The following table displays the amounts recorded in Long-term debt in our condensed consolidated balance sheets related to cumulative basis adjustments for our interest rate swaps designated as fair value hedges. The cumulative amounts exclude cumulative basis adjustments related to foreign exchange risk.
At September 30,
At December 31,
(dollars in millions)
2024
2023
Carrying amount of hedged liabilities
$
20,853
$
21,838
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities
(4,033)
(4,354)
Cumulative amount of fair value hedging adjustment remaining for which hedge accounting has been discontinued
327
400
Interest Rate Swaps
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against interest rate risk exposure of designated debt issuances. We record the interest rate swaps at fair value in our condensed consolidated balance sheets as assets and liabilities. Changes in the fair value of the interest rate swaps are recorded to Interest expense, which are primarily offset by changes in the fair value of the hedged debt due to changes in interest rates.
Cross Currency Swaps
We have entered into cross currency swaps to exchange our British Pound Sterling, Euro, Swiss Franc, Canadian Dollar and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses. These swaps are designated as fair value hedges. We record the cross currency swaps at fair value in our condensed consolidated balance sheets as assets and liabilities. Changes in the fair value of the cross currency swaps attributable to changes in the spot rate of the hedged item and changes in the recorded value of the hedged debt due to changes in spot rates are recorded in the same income statement line item. We present exchange gains and losses from the conversion of foreign currency denominated debt as a part of Interest expense. During both the three and nine months ended September 30, 2024 and September 30, 2023, these amounts completely offset each other and no net gain or loss was recorded.
Changes in the fair value of cross currency swaps attributable to time value and cross currency basis spread are initially recorded to Other comprehensive income (loss). Unrealized gains or losses on excluded components are recorded in Other comprehensive income (loss) and are recognized into Interest expense on a systematic and rational basis through the swap accrual over the life of the hedging instrument. The amount remaining in Accumulated other comprehensive loss related to cash flow hedges on the date of transition will be reclassified to earnings when the hedged item is recognized in earnings or when it becomes probable that the forecasted transactions will not occur.
On March 31, 2022, we elected to de-designate our cross currency swaps previously designated as cash flow hedges and re-designated these swaps as fair value hedges. For these hedges, we elected to exclude the change in fair value of the cross currency swaps related to both time value and cross currency basis spread from the assessment of hedge effectiveness (the excluded components). The initial value of the excluded components of $1.0 billion as of March 31, 2022 will continue to be amortized into Interest expense over the remaining life of the hedging instruments. During both the three and nine months ended September 30, 2024 and September 30, 2023, the amortization of the initial value of the excluded component completely offset the amortization related to the amount remaining in Other comprehensive income (loss) related to cash flow hedges. See Note 9 for additional information. We estimate that $93 million will be amortized into Interest expense within the next 12 months.
Treasury Rate Locks
We enter into treasury rate locks designated as cash flow hedges to mitigate our interest rate risk on future transactions. We recognize gains and losses resulting from interest rate movements in Other comprehensive income (loss).
Net Investment Hedges
We have designated certain foreign currency debt instruments as net investment hedges to mitigate foreign exchange exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. The notional amount of Euro-denominated debt designated as a net investment hedge was €750 million as of both September 30, 2024 and December 31, 2023.
Undesignated Derivatives
We also have the following derivative contracts which we use as economic hedges but for which we have elected not to apply hedge accounting.
The following table summarizes the activity of our derivatives not designated in hedging relationships:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2024
2023
2024
2023
Foreign Exchange Forwards:
Notional value entered into
$
1,660
$
2,800
$
6,940
$
8,225
Notional value settled
1,640
2,785
7,370
8,150
Pre-tax gain (loss) recognized in Other income, net
21
(39)
(2)
(17)
Foreign Exchange Forwards
We enter into British Pound Sterling and Euro foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional currency denominated monetary assets and liabilities of international subsidiaries.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments, short-term and long-term investments, trade receivables, including device payment plan agreement receivables, certain notes receivable, including lease receivables, and derivative contracts.
Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. The CSA agreements contain fixed cap amounts or rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding positions as compared to established thresholds or caps and changes in credit ratings. We do not offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value. At September 30, 2024, we did not hold any collateral. At September 30, 2024, we posted $1.7 billion of collateral related to derivative contracts under collateral exchange agreements, which was recorded as Prepaid expenses and other in our condensed consolidated balance sheet. At December 31, 2023, we did not hold any collateral. At December 31, 2023, we posted $1.4 billion of collateral related to derivative contracts under collateral exchange arrangements, which was recorded as Prepaid expenses and other in our condensed consolidated balance sheet. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote and do not expect that any such nonperformance would result in a significant effect on our results of operations or financial condition due to our diversified pool of counterparties.
Note 8. Employee Benefits
We maintain non-contributory defined benefit pension plans for certain employees. In addition, we maintain postretirement health care and life insurance plans for certain retirees and their dependents, which are both contributory and non-contributory, and include a limit on our share of the cost for certain current and future retirees. In accordance with our accounting policy for pension and other postretirement benefits, operating expenses include service costs associated with pension and other postretirement benefits while other credits and/or charges based on actuarial assumptions, including projected discount rates, an estimated return on plan assets, and impact from health care trend rates are reported in Other income, net. These estimates are updated in the fourth quarter or upon a remeasurement event, to reflect actual return on plan assets and updated actuarial assumptions. The adjustment is recognized in the income statement during the fourth quarter and upon a remeasurement event pursuant to our accounting policy for the recognition of actuarial gains and losses.
The following table summarizes the components of net periodic benefit cost (income) related to our pension and postretirement health care and life insurance plans:
(dollars in millions)
Pension
Health Care and Life
Three Months Ended September 30,
2024
2023
2024
2023
Service cost - Cost of services
$
39
$
46
$
11
$
11
Service cost - Selling, general and administrative expense
6
6
2
2
Service cost
$
45
$
52
$
13
$
13
Amortization of prior service cost (credit)
$
28
$
28
$
(32)
$
(105)
Expected return on plan assets
(134)
(254)
(7)
(9)
Interest cost
111
188
136
137
Remeasurement gain, net
(46)
—
—
—
Other components
$
(41)
$
(38)
$
97
$
23
Total
$
4
$
14
$
110
$
36
(dollars in millions)
Pension
Health Care and Life
Nine Months Ended September 30,
2024
2023
2024
2023
Service cost - Cost of services
$
119
$
137
$
33
$
34
Service cost - Selling, general and administrative expense
19
20
6
6
Service cost
$
138
$
157
$
39
$
40
Amortization of prior service cost (credit)
$
84
$
84
$
(96)
$
(314)
Expected return on plan assets
(482)
(760)
(21)
(24)
Interest cost
380
564
407
409
Remeasurement loss, net
17
—
—
—
Other components
$
(1)
$
(112)
$
290
$
71
Total
$
137
$
45
$
329
$
111
The service cost component of net periodic benefit cost (income) is recorded in Cost of services and Selling, general and administrative expense in the condensed consolidated statements of income while the other components, including mark-to-market adjustments, if any, are recorded in Other income, net.
During the nine months ended September 30, 2024, we updated the expected return on plan assets assumption for our pension plans from 7.50% at December 31, 2023 to 8.00% based upon the expected market returns from the March 31, 2024 asset allocation.
Pension Annuitization
On February 29, 2024, we entered into two separate commitment agreements, one by and between the Company, State Street Global Advisors Trust Company (State Street), as independent fiduciary of the Verizon Management Pension Plan and Verizon Pension Plan for Associates (the Pension Plans), and The Prudential Insurance Company of America (Prudential), and one by and between the Company, State Street and RGA Reinsurance Company (RGA), under which the Pension Plans purchased nonparticipating single premium group annuity contracts from Prudential and RGA, respectively, to settle approximately $5.9 billion of benefit liabilities of the Pension Plans.
The purchase of the group annuity contracts closed on March 6, 2024. The group annuity contracts primarily cover a population that includes 56,000 retirees who commenced benefit payments from the Pension Plans prior to January 1, 2023 (Transferred Participants). Prudential and RGA each irrevocably guarantee and assume the sole obligation to make future payments to the Transferred Participants as provided under their respective group annuity contracts, with direct payments beginning July 1, 2024. The aggregate amount of each Transferred Participant's payment under the group annuity contracts will be equal to the amount of each individual’s payment under the Pension Plans.
The purchase of the group annuity contracts was funded directly by transferring $5.7 billion of assets of the Pension Plans. The Company made additional contributions to the Pension Plans prior to the closing date of the transaction, as discussed below. With these contributions, the funded ratio of each of the Pension Plans does not change as a result of this transaction. During the three months ended March 31, 2024, we recorded a net pre-tax settlement gain as a result of this transaction, as discussed below.
Pension plan assets and liabilities are primarily presented within Employee benefit obligations in our condensed consolidated balance sheets.
2024 Voluntary Separation Program
In June 2024, we announced a voluntary separation program for select U.S.-based management employees. Approximately 4,800 eligible employees will separate from Verizon under this program by the end of March 2025, with more than half of these employees having exited in September of 2024. Principally as a result of this program, but also as a result of other headcount reduction initiatives, we recorded a severance charge of $1.7 billion ($1.3 billion after-tax) during the three and nine months ended September 30, 2024, which was recorded in Selling, general and administrative expense in our condensed consolidated statement of income.
Severance Payments
During the three and nine months ended September 30, 2024, we paid severance benefits of $188 million and $366 million, respectively.
At September 30, 2024, we had a remaining severance liability of $1.7 billion, the majority of which relates to future contractual payments to separated employees under the voluntary separation program.
Employer Contributions
During the nine months ended September 30, 2024, we made discretionary contributions to the Pension Plans in the aggregate amount of $365 million. During the nine months ended September 30, 2023, we made a discretionary contribution to one of our qualified pension plans in the amount of $200 million.
During both the three and nine months ended September 30, 2024 and September 30, 2023, we made insignificant contributions to our nonqualified pension plans. No mandatory qualified pension plans contributions are expected or required through December 31, 2024. No significant changes are expected with respect to the nonqualified pension and other postretirement benefit plans contributions in 2024.
Remeasurement loss (gain), net
During the three and nine months ended September 30, 2024, we recorded an insignificant net pre-tax remeasurement gain and loss, respectively, in our pension plans triggered by settlements.
During the three months ended June 30, 2024, we recorded a net pre-tax remeasurement loss of $136 million in our pension plans triggered by settlements. The remeasurement loss was primarily driven by a $245 million charge resulting from the difference between our estimated and actual return on assets, partially offset by a credit of $109 million due to changes in our discount rate assumption used to determine the current year liabilities of our pension plans.
During the three months ended March 31, 2024, we recorded a net pre-tax remeasurement gain of $73 million in our pension plans due to a net pre-tax settlement gain of $200 million resulting from the pension annuitization transaction discussed above, partially offset by a net pre-tax remeasurement loss of $127 million triggered by settlements. The net pre-tax remeasurement loss recorded for the three months ended March 31, 2024, was primarily driven by a $613 million charge resulting from the difference between our estimated and actual return on assets, partially offset by a credit of $486 million due to changes in our discount rate assumption used to determine the current year liabilities of our pension plans.
(dollars in millions, except per share amounts, and shares in thousands)
Shares
Amount
Shares
Amount
Common Stock
Balance at beginning of period
4,291,434
$
429
4,291,434
$
429
Balance at end of period
4,291,434
429
4,291,434
429
Additional Paid In Capital
Balance at beginning of period
13,631
13,420
Other(1)
(152)
104
Balance at end of period
13,479
13,524
Retained Earnings
Balance at beginning of period
82,915
82,380
Net income attributable to Verizon
12,501
14,319
Dividends declared ($2.0075, $1.9700 per share)
(8,454)
(8,285)
Other
(4)
2
Balance at end of period
86,958
88,416
Accumulated Other Comprehensive Loss
Balance at beginning of period attributable to Verizon
(1,380)
(1,865)
Foreign currency translation adjustments
9
(31)
Unrealized gain on cash flow hedges
60
67
Unrealized gain (loss) on fair value hedges
(350)
575
Unrealized gain (loss) on marketable securities
2
(3)
Defined benefit pension and postretirement plans
(6)
(171)
Other comprehensive income (loss)
(285)
437
Balance at end of period attributable to Verizon
(1,665)
(1,428)
Treasury Stock
Balance at beginning of period
(87,173)
(3,821)
(91,572)
(4,013)
Employee plans
5,364
236
4,237
185
Shareholder plans
2
—
3
—
Balance at end of period
(81,807)
(3,585)
(87,332)
(3,828)
Deferred Compensation-ESOPs and Other
Balance at beginning of period
656
793
Restricted stock equity grant
415
225
Amortization
(361)
(390)
Balance at end of period
710
628
Noncontrolling Interests
Balance at beginning of period
1,369
1,319
Total comprehensive income
334
349
Distributions and other(1)
(361)
(321)
Balance at end of period
1,342
1,347
Total Equity
$
97,668
$
99,088
(1) 2024 period includes adjustments related to the acquisition of additional interests in certain controlled entities.
Common Stock
Verizon did not repurchase any shares of the Company's common stock through its previously authorized share buyback program during the nine months ended September 30, 2024. At September 30, 2024, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 100 million.
Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareholder plans, including 5.4 million shares of common stock issued from treasury stock during the nine months ended September 30, 2024.
During the three and nine months ended September 30, 2024, Verizon entered into and completed agreements to acquire additional interests in certain controlled entities for cash consideration of $124 million and $266 million, respectively. Verizon continues to retain controlling financial interest within these entities; therefore, the changes in ownership interest were accounted for as equity transactions. This resulted in a reduction of additional paid-in capital of $87 million and $213 million and noncontrolling interest of an insignificant amount and $53 million for the three and nine months ended September 30, 2024, respectively. These transactions were recorded within Other, net cash flow from financing activities in our condensed consolidated statement of cash flows for the nine months ended September 30, 2024.
Accumulated Other Comprehensive Loss
The changes in the balances of Accumulated other comprehensive loss by component were as follows:
(dollars in millions)
Foreign currency translation adjustments
Unrealized gain (loss) on cash flow hedges
Unrealized gain (loss) on fair value hedges
Unrealized gain (loss) on marketable securities
Defined benefit pension and postretirement plans
Total
Balance at January 1, 2024
$
(636)
$
(1,062)
$
105
$
(2)
$
215
$
(1,380)
Excluded components recognized in other comprehensive income
—
—
(304)
—
—
(304)
Other comprehensive income (loss)
9
(16)
—
2
—
(5)
Amounts reclassified to net income
—
76
(46)
—
(6)
24
Net other comprehensive income (loss)
9
60
(350)
2
(6)
(285)
Balance at September 30, 2024
$
(627)
$
(1,002)
$
(245)
$
—
$
209
$
(1,665)
The amounts presented above in Net other comprehensive income (loss) are net of taxes. The amounts reclassified to net income related to unrealized gain (loss) on cash flow hedges and unrealized gain (loss) on fair value hedges in the table above are included in Other income, net and Interest expense in our condensed consolidated statements of income. See Note 7 for additional information. The amounts reclassified to net income related to unrealized gain (loss) on marketable securities and defined benefit pension and postretirement plans in the table above are included in Other income, net in our condensed consolidated statements of income. See Note 8 for additional information.
Note 10. Segment Information
Reportable Segments
We have two reportable segments that we operate and manage as strategic business units - Consumer and Business. We measure and evaluate our reportable segments based on segment operating income, consistent with the chief operating decision maker's assessment of segment performance.
Our segments and their principal activities consist of the following:
Segment
Description
Verizon Consumer Group
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are provided across one of the most extensive wireless networks in the U.S. under the Verizon family of brands and through wholesale and other arrangements. We also provide fixed wireless access (FWA) broadband through our 5G or 4G LTE networks as an alternative to traditional landline internet access. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who are not served by Fios.
Verizon Business Group
Our Business segment provides wireless and wireline communications services and products, including FWA broadband, data, video and conferencing services, corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver various Internet of Things services and products. We provide these products and services to businesses, government customers and wireless and wireline carriers across the U.S. and a subset of these products and services to customers around the world.
Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as resellers that purchase wireless network access from us on a wholesale basis. Our Business segment's wireless and wireline products
and services are organized by the primary customer groups targeted by these offerings: Enterprise and Public Sector, Business Markets and Other, and Wholesale.
Other components of net periodic benefit charges (Note 8)
(8)
(62)
(25)
(186)
Asset and business rationalization
(374)
—
(374)
(155)
Legacy legal matter
—
—
(106)
—
Non-strategic business shutdown
—
(179)
—
(179)
Business transformation costs
—
(176)
—
(176)
Total consolidated operating income
5,926
7,473
21,265
22,277
Equity in losses of unconsolidated businesses
(24)
(18)
(47)
(42)
Other income, net
72
170
198
494
Interest expense
(1,672)
(1,433)
(5,005)
(3,925)
Income Before Provision For Income Taxes
$
4,302
$
6,192
$
16,411
$
18,804
No single customer accounted for more than 10% of our total operating revenues during the three and nine months ended September 30, 2024 or 2023.
The chief operating decision maker does not review disaggregated assets on a segment basis; therefore, such information is not presented. Depreciation and amortization included in the measure of segment profitability is primarily allocated based on proportional usage, and is included within Total reportable segments operating income.
Note 11. Additional Financial Information
We maintain a voluntary supplier finance program with a financial institution which provides certain suppliers the option, at their sole discretion, to participate in the program and sell their receivables due from Verizon to the financial institution on a non-recourse basis. As of September 30, 2024 and December 31, 2023, $558 million and $817 million, respectively, remained as confirmed obligations outstanding related to suppliers participating in the supplier finance program.
Note 12. Commitments and Contingencies
In the ordinary course of business, Verizon is involved in various litigation and regulatory proceedings at the state and federal level. Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is probable and
estimable in a given matter, Verizon establishes an accrual. In none of the currently pending matters is the amount of accrual material. An estimate of the reasonably possible loss or range of loss in excess of the amounts already accrued cannot be made at this time due to various factors typical in contested proceedings, including: (1) uncertain damage theories and demands; (2) a less than complete factual record; (3) uncertainty concerning legal theories and their resolution by courts or regulators; and (4) the unpredictable nature of the opposing party and its demands. We continuously monitor these proceedings as they develop and adjust any accrual or disclosure as needed. We do not expect that the ultimate resolution of any pending regulatory or legal matter in future periods will have a material effect on our financial condition, but it could have a material effect on our results of operations for a given reporting period.
Verizon is currently involved in approximately 30 federal district court actions alleging that Verizon is infringing various patents. Most of these cases are brought by non-practicing entities and effectively seek only monetary damages; a small number are brought by companies that have sold products and could seek injunctive relief as well. These cases have progressed to various stages and a small number have gone to trial or may go to trial in the coming 12 months if they are not otherwise resolved.
In connection with the execution of agreements for the sales of businesses and investments, Verizon ordinarily provides representations and warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being sold, as well as indemnity from certain financial losses. From time to time, counterparties may make claims under these provisions, and Verizon will seek to defend against those claims and resolve them in the ordinary course of business.
As of September 30, 2024, Verizon had 28 renewable energy purchase agreements (REPAs) with third parties. Each of the REPAs is based on the expected operation of a renewable energy-generating facility and has a fixed price term of 12 to 20 years from the commencement of the facility's entry into commercial operation. Sixteen of the facilities have entered into commercial operation, and the remainder are under development. The REPAs generally are expected to be financially settled based on the prevailing market price as energy is generated by the facilities.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Verizon Communications Inc. (the Company) is a holding company that, acting through its subsidiaries (together with the Company, collectively, Verizon), is one of the world's leading providers of communications, technology, information and entertainment products and services to consumers, businesses and government entities. With a presence around the world, we offer data, video and voice services and solutions on our networks and platforms that are designed to meet customers’ demand for mobility, reliable network connectivity and security.
To compete effectively in today's dynamic marketplace, we are focused on the capabilities of our high-performing networks to drive growth based on delivering what customers want and need in the digital world. We are consistently deploying new network architecture and technologies to secure our leadership in both fourth-generation (4G) and fifth-generation (5G) wireless networks. Our network quality is the hallmark of our brand and the foundation for the connectivity, platforms and solutions upon which we build our competitive advantage. In 2024, we are focused on enhancing and driving the monetization of our networks, platforms and solutions, retaining and growing our high-quality customer base and further improving our financial and operating performance.
Our strategy requires significant capital investments primarily to acquire wireless spectrum, put the spectrum into service, provide additional capacity for growth in our networks, invest in the fiber that supports our businesses, evolve and maintain our networks and develop and maintain significant advanced information technology systems and data system capabilities. We believe that our C-Band spectrum, together with our industry leading millimeter wave spectrum holdings and our 4G Long-Term Evolution (LTE) network and fiber infrastructure, will drive innovative products and services and fuel our growth.
Highlights of Our Financial Results for the Three Months Ended September 30, 2024 and 2023
Highlights of Our Financial Results for the Nine Months Ended September 30, 2024 and 2023
(dollars in millions)
Business Overview
We have two reportable segments that we operate and manage as strategic business units - Verizon Consumer Group (Consumer) and Verizon Business Group (Business).
Revenue by Segment for the Three Months Ended September 30, 2024 and 2023
Revenue by Segment for the Nine Months Ended September 30, 2024 and 2023
———
Note: Excludes eliminations.
Verizon Consumer Group
Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are provided across one of the most extensive wireless networks in the United States (U.S.) under the Verizon family of brands and through wholesale and other arrangements. We also provide fixed wireless access (FWA) broadband through our 5G or 4G LTE networks as an alternative to traditional landline internet access. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who are not served by Fios. Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as resellers that purchase wireless network access from us on a wholesale basis.
Customers can obtain our wireless services on a postpaid or prepaid basis. Our postpaid service is generally billed one month in advance for a monthly access charge in return for access to and usage of network services. Our prepaid service is offered only to Consumer customers and enables individuals to obtain wireless services without credit verification by paying for all services in advance. The Consumer segment also offers several categories of wireless equipment to customers, including a variety of smartphones and other handsets, wireless-enabled internet devices, such as tablets, and other wireless-enabled connected devices, such as smart watches.
Where applicable, the operating results reflect certain adjustments, including those related to the 3G network shutdowns, migration activity among different types of devices and plans, customer profile changes, and adjustments in connection with mergers, acquisitions and divestitures.
Business's total operating revenues decreased during both the three and nine months ended September 30, 2024 compared to the similar periods in 2023 as a result of decreases in Enterprise and Public Sector and Wholesale revenues, partially offset by an increase in Business Markets and Other revenue.
Enterprise and Public Sector
Enterprise and Public Sector offers wireless products and services as well as wireline connectivity and managed solutions to our large business and government customers. Large businesses are identified based on their size and volume of business with Verizon. Public sector offers these services with features and pricing designed to address the needs of U.S. federal, state and local governments and educational institutions.
Enterprise and Public Sector revenues decreased during both the three and nine months ended September 30, 2024 compared to the similar periods in 2023 primarily due to a decrease of $207 million and $556 million, respectively, in wireline revenue primarily driven by declines in networking, traditional data and voice communication services along with related professional services, due to secular market pressure and technology shifts, coupled with lower customer premise equipment sales volumes.
Business Markets and Other
Business Markets and Other offers wireless services and equipment, conferencing services, tailored voice and networking products, Fios services, advanced voice solutions and security services to our business customers that ordinarily do not meet the requirements to be categorized as Enterprise and Public Sector, as described above. Business Markets and Other also includes solutions that support mobile resource management.
Business Markets and Other revenues increased during both the three and nine months ended September 30, 2024 compared to the similar periods in 2023.
The increase during the three months ended September 30, 2024 was primarily due to an increase of $130 million in Wireless service revenue driven by pricing actions and an increase in our FWA subscriber base.
The increase during the nine months ended September 30, 2024 was primarily the result of:
•an increase of $353 million in Wireless service revenue driven by pricing actions and an increase in our FWA subscriber base; and
•a decrease of $69 million in connection with the shutdown of our BlueJeans business offering in 2023 and a decline in core voice communication revenues.
Wholesale
Wholesale offers wireline communications services including data, voice, local dial tone and broadband services primarily to local, long distance, and wireless carriers that use our facilities to provide services to their customers.
Wholesale revenues remained relatively flat during the three months ended September 30, 2024 and decreased during the nine months ended September 30, 2024 compared to the similar periods in 2023.
The decrease during the nine months ended September 30, 2024 was primarily due to a decline of $53 million in traditional voice communication and network connectivity as a result of technology substitution, as well as a decrease in core data.
Operating Expenses
Three Months Ended
Nine Months Ended
September 30,
Increase/
September 30,
Increase/
(dollars in millions)
2024
2023
Decrease
2024
2023
(Decrease)
Cost of services
$
2,440
$
2,536
$
(96)
(3.8)
%
$
7,327
$
7,661
$
(334)
(4.4)
%
Cost of wireless equipment
1,197
1,220
(23)
(1.9)
3,487
3,606
(119)
(3.3)
Selling, general and administrative expense
2,109
2,105
4
0.2
6,503
6,290
213
3.4
Depreciation and amortization expense
1,040
1,127
(87)
(7.7)
3,246
3,324
(78)
(2.3)
Total Operating Expenses
$
6,786
$
6,988
$
(202)
(2.9)
$
20,563
$
20,881
$
(318)
(1.5)
Cost of Services
Cost of services decreased during both the three and nine months ended September 30, 2024 compared to the similar periods in 2023.
The decrease during the three months ended September 30, 2024 was primarily due to:
•a decrease of $37 million in access costs primarily related to changes in usage and net circuit access prices; and
•a decrease of $27 million in rent and lease expense primarily driven by a change in Business's proportionate usage of shared leased assets.
The decrease during the nine months ended September 30, 2024 was primarily due to:
•a decrease of $83 million in personnel costs related to the impact of workforce changes, partially offset by certain other post-employment benefit credits in 2023 that did not reoccur in 2024;
•a decrease of $74 million in customer premise equipment costs due to lower volumes sold;
•a decrease of $66 million in rent and lease expense primarily driven by a change in Business's proportionate usage of shared leased assets; and
•a decrease of $66 million in access costs primarily related to changes in usage and net circuit access prices.
Cost of Wireless Equipment
Cost of wireless equipment decreased during both the three and nine months ended September 30, 2024 compared to the similar periods in 2023 primarily as a result of:
•a decrease of $114 million and $321 million for the three and nine months, respectively, driven by a lower volume of wireless devices sold; and
•an increase of $91 million and $202 million for the three and nine months, respectively, due to a shift to higher priced equipment in the mix of wireless devices sold.
Selling, General and Administrative Expense
Selling, general and administrative expense remained relatively flat during the three months ended September 30, 2024 and increased during the nine months ended September 30, 2024 compared to the similar periods in 2023.
The increase during the nine months ended September 30, 2024 was primarily the result of:
•an increase of $260 million in personnel costs primarily related to an increase in costs associated with the transition to third-party contracted resources along with the impacts of a prior year compensation plan assumption change that did not reoccur; and
•a decrease of $53 million in the provision for credit losses resulting from a reduction in bad debt reserves.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased during the three and nine months ended September 30, 2024 compared to the similar periods in 2023 driven by the change in the mix of total Verizon depreciable and amortizable assets and Business's usage of those assets.
Segment Operating Income and EBITDA
Three Months Ended
Nine Months Ended
September 30,
Increase/
September 30,
(dollars in millions)
2024
2023
Decrease
2024
2023
Decrease
Segment Operating Income
$
565
$
539
$
26
4.8
%
$
1,464
$
1,623
$
(159)
(9.8)
%
Add Depreciation and amortization expense
1,040
1,127
(87)
(7.7)
3,246
3,324
(78)
(2.3)
Segment EBITDA
$
1,605
$
1,666
$
(61)
(3.7)
$
4,710
$
4,947
$
(237)
(4.8)
Segment operating income margin
7.7
%
7.2
%
6.6
%
7.2
%
Segment EBITDA margin
21.8
%
22.1
%
21.4
%
22.0
%
The changes in the table above during the three and nine months ended September 30, 2024 compared to the similar periods in 2023 were primarily a result of the factors described in connection with Business operating revenues and operating expenses.
Special Items
Special items included in Income Before Provision For Income Taxes were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2024
2023
2024
2023
Amortization of acquisition-related intangible assets(1)
Depreciation and amortization expense
$
186
$
224
$
626
$
638
Severance, pension and benefits charges
Selling, general and administrative expense
1,733
—
1,733
237
Other (income) expense, net
—
—
136
—
Asset and business rationalization
Cost of Services
189
—
189
14
Selling, general and administrative expense
185
—
185
141
Legacy legal matter
Selling, general and administrative expense
—
—
106
—
Business transformation costs
Cost of services
—
15
—
15
Selling, general and administrative expense
—
161
—
161
Non-strategic business shutdown
Depreciation and amortization expense
—
21
—
21
Cost of services
—
45
—
45
Selling, general and administrative expense
—
113
—
113
Total
$
2,293
$
579
$
2,975
$
1,385
(1) Amounts are included in segment results of operations.
Consolidated Adjusted EBITDA, a non-GAAP measure discussed in the section titled "Consolidated Net Income, Consolidated EBITDA and Consolidated Adjusted EBITDA" as part of Consolidated Results of Operations, excludes all of the amounts included above.
The income and expenses related to special items included in our condensed consolidated results of operations were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2024
2023
2024
2023
Within Total Operating Expenses
$
2,293
$
579
$
2,839
$
1,385
Within Other (income) expense, net
—
—
136
—
Total
$
2,293
$
579
$
2,975
$
1,385
Amortization of Acquisition-Related Intangible Assets
During the three and nine months ended September 30, 2024, we recorded pre-tax amortization expense of $186 million and $626 million, respectively, related to acquired intangible assets.
During the three and nine months ended September 30, 2023, we recorded pre-tax amortization expense of $224 million and $638 million, respectively, related to the acquired intangible assets.
Severance, Pension and Benefits Charges
During both the three and nine months ended September 30, 2024, we recorded pre-tax severance charges of $1.7 billion related to separations under our voluntary separation program for select U.S.-based management employees as well as other headcount reduction initiatives.
During the nine months ended September 30, 2024, we recorded a net pre-tax remeasurement loss of $136 million in our pension plans triggered by settlements. The remeasurement loss was primarily driven by a $245 million charge resulting from the difference between our estimated and actual return on assets, partially offset by a credit of $109 million due to changes in our discount rate assumption used to determine the current year liabilities of our pension plans.
During the nine months ended September 30, 2023, we recorded pre-tax severance charges of $237 million related to involuntary separations under our existing plans.
See Note 8 to the condensed consolidated financial statements for additional information.
Asset and Business Rationalization
During both the three and nine months ended September 30, 2024, we recorded a pre-tax asset and business rationalization charge of $374 million predominately related to the decision to cease use of certain real estate assets and exit non-strategic portions of certain businesses as part of our continued transformation initiatives.
During the nine months ended September 30, 2023, we recorded a pre-tax asset rationalization charge of $155 million driven by certain real estate and non-strategic assets that we made a decision to cease use of as part of our transformation initiatives.
Legacy Legal Matter
During the nine months ended September 30, 2024, we recorded a pre-tax charge of $106 million associated with a litigation matter related to a legacy contract for the production of telephone directories in Costa Rica by a subsidiary of the Company.
Business Transformation Costs
During both the three and nine months ended September 30, 2023, we recorded pre-tax charges of $176 million primarily related to costs incurred in connection with strategic partnership initiatives in our managed network support services for certain Business customers.
Non-Strategic Business Shutdown
During both the three and nine months ended September 30, 2023, we recorded pre-tax charges of $179 million related to the shutdown of our BlueJeans business offering.
Increase in cash, cash equivalents and restricted cash
$
1,890
$
1,549
$
341
We use the net cash generated from our operations to invest in new businesses and spectrum, fund expansion and modernization of our networks, pay dividends, service and repay external financing and, when appropriate, buy back shares of our outstanding common stock. Our sources of funds, primarily from operations and, to the extent necessary, from external financing arrangements, are sufficient to meet ongoing operating and investing requirements over the next 12 months and beyond.
Our cash and cash equivalents are held both domestically and internationally, and are invested to maintain principal and provide liquidity. See "Market Risk" for additional information regarding our foreign currency risk management strategies.
We expect that our capital spending requirements will continue to be financed primarily through internally generated funds. Debt or equity financing may be needed to fund additional investments or development activities, including, for example, to complete our acquisition of Frontier, or to maintain an appropriate capital structure to ensure our financial flexibility. Our external financing arrangements include credit facilities and other bank lines of credit, an active commercial paper program, vendor financing arrangements, issuances of registered debt or equity securities, U.S. retail medium-term notes and other securities that are privately-placed or offered overseas. In addition, we monetize certain receivables through asset-backed debt transactions.
Cash Flows Provided By Operating Activities
Our primary source of funds continues to be cash generated from operations. Net cash provided by operating activities decreased $2.3 billion during the nine months ended September 30, 2024 compared to the similar period in 2023 primarily due to higher cash income taxes paid, higher interest expense due to decreases in capitalized interest costs and higher average interest rates, and changes in working capital primarily related to timing. As a result of the prior year discretionary contribution to one of our qualified pension plans and the additional $365 million contribution made in 2024, we expect that there will be no required pension funding through the end of 2024, subject to changes in market conditions.
Cash Flows Used In Investing Activities
Capital Expenditures
Capital expenditures continue to relate primarily to the use of capital resources to enhance the operating efficiency and productivity of our networks, maintain our existing infrastructure, facilitate the introduction of new products and services and enhance responsiveness to competitive challenges.
Capital expenditures, including capitalized software, for the nine months ended September 30, 2024 and 2023 were $12.0 billion and $14.2 billion, respectively. Capital expenditures decreased approximately $2.1 billion during the nine months ended September 30, 2024 compared to the similar period in 2023 primarily due to the completion of our accelerated $10 billion capital program related to our C-Band deployment in the first half of 2023.
Acquisitions of Wireless Licenses
During the nine months ended September 30, 2024 and 2023, we made payments of $269 million and $578 million, respectively, for obligations related to clearing costs and accelerated clearing incentives associated with Auction 107.
During the nine months ended September 30, 2024 and 2023, we recorded capitalized interest related to wireless licenses of $485 million and $1.2 billion, respectively.
Collateral Receipts (Payments) Related to Derivative Contracts, Net
During the nine months ended September 30, 2024, we made collateral payments of $332 million related to derivative contracts, net of receipts. During the nine months ended September 30, 2023, we received a return of collateral posted of $162 million related to derivative contracts, net of payments. See Note 7 to the condensed consolidated financial statements for additional information.
We seek to maintain a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow volatility resulting from changes in market conditions. During the nine months ended September 30, 2024, net cash used in financing activities was $11.5 billion. During the nine months ended September 30, 2023, net cash used in financing activities was $11.6 billion.
During the nine months ended September 30, 2024, our net cash used in financing activities was primarily driven by cash dividends paid of $8.4 billion, repayments and repurchases of long-term borrowings and finance lease obligations of $6.6 billion and repayments of asset-backed long-term borrowings of $6.2 billion. These payments were partially offset by proceeds from asset-backed long-term borrowings of $8.2 billion and proceeds from long-term borrowings of $3.1 billion.
At September 30, 2024, our total debt of $150.6 billion included unsecured debt of $126.4 billion and secured debt of $24.3 billion. At December 31, 2023, our total debt of $150.7 billion included unsecured debt of $128.5 billion and secured debt of $22.2 billion. During the nine months ended September 30, 2024 and 2023, our effective interest rate was 5.1% and 4.8%, respectively. See Note 5 to the condensed consolidated financial statements for additional information regarding our debt activity, which excludes the impact from mark-to-market adjustments on foreign currency denominated debt.
Verizon may acquire debt securities issued by Verizon and its affiliates through open market purchases, redemptions, privately negotiated transactions, tender offers, exchange offers, or otherwise, upon such terms and at such prices as Verizon may from time to time determine, for cash or other consideration.
Asset-Backed Debt
Cash collections on the receivables and on the underlying receivables related to the participation interest collateralizing our asset-backed debt securities are required at certain specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in Prepaid expenses and other and Other assets in our condensed consolidated balance sheets.
Proceeds from our asset-backed debt transactions are reflected in Cash flows from financing activities in our condensed consolidated statements of cash flows. The asset-backed debt issued is included in Debt maturing within one year and Long-term debt in our condensed consolidated balance sheets.
See Note 5 to the condensed consolidated financial statements for additional information.
Long-Term Credit Facilities
At September 30, 2024
(dollars in millions)
Maturities
Facility Capacity
Unused Capacity
Principal Amount Outstanding
Verizon revolving credit facility(1)
2028
$
12,000
$
11,962
$
—
Various export credit facilities(2)
2024 - 2031
11,000
—
5,706
Total
$
23,000
$
11,962
$
5,706
(1)The revolving 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. The revolving credit facility provides for the issuance of letters of credit. As of September 30, 2024, there have been no drawings against the revolving credit facility since its inception.
(2)During the nine months ended September 30, 2024, there were no drawings from these facilities. During the nine months ended September 30, 2023, we drew down $1.0 billion from these facilities. Borrowings under certain of these facilities are repaid semi-annually in equal installments up to the applicable maturity dates. Maturities reflect maturity dates of principal amounts outstanding. Any amounts borrowed under these facilities and subsequently repaid cannot be reborrowed.
In March 2024, we amended our $9.5 billion revolving credit facility to increase the capacity to $12.0 billion and extended its maturity to 2028.
Other, Net
Other, net financing activities during the nine months ended September 30, 2024 includes $413 million in payments related to vendor financing arrangements, $309 million in equity distribution payments made for controlled entities, $266 million in cash consideration payments to acquire additional interest in certain controlled entities, $243 million in payments for settlement of cross currency swaps and $234 million in payments made under the sublease arrangement for our cell towers.
As in prior periods, dividend payments were a significant use of capital resources. We paid $8.4 billion and $8.2 billion in cash dividends during the nine months ended September 30, 2024 and 2023, respectively.
Covenants
Our credit agreements contain covenants that are typical for large, investment grade companies. These covenants include requirements to pay interest and principal in a timely fashion, pay taxes, maintain insurance with responsible and reputable insurance companies, preserve our corporate existence, keep appropriate books and records of financial transactions, maintain our properties, provide financial and other reports to our lenders, limit pledging and disposition of assets and mergers and consolidations, and other similar covenants.
We and our consolidated subsidiaries are in compliance with all of our restrictive covenants in our debt agreements.
Change In Cash, Cash Equivalents and Restricted Cash
Our Cash and cash equivalents at September 30, 2024 totaled $5.0 billion, a $2.9 billion increase compared to December 31, 2023, primarily as a result of the factors discussed above.
Restricted cash totaled $400 million and $1.4 billion as of September 30, 2024 and December 31, 2023, respectively, primarily related to cash collections on certain receivables and on the underlying receivables related to the participation interest that are required at certain specified times to be placed into segregated accounts. The decrease of $1.0 billion in restricted cash was primarily due to a change in the timing on when cash collections on certain receivables collateralizing our asset-backed debt securities are required to be placed into segregated accounts.
Free Cash Flow
Free cash flow is a non-GAAP financial measure that reflects an additional way of viewing our liquidity that, we believe, when viewed with our GAAP results, provides management, investors and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures (including capitalized software) from net cash provided by operating activities. We believe it is a more conservative measure of cash flow since capital expenditures are necessary for ongoing operations. Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate payments made on finance lease obligations or cash payments for business acquisitions or wireless licenses. Therefore, we believe it is important to view free cash flow as a complement to our entire condensed consolidated statements of cash flows.
The following table reconciles net cash provided by operating activities to free cash flow:
Nine Months Ended
September 30,
(dollars in millions)
2024
2023
Change
Net cash provided by operating activities
$
26,480
$
28,798
$
(2,318)
Less Capital expenditures (including capitalized software)
12,019
14,164
(2,145)
Free cash flow
$
14,461
$
14,634
$
(173)
The decrease in free cash flow during the nine months ended September 30, 2024 compared to the similar period in 2023 is a reflection of the decrease in operating cash flows, partially offset by the decrease in capital expenditures, both of which are discussed above.
Other Future Obligations
As of September 30, 2024, Verizon had 28 renewable energy purchase agreements with third parties for a total of approximately 3.6 gigawatts of anticipated renewable energy capacity across multiple states. See Note 12 to the condensed consolidated financial statements for additional information.
Market Risk
We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes, foreign currency exchange rate fluctuations, changes in investment, equity and commodity prices and changes in corporate tax rates. We employ risk management strategies, which may include the use of a variety of derivatives including cross currency swaps, forward starting interest rate swaps, interest rate swaps, interest rate caps, treasury rate locks and foreign exchange forwards. We do not hold derivatives for trading purposes.
It is our general policy to enter into interest rate, foreign currency and other derivative transactions only to the extent necessary to achieve our desired objectives in optimizing exposure to various market risks. Our objectives include maintaining a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow
volatility resulting from changes in market conditions. We do not hedge our market risk exposure in a manner that would completely eliminate the effect of changes in interest rates and foreign exchange rates on our earnings.
Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. The CSA agreements contain fixed cap amounts or rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding positions as compared to established thresholds or caps and changes in credit ratings. We do not offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value. At September 30, 2024, we did not hold any collateral. At September 30, 2024, we posted $1.7 billionof collateral related to derivative contracts under collateral exchange agreements, which was recorded as Prepaid expenses and other in our condensed consolidated balance sheet. At December 31, 2023, we did not hold any collateral. At December 31, 2023, we posted $1.4 billion of collateral related to derivative contracts under collateral exchange arrangements, which was recorded as Prepaid expenses and other in our condensed consolidated balance sheet. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote and do not expect that any such nonperformance would result in a significant effect on our results of operations or financial condition due to our diversified pool of counterparties. See Note 7 to the condensed consolidated financial statements for additional information regarding the derivative portfolio.
Interest Rate Risk
We are exposed to changes in interest rates, primarily on our short-term debt and the portion of long-term debt that carries floating interest rates. As of September 30, 2024, approximately 77% of the aggregate principal amount of our total debt portfolio consisted of fixed-rate indebtedness, including the effect of interest rate swap agreements designated as hedges. The impact of a 100-basis-point change in interest rates affecting our floating rate debt would result in a change in annual interest expense, including our interest rate swap agreements that are designated as hedges, of approximately $354 million. The interest rates on our existing long-term debt obligations are unaffected by changes to our credit ratings.
Interest Rate Swaps
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against interest rate risk exposure of designated debt issuances. At September 30, 2024, the fair value of the liability of these contracts was $4.1 billion. At December 31, 2023, the fair value of the liability of these contracts was $4.5 billion. At September 30, 2024 and December 31, 2023, the total notional amount of the interest rate swaps was $24.8 billion and $26.1 billion, respectively.
Foreign Currency Risk
The functional currency for our foreign operations is primarily the local currency. The translation of income statement and balance sheet amounts of our foreign operations into U.S. dollars is recorded as cumulative translation adjustments, which are included in Accumulated other comprehensive loss in our condensed consolidated balance sheets. Gains and losses on foreign currency transactions are recorded in the condensed consolidated statements of income. At September 30, 2024, our primary translation exposure was to the British Pound Sterling, Euro, Australian Dollar and Swedish Krona.
Cross Currency Swaps
We have entered into cross currency swaps to exchange our British Pound Sterling, Euro, Swiss Franc, Canadian Dollar and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses. The fair value of the asset of these contracts was $776 million and $762 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024 and December 31, 2023, the fair value of the liability of these contracts was $1.8 billion and $2.1 billion, respectively. At September 30, 2024 and December 31, 2023, the total notional amount of the cross currency swaps was $32.1 billion and $33.5 billion, respectively.
Foreign Exchange Forwards
We also have foreign exchange forwards which we use as an economic hedge but for which we have elected not to apply hedge accounting. We enter into British Pound Sterling and Euro foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional currency denominated monetary assets and liabilities of international subsidiaries. At both September 30, 2024 and December 31, 2023, the fair value of the asset and liability of these contracts was insignificant. At September 30, 2024 and December 31, 2023, the total notional amount of the foreign exchange forwards was $620 million and $1.1 billion, respectively.
From time to time, we enter into agreements to buy, sell or exchange spectrum licenses. We believe these spectrum license transactions have allowed us to continue to enhance the reliability of our wireless network while also resulting in a more efficient use of spectrum.
In February 2021, the Federal Communications Commission (FCC) concluded Auction 107 for C-Band wireless spectrum. In accordance with the rules applicable to the auction, Verizon is required to make payments for our allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction, which are estimated to be $7.5 billion. During the nine months ended September 30, 2024 and September 30, 2023, we made payments of $269 million and $578 million, respectively, for obligations related to clearing costs and accelerated clearing incentives. The carrying value of the wireless spectrum won in Auction 107 consists of all payments required to participate and purchase licenses in the auction, including Verizon's allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction that we are obligated to pay in order to acquire the licenses, as well as capitalized interest to the extent qualifying activities have occurred.
See Note 3 to the condensed consolidated financial statements for additional information regarding our spectrum license transactions.
TracFone Wireless, Inc.
In November 2021, we completed the acquisition of TracFone Wireless, Inc. (TracFone). Verizon acquired all of TracFone's outstanding stock in exchange for approximately $3.5 billion in cash, net of cash acquired and working capital and other adjustments, 57,596,544 shares of common stock of the Company valued at approximately $3.0 billion, and up to an additional $650 million in future cash contingent consideration related to the achievement of certain performance measures and other commercial arrangements. The fair value of the common stock was determined on the basis of its closing market price on the Acquisition Date. The estimated fair value of the contingent consideration as of the Acquisition Date was approximately $560 million and represented a Level 3 measurement. The contingent consideration payable was based on the achievement of certain revenue and operational targets, measured over a two-year earn out period. Contingent consideration payments were completed in January of 2024.
During the nine months ended September 30, 2024 and September 30, 2023, Verizon made payments of $52 million and $182 million, respectively, related to the contingent consideration, which are reflected in Cash flows from financing activities in our condensed consolidated statements of cash flows. See Note 3 and Note 7 to the condensed consolidated financial statements for additional information.
Frontier Communications Parent, Inc.
On September 4, 2024, Verizon entered into an Agreement and Plan of Merger (the Merger Agreement) to acquire Frontier, a U.S. provider of broadband internet and other communication services. The transaction is structured as a merger of the Company's subsidiary with and into Frontier, as a result of which Frontier will become a wholly owned subsidiary of the Company and shares of Frontier common stock outstanding immediately prior to the effective time of merger (subject to certain limited exceptions) will be cancelled and converted into the right to receive a per share merger consideration of $38.50, in cash. Consummation of the transaction is subject to approval by Frontier shareholders, receipt of certain regulatory approvals and other customary closing conditions. Under certain circumstances, if the Merger Agreement is terminated, Frontier may be required to pay Verizon a termination fee of $320 million. Under certain other specified circumstances, Verizon may be required to pay Frontier a termination fee of $590 million.
Other Factors That May Affect Future Results
Regulatory Trends
In April 2024, the FCC issued a final decision to regulate broadband services as common carrier services under Title II of the Communications Act of 1934, as amended, consistent with the proposal described in our Annual Report on Form 10-K for the year ended December 31, 2023. Industry groups have appealed this decision in federal court and the court has stayed the rules from going into effect pending its final decision. Except as disclosed herein, there have been no material changes to regulatory trends as previously disclosed in Part I, Item 1. "Business" in our Annual Report on Form 10-K for the year ended December 31, 2023.
In this report we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words "anticipates," "assumes," "believes," "estimates," "expects," "forecasts," "hopes," "intends," "plans," "targets" or similar expressions. For those statements,
we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
The following important factors, along with those discussed elsewhere in this report and in other filings with the Securities and Exchange Commission (SEC), could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:
•the effects of competition in the markets in which we operate, including the inability to successfully respond to competitive factors such as prices, promotional incentives and evolving consumer preferences;
•failure to take advantage of, or respond to competitors' use of, developments in technology and address changes in consumer demand;
•performance issues or delays in the deployment of our 5G network resulting in significant costs or a reduction in the anticipated benefits of the enhancement to our networks;
•the inability to implement our business strategy;
•adverse conditions in the U.S. and international economies, including inflation and changing interest rates in the markets in which we operate;
•cyber attacks impacting our networks or systems and any resulting financial or reputational impact;
•damage to our infrastructure or disruption of our operations from natural disasters, extreme weather conditions, acts of war, terrorist attacks or other hostile acts and any resulting financial or reputational impact;
•disruption of our key suppliers' or vendors' provisioning of products or services, including as a result of geopolitical factors or the potential impacts of global climate change;
•material adverse changes in labor matters and any resulting financial or operational impact;
•damage to our reputation or brands;
•the impact of public health crises on our operations, our employees and the ways in which our customers use our networks and other products and services;
•changes in the regulatory environment in which we operate, including any increase in restrictions on our ability to operate our networks or businesses;
•allegations regarding the release of hazardous materials or pollutants into the environment from our, or our predecessors', network assets and any related government investigations, regulatory developments, litigation, penalties and other liability, remediation and compliance costs, operational impacts or reputational damage;
•our high level of indebtedness;
•significant litigation and any resulting material expenses incurred in defending against lawsuits or paying awards or settlements;
•an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations or adverse conditions in the credit markets affecting the cost, including interest rates, and/or availability of further financing;
•significant increases in benefit plan costs or lower investment returns on plan assets;
•changes in tax laws or regulations, or in their interpretation; or challenges to our tax positions, resulting in additional tax expense or liabilities;
•changes in accounting assumptions that regulatory agencies, including the SEC, may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; and
•risks associated with mergers, acquisitions and other strategic transactions, including our ability to consummate the proposed acquisition of Frontier and obtain cost savings, synergies and other anticipated benefits within the expected time period or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information relating to market risk is included in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption "Market Risk."
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the registrant's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this quarterly report, that ensure that information relating to the registrant which is required to be disclosed in this report is recorded, processed, summarized and reported within required time periods using the criteria for effective internal control established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the registrant’s disclosure controls and procedures were effective as of September 30, 2024.
In the ordinary course of business, we routinely review our system of internal control over financial reporting and make changes to our systems and processes that are intended to ensure an effective internal control environment. In the third quarter of 2020, we began a multi-year implementation of a new global enterprise resource planning (ERP) system, which will replace many of our existing core financial systems. The ERP system is designed to enhance the flow of financial information, facilitate data analysis and accelerate information reporting. The implementation is expected to occur in phases over the next several years.
As the phased implementation of the new ERP system continues, we could have changes to our processes and procedures which, in turn, could result in changes to our internal controls over financial reporting. As such changes occur, we will evaluate quarterly whether such changes materially affect our internal control over financial reporting.
There were no changes in the Company's internal control over financial reporting during the third quarter 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – Other Information
Item 1. Legal Proceedings
In the ordinary course of business, Verizon is involved in various litigation and regulatory proceedings at the state and federal level. As of the date of this report, we do not believe that any pending legal proceedings to which we or our subsidiaries are subject are required to be disclosed as material legal proceedings pursuant to this item. Verizon is not subject to any administrative or judicial proceeding arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment that is likely to result in monetary sanctions of $1 million or more.
See Note 12 to the condensed consolidated financial statements for additional information regarding legal proceedings.
Item 1A. Risk Factors
There have been no material changes to our risk factors as previously disclosed in Part I, Item 1A included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In February 2020, the Board of Directors of the Company authorized a share buyback program to repurchase up to 100 million shares of the Company's common stock. The program will terminate when the aggregate number of shares purchased reaches 100 million or a new share repurchase plan superseding the current plan is authorized, whichever is sooner. Under the program, shares may be repurchased in privately negotiated transactions, on the open market, or otherwise, including through plans complying with Rule 10b5-1 under the Exchange Act. The timing and number of shares purchased under the program, if any, will depend on market conditions and our capital allocation priorities.
Verizon did not repurchase any shares of the Company's common stock during the three months ended September 30, 2024. At September 30, 2024, the maximum number of shares that could be purchased by or on behalf of Verizon under our share buyback program was 100 million.
Item 5. Other Information
During the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.
Agreement and Plan of Merger, dated as of September 4, 2024, by and among Verizon Communications Inc., Frontier Communications Parent, Inc. and France Merger Sub Inc. (filed as Exhibit 2.1 to Form 8-K filed on September 5, 2024 and incorporated herein by reference).*
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
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Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
*
Schedules (or similar attachments) have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the SEC upon request.
Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), certain instruments which define the rights of holders of long-term debt of Verizon Communications Inc. and its consolidated subsidiaries are not filed herewith, and the Company hereby agrees to furnish a copy of any such instrument to the SEC upon request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
