Verizon Wireless 2014 Annual Report Download - page 27

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Litigation Settlements
In the third quarter of 2012, we settled a number of patent litigation mat-
ters, including cases with ActiveVideo Networks Inc. (ActiveVideo) and TiVo
Inc. (TiVo). In connection with the settlements with ActiveVideo and TiVo,
we recorded a charge of $0.4 billion in the third quarter of 2012 and will
pay and recognize over the following six years an additional $0.2 billion.
The Consolidated Adjusted EBITDA non-GAAP measure presented in
the Consolidated Operating Income and EBITDA discussion (see
“ConsolidatedResultsofOperations”)excludesthelitigationsettlement
costs presented above.
CONSOLIDATED FINANCIAL CONDITION
(dollars in millions)
Years Ended December 31, 2014 2013 2012
Cash Flows Provided By (Used In)
Operating activities $ 30,631 $ 38,818 $ 31,486
Investing activities (15,856) (14,833) (20,502)
Financingactivities (57,705) 26,450 (21,253)
Increase (Decrease) In Cash and Cash
Equivalents $ (42,930) $ 50,435 $ (10,269)
We use the net cash generated from our operations to fund network
expansion and modernization, service and repay external nancing, 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 nancing
arrangements, are sucient to meet ongoing operating and investing
requirements. The cash portion of the purchase price for the Wireless
Transaction was primarily funded by the incurrence of third-party indebt-
edness(see“AcquisitionsandDivestitures”).Weexpectthatourcapital
spending requirements will continue to be nanced primarily through
internally generated funds. Debt or equity nancing may be needed to
fund additional investments or development activities or to maintain
an appropriate capital structure to ensure our nancial exibility. Our
cash and cash equivalents are primarily held domestically in diversied
accounts and are invested to maintain principal and liquidity. Accordingly,
we do not have signicant exposure to foreign currency uctuations. See
“MarketRisk”foradditionalinformationregardingourforeigncurrency
risk management strategies.
Our available external nancing arrangements include credit available
under credit facilities and other bank lines of credit, vendor nancing
arrangements, issuances of registered debt or equity securities and
privately-placed capital market securities. We may also issue short-term
debt through an active commercial paper program and have an $8.0 bil-
lion credit facility to support such commercial paper issuances.
During the second quarter of 2014, we completed transactions pur-
suanttotwoadditionalagreementswithT-MobileUSAwithrespectto
ourremaining700MHzAblockspectrumlicenses.Underoneagree-
ment,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spec-
trum 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 regulatory
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rmforapay-
ment 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 state-
ment 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spec-
trum license transactions described above.
Wireless Transaction Costs
As a result of the third-party indebtedness incurred to nance 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 issu-
ance 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, which 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued