America Online 2015 Annual Report Download - page 28

During the second quarter of 2014, we completed transactions
pursuant to two additional agreements with T- Mobile USA with
respect to our remaining 700 MHz A block spectrum licenses. Under
one agreement, we sold certain of these licenses to T- Mobile USA in
exchange for cash consideration of approximately $2.4billion, and
under the second agreement we exchanged the remainder of our 700
MHz A block spectrum licenses as well as AWS and PCS spectrum
licenses for AWS and PCS spectrum licenses. As a result, we received
$1.6billion of AWS and PCS spectrum licenses at fair value and we
recorded a pre-tax gain of approximately $0.7billion in Selling, general
and administrative expense on our consolidated statement of income
for the year ended December31, 2014.
During the third quarter of 2013, after receiving the required regu-
latory approvals, Verizon Wireless sold 39 lower 700 MHz B block
spectrum licenses to AT&T in exchange for a payment of $1.9billion
and the transfer by AT&T to Verizon Wireless of AWS (10 MHz) licenses
in certain markets in the western United States. Verizon Wireless
also sold certain lower 700 MHz B block spectrum licenses to an
investment firm for a payment of $0.2billion. As a result, we received
$0.5billion of AWS licenses at fair value and we recorded a pre-tax
gain of approximately $0.3billion in Selling, general and administrative
expense on our consolidated statement of income for the year ended
December31, 2013.
The Consolidated Adjusted EBITDA non-GAAP measure presented
in the Consolidated Operating Income and EBITDA discussion (see
“Consolidated Results of Operations”) excludes the gains on the
spectrum license transactions described above.
Wireless Transaction Costs
As a result of the third-party indebtedness incurred to finance the
Wireless Transaction, we incurred interest expense of $0.4billion
during 2014 (see “Consolidated Financial Condition”). This amount
represents the interest expense incurred prior to the closing of the
Wireless Transaction.
During 2013, as a result of the Wireless Transaction, we recorded costs
of $0.9billion primarily for interest expense of $0.7billion related to
the issuance of the new notes, as well as $0.2billion in fees primarily
in connection with the bridge credit agreement (see “Consolidated
Financial Condition”).
Gain on Sale of Omnitel Interest
As a result of the sale of the Omnitel Interest on February21, 2014,
which was part of the consideration for the Wireless Transaction, we
recorded a gain of $1.9billion in Equity in earnings of unconsolidated
businesses on our consolidated statement of income during 2014.
Impact of Divested Operations
On July1, 2014, we sold a non- strategic Wireline business that provides
communications solutions to a variety of government agencies.
The Consolidated Adjusted EBITDA non-GAAP measure presented
in the Consolidated Operating Income and EBITDA discussion (see
“Consolidated Results of Operations”) excludes the historical financial
results of the divested operations described above.
Consolidated Financial Condition
(dollars in millions)
Years Ended December31, 2015 2014 2013
Cash Flows Provided By (Used In)
Operating activities $ 38,930 $ 30,631 $ 38,818
Investing activities (30,043) (15,856) (14,833)
Financing activities (15,015) (57,705) 26,450
Increase (Decrease) In Cash and
Cash Equivalents $ (6,128) $ (42,930) $ 50,435
We use the net cash generated from our operations to fund network
expansion and modernization, service and repay external financing,
pay dividends, invest in new businesses and, when appropriate, buy
back shares of our outstanding common stock. Our sources of funds,
primarily from operations and, to the extent necessary, from external
financing arrangements, are sufficient to meet ongoing operating
and investing requirements. We expect that our capital spending
requirements will continue to be financed primarily through internally
generated funds. Debt or equity financing may be needed to fund
additional investments or development activities or to maintain an
appropriate capital structure to ensure our financial flexibility. Our cash
and cash equivalents are primarily held domestically and are invested
to maintain principal and liquidity. Accordingly, we do not have signifi-
cant exposure to foreign currency fluctuations. See “Market Risk” for
additional information regarding our foreign currency risk management
strategies.
Our available external financing arrangements include an active
commercial paper program, credit available under credit facilities and
other bank lines of credit, vendor financing arrangements, issuances
of registered debt or equity securities and privately- placed capital
market securities. In addition, in 2015, we established an active
program to sell selected device installment plan receivables under the
Verizon device payment program to a group of primarily relationship
banks(Purchasers).
Cash Flows Provided By Operating Activities
Our primary source of funds continues to be cash generated from
operations, primarily from our Wireless segment. Net cash provided
by operating activities during 2015 increased by $8.3billion primarily
due to $5.9billion of cash proceeds, net of remittances, related to the
sale of wireless device installment receivables as well as $2.4billion of
cash proceeds received related to the Tower Monetization Transaction
attributable to the portion of the towers for which the right-of-use has
passed to the tower operator (see Note2) as well as an increase in
earnings at our Wireless segment.
During 2015, we established an on-going program to sell from
time to time, on an uncommitted basis, selected device installment
plan receivables under the Verizon device payment program to
the Purchasers. Under the program, we transfer the receivables
to wholly-owned subsidiaries that are bankruptcy remote special
purpose entities (Sellers). The Sellers then sell the receivables to the
Purchasers for cash and additional consideration upon settlement
of the receivables (the deferred purchase price). The receivables
sold under the program are no longer considered assets of Verizon.
We continue to bill and collect on the receivables in exchange for a
monthly servicing fee, which is not material.
26 Verizon Communications Inc. and Subsidiaries
Management’s Discussion and Analysis ofFinancialCondition and Results of Operations continued