Verizon Wireless 2015 Annual Report Download

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2015
Annual
Report

Table of contents

  • Page 1
    2015 Annual Report

  • Page 2
    ... truth: the digital world has made consumers a promise of a better, more connected life, and we're the ones delivering it. We help make businesses better partners for their customers. We help students explore worlds beyond their classrooms. 2015 Annual Report www.verizon.com/2015AnnualReport

  • Page 3
    1 We deliver the promise of the digital world.

  • Page 4
    ...23 2013 2014 2015 2013 2014 2015 Corporate highlights $21.2 billion in free cash flow (non-GAAP) 3.6% growth in operating revenues 2.7% annual dividend increase 112.1 million wireless retail connections 4.0 million wireless retail net additions* 35.7 million wireless retail postpaid accounts...

  • Page 5
    ... customer greenhouse gas emissions equivalent to taking more than one million cars off the road. American Business Act on Climate Pledge Climate pledge We signed on to support clean energy, reduce waste and minimize our environmental footprint. www.verizon.com/2015AnnualReport 2015 Annual Report

  • Page 6
    ...strong demand for smartphones, tablets and our high-speed Fios Quantum service. This steady demand for mobile and consumer broadband fueled our revenue growth in 2015. Total operating revenues were $131.6 billion, an increase of 3.6 percent over 2014. Most important, as video, music and commerce all...

  • Page 7
    ... traditional customers when it comes to managing their digital Wireless retail connections (in millions) 4G LTE devices (in millions) $81.0 $87.6 $91.7 102.8 108.2 112.1 67.4 84.4 42.7 2013 2014 2015 2013 2014 2015 2013 2014 2015 www.verizon.com/2015AnnualReport 2015 Annual Report

  • Page 8
    ... called Custom TV that now accounts for about one-third of Fios Video sales. We simplified complicated wireless price plans and data packages into easy-to-understand buckets labeled Small, Medium, Large and X-Large. We know we have much more work to do to make ourselves easier to do business with...

  • Page 9
    ... creating a new revenue stream for Verizon, with revenues of about $690 million in 2015, up 18 percent year over year. We have a strong and growing presence in the field of telematics through which we help companies manage large fleets of vehicles and provide connected car services to manufacturers...

  • Page 10
    ...of our front-line employees, our wireless and wireline businesses are executing well, based on our core attributes of network quality, customer service and efficiency. The result is another year of growth and profitability. Cash flows from operating activities totaled $38.9 billion in 2015, compared...

  • Page 11
    ...and early debt redemption costs. Stock Performance Graph Comparison of Five-Year Total Return Among Verizon, S&P 500 Telecommunications Services Index and S&P 500 Stock Index $200 $180 $160 $140 $120 $100 $80 $60 Dollars Verizon S&P 500 Telecom Services S&P 500 2010 2011 2012 2013 2014 2015...

  • Page 12
    ... to meet customers' demand for mobility, reliable network connectivity, security and control. We have two reportable segments, Wireless and Wireline. Our wireless business, operating as Verizon Wireless, provides voice and data services and equipment sales across the United States (U.S.) using one...

  • Page 13
    ...-term service plans. Customers on our fixed-term service plans have historically paid higher fees for their wireless service in exchange for the ability to purchase their wireless devices at subsidized prices. Under the Verizon device payment program, our eligible wireless customers purchase phones...

  • Page 14
    ... amount of equipment revenue at the time of sale of devices under the device payment program. As a result of the increased penetration of device installment plans, we expect the number of customers on plans with unsubsidized service pricing to continue to grow in 2016. We expect Fios broadband and...

  • Page 15
    ...help us to grow the business, 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"). We expect to use the proceeds from the Frontier...

  • Page 16
    ...-term service plans. Service revenue, which does not include recurring device installment billings related to the Verizon device payment program, decreased by $2.2 billion, or 3.1%, during 2015 primarily driven by an increase in the activation of devices purchased under the Verizon device payment...

  • Page 17
    ... administrative expense includes: salaries and wages and benefits not directly attributable to a service or product, bad debt charges, taxes other than income taxes, advertising and sales commission costs, customer billing, call center and information technology costs, regulatory fees, professional...

  • Page 18
    ... management's evaluation of business performance. See "Other Items" for additional details regarding these non- operational items. Operating expenses include pension and benefit related credits and/or charges based on actuarial assumptions, including projected discount rates and an estimated return...

  • Page 19
    ... Expense (dollars in millions) Years Ended December 31, 2015 2014 2013 2015 vs. 2014 Increase/(Decrease) 2014 vs. 2013 Total interest costs on debt balances Less capitalized interest costs Total Average debt outstanding Effective interest rate $ $ 5,504 584 4,920 $ $ 5,291 376 4,915 $ $ 3,421...

  • Page 20
    ...Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations continued Provision for Income Taxes (dollars in millions) Years Ended December 31, 2015 2014 2013 2015 vs. 2014 Increase/(Decrease) 2014 vs. 2013 Provision for income taxes Effective income tax rate...

  • Page 21
    ... Verizon Wireless. We provide these services and equipment sales to consumer, business and government customers in the United States on a postpaid and prepaid basis. Postpaid connections represent individual lines of service for which a customer is billed in advance a monthly access charge in return...

  • Page 22
    ... penetration of smartphones and tablets through our shared data plans. Service revenue plus recurring device installment billings related to the Verizon device payment program increased 2.0% during 2015. Retail postpaid ARPA (the average revenue per account from retail postpaid accounts), which does...

  • Page 23
    ... Communications Inc. and Subsidiaries 21 Management's Discussion and Analysis of Financial Condition and Results of Operations continued The increase in retail postpaid ARPA, which does not include recurring device installment billings related to the Verizon device payment program, during 2014...

  • Page 24
    ..., 2015 2014 2013 2015 vs. 2014 Increase/(Decrease) 2014 vs. 2013 Consumer retail Small business Mass Markets Strategic services Core Global Enterprise Global Wholesale Other Total Operating Revenues Connections ('000):(1) Total voice connections Total Broadband connections Fios Internet subscribers...

  • Page 25
    ... IP and high-speed circuits. Global Enterprise Global Enterprise offers strategic services and other core communications services to medium and large business customers, multinational corporations and state and federal government customers. 2015 Compared to 2014 Global Enterprise revenues decreased...

  • Page 26
    24 Verizon Communications Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations continued Operating Expenses (dollars in millions) Years Ended December 31, 2015 2014 2013 2015 vs. 2014 Increase/(Decrease) 2014 vs. 2013 Cost of services Selling,...

  • Page 27
    ... pension and postretirement plans in accordance with our accounting policy to recognize actuarial gains and losses in the year in which they occur. The charges were primarily driven by a decrease in our discount rate assumption used to determine the current year liabilities from a weighted- average...

  • Page 28
    ...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). Wireless Transaction Costs...

  • Page 29
    ... for products and services and take advantage of new growth opportunities across our lines of business. 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...

  • Page 30
    ... total debt portfolio consists of fixed rate indebtedness, changes in interest rates do not have a material effect on our interest payments. See Note 7 to the consolidated financial statements for additional details regarding our debt activity. Dividends During the third quarter of 2013, the Board...

  • Page 31
    ... program. As a result of the Wireless Transaction, in February 2014, Verizon issued approximately 1.27 billion shares. Credit Ratings Verizon's credit ratings did not change in 2015 or 2014. During the third quarter of 2013, Verizon's credit ratings were downgraded by Moody's Investors Service...

  • Page 32
    ...to the consolidated financial statements. (3) The purchase obligations reflected above are primarily commitments to purchase programming and network services, equipment, software, handsets and peripherals, and marketing activities, which will be used or sold in the ordinary course of business. These...

  • Page 33
    ...operating telephone company subsidiaries as well as the debt obligations of GTE Corporation that were issued and outstanding prior to July 1, 2003 (see Note 7 to the consolidated financial statements). In connection with the execution of agreements for the sale of businesses and investments, Verizon...

  • Page 34
    ... 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. The discount rate represented our estimate of the weighted- average cost of capital...

  • Page 35
    ... factors including the business enterprise value of Wireless, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and EBITDA margin projections), the projected financial performance of Wireless, as well as...

  • Page 36
    ... agreement with Frontier pursuant to which Verizon will sell its local exchange business and related landline activities in California, Florida and Texas, including Fios Internet and video customers, switched and special access lines and high-speed Internet service and long distance voice accounts...

  • Page 37
    ...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...

  • Page 38
    ..., use, or disposition of the company's assets that could have a material effect on the financial statements. Lowell C. McAdam Chairman and Chief Executive Officer Francis J. Shammo Executive Vice President and Chief Financial Officer Anthony T. Skiadas Senior Vice President and Controller

  • Page 39
    ...), the consolidated balance sheets of Verizon as of December 31, 2015 and 2014, and 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, 2015 and our report dated February 23, 2016 expressed...

  • Page 40
    ...to Verizon Weighted-average shares outstanding (in millions) Diluted Earnings Per Common Share Net income attributable to Verizon Weighted-average shares outstanding (in millions) See Notes to Consolidated Financial Statements 2015 $ 114,696 16,924 131,620 2014 $ 116,122 10,957 127,079 2013 $ 112...

  • Page 41
    ... Comprehensive income attributable to Verizon Total Comprehensive Income See Notes to Consolidated Financial Statements 2015 $ 18,375 (208) (194) (11) (148) (561) - $ 17,814 496 17,318 $ 17,814 2014 $ 11,956 (1,199) (197) (5) 154 (1,247) (23) $ 10,686 2,308 8,378 $ 10,686 2013 $ 23,547 60 25...

  • Page 42
    ... for sale Other Total current liabilities Long-term debt Employee benefit obligations Deferred income taxes Non-current liabilities related to assets held for sale Other liabilities Equity Series preferred stock ($.10 par value; none issued) Common stock ($.10 par value; 4,242,374,240 shares issued...

  • Page 43
    ... by operating activities: Depreciation and amortization expense Employee retirement benefits Deferred income taxes Provision for uncollectible accounts Equity in losses (earnings) of unconsolidated businesses, net of dividends received Changes in current assets and liabilities, net of effects from...

  • Page 44
    ...) on cash flow hedges Unrealized gains (losses) on marketable securities Defined benefit pension and postretirement plans Other comprehensive income (loss) Balance at end of year attributable to Verizon Treasury Stock Balance at beginning of year Shares purchased Employee plans (Note 15) Shareowner...

  • Page 45
    ... sale. Under the Verizon device payment program (formerly known as Verizon Edge), our eligible wireless customers purchase phones or tablets at unsubsidized prices on an installment basis (a device installment plan). Certain devices are subject to promotions that allow customers to upgrade to a new...

  • Page 46
    ... based on a number of factors including historical write-off experience, credit quality of the customer base and other factors such as macroeconomic conditions. Due to the device installment plan being incorporated in the standard Verizon Wireless bill, the collection and risk strategies continue to...

  • Page 47
    ...software. Capitalized non- network internal-use software costs are amortized using the straight-line method over a period of 3 to 8 years and are included in Other intangible assets, net in our consolidated balance sheets. For a discussion of our impairment policy for capitalized software costs, see...

  • Page 48
    ... a remeasurement event. Verizon management employees no longer earn pension benefits or earn service towards the company retiree medical subsidy (see Note 11). We recognize a pension or a postretirement plan's funded status as either an asset or liability on the consolidated balance sheets. Also, we...

  • Page 49
    ...have an impact on our consolidated financial statements. During the fourth quarter of 2015, we early adopted the accounting standard update related to the balance sheet classification of deferred taxes. The standard update requires that deferred tax liabilities and assets be classified as noncurrent...

  • Page 50
    ... 21, 2014, pursuant to the terms and subject to the conditions set forth in the Stock Purchase Agreement, Verizon acquired (the Wireless Transaction) from Seller all of the issued and outstanding capital stock (the Transferred Shares) of Vodafone Americas Finance 1 Inc., a subsidiary of Seller...

  • Page 51
    ...LLC and Cricket License Company, LLC, a subsidiary of Leap Wireless, to exchange certain Advanced Wireless Services (AWS) licenses. These non-cash exchanges included a number of intra- market swaps that we expect will enable Verizon Wireless to make more efficient use of the AWS band. As a result of...

  • Page 52
    ... with Frontier Communications Corporation (Frontier) pursuant to which Verizon will sell its local exchange business and related landline activities in California, Florida and Texas, including Fios Internet and video customers, switched and special access lines and high-speed Internet service and...

  • Page 53
    ... acquired a technology company for cash consideration that was not significant. The consolidated financial statements include the results of the operations of each of these acquisitions from the date each acquisition closed. On February 20, 2016, Verizon entered into a purchase agreement to acquire...

  • Page 54
    ... of $1.3 billion of Goodwill to Non- current assets held for sale on our consolidated balance sheet at December 31, 2015 as a result of our agreement to sell our local exchange business and related landline activities in California, Florida and Texas to Frontier (see Note 2 for additional details...

  • Page 55
    ... at cost: (dollars in millions) At December 31, Lives (years) 2015 2014 Note 5 Investments in Unconsolidated Businesses Equity Method Investments Vodafone Omnitel Vodafone Omnitel N.V. (Vodafone Omnitel) is one of the largest wireless communications companies in Italy. Prior to the completion of...

  • Page 56
    ... assets in our consolidated balance sheets, are comprised of the following: (dollars in millions) At December 31, Leveraged Leases Direct Finance Leases 2015 Leveraged Leases Direct Finance Leases 2014 Total Total Minimum lease payments receivable Estimated residual value Unearned income Total...

  • Page 57
    Verizon Communications Inc. and Subsidiaries 55 Notes to Consolidated Financial Statements continued The future minimum lease payments to be received from noncancelable capital leases (direct financing and leveraged leases), net of nonrecourse loan payments related to leveraged leases and ...

  • Page 58
    ...payable and other Verizon Wireless - Alltel assumed notes Telephone subsidiaries-debentures Other subsidiaries - debentures and other Capital lease obligations (average rate of 3.4% and 4.0% in 2015 and 2014, respectively) Unamortized discount, net of premium Total long-term debt, including current...

  • Page 59
    ...credit ratings were equal to or higher than A3 and A- at Moody's Investors Service and Standard & Poor's Ratings Services, respectively. During March 2015, we prepaid approximately $5.0 billion of the term loan agreement, which satisfied the mandatory prepayment. During the third and fourth quarters...

  • Page 60
    58 Verizon Communications Inc. and Subsidiaries Notes to Consolidated Financial Statements continued During March 2014, we issued $4.5 billion aggregate principal amount of fixed and floating rate notes resulting in cash proceeds of approximately $4.5 billion, net of discounts and issuance costs. ...

  • Page 61
    ... with the Tender Offer (see "Early Debt Redemption and Other Costs"). May Exchange Offer On May 29, 2014, we announced the commencement of a private exchange offer (the May Exchange Offer) to exchange up to all Cellco Partnership and Verizon Wireless Capital LLC's £0.6 billion outstanding aggregate...

  • Page 62
    ... a special purpose finance subsidiary to facilitate the offering of debt securities of Verizon Wireless by acting as co- issuer. Other than the financing activities as a co- issuer of Verizon Wireless indebtedness, Verizon Wireless Capital LLC has no material assets, operations or revenues. Verizon...

  • Page 63
    ...(a device installment plan). 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 installment charge is included in their standard wireless monthly bill. As of December 31, 2015...

  • Page 64
    ... consolidated balance sheet. Continuing Involvement Verizon has continuing involvement with the sold receivables as it services the receivables. We continue to service the customer and their related receivables, including facilitating customer payment collection, in exchange for a monthly servicing...

  • Page 65
    ... and hedge against changes in the fair value of our debt portfolio. We record the interest rate swaps at fair value on our consolidated balance sheets as assets and liabilities. During the third quarter of 2015, we entered into interest rate swaps with a total notional value of $3.2 billion. During...

  • Page 66
    ... of Verizon Wireless (the Partnership). Under the Wireless Plan, Value Appreciation Rights (VARs) were granted to eligible employees. We have not granted new VARs since 2004. As of December 31, 2015, there are no VARs that remain outstanding. Stock-Based Compensation Expense After-tax compensation...

  • Page 67
    Verizon Communications Inc. and Subsidiaries 65 Notes to Consolidated Financial Statements continued Obligations and Funded Status (dollars in millions) At December 31, 2015 Pension 2014 2015 Health Care and Life 2014 Change in Benefit Obligations Beginning of year Service cost Interest cost Plan ...

  • Page 68
    ...and Subsidiaries Notes to Consolidated Financial Statements continued Net Periodic Cost The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans: (dollars in millions) Years Ended December 31, 2015 2014 Pension 2013 2015...

  • Page 69
    ... plan assets that are measured at fair value using significant unobservable inputs: (dollars in millions) Equity Securities Corporate Bonds International Bonds Real Estate Private Equity Hedge Funds Total Balance at January 1, 2014 Actual gain (loss) on plan assets Purchases and sales Transfers...

  • Page 70
    ... benefit plans assets that are measured at fair value using significant unobservable inputs: (dollars in millions) Corporate Bonds Total Balance at December 31, 2013 Actual gain on plan assets Purchases and sales Balance at December 31, 2014 Transfers in (out) Balance at December 31, 2015...

  • Page 71
    ... pension and postretirement plans in accordance with our accounting policy to recognize actuarial gains and losses in the year in which they occur. The charges were primarily driven by a decrease in our discount rate assumption used to determine the current year liabilities from a weighted- average...

  • Page 72
    70 Verizon Communications Inc. and Subsidiaries Notes to Consolidated Financial Statements continued The effective income tax rate for 2014 was 21.7% compared to 19.6% for 2013. The increase in the effective income tax rate was primarily due to additional income taxes on the incremental income from...

  • Page 73
    ..., businesses and government customers both in the United States and around the world. The following table provides operating financial information for our two reportable segments: (dollars in millions) 2015 Wireless Wireline Total Segments External Operating Revenues Service revenue Equipment...

  • Page 74
    ... and Subsidiaries Notes to Consolidated Financial Statements continued (dollars in millions) 2014 Wireless Wireline Total Segments External Operating Revenues Service revenue Equipment Other Consumer retail Small business Mass Markets Strategic services Core Global Enterprise Global Wholesale Other...

  • Page 75
    ... total of the reportable segments' operating income to consolidated Income before provision for income taxes is as follows: (dollars in millions) Years Ended December 31, 2015 2014 2013 We generally account for intersegment sales of products and services and asset transfers at arm's length prices...

  • Page 76
    ... share buyback program, in February 2015, the Verizon Board of Directors authorized Verizon to enter into an accelerated share repurchase (ASR) agreement to repurchase $5.0 billion of the Company's common stock. On February 10, 2015, in exchange for an up-front payment totaling $5.0 billion, Verizon...

  • Page 77
    ... of business and support several financing arrangements and payment obligations to third parties, were outstanding. We have several commitments primarily to purchase programming and network services, equipment, software, handsets and peripherals, and marketing activities, which will be used or sold...

  • Page 78
    ... - Strategy, Development and Planning James J. Gerace Chief Communications Officer Roger Gurnani Executive Vice President and Chief Information and Technology Architect William L. Horton, Jr. Senior Vice President, Deputy General Counsel and Corporate Secretary 2015 Annual Report www.verizon.com...

  • Page 79
    ...: VZ) is listed on the New York Stock Exchange (NYSE) and the NASDAQ Global Select Market (NASDAQ). Verizon also maintains a standard listing on the London Stock Exchange. Dividend information At its September 2015 meeting, the Board of Directors increased our quarterly dividend 2.7 percent. On...

  • Page 80
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