Verizon Communications Inc. (VZ)

Goodwill

Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if impairment indicators are present.

To determine if goodwill is potentially impaired, Verizon has the option to perform a qualitative assessment. However, Verizon may elect to bypass the qualitative assessment and performs an impairment test even if no indications of a potential impairment exist. The quantitative impairment test for goodwill is performed at the reporting unit level and compares the fair value of the reporting unit (calculated using a combination of a market approach and a discounted cash flow method) to its carrying value. Estimated fair values of reporting units are Level 3 measures in the fair value hierarchy.

Under the qualitative assessment, Verizon considers several qualitative factors, including the business enterprise value of the reporting unit from the last quantitative test and the excess of fair value over carrying value from this test, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and Earnings before interest, taxes, depreciation and amortization (EBITDA) margin projections), the recent and projected financial performance of the reporting unit, as well as other factors.

The market approach includes the use of comparative multiples of guideline companies to corroborate discounted cash flow results. The discounted cash flow method is based on the present value of two components, a projected cash flows and a terminal value. The terminal value represents the expected normalized future cash flows of the reporting unit beyond the cash flows from the discrete projection period. The fair value of the reporting unit is calculated based on the sum of the present value of the cash flows from the discrete period and the present value of the terminal value. The discount rate represents Verizon’s estimate of the weighted-average cost of capital, or expected return, that a marketplace participant would have required as of the valuation date. If the carrying value exceeds the fair value, an impairment charge is booked for the excess carrying value over fair value, limited to the total amount of goodwill of that reporting unit. During the fourth quarter of 2018, Verizon updated its five-year strategic planning review for each of its reporting units. Those plans considered current economic conditions and trends, estimated future operating results, Verizon’s view of growth-rates and-anticipated future economic and regulatory conditions.

Intangible Assets Not Subject to Amortization

A significant portion of Verizon’s intangible assets are wireless licenses that provide the wireless operations with the exclusive right to utilize designated radio frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time, generally ten years, such licenses are subject to renewal by the Federal Communications Commission (FCC). License renewals have occurred routinely and at nominal cost. Moreover, Verizon has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the wireless licenses. As a result, Verizon treats the wireless licenses as an indefinite-lived intangible asset. Verizon re-evaluates the useful life determination for wireless licenses each year to determine whether events and circumstances continue to support an indefinite useful life. Verizon aggregates the wireless licenses into one single unit of accounting, as Verizon utilizes the wireless licenses on an integrated basis as part of the nationwide wireless network.

Verizon tests the wireless licenses for potential impairment annually or more frequently if impairment indicators are present. Verizon has the option to first perform a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. However, Verizon may elect to bypass the qualitative assessment in any period and proceed directly to performing the quantitative impairment test. Verizon’s quantitative assessment consists of comparing the estimated fair value of the aggregate wireless licenses to the aggregated carrying amount as of the test date. Using a quantitative assessment, Verizon estimates the fair value of the aggregate wireless licenses using the Greenfield approach. The Greenfield approach is an income based valuation approach that values the wireless licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except the wireless licenses to be valued. A discounted cash flow analysis is used to estimate what a marketplace participant would be willing to pay to purchase the aggregated wireless licenses as of the valuation date. If the estimated fair value of the aggregated wireless licenses is less than the aggregated carrying amount of the wireless licenses, then an impairment charge is recognized. As part of the qualitative assessment, Verizon considers several qualitative factors including the business enterprise value of the Wireless segment, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and EBITDA), margin projections, the recent and projected financial performance of the Wireless segment, as well as other factors.

Interest expense incurred while qualifying activities are performed to ready wireless licenses for their intended use is capitalized as part of wireless licenses. The capitalization period ends when the development is discontinued or substantially completed and the license is ready for its intended use.

Intangible Assets Subject to Amortization and Long-Lived Assets

Verizon’s intangible assets that do not have indefinite lives (primarily customer lists and non-network internal-use software) are amortized over their estimated useful lives. All of Verizon’s intangible assets subject to amortization, and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indications of impairment are present, Verizon would test for recoverability by comparing the carrying amount of the asset group to the net undiscounted cash flows expected to be generated from the asset group. If those net undiscounted cash flows do not exceed the carrying amount, Verizon would perform the next step, which is to determine the fair value of the asset and record an impairment, if any. Verizon re-evaluates the useful life determinations for these intangible assets each year to determine whether events and circumstances warrant a revision to their remaining useful lives.

Source: 10-K (filing date: 2019-02-15).

Verizon Communications Inc., balance sheet: goodwill and intangible assets

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Customer lists
	Non-network internal-use software
	Other
	Other intangible assets, gross amount
	Accumulated amortization
	Other intangible assets, net amount
	Wireless licenses
	Goodwill
	Wireless licenses, goodwill and other intangible assets

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

Verizon Communications Inc., adjustments to financial statements

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Equity Attributable To Verizon
	Equity attributable to Verizon (as reported)
	Less: Goodwill
	Equity attributable to Verizon (adjusted)
	Adjustment to Net Income Attributable To Verizon
	Net income attributable to Verizon (as reported)
	Add: Oath goodwill impairment
	Net income attributable to Verizon (adjusted)

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

Verizon Communications Inc., Financial Data: Reported vs. Adjusted

Verizon Communications Inc., adjusted financial ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

Verizon Communications Inc., Financial Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Verizon
	Operating revenues
	Profitability Ratio
	Net profit margin1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Verizon
	Operating revenues
	Profitability Ratio
	Adjusted net profit margin2

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Operating revenues
	Total assets
	Activity Ratio
	Total asset turnover1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Operating revenues
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover2

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Equity attributable to Verizon
	Solvency Ratio
	Financial leverage1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted equity attributable to Verizon
	Solvency Ratio
	Adjusted financial leverage2

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Verizon
	Equity attributable to Verizon
	Profitability Ratio
	ROE1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Verizon
	Adjusted equity attributable to Verizon
	Profitability Ratio
	Adjusted ROE2

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Verizon
	Total assets
	Profitability Ratio
	ROA1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Verizon
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA2

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).