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Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10- K (Mark one) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1- 8606 Verizon Communications Inc. (Exact name of registrant as specified in its charter) Delaware 23- 2259884 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1095 Avenue of the Americas New York, New York 10036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 395- 1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $.10 par value Name of each exchange on which registered New York Stock Exchange The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well- known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S- T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S- K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10- K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b- 2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non- accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b- 2 of the Act). Yes No At June 30, 2016, the aggregate market value of the registrant's voting stock held by non- affiliates was approximately $227,584,340,225. At January 31, 2017, 4,076,731,752 shares of the registrant's common stock were outstanding, after deducting 165,642,488 shares held in treasury. Documents Incorporated By Reference: Portions of the registrant's Annual Report to Shareowners for the year ended December 31, 2016 (Parts I and II). Table of Contents Schedule II - Valuation and Qualifying Accounts Verizon Communications Inc. and Subsidiaries For the Years Ended December 31, 2016, 2015 and 2014 (dollars in millions) Additions Description Allowance for Uncollectible Accounts Receivable: Year 2016 (e) Year 2015 (e) Year 2014 Balance at Beginning of Period $ Valuation Allowance for Deferred Tax Assets: Year 2016 $ Year 2015 Year 2014 Charged to Other Accounts Note (a)(b) Charged to Expenses Deductions Note (c)(d) Balance at End of Period 1,037 739 645 $ 1,420 1,610 1,095 $ 204 200 141 $ 1,515 1,512 1,142 $ 1,146 1,037 739 3,414 1,841 1,685 $ 146 237 505 $ 47 1,701 5 $ 1,134 365 354 $ 2,473 3,414 1,841 (a) Allowance for Uncollectible Accounts Receivable primarily includes amounts previously written off which were credited directly to this account when recovered. (b) Valuation Allowance for Deferred Tax Assets includes an increase to the valuation allowance as a result of the acquisition of AOL in 2015 and amounts charged to equity and reclassifications from other balance sheet accounts. (c) Amounts written off as uncollectible or transferred to other accounts or utilized. (d) Reductions to valuation allowances related to deferred tax assets. (e) Allowance for Uncollectible Accounts Receivable includes approximately $301 million and $155 million at December 31, 2016 and 2015, respectively, related to long- term device payment plan receivables. 29 Consolidated Statements of Income Verizon Communications Inc. and Subsidiaries (dollars in millions, except per share amounts) Years Ended December 31, Operating Revenues Service revenues and other Wireless equipment revenues 2015 2016 $ Total Operating Revenues Operating Expenses Cost of services (exclusive of items shown below) Wireless cost of equipment Selling, general and administrative expense, net Depreciation and amortization expense Total Operating Expenses Operating Income Equity in (losses) earnings of unconsolidated businesses Other income and (expense), net Interest expense Income Before Provision For Income Taxes Provision for income taxes 108,468 $ 114,696 2014 $ 116,122 17,512 16,924 10,957 125,980 131,620 127,079 29,186 29,438 28,306 22,238 23,119 21,625 31,569 29,986 41,016 15,928 16,017 16,533 98,921 98,560 107,480 27,059 33,060 19,599 (98) (86) 1,780 (1,599) (4,376) 186 (4,920) (1,194) (4,915) 20,986 28,240 15,270 (7,378) (9,865) (3,314) Net Income $ 13,608 $ 18,375 $ 11,956 Net income attributable to noncontrolling interests Net income attributable to Verizon $ 481 $ 496 $ 2,331 Net Income $ 13,608 $ 18,375 $ 11,956 Basic Earnings Per Common Share Net income attributable to Verizon $ 3.22 4,080 $ 4.38 4,085 $ 2.42 3,974 17,879 13,127 9,625 Weighted- average shares outstanding (in millions) Diluted Earnings Per Common Share Net income attributable to Verizon Weighted- average shares outstanding (in millions) $ 3.21 4,086 See Notes to Consolidated Financial Statements $ 4.37 4,093 $ 2.42 3,981 Consolidated Statements of Comprehensive Income Verizon Communications Inc. and Subsidiaries Years Ended December 31, Net Income Other Comprehensive Income, net of taxes Foreign currency translation adjustments Unrealized gains (losses) on cash flow hedges Unrealized losses on marketable securities Defined benefit pension and postretirement plans $ Other comprehensive income (loss) attributable to Verizon Other comprehensive loss attributable to noncontrolling interests Total Comprehensive Income $ 2015 18,375 $ (dollars in millions) 2014 11,956 (159) (208) (1,199) 198 (194) (197) (55) (11) (5) 2,139 (148) 154 2,123 (561) (1,247) (23) $ Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Verizon Total Comprehensive Income 2016 13,608 $ 15,731 $ 17,814 $ 10,686 481 496 2,308 15,250 17,318 8,378 15,731 $ See Notes to Consolidated Financial Statements 17,814 $ 10,686 Consolidated Balance Sheets Verizon Communications Inc. and Subsidiaries At December 31, Assets Current assets Cash and cash equivalents Short- term investments Accounts receivable, net of allowances of $845 and $882 Inventories Assets held for sale Prepaid expenses and other 2016 $ 2,880 (dollars in millions, except per share amounts) 2015 $ 4,470 350 17,513 1,202 882 3,918 13,457 1,252 792 2,034 26,395 22,355 232,215 147,464 220,163 136,622 Plant, property and equipment, net 84,751 83,541 Investments in unconsolidated businesses Wireless licenses Goodwill Other intangible assets, net Non- current assets held for sale Other assets 1,110 86,673 27,205 8,897 613 8,536 796 86,575 25,331 7,592 10,267 7,718 Total current assets Plant, property and equipment Less accumulated depreciation Total assets Liabilities and Equity Current liabilities Debt maturing within one year Accounts payable and accrued liabilities Liabilities related to assets held for sale Other $ 244,180 $ 244,175 $ 2,645 19,593 24 8,078 $ 6,489 19,362 463 8,738 Total current liabilities Long- term debt Employee benefit obligations Deferred income taxes Non- current liabilities related to assets held for sale Other liabilities Equity Series preferred stock ($.10 par value; none issued) Common stock ($.10 par value; 4,242,374,240 shares issued in each period) Contributed capital Reinvested earnings Accumulated other comprehensive income Common stock in treasury, at cost Deferred compensation employee stock ownership plans and other Noncontrolling interests Total equity Total liabilities and equity $ 30,340 35,052 105,433 26,166 45,964 103,240 29,957 45,484 6 12,239 959 11,641 424 11,182 15,059 424 11,196 11,246 2,673 (7,263) 550 (7,416) 449 1,508 428 1,414 24,032 17,842 244,180 $ 244,175 See Notes to Consolidated Financial Statements Consolidated Statements of Cash Flows Verizon Communications Inc. and Subsidiaries Years Ended December 31, Cash Flows from Operating Activities Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense Employee retirement benefits Deferred income taxes Provision for uncollectible accounts Equity in losses (earnings) of unconsolidated businesses, net of dividends received Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses Accounts receivable Inventories Other assets Accounts payable and accrued liabilities Other, net $ $ Net cash used in investing activities Cash Flows from Financing Activities Proceeds from long- term borrowings Proceeds from asset- backed long- term borrowings Repayments of long- term borrowings and capital lease obligations Decrease in short- term obligations, excluding current maturities Dividends paid Proceeds from sale of common stock Purchase of common stock for treasury Acquisition of noncontrolling interest Other, net $ 11,956 16,533 8,130 (92) 1,095 127 138 Cash Flows from Investing Activities Capital expenditures (including capitalized software) Acquisitions of businesses, net of cash acquired Acquisitions of wireless licenses Proceeds from dispositions of wireless licenses Proceeds from dispositions of businesses Other, net 18,375 16,017 (1,747) 3,516 1,610 15,928 2,705 (1,063) 1,420 Net cash provided by operating activities (1,743) (5,067) 61 449 (1,079) (4,385) (945) (99) 942 2,545 (1,411) (2,745) (132) (695) 1,412 (3,088) 22,715 38,930 30,631 (17,059) (17,775) (17,191) (3,765) (534) (3,545) (9,942) (182) (354) 9,882 493 48 1,171 2,367 120 (616) (10,983) (30,043) (15,856) 12,964 6,667 30,967 (19,159) (9,340) (17,669) (149) (9,262) 3 (344) (8,538) 40 (5,134) (475) (7,803) 34 (2,705) 1,634 (58,886) (3,873) (13,322) (15,015) (57,705) (1,590) (6,128) (42,930) 4,470 10,598 53,528 4,986 Net cash used in financing activities Decrease in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 13,608 (dollars in millions) 2014 2015 2016 $ 2,880 $ See Notes to Consolidated Financial Statements 4,470 $ 10,598 Consolidated Statements of Changes in Equity Verizon Communications Inc. and Subsidiaries (dollars in millions, except per share amounts, and shares in thousands) Years Ended December 31, Common Stock Balance at beginning of year Common shares issued (Note 2) Balance at end of year Contributed Capital Balance at beginning of year Acquisition of noncontrolling interest (Note 2) Other Balance at end of year Reinvested Earnings Balance at beginning of year Net income attributable to Verizon Dividends declared ($2.285, $2.23, $2.16) per share Balance at end of year Accumulated Other Comprehensive Income Balance at beginning of year attributable to Verizon Foreign currency 2016 Shares 4,242,374 $ 4,242,374 Amount 424 424 2015 Shares 4,242,374 $ 4,242,374 Amount 424 424 2014 Shares Amount 2,967,610 $ 297 1,274,764 127 4,242,374 424 11,155 37,939 41 (26,898) 114 11,182 11,196 11,155 11,246 2,447 1,782 13,127 17,879 9,625 (9,314) (9,080) (8,960) 15,059 11,246 2,447 11,196 (14) 550 (159) 1,111 (208) 2,358 (1,199) translation adjustments Unrealized gains (losses) on cash flow hedges Unrealized losses on marketable securities Defined benefit pension and postretirement plans 198 (194) (197) (55) (11) (5) 2,139 (148) 154 Other comprehensive income (loss) 2,123 (561) (1,247) Balance at end of year attributable to Verizon 2,673 550 1,111 Treasury Stock Balance at beginning of year Shares purchased Employee plans (Note 14) Shareowner plans (Note 14) Other Balance at end of year Deferred CompensationESOPs and Other Balance at beginning of year Restricted stock equity grant Amortization Balance at end of year Noncontrolling Interests Balance at beginning of year (169,199) (7,416) (87,410) (3,263) (104,402) (5,134) 3,439 150 17,072 740 70 3 5,541 241 (165,690) (7,263) (169,199) (7,416) (105,610) 14,132 (3,961) 541 4,105 (37) 157 (87,410) (3,263) 428 424 421 223 (202) 208 (204) 166 (163) 449 428 424 1,414 1,378 56,580 Acquisition of noncontrolling interest (Note 2) Net income attributable to noncontrolling interests Other comprehensive loss (55,960) 2,331 (23) Total comprehensive income Distributions and other Balance at end of year Total Equity 496 481 481 496 2,308 (387) (460) (1,550) 1,414 1,508 $ 24,032 See Notes to Consolidated Financial Statements $ 17,842 1,378 $ 13,676 Notes to Consolidated Financial Statements Verizon Communications Inc. and Subsidiaries Note 1 Description of Business and Summary of Significant Accounting Policies Description of Business Verizon Communications Inc. (Verizon or the Company) is a holding company that, acting through its subsidiaries, is one of the world's leading providers of communications, information and entertainment products and services to consumers, businesses and governmental agencies with a presence around the world. We have two reportable segments, Wireless and Wireline. For further information concerning our business segments, see Note 12. The Wireless segment provides wireless communications services and products across one of the most extensive wireless networks in the United States (U.S.). We provide these services and equipment sales to consumer, business and government customers in the United States on a postpaid and prepaid basis. The Wireline segment provides voice, data and video communications products and enhanced services, including broadband video and data, corporate networking solutions, data center and cloud services, security and managed network services and local and long distance voice services. We provide these products and services to consumers in the United States, as well as to carriers, businesses and government customers both in the United States and around the world. Consolidation The method of accounting applied to investments, whether consolidated, equity or cost, involves an evaluation of all significant terms of the investments that explicitly grant or suggest evidence of control or influence over the operations of the investee. The consolidated financial statements include our controlled subsidiaries, as well as variable interest entities (VIE) where we are deemed to be the primary beneficiary. For controlled subsidiaries that are not wholly- owned, the noncontrolling interests are included in Net income and Total equity. Investments in businesses which we do not control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Investments in which we do not have the ability to exercise significant influence over operating and financial policies are accounted for under the cost method. Equity and cost method investments are included in Investments in unconsolidated businesses in our consolidated balance sheets. All significant intercompany accounts and transactions have been eliminated. Basis of Presentation We have reclassified certain prior year amounts to conform to the current year presentation. Use of Estimates We prepare our financial statements using U.S. generally accepted accounting principles (GAAP), which requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. Examples of significant estimates include: the allowance for doubtful accounts, the recoverability of plant, property and equipment, the recoverability of intangible assets and other long- lived assets, fair values of financial instruments, unrecognized tax benefits, valuation allowances on tax assets, accrued expenses, pension and postretirement benefit obligations, contingencies and the identification and valuation of assets acquired and liabilities assumed in connection with business combinations. Revenue Recognition Multiple Deliverable Arrangements We offer products and services to our wireless and wireline customers through bundled arrangements. These arrangements involve multiple deliverables which may include products, services, or a combination of products and services. Wireless Our Wireless segment earns revenue primarily by providing access to and usage of its network as well as the sale of equipment. In general, access revenue is billed one month in advance and recognized when earned. Usage revenue is generally billed in arrears and recognized when service is rendered. Equipment sales revenue associated with the sale of wireless devices and accessories is generally recognized when the products are delivered to and accepted by the customer, as this is considered to be a separate earnings process from providing wireless services. For agreements involving the resale of third- party services in which we are considered the primary obligor in the arrangements, we record the revenue gross at the time of the sale. Under the Verizon device payment program, our eligible wireless customers purchase wireless devices under a device payment plan agreement. On select devices, certain marketing promotions have been revocably offered to customers to upgrade to a new device after paying down a certain specified portion of the required device payment plan agreement amount as well as trading in their device in good working order. When a customer enters into a device payment plan agreement with the right to upgrade to a new device, we account for this trade- in right as a guarantee obligation. The full amount of the trade- in right's fair value (not an allocated value) is recognized as a guarantee liability and the remaining allocable consideration is allocated to the device. The value of the guarantee liability effectively results in a reduction to the revenue recognized for the sale of the device. We may offer our customers certain promotions where a customer can trade- in his or her owned device in connection with the purchase of a new device. Under these types of promotions, the customer will receive trade- in credits that are applied to the customer's monthly bill. As a result, we recognize a trade- in obligation measured at fair value using weighted- average selling prices obtained in recent resales of devices eligible for tradein. In multiple element arrangements that bundle devices and monthly wireless service, revenue is allocated to each unit of accounting using a relative selling price method. At the inception of the arrangement, the amount allocable to the delivered units of accounting is limited to the amount that is not contingent upon the delivery of the monthly wireless service (the noncontingent amount). We effectively recognize revenue on the delivered device at the lesser of the amount allocated based on the relative selling price of the device or the noncontingent amount owed when the device is sold. Wireline Our Wireline segment earns revenue based upon usage of its network and facilities and contract fees. In general, fixed monthly fees for voice, video, data and certain other services are billed one month in advance and recognized when earned. Revenue from services that are not fixed in amount and are based on usage is generally billed in arrears and recognized when service is rendered. We sell each of the services offered in bundled arrangements (i.e., voice, video and data), as well as separately; therefore each product or service has a standalone selling price. For these arrangements, revenue is allocated to each deliverable using a relative selling price method. Under this method, arrangement consideration is allocated to each separate deliverable based on our standalone selling price for each product or service. These services include Fios services, individually or in bundles, and high- speed Internet. When we bundle equipment with maintenance and monitoring services, we recognize equipment revenue when the equipment is installed in accordance with contractual specifications and ready for the customer's use. The maintenance and monitoring services are recognized monthly over the term of the contract as we provide the services. Installation- related fees, along with the associated costs up to but not exceeding these fees, are deferred and amortized over the estimated customer relationship period. Other Advertising revenues are generated through display advertising and search advertising. Display advertising revenue is generated by the display of graphical advertisements and other performance- based advertising. Search advertising revenue is generated when a consumer clicks on a text- based advertisement on their screen. Agreements for advertising typically take the forms of impression- based contracts, time- based contracts or performance- based contracts. Advertising revenues derived from impression- based contracts, in which we provide impressions in exchange for a fixed fee, are generally recognized as the impressions are delivered. Advertising revenues derived from time- based contracts, in which we provide promotions over a specified time period for a fixed fee, are recognized on a straight- line basis over the term of the contract, provided that we meet and will continue to meet our obligations under the contract. Advertising revenues derived from contracts where we are compensated based on certain performance criteria are recognized as we complete the contractually specified performance. We report taxes imposed by governmental authorities on revenue- producing transactions between us and our customers, which we pass through to our customers, on a net basis. Maintenance and Repairs We charge the cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments, principally to Cost of services as these costs are incurred. Advertising Costs Costs for advertising products and services as well as other promotional and sponsorship costs are charged to Selling, general and administrative expense in the periods in which they are incurred (see Note 14). Earnings Per Common Share Basic earnings per common share are based on the weighted- average number of shares outstanding during the period. Where appropriate, diluted earnings per common share include the dilutive effect of shares issuable under our stock- based compensation plans. There were a total of approximately 6 million, 8 million and 7 million outstanding dilutive securities, primarily consisting of restricted stock units, included in the computation of diluted earnings per common share for the years ended December 31, 2016, 2015 and 2014, respectively. For the years ended December 31, 2016 and 2015, respectively, there were no outstanding options to purchase shares that would have been anti- dilutive. Outstanding options to purchase shares that were not included in the computation of diluted earnings per common share, because to do so would have been anti- dilutive for the period, were not significant for the year ended December 31, 2014. On January 28, 2014, at a special meeting of our shareholders, we received shareholder approval to increase our authorized shares of common stock by 2 billion shares to an aggregate of 6.25 billion authorized shares of common stock. On February 4, 2014, this authorization became effective. On February 21, 2014, we issued approximately 1.27 billion shares of common stock upon completing the acquisition of Vodafone Group Plc's (Vodafone) indirect 45% interest in Cellco Partnership d/b/a Verizon Wireless. See Note 2 for additional information. Cash and Cash Equivalents We consider all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates quoted market value and include amounts held in money market funds. Marketable Securities We have investments in marketable securities, which are considered "available- for- sale" under the provisions of the accounting standard for certain debt and equity securities and are included in the accompanying consolidated balance sheets in Short- term investments or Other assets. We continually evaluate our investments in marketable securities for impairment due to declines in market value considered to be other- than- temporary. That evaluation includes, in addition to persistent, declining stock prices, general economic and company- specific evaluations. In the event of a determination that a decline in market value is other- than- temporary, a charge to earnings is recorded for the loss and a new cost basis in the investment is established. Allowance for Doubtful Accounts Accounts receivable are recorded in the consolidated financial statements at cost net of an allowance for credit losses, with the exception of device payment plan agreement receivables which are initially recorded at fair value. We maintain allowances for uncollectible accounts receivable, including our device payment plan agreement receivables, for estimated losses resulting from the failure or inability of our customers to make required payments. Our allowance for uncollectible accounts receivable is based on management's assessment of the collectability of specific customer accounts and includes consideration of the credit worthiness and financial condition of those customers. We record an allowance to reduce the receivables to the amount that is reasonably believed to be collectible. We also record an allowance for all other receivables based on multiple factors including historical experience with bad debts, the general economic environment and the aging of such receivables. Similar to traditional service revenue accounting treatment, we record device payment plan agreement bad debt expense based on an estimate of the percentage of equipment revenue that will not be collected. This estimate is based on a number of factors including historical write- off experience, credit quality of the customer base and other factors such as macroeconomic conditions. Due to the device payment plan agreement being incorporated in the standard Verizon Wireless bill, the collection and risk strategies continue to follow historical practices. We monitor the aging of our accounts with device payment plan agreement receivables and write- off account balances if collection efforts are unsuccessful and future collection is unlikely. Inventories Inventory consists of wireless and wireline equipment held for sale, which is carried at the lower of cost (determined principally on either an average cost or first- in, first- out basis) or market. Plant and Depreciation We record plant, property and equipment at cost. Plant, property and equipment are generally depreciated on a straight- line basis. Leasehold improvements are amortized over the shorter of the estimated life of the improvement or the remaining term of the related lease, calculated from the time the asset was placed in service. When depreciable assets are retired or otherwise disposed of, the related cost and accumulated depreciation are deducted from the plant accounts and any gains or losses on disposition are recognized in income. We capitalize and depreciate network software purchased or developed along with related plant assets. We also capitalize interest associated with the acquisition or construction of network- related assets. Capitalized interest is reported as a reduction in interest expense and depreciated as part of the cost of the network- related assets. In connection with our ongoing review of the estimated useful lives of plant, property and equipment during 2016, we determined that the average useful lives of certain leasehold improvements would be increased from 5 to 7 years. This change resulted in a decrease to depreciation expense of $0.2 billion in 2016. We determined that changes were also necessary to the remaining estimated useful lives of certain assets as a result of technology upgrades, enhancements, and planned retirements. These changes resulted in an increase in depreciation expense of $0.3 billion, $0.4 billion and $0.6 billion in 2016, 2015 and 2014, respectively. While the timing and extent of current deployment plans are subject to ongoing analysis and modification, we believe the current estimates of useful lives are reasonable. Computer Software Costs We capitalize the cost of internal- use network and non- network software that has a useful life in excess of one year. Subsequent additions, modifications or upgrades to internal- use network and non- network software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Planning, software maintenance and training costs are expensed in the period in which they are incurred. Also, we capitalize interest associated with the development of internal- use network and non- network software. Capitalized non- network internaluse software costs are amortized using the straight- line method over a period of 3 to 8 years and are included in Other intangible assets, net in our consolidated balance sheets. For a discussion of our impairment policy for capitalized software costs, see "Goodwill and Other Intangible Assets" below. Also, see Note 3 for additional detail of internal- use non- network software reflected in our consolidated balance sheets. Goodwill and Other Intangible Assets 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, we have the option to perform a qualitative assessment. However, we may elect to bypass the qualitative assessment and perform an impairment test even if no indications of a potential impairment exist. The impairment test for goodwill uses a two- step approach, which is performed at the reporting unit level. Step one, performed to identify potential impairment, compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed to measure the amount of the impairment charge. Step two compares the carrying value of the reporting unit's goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit's assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment charge is recognized. Our assessments in 2016, 2015 and 2014 indicated that the fair value of each of our reporting units exceeded their carrying value and therefore, did not result in an impairment. Intangible Assets Not Subject to Amortization A significant portion of our intangible assets are wireless licenses that provide our 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, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our wireless licenses. As a result, we treat the wireless licenses as an indefinite- lived intangible asset. We re- evaluate the useful life determination for wireless licenses each year to determine whether events and circumstances continue to support an indefinite useful life. We aggregate our wireless licenses into one single unit of accounting, as we utilize our wireless licenses on an integrated basis as part of our nationwide wireless network. We test our wireless licenses for potential impairment annually or more frequently if impairment indicators are present. We have the option to first perform a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. However, we may elect to bypass the qualitative assessment in any period and proceed directly to performing the quantitative impairment test. In 2016 and 2014, we performed a qualitative assessment to determine whether it is more likely than not that the fair value of our wireless licenses was less than the carrying amount. As part of our assessment, we considered several qualitative factors including the business enterprise value of our Wireless segment, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and EBITDA (Earnings before interest, taxes, depreciation and amortization) margin projections), the projected financial performance of our Wireless segment, as well as other factors. The most recent quantitative assessments of our wireless licenses occurred in 2015. Our quantitative assessment consisted of comparing the estimated fair value of our aggregate wireless licenses to the aggregated carrying amount as of the test date. Using a quantitative assessment, we estimated the fair value of our 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. Our assessments in 2016, 2015 and 2014 indicated that the fair value of our wireless licenses exceeded the carrying value and, therefore, did not result in an impairment. 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 complete and the license is ready for its intended use. Intangible Assets Subject to Amortization and Long- Lived Assets Our 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 our 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 were present, we 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, we would perform the next step, which is to determine the fair value of the asset and record an impairment, if any. We re- evaluate the useful life determinations for these intangible assets each year to determine whether events and circumstances warrant a revision to their remaining useful lives. For information related to the carrying amount of goodwill, wireless licenses and other intangible assets, as well as the major components and average useful lives of our other acquired intangible assets, see Note 3. Fair Value Measurements Fair value of financial and non- financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three- tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows: Level 1- Quoted prices in active markets for identical assets or liabilities Level 2- Observable inputs other than quoted prices in active markets for identical assets and liabilities Level 3- No observable pricing inputs in the market Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their categorization within the fair value hierarchy. Income Taxes Our effective tax rate is based on pre- tax income, statutory tax rates, tax laws and regulations and tax planning strategies available to us in the various jurisdictions in which we operate. Deferred income taxes are provided for temporary differences in the basis between financial statement and income tax assets and liabilities. Deferred income taxes are recalculated annually at tax rates then in effect. We record valuation allowances to reduce our deferred tax assets to the amount that is more likely than not to be realized. We use a two- step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is recognition: we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more- likely- than- not recognition threshold, we presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: a tax position that meets the more- likely- than- not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset or an increase in a deferred tax liability. Significant management judgment is required in evaluating our tax positions and in determining our effective tax rate. Stock- Based Compensation We measure and recognize compensation expense for all stock- based compensation awards made to employees and directors based on estimated fair values. See Note 9 for further details. Foreign Currency Translation The functional currency of our foreign operations is generally the local currency. For these foreign entities, we translate income statement amounts at average exchange rates for the period, and we translate assets and liabilities at end- of- period exchange rates. We record these translation adjustments in Accumulated other comprehensive income, a separate component of Equity, in our consolidated balance sheets. We report exchange gains and losses on intercompany foreign currency transactions of a long- term nature in Accumulated other comprehensive income. Other exchange gains and losses are reported in income. Employee Benefit Plans Pension and postretirement health care and life insurance benefits earned during the year as well as interest on projected benefit obligations are accrued currently. Prior service costs and credits resulting from changes in plan benefits are generally amortized over the average remaining service period of the employees expected to receive benefits. Expected return on plan assets is determined by applying the return on assets assumption to the actual fair value of plan assets. Actuarial gains and losses are recognized in operating results in the year in which they occur. These gains and losses are measured annually as of December 31 or upon a remeasurement event. Verizon management employees no longer earn pension benefits or earn service towards the company retiree medical subsidy (see Note 10). We recognize a pension or a postretirement plan's funded status as either an asset or liability on the consolidated balance sheets. Also, we measure any unrecognized prior service costs and credits that arise during the period as a component of Accumulated other comprehensive income, net of applicable income tax. Derivative Instruments We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates and interest rates. We employ risk management strategies, which may include the use of a variety of derivatives including cross currency swaps, foreign currency and prepaid forwards and collars, interest rate swap agreements and interest rate caps. We do not hold derivatives for trading purposes. See Note 8. We measure all derivatives at fair value and recognize them as either assets or liabilities on our consolidated balance sheets. Our derivative instruments are valued primarily using models based on readily observable market parameters for all substantial terms of our derivative contracts and thus are classified as Level 2. Changes in the fair values of derivative instruments not qualifying as hedges or any ineffective portion of hedges are recognized in earnings in the current period. Changes in the fair values of derivative instruments used effectively as fair value hedges are recognized in earnings, along with changes in the fair value of the hedged item. Changes in the fair value of the effective portions of cash flow hedges are reported in Other comprehensive income (loss) and recognized in earnings when the hedged item is recognized in earnings. Changes in the fair value of the effective portion of net investment hedges of certain of our foreign operations are reported in Other comprehensive income (loss) as part of the cumulative translation adjustment and partially offset the impact of foreign currency changes on the value of our net investment. Variable Interest Entities VIEs are entities which lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, have equity investors which do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. We consolidate the assets and liabilities of VIEs when we are deemed to be the primary beneficiary. The primary beneficiary is the party which has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Recently Adopted Accounting Standards During the first quarter of 2016, we adopted the accounting standard update related to the simplification of the accounting for measurement- period adjustments in business combinations. This standard update requires an acquirer to recognize measurement- period adjustments in the reporting period in which the adjustments are determined and to record the effects on earnings of any changes resulting from the change in provisional amounts, calculated as if the accounting had been completed at the acquisition date. The prospective adoption of this standard update did not have a significant impact on our consolidated financial statements. During the first quarter of 2016, we adopted the accounting standard update related to disclosures for investments in certain entities that calculate net asset value (NAV) per share. This standard update removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. The standard update limits the required disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. The retrospective adoption of this standard update impacted our presentation of pension and other postretirement benefit plan assets in the notes to the consolidated financial statements but did not have an impact on the measurement of the assets. During the first quarter of 2016, we adopted the accounting standard update related to the simplification of the presentation of debt issuance costs. This standard update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. During the first quarter of 2016, we also adopted the accounting standard update related to the presentation and subsequent measurement of debt issuance costs associated with line- of- credit arrangements. This standard adds Securities and Exchange Commission (SEC) paragraphs pursuant to an SEC Staff Announcement that the SEC staff would not object to an entity deferring and presenting debt issuance costs associated with a line- of- credit arrangement as an asset and subsequently amortizing the costs ratably over the term of the arrangement. We applied the amendments in these accounting standard updates retrospectively to all periods presented. The adoption of these standard updates did not have a significant impact on our consolidated financial statements. During the first quarter of 2016, we adopted the accounting standard update related to the accounting for share- based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The standard requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The prospective adoption of this standard update did not have an impact on our consolidated financial statements. During the second quarter of 2016, we prospectively changed our method for determining the date at which we remeasure plan assets and obligations as a result of a significant event during an interim period in accordance with Accounting Standards Update (ASU) 2015- 04, Compensation Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets. As a practical expedient, we elected to remeasure defined benefit plan assets and obligations using the month- end that is closest to the date of the significant event. While this standard update may impact the amounts recognized in an interim period as the result of a remeasurement, the adoption of this standard update did not impact our annual consolidated financial statements as the employee benefit obligations are measured annually as of December 31. Recently Issued Accounting Standards In January 2017, the accounting standard update related to the simplification of the accounting for goodwill impairment was issued. The amendments in this update eliminate the requirement to perform step two of the goodwill impairment test, which requires a hypothetical purchase price allocation when an impairment is determined to have occurred. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard update is effective as of the first quarter of 2020; however, early adoption is permitted for any interim or annual impairment tests performed after January 1, 2017. Verizon expects to early adopt this standard as of January 1, 2017. The prospective adoption of this standard update is not expected to have a significant impact on our consolidated financial statements. In November 2016, the accounting standard update related to the classification and presentation of changes in restricted cash was issued. 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. This standard update is effective as of the first quarter of 2018; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our consolidated financial statements. In August 2016, the accounting standard update related to the classification of certain cash receipts and cash payments was issued. 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. This standard update is effective as of the first quarter of 2018; however, early adoption is permitted. We are currently evaluating the impact that this standard update will have on our consolidated financial statements. We expect the amendment relating to beneficial interests in securitization transactions will have an impact on our presentation of collections of the deferred purchase price from sales of wireless device payment plan agreement receivables in our consolidated statements of cash flows. Upon adoption of this standard update in the first quarter of 2018, we expect to retrospectively reclassify approximately $1.1 billion of collections of deferred purchase price related to collections from customers for the year ended December 31, 2016 from Cash flows from operating activities to Cash flows from investing activities in our consolidated statements of cash flows. In June 2016, the standard update related to the measurement of credit losses on financial instruments was issued. 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. 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 on our consolidated financial statements. In March 2016, the accounting standard update related to employee share- based payment accounting was issued. This standard update intends to simplify several aspects of the accounting for share- based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This standard update is effective as of the first quarter of 2017. The retrospective adoption of this standard update is not expected to have a significant impact on our consolidated financial statements. In February 2016, the accounting standard update related to leases was issued. 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 is effective as of the first quarter of 2019; however, early adoption is permitted. Verizon's current operating lease portfolio is primarily comprised of network, real estate, and equipment leases. Upon adoption of this standard, we expect our balance sheet to include a right of use asset and liability related to substantially all operating lease arrangements. We have established a cross- functional coordinated implementation team to implement the standard update related to leases. We are in the process of assessing the impact to our systems, processes and internal controls to meet the standard update's reporting and disclosure requirements. In May 2014, the accounting standard update related to the recognition of revenue from contracts with customers was issued. This standard update along with related subsequently issued updates clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. 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. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the standard is applied only to the most current period presented and the cumulative effect of applying the standard would be recognized at the date of initial application. In August 2015, an accounting standard update was issued that delayed the effective date of this standard until the first quarter of 2018, at which time we plan to adopt the standard. We are in process of evaluating the impact of the standard update. The ultimate impact on revenue resulting from the application of the new standard will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of our contractual arrangements and our mix of business. Upon adoption, we expect that the allocation of revenue between equipment and service for our wireless fixed- term service plans will result in more revenue allocated to equipment and recognized earlier as compared with current GAAP. We expect the timing of recognition of our sales commission expenses will also be impacted, as a substantial portion of these costs (which are currently expensed) will be capitalized and amortized as described above. In 2016, total sales commission expenses were approximately $4.2 billion. In 2017, we expect total sales commission expenses to decline as our wireless customers continue to migrate from our fixed- term service plans to device payment plans which have lower commission structures. We continue to evaluate the available transition methods. Our considerations include, but are not limited to, the comparability of our financial statements and the comparability within our industry from application of the new standard to our contractual arrangements. We plan to select a transition method by the second half of 2017. We have established a cross- functional coordinated implementation team to implement the standard update related to the recognition of revenue from contracts with customers. We have identified and are in the process of implementing changes to our systems, processes and internal controls to meet the standard update's reporting and disclosure requirements. Note 2 Acquisitions and Divestitures Wireless Wireless Transaction On September 2, 2013, Verizon entered into a stock purchase agreement (the Stock Purchase Agreement) with Vodafone and Vodafone 4 Limited (Seller), pursuant to which Verizon agreed to acquire Vodafone's indirect 45% interest in Cellco Partnership d/b/a Verizon Wireless (the Partnership, and such interest, the Vodafone Interest) for aggregate consideration of approximately $130 billion. On February 21, 2014, pursuant to the terms and subject to the conditions set forth in the Stock Purchase Agreement, Verizon acquired (the Wireless Transaction) from Seller all of the issued and outstanding capital stock (the Transferred Shares) of Vodafone Americas Finance 1 Inc., a subsidiary of Seller (VF1 Inc.), which indirectly through certain subsidiaries (together with VF1 Inc., the Purchased Entities) owned the Vodafone Interest. In consideration for the Transferred Shares, upon completion of the Wireless Transaction, Verizon (i) paid approximately $58.89 billion in cash, (ii) issued approximately 1.27 billion shares of Verizon's common stock, par value $0.10 per share, which was valued at approximately $61.3 billion at the closing of the Wireless Transaction, (iii) issued senior unsecured Verizon notes in an aggregate principal amount of $5.0 billion (the Verizon Notes), (iv) sold Verizon's indirectly owned 23.1% interest in Vodafone Omnitel N.V. (Omnitel, and such interest, the Omnitel Interest), valued at $3.5 billion and (v) provided other consideration, which included the assumption of preferred stock valued at approximately $1.7 billion. The total cash paid to Vodafone and the other costs of the Wireless Transaction, including financing, legal and bank fees, were financed through the incurrence of third- party indebtedness. In accordance with the accounting standard on consolidation, a change in a parent's ownership interest while the parent retains a controlling financial interest in its subsidiary is accounted for as an equity transaction and remeasurement of assets and liabilities of previously controlled and consolidated subsidiaries is not permitted. As a result, we accounted for the Wireless Transaction by adjusting the carrying amount of the noncontrolling interest to reflect the change in Verizon's ownership interest in the Partnership. Any difference between the fair value of the consideration paid and the amount by which the noncontrolling interest is adjusted has been recognized in equity attributable to Verizon. Omnitel Transaction On February 21, 2014, Verizon and Vodafone also consummated the sale of the Omnitel Interest (the Omnitel Transaction) by a subsidiary of Verizon to a subsidiary of Vodafone in connection with the Wireless Transaction pursuant to a separate share purchase agreement. As a result, during 2014, we recognized a pre- tax gain of $1.9 billion on the disposal of the Omnitel interest in Equity in (losses) earnings of unconsolidated businesses on our consolidated statement of income. Verizon Notes (Non- Cash Transaction) The Verizon Notes were issued pursuant to Verizon's existing indenture. The Verizon Notes were issued in two separate series, with $2.5 billion due February 21, 2022 (the eight- year Verizon Notes) and $2.5 billion due February 21, 2025 (the eleven- year Verizon Notes). The Verizon Notes bear interest at a floating rate, which will be reset quarterly, with interest payable quarterly in arrears, beginning May 21, 2014. The eight- year Verizon notes bear interest at a floating rate equal to the three- month London Interbank Offered Rate (LIBOR), plus 1.222%, and the eleven- year Verizon notes bear interest at a floating rate equal to the three- month LIBOR, plus 1.372%. On December 7, 2016, we redeemed the eight- year Verizon Notes (see Note 6 for additional details). Other Consideration (Non- Cash Transaction) Included in the other consideration provided to Vodafone is the indirect assumption of long- term obligations with respect to 5.143% Class D and Class E cumulative preferred stock issued by one of the Purchased Entities. Both the Class D shares (825,000 shares outstanding) and Class E shares (825,000 shares outstanding) are mandatorily redeemable in April 2020 at $1,000 per share plus any accrued and unpaid dividends. Dividends accrue at 5.143% per annum and will be treated as interest expense. Both the Class D and Class E shares have been classified as liability instruments and were recorded at fair value as determined at the closing of the Wireless Transaction. Deferred Tax Liabilities Certain deferred taxes directly attributable to the Wireless Transaction have been calculated based on an analysis of taxes attributable to the difference between the tax basis of the investment in the noncontrolling interest that is assumed compared to Verizon's book basis. As a result, Verizon recorded a deferred tax liability of approximately $13.5 billion. Spectrum License Transactions Since 2014, we have entered into several strategic spectrum transactions including: During the second quarter of 2014, we completed license exchange transactions with T- Mobile USA, Inc. (T- Mobile USA) to exchange certain Advanced Wireless Services (AWS) and Personal Communication Services (PCS) licenses. The exchange included a number of swaps that we expect will result in more efficient use of the AWS and PCS bands. As a result of these exchanges, we received $0.9 billion of AWS and PCS spectrum licenses at fair value and we recorded an immaterial gain. During the second quarter of 2014, we completed transactions pursuant to two additional agreements with T- Mobile USA with respect to our remaining 700 MHz A block spectrum licenses. Under one agreement, we sold certain of these licenses to T- Mobile USA in exchange for cash consideration of approximately $2.4 billion, and under the second agreement we exchanged the remainder of our 700 MHz A block spectrum licenses as well as AWS and PCS spectrum licenses for AWS and PCS spectrum licenses. As a result, we received $1.6 billion of AWS and PCS spectrum licenses at fair value and we recorded a pre- tax gain of approximately $0.7 billion in Selling, general and administrative expense on our consolidated statement of income for the year ended December 31, 2014. During the third quarter of 2014, we entered into a license exchange agreement with affiliates of AT&T Inc. (AT&T) to exchange certain AWS and PCS spectrum licenses. This non- cash exchange was completed in January 2015 at which time we recorded an immaterial gain. On January 29, 2015, the FCC completed an auction of 65 MHz of spectrum, which it identified as the AWS- 3 band. Verizon participated in that auction and was the high bidder on 181 spectrum licenses, for which we paid cash of approximately $10.4 billion. During the fourth quarter of 2014, we made a deposit of $0.9 billion related to our participation in this auction which is classified within Other, net investing activities on our consolidated statement of cash flows for the year ended December 31, 2014. During the first quarter of 2015, we submitted an application to the FCC and paid $9.5 billion to the FCC to complete payment for these licenses. The cash payment of $9.5 billion is classified within Acquisitions of wireless licenses on our consolidated statement of cash flows for the year ended December 31, 2015. On April 8, 2015, the FCC granted us these spectrum licenses. During the fourth quarter of 2015, we completed a license exchange transaction with an affiliate of T- Mobile USA to exchange certain AWS and PCS spectrum licenses. As a result we received $0.4 billion of AWS and PCS spectrum licenses at fair value and recorded a pre- tax gain of approximately $0.3 billion in Selling, general and administrative expense on our consolidated statement of income for the year ended December 31, 2015. During the fourth quarter of 2015, we entered into a license exchange agreement with affiliates of AT&T to exchange certain AWS and PCS spectrum licenses. This non- cash exchange was completed in March 2016. As a result, we received $0.4 billion of AWS and PCS spectrum licenses at fair value and recorded a pre- tax gain of $0.1 billion in Selling, gener