Acquisitions and Divestitures

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions and Divestitures

Note 3. Acquisitions and Divestitures

Spectrum License Transactions

In March 2020, the FCC's incentive auction, Auction 103, for spectrum licenses in the upper 37 GHz, 39 GHz, and 47 GHz bands concluded. Verizon participated in this incentive auction and was the high bidder on 4,940 licenses, which primarily consisted of 37 GHz and, to a lesser extent, 39 GHz spectrum. As an incumbent licensee, our 39 GHz licenses provided us with incentive payments that were applied towards the purchase price of spectrum in the auction. The value of the licenses won by Verizon amounted to $3.4 billion, of which $1.8 billion was settled with the relinquished 39 GHz licenses. The remaining balance was settled in cash of $1.6 billion. In connection with the incentive auction, a pre-tax net loss of $1.2 billion ($914 million after-tax) was recorded in Selling, general and administrative expense in the consolidated statement of income during 2020 because the exchange of the previously held licenses for new licenses had commercial substance.

In February 2021, the FCC concluded Auction 107 for C-Band wireless spectrum. Verizon paid $45.5 billion for the licenses it won, of which $44.6 billion was paid in the first quarter of 2021. In accordance with the rules applicable to the auction, Verizon is required to make additional payments to acquire the licenses. The payments are for our allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction, which are estimated to be $7.7 billion. During 2021, we made payments of $1.3 billion primarily related to certain obligations for projected clearing costs. During 2022, we made additional payments of $1.6 billion for obligations related to accelerated clearing incentives and clearing costs, of which $1.4 billion were accrued as of December 31, 2021 in our consolidated balance sheet. We expect to continue to make payments related to clearing cost and incentive payment obligations through 2024, which we expect to be $4.8 billion. These payments are dependent on the incumbent license holders accelerated clearing of the spectrum for Verizon’s use and, therefore, the final timing and amounts could differ based on the incumbent holders’ execution of their clearing process. In accordance with the FCC order, the clearing must be completed by December 2025. The carrying value of the wireless spectrum won in Auction 107 consists of all payments required to participate and purchase licenses in the auction, including Verizon’s allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with the auction that we are obligated to pay in order to acquire the licenses, as well as capitalized interest to the extent qualifying activities have occurred.

In March 2022, Verizon signed agreements with satellite operators in which operators agreed to clear C-Band spectrum in certain markets and frequencies ahead of the previously expected December 2023 timeframe. During 2022, Verizon incurred costs associated with these agreements of approximately $340 million, of which $310 million was paid as of December 31, 2022. This early clearance accelerated Verizon's access to more spectrum in a number of key markets to support its fifth-generation (5G) network initiatives.

During 2022 and 2021, we entered into and completed various other wireless license acquisitions for cash consideration of an insignificant amount and $95 million, respectively. During 2021, we recognized a pre-tax loss in connection with the sale of certain wireless licenses of $223 million ($167 million after tax).

Business Acquisitions and Divestitures

TracFone Wireless, Inc.

In September 2020, we entered into a purchase agreement (TracFone Purchase Agreement) with América Móvil to acquire TracFone, a leading provider of prepaid and value mobile services in the U.S. The transaction closed on November 23, 2021 (the Acquisition Date). The acquisition positions Verizon as the leading prepaid, value and premium wireless carrier by expanding Verizon’s portfolio, bringing enhanced access of our wireless network and comprehensive suite of mobility products and services to a new customer base.

In accordance with the terms of the TracFone Purchase Agreement, Verizon acquired all of TracFone's outstanding stock in exchange for approximately $3.5 billion in cash, net of cash acquired and working capital and other adjustments, 57,596,544 shares of our common stock valued at approximately $3.0 billion, and up to an additional $650 million in future cash contingent consideration related to the achievement of certain performance measures and other commercial arrangements. The fair value of the common stock was determined on the basis of its closing market price on the Acquisition Date. The estimated fair value of the contingent consideration as of the Acquisition Date was approximately $560 million and represents a Level 3 measurement as defined in ASC 820, Fair Value Measurements and Disclosures. See Note 9 for additional information. The contingent consideration payable is based on the achievement of certain revenue and operational targets, measured over a two-year earn out period, as defined in the TracFone Purchase Agreement.

In May 2022, Verizon received net cash proceeds of $248 million for the final settlement of working capital, which was included in our consideration as of the Acquisition Date. During 2022, Verizon made payments of $188 million related to the contingent consideration, which is reflected in Cash flows from financing activities in our consolidated statement of cash flows for the year ended December 31, 2022. In January 2023, we made an additional payment of $102 million related to the contingent consideration. Contingent consideration payments are expected to continue through 2024.

The TracFone acquisition was accounted for as a business combination. The purchase consideration was allocated to the assets acquired and liabilities assumed based on their fair values as of the Acquisition Date.

The following table summarizes the allocation of the consideration paid and payable to the identified assets acquired and liabilities assumed as of the Acquisition Date:

	November 23,		Measurement Period Adjustments(1)		Adjusted
(dollars in millions)	2021				Fair Value
Consideration:
Cash, net of cash acquired and working capital and other adjustments	$	3,491	$	7	$	3,498
Fair value of Verizon common stock (57,596,544 shares)	2,981		—		2,981
Fair value of contingent consideration to be paid	542		18		560
Total consideration	$	7,014	$	25	$	7,039
Assets acquired:
Current assets	$	1,370	$	9	$	1,379
Property, plant and equipment, net	96		(10)		86
Goodwill	3,723		100		3,823
Other intangible assets	4,374		(19)		4,355
Other assets	731		(58)		673
Total assets acquired	$	10,294	$	22	$	10,316
Liabilities assumed:
Current liabilities	$	1,433	$	70	$	1,503
Deferred income taxes	1,007		37		1,044
Other liabilities	840		(110)		730
Total liabilities assumed	$	3,280	$	(3)	$	3,277
Net assets acquired	$	7,014	$	25	$	7,039

(1) Adjustments to the fair value measurements reflect new information obtained about facts and circumstances that existed as of the Acquisition Date, that if known, would have affected the measurement of the amounts recognized as of that date. The most significant adjustments related to goodwill, deferred income taxes, deferred commission costs and other intangible assets.

During 2022, we recorded a measurement period adjustment resulting in changes to the fair value and amortization period of certain intangible assets. As such, we recorded an adjustment to the fair value of certain intangible assets with a corresponding adjustment to goodwill. As a result of the changes in the provisional fair value and amortization period of certain intangible assets during the one-year measurement period, amortization expense decreased $110 million for the year ended December 31, 2022. Other intangible assets include $2.4 billion related to customer relationships, with a weighted-average amortization period of 7 years, $1.1 billion related to distribution relationships, with an amortization period of 5 years, $740 million related to trade names with a weighted-average amortization period of 17 years and $145 million related to acquired technology, with an amortization period of 10 years. The intangible assets were assigned fair values using an income approach. The valuations are considered Level 3 fair value measurements due to the use of significant inputs not observable in the market, which include the discount rate, royalty rate and amount and timing of future cash flows.

Goodwill is calculated as the difference between the Acquisition Date fair value of the consideration paid and payable and the fair value of the net assets acquired, representing future economic benefits that we expect to achieve as a result of the acquisition. The goodwill related to this acquisition is included within the Consumer segment.

Pursuant to the TracFone Purchase Agreement, América Móvil agreed to indemnify Verizon against certain pre-acquisition tax matters and other contingencies. We have recorded total contingent liabilities and offsetting indemnification assets of $672 million for the expected reimbursement of these matters that had not been resolved as of the Acquisition Date. The liabilities are presented in Other liabilities and the indemnification assets are presented in Other assets, within our consolidated balance sheets. The amounts recognized represent reasonable estimates based on an evaluation of current facts and circumstances. Actual outcome may differ significantly from these estimates. We expect that any additional liabilities that may arise related to these indemnified matters would be indemnified and reimbursed by América Móvil.

Bluegrass Cellular

In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass Cellular, a rural wireless operator serving central Kentucky. The transaction closed in March 2021. The aggregate cash consideration paid by Verizon at the closing of the transaction was approximately $412 million, net of cash acquired.

Verizon Media Divestiture

On May 2, 2021, Verizon entered into a definitive agreement with an affiliate of Apollo Global Management Inc. (the Apollo Affiliate) pursuant to which we agreed to sell Verizon Media in return for consideration of $4.3 billion in cash, subject to customary adjustments, $750 million in non-convertible preferred limited partnership units of the Apollo Affiliate and 10% of the fully-diluted common limited partnership units of the Apollo Affiliate.

On September 1, 2021, we completed the sale of Verizon Media. As of the close of the transaction, cash proceeds, the fair value of the non-convertible preferred limited partnership units of the Apollo Affiliate and the fair value of 10% of the fully-diluted common limited partnership units of the Apollo Affiliate were $4.3 billion, $496 million, and $124 million, respectively. We recorded a pre-tax gain on sale of approximately $1.0 billion (after-tax $1.0 billion) in Selling general and administrative expense in our consolidated statement of income for the year ended December 31, 2021. In addition, we incurred $346 million of various costs associated with this disposition which are primarily recorded in Selling general and administrative expense in our consolidated statement of income for the year ended December 31, 2021.

During 2022 and 2021, the Apollo Affiliate redeemed $37 million and $100 million, respectively, of Verizon’s preferred limited partnership interest reducing the carrying value of our preferred interest as of December 31, 2022 to $359 million. The redemptions are reflected within Net cash used in investing activities in our consolidated statements of cash flows for the years ended December 31, 2022 and December 31, 2021, respectively. Verizon’s 10% common interest in the Apollo Affiliate is accounted for as an equity method investment. The post-sale results of Verizon’s common ownership interest in the Apollo Affiliate are recorded through the equity method of accounting, within Corporate and other.

In connection with the closing of the transaction, we entered into Transition Services Agreements with the Apollo Affiliate, under which Verizon will continue to provide and receive specified technical services to support operations for up to 18 months.

Under our ownership, Verizon Media generated revenues from contracts with customers under Topic 606 of approximately $5.3 billion and $7.0 billion for the years ended December 31, 2021 and 2020, respectively, reflected within our Corporate and Other segment.

Other

During 2022 and 2021, we completed various other acquisitions for cash consideration of an insignificant amount and approximately $51 million, respectively.

In connection with a non-strategic divestiture and other activity we recorded a pre-tax net gain of an insignificant amount in our consolidated statement of income for the year ended December 31, 2022.

In December 2021, we completed the sale of an investment. In connection with this transaction, we recorded a pre-tax gain of $131 million in Equity in earnings (losses) of unconsolidated businesses in our consolidated statement of income for the year ended December 31, 2021.