America Online 2015 Annual Report

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2015
Annual
Report


Table of contents

  • Page 1
    2015 Annual Report

  • Page 2
    ... on us every day? This leads us to a simple, powerful truth: the digital world has made consumers a promise of a better, more... it. We help make businesses better partners for their customers. We help students explore worlds beyond their classrooms. 2015 Annual Report verizon.com/2015AnnualReport

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    1 We deliver the promise of the digital world.

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    ... revenues 418,000 Fios Internet subscriber net additions 178,000 Fios ... accepted accounting principles (GAAP) for the non-GAAP financial measures included in this annual report. ... changes in technology or technology substitution; disruption of our key suppliers' provisioning of products or services; ...

  • Page 5
    Corporate responsibility highlights 3 Corporate responsibility highlights Education We transform learning. We're creating hands-on, technology-based programs that .... 100k students Extending our reach We provided technology access and opportunities to more than 100,000 ...

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    ... 2015. Total operating revenues were $131.6 billion, an increase of 3.6 percent over 2014. Most important... all migrate to mobile and digital platforms, our services are more embedded in customers' lives ... our superior networks, develop new business models in platforms such as video and the Internet of...

  • Page 7
    ...ranked highest among Internet Service Providers in a recent J.D. Power survey of customer satisfaction for three ...and video, we're also getting our network ready for 5G wireless technology.... already begun to work with technology partners to develop the standards and market applications that will drive...

  • Page 8
    ... more of their business with us online. We listened to customers' frustration with the 300-channel ... complicated wireless price plans and data packages into easy-to-understand buckets ...we work with educators across the country to create hands-on, technology-driven models for learning that are showing...

  • Page 9
    ... of telematics through which we help companies manage large fleets of vehicles and provide connected car services to manufacturers such as ... the beginning of the evolution to mobile-first video and IoT deployment. As these platforms Fios Internet subscribers (in millions) Fios Video subscribers (in...

  • Page 10
    ... and broadband networks. More broadly, they will be the central ecosystem for technology development, unleashing ... as healthcare, education, energy management and smart cities. Also, the markets for these services ... of delivering strong operating results and creating new business models will fuel our ...

  • Page 11
    ...Other Items" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section.... Verizon, S&P 500 Telecommunications Services Index and S&P 500 Stock Index $200 $180... of Verizon, the S&P 500 Telecommunications Services Index, and the S&P 500 Stock Index over a five...

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    ... one of the world's leading providers of communications, information and entertainment products and services to consumers,..., including Fios Internet and video customers, switched and special access lines .... Based on the number of voice connections and Fios Internet and video subscribers, respectively,...

  • Page 13
    ... positioned to meet the challenges of an increasingly competitive industry. See Note 2 to the consolidated financial statements for additional information. Business Overview ...2015, approximately 42% of our retail postpaid phone connections were on unsubsidized service pricing. At December 31, 2015, ...

  • Page 14
    ... providers, as well as equipment manufacturers, offer device payment options that decouple service pricing ...we expect the number of customers on plans with unsubsidized service pricing to continue to grow in 2016. We ... and video penetration to positively impact our Mass Markets revenue and subscriber ...

  • Page 15
    ... and transactions that support continued profitable growth, thereby increasing customer satisfaction and... Our 2016 capital program includes capital to fund advanced networks and services... that this presentation assists users of our financial statements in better understanding our results of operations...

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    ... device payment program on plans with unsubsidized service pricing. The increase in these activations resulted ... per account increased as of December 31, 2015 compared to December 31, 2014, primarily ... in customer premise equipment revenues and the negative impact of foreign exchange rates. Corporate ...

  • Page 17
    ... content costs, contracted services, network access and transport costs, customer provisioning costs,...and small cell sites, higher wireless network costs from an increase in fiber facilities supporting ...sales commission costs, customer billing, call center and information technology costs, regulatory ...

  • Page 18
    ... and administrative expense increased during 2014 primarily due to non- operational charges, ... to our accounting policy for the recognition of actuarial gains/losses. It is management's intent to provide non-... of services and sales - Selling, general and administrative expense - - Total non-operating ...

  • Page 19
    .... Other Income and (Expense), Net Additional information relating to Other income and ... rate notes to finance the Wireless Transaction (see "Acquisitions and Divestitures") resulting in an increase ... under development, which was due to the deployment of AWS licenses for commercial service during 2014....

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    ...2014 2013 2015 vs. 2014 Increase/(Decrease) 2014 vs. 2013 Provision for income... in connection with the Omnitel Transaction. The 2014 effective income tax rate also included a benefit... is included in Note 12 to the consolidated financial statements. Net Income Attributable to Noncontrolling Interests...

  • Page 21
    ... and evaluate our reportable segments based on segment operating income. The use of segment ... financial statements. Wireless Our Wireless segment, doing business as Verizon Wireless, provides... of service for which a customer is billed in advance a monthly access charge in return for a monthly network...

  • Page 22
    ... Verizon Plan and More Everything plans, and corporate accounts, as well as legacy single ... (collectively, phones) as well as tablets, LTE Internet (Installed) and other connected devices. ... device payment program on plans with unsubsidized service pricing. The increase in these activations resulted ...

  • Page 23
    ...penetration in retail postpaid connections per account is primarily due to increases in Internet data devices,... traditional fixed-term service plans and the Verizon device payment program. Operating ... cell sites as well as higher wireless network costs from an increase in fiber facilities supporting ...

  • Page 24
    ... broadband video and data, corporate networking solutions, data center and cloud services, security and managed network services and local...000):(1) Total voice connections Total Broadband connections Fios Internet subscribers Fios video subscribers (1) As of end of period $ 16,123 2,350 18,473 8,165...

  • Page 25
    ..., a decline in customer premise equipment revenues and the negative impact of foreign exchange rates. Networking solutions, which include Private IP, Public Internet, ... and contract center solutions. Global Wholesale Global Wholesale provides communications services including data, ...

  • Page 26
    ... Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations continued... increases. Cost of services decreased slightly during 2014 primarily due to a decrease in employee... Selling, general and administrative expense decreased during 2015 primarily due to declines...

  • Page 27
    ... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations continued ... financial statements for additional information regarding the Tender Offer. During the fourth quarter of 2014, ... Inc. (T- Mobile USA) to exchange certain AWS and Personal Communication Services (PCS)...

  • Page 28
    ... operations to fund network expansion and modernization, service and repay external financing, pay .... We continue to bill and collect on the receivables in exchange for a monthly servicing fee, which ... Operations On July 1, 2014, we sold a non- strategic Wireline business that provides communications ...

  • Page 29
    ... taxes. On June 23, 2015, we completed the tender offer and merger, and... leader in content delivery networks for $0.4 billion. Additionally, we acquired a technology company for cash.... The cash payment of $9.5 billion is classified within Acquisitions of wireless licenses on our consolidated statement...

  • Page 30
    ... "Market Risk" for additional information. Verizon may continue to acquire debt securities issued... on our interest payments. Throughout 2014, we accessed the capital markets to optimize the maturity... cash provided by financing activities of $26.5 billion was primarily driven by proceeds from long-term...

  • Page 31
    ...and 6.9 million common shares issued from Treasury stock during 2015, 2014 and 2013,...were downgraded by Moody's Investors Service (Moody's), Standard & Poor's Ratings Services (Standard & Poor's)...Net cash provided by operating activities Less Capital expenditures (including capitalized software) Free ...

  • Page 32
    ... Management's Discussion and Analysis of Financial Condition and Results of Operations continued Employee... and network services, equipment, software, handsets and peripherals, and marketing activities... financial statements). (4) Other long-term liabilities include estimated postretirement benefit and...

  • Page 33
    ... of our operating telephone company subsidiaries as well as the debt obligations of GTE Corporation that were issued and ...the consolidated financial statements). In connection with the execution of agreements for the sale of businesses and investments, Verizon ordinarily provides representations and ...

  • Page 34
    ... A summary of the critical accounting estimates used in preparing our financial statements is as follows: • Wireless ... licenses into one single unit of accounting, as we utilize our wireless licenses ... radio frequency spectrum to provide wireless communication services. There are currently no legal,...

  • Page 35
    ... date. The terminal value growth rate represented our estimate of the marketplace's long-term ...income corporate bonds available at the measurement date. These individual spot rates align with the timing... payments and therefore provide a more precise estimate of interest cost. This change in accounting...

  • Page 36
    ...acquire or otherwise operate and manage many of our wireless towers for an upfront payment of $5.1 billion... customers, switched and special access lines and high-speed Internet service... of 2016. See Note 2 to the consolidated financial statements for additional information. Recently Issued Accounting...

  • Page 37
    ... wholly-owned subsidiary of Outerwall Inc., ceased providing service to its customers. In accordance with an agreement between the parties, Redbox...industry leader in content delivery networks for $0.4 billion. See Note 2 to the consolidated financial statements for additional information. Cautionary...

  • Page 38
    ... internal control over financial reporting identified by management. The company's financial statements included in this Annual Report have been audited by... LLP, independent registered public accounting firm. Ernst & Young LLP has also provided an attestation report on the company's internal control ...

  • Page 39
    ...evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting ... presentation. We believe that our audits provide a reasonable basis for our opinion. In our... framework) and our report dated February 23, 2016 expressed an unqualified opinion...

  • Page 40
    38 Verizon Communications Inc. and Subsidiaries Consolidated Statements of Income (dollars in millions, ... amounts) Years Ended December 31, Operating Revenues Service revenues and other Wireless equipment ... Consolidated Financial Statements 2015 $ 114,696 16,924 131,620 2014 $ 116,122 10,957 127,...

  • Page 41
    Verizon Communications Inc. and Subsidiaries 39 Consolidated Statements of Comprehensive Income (dollars in ... cash flow hedges Unrealized gains (losses) on marketable securities Defined benefit pension and postretirement plans ...$ 17,814 496 17,318 $ 17,814 2014 $ 11,956 (1,199) (197) (5) 154 (1,247)...

  • Page 42
    ... 31, Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable, ... stock ($.10 par value; 4,242,374,240 shares issued in each period) Contributed capital ... equity See Notes to Consolidated Financial Statements 2015 2014 $ 4,470 350 13,457 1,252 792 1,959 22,280 220,...

  • Page 43
    ...net income to net cash provided by operating activities: Depreciation and amortization expense Employee retirement ... received Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses Accounts ... Statements 2015 $ 18,375 16,017 (1,747) 3,516 1,610 127 2014 $...

  • Page 44
    ... shares issued (Note 2) Balance at end of year Contributed Capital Balance at beginning of year Acquisition of... flow hedges Unrealized gains (losses) on marketable securities Defined benefit pension and postretirement ... Financial Statements 2015 Shares 4,242,374 - 4,242,374 Amount $ 424 - 424 2014 ...

  • Page 45
    ... of the world's leading providers of communications, information and entertainment products and services to consumers,... financial statements using U.S. generally accepted accounting principles (GAAP), which require management... fees for voice, video, data and certain other services are billed one month...

  • Page 46
    44 Verizon Communications Inc. and Subsidiaries Notes to Consolidated Financial Statements continued... on a straight-line basis over the term of the contract, provided that we meet and will continue... of our customers to make required payments. Similar to traditional service revenue accounting treatment...

  • Page 47
    ...Consolidated Financial Statements continued We capitalize and depreciate network software purchased or developed ...frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time,... assets that do not have indefinite lives (primarily customer lists and non...

  • Page 48
    ...reduction in a deferred tax asset, or an increase in a deferred tax liability. The accounting standard relating to income ..., we translate income statement amounts at average exchange rates for the period, and we ... management employees no longer earn pension benefits or earn service towards the company...

  • Page 49
    ...accounting standard update was issued related to the accounting for share-based payments when the terms of an award provide that a performance target ...consolidated financial statements. In May 2014, the accounting standard update related to the recognition of revenue from contracts with customers was...

  • Page 50
    ...Verizon Communications Inc. and Subsidiaries Notes to Consolidated Financial Statements continued Note 2 Acquisitions ... all of the issued and outstanding capital stock (the Transferred Shares) of Vodafone Americas Finance ... 21, 2014. The eight-year Verizon notes bear interest at a floating rate equal...

  • Page 51
    ... License Company, LLC, a subsidiary of Leap Wireless, to exchange certain Advanced Wireless Services (.... The cash payment of $9.5 billion is classified within Acquisitions of wireless licenses on our consolidated statement of... to occupy and use for network operations. Other During 2015, 2014 and 2013,...

  • Page 52
    ... and special access lines and high-speed Internet service and long ... in accordance with the accounting model for assets held for sale. The transaction is subject to the satisfaction of certain closing ... On July 1, 2014, we sold a non- strategic Wireline business that provides communications solutions ...

  • Page 53
    ...), a wholly-owned subsidiary of Outerwall Inc., ceased providing service to its customers. In accordance with an agreement between the parties, Redbox ... The consolidated financial statements include the results of the operations of each of these acquisitions from the date each acquisition closed. On ...

  • Page 54
    52 Verizon Communications Inc. and Subsidiaries Notes to Consolidated Financial Statements continued... other Balance at December 31, 2014 Acquisitions (Note 2) Capitalized interest on wireless licenses... under development for commercial service for which we were capitalizing interest costs. The increase...

  • Page 55
    ... December 31, Customer lists (5 to 14 years) Non-network internal-use software (3 to 8 years) ... below. Summarized financial information for our equity investees in 2013 is as follows: Income Statement (dollars in ... Land Buildings and equipment Central office and other network equipment Cable, poles ...

  • Page 56
    ...to Consolidated Financial Statements continued Note 6 Leasing Arrangements As Lessor We are the lessor in leveraged and direct financing lease ... due according to the contractual terms of the lease will not be collected. All significant accounts, individually or in the aggregate, are current and none...

  • Page 57
    ... Statements continued The future minimum lease payments to be received from noncancelable capital leases (direct ... and allowances for doubtful accounts, along with expected receipts relating to operating leases for the periods ...421 (221) $ 200 $ 319 (171) $ 148 2016 2017 2018 2019 2020 Thereafter ...

  • Page 58
    56 Verizon Communications Inc. and Subsidiaries Notes to Consolidated Financial Statements continued ... and capital leases obligations Decrease in short-term obligations, excluding current maturities... lease obligations (average rate of 3.4% and 4.0% in 2015 and 2014, respectively) Unamortized discount...

  • Page 59
    ... Inc. and Subsidiaries 57 Notes to Consolidated Financial Statements continued 2015 February ... 2028 of GTE Corporation, cash. The February Exchange Offers have been accounted for as a modification ...'s Ratings Services, respectively. During March 2015, we prepaid approximately $5.0 billion of the term...

  • Page 60
    .... and Subsidiaries Notes to Consolidated Financial Statements continued During March 2014, we ... and an accounting changes covenant, affirmative covenants and events of default that are customary for companies ... Standard & Poor's Ratings Services, respectively. During June 2014, we issued $3.3 billion...

  • Page 61
    ... Subsidiaries 59 Notes to Consolidated Financial Statements continued Tender Offer On March 10... Alltel Corporation (collectively, the Old Notes) for new Notes to be issued by Verizon. The July Exchange... have been accounted for as a modification of debt. On August 21, 2014, Verizon issued $3.3 billion...

  • Page 62
    ...series of Old Notes included in the July Exchange Offers for the 2054 New Notes: Interest Rate... and (expense), net on our consolidated statements of income. Additional Financing Activities (Non... unless terminated pursuant to its terms, including the operating telephone company no longer being a wholly...

  • Page 63
    ... payment program pay lower service fees as compared to those under our fixed-term service... recorded within Cash flows provided by operating activities on our consolidated statement of cash flows. ...upon the risk assessed by the models, a customer may be required to provide a down payment to enter into ...

  • Page 64
    ... receivables, including facilitating customer payment collection, in exchange for a monthly servicing fee. While ...: Short-term investments: Equity securities Fixed income securities Other current assets: ... stock of domestic and international corporations measured using quoted prices in active markets....

  • Page 65
    ... 63 Notes to Consolidated Financial Statements continued Fair Value of Short-term and Long-term ... agreement) and credit support annex agreements which provide rules for collateral exchange. We ... measured with the assistance of thirdparty appraisals and other estimates of fair value, which used market

  • Page 66
    ...Wireless Long-Term Incentive Plan (the Wireless Plan) provided compensation opportunities to eligible employees ... than 100% of the fair market value of Verizon common stock on the date of grant. Each ... with our accounting policy for pension and other postretirement benefits, operating expenses include...

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

  • Page 68
    ... Care and Life 2015 2014 Prior service cost Reversal of amortization items Prior ... between projected benefit cash flows to the corresponding spot yield curve rates. We will account ... in the income statement. Accordingly, this change in estimate will not impact our income from continuing operations, ...

  • Page 69
    Verizon Communications Inc. and Subsidiaries 67 Notes to Consolidated Financial Statements continued In order to project the long-term target investment return for the ... follow: At December 31, Health Care and Life 2015 2014 2013 management approaches are used depending on ...

  • Page 70
    ...limited partnerships that invest in operating companies that are not publicly traded on a stock exchange. Investment strategies ... of comparable public securities, merger and acquisition activity and pricing data from the most...: (dollars in millions) Year Pension Benefits Health Care and Life Cash and...

  • Page 71
    ...Notes to Consolidated Financial Statements continued Savings Plan and Employee Stock Ownership Plans ...employers' accounting for postemployment benefits: (dollars in millions) Year Beginning of Year Charged to Expense Payments ...Years Ended December 31, 2015 2014 2013 Current Federal Foreign State and...

  • Page 72
    ... to Consolidated Financial Statements continued The effective income tax rate for 2014 was 21.7% compared ...449 2015 2014 2013 $ 43 92 33 The after-tax accruals for the payment of interest..., partially offset by an increase in unrecognized tax benefits related to the acquisition of AOL. Verizon and...

  • Page 73
    ...Notes to Consolidated Financial Statements continued Note 13 Segment Information Reportable Segments We ...data, corporate networking solutions, data center and cloud services, security and managed.... The following table provides operating financial information for our two reportable segments: (dollars...

  • Page 74
    ... Financial Statements continued (dollars in millions) 2014 Wireless Wireline Total Segments External Operating Revenues...Consumer retail Small business Mass Markets Strategic services Core Global Enterprise Global ...Assets Plant, property and equipment, net Capital expenditures $ 68,973 8,096 3,851 ...

  • Page 75
    ... Financial Statements continued Reconciliation to Consolidated Financial Information A reconciliation of the reportable segment operating... 31, 2015 2014 Operating Revenues Total reportable segments Corporate and other... services and asset transfers at arm's length prices. No single customer accounted...

  • Page 76
    ... tables that follow provide additional financial information related to our consolidated financial statements: Income ... 31, 2015 2014 Accounts Payable and Accrued Liabilities Accounts payable Accrued expenses ...1,457 $ 16,680 Other Current Liabilities Advance billings and customer deposits Dividends ...

  • Page 77
    Verizon Communications Inc. and Subsidiaries 75 Notes to Consolidated Financial Statements continued... to the sale of Verizon Information Services Canada in 2004, we continue to provide a guarantee to publish... and network services, equipment, software, handsets and peripherals, and marketing activities...

  • Page 78
    ... Chief Executive Officer Verizon Communications Inc. Donald T. Nicolaisen Former Chief Accountant United ...Executive Vice President and Chief Information and Technology Architect William L. Horton, Jr...., Deputy General Counsel and Corporate Secretary 2015 Annual Report verizon.com/2015AnnualReport

  • Page 79
    ...information on the following services: Online account access: Registered shareowners can view account information ... directly to you. Subscribe to Email alerts at our investor website. Stock market information ... Communications Inc. Assistant Corporate Secretary 1095 Avenue of the Americas New York, NY ...

  • Page 80
    Verizon Communications Inc. 1095 Avenue of the Americas New York, New York 10036 212 395-1000 verizon.com/about © 2016. Verizon. All Rights Reserved. 002CSN622B 3.EPCP90276283RD

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