America Online 2015 Annual Report Download - page 29

Net cash provided by operating activities during 2014 decreased by
$8.2billion due in part to a $3.7billion increase in income tax payments
due to the incremental pre-tax income attributable to Verizon included
in Verizon’s income since the closing of the Wireless Transaction. Also
contributing to the decrease was a $2.3billion increase in interest
payments primarily due to the incremental debt needed to fund the
Wireless Transaction as well as a $1.5billion increase in pension con-
tributions. The decrease in Cash flows provided by operating activities
was partially offset by an increase in earnings at our Wireless segment.
On February21, 2014, we completed the Wireless Transaction which
provides full access to the cash flows of Verizon Wireless. Having
full access to all the cash flows from our wireless business gives us
the ability to continue to invest in our networks and spectrum, meet
evolving customer requirements for products and services and take
advantage of new growth opportunities across our lines of business.
Cash Flows Used In Investing Activities
Capital Expenditures
Capital expenditures continue to be a primary use of capital resources
as they facilitate the introduction of new products and services,
enhance responsiveness to competitive challenges and increase the
operating efficiency and productivity of our networks.
Capital expenditures, including capitalized software, were as follows:
(dollars in millions)
Years Ended December31, 2015 2014 2013
Wireless $ 11,725 $ 10,515 $ 9,425
Wireline 5,049 5,750 6,229
Other 1,001 926 950
$ 17,775 $ 17,191 $ 16,604
Total as a percentage of revenue 13.5% 13.5% 13.8%
Capital expenditures increased at Wireless in 2015 and 2014 in order
to increase the capacity of our 4G LTE network. Capital expenditures
declined at Wireline in 2015 and 2014 as a result of decreased legacy
spending requirements as well as decreased Fios spending require-
ments in 2015.
Acquisitions
During 2015, 2014 and 2013, we invested $9.9billion, $0.4billion and
$0.6billion, respectively, in acquisitions of wireless licenses. During
2015, 2014 and 2013, we also invested $3.5billion, $0.2billion and
$0.5billion, respectively, in acquisitions of investments and businesses,
net of cash acquired.
On January29, 2015, the FCC completed an auction of 65 MHz of
spectrum, which it identified as the AWS-3 band. Verizon participated
in that auction, and was the high bidder on 181 spectrum licenses,
for which we paid cash of approximately $10.4billion. During the
fourth quarter of 2014, we made a deposit of $0.9billion related to
our participation in this auction, which is classified within Other, net
investing activities on our consolidated statement of cash flows for the
year ended December31, 2014. During the first quarter of 2015, we
submitted an application to the FCC and paid $9.5billion to the FCC to
complete payment for these licenses. The cash payment of $9.5billion
is classified within Acquisitions of wireless licenses on our consoli-
dated statement of cash flows for the year ended December31, 2015.
On April8, 2015, the FCC granted us these spectrum licenses.
On May12, 2015, we entered into the Merger Agreement with AOL
pursuant to which we commenced a tender offer to acquire all of the
outstanding shares of common stock of AOL at a price of $50.00 per
share, net to the seller in cash, without interest and less any applicable
withholding taxes. On June23, 2015, we completed the tender offer
and merger, and AOL became a wholly-owned subsidiary of Verizon.
The aggregate cash consideration paid by Verizon at the closing of
these transactions was approximately $3.8billion, net of cash acquired
of $0.5billion. Holders of approximately 6.6million shares exercised
appraisal rights under Delaware law. If they had not exercised these
rights, Verizon would have paid an additional $330million for such
shares at closing. See Note2 to the consolidated financial statements
for additional information.
In October 2015, AOL acquired an advertising technology business for
cash consideration that was not significant.
In February 2014, Verizon acquired a business dedicated to the devel-
opment of IP television for cash consideration that was not significant.
During the fourth quarter of 2013, Verizon acquired an industry leader
in content delivery networks for $0.4billion. Additionally, we acquired a
technology company for cash consideration that was not significant.
Dispositions
During 2014, we received proceeds of $2.4billion related to spectrum
license transactions and $0.1billion related to the disposition of a non-
strategic Wireline business. See Note2 to the consolidated financial
statements for additional information.
During 2013, we completed the sale of 700 MHz lower B block
spectrum licenses and as a result, we received proceeds of $2.1billion.
Other, net
On May19, 2015, Verizon consummated a sale- leaseback transac-
tion with a financial services firm for the buildings and real estate at
our Basking Ridge, New Jersey location. We received total gross
proceeds of $0.7billion resulting in a deferred gain of $0.4billion,
which will be amortized over the initial leaseback term of twenty years.
The leaseback of the buildings and real estate is accounted for as an
operating lease. The proceeds received as a result of this transaction
have been classified within Other, net investing activities for the year
ended December31, 2015. Also in 2015, Verizon received proceeds of
$0.2billion related to a sale of real estate.
Cash Flows Provided by (Used In) Financing Activities
We seek to maintain a mix of fixed and variable rate debt to lower
borrowing costs within reasonable risk parameters. During 2015,
2014 and 2013, net cash provided by (used in) financing activities was
$(15.0) billion, $(57.7) billion and $26.5billion, respectively.
2015
During 2015, our net cash used in financing activities of $15.0billion
was primarily driven by:
• $9.3billion used for repayments of long-term borrowings and capital
lease obligations, including the repayment of $6.5billion of borrow-
ings under a term loan agreement;
• $8.5billion used for dividend payments; and
• $5.0billion payment for our accelerated share repurchase agreement.
27Verizon Communications Inc. and Subsidiaries
Management’s Discussion and Analysis ofFinancialCondition and Results of Operations continued