Selected Financial Data (dollars in millions, except per share amounts) 2016 2015 2014 2013 2012 Results of Operations Operating revenues $ 125,980 $ 131,620 $ 127,079 $ 120,550 $ 115,846 Operating income 27,059 33,060 19,599 31,968 13,160 Net income attributable to Verizon 13,127 17,879 9,625 11,497 875 Per common share — basic 3.22 4.38 2.42 4.01 .31 Per common share — diluted 3.21 4.37 2.42 4.00 .31 Cash dividends declared per common share 2.285 2.230 2.160 2.090 2.030 Net income attributable to noncontrolling interests 481 496 2,331 12,050 9,682 Financial Position Total assets $ 244,180 $ 244,175 $ 232,109 $ 273,184 $ 222,720 Debt maturing within one year 2,645 6,489 2,735 3,933 4,369 Long-term debt 105,433 103,240 110,029 89,188 47,428 Employee benefit obligations 26,166 29,957 33,280 27,682 34,346 Noncontrolling interests 1,508 1,414 1,378 56,580 52,376 Equity attributable to Verizon 22,524 16,428 12,298 38,836 33,157 • Significant events affecting our historical earnings trends in 2014 through 2016 are described in “Other Items” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. • 2013 data includes severance, pension and benefit charges, gain on spectrum license transactions and wireless transaction costs. 2012 data includes severance, pension and benefit charges, early debt redemption costs and litigation settlement charges. Stock Performance Graph Comparison of Five-Year Total Return Among Verizon, S&P 500 Telecommunications Services Index and S&P 500 Stock Index $200 $180 $160 $140 Dollars $120 $100 Verizon $80 S&P 500 Telecom Services $60 S&P 500 2011 2012 2013 2014 2015 2016 At December 31, Data Points in Dollars 2011 2012 2013 2014 2015 2016 Verizon 100.0 113.2 134.0 133.3 137.9 166.5 S&P 500 Telecom Services 100.0 118.3 131.7 135.6 140.1 173.0 S&P 500 100.0 116.0 153.5 174.5 176.9 198.0 The graph compares the cumulative total returns of Verizon, the S&P 500 Telecommunications Services Index, and the S&P 500 Stock Index over a five-year period. It assumes $100 was invested on December 31, 2011 with dividends being reinvested. www.verizon.com/2016AnnualReport Verizon Communications Inc. and Subsidiaries | 9 Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview On July 23, 2016, Verizon entered into a stock purchase agreement (the Purchase Agreement) with Yahoo! Inc. (Yahoo). Pursuant to the Verizon Communications Inc. (Verizon, or the Company) is a holding Purchase Agreement, upon the terms and subject to the conditions company that, acting through its subsidiaries, is one of the world’s thereof, we agreed to acquire the stock of one or more subsidiaries leading providers of communications, information and entertainment of Yahoo holding all of Yahoo's operating business, for approximately products and services to consumers, businesses and governmental $4.83 billion in cash, subject to certain adjustments (the Transaction). agencies. With a presence around the world, we offer voice, data and On February 20, 2017, Verizon and Yahoo entered into an amendment video services and solutions on our wireless and wireline networks to the Purchase Agreement, pursuant to which the Transaction that are designed to meet customers’ demand for mobility, reliable purchase price will be reduced by $350 million to approximately network connectivity, security and control. We have two reportable $4.48 billion in cash, subject to certain adjustments. Subject to certain segments, Wireless and Wireline. Our wireless business, operating exceptions, the parties also agreed that certain user security and data as Verizon Wireless, provides voice and data services and equipment breaches incurred by Yahoo (and the losses arising therefrom) will sales across the United States (U.S.) using one of the most extensive be disregarded (1) for purposes of specified conditions to Verizon’s and reliable wireless networks. Our wireline business provides obligations to close the Transaction and (2) in determining whether a consumer, business and government customers with communications “Business Material Adverse Effect” under the Purchase Agreement products and enhanced services, including broadband data and has occurred. video, corporate networking solutions, data center and cloud services, security and managed network services and local and long distance Concurrently with the amendment of the Purchase Agreement, Yahoo voice services, and also owns and operates one of the most expansive and Yahoo Holdings, Inc., a wholly owned subsidiary of Yahoo that end-to-end Global Internet Protocol (IP) networks. We have a highly Verizon has agreed to purchase pursuant to the Transaction, also skilled, diverse and dedicated workforce of approximately 160,900 entered into an amendment to a related reorganization agreement, employees as of December 31, 2016. pursuant to which Yahoo (which has announced that it intends to change its name to Altaba Inc. following the closing of the Transaction) To compete effectively in today’s dynamic marketplace, we are focused will retain 50% of certain post-closing liabilities arising out of govern- on transforming around the capabilities of our high- performing networks mental or third party investigations, litigations or other claims related to with a goal of future growth based on delivering what customers want certain user security and data breaches incurred by Yahoo. In accor- and need in the new digital world. Our three tier strategy is to lead at dance with the original Transaction agreements, Yahoo will continue the network connectivity level in the markets we serve, develop new to retain 100% of any liabilities arising out of any shareholder lawsuits business models through global platforms in video and the Internet of (including derivative claims) and investigations and actions by the Things (IoT) and create certain opportunities in applications and content Securities and Exchange Commission (SEC). for incremental monetization. Our strategy requires significant capital investments primarily to acquire wireless spectrum, put the spectrum The Transaction remains subject to customary closing conditions, into service, provide additional capacity for growth in our networks, including the approval of Yahoo's stockholders, and is expected to invest in the fiber-optic network that supports our businesses, maintain close in the second quarter of 2017. our networks and develop and maintain significant advanced informa- We believe that our acquisition of Yahoo's operating business will help tion technology systems and data system capabilities. We believe that us become a scaled distributor in mobile media. Yahoo's operations steady and consistent investments in our networks and platforms will are expected to provide us with a valuable portfolio of online content, drive innovative products and services and fuel our growth. In addition, mobile applications and viewers. Additionally, our acquisition of protecting the privacy of our customers’ information and the security Yahoo's operating business is expected to expand our analytics and of our systems and networks will continue to be a priority at Verizon. ad tech capabilities which we expect will enhance both our compet- Our network leadership will continue to be the hallmark of our brand, itive position in the mobile media marketplace and value proposition and provide the fundamental strength at the connectivity, platform and to advertisers (see Note 2 to the consolidated financial statements for solutions layers upon which we build our competitive advantage. additional details). Strategic Transactions IoT and Telematics We are also building our growth capabilities in the emerging IoT market Digital Media and Interactive Entertainment by developing business models to monetize usage on our network at We have been investing in technology that taps into the market shift the connectivity and platform layers. On July 30, 2016, we entered into to digital content and advertising. During 2015, we entered into an a definitive agreement to acquire Fleetmatics Group PLC (Fleetmatics), Agreement and Plan of Merger (the Merger Agreement) with AOL a leading global provider of fleet and mobile workforce management Inc. (AOL) pursuant to which we completed a tender offer to acquire solutions. Pursuant to the terms of the agreement, we acquired all of the outstanding shares of common stock of AOL at a price of Fleetmatics for $60.00 per ordinary share in cash. The aggregate $50.00 per share, net to the seller in cash, without interest and less merger consideration was approximately $2.5 billion, including cash any applicable withholding taxes. The aggregate cash consideration acquired of $0.1 billion. We completed the acquisition on November 7, paid by Verizon at the closing of these transactions was approximately 2016. In July 2016, we also closed on the acquisition of Telogis, Inc. $3.8 billion. AOL is a leader in the digital content and advertising (Telogis), a global cloud-based mobile enterprise management platform space. AOL’s business model aligns with this approach, and software business, for $0.9 billion of cash consideration. For the year we believe that its combination of owned and operated content prop- ended December 31, 2016, we recognized IoT revenues, including erties plus a digital advertising platform enhances our ability to further revenues from businesses acquired during 2016, of approximately develop future revenue streams. $1.0 billion, a 39% increase compared to the prior year period. 10 | Verizon Communications Inc. and Subsidiaries www.verizon.com/2016AnnualReport Management’s Discussion and Analysis of Financial Condition and Results of Operations continued Network Evolution Wireless We are reinventing our network architecture around a common fiber Our Wireless segment, doing business as Verizon Wireless, provides platform that will support both our wireless and wireline technologies. wireless communications services and products across one of the most We expect that this new “One Fiber” architecture will improve our 4G extensive wireless networks in the United States.