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 included in Verizon Communications Inc.'s (Verizon or the Company) Annual Report on Form 10-K 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.

In November 2018, we announced aFollowing our strategic reorganization, of our business. Under the new structure, effective April 1, 2019, there are 2 reportable segments that we operate and manage as strategic business units - Verizon Consumer Group (Consumer) and Verizon Business Group (Business). InAs of April 1, 2019 and in conjunction with the new reporting structure, we recast our segment disclosures for all periods presented.the period ending March 31, 2019.

U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including but not limited to the potential impacts arising from the recent novel coronavirus (COVID-19) and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates.

Examples of significant estimates include the allowance for changescredit losses, the recoverability of property, plant and equipment, the incremental borrowing rate for the lease liability, the recoverability of intangible assets and other long-lived assets, fair value measurements, including those related to financial instruments, goodwill, spectrum licenses and intangible assets, unrecognized tax benefits, valuation allowances on tax assets, pension and postretirement benefit obligations, contingencies and the identification and valuation of assets acquired and liabilities assumed in our reportable segments.connection with business combinations.

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 September 30,March 31, 2020 and March 31, 2019. There were a total of approximately 4 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 September 30, 2018.

We consider all highly liquid investments with an original maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates quoted market value and includes amounts held in money market funds.

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

Goodwill isPrior to January 1, 2020, accounts receivable were recorded at cost less an allowance for doubtful accounts. The gross amount of accounts receivable and corresponding allowance for doubtful accounts are presented separately in the excesscondensed consolidated balance sheets. We maintained allowances for uncollectible accounts receivable, including our direct-channel device payment plan agreement receivables, for estimated losses resulting from the failure or inability of our customers to make required payments. Indirect-channel device payment receivables are considered financial instruments and were initially recorded at fair value net of imputed interest, and credit losses were recorded as incurred. However, receivable balances were assessed quarterly for impairment and an allowance was recorded if the receivable was considered impaired.

Subsequent to January 1, 2020, accounts receivable are recorded at amortized cost less an allowance for expected credit losses that are not expected to be recovered. The gross amount of accounts receivable and corresponding allowance for credit losses are presented separately in the condensed consolidated balance sheets. We maintain allowances for credit losses resulting from the expected failure or inability of our customers to make required payments. We recognize the allowance for expected credit losses at inception and reassess quarterly based on management’s expectation of the acquisition cost of businesses overasset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the fair valuecredit quality of the identifiable net assets acquired. Impairment testing for goodwill is performed annuallycustomer base, the aging of such receivables and current macroeconomic conditions as well as management’s expectations of conditions in the fourth quarter or more frequentlyfuture, if impairment indicators are present. We transitioned into our new segment reporting structure effective April 1, 2019, which resulted in certain changes to our operating segments and reporting units. Uponapplicable. Our allowance for uncollectible accounts receivable is based on management’s assessment of the

We performedpool our device payment plan agreement receivables based on the credit quality indicators and shared risk characteristics of "new customers" and "existing customers". New customers are defined as customers who have been with Verizon for less than 210 days if they are classified as a Consumer segment customer, or less than 12 months if they are classified as a Business segment customer. Existing customers are defined as customers who have been with Verizon for more than 210 days if they are in Consumer, or more than 12 months if they are in Business. We record an impairment assessmentallowance to reduce the receivables to the amount that is expected to be collectible. For device payment plan agreement receivables, we record bad debt expense based on a default and loss calculation using our proprietary loss model. The expected loss rate is determined based on customer credit scores and other qualitative factors as noted above. The loss rate is assigned individually on a customer by customer basis and the custom credit scores are then aggregated by vintage and used in our proprietary loss model to calculate the weighted average loss rate used for determining the allowance balance.

We monitor the collectability of our wireless service receivables as one overall pool. Wireline service receivables are disaggregated and pooled by the following customer groups: consumer, small and medium business, global enterprise and wholesale. For wireless service receivables and wireline consumer and small and medium business receivables, the allowance is calculated based on a 12 month rolling average write-off balance multiplied by the average life cycle of an account from billing to write-off. The risk of loss is assessed over the contractual life of the impacted reporting units, specifically ourreceivables and we adjust the historical Wireless,loss amounts for current and future conditions based on management’s qualitative considerations. For global enterprise and wholesale wireline receivables, the allowance is based on historical Wirelinewrite-off experience and historical Connect reporting units on March 31, 2019, immediately before our strategic reorganization became effective. Our impairment assessments indicated thatindividual customer credit risk, if applicable. We consider multiple factors in determining the fair value for each of our historical Wireless, historical Wireline and historical Connect reporting units exceeded their respective carrying value, and therefore did not result in a goodwill impairment. We then performed an impairment assessment for our Consumer and Business reporting units on April 1, 2019, immediately following our strategic reorganization. Our impairment assessments indicated that the fair value for each of our Consumer and Business reporting units exceeded their respective carrying values and therefore, did not result in a goodwill impairment. Our Media reporting unit was not impacted by the strategic reorganization and there was no indicator of impairment.allowance as discussed above.

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

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 as strategic business units - Consumer and Business. Revenue is disaggregated by products and services within Consumer, and customer groups (Global Enterprise, Small and Medium Business, Public Sector and Other, and Wholesale) within Business. See Note 1110 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 customer by an authorized agent. As allowed by the practical expedient within Topic 842, we have elected to combine the lease and non-lease components for those arrangements of customer premise equipment where we are the lessor as components accounted for under Topic 606. During the three and nine months ended September 30,March 31, 2020 and 2019, revenues from arrangements that were not accounted for under Topic 606 were approximately $779$812 million and $2.4 billion, respectively. During the three and nine months ended September 30, 2018, revenues from arrangements that were not accounted for under Topic 606 were approximately $1.1 billion and $3.4 billion,$787 million, respectively.

 

 

Additionally, certain contracts provide customers the option to purchase additional services. The fees related to these additional services are recognized when the customer exercises the option (typically on a month-to-month basis).

Contracts 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 additional optional services purchased in conjunction with entering into a contract that can be cancelled at any time and therefore are not included in the transaction price. 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.contracts that are not accounted for as month-to-month contracts.

Our Consumer group customers also include traditional wholesale resellers that purchase and resell wireless service under their own brands to their respective customers. Reseller arrangements generally include a stated contract term, which typically extends longer than two years and, in some cases, include a periodic minimum revenue commitment over the contract term for which revenues will be recognized in future periods.

Consumer customer contracts for wireline services generally have a service term of two years; however, this term may be shorter than twelve months or may be month-to-month. Certain contracts with Business customers for wireline services extend into future periods, contain fixed monthly fees and usage-based fees, and can include annual commitments in each year of the contract or commitments over the entire specified contract term; however, a significant number of contracts for wireline services with our Business customers have a contract term that is twelve months or less.

Additionally, there are certain contracts with Business customers for wireline and telematics services and certain Verizon Media contracts with customers that have a contractual minimum fee over the total contract term. We cannot predict the time period when revenue will be recognized related to those contracts; thus, they are excluded from the time bands below. These contracts have varying terms spanning over approximately five years ending in September 2024February 2025 and have aggregate contract minimum payments totaling $3.7$3.2 billion.

At September 30, 2019,March 31, 2020, the transaction price related to unsatisfied performance obligations for total Verizon that is expected to be recognized for 2019,the remainder of 2020, 2021 and thereafter was $5.8$16.1 billion, $17.3$11.3 billion and $7.6$2.0 billion, respectively. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations and changes in the timing and scope of contracts, arising from contract modifications.

The timing of revenue recognition may differ from the time of billing to our customers. Receivables presented in our condensed consolidated balance sheetsheets 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

Contract assets primarily relate to our rights to consideration for goods or services provided to customers but for which we do not have an unconditional right at the reporting date. Under a fixed-term plan, total contract revenue is allocated between wireless service 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 when the performance obligation related to the transfer of control of the equipment is satisfied. The contract asset is reclassified to 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 sheetsheets as Prepaid expenses and other and Other assets. We assess our contract assetsrecognize the allowance for impairmentexpected credit losses at inception and reassess quarterly based on a quarterly basis and will recognize an impairment charge tomanagement’s expectation of the extent their carrying amount is not recoverable.asset’s collectability.    

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 sheetsheets 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 sheetsheets 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 incremental costs that would not have been incurred absent the customer 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. Costs 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. Costs to obtain wireline contracts are amortized as expense over the estimated customer

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 as we satisfy our performance obligations and recorded in Cost of services. These costs principally relate to direct costs that enhance our wireline 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.

Collectively, costs to obtain a contract and costs to fulfill a contract are referred to as deferred contract costs, and amortized over a two- to five-year period. Deferred contract costs are classified as current or non-current within Prepaid expenses and other and Other assets, respectively.

The balances of deferred contract costs included in our condensed consolidated balance sheetsheets were as follows:

For the three and nine months ended September 30,March 31, 2020 and 2019, we recognized expense of $687$778 million and $1.9 billion, respectively, associated with the amortization of deferred 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$615 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 deferred 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 0 impairment charges recognized for the three and nine months ended September 30, 2019March 31, 2020 or September 30, 2018.March 31, 2019.

During both the three and nine months ended September 30, 2019,March 31, 2020, we entered into and completed various other wireless license transactionsacquisitions for an insignificant amountcash consideration of cash consideration.approximately $146 million.

In 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 forDuring the three and nine months ended September 30, 2019.

The carrying amounts of Wireless licenses are as follows:

At September 30,March 31, 2020 and 2019, and 2018, approximately $6.5$3.5 billion and $11.1$7.2 billion, respectively, of wireless licenses were under development for commercial service for which we were capitalizing interest costs. We recorded approximately $248$64 million and $406$88 million of capitalized interest on wireless licenses for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively.

The average remaining renewal period of our wireless licenses portfolio was 4.14.5 years as of September 30, 2019.March 31, 2020.

 

The following table displays the composition of Other intangible assets, net:net as well as the respective amortization period:

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:

The following table shows the transactions that occurred during the ninethree months ended September 30, 2019.March 31, 2020.

As of September 30, 2019,March 31, 2020, we had 0 commercial paper outstanding. In April 2020, we issued $3.5 billion in commercial paper, $2.5 billion of which has a maturity date during the three months ended June 30, 2020 and $1.0 billion of which has a maturity date during the three months ended September 30, 2020.

During the ninethree months ended September 30, 2019,March 31, 2020, we completed the following ABS Notes transactions:

Under the terms of each series of ABS Notes, there is a two yeartwo-year revolving period during which we may transfer additional receivables to the ABS Entity. In April 2019, the two year revolving period of the ABS Notes issued in March 2017 ended and we began to repay principal on the 2017-1 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 2017-2 Class A Notes. During the three and nine months ended September 30, 2019,March 31, 2020, we made aggregate principal repayments of $956$979 million and $2.3 billion, respectively, for allon 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.that have entered the amortization period.

In May 2018,2019, we entered intoamended and restated an ABS financing facility originally entered into in 2016 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(the 2019 the remaining $540 million outstanding under the loan agreement was prepaid, and the loan agreement was terminated.

we prepaid $1.3 billion of 2019, we paid off both the 2016 and 2017 loans for an aggregate of $671 million primarily with proceeds fromloan under the 2019 loan agreement. In August 2019,March 2020, we prepaid $1.5borrowed an additional $1.3 billion of the loan made in May 2019 under the 2019 ABS Financing Facility. As of September 30, 2019, there was anloan agreement. The aggregate outstanding balance under the 2019 ABS Financing Facility was $3.3 billion as of $250 million.March 31, 2020.

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.

See Note 76 for additional information on device payment plan agreement receivables used to secure asset-backed debt.

During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, we financed, primarily through vendor financing arrangements, the purchase of approximately $356$502 million and $967$115 million, respectively, of long-lived assets consisting primarily of network equipment. At both September 30,March 31, 2020 and 2019, and 2018, $1.0$1.5 billion and $1.1$1.0 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.

We guarantee the debentures of our operating telephone company subsidiaries. As of September 30, 2019, $796March 31, 2020, $765 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 September 30, 2019, $423March 31, 2020, $391 million aggregate principal amount of these obligations remained outstanding.