UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

At September 30, 2019, 4,135,784,209 shares of the registrant’s common stock were outstanding, after deducting 155,649,437 shares held in treasury.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements for the year ended December 31, 2018 of Verizon Communications Inc. (Verizon or the Company). included in its Current Report on Form 8-K dated August 8, 2019. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year.

We have reclassified certain prior periodyear amounts to conform to the current period presentation.year presentation, including impacts for changes in our reportable segments.

There were a total of approximately 2 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for both the three and nine months ended March 31,September 30, 2019. There were a total of approximately 34 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for both the three and nine months ended March 31,September 30, 2018.

Cash, cash equivalents and restricted cash are included in the following line items onin the condensed consolidated balance sheets:

date of reorganization, the goodwill to each of our historical Wireless reporting unit, historical Wireline reporting unit and historical Verizon Connect reporting unit were reallocated to our new Consumer and Business reporting units.units using a relative fair value approach.

The following Accounting Standard Updates (ASUs) were issued by Financial Accounting Standards Board (FASB), and have been recently adopted by Verizon.

The cumulative after-tax effect of the changes made to our condensed consolidated balance sheet for the adoption of Topic 842 were as follows:

In addition to the increase to the operating lease liabilities and right-of-use assets and the derecognition of deferred sale leaseback gains through opening retained earnings, Topic 842 also resulted in reclassifying the presentation of prepaid and deferred rent to operating lease right-of-use assets. The operating lease right-of-use assets amount also includes the balance of any prepaid lease payments, unamortized initial direct costs and lease incentives.

We elected the package of practical expedients permitted under the transition guidance within the new standard. Accordingly, we have adopted these practical expedients and did not reassess: (1) whether an expired or existing contract is a lease or contains an embedded lease; (2) lease classification of an expired or existing lease; or (3) capitalization of initial direct costs for an expired or existing lease. In addition, we have elected the land easement transition practical expedient, and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease.

We lease network equipment including towers, distributed antenna systems, small cells, real estate, connectivity mediums which include dark fiber, equipment, leases, and other various types of assets for use in our operations under both operating and finance leases. We assess whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately,

we determine the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use.

For both operating and finance leases, we recognize a right-of-use asset, which represents our right to use the underlying asset for the lease term, and a lease liability, which represents the present value of our obligation to make payments arising over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. Management uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate, which will be updated on a quarterly basis for measurement of new lease liabilities.

In those circumstances where the Company is the lessee, we have elected to account for non-lease components associated with our leases (e.g., common area maintenance costs) and lease components as a single lease component for substantially all of our asset classes. Additionally, in arrangements where we are the lessor, we have customer premise equipment for which we apply the lease and non-lease component practical expedient and account for non-lease components (e.g., service revenue) and lease components as combined components under the revenue recognition guidance in ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606) as the service revenues are the predominant components in the arrangements.

Rent expense for operating leases is recognized on a straight-line basis over the term of the lease and is included in either Cost of services or Selling, general and administrative expense in our condensed consolidated statements of income, based on the use of the facility on which rent is being paid. Variable rent payments related to both operating and finance leases are expensed in the period incurred. Our variable lease payments consist of payments dependent on various external indicators, including real estate taxes, common area maintenance charges and utility usage.

Operating leases with a term of 12 months or less are not recorded on the balance sheet; we recognize a rent expense for these leases on a straight-line basis over the lease term.

We recognize the amortization of the right-of-use asset for our finance leases on a straight-line basis over the shorter of the term of the lease or the useful life of the right-of-use asset in Depreciation and amortization expense in our condensed consolidated statements of income. The interest expense related to finance leases is recognized using the effective interest method based on the discount rate determined at lease commencement and is included within Interest expense in our condensed consolidated statements of income.

See Note 5 for additional information related to leases, including disclosure required under Topic 842.

The following ASUs have been recently issued by the FASB.

We earn revenue from contracts with customers, primarily through the provision of telecommunications and other services and through the sale of wireless equipment.

We have 2 reportable segments that we operate and manage ouras strategic business in two reportable segments, Wirelessunits - Consumer and Wireline.Business. Revenue is disaggregated by products and services within Consumer, and customer groups respectively, which we view as the relevant categorization of revenues for these businesses.(Global Enterprise, Small and Medium Business, Public Sector and Other and Wholesale) within Business. See Note 11 for additional information on revenue by segment.

We also earn revenues that are not accounted for under Topic 606, from leasing arrangements (such as towers), captive reinsurance arrangements primarily related to wireless device insurance and the interest on equipment financed on a device payment plan agreement when sold to the

Additionally, certain Wireless and Wireline contracts provide customers the option to purchase additional services. The feefees related to thethese additional services isare recognized when the customer exercises the option (typically on a month-to-month basis).

Wireless customer contractsContracts for wireless services are generally either month-to-month and cancellable at any time (typically under a device payment plan) or contain terms ranging from greater than one month to up to two years (typically under a fixed-term plan). Additionally, customers may incur charges based on usage or may purchase additional optional services purchased in conjunction with entering into a contract whichthat can be cancelled at any time and therefore are not included in the transaction price. When a service contract is longer than one month, the service contract term will generally be two years or less. The transaction price allocated to service performance obligations, which are not satisfied or are partially satisfied as of the end of the reporting period, are generally related to our fixed-term plans.

Our wirelessConsumer group customers also include other companies who utilize Verizon's network totraditional wholesale resellers that purchase and resell wireless service under their own brands to their respective end customers. Reseller arrangements generally include a stated contract term, which typically extendextends longer than two years. These arrangements generallyyears and, in some cases, include an annuala periodic minimum revenue commitment over the contract term of the contract for which revenues will be recognized in future periods.

The timing of revenue recognition may differ from the time of billing to our customers. Receivables presented in our condensed consolidated balance sheet represent an unconditional right to consideration. Contract balances represent amounts from an arrangement when either Verizon has performed, by transferring goods or services to the customer in advance of receiving all or partial consideration for such goods and services

from the customer, or the customer has made payment to Verizon in advance of obtaining control of the goods and/or services promised to the customer in the contract.

Contract assets primarily relate to our rights to consideration for goods or services provided to the customers but for which we do not have an unconditional right at the reporting date. Under a fixed-term plan, the total contract revenue is allocated between wireless servicesservice and equipment revenues. In conjunction with these arrangements, a contract asset is created, which represents the difference between the amount of equipment revenue recognized upon sale and the amount of consideration received from the customer.customer when the performance obligation related to the transfer of control of the equipment is satisfied. The contract asset is reclassified asto accounts receivable as wireless services are provided and billed. We have the right to bill the customer as service is provided over time, which results in our right to the payment being unconditional. The contract asset balances are presented in our condensed consolidated balance sheet as Prepaid expenses and other and Other assets. We assess our contract assets for impairment on a quarterly basis and will recognize an impairment charge to the extent their carrying amount is not recoverable.

Contract liabilities arise when we bill our customers and receive consideration in advance of providing the goods or services promised in the contract. We typically bill service one month in advance, which is the primary component of the contract liability balance. Contract liabilities are recognized as revenue when services are provided to the customer. The contract liability balances are presented in our condensed consolidated balance sheet as Other current liabilities and Other liabilities.

The following table presents information about receivables from contracts with customers:

The following table presents information about contract balances:

The balance of contract assets and contract liabilities recorded in our condensed consolidated balance sheet were as follows:

Topic 606 requires the recognition of an asset for incremental costs to obtain a customer contract, which are then amortized to expense over the respective periods of expected benefit. We recognize an asset for incremental commission expenses paid to internal and external sales personnel and agents in conjunction with obtaining customer contracts. We only defer these costs when we have determined the commissions are in fact, incremental andcosts that would not have been incurred absent the customer contract.contract and are expected to be recoverable. Costs to obtain a contract are amortized and recorded ratably as commission expense over the period representing the transfer of goods or services to which the assets relate. These costs are recorded in Selling, general and administrative expense. Wireless costsCosts to obtain wireless contracts are amortized over both of our Consumer and Business customers' estimated device upgrade cycles, as such costs are typically incurred each time a customer upgrades. Wireline costsCosts to obtain wireline contracts are amortized as expense over the estimated customer

relationship period for our Consumer Markets customers. Incremental costs to obtain wireline contracts for our Enterprise Solutions, Partner SolutionsBusiness customers are insignificant. Costs to obtain contracts are recorded in Selling, general and Business Markets are insignificant.administrative expense.

We also defer costs incurred to fulfill contracts that: (1) relate directly to the contract; (2) are expected to generate resources that will be used to satisfy our performance obligation under the contract; and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to Cost of services as we satisfy our performance obligations.obligations and recorded in Cost of services. These costs principally relate to direct costs that enhance our Wirelinewireline business resources, such as costs incurred to install circuits.

We determine the amortization periods for our costs incurred to obtain or fulfill a customer contract at a portfolio level due to the similarities within these customer contract portfolios.

Other costs, such as general costs or costs related to past performance obligations, are expensed as incurred.

The balances of Deferreddeferred contract costs included in our condensed consolidated balance sheet were as follows:

For the three and nine months ended March 31,September 30, 2019, and 2018, we recognized expense of $615$687 million and $405 million,$1.9 billion, respectively, associated with the amortization of Deferreddeferred contract costs, primarily within Selling, general and administrative expense in our condensed consolidated statements of income. For the three and nine months ended September 30, 2018, we recognized expense of $523 million and $1.4 billion, respectively, associated with the amortization of deferred contract costs, primarily within Selling, general and administrative expense in our condensed consolidated statements of income.

We assess our Deferreddeferred contract costs for impairment on a quarterly basis. We recognize an impairment charge to the extent the carrying amount of a deferred cost exceeds the remaining amount of consideration we expect to receive in exchange for the goods and services related to the cost, less the expected costs related directly to providing those goods and services that have not yet been recognized as expenses. There have been no0 impairment charges recognized for the three and nine months ended March 31,September 30, 2019 or March 31,September 30, 2018.

During both the three and nine months ended March 31,September 30, 2019, we entered into and completed various other wireless license transactions for an insignificant amount of cash consideration.

DuringIn July 2019, Verizon completed a sale-leaseback transaction for buildings and real estate. See Note 5 for additional information related to the transaction. In connection with this transaction and other insignificant transactions, we recorded a pre-tax net gain from dispositions of assets and businesses of $261 million in Selling, general and administrative expense in our condensed consolidated statements of income for the three and nine months ended March 31,September 30, 2019.

During both the three and nine months ended September 30, 2019, we completed various other acquisitionstransactions for an insignificant amountamounts of cash consideration.

The carrying amountamounts of Wireless licenses are as follows:

At March 31,September 30, 2019 and 2018, approximately $7.2$6.5 billion and $13.6$11.1 billion, respectively, of wireless licenses were under development for commercial service for which we were capitalizing interest costs. We recorded approximately $88$248 million and $124$406 million of capitalized interest on wireless licenses for the threenine months ended March 31,September 30, 2019 and 2018, respectively.

The average remaining renewal period forof our wireless licenses portfolio was 4.44.1 years as of March 31,September 30, 2019.

Changes in the carrying amount of Goodwill are as follows:

The following table displays the composition of Other intangible assets, net:

The amortization expense for Other intangible assets was as follows: 

The estimated future amortization expense for Other intangible assets for the remainder of the current year and next 5 years is as follows:

We enter into various lease arrangements for network equipment including towers, distributed antenna systems, small cells, real estate and connectivity mediums including dark fiber, equipment, leases, and other various types of assets for use in our operations. Our leases have remaining lease terms ranging from 1 year to 2428 years, some of which include options that we can elect to extend the leases term for up to 25 years, and some of which include options to terminate the leases. For the majority of leases entered into during the current period, we have concluded it is not reasonably certain that we would exercise the options to extend the lease or terminate the lease. Therefore, as of the lease commencement date, our lease terms generally do not include these options. We include options to extend the lease when it is reasonably certain that we will exercise that option.

 

 

Supplemental disclosure for the statement of cash flows related to operating and finance leases were as follows:

Supplemental disclosuredisclosures for the balance sheet related to finance leases were as follows:

The weighted-average remaining lease term and the weighted-average discount rate of our leases were as follows:

The Company's maturity analysis of operating and finance lease liabilities as of March 31,September 30, 2019 were as follows:

As of March 31,September 30, 2019, we have contractually obligated lease payments amounting to $477 million$1.4 billion for an office facility operating leaseleases and small cell colocation and fiber operating leases that hashave not yet commenced. We have legally obligated lease payments for various other operating leases that have not yet commenced for which the total obligation was not significant. We have certain rights and obligations for these leases, but have not recognized an operating lease right-of-use asset or an operating lease liability since they have not yet commenced.

During the threenine months ended March 31,September 30, 2019, we completed the following ABS Notes transactions:

Under the terms of each series of ABS Notes, there is a two year revolving period during which we may transfer additional receivables to the ABS Entity. TheIn April 2019, the two year revolving period of the ABS Notes we issued in July 2016 and November 2016March 2017 ended in July 2018 and November 2018 respectively, and we began to repay principal on the 2016-12017-1 Class A senior ABS Notes. In July 2019, the two year revolving period of the ABS Notes issued in June 2017 ended and we began to repay principal on the 2016-22017-2 Class A senior ABS Notes in August 2018 and December 2018, respectively.Notes. During the three and nine months ended March 31,September 30, 2019, we made aggregate principal repayments of $559 million.$956 million and $2.3 billion, respectively, for all ABS Notes. In October 2019, we issued approximately $1.6 billion aggregate principal amount of senior and junior Asset-Backed Notes through an ABS Entity.

In May 2018, we entered into a device payment plan agreementan ABS financing facility with a number of financial institutions (2018 ABS Financing Facility). One loan agreement was entered into in connection with the 2018 ABS financing facility. In May 2019, the remaining $540 million outstanding under the loan agreement was prepaid, and the loan agreement was terminated.

In September 2016, we entered into an ABS Financing Facility with a number of financial institutions, which was amended and restated in May 2019 (2019 ABS Financing Facility). Under the terms of the 20182019 ABS Financing Facility, the financial institutions made advances under asset-backed loans backed by device payment plan agreement receivables of both consumer and business customers for proceeds of $540 million. The loan agreement entered into in connection with the 2018 ABS Financing Facility has a final maturity date in December 2021 and bears interest at a floating rate. There is a one year revolving period beginning from May 2018 during which we may transfer additional receivables to the ABS Entity. Subject to certain conditions, we may also remove receivables from the ABS Entity. Under the loan agreement, we have the right to prepay all or a portion of the advances at any time without penalty, but in certain cases, with breakage costs. If we choose to prepay, the amount prepaid shall be available for further drawdowns until May 2019, except in certain circumstances. As of March 31, 2019, the 2018 ABS Financing Facility is fully drawn and the outstanding borrowing under the 2018 ABS Financing Facility was $540 million.

The ABS Entities meet the definition of a VIE for which we have determined that we are the primary beneficiary as we have both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the entity. Therefore, the assets, liabilities and activities of the ABS Entities are consolidated in our financial results and are included in amounts presented on the face of our condensed consolidated balance sheets.

The assets and liabilities related to our asset-backed debt arrangements included in our condensed consolidated balance sheets were as follows:

See Note 7 for additional information on device payment plan agreement receivables used to secure asset-backed debt.

As of March 31,September 30, 2019, the unused borrowing capacity under our $9.5 billion credit facility was approximately $9.4 billion. The credit facility does not require us to comply with financial covenants or maintain specified credit ratings, and it permits us to borrow even if our business has incurred a material adverse change. We use the credit facility for the issuance of letters of credit and for general corporate purposes.

During the threenine months ended March 31,September 30, 2019 and 2018, we financed, primarily through vendor financing arrangements, the purchase of approximately $115$356 million and $345$967 million, respectively, of long-lived assets consisting primarily of network equipment. At both March 31,September 30, 2019 and 2018, $1.0 billion and $1.3$1.1 billion, respectively, relating to these financing arrangements, including those entered into in prior years and liabilities assumed through acquisitions, remained outstanding. These purchases are non-cash financing activities and therefore are not reflected within Capital expenditures in our condensed consolidated statements of cash flows.

During the three months ended March 31,September 30, 2019, and 2018,we recorded insignificant losses on early debt redemptions. During the nine months ended September 30, 2019, we recorded losses on early debt redemptions of an insignificant amount and $249 million, respectively,$1.6 billion primarily related to the May tender offers, which were recorded in Other income (expense), net in our condensed consolidated statements of income.

We guarantee the debentures of our operating telephone company subsidiaries. As of March 31,September 30, 2019, $796 million aggregate principal amount of these obligations remained outstanding. Each guarantee will remain in place for the life of the obligation unless terminated pursuant to its terms, including the operating telephone company no longer being a wholly-owned subsidiary of Verizon.

We also guarantee the debt obligations of GTE LLC as successor in interest to GTE Corporation that were issued and outstanding prior to July 1, 2003. As of March 31,September 30, 2019, $423 million aggregate principal amount of these obligations remained outstanding.

Under the Verizon device payment program, our eligible wireless customers purchase wireless devices under a device payment plan agreement. 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 device payment plan charge is included on their wireless monthly bill. As of January 2017, we no longer offer consumersConsumer customers new fixed-term, subsidized service plans for phones; however, we continue to offer subsidized plans to our business customers, and weBusiness customers. We also continue to service existing fixed-term subsidized plans for consumerscustomers who have not yet purchased and activated devices under the Verizon device payment program.

The following table displays device payment plan agreement receivables, net, recognized in our condensed consolidated balance sheets: