| Basis of Presentation | 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (SEC) rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements for the year ended December 31, 2017 of Verizon Communications Inc. (Verizon or the Company) included in its Current Report on Form 8-K dated May 1, 2018. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. We have reclassified certain prior period amounts to conform to the current period presentation. Earnings Per Common Share 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 . There were a total of approximately 5 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, 2017 . Cash, Cash Equivalents and Restricted Cash Cash collections on the device payment plan agreement receivables collateralizing 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. Cash, cash equivalents and restricted cash are included in the following line items on the condensed consolidated balance sheets: At September 30, At December 31, Increase (dollars in millions) 2018 2017 Cash and cash equivalents $ 2,538 $ 2,079 $ 459 Restricted cash: Prepaid expenses and other 915 693 222 Other assets 122 116 6 Cash, cash equivalents and restricted cash $ 3,575 $ 2,888 $ 687 Recently Adopted Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers (Topic 606)." This standard update, along with related subsequently issued updates, clarifies the principles for recognizing revenue and develops a common revenue standard for United States (U.S.) generally accepted accounting principles (GAAP). The standard update also amends current guidance for the recognition of costs to obtain and fulfill contracts with customers such that incremental costs of obtaining and direct costs of fulfilling contracts with customers will be deferred and amortized consistent with the transfer of the related good or service. The standard update intends to provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and provide more useful information to users of financial statements through improved disclosure requirements. We adopted this standard update beginning on January 1, 2018 using the modified retrospective method. As this method requires that the cumulative effect of initially applying the standard be recognized at the date of application beginning January 1, 2018, we recorded the pre-tax cumulative effect of $3.9 billion ( $2.9 billion net of tax) as an adjustment to the January 1, 2018 opening balance of retained earnings. We applied the new revenue recognition standard to customer contracts not completed at the date of initial application. For incomplete contracts that were modified before the date of adoption, the Company elected to use the practical expedient available under the modified retrospective method, which allows us to aggregate the effect of all modifications when identifying satisfied and unsatisfied performance obligations, determining the transaction price and allocating transaction price to the satisfied and unsatisfied performance obligations for the modified contract at transition. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while amounts reported for prior periods have not been adjusted and continue to be reported under accounting standards in effect for those periods. The following describes the primary changes which contributed to the adjustment recorded to opening retained earnings as of January 1, 2018 and the adjustments reflected in the tables that follow. In our Wireless business, prior to the adoption of Topic 606, we were required to limit the revenue recognized when a wireless device was sold to the amount of consideration that was not contingent on the provision of future services, which was typically limited to the amount of consideration received from the customer at the time of sale. Under Topic 606, the total consideration in the contract is allocated between wireless equipment and service based on their relative standalone selling prices. This change primarily impacts our arrangements that include sales of wireless devices at subsidized prices in conjunction with a fixed-term plan, also known as the subsidy model, for service. Accordingly, under Topic 606, generally more equipment revenue is recognized upon sale of the equipment to the customer and less service revenue is recognized over the contract term than was previously recognized under the prior "Revenue Recognition" (Topic 605) standard. At the time the equipment is sold, this allocation results in the recognition of a contract asset equal to the difference between the amount of revenue recognized and the amount of consideration received from the customer. As of January 2017, we no longer offer consumers new fixed-term plans with subsidized equipment pricing; however, we continue to offer fixed-term plans to our business customers. At September 30, 2018 and December 31, 2017, approximately 15% and 19% of retail postpaid connections were under fixed-term plans, respectively. Topic 606 also requires the deferral of incremental costs incurred to obtain a customer contract, which are then amortized to expense, as a component of Selling, general and administrative expense, over the respective periods of expected benefit. As a result, a significant amount of our sales commission costs, which were historically expensed as incurred by our Wireless and Wireline businesses under our previous accounting, are now deferred and amortized under Topic 606. Finally, under Topic 605, at the time of the sale of a device, we imputed risk adjusted interest on the device payment plan agreement receivables. We recorded the imputed interest as a reduction to the related accounts receivable and interest income was recognized over the financed device payment term. Under Topic 606, while there continues to be a financing component in both the fixed-term plans and device payment plans, also known as the installment model, we have determined that this financing component for our customer classes in the Wireless direct channel plans is not significant and therefore we no longer impute interest for these contracts. This change results in additional revenue recognized upon the sale of wireless devices and no interest income recognized over the device payment term. See Note 2 for additional information related to revenues and contract costs, including qualitative and quantitative disclosures required under Topic 606. In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this update make targeted improvements to GAAP by requiring equity securities (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. For investments in equity securities without readily determinable fair values, the cost method is eliminated. A practicability exception is available for investments in equity securities that do not have readily determinable fair values. These investments may be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. This update simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates impairment exists, an entity is required to measure the investment at fair value. We adopted this standard update in the first quarter of 2018 on a prospective basis resulting in an insignificant adjustment to our opening retained earnings. The amendments related to equity securities without readily determinable fair values are applied prospectively to equity investments that exist as of the date of adoption. In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." This standard update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for these issues. Among the updates, this standard update requires cash receipts from payments on a transferor’s beneficial interests in securitized trade receivables to be classified as cash inflows from investing activities. The amendment relating to beneficial interests in securitization transactions impacted our presentation of collections of certain deferred purchase price from sales of wireless device payment plan agreement receivables in our condensed consolidated statements of cash flows. This standard update was effective as of the first quarter of 2018. We retrospectively reclassified approximately $0.6 billion of deferred purchase price collections from Cash flows from operating activities to Cash flows from investing activities in our condensed consolidated statement of cash flows for the nine months ended September 30, 2017 . There were no other significant impacts as a result of adopting this standard. In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." The amendments in this update require that cash and cash equivalent balances in a statement of cash flows include those amounts deemed to be restricted cash and restricted cash equivalents. We have provided a reconciliation from Cash and cash equivalents as presented in our condensed consolidated balance sheets to Cash, cash equivalents and restricted cash as reported in our condensed consolidated statements of cash flows. We adopted the amendments in this accounting standard update in the first quarter of 2018 on a retrospective basis. See "Cash, Cash Equivalents and Restricted Cash" for additional information, as well as a discussion of the nature of our restricted cash balances. In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this update require an employer to report the service cost component arising from employer sponsored pension and other postretirement plans in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost, including the recognition of prior service credits, will be presented in the condensed consolidated statements of income separately from the service cost component and outside the subtotal of income from operations. The amendments in this update also allow only the service cost component of pension and other postretirement benefit costs to be eligible for capitalization when applicable. Verizon previously recorded service cost and other components of net periodic benefit cost in operating expenses in the condensed consolidated statements of income. The amendments in this update allow a practical expedient that permits an employer to use the amounts disclosed in its employee benefits footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation. Verizon adopted this standard update on January 1, 2018 and utilized the practical expedient to estimate the impact on the prior comparative period information presented in the condensed consolidated statements of income. As required by the amendments in this update, the presentation of the service cost component and other components of net periodic benefit cost in the condensed consolidated statements of income were applied retrospectively, and the updates for the capitalization of the service cost component of net periodic benefit cost in assets will be applied prospectively on and after the effective date. Upon adoption of this standard update, Verizon reclassified the other components of net periodic benefit costs from Cost of services and Selling, general and administrative expense to Other income (expense), net , which is part of non-operating expenses. The retrospective adoption of this standard update resulted in a decrease to consolidated operating income of approximately $0.2 billion and $0.7 billion for the three and nine months ended September 30, 2017 , respectively, which was fully offset by amounts reclassified to Other income (expense), net . As such, there was no impact to consolidated net income for the three and nine months ended September 30, 2017 . In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (TCJA). The stranded tax effects result from the change in the federal tax rate for deferred taxes recorded to Accumulated other comprehensive income. This standard update is effective as of the first quarter of 2019; however, early adoption is permitted. Verizon has elected to early adopt this update effective January 1, 2018 and recorded the effects of adoption at the beginning of the period of adoption. The adoption of this standard update resulted in a charge to retained earnings of $0.7 billion which consists primarily of stranded tax effects related to deferred taxes for pensions and postretirement benefits. It is Verizon’s policy to release income tax effects from accumulated other comprehensive income at the same time that the related unit of account affects net income. In December 2017, the SEC staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that have not completed their accounting for the income tax effects of the TCJA. Verizon continues to analyze the effects of the TCJA, including the effects of any future Internal Revenue Service and U.S. Treasury guidance and any state tax law changes that may arise as a result of federal tax reform, on its financial statements and operations and include any adjustments to tax expense or benefit from continuing operations in the reporting periods that such adjustments are determined, consistent with the one-year measurement period set forth in SAB 118. As of September 30, 2018 , we have not identified or recorded adjustments to the provisional amounts previously disclosed for the year ended December 31, 2017 in our Current Report on Form 8-K dated May 1, 2018 . We will finalize our adjustments, if any, during the fourth quarter of 2018. The cumulative after-tax effect of the changes made to our condensed consolidated balance sheet for the adoption of Topic 606, ASU 2018-02 and other ASUs were as follows: Adjustments due to (dollars in millions) At December 31, 2017 Topic 606 ASU 2018-02 Other ASUs At January 1, 2018 Accounts receivable, net of allowance $ 23,493 $ 53 $ — $ — $ 23,546 Prepaid expenses and other 3,307 2,014 — — 5,321 Other assets 9,787 1,238 — (59 ) 10,966 Investments in unconsolidated businesses 1,039 2 — — 1,041 Other current liabilities 8,352 (541 ) — — 7,811 Deferred income taxes 31,232 1,008 — (31 ) 32,209 Other liabilities 12,433 (94 ) — — 12,339 Retained earnings 35,635 2,890 (652 ) (6 ) 37,867 Accumulated other comprehensive income 2,659 — 652 (22 ) 3,289 Noncontrolling interests 1,591 44 — — 1,635 A reconciliation of the adjustments from the adoption of Topic 606 relative to Topic 605 on certain impacted financial statement line items in our condensed consolidated statements of income and balance sheet were as follows: Three Months Ended September 30, 2018 (dollars in millions) As reported Balances without adoption of Topic 606 Adjustments Operating Revenues Service revenues and other $ 27,254 $ 27,582 $ (328 ) Wireless equipment revenues 5,353 4,950 403 Total Operating Revenues $ 32,607 $ 32,532 $ 75 Cost of services (exclusive of items shown below) $ 7,842 $ 7,853 $ (11 ) Wireless cost of equipment 5,489 5,449 40 Selling, general and administrative expense 7,224 7,545 (321 ) Equity in losses of unconsolidated businesses (3 ) (3 ) — Income Before Provision For Income Taxes 6,675 6,308 367 Provision for income taxes (1,613 ) (1,512 ) (101 ) Net Income $ 5,062 $ 4,796 $ 266 Net income attributable to noncontrolling interests $ 138 $ 133 $ 5 Net income attributable to Verizon 4,924 4,663 261 Net Income $ 5,062 $ 4,796 $ 266 Nine Months Ended September 30, 2018 (dollars in millions) As reported Balances without adoption of Topic 606 Adjustments Operating Revenues Service revenues and other $ 81,145 $ 82,184 $ (1,039 ) Wireless equipment revenues 15,437 14,134 1,303 Total Operating Revenues $ 96,582 $ 96,318 $ 264 Cost of services (exclusive of items shown below) $ 24,022 $ 24,060 $ (38 ) Wireless cost of equipment 16,195 16,087 108 Selling, general and administrative expense 21,673 22,727 (1,054 ) Equity in losses of unconsolidated businesses (250 ) (251 ) 1 Income Before Provision For Income Taxes 18,256 17,007 1,249 Provision for income taxes (4,282 ) (3,956 ) (326 ) Net Income $ 13,974 $ 13,051 $ 923 Net income attributable to noncontrolling interests $ 385 $ 363 $ 22 Net income attributable to Verizon 13,589 12,688 901 Net Income $ 13,974 $ 13,051 $ 923 At September 30, 2018 (dollars in millions) As reported Balances without adoption of Topic 606 Adjustments Assets Current assets Accounts receivable, net of allowance $ 24,012 $ 23,755 $ 257 Prepaid expenses and other 5,334 3,041 2,293 Investments in unconsolidated businesses 732 729 3 Other assets 11,275 9,406 1,869 Liabilities and Equity Current liabilities Accounts payable and accrued liabilities 19,342 18,820 522 Other current liabilities 8,323 8,905 (582 ) Deferred income taxes 35,712 34,901 811 Other liabilities 13,496 13,682 (186 ) Equity Retained earnings 44,091 40,300 3,791 Noncontrolling interests 1,592 1,526 66 Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This standard update intends to increase transparency and improve comparability by requiring entities to recognize assets and liabilities on the balance sheet for all leases, with certain exceptions. In addition, through improved disclosure requirements, the standard update will enable users of financial statements to further understand the amount, timing, and uncertainty of cash flows arising from leases. This standard update allows for a modified retrospective application and is effective as of the first quarter of 2019; however, early adoption is permitted. Entities are allowed to apply the modified retrospective approach (1) retrospectively to each prior reporting period presented in the financial statements with the cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption (January 1, 2019) through a cumulative-effect adjustment. The effective date of this standard is January 1, 2019, at which time Verizon will adopt the standard using the modified retrospective approach with a cumulative-effect adjustment to opening retained earnings recorded at the beginning of the period of adoption. Therefore, upon adoption, Verizon will recognize and measure leases without revising comparative period information or disclosure. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. Verizon’s current operating lease portfolio is primarily comprised of network, real estate, and equipment leases. Upon adoption of this standard, we expect to recognize a right-of-use asset and liability related to substantially all operating lease arrangements. We have established a cross-functional coordinated team to implement the standard update. We have completed our assessment of the transition practical expedients offered by the standard. These practical expedients lessen the transitional burden of implementing the standard update by not requiring a reassessment of certain conclusions reached under existing lease accounting guidance. Accordingly, we will apply these practical expedients and will not reassess: 1) whether an expired or existing contract is a lease or contains an embedded lease; 2) lease classification of an expired or existing lease; 3) initial direct costs for an existing lease; and 4) whether an existing or expired land easement is or contains a lease if it has not historically been accounted for as a lease. We are nearing completion of determining the scope of impact and data gathering. We are in the process of assessing, staging, designing and building a new system solution to meet the requirements of the new standard. We are also evaluating and implementing changes to our processes and internal controls to meet the standard update’s accounting, reporting and disclosure requirements. Although we have not yet completed our evaluation of the standard update, we expect its adoption to have a significant impact in our condensed consolidated balance sheet due to the recognition of the right-of-use asset and liability for our operating leases. In addition, deferred gains arising from prior period sales-leaseback transactions, which would have been recognized to income over an average period of nine years, will be adjusted through opening retained earnings on January 1, 2019. Lastly, we expect a lower amount of lease costs to qualify as initial direct costs under the new standard which will result in an immediate recognition of expense instead of recognition of expense over time. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This standard update requires that certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions and reasonable and supportable forecasts that affect the collectability of the amounts. An entity will apply the update through a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. This standard update is effective as of the first quarter of 2020; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have in our condensed consolidated financial statements upon adoption. |
