding through 2031, subject to changes in market conditions.
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.
36
Verizon 2021 Annual Report on Form 10-K Capital expenditures, including capitalized software, were $20.3 billion and $18.2 billion for 2021 and 2020, respectively. Capital
expenditures increased approximately $2.1 billion, or 11.5%, during 2021 compared to 2020, primarily due to increased focus on 5G
technology deployment.
Acquisitions of Wireless Licenses
In February 2021, the FCC completed an auction, Auction 107, for mid-band spectrum known as C-Band. During 2021, we paid
approximately $45.9 billion for spectrum licenses in connection with this auction and related costs, of which $1.3 billion was primarily paid
for certain obligations related to projected clearing costs associated with this auction.
During 2020, we paid approximately $3.9 billion 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 September 2020, the FCC completed Auction 105 for Priority Access Licenses. Through December 31, 2020, we paid
approximately $1.9 billion for the licenses.
During 2021 and 2020, we recorded capitalized interest related to wireless licenses of $1.6 billion and $242 million, respectively.
During 2021 and 2020, we entered into and completed various other wireless license acquisitions for cash consideration of $95 million and
$360 million, respectively.
Acquisitions of Businesses, Net of Cash Acquired
During 2021 and 2020, we invested $4.1 billion and $520 million, respectively, in acquisitions of businesses, net of cash acquired.
In September 2020, we entered into a purchase agreement to acquire Tracfone, a provider of prepaid and value mobile services in the U.S.
The transaction closed in November 2021. The aggregate cash consideration paid by Verizon at the closing of the transaction was
approximately $3.6 billion, net of cash acquired, subject to customary closing adjustments, approximately 57.6 million shares of Verizon
common stock valued at approximately $3.0 billion, and up to an additional $650 million in future cash contingent consideration.
In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass Cellular (Bluegrass), a rural wireless operator
serving central Kentucky. The transaction closed in March 2021. The aggregate cash consideration paid by Verizon at the closing of the
transaction was approximately $412 million, net of cash acquired, which is subject to customary closing adjustments.
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.
During 2021 and 2020, we completed various other acquisitions for cash consideration of approximately $51 million and $127 million,
respectively.
See "Acquisitions and Divestitures" for information on our acquisitions.
Disposition of Business
During 2021, we received cash proceeds in connection with the sale of Verizon Media of $4.1 billion, net of cash transferred, subject to
customary adjustments, $750 million in non-convertible preferred limited partnership units of the Apollo Affiliate and 10% of the fully-
diluted common limited partnership units of the Apollo Affiliate. See Note 3 to the consolidated financial statements for additional
information.
Other, Net
During 2021, we received cash of $321 million in connection with the settlement of a note receivable related to Tracfone and net cash
proceeds of $98 million in connection with the sale of our investment in the Complex Media business.
Cash Flows Provided by 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 2021 and 2020, net cash provided by financing
activities was $8.3 billion and $1.3 billion, respectively.
2021
During 2021, our net cash provided by financing activities of $8.3 billion was primarily driven by $41.4 billion provided by proceeds from
long-term borrowings, which included $8.4 billion of proceeds from our asset-backed debt transactions. These cash flows provided by
financing activities were partially offset by $18.9 billion used for repayments, redemptions and repurchases of long-term borrowings (secured
and unsecured) as well as finance lease obligations, $10.4 billion used for dividend payments and $3.8 billion used for other financing
activities.
37
Verizon 2021 Annual Report on Form 10-K Proceeds from and Repayments, Redemptions, and Repurchases of Long-Term Borrowings
At December 31, 2021, our total debt increased to $150.9 billion as compared to $129.1 billion at December 31, 2020. Our effective interest
rate was 3.6% and 4.1% during the years ended December 31, 2021 and 2020, 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, 2021, approximately $33.5 billion, or 22.2%, 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 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 acquire debt securities issued by Verizon and its affiliates 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 2021 includes $320 million in payments related to vendor financing arrangements, $161 million in
postings of derivative collateral and early debt redemption costs. See Note 15 to the consolidated financial statements for additional
information on the early debt redemption costs.
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 2021, the Board
increased our quarterly dividend payment by 2.0% to $0.6400 from $0.6275 per share from the previous quarter. This is the fifteenth
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 2021, we paid $10.4 billion in dividends.
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 (secured
and unsecured) as well as finance lease obligations, $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 was $129.1 billion, and during the year ended December 31, 2020, our effective interest rate was 4.1%.
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, 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.
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
During the third quarter of 2020, the Board increased our quarterly dividend payment by 2.0% to $0.6275 per share.
As in prior periods, dividend payments were a significant use of capital resources. During 2020, we paid $10.2 billion in dividends.
Asset-Backed Debt
As of December 31, 2021, the carrying value of our asset-backed debt was $14.2 billion. Our asset-backed debt includes Asset-Backed Notes
(ABS Notes) issued to third-party investors (Investors) and loans (ABS Financing Facilities) received from banks and their conduit facilities
(collectively, the Banks). Our consolidated asset-backed debt bankruptcy remote legal entities (each, an ABS Entity or collectively, the ABS
Entities) issue the debt or are otherwise party to the transaction documentation in connection with our asset-backed debt transactions. Under
the terms of our asset-backed debt, Cellco Partnership (Cellco), a wholly-owned subsidiary of Verizon, and certain other affiliates of Verizon
(collectively, the Originators) transfer device payment plan agreement receivables to one of the ABS Entities, which in turn transfers such
38
Verizon 2021 Annual Report on Form 10-K
receivables to another ABS Entity that issues the debt. Verizon entities retain the equity interests and residual interests, as applicable, in the
ABS Entities, which represent the rights to all funds not needed to make required payments on the asset-backed debt and other related
payments and expenses.
Our asset-backed debt is secured by the transferred device payment plan agreement receivables and future collections on such receivables.
The device payment plan agreement receivables transferred to the ABS Entities and related assets, consisting primarily of restricted cash, will
only be available for payment of asset-backed debt and expenses related thereto, payments to the Originators in respect of additional transfers
of device payment plan agreement receivables, and other obligations arising from our asset-backed debt transactions, and will not be available
to pay other obligations or claims of Verizon’s creditors until the associated asset-backed debt and other obligations are satisfied. The
Investors or Banks, as applicable, which hold our asset-backed debt have legal recourse to the assets securing the debt, but do not have any
recourse to Verizon with respect to the payment of principal and interest on the debt. Under a parent support agreement, Verizon has agreed to
guarantee certain of the payment obligations of Cellco and the Originators to the ABS Entities.
Cash collections on the device payment plan agreement receivables collateralizing our asset-backed debt securities are required at certain
specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in
Prepaid expenses and other and Other assets in our 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 December 2021, we entered into an ABS financing facility with a number of financial institutions (2021 ABS Financing Facility). Two
loan agreements were entered into in connection with the 2021 ABS Financing Facility in December 2021. Under the terms of the 2021 ABS
Financing Facility, the financial institutions make advances under asset-backed loans backed by device payment plan agreement receivables
of both Consumer customers and Business customers. Two loan agreements are outstanding in connection with the 2021 ABS Financing
Facility, one with a final maturity date in December 2025 and the other in December 2026, and each loan agreement bears interest at floating
rates. There is a one or two year revolving period, as set forth in the applicable loan agreement, which may be extended with the approval of
the financial institutions. Under the loan agreements, we have the right to prepay all or a portion of the advances at any time without penalty,
but in certain cases, with breakage costs. Subject to certain conditions, we may also remove receivables from the ABS Entity. In December
2021, we borrowed $4.3 billion under the loan agreements. The aggregate outstanding balance under the 2021 ABS Financing Facility was
$4.3 billion as of December 31, 2021.
Long-Term Credit Facilities
(dollars in millions)
Verizon revolving credit facility (1)
Various export credit facilities (2)
Total
At December 31, 2021
Facility
Capacity
9,500 $
7,000
16,500 $
Unused
Capacity
9,418
— $
9,418 $
$
$
Principal
Amount
Outstanding
N/A
4,676
4,676
Maturities
2024
2024 - 2029
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 both 2021 and 2020, we drew down $1.0 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.
In November 2021, we repaid $500 million under an export credit facility entered into in July 2017.
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, 2021 and 2020, we issued 2.1 million and 2.3 million common shares from treasury stock, respectively, which had
an insignificant aggregate value.
In connection with our acquisition of Tracfone in November 2021, we issued approximately 57.6 million shares of Verizon common shares
from treasury stock valued at approximately $3.0 billion. See Note 3 to the consolidated financial statements for additional information.
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
39
Verizon 2021 Annual Report on Form 10-K amount and timing of repurchases depending on market conditions and corporate needs. There were no repurchases of common stock during
2021 and 2020 under our current or previously authorized share buyback program.
Credit Ratings
Verizon’s credit ratings did not change in 2021 or 2020.
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.
Change In Cash, Cash Equivalents and Restricted Cash
Our Cash and cash equivalents at December 31, 2021 totaled $2.9 billion, a $19.3 billion decrease compared to December 31, 2020, primarily
as a result of the factors discussed above.
Restricted cash at December 31, 2021 totaled $1.2 billion, an $87 million decrease compared to restricted cash at December 31, 2020,
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
(dollars in millions)
2020
41,768
18,192
23,576
2021
39,539 $
20,286
19,253 $
$
$
The decrease in free cash flow during 2021 is a reflection of the decrease in operating cash flows, as well as the increase in capital
expenditures discussed above.
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 either 2021 or 2020. During 2021 and 2020
we made contributions of $58 million and $57 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 $60 million
in 2022.
40
Verizon 2021 Annual Report on Form 10-K 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 $885 million and $709 million to
our other postretirement benefit plans in 2021 and 2020, respectively. Contributions to our other postretirement benefit plans are estimated to
be approximately $860 million in 2022.
Leasing Arrangements
See Note 6 to the consolidated financial statements for additional information related to leasing arrangements.
Guarantees
We guarantee the debentures of our operating telephone company subsidiaries. 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, 2021, letters of credit totaling approximately $674 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 2021, Verizon entered into seven renewable energy purchase agreements (REPAs) with third parties, in addition to 13 signed in
previous years. See Note 16 to the consolidated financial statements for additional information. Under the REPAs, we plan to purchase up to
an aggregate of approximately 2.6 gigawatts of capacity across multiple states, including Arizona, Illinois, Indiana, Iowa, Maryland, New
York, North Carolina, Ohio, Pennsylvania, Texas and West Virginia.
Critical Accounting Estimates and Recently Issued Accounting Standards
Critical Accounting Estimates
A summary of the critical accounting estimates used in preparing our financial statements are 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 suggesting 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 an impairment to our wireless licenses and goodwill impairment for one or more of our reporting units.
Wireless Licenses
The carrying value of our wireless licenses was approximately $147.6 billion as of December 31, 2021. 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.
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. It is our policy to
perform quantitative impairment assessment at least every three years. During the fourth quarter of 2021, we performed a quantitative
impairment assessment according to the policy.
Our quantitative impairment assessment consisted of comparing the estimated fair value of our aggregate wireless licenses to the aggregated
carrying amount as of the test date. Under our quantitative assessment, we estimated the fair value of our 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. As a result, we were required to make significant estimates about future cash flows and profitability
specifically associated with our wireless licenses, an appropriate discount rate based on the risk associated with those estimated cash flows
41
Verizon 2021 Annual Report on Form 10-K and assumed terminal value and growth rates. We considered current and expected future economic conditions, current and expected
availability of wireless network technology and infrastructure and related equipment and the costs thereof as well as other relevant factors in
estimating future cash flows and profitability. 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. We developed the discount rate based on our
consideration of the cost of debt and equity of a group of guideline companies as of the valuation date. Accordingly, our discount rate
incorporated our estimate of the expected return a marketplace participant would have required as of the valuation date, including the risk
premium associated with the current and expected economic conditions as of the valuation date. The terminal value growth rate represented
our estimate of the marketplace’s long-term growth rate.
The quantitative impairment assessment we performed during the fourth quarter of 2021 indicated that the fair value of our wireless licenses
is substantially in excess of their carrying value and, therefore, did not result in an impairment. In the event of a 10% decline in the fair value
of our wireless licenses, the fair value would have still exceeded their carrying value. We do not believe reasonable changes in significant
estimates would change the outcome to this quantitative assessment. For instance, if either the terminal value growth rate declined by 50 basis
points (bps) or if the WACC increased by 50 bps, the fair value of wireless licenses would still exceed its carrying value.
During the fourth quarter of 2020, 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 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 reporting unit being assessed. It is our policy to perform quantitative impairment assessments at least every three years. During
the fourth quarter of 2021, we performed quantitative impairment assessments for our Consumer and Business reporting units according to the
policy.
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 judgmental, 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) more than anticipated increase in promotional
activity, decreases in sales volumes or long-term growth rate as a result of competitive pressures or other factors; or (2) the inability to
achieve or delays in achieving 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, 2021, the balance of our goodwill was approximately $28.6 billion, of which $21.0 billion was in our Consumer reporting
unit and $7.5 billion was in our Business reporting unit. At the goodwill impairment measurement date of October 31, 2021, our quantitative
assessments indicate that the fair values for our Consumer and Business reporting units are substantially in excess of their carrying values and
therefore did not result in an impairment. In the event of a 10% decline in the fair value of any of our reporting units, the fair value of each of
our reporting units would have still exceeded their book values. We do not anticipate reasonable changes in significant estimates to change
the outcomes to these quantitative impairment assessments. For instance, if either the terminal value growth rate declined by 50 bps, or if the
WACC increased by 50 bps, the fair values of our reporting units would still exceed their respective carrying values.
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
42
Verizon 2021 Annual Report on Form 10-K reporting units during the fourth quarter of 2020. 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.
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.
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.
In determining pension and other postretirement obligations, the weighted-average discount rate was selected to approximate the composite
interest rates available on a selection of high-quality bonds available in the market at December 31, 2021. 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). Bond yields are subject to uncertainty for a number of reasons
including corporate performance, credit rating downgrades and upgrades, government fiscal policy decisions, and general market volatility.
The expected long-term rates of return on plan assets used in determining the Company’s pension and other postretirement obligations are
based on expectations for future investment returns for the plans’ asset allocation. The rates are subject to uncertainty for a number of reasons
including corporate performance, credit ratings, monetary policy, inflation, exchange rates, investor behavior and general market volatility.
A sensitivity analysis of the impact of changes in the discount rate and the long-term rate of return on plan assets 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, 2021 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, 2021
(1,125)
1,249
(189)
189
(810)
896
(5)
5
+0.50 $
-0.50
+1.00
-1.00
+0.50
-0.50
+1.00
-1.00
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
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.
See Note 11 to the consolidated financial statements for additional information.
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. The
estimated useful life is subject to change due to a variety of factors such as change in asset capacity or performance, technical obsolescence,
market expectations and competition impacts. In connection with our ongoing review of the estimated useful lives of property, plant and
equipment during 2021, we determined that the estimated useful life of our Property, plant and equipment would remain unchanged. We
expect that a one year increase in estimated useful lives of our Property, plant and equipment would result in a decrease to our 2021
depreciation expense of $2.2 billion and that a one year decrease would result in an increase of approximately $3.5 billion in our 2021
depreciation expense.
43
Verizon 2021 Annual Report on Form 10-K 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. The impact of these factors on the allowance involves significant level of
estimation and is subject to uncertainty. 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. The weighted-average expected loss rate decreased 0.81% at
December 31, 2021 as compared to at December 31, 2020. We expect that an increase or decrease of 0.25% in the weighted-average loss rate
would result in a change of $94 million in the allowance.
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. See Note 8 to the consolidated financial statements for additional information.
Acquisitions and Divestitures
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.
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 new reconfigured licenses were received in the second quarter 2020 and are included in
Wireless licenses in our consolidated balance sheets.
In September 2020, the FCC completed Auction 105 for Priority Access Licenses. Verizon participated in the auction and was the high bidder
on 557 licenses in the 3.5 GHz band valued at approximately $1.9 billion. Verizon made payments for these licenses in 2020 and received
them from the FCC in March 2021. The purchase cost for these licenses and related capitalized interest, based on qualifying activities that
occurred, are included in Wireless licenses in our consolidated balance sheets.
In February 2021, the FCC concluded Auction 107 for C-Band wireless spectrum. Verizon was the winning bidder on 3,511 licenses,
consisting of contiguous C-Band spectrum bands ranging between 140 and 200 megahertz of C-Band spectrum in all 406 markets available in
the auction. Verizon paid $45.5 billion for the licenses it won, of which $44.6 billion was paid in the first quarter of 2021. In accordance with
the rules applicable to the auction, Verizon is required to make additional payments to acquire the licenses. The payments are for our
allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction, which
are estimated to be $7.7 billion. During 2021, we made payments of $1.3 billion primarily related to certain obligations for projected clearing
costs. In January 2022, we made additional payments of $1.4 billion for obligations related to accelerated clearing incentives. We expect to
continue to make payments related to clearing cost and incentive payment obligations through 2024. These payments are dependent on the
44
Verizon 2021 Annual Report on Form 10-K incumbent license holders accelerated clearing of the spectrum for Verizon’s use and, therefore, the final timing and amounts could differ
based on the incumbent holders’ execution of their clearing process. In accordance with the FCC order, the clearing must be completed by
December 2025. The carrying value of the wireless spectrum won in Auction 107 will consist of all payments required to participate and
purchase licenses in the auction, including Verizon’s allocable share of clearing costs incurred by, and incentive payments due to, the
incumbent license holders associated with the auction that we are obligated to pay in order to acquire the licenses. Carrying value will also
include capitalized interest to the extent qualifying activities have occurred. The licenses were received from the FCC in July 2021 and are
included within Wireless licenses in our consolidated balance sheet.
See Note 3 to the consolidated financial statements for additional information regarding our spectrum license transactions.
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 leading provider of prepaid and value mobile services in the U.S. The transaction closed on November 23, 2021 (the
Acquisition Date). In accordance with the terms of the Tracfone Purchase Agreement, Verizon acquired all of Tracfone's outstanding stock in
exchange for approximately $3.5 billion in cash, net of cash acquired and working capital and other adjustments, subject to customary
adjustments, 57,596,544 shares of Verizon common stock valued at approximately $3.0 billion, and up to an additional $650 million in future
cash contingent consideration related to the achievement of certain performance measures and other commercial arrangements. The fair value
of the Verizon common stock was determined on the basis of its closing market price on the Acquisition Date. The estimated fair value of the
contingent consideration as of the Acquisition Date was approximately $542 million calculated using a probability-weighted discounted cash
flow model and significant unobservable inputs, thus representing a Level 3 measurement. The contingent consideration payable is based on
the achievement of certain revenue and operational targets, measured over a two-year earn out period, as defined in the Tracfone Purchase
Agreement. Payments related to the contingent consideration are expected to begin in 2022 and continue through 2024. See Note 3 to the
consolidated financial statements for additional information.
Bluegrass Cellular
In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass, a rural wireless operator serving central
Kentucky. Bluegrass provides wireless service to 210,000 customers in 34 counties in rural service areas 3, 4, and 5 in Central Kentucky. The
transaction closed in March 2021. The aggregate cash consideration paid by Verizon at the closing of the transaction was approximately $412
million, net of cash acquired, which is subject to customary closing adjustments. See Note 3 to the consolidated financial statements for
additional information.
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.
Verizon Media Divestiture
On May 2, 2021, Verizon entered into a definitive agreement with an affiliate of Apollo Global Management Inc. (the Apollo Affiliate)
pursuant to which we agreed to sell Verizon Media in return for consideration of $4.3 billion in cash, subject to customary adjustments,
$750 million in non-convertible preferred limited partnership units of the Apollo Affiliate, and 10% of the fully-diluted common limited
partnership units of the Apollo Affiliate.
On September 1, 2021, we completed the sale of Verizon Media. As of the close of the transaction, cash proceeds, the fair value of the non-
convertible preferred limited partnership units of the Apollo Affiliate, and the fair value of 10% of the fully-diluted common limited
partnership units of the Apollo Affiliate were $4.3 billion, $496 million, and $124 million, respectively. We recorded a pre-tax gain on sale of
approximately $1.0 billion (after-tax $1.0 billion) in Selling general and administrative expense in our consolidated statement of income for
the year ended December 31, 2021. In addition, we incurred $346 million of various costs associated with this disposition which are primarily
recorded in Selling general and administrative expense in our consolidated statement of income for the year ended December 31, 2021. See
Note 3 to the consolidated financial statements for additional information.
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 December 2021, we completed the sale of our investment in the Complex Media business. In connection with this transaction, we recorded
a pre-tax gain of $131 million in Equity in earnings (losses) of unconsolidated businesses in our consolidated statement of income for the year
ended December 31, 2021.
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.
45
Verizon 2021 Annual Report on Form 10-K 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, 2021, we held and posted $0.1 billion and an insignificant amount,
respectively, of collateral related to derivative contracts under collateral exchange agreements, which were recorded as Other current
liabilities and Prepaid expenses and other, respectively, in our consolidated balance sheet. At December 31, 2020, we held $0.2 billion of
collateral related to derivative contracts under collateral exchange arrangements, which were recorded as Other current liabilities in our
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.
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, 2021, approximately 81% of the aggregate principal amount of our total debt portfolio consisted of fixed-rate
indebtedness, including the effect of interest rate swap agreements designated as hedges. The impact of a 100-basis-point change in interest
rates affecting our floating rate debt would result in a change in annual interest expense, including our interest rate swap agreements that are
designated as hedges, of approximately $288 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 certain of our interest rate derivative transactions utilize interest rates that are linked to the London Inter-
Bank Offered Rate (LIBOR) as the benchmark rate. LIBOR is the subject of recent U.S. and international regulatory guidance for reform. The
one-week and two-month U.S. dollar LIBOR rates ceased publication after December 31, 2021, and other U.S. dollar LIBOR rates will cease
publication after June 30, 2023. 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
floating rate senior unsecured notes issued in March 2021 and certain of our interest rate derivative transactions utilize interest rates that are
linked to the Secured Overnight Financing Rate as the benchmark rate.
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, 2021 and 2020. 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, 2021
At December 31, 2020
Interest Rate Swaps
$
Fair Value
Fair Value assuming
+ 100 basis point shift
169,179 $
155,695
156,078 $
142,420
(dollars in millions)
Fair Value assuming
- 100 basis point shift
184,496
170,423
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable
rates, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against interest
rate risk exposure of designated debt issuances. At December 31, 2021, the fair value of the asset and liability of these contracts was
$473 million and $666 million, respectively. At December 31, 2020, the fair value of the asset and liability of these contracts was
$787 million and $303 million, respectively. At December 31, 2021 and 2020, the total notional amount of the interest rate swaps was
$19.8 billion and $17.8 billion, respectively.
46
Verizon 2021 Annual Report on Form 10-K 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, 2021 and 2020, the fair value of the liability of these contracts was $302 million
and $797 million, respectively. At December 31, 2021 and 2020, the total notional amount of the forward starting interest rate swaps was
$1.0 billion and $2.0 billion, respectively.
Treasury Rate Locks
We enter into treasury rate locks to mitigate our interest rate risk. We recognize gains and losses resulting from interest rate movements in
Other comprehensive income (loss). There was no outstanding notional amount for treasury rate locks at December 31, 2021 or 2020.
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 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, 2021, our primary translation exposure was to the British
Pound Sterling, Euro, Australian Dollar, and Japanese Yen.
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 $589 million and
$1.4 billion at December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, the fair value of the liability of these contracts
was $1.6 billion and $196 million, respectively. At December 31, 2021 and 2020, the total notional amount of the cross currency swaps was
$32.5 billion and $26.3 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. At December 31, 2021, the fair value of the asset of these
contracts was insignificant and there is no amount related to the liability of these contracts. At December 31, 2020, the fair value of the asset
and liability of these contracts was insignificant. At December 31, 2021 and 2020, the total notional amount of the foreign exchange forwards
was $932 million and $1.4 billion, respectively.
47
Verizon 2021 Annual Report on Form 10-K Item 8. Financial Statements and Supplementary Data
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, 2021,
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, 2021, based on the COSO criteria.
As indicated in the accompanying Management's Annual Report on Internal Control over Financial Reporting, management’s assessment of
and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of TracFone Wireless, Inc.
(Tracfone), which is included in the 2021 consolidated financial statements of Verizon and constituted approximately 3% of total assets, as of
December 31, 2021 and less than 1% of revenues for the year then ended. Our audit of internal control over financial reporting of the
Company also did not include an evaluation of the internal control over financial reporting of Tracfone.
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, 2021 and 2020, 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, 2021, and the related notes and
financial statement schedule listed in the Index at Item 15(a) and our report dated February 11, 2022 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 Management's Annual Report 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 11, 2022
48
Verizon 2021 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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 11, 2022 expressed an unqualified opinion thereon.
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.
49
Verizon 2021 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, 2021,
the Company’s aggregate defined benefit pension obligation was $20.2 billion and exceeded the fair value of
pension plan assets of $20.1 billion, resulting in an unfunded defined benefit pension obligation of $0.1 billion.
Also, at December 31, 2021, the other postretirement benefits obligation was approximately $14.7 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 11, 2022
50
Verizon 2021 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 earnings (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)
2019
2020
2021
$
110,449 $
23,164
133,613
109,872 $
18,420
128,292
110,305
21,563
131,868
31,234
25,067
28,658
16,206
—
101,165
32,448
145
312
(3,485)
29,420
(6,802)
22,618 $
553 $
22,065
22,618 $
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
5.32 $
4.30 $
4,148
4,140
4.66
4,138
5.32 $
4.30 $
4,150
4,142
4.65
4,140
$
$
$
$
$
See Notes to Consolidated Financial Statements
51
Verizon 2021 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 $(17), $19 and $(21)
Unrealized loss on cash flow hedges, net of tax of $30, $197 and $265
Unrealized gain (loss) on marketable securities, net of tax of $3, $(2) and $(2)
Defined benefit pension and postretirement plans, net of tax of $205, $221 and $219
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
2021
(dollars in millions)
2019
2020
$
22,618 $
18,348 $
19,788
(141)
(85)
(9)
(621)
(856)
21,762 $
180
(571)
(2)
(676)
(1,069)
17,279 $
16
(736)
7
(659)
(1,372)
18,416
553 $
547 $
21,209
21,762 $
16,732
17,279 $
523
17,893
18,416
$
$
$
52
Verizon 2021 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
Accounts receivable, net
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
Deposits for 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)
2020
2021
$
2,921 $
24,742
896
23,846
3,055
6,906
36,728
289,897
190,201
99,696
1,061
147,619
—
28,603
11,677
27,883
13,329
$
366,596 $
$
7,443 $
24,833
3,859
11,025
47,160
143,425
15,410
40,685
23,203
13,513
236,236
22,171
25,169
1,252
23,917
1,796
6,710
54,594
279,737
184,904
94,833
589
96,097
2,772
24,773
9,413
22,531
10,879
316,481
5,889
20,658
3,485
9,628
39,660
123,173
18,657
35,711
18,000
12,008
207,549
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 loss
Common stock in treasury, at cost (93,634,725 and 153,304,088 shares outstanding)
Deferred compensation – employee stock ownership plans (ESOPs) and other
Noncontrolling interests
Total equity
Total liabilities and equity
429
13,861
71,993
(927)
(4,104)
538
1,410
83,200
$
366,596 $
429
13,404
60,464
(71)
(6,719)
335
1,430
69,272
316,481
See Notes to Consolidated Financial Statements
53
Verizon 2021 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 (decrease) 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
2021
(dollars in millions)
2019
2020
$
22,618 $
18,348 $ 19,788
16,206
(3,391)
4,264
789
36
—
(1,592)
(905)
150
1,457
—
(93)
39,539
(20,286)
(4,065)
(47,596)
4,122
672
(67,153)
33,034
8,383
(14,063)
(4,800)
(10,445)
(3,832)
8,277
16,720
840
1,553
1,380
91
—
189
(369)
1,202
(966)
—
2,780
41,768
(18,192)
(520)
(3,896)
—
(904)
(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)
(19,337)
23,498
4,161 $
19,581
3,917
23,498 $
1
3,916
3,917
$
54
Verizon 2021 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
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 ($2.535, $2.485, $2.435 per share)
Other
Balance at end of year
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of year attributable to Verizon
Foreign currency translation adjustments
Unrealized 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)
Acquisitions (Note 3)
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)
2019
Amount
2021
Amount
2020
Amount
Shares
Shares
Shares
4,291,434 $
4,291,434
429
429
4,291,434 $
4,291,434
429
429
4,291,434 $
4,291,434
429
429
13,404
457
13,861
60,464
—
60,464
22,065
(10,532)
(4)
71,993
(71)
(141)
(85)
(9)
(621)
(856)
(927)
13,419
(15)
13,404
53,147
(200)
52,947
17,801
(10,284)
—
60,464
998
180
(571)
(2)
(676)
(1,069)
(71)
(153,304)
2,057
15
57,597
(93,635)
(6,719)
90
1
2,524
(4,104)
(155,606)
2,298
4
—
(153,304)
(6,820)
101
—
—
(6,719)
(159,400)
3,790
4
—
(155,606)
335
369
(166)
538
1,430
—
1,430
553
(573)
1,410
$ 83,200
222
275
(162)
335
1,440
—
1,440
547
(557)
1,430
$ 69,272
13,437
(18)
13,419
43,542
410
43,952
19,265
(10,070)
—
53,147
2,370
16
(736)
7
(659)
(1,372)
998
(6,986)
166
—
—
(6,820)
353
140
(271)
222
1,565
1
1,566
523
(649)
1,440
$ 62,835
See Notes to Consolidated Financial Statements
55
Verizon 2021 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. We also provide fixed wireless access (FWA) broadband through our wireless networks. 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 also provide FWA broadband through our wireless networks. 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 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).
56
Verizon 2021 Annual Report on Form 10-K 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 or 30-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 $77 million and insignificant at
December 31, 2021 and 2020, respectively. 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.
57
Verizon 2021 Annual Report on Form 10-K 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. The divested Verizon Media Group (Verizon Media), primarily earned 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 completed the sale of Verizon Media on September 1,
2021. See Note 3 for additional information on the sale of Verizon Media.
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.
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.
58
Verizon 2021 Annual Report on Form 10-K 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, 2021, 2020, and 2019.
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
$
$
2021
2,921 $
1,094
146
4,161 $
(dollars in millions)
Increase /
(Decrease)
(19,250)
2020
22,171 $
1,195
132
23,498 $
(101)
14
(19,337)
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. Existing
customers are defined as customers who have been with Verizon for 210 days or more. 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.
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Verizon 2021 Annual Report on Form 10-K 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.
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. It is our policy to
perform quantitative impairment assessment at least every three years.
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
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, 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.
60
Verizon 2021 Annual Report on Form 10-K 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. It is our policy to
perform quantitative impairment assessment at least every three years.
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. See Note 4 for additional information regarding our impairment tests.
Our quantitative impairment assessment consisted of comparing the estimated fair value of our aggregate wireless licenses to the aggregated
carrying amount as of the test date. Under our quantitative assessment, we estimated the fair value of our 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 Deposits for wireless licenses 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.
See Note 4 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.
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.
61
Verizon 2021 Annual Report on Form 10-K 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 in our consolidated balance sheets; 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, 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
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
62
Verizon 2021 Annual Report on Form 10-K for assets and liabilities. We record these translation adjustments in Accumulated other comprehensive 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.
63
Verizon 2021 Annual Report on Form 10-K Recently Adopted Accounting Standards
The following ASU was issued by the Financial Accounting Standards Board (FASB), and has been recently adopted by Verizon.
Description
Date of
Adoption
Effect on Financial Statements
liabilities acquired
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers
In October 2021, the FASB issued ASU 2021-08. The guidance
requires entities to recognize and measure contract assets and
contract
in
accordance with Topic 606. The standard is effective for fiscal
years beginning after December 15, 2022, including interim
periods within those fiscal years. Early adoption is permitted,
including adoption in an interim period. The guidance is applied
retrospectively to all business combinations for which the
acquisition date occurs on or after the beginning of the fiscal year
of adoption.
11/1/2021 Verizon has elected to early adopt this Topic effective
November 1, 2021, and has retroactively applied this
guidance to all business combinations that took place on
or after January 1, 2021. The adoption resulted in the
recognition of contract liabilities at amounts consistent
with those recorded by TracFone Wireless, Inc. (Tracfone)
immediately before the acquisition date. The adoption had
no impact on other business combinations in 2021.
in a business combination
See Note 3 for additional information on the acquisition of
Tracfone.
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.
03/12/2020 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.
On January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) using the modified retrospective approach.
The cumulative after-tax effect of the changes made to our consolidated financial statements for the adoption of Topic 326 was as follows:
(dollars in millions)
Retained earnings
At December 31,
2019
53,147
Adjustments due to
Topic 326
(200)
At January 1, 2020
52,947
See Note 8 for additional information related to credit losses, including disclosures required under Topic 326.
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 financial statements for the adoption of Topic 842 was as follows:
(dollars in millions)
Retained earnings
Noncontrolling interests
Note 2. Revenue and Contract Costs
At December 31,
2018
43,542 $
1,565
$
Adjustments due
to Topic 842 At January 1, 2019
43,952
1,566
410 $
1
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 primarily includes insurance captives as well as the historical results of the divested Verizon Media. On September 1,
2021, we completed the sale of Verizon Media to an affiliate of Apollo Global Management Inc. Under our ownership, Verizon Media
generated revenues from contracts with customers under Topic 606 of approximately $5.3 billion, $7.0 billion and $7.5 billion for the years
ended December 31, 2021, 2020 and 2019, respectively. See Note 3 for additional information on the sale of Verizon Media.
We also earn revenues that are not accounted for under Topic 606 from leasing arrangements (such as those for towers and equipment),
captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed under a device
payment plan agreement when sold to the customer by an authorized agent. As allowed by the practical expedient within 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 $3.1 billion, $2.9 billion and $3.0 billion for the years ended December 31, 2021, 2020 and 2019, respectively.
64
Verizon 2021 Annual Report on Form 10-K 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, 2021, month-to-month service contracts represented approximately 93% of our wireless postpaid contracts and 86% of our
wireline Consumer and Small and Medium Business contracts, compared to December 31, 2020, for which 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.
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, with or without promotional credits that require maintenance of service, are generally either month-to-month
and cancellable at any time (typically under a device payment plan) or considered to contain terms ranging from greater than one month to up
to thirty months (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.
Additionally, there are certain contracts with Business customers for wireline and telematics services that have a contractual minimum fee
over the total contract term. We cannot predict the time period when revenue will be recognized related to those contracts; thus, they are
excluded from the time bands below. These contracts have varying terms spanning over approximately nine years ending in August 2031 and
have aggregate contract minimum payments totaling $2.4 billion.
At December 31, 2021, the transaction price related to unsatisfied performance obligations for total Verizon that is expected to be recognized
for 2022, 2023 and thereafter was $17.0 billion, $8.3 billion and $2.3 billion, respectively. Remaining performance obligation estimates are
subject to change and are affected by several factors, including terminations and changes in the timing and scope of contracts, arising from
contract modifications.
Accounts Receivable and Contract Balances
The timing of revenue recognition may differ from the time of billing to our customers. Receivables presented in our 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 December 31,
2021
10,758
12,888
At December 31,
2020
12,029
10,358
(dollars in millions)
Receivables(1)
Device payment plan agreement receivables(2)
(1) Balances do not include receivables related to the following contracts: leasing arrangements (such as those for towers and equipment),
captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed under a device
payment plan agreement when sold to the customer by an authorized agent.
$
$
$
(2) Included in device payment plan agreement receivables presented in Note 8. Receivables derived from the sale of equipment on a device
payment plan through an authorized agent.
65
At January 1,
2020
12,078
11,741
Verizon 2021 Annual Report on Form 10-K The following table presents information about contract balances:
(dollars in millions)
Contract asset
Contract liability
At December 31,
2021
934
7,229
$
At December 31,
2020
937 $
$
5,598
At January 1,
2020
1,150
5,307
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 remained relatively flat during the year ended December 31, 2021. Contract assets decreased $213 million during the year
ended December 31, 2020 and 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 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 $1.6 billion during the year ended December 31, 2021. The change in contract liabilities was primarily due to
increases in sales promotions recognized over time and upfront fees, increases in deferred revenue related to advanced billings, as well as the
acquisition of Tracfone, partially offset by the satisfaction of performance obligations related to wireless and Fios services, as well as the sale
of Verizon Media. 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.
Revenue recognized during both the years ended December 31, 2021 and 2020 related to contract liabilities existing at January 1, 2021 and
2020 were $4.3 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,
2021
At December 31,
2020
$
$
$
$
739 $
195
934 $
6,053 $
1,176
7,229 $
733
204
937
4,843
755
5,598
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.
66
Verizon 2021 Annual Report on Form 10-K We also defer costs incurred to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used
to satisfy our performance obligation under the contract; and (3) are expected to be recovered through revenue generated under the contract.
Contract fulfillment costs are expensed as we satisfy our performance obligations and recorded in Cost of services. These costs principally
relate to direct costs that enhance our wireline business resources, such as costs incurred to install circuits.
We determine the amortization periods for our costs incurred to obtain or fulfill a customer contract at a portfolio level due to the similarities
within these customer contract portfolios.
Other costs, such as general costs or costs related to past performance obligations, are expensed as incurred.
Collectively, costs to obtain a contract and costs to fulfill a contract are referred to as deferred contract costs, and amortized over a two-to six-
year period. Deferred contract costs are classified as current or non-current within Prepaid expenses and other and Other assets, respectively.
The balances of deferred contract costs included in our consolidated balance sheets were as follows:
(dollars in millions)
Assets
Prepaid expenses and other
Other assets
Total
At December 31,
2021
At December 31,
2020
$
$
2,432 $
2,259
4,691 $
2,472
2,070
4,542
For the years ended December 31, 2021 and 2020, we recognized expense of $3.0 billion and $3.1 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, 2021 and 2020.
Note 3. Acquisitions and Divestitures
Spectrum License Transactions
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
during the fourth quarter in 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 sheets.
In September 2020, the FCC completed Auction 105 for Priority Access Licenses. Verizon participated in the auction and was the high bidder
on 557 licenses in the 3.5 GHz band valued at approximately $1.9 billion for the licenses. Verizon made payments for these licenses in 2020
and received them from the FCC in March 2021. Upon receiving, these wireless licenses, including capitalized interest, based on qualifying
activities that occurred, were reclassified from Deposits for wireless licenses to Wireless licenses in our consolidated balance sheet.
In February 2021, the FCC concluded Auction 107 for C-Band wireless spectrum. Verizon was the winning bidder on 3,511 licenses,
consisting of contiguous C-Band spectrum bands ranging between 140 and 200 megahertz of C-Band spectrum in all 406 markets available in
the auction. Verizon paid $45.5 billion for the licenses it won, of which $44.6 billion was paid in the first quarter of 2021. In accordance with
the rules applicable to the auction, Verizon is required to make additional payments to acquire the licenses. The payments are for our
allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction, which
are estimated to be $7.7 billion. During 2021, we made payments of $1.3 billion primarily related to certain obligations for projected clearing
costs. In January 2022, we made additional payments of $1.4 billion for obligations related to accelerated clearing incentives, which were
accrued as of December 31, 2021 in our consolidated balance sheet. We expect to continue to make payments related to clearing cost and
incentive payment obligations through 2024. These payments are dependent on the incumbent license holders accelerated clearing of the
spectrum for Verizon’s use and, therefore, the final timing and amounts could differ based on the incumbent holders’ execution of their
clearing process. In accordance with the FCC order, the clearing must be completed by December 2025.
The carrying value of the wireless spectrum won in Auction 107 will consist of all payments required to participate and purchase licenses in
the auction, including Verizon’s allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders
associated with the auction that we are obligated to pay in order to acquire the licenses. The licenses were received from the FCC in July
67
Verizon 2021 Annual Report on Form 10-K 2021. Upon receiving, these wireless licenses, including capitalized interest, based on qualifying activities that occurred, were reclassified
from Deposits for wireless licenses to Wireless licenses in our consolidated balance sheet. The average remaining renewal period for these
acquired licenses was 15 years.
See Note 7 for additional information on significant debt transactions.
During 2021 and 2020, we entered into and completed various other wireless license acquisitions for cash consideration of $95 million and
$360 million, respectively. During 2021, we recognized a pre-tax loss in connection with the sale of certain wireless licenses of $223 million
($167 million after tax).
Business Acquisitions
In 2021, we completed the acquisitions of Tracfone and Bluegrass Cellular (Bluegrass). The aggregate impact to total operating revenues
arising from these acquisitions amounted to less than 1% for the year ended December 31, 2021.
TracFone Wireless, Inc.
In September 2020, we entered into a purchase agreement (Tracfone Purchase Agreement) with América Móvil to acquire Tracfone, a leading
provider of prepaid and value mobile services in the U.S. The transaction closed on November 23, 2021 (the Acquisition Date). The
acquisition positions Verizon as the leading prepaid, value and premium wireless carrier by expanding Verizon’s portfolio, bringing enhanced
access of our wireless network and comprehensive suite of mobility products and services to a new customer base.
In accordance with the terms of the Tracfone Purchase Agreement, Verizon acquired all of Tracfone's outstanding stock in exchange for
approximately $3.5 billion in cash, net of cash acquired and working capital and other adjustments, subject to customary adjustments,
57,596,544 shares of Verizon common stock valued at approximately $3.0 billion, and up to an additional $650 million in future cash
contingent consideration related to the achievement of certain performance measures and other commercial arrangements. The fair value of
the Verizon common stock was determined on the basis of its closing market price on the Acquisition Date. The estimated fair value of the
contingent consideration as of the Acquisition Date was approximately $542 million and represents a Level 3 measurement as defined in
ASC 820, Fair Value Measurements and Disclosures. See Note 9 for additional information. The contingent consideration payable is based on
the achievement of certain revenue and operational targets, measured over a two-year earn out period, as defined in the Tracfone Purchase
Agreement. Payments related to the contingent consideration are expected to begin in 2022 and continue through 2024.
Tracfone's financial results are included in the consolidated results of Verizon from the Acquisition Date.
The Tracfone acquisition was accounted for as a business combination. We are currently assessing, as of the Acquisition Date, the
identification and measurement of the assets acquired and liabilities assumed based on their fair values, which are determined using a
combination of the income and market approaches, including market based assumptions. The purchase consideration was preliminarily
allocated to the assets acquired and liabilities assumed based on their fair values as of the Acquisition Date.
The following table summarizes the preliminary allocation of the consideration paid and payable to the identified assets acquired and
liabilities assumed as of the Acquisition Date. The purchase price allocation is preliminary and is subject to revision as additional information
about the fair value of the assets acquired and liabilities assumed, including related deferred income taxes, become available.
68
Verizon 2021 Annual Report on Form 10-K (dollars in millions)
Consideration:
Cash, net of cash acquired and working capital and other adjustments
Fair value of Verizon common stock (57,596,544 shares)
Fair value of contingent consideration to be paid
Total consideration
Assets acquired:
Current assets
Property, plant and equipment, net
Goodwill
Other intangible assets
Other assets
Total assets acquired
Liabilities assumed:
Current liabilities
Deferred income taxes
Other liabilities
Total liabilities assumed
Net assets acquired
November 23,
2021
3,491
2,981
542
7,014
1,370
96
3,723
4,374
731
10,294
1,433
1,007
840
3,280
7,014
$
$
$
$
$
$
Other intangible assets include $2.3 billion related to customer relationships, with a weighted-average amortization period of 6 years,
$1.3 billion related to distribution relationships, with a weighted-average amortization period of 5 years, $744 million related to trade names
with a weighted-average amortization period of 16.5 years and $110 million related to acquired technology, with a weighted-average
amortization period of 10 years. The intangible assets were assigned preliminary estimated fair values using an income approach. The
valuations are considered Level 3 fair value measurements due to the use of significant inputs not observable in the market, which include the
discount rate, royalty rate and amount and timing of future cash flows.
Goodwill is calculated as the difference between the Acquisition Date fair value of the consideration paid and payable and the fair value of the
net assets acquired, representing future economic benefits that we expect to achieve as a result of the acquisition. None of the goodwill
resulting from the acquisition is deductible for tax purposes. The goodwill related to this acquisition is included within the Consumer
segment.
Pursuant to the Tracfone Purchase Agreement, América Móvil agreed to indemnify Verizon against pre-acquisition tax matters. As of the
Acquisition Date, we have recorded uncertain tax liabilities and offsetting indemnification assets of $730 million, for the expected
reimbursement of tax related matters that had not been resolved as of the Acquisition Date. The liabilities are presented in Other liabilities,
and the indemnification assets are presented in Other assets, within our consolidated balance sheets. We expect that any additional liabilities
that may arise related to these indemnified matters would be indemnified and reimbursed by América Móvil.
Pro forma financial information has not been disclosed for the acquisition of Tracfone as the impacts to both revenue and earnings would not
have been significant to our consolidated balance sheets and statements of income.
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 provides wireless service to 210,000 customers in 34 counties in rural service areas 3, 4, and 5 in Central
Kentucky. The transaction closed in March 2021. The aggregate cash consideration paid by Verizon at the closing of the transaction was
approximately $412 million, net of cash acquired, which is subject to customary closing adjustments.
The financial results of Bluegrass are included in the consolidated results of Verizon from the date of acquisition.
The acquisition of Bluegrass was accounted for as a business combination. We are currently assessing the identification and measurement of
the assets acquired and liabilities assumed based on their fair values as of the close of the acquisition. Preliminarily, we recorded
approximately $141 million of plant, property and equipment, $135 million of intangible assets and $92 million of goodwill. Goodwill is
calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets
acquired. The goodwill represents future economic benefits that we expect to achieve as a result of the acquisition. The goodwill related to
this acquisition is included within the Consumer segment.
69
Verizon 2021 Annual Report on Form 10-K 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 acquisition of BlueJeans was accounted for as a business combination. The consideration was allocated to the assets acquired and
liabilities assumed based on their fair values as of the close of the acquisition. We recorded approximately $246 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 the Business segment.
Verizon Media Divestiture
On May 2, 2021, Verizon entered into a definitive agreement with an affiliate of Apollo Global Management Inc. (the Apollo Affiliate)
pursuant to which we agreed to sell Verizon Media in return for consideration of $4.3 billion in cash, subject to customary adjustments,
$750 million in non-convertible preferred limited partnership units of the Apollo Affiliate and 10% of the fully-diluted common limited
partnership units of the Apollo Affiliate.
On September 1, 2021, we completed the sale of Verizon Media. As of the close of the transaction, cash proceeds, the fair value of the non-
convertible preferred limited partnership units of the Apollo Affiliate and the fair value of 10% of the fully-diluted common limited
partnership units of the Apollo Affiliate were $4.3 billion, $496 million, and $124 million, respectively. We recorded a pre-tax gain on sale of
approximately $1.0 billion (after-tax $1.0 billion) in Selling general and administrative expense in our consolidated statement of income for
the year ended December 31, 2021. In addition, we incurred $346 million of various costs associated with this disposition which are primarily
recorded in Selling general and administrative expense in our consolidated statement of income for the year ended December 31, 2021.
Upon the closing of the transaction, Verizon’s preferred limited partnership interest in the Apollo Affiliate and 10% common interest in the
Apollo Affiliate were recognized at their initial fair value of $496 million and $124 million, respectively. The fair values were both estimated
using a combination of the market approach and the income approach. The valuations are both considered Level 3 fair value measurements
due to the use of significant judgment and unobservable inputs, which include the amount and timing of future cash flows, and a discount rate
reflecting risks inherent in the future cash flows and market prices. Verizon’s preferred limited partnership interest is accounted for at cost,
and is subject to impairment and other changes resulting from observable price changes in orderly transactions for identical or similar
investments of the issuer. On September 28, 2021, the Apollo Affiliate redeemed $100 million of Verizon’s preferred limited partnership
interest reducing the carrying value of our preferred interest as of December 31, 2021 to $396 million. The redemption is reflected within Net
cash used in investing activities in our consolidated statement of cash flows for the year ended December 31, 2021. Verizon’s 10% common
interest in the Apollo Affiliate is accounted for as an equity method investment. The post-sale results of Verizon’s common ownership interest
in the Apollo Affiliate are recorded through the equity method of accounting, within Corporate and other.
The following table summarizes the assets and liabilities which were disposed as a result of the closing of the transaction:
(dollars in millions)
Assets:
Cash, cash equivalents and restricted cash
Accounts receivable
Prepaid expenses and other
Property, plant and equipment, net
Other intangible assets, net
Other assets
Total assets
Liabilities:
Accounts payable and accrued liabilities
Other current liabilities
Other liabilities
Total liabilities
September 1,
2021
168
1,597
134
1,235
2,579
221
5,934
1,411
315
310
2,036
$
$
$
$
The operating results of Verizon Media are included within our Corporate and other segment for all periods presented through the date of the
sale. See Note 2 for additional information on revenues generated by Verizon Media under Topic 606.
In connection with the closing of the transaction, we entered into Transition Services Agreements with the Apollo Affiliate, under which
Verizon will continue to provide and receive specified administrative and technical services to support operations for up to 12 months and 18
months, respectively.
70
Verizon 2021 Annual Report on Form 10-K Other
During 2021 and 2020, we completed various other acquisitions for cash consideration of approximately $51 million and $127 million,
respectively.
In December 2021, we completed the sale of our investment in the Complex Media business. In connection with this transaction, we recorded
a pre-tax gain of $131 million in Equity in earnings (losses) of unconsolidated businesses in our consolidated statement of income for the year
ended December 31, 2021.
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, as well as wireless spectrum for which licenses had not yet been received, are as follows:
At December 31,
Wireless licenses
Deposits for wireless licenses
(dollars in millions)
2020
96,097
2,772
2021
147,619 $
—
$
At December 31, 2021 and 2020, approximately $54.9 billion and $6.4 billion, respectively, of wireless licenses were under development for
commercial service for which we were capitalizing interest costs. We recorded approximately $1.6 billion and $242 million of capitalized
interest on wireless licenses for the years ended December 31, 2021 and 2020, respectively.
In July 2021, we received the wireless licenses won in connection with the FCC's auction for C-Band wireless spectrum, Auction 107. As a
result, these wireless licenses, including capitalized interest, based on qualifying activities that occurred, were reclassified from Deposits for
wireless licenses to Wireless licenses in our consolidated balance sheet. See Note 3 for additional information regarding spectrum license
transactions.
In the first quarter of 2020, we reclassified substantially all of our 39 GHz wireless licenses, including capitalized interest, with a carrying
value of $2.8 billion to assets held for sale in connection with the FCC's incentive auction, Auction 103. As a result, these wireless licenses
were adjusted down to their fair value of $1.6 billion resulting in a pre-tax loss of $1.2 billion ($914 million after-tax) in 2020. The new
reconfigured licenses were received in the second quarter 2020 and had a value of $3.4 billion. See Note 3 for additional information
regarding spectrum license transactions.
During 2021 and 2020, we renewed various wireless licenses in accordance with FCC regulations with an average renewal period of 11 years
and 10 years, respectively. 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 2021, 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 date. 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. Our annual assessments in 2021, 2020 and 2019 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.
71
Verizon 2021 Annual Report on Form 10-K Goodwill
Changes in the carrying amount of Goodwill are as follows:
(dollars in millions)
Consumer
Balance at January 1, 2020 (1)
Balance at December 31, 2020 (1)
Acquisitions(2)
Reclassifications, adjustments and other
Total
24,389
372
12
24,773
3,852
(22)
28,603
Balance at December 31, 2021
(1) Goodwill is net of accumulated impairment charges of $4.8 billion, related to our historical Media reporting unit, which included Verizon
17,104 $
118
—
17,222
3,818
2
21,042 $
Acquisitions (3)
Reclassifications, adjustments and other
7,269 $
254
12
7,535
—
(20)
7,515 $
16 $
—
—
16
34
(4)
46 $
Business
Other
$
$
Media. On September 1, 2021, we completed the sale of Verizon Media. See Note 3 for additional information.
(2) Changes in goodwill due to acquisitions is related to BlueJeans and an other insignificant transaction. See Note 3 for additional information.
(3) Changes in goodwill due to acquisitions is related to Tracfone, Bluegrass and other insignificant transactions. See Note 3 for additional
information.
In the fourth quarter of 2021, we performed quantitative impairment assessments for our Consumer and Business reporting units. Our 2021
quantitative impairment assessments indicate that the fair values for our Consumer and Business reporting units exceeded their carrying
values and therefore did not result in an impairment. We performed qualitative impairment assessments for our Consumer and Business
reporting units during the fourth quarters of 2020 and 2019, which 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 impairment.
We performed a quantitative impairment assessment for our historical Media reporting unit in 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 historical 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 historical Media reporting unit had been fully written off as a result of this impairment charge.
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 (5 to 13 years)
Gross (1)
Amount
Accumulated
Amortization
2021
Net
Amount
Gross
Amount
Accumulated
Amortization
$
4,201 $
(1,126) $
3,075 $
4,021 $
(1,961) $
(dollars in millions)
2020
Net
Amount
2,060
Non-network internal-use software
(5 to 7 years)
Other (4 to 25 years)
Total
(1) Other intangible assets are net of assets disposed as a result of the closing of the Verizon Media sale on September 1, 2021 and includes
(15,104)
(999)
(18,064) $
(14,897)
(785)
(16,808) $
6,581
772
9,413
21,310
2,974
21,685
1,771
6,413
2,189
27,477 $
28,485 $
11,677 $
$
assets acquired as a result of the acquisition of Tracfone on November 23, 2021. See Note 3 for additional information.
The amortization expense for Other intangible assets was as follows:
Years
2021
2020
2019
$
(dollars in millions)
2,087
2,445
2,311
72
Verizon 2021 Annual Report on Form 10-K
Estimated annual amortization expense for Other intangible assets is as follows:
Years
2022
2023
2024
2025
2026
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)
2,570
2,328
1,998
1,771
1,468
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
$
$
2021
673 $
(dollars in millions)
2020
608
32,933
160,369
56,814
9,497
8,576
10,940
279,737
184,904
94,833
33,361
162,697
60,276
9,587
13,057
10,246
289,897
190,201
99,696 $
We enter into various lease arrangements for network equipment including towers, distributed antenna systems, small cells, real estate and
connectivity mediums including dark fiber, equipment, and other various types of assets for use in our operations. Our leases have remaining
lease terms ranging from 1 year to 30 years, some of which include options that we can elect to extend the leases term for up to 25 years, and
some of which include options to terminate the leases. For the majority of leases entered into during the current period, we have concluded it
is not reasonably certain that we would exercise the options to extend the lease or terminate the lease. Therefore, as of the lease
commencement date, our lease terms generally do not include these options. We include options to extend the lease when it is reasonably
certain that we will exercise that option.
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.
73
Verizon 2021 Annual Report on Form 10-K 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
2021
(dollars in millions)
2019
2020
5,248
$
5,016
$
4,746
259
34
21
309
39
22
330
38
40
307
(193)
5,676
$
295
(167)
5,514
$
218
(171)
5,201
$
Gain on sale and leaseback transaction, net Selling, general and administrative expense $
(391)
(1) All operating lease costs, including short-term and variable lease costs, are split between Cost of services and Selling, general and
administrative expense in the 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.
—
—
$
$
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
2021
(dollars in millions)
2019
2020
$
(4,658) $
(34)
(4,813) $
(39)
(4,392)
(38)
(394)
(394)
(352)
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
9,778
461
3,800
562
3,510
564
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)
2020
2021
1,046 $
1,127
400 $
925
1,325 $
368
916
1,284
$
$
$
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
2021
2020
9
4
8
4
3.1%
2.2%
3.5%
2.5%
74
Verizon 2021 Annual Report on Form 10-K
The Company's maturity analysis of operating and finance lease liabilities as of December 31, 2021 were as follows:
Years
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less interest
Present value of lease liabilities
Less current obligation
Long-term obligation at December 31, 2021
Operating Leases
4,383 $
4,169
3,908
3,521
3,173
12,335
31,489
4,427
27,062
3,859
23,203 $
$
$
(dollars in millions)
Finance Leases
402
344
275
155
150
69
1,395
70
1,325
400
925
As of December 31, 2021, we have contractually obligated lease payments amounting to $2.0 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. The proceeds received as a result of this transaction were 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. This lease was included as part of the Media sale and has been
assigned to the Apollo Affiliate.
75
Verizon 2021 Annual Report on Form 10-K Note 7. Debt
Outstanding long-term debt obligations as of December 31, 2021 and 2020 are as follows:
At December 31,
Verizon Communications
Alltel Corporation
Operating telephone company subsidiaries—debentures
GTE LLC (2)
Other subsidiaries—asset-backed debt
Finance lease obligations (average rate of 2.2% and 2.5% in 2021
and 2020, 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
Total long-term debt, including current maturities
Plus short-term notes payable
Total 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 %
0.75 - 5.82
1.38 - 7.75
1.13 - 8.95
Floating
Floating
6.80
7.88
7.88 - 8.00
6.00 - 8.75
5.13 - 8.75
N/A
N/A
0.41 - 3.56
Floating
(1)
(1)
(1)
(dollars in millions)
2021
18,406 $
43,225
73,520
4,086
824
38
58
141
375
250
N/A
N/A
9,620
4,610
2020
17,936
35,423
65,019
2,917
941
38
58
141
317
308
141
250
9,414
1,216
1,325
(4,922)
(688)
150,868
7,443
143,425 $
1,284
(6,057)
(604)
128,742
5,569
123,173
150,868 $
—
150,868 $
128,742
320
129,062
$
$
$
$
N/A - not applicable
(1) The debt obligations bore interest at a floating rate based on the Compounded Secured Overnight Financing Rate (SOFR) for the interest
period or the London Interbank Offered Rate (LIBOR) plus an applicable interest margin per annum, as applicable. Compounded SOFR is
calculated using the SOFR Index published by the Federal Reserve Bank of New York in accordance with the terms of the notes. The
Compounded SOFR for the interest period ending in December 2021 was 0.049%. The one-month and three-month LIBOR at
December 31, 2021 was 0.101% and 0.209%, respectively.
(2) In November 2021, $141 million of 8.750% GTE LLC notes matured and were repaid. In November 2021, GTE LLC distributed its assets
and liabilities to Verizon Communications and was dissolved. Verizon Communications is now the successor obligor on the remaining
outstanding balance of $250 million.
Maturities of long-term debt (secured and unsecured) outstanding, including current maturities, excluding unamortized debt issuance costs, at
December 31, 2021 are as follows:
Years
2022
2023
2024
2025
2026
Thereafter
(dollars in millions)
7,069
6,133
10,014
6,903
8,390
111,725
$
During 2021, we received $41.4 billion of proceeds from long-term borrowings, which included $8.4 billion of proceeds from asset-backed
debt transactions. The net proceeds were primarily used to finance the purchase of wireless licenses won in connection with the FCC's auction
for C-Band wireless spectrum, Auction 107, and fund certain renewable energy projects. We used $18.9 billion of cash to repay, redeem and
repurchase long-term borrowings and finance lease obligations, including $4.8 billion to prepay and repay asset-backed, long-term
borrowings. The net proceeds of approximately $1.0 billion from the green bond issued in 2021 are expected to be used to fund certain
renewable energy projects.
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 were 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
76
Verizon 2021 Annual Report on Form 10-K 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 have been fully allocated to
certain renewable energy projects.
2021 Significant Debt Transactions
Debt or equity financing may be needed to fund additional investments or development activities or to maintain an appropriate capital
structure to ensure our financial flexibility.
The following tables show the significant transactions involving the senior unsecured debt securities of Verizon and its subsidiaries that
occurred during the year ended December 31, 2021.
Exchange Offers
(dollars in millions)
Verizon 0.750% - 4.150% notes and floating rate notes, due 2024 - 2026
Verizon 2.355% notes due 2032 (1)
Total (2)
(1) The principal amount issued in exchange does not include either an insignificant amount of cash paid in lieu of the issuance of fractional
4,480 $
—
4,480 $
$
$
Principal Amount
Issued
—
4,664
4,664
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 the principal
amount of new notes issued over the principal amount of notes exchanged of $184 million was recorded as a discount to Long-term debt in
the consolidated balance sheets.
Tender Offers
(dollars in millions)
Verizon 4.522% - 5.012% notes due 2048 - 2055
(1) The total cash consideration includes the tender offer consideration, plus any accrued and unpaid interest to the date of purchase.
Purchased Cash Consideration(1)
4,919
3,686 $
$
Principal Amount
Repayments, Redemptions and Repurchases
(dollars in millions)
Verizon 2.946% notes due 2022
Verizon 2.450% notes due 2022
Verizon 5.150% notes due 2023
Verizon 4.150% notes due 2024
GTE LLC 8.750% debentures due 2021
Open market repurchases of various Verizon and subsidiary notes
Total
(1) Represents amount paid to repay, redeem or repurchase, excluding interest.
Principal Repaid/
Redeemed/
Repurchased
713 $
794
3,190
478
141
2,712
8,028 $
$
$
Amount Paid (1)
730
819
3,519
515
141
3,354
9,078
77
Verizon 2021 Annual Report on Form 10-K Issuances
$
Net Proceeds (1)
(dollars in millions)
Verizon 0.750% notes due 2024
1,746
Verizon floating rate (Compounded SOFR + 0.500%) notes due 2024
748
Verizon 1.450% notes due 2026
2,737
Verizon floating rate (Compounded SOFR + 0.790%) notes due 2026
748
Verizon 2.100% notes due 2028
2,988
Verizon 2.550% notes due 2031
4,216
Verizon 3.400% notes due 2041
3,726
Verizon 3.550% notes due 2051
4,426
Verizon 3.700% notes due 2061
3,439
Verizon 2.850% notes due 2041 (2)
991
Verizon 0.375% notes due 2029 (3)
1,186
Verizon 0.750% notes due 2032 (3)
1,181
Verizon 1.125% notes due 2035 (3)
878
Verizon 2.375% notes due 2028 (3)
800
Verizon 4.050% notes due 2051 (3)
399
Verizon 2.350% notes due 2028 (3)
463
Verizon 3.000% notes due 2031 (3)
385
Verizon 3.850% notes due 2041 (3)
116
Verizon 0.193% bonds due 2028 (3)
403
Verizon 0.555% bonds due 2031 (3)
349
Total
31,925
(1) Net proceeds were net of underwriting discounts and other issuance costs. In addition, for securities denominated in a currency other than
Principal Amount
Issued
1,750 $
750
2,750
750
3,000
4,250
3,750
4,500
3,500
1,000
1,000
1,000
750
1,000
500
600
500
150
375
325
€
€
€
C$
C$
A$
A$
A$
CHF
CHF
$
the U.S. dollar, net proceeds are shown on a U.S. dollar equivalent basis.
(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 December 1, 2020 through the maturity date of the
green bond.
(3) See Note 9 for additional information on derivative transactions related to the issuances.
Commercial Paper Program
In 2021, we issued and repaid $3.4 billion in commercial paper. As of December 31, 2021, we had no commercial paper outstanding. 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, 2021, the carrying value of our asset-backed debt was $14.2 billion. Our asset-backed debt includes Asset-Backed Notes
(ABS Notes) issued to third-party investors (Investors) and loans (ABS Financing Facilities) received from banks and their conduit facilities
(collectively, the Banks). Our consolidated asset-backed debt bankruptcy remote legal entities (each, an ABS Entity or collectively, the ABS
Entities) issue the debt or are otherwise party to the transaction documentation in connection with our asset-backed debt transactions. Under
the terms of our asset-backed debt, Cellco Partnership (Cellco), a wholly-owned subsidiary of Verizon, and certain other affiliates of Verizon
(collectively, the Originators) transfer device payment plan agreement receivables to one of the ABS Entities, which in turn transfers such
receivables to another ABS Entity that issues the debt. Verizon entities retain the equity interests and residual interests, as applicable, in the
ABS Entities, which represent the rights to all funds not needed to make required payments on the asset-backed debt and other related
payments and expenses.
Our asset-backed debt is secured by the transferred device payment plan agreement receivables and future collections on such receivables.
The device payment plan agreement receivables transferred to the ABS Entities and related assets, consisting primarily of restricted cash, will
only be available for payment of asset-backed debt and expenses related thereto, payments to the Originators in respect of additional transfers
of device payment plan agreement receivables, and other obligations arising from our asset-backed debt transactions, and will not be available
to pay other obligations or claims of Verizon’s creditors until the associated asset-backed debt and other obligations are satisfied. The
Investors or Banks, as applicable, which hold our asset-backed debt have legal recourse to the assets securing the debt, but do not have any
recourse to Verizon with respect to the payment of principal and interest on the debt. Under a parent support agreement, Verizon has agreed to
guarantee certain of the payment obligations of Cellco and the Originators to the ABS Entities.
Cash collections on the device payment plan agreement receivables collateralizing our asset-backed debt securities are required at certain
specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in
Prepaid expenses and other and Other assets in our 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.
78
Verizon 2021 Annual Report on Form 10-K
ABS Notes
During the year ended December 31, 2021, we completed the following ABS Notes transactions:
(dollars in millions)
May 2021
A Senior class notes
B Junior class notes
C Junior class notes
May 2021 total
November 2021
A Senior class notes
B Junior class notes
C Junior class notes
November 2021 total
Total
Interest Rates %
Expected
Weighted-average
Life to Maturity
(in years)
Principal Amount
Issued
0.500
0.690
0.890
0.990
1.280
1.380
2.99
2.99
2.99
2.96
2.96
2.96
$
$
1,500
119
81
1,700
1,247
76
77
1,400
3,100
Under the terms of each series of ABS Notes, there is a revolving period that is two years or up to three years, as applicable, during which we
may transfer additional receivables to the ABS Entity. During the year ended December 31, 2021, we made aggregate principal repayments of
$3.3 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, 2020, we made aggregate principal repayments of $3.4 billion on ABS Notes that had
entered the amortization period, including principal payments made in connection with clean-up redemptions. In January 2022, we made a
principal payment of $179 million in connection with a clean-up redemption.
In January 2022, we issued $1.7 billion aggregate principal amount of senior and junior ABS Notes through an ABS Entity.
ABS Financing Facilities
In March 2021, we borrowed an additional $1.0 billion under the loan agreement outstanding in connection with the ABS Financing Facility
that we originally entered into in 2016 and previously amended and restated in 2019 and 2020 (2020 ABS Financing Facility). In May 2021,
the aggregate outstanding balance of $1.5 billion was fully repaid and there was no outstanding balance under the 2020 ABS Financing
Facility as of December 31, 2021.
In December 2021, we entered into an ABS financing facility with a number of financial institutions (2021 ABS Financing Facility). Two
loan agreements were entered into in connection with the 2021 ABS Financing Facility in December 2021. Under the terms of the 2021 ABS
Financing Facility, the financial institutions make advances under asset-backed loans backed by device payment plan agreement receivables
of both Consumer customers and Business customers. Two loan agreements are outstanding in connection with the 2021 ABS Financing
Facility, one with a final maturity date in December 2025 and the other in December 2026, and each loan agreement bears interest at floating
rates. There is a one or two year revolving period, as set forth in the applicable loan agreement, which may be extended with the approval of
the financial institutions. Under the loan agreements, we have the right to prepay all or a portion of the advances at any time without penalty,
but in certain cases, with breakage costs. Subject to certain conditions, we may also remove receivables from the ABS Entity. In December
2021, we borrowed $4.3 billion under the loan agreements. The aggregate outstanding balance under the 2021 ABS Financing Facility was
$4.3 billion as of December 31, 2021. In January 2022, we prepaid an aggregate of $515 million of the two loans outstanding under the 2021
loan agreement.
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.
79
Verizon 2021 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,
2021
At December 31,
2020
$
10,705 $
1,094
5,455
10
5,024
9,178
9,257
1,128
2,950
8
4,191
6,413
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
At December 31, 2021
Facility
Capacity
Unused
Capacity
Principal
Amount
Outstanding
$
$
9,500 $
7,000
16,500 $
9,418
— $
9,418 $
N/A
4,676
4,676
Maturities
2024
2024 - 2029
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 both 2021 and 2020, we drew down $1.0 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.
In November 2021, we repaid $500 million under an export credit facility entered into in July 2017.
Non-Cash Transactions
During the years ended December 31, 2021, 2020 and 2019, we financed, primarily through alternative financing arrangements, the purchase
of approximately $461 million, $1.7 billion, and $563 million, respectively, of long-lived assets consisting primarily of network equipment.
As of December 31, 2021 and 2020, $1.3 billion and $1.6 billion, respectively, relating to these financing arrangements, including those
entered into in prior years and liabilities assumed through acquisitions, remained outstanding. These purchases are non-cash financing
activities and therefore are not reflected within Capital expenditures in our consolidated statements of cash flows.
Debt Extinguishment Losses
During the years ended December 31, 2021, 2020 and 2019, we recorded debt extinguishment losses of $3.6 billion, $121 million and
$3.7 billion, respectively. The losses are recorded in Other income (expense), net in our consolidated statements of income. The total losses
are reflected as an adjustment to reconcile net income to Net cash used in operating activities and the portion of the losses representing cash
payments are reflected within Net cash used in financing activities in our consolidated statements of cash flows.
Guarantees
We guarantee the debentures of our operating telephone company subsidiaries. As of December 31, 2021, $765 million aggregate principal
amount of these obligations remained outstanding. Each guarantee will remain in place for the life of the obligation unless terminated
pursuant to its terms, including the operating telephone company no longer being a wholly-owned subsidiary of Verizon.
Debt Covenants
We and our consolidated subsidiaries are in compliance with all of our restrictive covenants in our debt agreements.
80
Verizon 2021 Annual Report on Form 10-K 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, 2021
(dollars in millions)
Accounts receivable
Less Allowance for credit losses
Accounts receivable, net of allowance
$
(1) Other receivables primarily include wireline receivables and other receivables, the allowances for which are individually insignificant.
13,287 $
504
12,783 $
6,583 $
262
6,321 $
4,872 $
130
4,742 $
Total
24,742
896
23,846
$
Device
payment plan
agreement
Wireless
service
Other
receivables(1)
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.
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(1)
Device payment plan agreement receivables, net
Classified in our consolidated balance sheets:
Accounts receivable, net
Other assets
Device payment plan agreement receivables, net
(1) Includes allowance for both short-term and long-term device payment plan agreement receivables.
(dollars in millions)
2020
17,959
(453)
17,506
(940)
16,566
2021
21,303 $
(358)
20,945
(759)
20,186 $
12,783 $
7,403
20,186 $
11,601
4,965
16,566
$
$
$
$
Included in our device payment plan agreement receivables, net at December 31, 2021 and December 31, 2020, are net device payment plan
agreement receivables of $16.0 billion and $12.1 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
In connection with certain device payment plan agreements, we may offer a promotion to allow our customers to upgrade to a new device
after paying down a certain specified portion of the required device payment plan agreement amount as well as trading in their device in good
working order. When a customer enters into a device payment plan agreement with the right to upgrade to a new device, we account for this
trade-in right as a guarantee obligation. We recognize a liability measured at fair value for the customer’s right to trade in the device which is
determined by considering several factors, including the weighted-average selling prices obtained in recent resales of similar devices eligible
for trade-in. At December 31, 2021 and December 31, 2020, the amount of the guarantee liability was $77 million and insignificant,
respectively.
We may offer certain promotions that allow a customer to trade in their owned device in connection with the purchase of a new device. Under
these types of promotions, the customer receives a credit for the value of the trade-in device. At December 31, 2021 and December 31, 2020,
the amount of trade-in liability was $366 million and $70 million, respectively.
In addition, we may provide the customer with additional future billing credits that will be applied against the customer’s monthly bill as long
as service is maintained. These future billing credits are accounted for as consideration payable to a customer and are included in the
determination of total transaction price, resulting in a contract liability.
81
Verizon 2021 Annual Report on Form 10-K Device payment plan agreement receivables, net, does not reflect the trade-in liability, additional future credits or the guarantee liability.
Origination of Device Payment Plan Agreements
When originating device payment plan agreements, we use internal and external data sources to create a credit risk score to measure the credit
quality of a customer and to determine eligibility for the device payment program. Verizon’s experience has been that the payment attributes
of longer tenured customers are highly predictive for estimating their reliability to make future payments. Customers with longer tenures tend
to exhibit similar risk characteristics to other customers with longer tenures, and receivables due from customers with longer tenures tend to
perform better than receivables from customers that have not previously been Verizon customers. As a result of this experience, we make
initial lending decisions based upon whether the customers are "established customers" or "short-tenured customers." If a Consumer customer
has been a customer for 45 days or more, or if a Business customer has been a customer for 12 months or more, the customer is considered an
"established customer." For established customers, the credit decision and ongoing credit monitoring processes rely on a combination of
internal and external data sources. If a Consumer customer has been a customer less than 45 days, or a Business customer has been a customer
for less than 12 months, the customer is considered a "short-tenured customer." For short-tenured customers, the credit decision and credit
monitoring processes rely more heavily on external data sources.
Internal data and/or external credit data are obtained from the credit reporting agencies, if available, to create a custom credit risk score for
Consumer customers. The custom credit risk score is generated automatically from the applicant’s credit data using proprietary custom credit
models. The credit risk score measures the likelihood that the potential customer will become severely delinquent and be disconnected for
non-payment. For a small portion of short-tenured customer applications, a traditional credit report is not available from one of the national
credit reporting agencies because the potential customer does not have sufficient credit history. In those instances, alternative credit data is
used for the risk assessment. For Business customers, we also verify the existence of the business with external data sources.
Based on the custom credit risk score, we assign each customer a credit class, each of which has specified offers of credit. This includes an
account level spending limit and a maximum amount of credit allowed per device for Consumer customers or a required down payment
percentage for Business customers.
Credit Quality Information
Subsequent to origination, we assess indicators for the quality of our wireless device payment plan agreement portfolio using two models, one
for new customers and one for existing customers. The model for new customers pools all Consumer and Business wireless customers based
on less than 210 days as "new customers." The model for existing customers pools all Consumer and Business wireless customers based on
210 days or more as "existing customers."
The following table presents device payment plan agreement receivables, at amortized cost, as of December 31, 2021, 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.
$
$
2021
2,545 $
13,983
16,528 $
The data presented in the table above was last updated on December 31, 2021.
2020 Prior to 2020 (1)
589 $
3,736
4,325 $
10 $
82
92 $
Total
3,144
17,801
20,945
We assess indicators for the quality of our wireless service receivables portfolio as one overall pool. As of December 31, 2021, wireless
service receivables, at amortized cost, originating in 2021 and 2020 were $4.8 billion and an insignificant amount, respectively.
Allowance for Credit Losses
The credit quality indicators are used in determining the estimated amount and the timing of expected credit losses for the device payment
plan agreement and wireless service receivables portfolios.
For device payment plan agreement receivables, we record bad debt expense based on a default and loss calculation using our proprietary loss
model. The expected loss rate is determined based on customer credit scores and other qualitative factors as noted above. The loss rate is
assigned individually on a customer by customer basis and the custom credit scores are then aggregated by vintage and used in our proprietary
loss model to calculate the weighted-average loss rate used for determining the allowance balance.
We monitor the collectability of our wireless service receivables as one overall pool. Wireline service receivables are disaggregated and
pooled by the following customer groups: consumer, small and medium business, global enterprise, public sector and wholesale. For wireless
service receivables and wireline consumer and small and medium business receivables, the allowance is calculated based on a 12 month
rolling average write-off balance multiplied by the average life-cycle of an account from billing to write-off. The risk of loss is assessed over
the contractual life of the receivables and is adjusted based on the historical loss amounts for current and future conditions based on
management’s qualitative considerations. For global enterprise, public sector and wholesale wireline receivables, the allowance for credit
losses is based on historical write-off experience and individual customer credit risk, if applicable.
82
Verizon 2021 Annual Report on Form 10-K Activity in the allowance for credit losses by portfolio segment of receivables were as follows:
(dollars in millions)
Balance at January 1, 2021
Current period provision for expected credit losses
Write-offs charged against the allowance
Recoveries collected
Balance at December 31, 2021
(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
262
185
(383)
66
130
940 $
434
(653)
38
759 $
We monitor delinquency and write-off experience based on the quality of our device payment plan agreement and wireless service receivables
portfolios. The extent of our collection efforts with respect to a particular customer are based on the results of our proprietary custom internal
scoring models that analyze the customer’s past performance to predict the likelihood of the customer falling further delinquent. These
custom scoring models assess a number of variables, including origination characteristics, customer account history and payment patterns.
Since our customers’ behaviors may be impacted by general economic conditions, we analyzed whether changes in macroeconomic
conditions impact our credit loss experience and have concluded that our credit loss estimates are generally not materially impacted by
reasonable and supportable forecasts of future economic conditions. Based on the score derived from these models, accounts are grouped by
risk category to determine the collection strategy to be applied to such accounts. For device payment plan agreement receivables and wireless
service receivables, we consider an account to be delinquent and in default status if there are unpaid charges remaining on the account on the
day after the bill’s due date. The risk class determines the speed and severity of the collections effort including initiatives taken to facilitate
customer payment.
The balance and aging of the device payment plan agreement receivables, at amortized cost, were as follows:
(dollars in millions)
Unbilled
Billed:
Current
Past due
Device payment plan agreement receivables, at amortized cost
At December 31, 2021
19,777
963
205
20,945
$
$
83
Verizon 2021 Annual Report on Form 10-K 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, 2021:
Level 1(1)
Level 2(2)
(dollars in millions)
(3)
Level 3
Total
Assets:
Prepaid expenses and other:
Fixed income securities
Interest rate swaps
Cross currency swaps
Foreign exchange forwards
Other assets:
Fixed income securities
Interest rate swaps
Cross currency swaps
Interest rate caps
Total
Liabilities:
Other current liabilities:
Interest rate swaps
Forward starting interest rate swaps
Cross currency swaps
Contingent consideration
Other liabilities:
Interest rate swaps
Cross currency swaps
Interest rate caps
Contingent consideration
Total
$
$
$
$
— $
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
— $
18 $
188
9
12
391
285
580
44
1,527 $
1 $
302
218
—
665
1,406
44
—
2,636 $
— $
—
—
—
—
—
—
—
— $
— $
—
—
231
—
—
—
313
544 $
18
188
9
12
391
285
580
44
1,527
1
302
218
231
665
1,406
44
313
3,180
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:
Level 1 (1)
Level 2 (2)
(dollars in millions)
Total
Level 3 (3)
— $
12 $
— $
12
Assets:
Prepaid expenses and other:
Foreign exchange forwards
Other assets:
Fixed income securities
Interest rate swaps
Cross currency swaps
Total
$
$
—
—
—
— $
459
787
1,446
2,704 $
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
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.
—
—
—
— $
— $
—
$
$
409 $
2
303
196
388
1,298 $
84
—
—
—
— $
— $
—
—
—
—
— $
459
787
1,446
2,704
409
2
303
196
388
1,298
Verizon 2021 Annual Report on Form 10-K 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, 2021 and December 31, 2020, the carrying amount of our investments without readily determinable fair values were
$808 million and $402 million, respectively. During 2021, there were approximately $66 million of adjustments due to observable price
changes and insignificant impairment charges. Cumulative adjustments due to observable price changes and impairment charges were
approximately $143 million and $63 million, respectively.
Verizon has a liability for contingent consideration related to its acquisition of Tracfone, completed in November 2021. The fair value is
calculated using a probability-weighted discounted cash flow model and represents a Level 3 measurement. Level 3 instruments include
valuation based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other
market participants. Subsequent to the acquisition date, at each reporting date, the contingent consideration liability is remeasured to fair
value with changes recorded within Selling, general and administrative expense in our consolidated statements of income.
Fixed income securities consist primarily of investments in municipal bonds. The valuation of the fixed income securities are based on the
quoted prices for similar assets in active markets or identical assets in inactive markets or models that apply inputs from observable market
data. The valuation determines that these securities are classified as Level 2.
Derivative contracts are valued using models based on readily observable market parameters for all substantial terms of our derivative
contracts and thus are classified within Level 2. We use mid-market pricing for fair value measurements of our derivative instruments. Our
derivative instruments are recorded on a gross basis.
We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period.
Fair Value of Short-term and Long-term Debt
The fair value of our debt is determined using various methods, including quoted prices for identical debt instruments, which is a Level 1
measurement, as well as quoted prices for similar debt instruments with comparable terms and maturities, which is a Level 2 measurement.
The fair value of our short-term and long-term debt, excluding finance leases, was as follows:
(dollars in millions)
At December 31, 2020
At December 31, 2021
Derivative Instruments
Fair Value
Carrying
Amount
127,778 $
149,543
$
Level 1
103,967 $
106,599
Level 2
52,785 $
62,606
Level 3
Total
— $ 156,752
169,205
—
We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates and interest rates.
We employ risk management strategies, which may include the use of a variety of derivatives including interest rate swaps, cross currency
swaps, forward starting interest rate swaps, treasury rate locks, interest rate caps, swaptions and foreign exchange forwards. We do not hold
derivatives for trading purposes.
The following table sets forth the notional amounts of our outstanding derivative instruments:
At December 31,
Interest rate swaps
Cross currency swaps
Forward starting interest rate swaps
Foreign exchange forwards
$
2021
19,779 $
32,502
1,000
932
(dollars in millions)
2020
17,768
26,288
2,000
1,405
85
Verizon 2021 Annual Report on Form 10-K The following tables summarize the activities of our designated derivatives:
At December 31,
Interest Rate Swaps:
Notional value entered into
Notional value settled
Ineffective portion gain recognized in Interest expense
Cross Currency Swaps:
Notional value entered into
Notional value settled
Pre-tax gain (loss) recognized in Other comprehensive loss
Forward Starting Interest Rate Swaps:
Notional value entered into
Notional value settled
Pre-tax gain (loss) recognized in Other comprehensive loss
Treasury Rate Locks:
Notional value entered into
Notional value settled
Pre-tax gain (loss) recognized in Other comprehensive loss
At December 31,
Other, net Cash Flows from Operating Activities:
Cash received for settlement of interest rate swaps
Cash paid for settlement of forward starting interest rate swaps
Cash received (paid) for settlement of treasury rate locks
Interest Rate Swaps
$
$
2021
(dollars in millions)
2020
6,050 $
4,018
2
6,214
—
(2,285)
—
1,000
258
4,650
4,650
251
2021
107 $
(237)
251
10,168
9,488
46
4,817
1,600
1,810
—
1,000
(486)
5,500
5,500
(41)
(dollars in millions)
2020
764
(293)
(41)
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable
rates, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against interest
rate risk exposure of designated debt issuances. We record the interest rate swaps at fair value in our 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.
In January 2022, we entered into interest rate swaps with a total notional value of $500 million.
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
2021
20,027 $
(dollars in millions)
2020
18,849
$
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
(113)
575
557
627
Cross Currency Swaps
We have entered into cross currency swaps designated as cash flow hedges to exchange our British Pound Sterling, Euro, Swiss Franc,
Canadian Dollar and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to
mitigate the impact of foreign currency transaction gains or losses. A portion of the gains recognized in Other comprehensive income (loss)
was reclassified to Other income (expense), net to offset the related pre-tax foreign currency transaction gain or loss on the underlying hedged
item. See Note 14 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. We recognize gains and losses resulting from interest rate movements in Other comprehensive income
(loss).
86
Verizon 2021 Annual Report on Form 10-K Treasury Rate Locks
We enter into treasury rate locks to mitigate our interest rate risk. We recognize gains and losses resulting from interest rate movements in
Other comprehensive income (loss).
Net Investment Hedges
We have designated certain foreign currency debt instruments as net investment hedges to mitigate foreign exchange exposure related to non-
U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. In March 2021, we de-designated the
existing net investment hedge and designated a new net investment hedge using a different Euro-denominated note. The notional amount of
Euro-denominated debt designated as a net investment hedge was €750 million as of both December 31, 2021 and 2020.
Undesignated Derivatives
We also have the following derivative contracts which we use as economic hedges but for which we have elected not to apply hedge
accounting.
The following table summarizes the activity of our derivatives not designated in hedging relationships:
At December 31,
Foreign Exchange Forwards:
Notional value entered into
Notional value settled
Pre-tax gain (loss) recognized in Other income (expense), net
Treasury Rate Locks:
Notional value entered into
Notional value settled
Pre-tax gain recognized in Interest expense
Swaptions:
Notional value sold
Notional value settled
Pre-tax gain recognized in Interest expense
Foreign Exchange Forwards
2021
(dollars in millions)
2020
$
12,604 $
13,077
(62)
—
—
—
2,000
2,000
11
14,030
13,755
142
1,625
1,625
15
—
—
—
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.
Treasury Rate Locks
We enter into treasury rate locks to mitigate our interest rate risk.
Swaptions
We enter into swaptions to achieve a targeted mix of fixed and variable rate debt.
In January 2022, we sold payer swaptions with a notional amount of $1.0 billion to enter into future pay-floating interest rate swaps indexed
to SOFR that were not designated in hedging relationships.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments, short-term and long-
term investments, trade receivables, including device payment plan agreement receivables, certain notes receivable, including lease
receivables, and derivative contracts.
Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA
master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. The CSA agreements contain
rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding
positions as compared to established thresholds and changes in credit ratings. We do not offset fair value amounts recognized for derivative
instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from
derivative instruments recognized at fair value. At December 31, 2021, we held and posted $0.1 billion and an insignificant amount,
respectively, of collateral related to derivative contracts under collateral exchange agreements, which were recorded as Other current
liabilities and Prepaid expenses and other, respectively, in our consolidated balance sheet. At December 31, 2020, we held $0.2 billion of
collateral related to derivative contracts under collateral exchange arrangements, which were recorded as Other current liabilities in our
consolidated balance sheet. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk
87
Verizon 2021 Annual Report on Form 10-K remote and do not expect that any such nonperformance would result in a significant effect on our results of operations or financial condition
due to our diversified pool of counterparties.
Note 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,
2021, 76 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 (DEUs), which will be paid to participants if, and only to the extent the applicable RSU award vests, and is paid 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.
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 (DEUs), which will be paid to
participants if, and only to the extent the applicable PSU award vests, and is paid at the time that PSU award is 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, 2019
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2019
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2020
Granted
Payments
Cancelled/Forfeited
Outstanding December 31, 2021
Restricted Stock Units
Performance Stock Units
Equity Awards
10,577
3,169
(6,397)
(90)
7,259
3,638
(3,814)
(182)
6,901
4,079
(3,417)
(784)
6,779
Liability Awards
19,926
5,814
(9,429)
(1,598)
14,713
15,161
(9,311)
(1,004)
19,559
16,845
(10,797)
(8,317)
17,290
Equity Awards
—
—
—
—
—
4,358
—
(116)
4,242
5,353
—
(955)
8,640
Liability Awards
16,905
4,593
(3,255)
(2,692)
15,551
1,389
(7,160)
(143)
9,637
1,692
(6,718)
(146)
4,465
As of December 31, 2021, unrecognized compensation expense related to the unvested portion of Verizon’s RSUs and PSUs was
approximately $773 million and is expected to be recognized over approximately 2 years.
The equity awards granted in 2021 and 2020 have weighted-average grant date fair values of $55.39 and $57.38 per unit, respectively. During
2021, 2020 and 2019, we paid $986 million, $961 million and $737 million, respectively, to settle RSUs and PSUs classified as liability
awards.
88
Verizon 2021 Annual Report on Form 10-K 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 $625 million, $780 million and $872 million for 2021, 2020 and 2019, 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
Actuarial (gain) loss, net
Benefits paid
Curtailment and termination benefits
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
$
2021
22,236 $
282
394
(605)
(816)
6
(1,330)
20,167
20,128
2,049
56
(816)
(1,330)
20,087
Pension
2020
21,248 $
305
505
2,308
(842)
—
(1,288)
22,236
19,451
2,750
57
(842)
(1,288)
20,128
(dollars in millions)
Health Care and Life
2020
2021
16,168 $
112
289
(930)
(929)
—
—
14,710
572
53
885
(929)
—
581
15,669
110
429
887
(927)
—
—
16,168
743
47
709
(927)
—
572
Funded Status - End of year
$
(80) $
(2,108) $
(14,129) $
(15,596)
At December 31,
Amounts recognized in the balance sheets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total
Amounts recognized in Accumulated other comprehensive loss
(pre-tax)
Prior service cost (benefit)
Total
$
$
$
$
89
Pension
2020
(dollars in millions)
Health Care and Life
2020
2021
5 $
(63)
(2,050)
(2,108) $
— $
(748)
(13,381)
(14,129) $
—
(721)
(14,875)
(15,596)
2021
376 $
(55)
(401)
(80) $
402 $
402 $
463 $
463 $
(1,889) $
(1,889) $
(2,783)
(2,783)
Verizon 2021 Annual Report on Form 10-K The accumulated benefit obligation for all defined benefit pension plans was $20.1 billion and $22.2 billion at December 31, 2021 and 2020,
respectively.
Actuarial gain/loss, Net
The net actuarial gain in 2021 is primarily the result of a $1.1 billion gain due to 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 2.6% at December 31, 2020 to a
weighted-average of 2.9% at December 31, 2021.
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.
Plan Amendments
The reclassifications from the amounts recorded in Accumulated other comprehensive income (loss) as a result of collective bargaining
agreements and plan amendments made in 2016, 2017 and 2018 resulted in a net decrease to net periodic benefit cost and net increase to pre-
tax income of approximately $708 million during 2021, 2020 and 2019.
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
Net Periodic Benefit Cost (Income)
$
$
(dollars in millions)
2020
22,116
20,064
2021
456 $
—
(dollars in millions)
2020
22,178
20,064
2021
456 $
—
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
$
2021
247 $
35
282
Pension
2019
202 $
45
247
2020
245 $
60
305
2021
2020
(dollars in millions)
Health Care and Life
2019
78
18
96
89 $
21
110
94 $
18
112
Amortization of prior service cost (credit)
Expected return on plan assets
Interest cost
Remeasurement loss (gain), net
Other components
61
(1,234)
394
(1,419)
(2,198)
61
(1,186)
505
744
124
61
(1,130)
695
606
232
(894)
(22)
289
(960)
(1,587)
(966)
(28)
429
866
301
(971)
(37)
629
(480)
(859)
Total
$ (1,916) $
429 $
479 $ (1,475) $
411 $
(763)
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.
90
Verizon 2021 Annual Report on Form 10-K
Other pre-tax changes in plan assets and benefit obligations recognized in Other comprehensive (income) loss are as follows:
Pension
2019
$ — $ — $ — $ — $ — $
2021
2021
2020
(dollars in millions)
Health Care and Life
2019
(22)
2020
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) $
(61)
(61) $
894
894 $
966
966 $
971
949
Assumptions
The weighted-average assumptions used in determining benefit obligations follow:
At December 31,
Discount Rate
Rate of compensation increases
N/A - not applicable
2021
3.00%
3.00%
Pension
2020
2.60%
3.00%
Health Care and Life
2020
2021
2.50%
2.90%
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
2021
3.20%
1.90
6.50
3.00
2020
3.30%
2.40
6.50
3.00
Pension
2019
4.60%
3.80
6.80
3.00
Health Care and Life
2019
4.60%
4.00
4.30
2020
3.50%
2.80
4.50
N/A
N/A
2021
3.00%
1.80
4.20
N/A
In determining our pension and other postretirement benefit obligations, we used a weighted-average discount rate of 2.9% in 2021. 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, 2021. 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
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
2021
Health Care and Life
2019
6.30 %
4.50
2020
6.20 % 6.20 %
4.50
4.50
2029
2029
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 45% to 55% 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 44% to 54% 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 10% 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.
91
Verizon 2021 Annual Report on Form 10-K Pension Plans
The fair values for the pension plans by asset category at December 31, 2021 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
1,221 $
2,482
Level 1
1,208 $
2,463
Level 2
(dollars in millions)
Level 3
—
—
13 $
19
1,785
4,046
1,407
695
972
569
224
13,401
6,686
20,087 $
1,652
123
23
—
—
—
—
5,469
133
3,923
1,384
695
—
—
114
6,281
—
—
—
—
972
569
110
1,651
5,469 $
6,281 $
1,651
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 following is a reconciliation of the beginning and ending balance of pension plan assets that are measured at fair value using significant
unobservable inputs:
Balance at January 1, 2020
Actual gain (loss) on plan assets
Purchases (sales)
Transfers out
Balance at December 31, 2020
Actual gain (loss) on plan assets
Purchases (sales)
Transfers out
Balance at December 31, 2021
(dollars in millions)
Equity
Securities
Corporate
Bonds
International
Bonds
Real
Estate
Private
Equity
Hedge
Funds
$
$
3 $
5
(7)
1
2
(1)
(1)
—
— $
145 $
(8)
39
—
176
(5)
1
(172)
— $
26 $
3
(9)
—
20
—
(4)
(16)
— $
810 $
146
(146)
(53)
757
(21)
197
39
972 $
737 $
57
(134)
(246)
414
(19)
147
27
569 $
129 $
1
69
(61)
138
1
81
(110)
110 $
Total
1,850
204
(188)
(359)
1,507
(45)
421
(232)
1,651
92
Verizon 2021 Annual Report on Form 10-K Health Care and Life Plans
The fair values for the other postretirement benefit plans by asset category at December 31, 2021 are as follows:
Asset Category
Cash and cash equivalents
Equity securities
Fixed income securities
U.S. Treasuries and agencies
Corporate bonds
International bonds
Other
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
—
—
36 $
—
$
$
36 $
284
160
64
14
10
568
13
581 $
$
$
40 $
178
83
54
9
364
208
572 $
— $
284
150
50
10
—
494
— $
178
83
54
9
324
10
14
4
10
74
—
—
—
40
494 $
74 $
Total
Level 1
Level 2
(dollars in millions)
Level 3
—
—
40 $
—
—
—
—
—
—
—
—
—
—
—
—
324 $
40 $
The fair values for the other postretirement benefit plans by asset category at December 31, 2020 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.
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
93
Verizon 2021 Annual Report on Form 10-K 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 2021, we made no discretionary contribution to our qualified pension plans, $58 million of contributions to our nonqualified pension plans
and $885 million of contributions to our other postretirement benefit plans. No qualified pension plans contributions are expected to be made
in 2022. Nonqualified pension plans contributions are estimated to be approximately $60 million and contributions to our other postretirement
benefit plans are estimated to be approximately $860 million in 2022.
Estimated Future Benefit Payments
The benefit payments to retirees are expected to be paid as follows:
Year
2022
2023
2024
2025
2026
2027 to 2031
$
(dollars in millions)
Pension Benefits Health Care and Life
906
883
862
850
840
4,139
2,049 $
1,648
1,097
1,066
1,034
5,097
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, 2021, the number of allocated shares of common
stock in this ESOP was 44 million. There were no unallocated shares of common stock in this ESOP at December 31, 2021. All leveraged
ESOP shares are included in earnings per share computations.
Total savings plan costs were $690 million in 2021, $730 million in 2020 and $897 million in 2019.
Severance Benefits
The following table provides an analysis of our severance liability:
Year
2019
2020
2021
$
Beginning of
Year
2,156 $
565
602
Charged to
Expense
260 $
309
233
Payments
(1,847) $
(248)
(258)
Other
(4) $
(24)
(29)
End of Year
565
602
548
(dollars in millions)
Severance, Pension and Benefits (Credits) Charges
During 2021, 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 credits of $2.4 billion in our pension and postretirement benefit plans. The credits were recorded in Other
income (expense), net in our consolidated statement of income and were primarily driven by a credit of $1.1 billion due to 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 2.6% at December 31, 2020 to a weighted-average of 2.9% at December 31, 2021, a credit of $847 million due to the difference
between our estimated and our actual return on assets and a credit of $453 million due to other actuarial assumption adjustments. During
2021, we also recorded net pre-tax severance charges of $233 million in Selling, general and administrative expense in our consolidated
statements of income.
During 2020, 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 charge of
$3.2 billion 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,
partially offset by a credit of $1.6 billion due to the difference between our estimated and our actual return on assets. 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, 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 charge of
$4.3 billion due to a decrease in our discount rate assumption used to determine the current year liabilities of our pension plans and
postretirement benefits 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 a credit of $2.3 billion due to the difference between our estimated return on assets and our actual return on assets and a
94
Verizon 2021 Annual Report on Form 10-K credit of $1.9 billion due to other assumption adjustments, 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.
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
2021
27,607 $
1,813
29,420 $
2021
1,876 $
248
414
2,538
3,354
(97)
1,007
4,264
6,802 $
$
$
$
$
2020
22,844 $
1,123
(dollars in millions)
2019
21,655
1,078
22,733
23,967 $
(dollars in millions)
2019
2020
2,826 $
159
1,081
4,066
1,432
1
120
1,553
5,619 $
518
221
974
1,713
1,150
(13)
95
1,232
2,945
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
Affiliate stock disposition
Noncontrolling interest
Divestitures
Tax credits
Other, net
Effective income tax rate
2019
21.0 %
3.7
(9.9)
(0.5)
(0.1)
(1.3)
0.1
13.0 %
2021
21.0 %
3.8
—
(0.4)
(0.6)
(0.5)
(0.2)
23.1 %
2020
21.0 %
3.9
—
(0.5)
0.1
(0.8)
(0.3)
23.4 %
The effective income tax rate for 2021 was 23.1% compared to 23.4% for 2020. The decrease in the effective income tax rate was primarily
due to the sale of Verizon Media in the current period, partially offset by the non-recurring tax benefit recognized in 2020 from a series of
legal entity restructurings. The increase in the provision for income taxes was primarily due to the increase in income before income taxes in
the current period.
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 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
2021
3,040 $
1,225
1,756
6,021 $
$
$
(dollars in millions)
2019
3,583
1,044
1,551
6,178
2020
2,725 $
618
2,093
5,436 $
95
Verizon 2021 Annual Report on Form 10-K Deferred Tax Assets and Liabilities
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)
2020
2021
4,388 $
2,224
7,314
13,926
(1,574)
12,352
24,935
19,893
8,041
52,869
40,517 $
5,218
2,848
6,096
14,162
(2,183)
11,979
22,726
18,009
6,867
47,602
35,623
$
$
At December 31, 2021, undistributed earnings of our foreign subsidiaries indefinitely invested outside the U.S. amounted to approximately
$5.5 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
funding U.S. operations. Determination of the amount of unrecognized deferred taxes related to these undistributed earnings is not
practicable.
At December 31, 2021, we had net after-tax loss and credit carry forwards for income tax purposes of approximately $2.2 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
2022 and 2041 and approximately $554 million may be carried forward indefinitely.
During 2021, the valuation allowance decreased approximately $609 million primarily due to the sale of Verizon Media. The $1.6 billion
valuation allowance at December 31, 2021, is primarily related to state and foreign net operating losses and credits.
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,
2021
2,944 $
150
621
(330)
(163)
(88)
3,134 $
$
$
(dollars in millions)
2019
2,871
149
297
(300)
(58)
(89)
2,870
2020
2,870 $
160
258
(166)
(46)
(132)
2,944 $
Included in the total unrecognized tax benefits at December 31, 2021, 2020 and 2019 is $2.8 billion, $2.5 billion and $2.4 billion,
respectively, that if recognized, would favorably affect the effective income tax rate.
We recognized the following net after-tax (benefit) expenses related to interest and penalties in the provision for income taxes:
Years Ended December 31,
2021
2020
2019
$
(dollars in millions)
(21)
5
35
96
Verizon 2021 Annual Report on Form 10-K The after-tax accruals for the payment of interest and penalties in the consolidated balance sheets are as follows:
At December 31,
2021
2020
$
(dollars in millions)
551
388
The increase in unrecognized tax benefits was primarily related to the acquisition of Tracfone, and was partially offset by the resolution of
issues with the Internal Revenue Service (IRS) involving tax years 2013-2014 as well as lapses of statutes of limitations in various
jurisdictions. The uncertain tax benefits related to the acquisition of Tracfone involve pre-acquisition tax matters and are the subject of an
indemnity from América Móvil for which a corresponding indemnity asset has been established.
Verizon and/or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. As a
large taxpayer, we are under audit by the IRS and multiple state and foreign jurisdictions for various open tax years. The IRS is currently
examining the Company’s U.S. income tax returns for tax years 2015-2018 and Cellco's U.S. income tax return for tax years 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.
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. We also provide fixed wireless access (FWA) broadband
through our wireless networks. 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 also provide FWA
broadband through our wireless networks. We provide these products and services to businesses, government
customers and wireless and wireline carriers across the U.S. and select products and services to customers around the
world.
Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as resellers that purchase
wireless network access from us on a wholesale basis. Our Business segment’s wireless and wireline products and services are organized by
the primary customer groups targeted by these offerings: Small and Medium Business, Global Enterprise, Public Sector and Other, and
Wholesale.
Corporate and other primarily includes insurance captives, investments in unconsolidated businesses and development stage businesses that
support our strategic initiatives, as well as unallocated corporate expenses, certain pension and other employee benefit related costs and
interest and financing expenses. Corporate and other also includes the historical results of divested businesses including Verizon Media, and
other adjustments and gains and losses that are not allocated in assessing segment performance due to their nature. Although such transactions
are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses from these transactions
that are not individually significant are included in segment results as these items are included in the chief operating decision maker’s
assessment of segment performance.
We completed the sale of Verizon Media on September 1, 2021. See Note 3 for additional information on the sale of Verizon Media.
The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below includes the effects of
special items that the chief operating decision maker does not consider in assessing segment performance, primarily because of their nature.
97
Verizon 2021 Annual Report on Form 10-K The following tables provides operating financial information for our two reportable segments:
2021
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
Total
Reportable
Segments
$
67,723 $
19,781
7,568
—
—
—
—
228
95,300
— $
—
—
11,751
10,218
6,324
2,680
69
31,042
67,723
19,781
7,568
11,751
10,218
6,324
2,680
297
126,342
16,581
20,523
16,562
11,679
65,345
29,955 $
10,653
4,544
8,324
4,084
27,605
3,437 $
27,234
25,067
24,886
15,763
92,950
33,392
Operating Income
(1) Service and other revenues and Wireless equipment revenues included in our Business segment amounted to approximately $27.7 billion
$
and $3.4 billion, respectively, for the year ended December 31, 2021.
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)
(dollars in millions)
Consumer
Business
$
64,884 $
15,492
7,916
—
—
—
—
241
88,533
— $
—
—
11,112
10,405
6,362
3,013
70
30,962
Total
Reportable
Segments
64,884
15,492
7,916
11,112
10,405
6,362
3,013
311
119,495
Cost of services
Cost of wireless equipment
Selling, general and administrative expense
Depreciation and amortization expense
26,269
19,800
25,316
15,481
86,866
32,629
Operating Income
(1) Service and other revenues and Wireless equipment revenues included in our Business segment amounted to approximately $28.1 billion
15,610
15,736
16,936
11,395
59,677
28,856 $
10,659
4,064
8,380
4,086
27,189
3,773 $
Total Operating Expenses
$
and $2.9 billion, respectively, for the year ended December 31, 2020.
98
Verizon 2021 Annual Report on Form 10-K 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
(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
Operating Income
(1) Service and other revenues and Wireless equipment revenues included in our Business segment amounted to approximately $27.9 billion
$
and $3.5 billion, respectively, for the year ended December 31, 2019.
The following table provides Fios revenues for our two reportable segments:
Years Ended December 31,
Consumer
Business
Total Fios revenue
2021
11,558 $
1,136
12,694 $
$
$
2020
11,082 $
1,057
(dollars in millions)
2019
11,175
967
12,142
12,139 $
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
2021
56,103 $
12,366
68,469 $
$
$
(dollars in millions)
2019
53,791
11,188
64,979
2020
53,605 $
11,805
65,410 $
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
2021
(dollars in millions)
2019
2020
$
$
126,342 $
7,722
119,495 $
9,334
122,499
9,812
(451)
133,613 $
(537)
128,292 $
(443)
131,868
99
Verizon 2021 Annual Report on Form 10-K A reconciliation of the total reportable segments’ operating income to consolidated income before provision for income taxes is as follows:
(dollars in millions)
2019
2020
2021
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 (Note 11)
Loss on spectrum licenses (Note 3)
Impairment charges
Net gain (loss) from dispositions of assets and businesses
Consolidated operating income
Equity in earnings (losses) of unconsolidated businesses
Other income (expense), net
Interest expense
Income Before Provision For Income Taxes
$
33,392 $
(449)
32,629 $
(1,472)
(209)
(769)
(223)
—
706
32,448
145
312
(3,485)
29,420 $
(221)
(817)
(1,195)
—
(126)
28,798
(45)
(539)
(4,247)
23,967 $
$
32,723
(1,403)
(204)
(813)
—
(186)
261
30,378
(15)
(2,900)
(4,730)
22,733
No single customer accounted for more than 10% of our total operating revenues during the years ended December 31, 2021, 2020 and 2019.
International operating revenues were not significant during the years ended December 31, 2021, 2020 and 2019. As of December 31, 2021
and 2020, 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, 2021, 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,
2021, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 100 million.
Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareholder plans. During the
years ended December 31, 2021, 2020, and 2019, we issued 2.1 million, 2.3 million and 3.8 million common shares from treasury stock,
respectively, which had an insignificant aggregate value.
In connection with our acquisition of Tracfone in November 2021, we issued approximately 57.6 million shares of Verizon common shares
from treasury stock valued at approximately $3.0 billion. See Note 3 for additional information.
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.
100
Verizon 2021 Annual Report on Form 10-K 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, 2019
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
Other comprehensive income (loss)
Amounts reclassified to net income
Net other comprehensive income (loss)
Balance at December 31, 2021
$
$
(600) $
16
—
16
(584)
180
—
180
(404)
(141)
—
(141)
(545) $
(80) $
(699)
(37)
(736)
(816)
953
(1,524)
(571)
(1,387)
(1,318)
1,233
(85)
(1,472) $
Defined benefit
pension and
postretirement
plans
3,030 $
—
(659)
(659)
2,371
—
(676)
(676)
1,695
—
(621)
(621)
1,074 $
20 $
8
(1)
7
27
7
(9)
(2)
25
(8)
(1)
(9)
16 $
Total
2,370
(675)
(697)
(1,372)
998
1,140
(2,209)
(1,069)
(71)
(1,467)
611
(856)
(927)
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 Other income
(expense), net 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
Years Ended December 31,
Other income (expense), net
Interest income
Other components of net periodic benefit (cost) income
Early debt extinguishment costs
Other, net
2021
14,119 $
5,148
178
(1,841)
3,394
(dollars in millions)
2019
14,371
5,221
165
(656)
3,071
2020
14,275 $
4,632
170
(555)
3,107
2021
(dollars in millions)
2019
2020
48 $
65 $
3,785
(3,541)
20
312 $
(425)
(129)
(50)
(539) $
121
627
(3,604)
(44)
(2,900)
$
$
$
101
Verizon 2021 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
(dollars in millions)
2020
2021
$
$
$
$
$
$
1,093 $
2,432
1,094
2,287
6,906 $
8,040 $
9,123
4,485
1,561
1,624
24,833 $
2,709 $
6,053
2,263
11,025 $
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
As of December 31, 2021 and 2020, Property, plant and equipment includes approximately $5.9 billion and $4.1 billion of additions that have
not yet been paid.
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 licenses
Gain on disposition of Media business
Other, net
Other, net Cash Flows from Financing Activities
Net debt related costs(1)
Other, net
2021
(dollars in millions)
2019
2020
3,435 $
3,040
4,420 $
2,725
4,714
3,583
(2,438) $
3,541
223
(1,051)
(368)
(93) $
558 $
129
1,195
—
898
2,780 $
23
3,604
—
—
(134)
3,493
(2,309) $
(1,523)
(3,832) $
(1,055) $
(1,657)
(2,712) $
(1,797)
(1,120)
(2,917)
$
$
$
$
$
(1) These costs include the premium paid for the early extinguishment of debt, fees paid in connection with exchange and tender offers, and
settlements of associated instruments.
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
102
Verizon 2021 Annual Report on Form 10-K
expect that the ultimate resolution of any pending regulatory or legal matter in future periods will have a material effect on our financial
condition, but it could have a material effect on our results of operations for a given reporting period.
Verizon is currently involved in approximately 20 federal district court actions alleging that Verizon is infringing various patents. Most of
these cases are brought by non-practicing entities and effectively seek only monetary damages; a small number are brought by companies that
have sold products and could seek injunctive relief as well. These cases have progressed to various stages and a small number may go to trial
in the coming 12 months if they are not otherwise resolved.
In connection with the execution of agreements for the sales of businesses and investments, Verizon ordinarily provides representations and
warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being sold, as well as
indemnity from certain financial losses. From time to time, counterparties may make claims under these provisions, and Verizon will seek to
defend against those claims and resolve them in the ordinary course of business.
Subsequent to the sale of Verizon Information Services Canada in 2004, we continue to provide a guarantee to publish directories, which was
issued when the directory business was purchased in 2001 and had a 30-year term (before extensions). The preexisting guarantee continues,
without modification, despite the subsequent sale of Verizon Information Services Canada and the spin-off of our domestic print and internet
yellow pages directories business. The possible financial impact of the guarantee, which is not expected to be adverse, cannot be reasonably
estimated as a variety of the potential outcomes available under the guarantee result in costs and revenues or benefits that may offset each
other. We do not believe performance under the guarantee is likely.
As of December 31, 2021, letters of credit totaling approximately $674 million, which were executed in the normal course of business and
support several financing arrangements and payment obligations to third parties, were outstanding.
During 2021, Verizon entered into seven renewable energy purchase agreements (REPAs) with third parties, in addition to 13 signed in
previous years. Each of the REPAs is based on the expected operation of a renewable energy-generating facility and has a fixed price term of
12 to 18 years from the commencement of the facility's entry into commercial operation, which is expected to occur through 2024, 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 unconditional purchase obligations, which represent agreements to purchase goods or services that are enforceable and
legally binding. We estimate that these unconditional purchase obligations, for contracts with terms in excess of one year, total $29.8 billion,
and primarily represent commitments to purchase network equipment, software and services, content, marketing services and other items
which will be used or sold in the ordinary course of business from a variety of suppliers. Of this total amount, $10.2 billion is attributable to
2022, $8.7 billion is attributable to 2023, $5.6 billion is attributable to 2024, $4.2 billion is attributable to 2025, $482 million is attributable to
2026 and $641 million 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
noncancelable quantities to which we are contractually obliged. 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, 2021, 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
Evaluation of Disclosure 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, 2021.
Changes in Internal Control over Financial Reporting
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.
103
Verizon 2021 Annual Report on Form 10-K 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 2021 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Annual Report on Internal Control over Financial Reporting
The management of Verizon Communications Inc. is 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.
In accordance with guidance issued by the Securities and Exchange Commission, companies are permitted to exclude acquisitions from their
first assessment of internal control over financial reporting following the date of acquisition. Based on those guidelines, management's
assessment of the effectiveness of the Company's internal control over financial reporting excluded TracFone Wireless, Inc. (Tracfone), which
the Company acquired in the fourth quarter of 2021. See Note 3 to the consolidated financial statements for additional information on the
Company's acquisition of Tracfone. We have included the financial results of this acquisition in the consolidated financial statements from the
date of acquisition. Tracfone represented approximately 3% of consolidated total assets as of December 31, 2021, and less than 1% of
consolidated total revenues for the year then ended.
Management has assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2021. Based on this
assessment, management believes that the internal control over financial reporting of the company is effective as of December 31, 2021. 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 independent registered public accounting firm, Ernst & Young LLP, has provided an attestation report on the
company’s internal control over financial reporting and is included in Item 8 of this Annual Report.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Set forth below is information with respect to our current executive officers.
Name
Hans Vestberg
Manon Brouillette
Matthew D. Ellis
Tami A. Erwin
Samantha Hammock
Kyle Malady
Rima Qureshi
Craig L. Silliman
Anthony T. Skiadas
Age Office
56 Chairman and Chief Executive Officer
53 Executive Vice President and Group CEO - Verizon Consumer
50 Executive Vice President and Chief Financial Officer
57 Executive Vice President and Group CEO - Verizon Business
43 Executive Vice President and Chief Human Resources Officer
54 Executive Vice President and Chief Technology Officer
57 Executive Vice President and Chief Strategy Officer
54 Executive Vice President and Chief Administrative, Legal and Public Policy Officer
53 Senior Vice President and Controller
Held Since
2019
2022
2016
2019
2021
2019
2017
2019
2013
Each of the above officers has held the indicated office or other 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, Manon Brouillette, who has been
with the Company since 2021, Samantha Hammock, who has been with the Company since 2020, 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.
104
Verizon 2021 Annual Report on Form 10-K Manon Brouillette is the Executive Vice President and Group CEO – Verizon Consumer. Ms. Brouillette joined the Company in July 2021 as
Chief Operating Officer and Deputy CEO of Verizon Consumer Group. She began serving in her current role in January 2022. Prior to joining
Verizon, Ms. Brouillette spent 14 years at Vidéotron, a Canadian telecommunications company that provides home broadband, pay television,
telephony services and wireless communications, where she served as President and Chief Executive Officer for five years.
Samantha Hammock is the Executive Vice President and Chief Human Resources Officer of Verizon. Ms. Hammock joined the Company in
December 2020 as Senior Vice President of Global Talent and began serving in her current role in December 2021. Prior to joining Verizon,
Ms. Hammock spent 14 years at the American Express Company, a globally integrated payments company and provider of credit and charge
cards to consumers and businesses around the world, where she served as Head of Talent and Learning from April 2020 to December 2020,
Chief Learning Officer from 2017 to April 2020, and Vice President, Leadership Strategy, from 2016 to April 2020.
Rima Qureshi is the 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 governance framework — Where to find more information, — Board committees — Audit Committee and
— Other risk-related matters — Business conduct and ethics" and "Additional information — Delinquent Section 16(a) Reports" in our
definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to shareholders in connection with our
2022 Annual Meeting of Shareholders, which are incorporated herein by reference.
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
2022 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 certain beneficial owners, 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 Securities and Exchange Commission and delivered to shareholders in connection with our 2022 Annual Meeting of Shareholders,
which is incorporated herein by reference.
The following table provides information as of December 31, 2021 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
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)
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a)) (c)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
15,418,509 (1) $
100,883 (4)
15,519,392
$
— (2)
—
—
76,246,373 (3)
—
76,246,373
(1) This amount includes: 15,418,509 of common stock subject to outstanding restricted stock units and performance stock units, including
dividend equivalents accrued on such awards through December 31, 2021. 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.
105
Verizon 2021 Annual Report on Form 10-K 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 governance framework — Other risk-related matters — Related person transactions and — Item 1: Election of Directors — 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 2022 Annual Meeting of Shareholders, which are incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is Ernst & Young LLP, New York, NY, Auditor Firm ID: 42.
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 2022 Annual Meeting of Shareholders, which is incorporated herein by
reference.
106
Verizon 2021 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 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
48
49
51
52
53
54
55
56
110
107
Verizon 2021 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)
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).**
10b(ii)
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(iii)
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(iv)
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(v)
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).**
10b(vi)
Form of 2021 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, 2021 and incorporated herein by
reference).**
108
Verizon 2021 Annual Report on Form 10-K 10b(vii)
Form of 2021 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, 2021 and incorporated herein by
reference).**
10b(viii)
Description of Special Cash Retention Award for G. Gowrappan (filed as Exhibit 10 to Form 10-Q for the period
ended June 30, 2021 and incorporated herein by reference).**
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).**
10c
10d
10e
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).**
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).**
Form of Aircraft Time Sharing Agreement (filed as Exhibit 10i to Form 10-K for the year ended December 31, 2020 and
incorporated herein by reference).**
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).**
List of principal subsidiaries of Verizon, filed herewith.
Consent of Ernst & Young LLP, filed herewith.
Powers of Attorney, filed herewith.
10g
10h
10i
10j
21
23
24
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.
101.CAL XBRL Taxonomy Calculation Linkbase Document.
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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.
109
Verizon 2021 Annual Report on Form 10-K Schedule II - Valuation and Qualifying Accounts
Verizon Communications Inc. and Subsidiaries
For the Years Ended December 31, 2021, 2020 and 2019
Balance at
Beginning of
Period
Description
Allowance for credit losses deducted from accounts receivable:
1,507
Year 2021
1,125 (d)
Year 2020
Allowance for doubtful accounts deducted from accounts receivable:
Year 2019
930
$
$
Additions
(dollars in millions)
Charged to
Expenses
Charged to
Other Accounts(a) Deductions(b)
Balance at
End of
Period(c)
$
743 $
1,390
$
139
165
1,238 $
1,173
1,151
1,507
$
1,441 $
133
$
1,644 $
860
Additions
Balance at
Beginning of
Period
Charged to
Expenses
Charged to
Balance at
End of
Period
Description
Valuation allowance for deferred tax assets:
1,574
Year 2021
2,183
Year 2020
2,260
Year 2019
(a) Charged to Other Accounts primarily includes amounts previously written off which were credited directly to this account when
948 $
363
891
339 $
202
402
2,183
2,260
2,741
Other Accounts(e) Deductions(f)
—
84
8
$
$
$
recovered.
(b) Deductions primarily include amounts written off as uncollectible or transferred to other accounts or utilized.
(c) Allowance for credit losses includes approximately $255 million and $254 million at December 31, 2021 and 2020, respectively, related
to long-term device payment receivables. Allowance for doubtful accounts includes approximately $127 million at December 31, 2019
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.
110
Verizon 2021 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 11, 2022
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
Chairman and Chief Executive Officer
Principal Financial Officer:
/s/ Matthew D. Ellis
Matthew D. Ellis
Executive Vice President and Chief Financial Officer
Principal Accounting Officer:
/s/ Anthony T. Skiadas
Anthony T. Skiadas
Senior Vice President and Controller
February 11, 2022
February 11, 2022
February 11, 2022
111
Verizon 2021 Annual Report on Form 10-K February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
February 11, 2022
*
Hans E. Vestberg
*
Shellye L. Archambeau
*
Roxanne S. Austin
*
Mark T. Bertolini
*
Melanie L. Healey
*
Clarence Otis, Jr.
*
Laxman Narasimhan
*
Daniel H. Schulman
Rodney E. Slater
*
*
Carol B. Tomé
*
Gregory G. Weaver
* By: /s/ Anthony T. Skiadas
Anthony T. Skiadas
(as attorney-in-fact)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
112
Verizon 2021 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; Form S-3, No. 333-261336; and Form S-4, No. 333-262143, all of Verizon
Communications Inc. ("Verizon");
of our reports dated February 11, 2022, 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, 2021.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
February 11, 2022
Verizon 2021 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 11, 2022
/s/ Hans E. Vestberg
Hans E. Vestberg
Chairman and Chief Executive Officer
Verizon 2021 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 11, 2022
/s/ Matthew D. Ellis
Matthew D. Ellis
Executive Vice President and Chief Financial Officer
Verizon 2021 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, 2021 (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 11, 2022
/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 2021 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, 2021 (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 11, 2022
/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 2021 Annual Report on Form 10-K (This page intentionally left blank.)
(This page intentionally left blank.)
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