# VERIZON COMMUNICATIONS INC (VZ) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from VERIZON COMMUNICATIONS INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/732712/000073271223000012/vz-20221231.htm
Accession: 0000732712-23-000012
Filing date: 2023-02-10
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/VZ/
All MD&A years: /company/VZ/mda/
Previous year: /company/VZ/mda/fy2021/ (FY 2021)
Next year: /company/VZ/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Verizon Communications Inc. (the Company) is a holding company that, acting through its subsidiaries (together with the Company, collectively, Verizon), is one of the world’s leading providers of communications, technology, information and entertainment products and services to consumers, businesses and government entities. With a presence around the world, we offer data, video and voice services and solutions on our networks and platforms that are designed to meet customers’ demand for mobility, reliable network connectivity, security and control.

To compete effectively in today’s dynamic marketplace, we are focused on the capabilities of our high-performing networks to drive growth based on delivering what customers want and need in the digital world. In 2022, we focused on maintaining our network leadership, including by rapidly deploying C-Band spectrum; retaining and growing our high-quality customer base while balancing profitability in challenging market conditions; and driving monetization of our networks, platforms and solutions. We are creating business value by earning the trust of our stakeholders, limiting our environmental impact and supporting our customer base growth while creating social benefit through our products and services. Our strategy requires significant capital investments primarily to acquire wireless spectrum, put the spectrum into service, provide additional capacity for growth in our networks, invest in the fiber that supports our businesses, evolve and maintain our networks and develop and maintain significant advanced information technology systems and data system capabilities. 2022 was a peak year of capital investment for us as we rapidly deployed C-Band spectrum. We believe that this spectrum, together with our industry leading millimeter wave spectrum holding, 4G LTE network and fiber infrastructure, will drive innovative products and services and fuel our growth.

We are consistently deploying new network architecture and technologies to secure our leadership in both fourth-generation (4G) and fifth-generation (5G) wireless networks. We expect that our next-generation multi-use platform, which we call the Intelligent Edge Network, will simplify operations by eliminating legacy network elements, speed the deployment of 5G wireless technology and create new opportunities in the business market in a cost efficient manner. Our network leadership is the hallmark of our brand and the foundation for the connectivity, platforms and solutions upon which we build our competitive advantage.

Highlights of Our 2022 Financial Results

(dollars in millions)

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Business Overview

We have two reportable segments that we operate and manage as strategic business units - Verizon Consumer Group (Consumer) and Verizon Business Group (Business).

Revenue by Segment

———

Note: Excludes eliminations.

Verizon Consumer Group

Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are provided across one of the most extensive wireless networks in the United States (U.S.) under the Verizon brand, TracFone Wireless, Inc. (TracFone) brands and through wholesale and other arrangements. We also provide fixed wireless access (FWA) broadband through our wireless networks. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who are not served by Fios. Our Consumer segment's wireless and wireline products and services are available to our retail customers, as well as resellers that purchase wireless network access from us on a wholesale basis.

Customers can obtain our wireless services on a postpaid or prepaid basis. Our postpaid service is generally billed one month in advance for a monthly access charge in return for access to and usage of network services. Our prepaid service is offered only to Consumer customers and enables individuals to obtain wireless services without credit verification by paying for all services in advance. The Consumer segment also offers several categories of wireless equipment to customers, including a variety of smartphones and other handsets, wireless-enabled internet devices, such as tablets, and other wireless-enabled connected devices, such as smart watches.

In addition to the wireless services and equipment discussed above, the Consumer segment sells residential fixed connectivity solutions, including internet, video and voice services, and wireless network access to resellers on a wholesale basis. The Consumer segment's operating revenues for the year ended December 31, 2022 totaled $103.5 billion, an increase of $8.2 billion, or 8.6%, compared to the year ended December 31, 2021. See "Segment Results of Operations" for additional information regarding our Consumer segment’s operating performance and selected operating statistics.

Verizon Business Group

Our Business segment provides wireless and wireline communications services and products, including data, video and conferencing services, corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver various Internet of Things (IoT) services and products, including solutions that support fleet tracking management, compliance management, field service management, asset tracking and other types of mobile resource management. We also provide FWA broadband through our wireless networks. We provide these products and services to businesses, government customers and wireless and wireline carriers across the U.S. and select products and services to customers around the world. The Business segment's operating revenues for the year ended December 31, 2022 totaled $31.1 billion and remained relatively flat compared to the year ended December 31, 2021. See "Segment Results of Operations" for additional information regarding our Business segment’s operating performance and selected operating statistics.

Corporate and Other

Corporate and other primarily includes insurance captives, investments in unconsolidated businesses and development stage businesses that support our strategic initiatives, as well as unallocated corporate expenses, certain pension and other employee

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benefit related costs and interest and financing expenses. Corporate and other also includes the historical results of divested businesses, including Verizon Media Group (Verizon Media) divested in September 2021, and other adjustments and gains and losses that are not allocated in assessing segment performance due to their nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses from these transactions that are not individually significant are included in segment results as these items are included in the chief operating decision maker’s assessment of segment performance. See "Consolidated Results of Operations" for additional information regarding Corporate and other results.

Capital Expenditures and Investments

We continue to invest in our wireless networks, high-speed fiber and other advanced technologies to position ourselves at the center of growth trends for the future. During the year ended December 31, 2022, these investments included $23.1 billion for capital expenditures, inclusive of approximately $6.2 billion in C-Band related capital expenditures. See "Cash Flows Used in Investing Activities" and "Liquidity and Capital Resources" for additional information. We believe that our investments aimed at expanding our portfolio of products and services will provide our customers with an efficient, reliable infrastructure for competing in the information economy.

Global Network and Technology

We are focusing our capital spending on adding capacity and density to our 4G Long-Term Evolution (LTE) network, while also building our next generation 5G network. We are densifying our networks by utilizing small cell technology, in-building solutions and distributed antenna systems. Network densification enables us to add capacity to address increasing mobile video consumption and the growing demand for IoT products and services on our 4G LTE and 5G networks. Over the past several years, we have been leading the development of 5G wireless technology industry standards and the ecosystems for fixed and mobile 5G wireless services. 5G technology enables higher throughput and lower latency than the 4G LTE technology and allows our networks to handle more traffic as the number of internet-connected devices grows. In January 2022, we began deploying C-Band spectrum, which has been built out to cover approximately 189 million POPs in the U.S. as of December 31, 2022. We expect to continue deploying C-Band spectrum across the continental U.S. as more and more of the spectrum becomes available for our use. We use low and mid-band spectrum and dynamic spectrum sharing (DSS) technology, to allow 5G service to run simultaneously with 4G LTE on multiple spectrum bands. With DSS, whenever customers move outside Verizon’s millimeter wave and C-Band coverage areas, their 5G-enabled devices will remain on 5G technology using the lower spectrum bands where this network is available. This allows us to more fully and effectively utilize our current spectrum resources to serve both 4G and 5G customers.

To compensate for the shrinking market for traditional copper-based products, we continue to build fiber-based networks supporting data, video and advanced business services - areas where demand for reliable high-speed connections is growing. We are transforming the architecture of our networks into our Intelligent Edge Network, providing improved efficiency and virtualization, increased automation and opportunities for edge computing services that will support our fiber-based and radio access network technologies. We expect that this new architecture will simplify operations by eliminating legacy network elements, speed the deployment of 5G wireless technology and create new opportunities in the business market in a cost-efficient manner.

Consolidated Results of Operations

In this section, we discuss our overall results of operations and highlight special items that are not included in our segment results. In "Segment Results of Operations," we review the performance of our two reportable segments in more detail. A detailed discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Consolidated Operating Revenues

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Consumer","$","103,506","","","$","95,300","","","","","$","8,206","","","8.6","%"],["Business","31,072","","","31,042","","","","","30","","","0.1"],["Corporate and other","2,510","","","7,722","","","","","(5,212)","","","(67.5)"],["Eliminations","(253)","","","(451)","","","","","198","","","43.9"],["Consolidated Operating Revenues","$","136,835","","","$","133,613","","","","","$","3,222","","","2.4"]]
[[/GREPCENT_TABLE]]

Consolidated operating revenues increased during 2022 compared to 2021, due to increases in our Consumer and Business segments, partially offset by a decrease in Corporate and other.

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Corporate and other revenues decreased during 2022 compared to 2021, primarily due to the sale of Verizon Media, which was completed in September 2021. Verizon Media's total operating revenues were approximately $5.3 billion for the year ended December 31, 2021. See Note 3 to the consolidated financial statements for additional information on the sale of Verizon Media.

Revenues for our segments are discussed separately below under the heading "Segment Results of Operations."

Consolidated Operating Expenses

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Cost of services","$","28,637","","","$","31,234","","","","","$","(2,597)","","","(8.3)","%"],["Cost of wireless equipment","30,496","","","25,067","","","","","5,429","","","21.7"],["Selling, general and administrative expense","30,136","","","28,658","","","","","1,478","","","5.2"],["Depreciation and amortization expense","17,099","","","16,206","","","","","893","","","5.5"],["Consolidated Operating Expenses","$","106,368","","","$","101,165","","","","","$","5,203","","","5.1"]]
[[/GREPCENT_TABLE]]

Operating expenses for our segments are discussed separately below under the heading "Segment Results of Operations."

Cost of Services

Cost of services includes the following costs directly attributable to a service: salaries and wages, benefits, materials and supplies, content costs, contracted services, network access and transport costs, customer provisioning costs, computer systems support, costs to support our outsourcing contracts and technical facilities and traffic acquisition costs. Aggregate customer service costs, which include billing and service provisioning, are allocated between Cost of services and Selling, general and administrative expense.

Cost of services decreased during 2022 compared to 2021 primarily due to:

•a decrease in traffic acquisition costs of $2.2 billion primarily related to the sale of Verizon Media;

•a decrease in personnel costs of $745 million primarily related to the sale of Verizon Media;

•a decrease in digital content of $335 million primarily driven by the sale of Verizon Media;

•a decrease in other direct costs of $322 million primarily related to the sale of Verizon Media;

•a decrease in regulatory fees of $201 million due to a lower Federal Universal Service Fund (FUSF) volume and rate;

•an increase in access costs of $614 million primarily due to the inclusion of TracFone results, partially offset by a decline in voice services; and

•an increase in rent expense of $212 million related to adding capacity to the networks to support demand and lease modifications for certain existing cell towers in April 2021 to support the build out of our 5G wireless network.

See Note 3 to the consolidated financial statements for additional information on the sale of Verizon Media and the acquisition of TracFone.

Cost of Wireless Equipment

Cost of wireless equipment increased during 2022 compared to 2021 primarily due to:

•an increase of $2.2 billion due to the inclusion of TracFone results;

•an increase of $2.1 billion driven by a higher volume of wireless devices sold primarily related to upgrades; and

•an increase of $1.3 billion related to a shift to higher priced equipment in the mix of wireless devices sold.

Selling, General and Administrative Expense

Selling, general and administrative expense includes salaries and wages and benefits not directly attributable to a service or product, the provision for credit losses, taxes other than income taxes, advertising and sales commission costs, call center and information technology costs, regulatory fees, professional service fees and rent and utilities for administrative space. Also included is a portion of the aggregate customer care costs as discussed above in "Cost of Services."

Selling, general and administrative expense increased during 2022 compared to 2021 primarily due to:

•an increase in the provision for credit losses of $822 million driven by increased device payment loan volume and an increase in the expected loss rate primarily as a result of the change in device payment plan terms to 36 months, as well as actions taken in prior years in response to the COVID-19 pandemic;

•the $706 million net gain on the sale of Verizon Media in 2021;

•an increase in personnel costs of $603 million primarily related to the inclusion of TracFone results and increases in third-party employee costs due to contracted services, partially offset by a decrease due to the sale of Verizon Media;

•a decrease of $367 million in other general expenses driven by lease terminations primarily due to the sale of Verizon Media; and

•the $223 million loss resulting from agreements entered into to sell certain wireless licenses in 2021.

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See Note 3 to the consolidated financial statements for additional information on the sale of Verizon Media, the acquisition of TracFone and spectrum license transactions.

Depreciation and Amortization Expense

Depreciation and amortization expense increased during 2022 compared to 2021, primarily due to the change in the mix of net depreciable and amortizable assets, including acquisition-related intangible assets, as well as the deployment of C-Band spectrum.

Other Consolidated Results

Other Income (Expense), Net

Additional information relating to Other income (expense), net is as follows:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

nm - not meaningful

Other income (expense), net reflects certain items not directly related to our core operations, including interest income, gains and losses from non-operating asset dispositions, debt extinguishment costs, components of net periodic pension and postretirement benefit cost and income and certain foreign exchange gains and losses.

Other income (expense), net changed during 2022 compared to 2021 primarily due to:

•a net pension and postretirement benefits remeasurement gain of $1.7 billion recorded during 2022, compared with a net pension and postretirement benefits remeasurement gain of $2.4 billion recorded during 2021; and

•net debt extinguishment losses of $1.1 billion primarily related to tender offers in 2022, compared with losses of $3.5 billion in connection with tender offers, the redemptions of securities issued by Verizon and open market repurchases of various Company and subsidiary notes in 2021.

See Note 11 to the consolidated financial statements for additional information on the other components of net periodic pension and postretirement benefit income.

Interest Expense

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Total interest costs on debt balances","$","5,643","","","$","5,326","","","","","$","317","","","6.0","%"],["Less capitalized interest costs","2,030","","","1,841","","","","","189","","","10.3"],["Total","$","3,613","","","$","3,485","","","","","$","128","","","3.7"],["Average debt outstanding (1) (3)","$","151,226","","","$","147,035"],["Effective interest rate (2) (3)","3.7","%","","3.6","%"]]
[[/GREPCENT_TABLE]]

(1)The average debt outstanding is a financial measure and is calculated by applying a simple average of prior thirteen-month end balances of total short-term and long-term debt, net of discounts, premiums and unamortized debt issuance costs.

(2)The effective interest rate is the rate of actual interest incurred on debt. It is calculated by dividing the total interest costs on debt balances by the average debt outstanding.

(3)We believe that this measure is useful to management, investors and other users of our financial information in evaluating our debt financing cost and trends in our debt leverage management.

Total interest expense increased during 2022 compared to 2021 primarily due to:

•an increase in interest costs due to a combination of higher average interest rates and higher average debt balances; partially offset by

•an increase in capitalized interest costs as a result of a full year of capitalized interest on C-Band licenses in 2022 compared to a partial year in 2021.

See Note 4 and Note 7 to the consolidated financial statements for additional information on spectrum licenses and debt transactions, respectively.

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Provision for Income Taxes

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Provision for income taxes","$","6,523","","","$","6,802","","","","","$","(279)","","","(4.1)","%"],["Effective income tax rate","23.1","%","","23.1","%"]]
[[/GREPCENT_TABLE]]

The effective income tax rate is calculated by dividing the provision for income taxes by income before the provision for income taxes. The effective income tax rate for the year ended December 31, 2022 was comparable to the similar period in 2021. The decrease in the provision for income taxes was primarily due to the decrease in income before income taxes in 2022.

A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is included in Note 12 to the consolidated financial statements.

Consolidated Net Income, Consolidated EBITDA and Consolidated Adjusted EBITDA

Consolidated earnings before interest, taxes, depreciation and amortization expense (Consolidated EBITDA) and Consolidated Adjusted EBITDA, which are presented below, are non-generally accepted accounting principles (GAAP) measures that we believe are useful to management, investors and other users of our financial information in evaluating operating profitability on a more variable cost basis as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to Verizon’s competitors. Consolidated EBITDA is calculated by adding back interest, taxes, depreciation and amortization expense to net income.

Consolidated Adjusted EBITDA is calculated by excluding from Consolidated EBITDA the effect of the following non-operational items: equity in earnings of unconsolidated businesses and other income and expense, net, as well as the effect of certain special items. We believe that this measure is useful to management, investors and other users of our financial information in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. We believe that Consolidated Adjusted EBITDA is widely used by investors to compare a company’s operating performance to its competitors by minimizing impacts caused by differences in capital structure, taxes, and depreciation and amortization policies. Further, the exclusion of non-operational items and special items enables comparability to prior period performance and trend analysis. See "Special Items" for additional information.

It is management’s intent to provide non-GAAP financial information to enhance the understanding of Verizon’s GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. We believe that providing these non-GAAP measures in addition to the GAAP measures allows management, investors and other users of our financial information to more fully and accurately assess both consolidated and segment performance. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be directly comparable to that of other companies.

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[[GREPCENT_TABLE]]
[["","(dollars in millions)"],["Years Ended December 31,","2022","","2021"],["Consolidated Net Income","$","21,748","","","$","22,618"],["Add:"],["Provision for income taxes","6,523","","","6,802"],["Interest expense","3,613","","","3,485"],["Depreciation and amortization expense (1)","17,099","","","16,206"],["Consolidated EBITDA","$","48,983","","","$","49,111"],["Add (Less):"],["Other (income) expense, net (2) (3)","$","(1,373)","","","$","(312)"],["Equity in earnings of unconsolidated businesses (4)","(44)","","","(145)"],["Severance charges","304","","","209"],["Loss on spectrum licenses","\u2014","","","223"],["Net gain from sale of Media","\u2014","","","(706)"],["Consolidated Adjusted EBITDA","$","47,870","","","$","48,380"]]
[[/GREPCENT_TABLE]]

(1) Includes Amortization of acquisition-related intangible assets, which were $826 million and $594 million during the years ended December 31, 2022 and 2021, respectively. See "Special Items" for additional information.

(2) Includes Pension and benefits remeasurement credits of $1.7 billion and $2.4 billion during the years ended December 31, 2022 and 2021, respectively. See "Special Items" and "Other Income (Expense), Net" for additional information.

(3) Includes Early debt redemption costs, which were $1.2 billion and $3.5 billion during the years ended December 31, 2022 and 2021, respectively. See "Special Items" for additional information.

(4) Includes Net gain from disposition of asset, which was $131 million during the year ended December 31, 2021. See "Special Items" for additional information.

The changes in Consolidated Net Income, Consolidated EBITDA and Consolidated Adjusted EBITDA in the table above during 2022 compared to 2021, were primarily a result of the factors described in connection with operating revenues and operating expenses.

Segment Results of Operations

We have two reportable segments that we operate and manage as strategic business units - Consumer and Business. We measure and evaluate our segments based on segment operating income. The use of segment operating income is consistent with the chief operating decision maker’s assessment of segment performance.

To aid in the understanding of segment performance as it relates to segment operating income, management uses the following operating statistics to evaluate the overall effectiveness of our segments. We believe these operating statistics are useful to investors and other users of our financial information because they provide additional insight into drivers of our segments’ operating results, key trends and performance relative to our peers. These operating statistics may be determined or calculated differently by other companies and may not be directly comparable to those statistics of other companies.

Wireless retail connections are retail customer device postpaid and prepaid connections as of the end of the period. Retail connections under an account may include those from smartphones and basic phones (collectively, phones), as well as tablets and other internet devices, including FWA, wearables and retail IoT devices. Wireless retail connections are calculated by adding total retail postpaid and prepaid new connections in the period to prior period retail connections, and subtracting total retail postpaid and prepaid disconnects in the period.

Wireless retail postpaid connections are retail postpaid customer device connections as of the end of the period. Retail postpaid connections under an account may include those from phones, as well as tablets and other internet devices, including postpaid FWA, wearables and retail IoT devices. Wireless retail postpaid connections are calculated by adding retail postpaid new connections in the period to prior period retail postpaid connections, and subtracting retail postpaid disconnects in the period.

Wireless retail prepaid connections are retail prepaid customer device connections as of the end of the period. Retail prepaid connections may include those from phones, as well as tablets and other internet devices, including prepaid FWA, and wearables. Wireless retail prepaid connections are calculated by adding retail prepaid new connections in the period to prior period retail prepaid connections, and subtracting retail prepaid disconnects in the period.

Fios internet connections are the total number of connections to the internet using Fios internet services as of the end of the period. Fios internet connections are calculated by adding Fios internet new connections in the period to prior period Fios internet connections, and subtracting Fios internet disconnects in the period.

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Fios video connections are the total number of connections to traditional linear video programming using Fios video services as of the end of the period. Fios video connections are calculated by adding Fios video net additions in the period to prior period Fios video connections. Fios video net additions are calculated by subtracting the Fios video disconnects from the Fios video new connections.

Total broadband connections are the total number of connections to the internet using Fios internet services, Digital Subscriber Line (DSL), and postpaid, prepaid and IoT FWA as of the end of the period. Total broadband connections are calculated by adding total broadband connections, net additions in the period to prior period total broadband connections.

Wireless retail connections, net additions are the total number of additional retail customer device postpaid and prepaid connections, less the number of device disconnects in the period. Wireless retail connections, net additions in each period presented are calculated by subtracting the total retail postpaid and prepaid disconnects, net of certain adjustments, from the total retail postpaid and prepaid new connections in the period.

Wireless retail postpaid connections, net additions are the total number of additional retail customer device postpaid connections, less the number of device disconnects in the period. Wireless retail postpaid connections, net additions in each period presented are calculated by subtracting the retail postpaid disconnects, net of certain adjustments, from the retail postpaid new connections in the period.

Wireless retail prepaid connections, net additions are the total number of additional retail customer device prepaid connections, less the number of device disconnects in the period. Wireless retail prepaid connections, net additions in each period presented are calculated by subtracting the retail prepaid disconnects, net of certain adjustments, from the retail prepaid new connections in the period.

Wireless retail postpaid phone connections, net additions are the total number of additional retail customer postpaid phone connections, less the number of phone disconnects in the period. Wireless retail postpaid phone connections, net additions in each period presented are calculated by subtracting the retail postpaid phone disconnects, net of certain adjustments, from the retail postpaid phone new connections in the period.

Total broadband connections, net additions are the total number of additional total broadband connections, less the number of total broadband disconnects in the period. Total broadband connections, net additions in each period presented are calculated by subtracting the total broadband disconnects, net of certain adjustments, from the total broadband new connections in the period.

Wireless Churn is the rate at which service to retail, retail postpaid, or retail postpaid phone connections is terminated on average in the period. The churn rate in each period presented is calculated by dividing retail disconnects, retail postpaid disconnects, or retail postpaid phone disconnects by the average retail connections, average retail postpaid connections, or average retail postpaid phone connections, respectively, in the period.

Wireless retail postpaid ARPA is the calculated average retail postpaid service revenue per account (ARPA) from retail postpaid accounts in the period. Wireless retail postpaid service revenue does not include recurring device payment plan billings related to the Verizon device payment program, plan billings related to device warranty and insurance or regulatory fees. Wireless retail postpaid ARPA in each period presented is calculated by dividing retail postpaid service revenue by the average retail postpaid accounts in the period.

Wireless retail postpaid accounts are wireless retail customers that are directly served and managed under the Verizon brand and use its services as of the end of the period. Accounts include unlimited plans, shared data plans and corporate accounts, as well as legacy single connection plans and multi-connection family plans. A single account may include monthly wireless services for a variety of connected devices. Wireless retail postpaid accounts are calculated by adding retail postpaid new accounts to the prior period retail postpaid accounts.

Wireless retail postpaid connections per account is the calculated average number of retail postpaid connections per retail postpaid account as of the end of the period. Wireless retail postpaid connections per account is calculated by dividing the total number of retail postpaid connections by the number of retail postpaid accounts as of the end of the period.

Segment operating income margin reflects the profitability of the segment as a percentage of revenue. Segment operating income margin is calculated by dividing total segment operating income by total segment operating revenues.

Segment earnings before interest, taxes, depreciation and amortization (Segment EBITDA), which is presented below, is a non-GAAP measure and does not purport to be an alternative to operating income (loss) as a measure of operating performance. We believe this measure is useful to management, investors and other users of our financial information in evaluating operating profitability on a more variable cost basis as it excludes the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Segment EBITDA is calculated by adding back depreciation and amortization expense to segment operating income (loss). Segment EBITDA margin is calculated by dividing Segment EBITDA by total segment operating revenues. See Note 13 to the consolidated financial statements for additional information.

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Verizon Consumer Group

Our Consumer segment provides consumer-focused wireless and wireline communications services and products. Our wireless services are provided across one of the most extensive wireless networks in the U.S. under the Verizon brand, TracFone brands and through wholesale and other arrangements. We also provide FWA broadband through our wireless networks. Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network through our Verizon Fios product portfolio and over a traditional copper-based network to customers who are not served by Fios.

Operating Revenues and Selected Operating Statistics

[[GREPCENT_TABLE]]
[["","","","","","","(dollars in millions, except ARPA)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Service","$","73,139","","","$","67,733","","","","","$","5,406","","","8.0","%"],["Wireless equipment","23,168","","","19,781","","","","","3,387","","","17.1"],["Other","7,199","","","7,786","","","","","(587)","","","(7.5)"],["Total Operating Revenues","$","103,506","","","$","95,300","","","","","$","8,206","","","8.6"],["Connections (\u2018000):(1)"],["Wireless retail postpaid(2)","91,856","","","91,543","","","","","313","","","0.3"],["Wireless retail prepaid(2)(3)","22,664","","","23,852","","","","","(1,188)","","","(5.0)"],["Total wireless retail","114,520","","","115,395","","","","","(875)","","","(0.8)"],["Fios internet","6,740","","","6,541","","","","","199","","","3.0"],["Fios video","3,234","","","3,573","","","","","(339)","","","(9.5)"],["Total broadband","7,900","","","6,989","","","","","911","","","13.0"],["Net Additions in Period (\u2018000):(4)"],["Wireless retail postpaid(2)","965","","","1,114","","","","","(149)","","","(13.4)"],["Wireless retail prepaid(2)(3)","(445)","","","(52)","","","","","(393)","","","nm"],["Total wireless retail","520","","","1,062","","","","","(542)","","","(51.0)"],["Wireless retail postpaid phones(2)","(655)","","","575","","","","","(1,230)","","","nm"],["Total broadband","904","","","328","","","","","576","","","nm"],["Churn Rate:(2)"],["Wireless retail(4)","1.63","%","","1.10","%"],["Wireless retail postpaid","1.01","%","","0.89","%"],["Wireless retail postpaid phones","0.81","%","","0.71","%"],["Account Statistics:"],["Wireless retail postpaid ARPA","$","125.97","","","$","122.30","","","","","$","3.67","","","3.0"],["Wireless retail postpaid accounts (\u2018000)(1)","33,183","","","33,651","","","","","(468)","","","(1.4)"],["Wireless retail postpaid connections per account(1)","2.77","","","2.72","","","","","0.05","","","1.8"]]
[[/GREPCENT_TABLE]]

(1)As of end of period

(2)The number of wireless retail connections as of December 31, 2022 reflects a decline in our customer base related to the shutdown of our third-generation (3G) network in the fourth quarter of 2022 of approximately 576,000 wireless retail postpaid connections, including 180,000 wireless retail postpaid phone connections, and 237,000 wireless retail prepaid connections. In addition, the shutdown of our competitors' 3G network in the second and third quarter of 2022 resulted in a reduction to our customer base of 402,000 wireless retail prepaid connections and 102,000 wireless retail prepaid connections as of June 30, 2022 and September 30, 2022, respectively. The impact of the 3G network shutdowns has been excluded for purposes of calculating wireless retail net additions and wireless churn for the respective periods.

(3)Acquisition of TracFone was completed on November 23, 2021. See Note 3 to the consolidated financial statements for additional information.

(4)Includes certain adjustments

nm - not meaningful

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Consumer's total operating revenues increased during 2022 compared to 2021, as a result of increases in Service and Wireless equipment revenues, partially offset by a decrease in Other revenue.

Service Revenue

Service revenue increased during 2022 compared to 2021, primarily driven by increases in wireless and Fios service revenues.

Wireless service revenue increased $5.4 billion during 2022 compared to 2021 primarily due to:

•an increase of $4.0 billion, representing the net impact of the acquisition of TracFone in the fourth quarter of 2021;

•an increase of $769 million in access revenues related to our postpaid plans driven by mobile security products included in certain device protection packages such that a larger amount of the overall device protection revenue is recognized in Service revenue, pricing actions implemented in the second half of 2022, cloud services, and additional connections and migrations to higher priced plans, partially offset by related promotions as well as declines in our postpaid phone customer base;

•an increase of $352 million in TravelPass revenues due to an increase in customer international travel; and

•an increase of $253 million related to growth in non-retail service revenue.

For the year ended December 31, 2022, Fios service revenue totaled $10.9 billion, representing an increase of $127 million compared to 2021, primarily resulting from an increase in Fios internet connections, reflecting increased demand for higher broadband speeds, partially offset by a decrease in Fios video and voice revenues.

See Note 3 to the consolidated financial statements for additional information on the acquisition of TracFone.

Wireless Equipment Revenue

Wireless equipment revenue increased during 2022 compared to 2021 primarily due to:

•an increase of $1.4 billion related to a shift to higher priced equipment in the mix of wireless devices sold;

•an increase of $1.2 billion driven by a higher volume of wireless devices primarily related to a higher rate of upgrades, partially offset by related promotions; and

•an increase of $780 million due to the inclusion of TracFone results.

Other Revenue

Other revenue includes fees that partially recover the direct and indirect costs of complying with regulatory and industry obligations and programs, revenues associated with certain products included in our device protection offerings, leasing and interest when equipment is sold to the customer by an authorized agent under a device payment plan agreement.

Other revenue decreased during 2022 compared to 2021 primarily due to:

•a decrease of $481 million that resulted from a change in the product mix within the device protection offering such that a smaller amount of the overall device protection revenue is recognized in Other revenue;

•a decrease of $77 million related to interest recognition on equipment sold to the customer by an authorized agent under a device payment plan agreement, mainly due to an increase in contract terms to 36 months; and

•a decrease of $51 million in other regulatory surcharges.

Operating Expenses

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Cost of services","$","17,746","","","$","16,581","","","","","$","1,165","","","7.0","%"],["Cost of wireless equipment","25,134","","","20,523","","","","","4,611","","","22.5"],["Selling, general and administrative expense","19,064","","","16,562","","","","","2,502","","","15.1"],["Depreciation and amortization expense","12,716","","","11,679","","","","","1,037","","","8.9"],["Total Operating Expenses","$","74,660","","","$","65,345","","","","","$","9,315","","","14.3"]]
[[/GREPCENT_TABLE]]

Cost of Services

Cost of services increased during 2022 compared to 2021 primarily due to:

•an increase in access costs of $848 million primarily due to the inclusion of TracFone results; and

•an increase in rent expense of $198 million related to adding capacity to the networks to support demand and lease modifications for certain existing cell towers in April 2021 in connection with the build out of our 5G wireless network.

Cost of Wireless Equipment

Cost of wireless equipment increased during 2022 compared to 2021 primarily due to:

•an increase of $2.2 billion due to the inclusion of TracFone results;

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•an increase of $1.5 billion driven by a higher volume of wireless devices sold, primarily related to a higher rate of upgrades; and

•an increase of $1.0 billion related to a shift to higher priced equipment in the mix of wireless devices sold.

Selling, General and Administrative Expense

Selling, general and administrative expense increased during 2022 compared to 2021 primarily due to:

•an increase in personnel costs of $1.3 billion primarily due to the inclusion of TracFone results and increased third-party employee costs due to contracted services;

•an increase in provision for credit losses of $745 million driven by increased device payment loan volume and an increase in the expected loss rate primarily as a result of the change in device payment plan terms to 36 months, as well as actions taken in prior years in response to the COVID-19 pandemic; and

•an increase in advertising expense of $454 million primarily due to the inclusion of TracFone results and brand marketing, including the launch of the 5G Ultra campaign in early 2022.

Depreciation and Amortization Expense

Depreciation and amortization expense increased during 2022 compared to 2021, driven by the change in the mix of total Verizon depreciable and amortizable assets and Consumer's usage of those assets.

Segment Operating Income and EBITDA

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Segment Operating Income","$","28,846","","","$","29,955","","","","","$","(1,109)","","","(3.7)","%"],["Add Depreciation and amortization expense","12,716","","","11,679","","","","","1,037","","","8.9"],["Segment EBITDA","$","41,562","","","$","41,634","","","","","$","(72)","","","(0.2)"],["Segment operating income margin","27.9","%","","31.4","%"],["Segment EBITDA margin","40.2","%","","43.7","%"]]
[[/GREPCENT_TABLE]]

The changes in the table above during the periods presented were primarily a result of the factors described in connection with operating revenues and operating expenses.

Verizon Business Group

Our Business segment provides wireless and wireline communications services and products, including data, video and conferencing services, corporate networking solutions, security and managed network services, local and long distance voice services and network access to deliver various IoT services and products. We also provide FWA broadband through our wireless networks. We provide these products and services to businesses, government customers and wireless and wireline carriers across the U.S. and select products and services to customers around the world. The Business segment is organized in four customer groups: Small and Medium Business, Global Enterprise, Public Sector and Other, and Wholesale.

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Operating Revenues and Selected Operating Statistics

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Small and Medium Business","$","12,613","","","$","11,774","","","","","$","839","","","7.1","%"],["Global Enterprise","9,734","","","10,224","","","","","(490)","","","(4.8)"],["Public Sector and Other","6,118","","","6,324","","","","","(206)","","","(3.3)"],["Wholesale","2,607","","","2,720","","","","","(113)","","","(4.2)"],["Total Operating Revenues(1)","$","31,072","","","$","31,042","","","","","$","30","","","0.1"],["Connections (\u2018000):(2)"],["Wireless retail postpaid(3)","28,733","","","27,411","","","","","1,322","","","4.8"],["Fios internet","373","","","356","","","","","17","","","4.8"],["Fios video","67","","","71","","","","","(4)","","","(5.6)"],["Total broadband","1,036","","","599","","","","","437","","","73.0"],["Net Additions in Period ('000):(4)"],["Wireless retail postpaid(3)","1,640","","","1,001","","","","","639","","","63.8"],["Wireless retail postpaid phones(3)","856","","","509","","","","","347","","","68.2"],["Total broadband","386","","","81","","","","","305","","","nm"],["Churn Rate:(3)"],["Wireless retail postpaid","1.38","%","","1.27","%"],["Wireless retail postpaid phones","1.07","%","","1.03","%"]]
[[/GREPCENT_TABLE]]

(1)Service and other revenues included in our Business segment amounted to approximately $27.0 billion and $27.7 billion for the years ended December 31, 2022 and 2021, respectively. Wireless equipment revenues included in our Business segment amounted to approximately $4.0 billion and $3.4 billion for the years ended December 31, 2022 and 2021, respectively.

(2)As of end of period

(3)The number of wireless retail connections as of December 31, 2022 reflects a decline in our customer base related to the shutdown of our 3G network in the fourth quarter of 2022 of approximately 333,000 wireless retail postpaid connections, including 212,000 wireless retail postpaid phone connections. The impact of the 3G network shutdown has been excluded for purposes of calculating wireless retail net additions and wireless churn for the respective periods.

(4)Includes certain adjustments

nm - not meaningful

Business's total operating revenues increased during 2022 compared to 2021, as a result of an increase in Small and Medium Business revenue, partially offset by decreases in Global Enterprise, Public Sector and Other and Wholesale revenues.

Small and Medium Business

Small and Medium Business offers wireless services and equipment, conferencing services, tailored voice and networking products, Fios services, Internet Protocol (IP) networking, advanced voice solutions and security and managed information technology services to our U.S.-based small and medium businesses that do not meet the requirements to be categorized as Global Enterprise, as described below.

Small and Medium Business revenues increased during 2022 compared to 2021 primarily due to:

•an increase in wireless equipment revenue of $507 million driven by a higher volume of devices sold and a shift to higher priced equipment in the mix of devices sold, partially offset by an increase in promotions;

•an increase in wireless service revenue of $395 million primarily driven by an increase in the amount of wireless retail postpaid connections as well as the economic adjustment charge that took effect in the second quarter of 2022; and

•a decrease of $85 million related to the loss of voice and DSL service connections.

Fios revenues totaled $1.0 billion, which represents an increase of $41 million during 2022 compared to 2021. The increase was primarily related to increases in total connections, as well as increased demand for higher broadband speeds.

Global Enterprise

Global Enterprise offers services to large businesses, which are identified based on their size and volume of business with Verizon, as well as non-U.S. public sector customers.

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Global Enterprise revenues decreased during 2022 compared to 2021 primarily due to:

•a decrease of $544 million in networking revenue and traditional data and voice communication services related to secular pressures in the marketplace;

•a decrease of $118 million due to lower FUSF volume and rate along with resulting surcharges;

•an increase of $117 million in wireless equipment revenue driven by a shift to higher priced equipment in the mix of devices sold and higher volume of devices sold;

•an increase of $89 million in wireless service revenue primarily driven by an increase in the amount of wireless retail postpaid connections as well as the economic adjustment charge that took effect in the second quarter of 2022; and

•an increase of $34 million in customer premise equipment primarily due to higher volumes.

Public Sector and Other

Public Sector and Other offers wireless products and services as well as wireline connectivity and managed solutions to U.S. federal, state and local governments and educational institutions. These services include business services and connectivity similar to the products and services offered by Global Enterprise, in each case, with features and pricing designed to address the needs of governments and educational institutions.

Public Sector and Other revenues decreased during 2022 compared to 2021 primarily due to:

•a decrease of $169 million in networking revenue and traditional data and voice communication services related to secular pressures in the marketplace; and

•a decrease of $44 million related to lower FUSF volume and rate along with resulting surcharges.

Wholesale

Wholesale offers wireline communications services including data, voice, local dial tone and broadband services primarily to local, long distance, and wireless carriers that use our facilities to provide services to their customers.

Wholesale revenues decreased during 2022 compared to 2021 primarily due to:

•a decrease of $113 million related to declines in traditional voice communication and network connectivity as a result of technology substitution and rationalization of international traffic, as well as a decrease in core data.

Operating Expenses

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Cost of services","$","10,483","","","$","10,653","","","","","$","(170)","","","(1.6)","%"],["Cost of wireless equipment","5,362","","","4,544","","","","","818","","","18.0"],["Selling, general and administrative expense","8,284","","","8,324","","","","","(40)","","","(0.5)"],["Depreciation and amortization expense","4,312","","","4,084","","","","","228","","","5.6"],["Total Operating Expenses","$","28,441","","","$","27,605","","","","","$","836","","","3.0"]]
[[/GREPCENT_TABLE]]

Cost of Services

Cost of services decreased during 2022 compared to 2021 primarily due to:

•a decrease in regulatory fees of $226 million primarily related to lower FUSF volume and rate;

•a decrease in access costs of $219 million resulting from a decline in voice services;

•an increase in network and equipment maintenance of $66 million primarily related to fleet maintenance;

•an increase of $65 million in customer premise equipment primarily due to higher volumes; and

•an increase in personnel expense of $54 million related to rate and actuarial assumption changes in connection with certain post-employment benefits.

Cost of Wireless Equipment

Cost of wireless equipment increased during 2022 compared to 2021 primarily due to:

•an increase of $527 million driven by a higher volume of wireless devices sold; and

•an increase of $360 million related to a shift to higher priced equipment in the mix of wireless devices sold.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased during 2022 compared to 2021 primarily due to:

•a decrease of $88 million primarily due to gains recognized in connection with a non-strategic divestiture and other activity;

•a decrease of $78 million primarily due to taxes other than income mainly driven by a one-time international tax benefit;

•a decrease in other general expenses of $72 million partly related to rent and lease expenses;

•an increase in personnel expense of $148 million primarily related to increased third-party employee costs due to contracting services; and

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•an increase of $73 million in provision for credit losses driven by increased device payment loan volume and an increase in the expected loss rate primarily as a result of the change in device payment plan terms to 36 months.

Depreciation and Amortization Expense

Depreciation and amortization expense increased during 2022 compared to 2021, driven by the change in the mix of total Verizon depreciable and amortizable assets and Business usage of those assets.

Segment Operating Income and EBITDA

[[GREPCENT_TABLE]]
[["","","","","","","","(dollars in millions)"],["","","","","","","","Increase/(Decrease)"],["Years Ended December 31,","2022","","2021","","","","2022 vs. 2021"],["Segment Operating Income","$","2,631","","","$","3,437","","","","","$","(806)","","","(23.5)","%"],["Add Depreciation and amortization expense","4,312","","","4,084","","","","","228","","","5.6"],["Segment EBITDA","$","6,943","","","$","7,521","","","","","$","(578)","","","(7.7)"],["Segment operating income margin","8.5","%","","11.1","%"],["Segment EBITDA margin","22.3","%","","24.2","%"]]
[[/GREPCENT_TABLE]]

The changes in the table above during the periods presented were primarily a result of the factors described in connection with operating revenues and operating expenses.

Special Items

Special items included in Income Before Provision For Income Taxes were as follows:

[[GREPCENT_TABLE]]
[["","(dollars in millions)"],["Years Ended December 31,","2022","","2021"],["Amortization of acquisition-related intangible assets (1) (2)"],["Depreciation and amortization expense","$","826","","","$","594"],["Severance, pension and benefits charges (credits)"],["Selling, general and administrative expense","304","","","209"],["Other (income) expense, net","(1,675)","","","(2,379)"],["Early debt redemption costs"],["Other (income) expense, net","1,241","","","3,541"],["Net gain from disposition of asset and business"],["Selling, general and administrative expense","\u2014","","","(706)"],["Equity in (earnings) losses of unconsolidated businesses","\u2014","","","(131)"],["Loss on spectrum licenses"],["Selling, general and administrative expense","\u2014","","","223"],["Total","$","696","","","$","1,351"]]
[[/GREPCENT_TABLE]]

(1) Certain amounts have been reclassified to conform to the current period presentation.

(2) Amounts are included in segment results of operations.

The Consolidated Adjusted EBITDA non-GAAP measure presented in the Consolidated Net Income, Consolidated EBITDA and Consolidated Adjusted EBITDA discussion (see "Consolidated Results of Operations") excludes all of the amounts included above, as described below.

The income and expenses related to special items included in our consolidated results of operations were as follows:

[[GREPCENT_TABLE]]
[["","(dollars in millions)"],["Years Ended December 31,","2022","","2021"],["Within Total Operating Expenses (1)","$","1,130","","","$","320"],["Within Other (income) expense, net","(434)","","","1,162"],["Within Equity in (earnings) losses of unconsolidated businesses","\u2014","","","(131)"],["Total","$","696","","","$","1,351"]]
[[/GREPCENT_TABLE]]

(1) Certain amounts have been reclassified to conform to the current period presentation.

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Amortization of Acquisition-Related Intangible Assets

During 2022 and 2021, we recorded pre-tax amortization expense of $826 million and $594 million, respectively, related to acquired intangible assets.

Severance, Pension and Benefits Charges (Credits)

During 2022, in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur, we recorded net pre-tax pension and benefits credits of $1.7 billion in our pension and postretirement benefit plans. The credits were recorded in Other income (expense), net in our consolidated statement of income and were primarily driven by a credit of $7.0 billion due to an increase in our discount rate assumption used to determine the current year liabilities of our pension plans ($4.1 billion) and postretirement benefit plans ($2.9 billion) from a weighted-average of 2.9% at December 31, 2021 to a weighted-average of 5.2% at December 31, 2022, a charge of $5.5 billion due to the difference between our estimated and our actual return on assets and a credit of $206 million due to other actuarial assumption adjustments. During 2022, we also recorded net pre-tax severance charges of $304 million, related to involuntary separations under our existing plans, in Selling, general and administrative expense in our consolidated statement of income.

During 2021, in accordance with our accounting policy to recognize actuarial gains and losses in the period in which they occur, we recorded net pre-tax pension and benefits credits of $2.4 billion in our pension and postretirement benefit plans. The credits were recorded in Other income (expense), net in our consolidated statement of income and were primarily driven by a credit of $1.1 billion due to an increase in our discount rate assumption used to determine the current year liabilities of our pension plans and postretirement benefit plans from a weighted-average of 2.6% at December 31, 2020 to a weighted-average of 2.9% at December 31, 2021, a credit of $847 million due to the difference between our estimated and our actual return on assets and a credit of $453 million due to other actuarial assumption adjustments. During 2021, we also recorded net pre-tax severance charges of $209 million related to voluntary separations under our existing plans in Selling, general and administrative expense in our consolidated statement of income.

Due to the presentation of the other components of net periodic benefit cost, we recognize a portion of the pension and benefits charges (credits) in Other income (expense), net in our consolidated statements of income.

See Note 11 to the consolidated financial statements for additional information related to severance, pension and benefits charges (credits).

Early Debt Redemption Costs

During 2022, we recorded pre-tax early debt redemption costs of $1.2 billion primarily in connection with tender offers.

During 2021, we recorded pre-tax early debt redemption costs of $3.5 billion in connection with tender offers, the redemptions of securities issued by Verizon and open market repurchases of various Company and subsidiary notes.

See Note 7 to the consolidated financial statements for additional information related to our early debt redemptions.

Net Gain from Disposition of Asset and Business

During 2021, we recorded a pre-tax net gain of $837 million, in connection with the sale of an investment and the sale of Verizon Media.

See Note 3 to the consolidated financial statements for additional information.

Loss on Spectrum Licenses

During 2021, we recognized a pre-tax loss of $223 million as a result of signing two agreements to sell certain wireless licenses.

See Note 3 to the consolidated financial statements for additional information.

Operating Environment and Trends

The telecommunications industry is highly competitive. The rapid development of new technologies, services and products has eliminated many of the traditional distinctions among wireless, cable, internet and local and long distance communication services and brought new competitors to our markets. We expect competition to remain intense as traditional and non-traditional participants seek increased market share. Our high-quality customer base and networks differentiate us from our competitors and give us the ability to plan and manage through changing economic and competitive conditions. We remain focused on executing on the fundamentals of the business: maintaining a high-quality customer base, delivering strong financial and operating results and strengthening our balance sheet. We continue to lead in 4G LTE performance while aggressively building out our 5G network.

The U.S. wireless market has achieved a high penetration of smartphones, which reduces the opportunity for new phone connection growth for the industry. We expect future revenue growth in the industry to be driven by expanding existing customer

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relationships, increasing the number of ways customers can connect with wireless networks and services and increasing the penetration of FWA and connected devices including wearables, tablets and IoT devices. Although certain use cases for 5G technologies and related ecosystems are in early development stages, we expect this technology will provide a significant opportunity for growth in the coming years. With respect to our wireless connectivity products and services, we compete against other national wireless service providers, including AT&T Inc. and T-Mobile US, Inc., as well as various regional wireless service providers. We also compete for retail activations with resellers that buy bulk wholesale service from wireless service providers, including Verizon, and resell it to their customers. Resellers include cable companies, such as Comcast Corporation and Charter Communications, Inc., and others. We face competition from other communications and technology companies seeking to increase their brand recognition and capture customer revenue with respect to the provision of wireless products and services, in addition to non-traditional offerings in mobile data. For example, Microsoft Corporation, Alphabet Inc., Apple Inc., Meta Platforms, Inc. and others are offering alternative means for messaging and making wireless voice calls that, in certain cases, can be used in lieu of the wireless providers' voice service, as well as alternative means of accessing video content. In addition, we expect to see increasing competition in the provisioning of internet access by low Earth orbit satellite companies as well in the area of fixed wireless offerings that provide an alternative to traditional landline internet service providers.

With respect to wireless services and equipment, pricing plays an increasingly important role in the wireless competitive landscape. We compete in this area by offering our customers services and devices that we believe they will regard as the best available value for the price. As the demand for wireless services continues to grow, wireless service providers are offering a range of service plans at competitive prices. These service offerings will vary from time to time based on customer needs, technology changes and market conditions and may be provided as standard plans or as part of limited time promotional offers. In addition, aggressive device promotions have become more common in an effort to gain a greater share of subscribers interested in changing carriers as well as retaining existing customers.

We expect future service revenue growth opportunities to arise from increased access revenue as customer demand for 5G connectivity continues to expand and customers shift to higher access plans, driven in part by attractive bundled content with premium brands, as well as from increased connections per account. Future service revenue growth opportunities will be dependent on expanding the penetration of our services, increasing the number of ways that our customers can connect with our networks and services and the development of new ecosystems. We and other wireless service providers, as well as equipment manufacturers, offer device payment options, which provide customers with the ability to pay for their device over a period of time, and some providers offer device leasing arrangements.

Current and potential competitors in the wireline service market include cable companies, wireless service providers, domestic and foreign telecommunications providers, satellite television companies, internet service providers, over-the-top providers and other companies that offer network services and managed enterprise solutions. We also face increasing competition from other providers of VoIP services as well as internet portal providers.

In addition, companies with a global presence are increasingly competing with us in our wireline services. A relatively small number of telecommunications and integrated service providers with global operations serve customers in the global enterprise market and, to a lesser extent, the global wholesale market. We compete with these providers for large contracts to provide integrated solutions to global enterprises and government customers. Many of these companies have strong market presence, brand recognition and existing customer relationships, all of which contribute to intensifying competition that may affect our future revenue growth.

Despite this challenging environment, we expect that we will be able to grow key aspects of our wireline services. We continue to provide network reliability and offer products, which include fiber-optic internet access, several video services, and voice services. Further, we will continue to offer our business and government customers a converged-enterprise environment for voice and data services as well as more robust IP products and services, and advance our IoT strategies by leveraging business models that monetize usage on our networks at the connectivity, platform and solution layers.

We will also continue to focus on cost efficiencies to allow us to have flexibility to adjust to changes in the competitive and economic environments and increase shareholder value.

Macroeconomic Environment

In 2022, as a result of the inflationary environment in the U.S., we experienced increases in our direct costs, including electricity and other energy-related costs for our network operations, and transportation and labor costs, as well as increased interest expenses related to rising interest rates. We believe that this inflationary environment and the resulting decline in real wages in the U.S. are altering consumer preferences, and causing certain consumers to become more price conscious. We expect the inflationary environment and the resulting pressures to continue in 2023. For a discussion of the risks relating to unfavorable economic conditions and inflation to our business, refer to Item 1A Risk Factors.

2023 Connection Trends

In our Consumer segment, we expect to continue to attract new customers and maintain high-quality retail postpaid customers, capitalizing on demand for data services and providing our customers new ways of using wireless services in their daily lives. We expect that future connection growth will be driven by FWA, as well as smartphones, tablets and other connected devices such as wearables. We believe the combination of our wireless network performance and service offerings provides a superior

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customer experience, supporting increased penetration of data services and the continued attraction and retention of higher valued retail postpaid connections. For our prepaid business, we expect to continue to operate in a competitive environment while making investments to achieve long-term success in this space.

We expect to continue to grow our Fios internet connections as we seek to increase our penetration rates within our Fios service areas, further supported by the demand for higher speed internet connections. At the same time, we expect accelerating fixed wireless access connections to complement strong Fios results as demand for broadband services continues to grow. In Fios video, the business continues to face ongoing pressure as observed throughout the linear television market. Given these trends, we provide standalone Fios internet plans in addition to the choice of Fios video or a streaming service provided by a partner. We have experienced continuing access line and DSL losses as customers have disconnected both primary and secondary lines and switched to alternative technologies such as wireless, Voice over Internet Protocol, and cable for voice and data services.

In our Business segment, we offer wireless products and services to business and government customers across the U.S. We continue to grow our retail connections while operating in a highly competitive environment. We expect that this connection growth, combined with our industry-leading network assets, will provide additional opportunities to sell solutions, such as those around security, advanced communications and professional services. We also expect to expand our existing services offered to business customers through our Intelligent Edge Network, our multi-use platform.

In addition, in both our Consumer and our Business segments, we expect to support connection growth in part by adding capacity and further expanding our wireless coverage, and by continuing the build-out of our 5G network.

2023 Operating Revenue Trends

In our Consumer segment, we expect to see a continuation of service revenue growth in 2023 as customers shift to higher access plans with additional services and increase the number of devices they connect with our networks and services. We expect continued growth in wireless service revenue, driven by migrations to higher priced plans, increases in fixed wireless access connections, and the pricing actions implemented in the second quarter of 2022. We expect Fios revenue to benefit in 2023 as growth in our broadband customer base and increases in demand for higher speed internet connections offset the impact of the shift from the bundling of wireline services to standalone Internet service.

In our Business segment, we expect wireless revenue to expand, driven by growth from increases in wireless volumes and fixed wireless access contributions. We expect that Fios, through increased penetration, will also contribute to revenue growth and legacy traditional wireline services will continue to face secular pressures.

2023 Operating Expense and Cash Flow from Operations Trends

We expect our consolidated operating income margin and adjusted consolidated EBITDA margin to remain strong as we continue to drive revenue growth and undertake initiatives to reduce our overall cost structure. We expect that our ability to generate cash flows will benefit from our anticipated reduction in capital expenditures as we reach the end of our dedicated C-Band spending program, as well as our actions to better monetize our assets which increase our return on invested capital. We created the Verizon Global Services group, an organization that is expected to drive efficiencies by centralizing key functions and strategically delivering key services across Verizon.

We create value for our shareholders by investing the cash flows generated by our business in opportunities and transactions that support continued profitable growth, thereby increasing customer satisfaction and usage of our products and services. In addition, we have used our cash flows to maintain and grow our dividend payout to shareholders. Our Board of Directors increased the quarterly dividend by 2.0% during 2022, making this the sixteenth consecutive year in which we have raised our dividend.

Our goal is to use our cash to create long-term value for our shareholders. We will continue to look for investment opportunities that will help us to grow the business, strengthen our balance sheet, acquire spectrum licenses (see "Cash Flows from Investing Activities"), pay dividends to our shareholders and, when appropriate, buy back shares of our outstanding common stock (see "Cash Flows from Financing Activities").

Liquidity and Capital Resources

We use the net cash generated from our operations to fund expansion and modernization of our networks, service and repay external financing, pay dividends, invest in new businesses and spectrum and, when appropriate, buy back shares of our outstanding common stock. Our sources of funds, primarily from operations and, to the extent necessary, from external financing arrangements, are sufficient to meet ongoing operating and investing requirements over the next 12 months and beyond.

Our cash and cash equivalents balance is $2.6 billion as of December 31, 2022. Our cash and cash equivalents are held both domestically and internationally, and are invested to maintain principal and provide liquidity. See "Market Risk" for additional information regarding our foreign currency risk management strategies.

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We expect that our capital spending requirements will continue to be financed primarily through internally generated funds. Debt or equity financing may be needed to fund additional investments or development activities, or to maintain an appropriate capital structure to ensure our financial flexibility. Our external financing arrangements include credit facilities and other bank lines of credit, an active commercial paper program, vendor financing arrangements, issuances of registered debt or equity securities, U.S. retail medium-term notes and other securities that are privately-placed or offered overseas. In addition, we monetize certain receivables through asset-backed debt transactions.

Capital Expenditures

Our 2023 capital program includes capital to fund advanced networks and services, including expanding our core networks, adding capacity and density to our 5G network in order to stay ahead of our customers’ increasing data demands and deploying C-Band, transforming our structure to deploy the Intelligent Edge Network while reducing the cost to deliver services to our customers, and pursuing other opportunities to drive operating efficiencies. We expect that our network architecture will simplify operations by eliminating legacy network elements, improve our 4G LTE coverage, speed the deployment of 5G technology, and create new enterprise opportunities in the business market. We anticipate cash requirements for our 2023 capital program to be between $18.25 billion and $19.25 billion, inclusive of the final $1.75 billion of the incremental $10 billion related to our accelerated C-Band deployment program.

Contractual Obligations and Commitments

We have various contractual obligations and commitments. The following represent our anticipated material cash requirements from known contractual and other obligations as of December 31, 2022:

•Long-term debt, including current maturities, commitments of $149.4 billion, of which $9.3 billion are expected to be due within the next twelve months. Related interest payments are $73.6 billion, of which $5.6 billion, are expected to be due within the next twelve months. Items included in long-term debt with variable coupon rates exclude unamortized debt issuance costs, and are described in Note 7 to the consolidated financial statements.

•Operating lease obligations of $29.8 billion and Finance lease obligations of $1.8 billion, of which $4.6 billion and $586 million, respectively, are expected to be due within the next twelve months. In addition, Verizon has an obligation of $675 million representing future minimum payments under the sublease arrangement for our cell towers, of which $297 million is expected to be due within the next twelve months. See Note 6 to the consolidated financial statements for additional information.

•Unconditional purchase obligations, with terms in excess of one year, amount to $24.5 billion, of which $9.4 billion is expected to be due within the next twelve months. Items included in unconditional purchase obligations are primarily commitments to purchase network equipment, software and services, content, marketing services and other items which will be used or sold in the ordinary course of business. These amounts do not represent our entire anticipated purchases in the future, but represent only those items that are the subject of contractual obligations. We also purchase products and services as needed with no firm commitment. See Note 16 to the consolidated financial statements for additional information.

•Estimated commitments for our allocable share of clearing costs incurred by, and incentive payments due to, the incumbent license holders associated with C-Band wireless spectrum acquired under Auction 107. The remaining commitment is estimated to be $4.8 billion, all of which is expected to be due within the next twelve months.

•Other long-term liabilities, including current maturities, of $4.1 billion, of which $827 million is expected to be due within the next twelve months. Other long-term liabilities represent estimated postretirement benefit and qualified pension plan contributions. Qualified pension plan contributions include estimated minimum funding contributions. We expect that there will be no required pension funding through 2026, subject to changes in market conditions. Postretirement benefit payments include future postretirement benefit payments. These estimated amounts: (1) are subject to change based on changes to assumptions and future plan performance, which could impact the timing and/or amounts of these payments; and (2) exclude expectations beyond 5 years due to uncertainty of the timing and amounts.

•We are not able to make a reasonable estimate of when the unrecognized tax benefits balance of $2.8 billion and related interest and penalties will be settled with the respective taxing authorities until the related tax audits are further developed or resolved. See Note 12 to the consolidated financial statements for additional information.

Consolidated Financial Condition

[[GREPCENT_TABLE]]
[["","(dollars in millions)"],["Years Ended December 31,","2022","","2021"],["Cash Flows Provided By (Used In)"],["Operating activities","$","37,141","","","$","39,539"],["Investing activities","(28,662)","","","(67,153)"],["Financing activities","(8,529)","","","8,277"],["Decrease in cash, cash equivalents and restricted cash","$","(50)","","","$","(19,337)"]]
[[/GREPCENT_TABLE]]

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Cash Flows Provided By Operating Activities

Our primary source of funds continues to be cash generated from operations. Net cash provided by operating activities decreased by $2.4 billion during 2022 compared to 2021, primarily driven by higher device payment receivables as our device payment portfolio increased over the comparative period, which was partially due to the change in device payment plan terms to 36 months. This decrease was further driven by a decrease in earnings. We expect to make approximately $200 million of discretionary pension contributions in 2023. Additionally, we expect that there will be no required pension funding through 2026, subject to changes in market conditions.

Cash Flows Used In Investing Activities

Capital Expenditures

Capital expenditures continue to relate primarily to the use of capital resources to increase the operating efficiency and productivity of our networks, maintain our existing infrastructure, facilitate the introduction of new products and services and enhance responsiveness to competitive challenges.

Capital expenditures, including capitalized software, were $23.1 billion and $20.3 billion for 2022 and 2021, respectively. Capital expenditures increased approximately $2.8 billion during 2022, compared to 2021, primarily due to accelerating our 5G technology deployment. See "Global Network and Technology" for more details.

Acquisitions of Wireless Licenses

In February 2021, the Federal Communications Commission (FCC) completed an auction, Auction 107, for mid-band spectrum known as C-Band. During 2021, we paid approximately $45.9 billion for spectrum licenses in connection with this auction and related costs, of which $1.3 billion was primarily paid for certain obligations related to projected clearing costs. During 2022, we made additional payments of $1.6 billion for obligations related to accelerated clearing incentives and clearing costs associated with the auction.

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 made payments of approximately $310 million associated with these agreements.

During 2022 and 2021, we recorded capitalized interest related to wireless licenses of $1.7 billion and $1.6 billion, respectively.

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.

Cash Received (Paid) Related to Acquisitions of Businesses, Net of Cash Acquired

In September 2020, we entered into a purchase agreement to acquire TracFone, a provider of prepaid and value mobile services in the U.S. The transaction closed on November 23, 2021 (the Acquisition Date). The aggregate cash consideration paid by Verizon at the closing of the transaction was approximately $3.6 billion, net of cash acquired, approximately 57.6 million shares of our common stock valued at approximately $3.0 billion, and up to an additional $650 million in future cash contingent consideration. During 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. See Note 3 to the consolidated financial statements for additional information.

In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass Cellular (Bluegrass), 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.

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

See "Acquisitions and Divestitures" for information on our acquisitions.

Collateral Payments Related to Derivative Contracts, Net of Repayments

During 2022 and 2021, we made payments of $2.3 billion and an insignificant amount, respectively, of derivative collateral, net of repayments. See Note 9 to the consolidated financial statements for additional information.

Proceeds from Disposition of Business

During 2021, we received cash proceeds of $4.1 billion, net of cash transferred, in connection with the sale of Verizon Media. See Note 3 to the consolidated financial statements for additional information.

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Other, Net

During 2021, we received cash of $321 million in connection with the settlement of a note receivable related to TracFone and net cash proceeds of $98 million in connection with the sale of an investment.

Cash Flows Provided By (Used In) Financing Activities

We seek to maintain a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow volatility resulting from changes in market conditions. During 2022, net cash used in financing activities was $8.5 billion. During 2021, net cash provided by financing activities was $8.3 billion.

2022

During 2022, our net cash used in financing activities of $8.5 billion was primarily driven by $13.6 billion used for repayments, redemptions and repurchases of long-term borrowings (secured and unsecured) as well as finance lease obligations, $10.8 billion used for dividend payments and $2.1 billion used for other financing activities. These cash flows used in financing activities were partially offset by $17.8 billion provided by proceeds from long-term borrowings, which included $10.7 billion of proceeds from our asset-backed debt transactions.

Proceeds from and Repayments, Redemptions, and Repurchases of Long-Term Borrowings

At December 31, 2022, our total debt decreased to $150.6 billion compared to $150.9 billion at December 31, 2021. Our effective interest rate was 3.7% and 3.6% during the years ended December 31, 2022 and 2021, respectively. We have entered into interest rate swaps to achieve a targeted mix of fixed and variable rate debt, managing our exposure to changes in interest rates. See also "Market Risk" and Note 7 to the consolidated financial statements for additional information.

At December 31, 2022, approximately $34.0 billion, or 22.5%, of the aggregate principal amount of our total debt portfolio consisted of foreign denominated debt, primarily Euro and British Pound Sterling. We have entered into cross currency swaps on our foreign denominated debt in order to fix our future interest and principal payments in U.S. dollars and mitigate the impact of foreign currency transaction gains or losses. See "Market Risk" for additional information.

Verizon may acquire debt securities issued by Verizon and its affiliates through open market purchases, redemptions, privately negotiated transactions, tender offers, exchange offers, or otherwise, upon such terms and at such prices as Verizon may from time to time determine, for cash or other consideration.

Other, Net

Other, net financing activities during 2022 includes the cash consideration payments to acquire additional interests in certain controlled wireless partnerships and early debt redemption costs. See Note 14 to the consolidated financial statements for additional information on noncontrolling interests. See Note 15 to the consolidated financial statements for additional information on the early debt redemption costs.

Dividends

The Board of Directors of the Company assesses the level of our dividend payments on a periodic basis taking into account such factors as long-term growth opportunities, internal cash requirements and the expectations of our shareholders. During the third quarter of 2022, our Board of Directors increased our quarterly dividend payment by 2.0% to $0.6525 from $0.6400 per share in the preceding quarter. This is the sixteenth consecutive year that Company’s Board of Directors has approved a quarterly dividend increase.

As in prior periods, dividend payments were a significant use of capital resources. During 2022, we paid $10.8 billion in dividends.

2021

During 2021, our net cash provided by financing activities of $8.3 billion was primarily driven by $41.4 billion provided by proceeds from long-term borrowings, which included $8.4 billion of proceeds from our asset-backed debt transactions. These cash flows provided by financing activities were partially offset by $18.9 billion used for repayments, redemptions and repurchases of long-term borrowings (secured and unsecured) as well as finance lease obligations, $10.4 billion used for dividend payments and $3.8 billion used for other financing activities.

Proceeds from and Repayments, Redemptions, and Repurchases of Long-Term Borrowings

At December 31, 2021, our total debt was $150.9 billion, and during the year ended December 31, 2021, our effective interest rate was 3.6%. The substantial majority of our total debt portfolio consisted of fixed rate indebtedness, therefore, changes in interest rates did not have a material effect on our interest payments. See "Market Risk" and Note 7 to the consolidated financial statements for additional information.

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At December 31, 2021, approximately $33.5 billion, or 22.2%, of the aggregate principal amount of our total debt portfolio consisted of foreign denominated debt, primarily Euro and British Pound Sterling. We have entered into cross currency swaps on our foreign denominated debt in order to fix our future interest and principal payments in U.S. dollars and mitigate the impact of foreign currency transaction gains or losses. See "Market Risk" for additional information.

Other, Net

Other, net financing activities during 2021 includes $320 million in payments related to vendor financing arrangements, $161 million in postings of derivative collateral and early debt redemption costs. See Note 15 to the consolidated financial statements for additional information on the early debt redemption costs.

Dividends

During the third quarter of 2021, our Board of Directors increased our quarterly dividend payment by 2.0% to $0.6400 per share.

As in prior periods, dividend payments were a significant use of capital resources. During 2021, we paid $10.4 billion in dividends.

Asset-Backed Debt

As of December 31, 2022, the carrying value of our asset-backed debt was $20.0 billion. Our asset-backed debt includes Asset-Backed Notes (ABS Notes) issued to third-party investors (Investors) and loans (ABS Financing Facilities) received from banks and their conduit facilities (collectively, the Banks). Our consolidated asset-backed debt bankruptcy remote legal entities (each, an ABS Entity or collectively, the ABS Entities) issue the debt or are otherwise party to the transaction documentation in connection with our asset-backed debt transactions. Under the terms of our asset-backed debt, Cellco Partnership (Cellco), a wholly-owned subsidiary of the Company, and certain other Company affiliates (collectively, the Originators) transfer device payment plan agreement receivables and certain other receivables (collectively referred to as certain receivables) to one of the ABS Entities, which in turn transfers such receivables to another ABS Entity that issues the debt. Verizon entities retain the equity interests and residual interests, as applicable, in the ABS Entities, which represent the rights to all funds not needed to make required payments on the asset-backed debt and other related payments and expenses.

Our asset-backed debt is secured by the transferred receivables and future collections on such receivables. These receivables transferred to the ABS Entities and related assets, consisting primarily of restricted cash, will only be available for payment of asset-backed debt and expenses related thereto, payments to the Originators in respect of additional transfers of certain receivables, and other obligations arising from our asset-backed debt transactions, and will not be available to pay other obligations or claims of Verizon’s creditors until the associated asset-backed debt and other obligations are satisfied. The Investors or Banks, as applicable, which hold our asset-backed debt have legal recourse to the assets securing the debt, but do not have any recourse to Verizon with respect to the payment of principal and interest on the debt. Under a parent support agreement, the Company has agreed to guarantee certain of the payment obligations of Cellco and the Originators to the ABS Entities.

Cash collections on the receivables collateralizing our asset-backed debt securities are required at certain specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in Prepaid expenses and other and Other assets in our consolidated balance sheets.

Proceeds from our asset-backed debt transactions are reflected in Cash flows from financing activities in our consolidated statements of cash flows. The asset-backed debt issued is included in Debt maturing within one year and Long-term debt in our consolidated balance sheets.

See Note 7 to the consolidated financial statements for additional information.

Long-Term Credit Facilities

[[GREPCENT_TABLE]]
[["","","","","","At December 31, 2022"],["(dollars in millions)","Maturities","","Facility Capacity","","Unused Capacity","","Principal Amount Outstanding"],["Verizon revolving credit facility (1)","2026","","$","9,500","","","$","9,436","","","$","\u2014"],["Various export credit facilities (2)","2024 - 2031","","11,000","","","1,000","","","6,735"],["Total","","","$","20,500","","","$","10,436","","","$","6,735"]]
[[/GREPCENT_TABLE]]

(1) The revolving credit facility does not require us to comply with financial covenants or maintain specified credit ratings, and it permits us to borrow even if our business has incurred a material adverse change. The revolving credit facility provides for the issuance of letters of credit. As of December 31, 2022, there have been no drawings against the $9.5 billion revolving credit facility since its inception.

(2) During 2022 and 2021, we drew down $3.0 billion and $1.0 billion, respectively, from these facilities. Borrowings under certain of these facilities are amortized semi-annually in equal installments up to the applicable maturity dates. Maturities reflect

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maturity dates of principal amounts outstanding. Any amounts borrowed under these facilities and subsequently repaid cannot be reborrowed.

Common Stock

Common stock has been used from time to time to satisfy some of the funding requirements of employee and shareholder plans. During both the years ended December 31, 2022 and 2021, we issued 2.1 million shares of common stock from treasury stock, which had aggregate values of $91 million.

In connection with our acquisition of TracFone in November 2021, we issued approximately 57.6 million shares of common stock from treasury stock valued at approximately $3.0 billion. See Note 3 to the consolidated financial statements for additional information.

In February 2020, the Board of Directors of the Company authorized a share buyback program to repurchase up to 100 million shares of our common stock. The program will terminate when the aggregate number of shares purchased reaches 100 million, or a new share repurchase plan superseding the current plan is authorized, whichever is sooner. The program permits Verizon to repurchase shares over time, with the amount and timing of repurchases depending on market conditions and corporate needs. There were no repurchases of common stock during 2022 and 2021 under our authorized share buyback program.

Credit Ratings

Verizon’s credit ratings did not change in 2022 or 2021.

Securities ratings assigned by rating organizations are expressions of opinion and are not recommendations to buy, sell or hold securities. A securities rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Covenants

Our credit agreements contain covenants that are typical for large, investment grade companies. These covenants include requirements to pay interest and principal in a timely fashion, pay taxes, maintain insurance with responsible and reputable insurance companies, preserve our corporate existence, keep appropriate books and records of financial transactions, maintain our properties, provide financial and other reports to our lenders, limit pledging and disposition of assets and mergers and consolidations, and other similar covenants.

We and our consolidated subsidiaries are in compliance with all of our restrictive covenants in our debt agreements.

Change In Cash, Cash Equivalents and Restricted Cash

Our Cash and cash equivalents at December 31, 2022 totaled $2.6 billion, a $316 million decrease compared to December 31, 2021, primarily as a result of the factors discussed above.

Restricted cash at December 31, 2022 totaled $1.5 billion, a $266 million increase compared to restricted cash at December 31, 2021, primarily related to cash collections on certain receivables that are required at certain specified times to be placed into segregated accounts. The increase was primarily driven by the completion of asset-backed debt transactions during the year ended December 31, 2022.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that reflects an additional way of viewing our liquidity that, we believe, when viewed with our GAAP results, provides management, investors and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures (including capitalized software) from net cash provided by operating activities. We believe it is a more conservative measure of cash flow since capital expenditures are necessary for ongoing operations. Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate payments made on finance lease obligations or cash payments for business acquisitions or wireless licenses. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

The following table reconciles net cash provided by operating activities to free cash flow:

[[GREPCENT_TABLE]]
[["","(dollars in millions)"],["Years Ended December 31,","2022","","2021"],["Net cash provided by operating activities","$","37,141","","","$","39,539"],["Less Capital expenditures (including capitalized software)","23,087","","","20,286"],["Free cash flow","$","14,054","","","$","19,253"]]
[[/GREPCENT_TABLE]]

The decrease in free cash flow during 2022 is a reflection of the decrease in operating cash flows, as well as the increase in capital expenditures, both of which are discussed above.

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Employee Benefit Plans Funded Status and Contributions

Employer Contributions

We operate numerous qualified and nonqualified pension plans and other postretirement benefit plans. These plans primarily relate to our domestic business units. We made no discretionary contribution to our qualified pension plan in either 2022 or 2021. During 2022 and 2021, we made contributions of $53 million and $58 million to our nonqualified pension plans, respectively.

Our overall investment strategy is to achieve a mix of assets that allows us to meet projected benefit payments while taking into consideration risk and return. In an effort to reduce the risk of our portfolio strategy and better align assets with liabilities, we have adopted a liability driven pension strategy that seeks to better match the interest rate sensitivity of the liability hedging assets with the interest rate sensitivity of the liability. We expect that the strategy will reduce the likelihood that assets will decline at a time when liabilities increase (referred to as liability hedging), with the goal to reduce the risk of underfunding to the plan and its participants and beneficiaries. Over time, as the asset allocation shifts to more liability hedging assets, this strategy will generally result in lower expected asset returns. In 2023, we expect discretionary qualified pension plan contributions to be approximately $200 million and nonqualified pension plan contributions to be insignificant.

Contributions to our other postretirement benefit plans generally relate to payments for benefits on an as-incurred basis since these other postretirement benefit plans do not have funding requirements similar to the pension plans. We contributed $692 million and $885 million to our other postretirement benefit plans in 2022 and 2021, respectively. Contributions to our other postretirement benefit plans are estimated to be approximately $820 million in 2023.

Leasing Arrangements

See Note 6 to the consolidated financial statements for additional information related to leasing arrangements.

Guarantees

We guarantee the debentures of our operating telephone company subsidiaries. See Note 7 to the consolidated financial statements for additional information.

In connection with the execution of agreements for the sale of businesses and investments, Verizon ordinarily provides representations and warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being sold, as well as financial losses. See Note 16 to the consolidated financial statements for additional information.

As of December 31, 2022, letters of credit totaling approximately $834 million, which were executed in the normal course of business and support several financing arrangements and payment obligations to third parties, were outstanding. See Note 16 to the consolidated financial statements for additional information.

Other Future Obligations

During 2022, Verizon entered into four renewable energy purchase agreements (REPAs) with third parties, in addition to 20 signed in previous years. See Note 16 to the consolidated financial statements for additional information. Under the REPAs, we plan to purchase up to an aggregate of approximately 3.0 gigawatts of capacity across multiple states, including Arizona, Illinois, Indiana, Iowa, Maryland, Nebraska, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Texas and West Virginia.

Critical Accounting Estimates and Recently Issued Accounting Standards

Critical Accounting Estimates

A summary of the critical accounting estimates used in preparing our financial statements are as follows:

Wireless Licenses and Goodwill

Wireless licenses and Goodwill are a significant component of our consolidated assets. Both our wireless licenses and goodwill are treated as indefinite-lived intangible assets and, therefore are not amortized, but rather are tested for impairment annually in the fourth fiscal quarter, unless there are events requiring an earlier assessment or changes in circumstances during an interim period suggesting impairment indicators are present. We believe our estimates and assumptions are reasonable and represent appropriate marketplace considerations as of the valuation date. Although we use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in our impairment tests, these estimates and assumptions are uncertain by nature, may change over time and can vary from actual results. It is possible that in the future there may be changes in our estimates and assumptions, including the timing and amount of future cash flows, margins, growth rates, market participant assumptions, comparable benchmark companies and related multiples and discount rates, which could result in different fair value estimates. Significant and adverse changes to any one or more of the above-noted estimates and assumptions could result in an impairment to our wireless licenses and goodwill impairment for one or more of our reporting units.

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Wireless Licenses

The carrying value of our wireless licenses was approximately $149.8 billion as of December 31, 2022. 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. Our wireless licenses provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communication services. There are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our wireless licenses.

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. It is our policy to perform quantitative impairment assessment at least every three years.

During the fourth quarter of 2022, we performed a qualitative impairment assessment as our annual impairment test 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 qualitative assessment we considered several factors including the business enterprise value of our combined wireless business, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and EBITDA margin results, projections and recent merger and acquisition activity), the recent and projected financial performance of our combined wireless business as a whole, as well as other factors including the result of our last quantitative assessment. Our annual impairment test in 2022 indicated that it is more likely than not that the fair value of our wireless licenses remained above their carrying value and, therefore, did not result in an impairment.

During the fourth quarter of 2021, we performed a quantitative impairment assessment, which indicated that the fair value of our wireless licenses is substantially in excess of their carrying value and, therefore, did not result in an impairment. Our quantitative impairment assessment consisted of comparing the estimated fair value of our aggregate wireless licenses to the aggregated carrying amount as of the test date. Under our quantitative assessment, we estimated the fair value of our 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. As a result, we were required to make significant estimates about future cash flows and profitability specifically associated with our wireless licenses, an appropriate discount rate based on the risk associated with those estimated cash flows and assumed terminal value and growth rates. We considered current and expected future economic conditions, current and expected availability of wireless network technology and infrastructure and related equipment and the costs thereof as well as other relevant factors in estimating future cash flows and profitability. The discount rate represented our estimate of the weighted-average cost of capital (WACC), or expected return, that a marketplace participant would have required as of the valuation date. We developed the discount rate based on our consideration of the cost of debt and equity of a group of guideline companies as of the valuation date. Accordingly, our discount rate incorporated our estimate of the expected return a marketplace participant would have required as of the valuation date, including the risk premium associated with the current and expected economic conditions as of the valuation date. The terminal value growth rate represented our estimate of the marketplace’s long-term growth rate.

Goodwill

At December 31, 2022, the balance of our goodwill was approximately $28.7 billion, of which $21.1 billion was in our Consumer reporting unit and $7.5 billion was in our Business reporting unit.

To determine if goodwill is potentially impaired, we have the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we elect not to conduct the qualitative assessment or if indications of a potential impairment exist, the determination of whether an impairment has occurred requires the fair value of each reporting unit to be assessed. It is our policy to perform quantitative impairment assessments at least every three years.

Under the qualitative assessment, we consider several 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 EBITDA margin results, projections and recent merger and acquisition activity), the recent and projected financial performance of the reporting unit, as well as other factors.

Under the quantitative assessment, the fair value of the reporting unit is calculated using a market approach and a discounted cash flow method, as a form of the income approach. The market approach includes the use of comparative multiples to complement discounted cash flow results. The discounted cash flow method is based on the present value of two components-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 represented our estimate of the WACC, or expected return, that a marketplace participant would have required as of the valuation date. The application of our goodwill impairment test required key assumptions underlying our valuation model.

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The discounted cash flow analysis factored in assumptions on discount rates and terminal growth rates to reflect risk profiles of key strategic revenue and cost initiatives, as well as revenue and EBITDA growth relative to history and market trends and expectations. The market multiples approach incorporated significant judgment involved in the selection of comparable public company multiples and benchmarks. The selection of companies and multiples was influenced by differences in growth and profitability, and volatility in market prices of peer companies. These valuation inputs are inherently judgmental, and an adverse change in one or a combination of these inputs could trigger a goodwill impairment loss in the future.

During the fourth quarter of 2022, we performed a qualitative impairment assessment for our Consumer reporting unit. Our qualitative assessment indicated that it was more likely than not that the fair value of our Consumer reporting unit exceeded its carrying value and, therefore, did not result in an impairment.

During the fourth quarter of 2022, we performed a quantitative impairment assessment for our Business reporting unit given it has continued to experience increased market pressures resulting in lower than expected revenues and earnings that may continue to persist over the near term. At the goodwill impairment measurement date of October 31, 2022, our Business reporting unit had a fair value that exceeded its carrying amount by approximately 8% and, therefore, did not result in an impairment. We do not anticipate reasonable changes in significant estimates to change the outcome of the quantitative impairment assessment. For instance, if either the terminal value growth rate declined by 50 basis points, or if the discount rate increased by 50 basis points, the fair value of our Business reporting unit would still exceed its carrying value. However, as a result of our 2022 goodwill assessment, management believes there is an increasing risk that our Business reporting unit may be required to recognize an impairment charge in the future. See Note 4 to the consolidated financial statements for additional information.

A projected sustained decline in a reporting unit's revenues and earnings could have a significant negative impact on its fair value and may result in impairment charges. Such a decline could be driven by, among other things: (1) decreases in sales volumes or long-term growth rate as a result of competitive pressures or other factors; or (2) the inability to achieve or delays in achieving the goals in strategic initiatives. Also, adverse changes to macroeconomic factors, such as increases in long-term interest rates, would also negatively impact the fair value of the reporting unit.

At December 31, 2021, the balance of our goodwill was approximately $28.6 billion, of which $21.0 billion was in our Consumer reporting unit and $7.5 billion was in our Business reporting unit. We performed quantitative impairment assessments for both our Consumer and Business reporting units during the fourth quarter of 2021. At the goodwill impairment measurement date of October 31, 2021, our quantitative assessments indicated that the fair values for our Consumer and Business reporting units were substantially in excess of their carrying values and, therefore, did not result in impairment.

Pension and Other Postretirement Benefit Plans

We maintain benefit plans for most of our employees, including, for certain employees, pension and other postretirement benefit plans. Benefit plan assumptions, including the discount rate used, the long-term rate of return on plan assets, the determination of the substantive plan and health care trend rates are periodically updated and impact the amount of benefit plan income, expense, assets and obligations. Changes to one or more of these assumptions could significantly impact our accounting for pension and other postretirement benefits.

In determining pension and other postretirement obligations, the weighted-average discount rate was selected to approximate the composite interest rates available on a selection of high-quality bonds available in the market at December 31, 2022. The bonds selected had maturities that coincided with the time periods during which benefit payments are expected to occur, were non-callable and available in sufficient quantities to ensure marketability (at least $300 million par outstanding). Bond yields are subject to uncertainty for a number of reasons including corporate performance, credit rating downgrades and upgrades, government fiscal policy decisions, and general market volatility. The expected long-term rates of return on plan assets used in determining Verizon’s pension and other postretirement obligations are based on expectations for future investment returns for the plans’ asset allocation. The rates are subject to uncertainty for a number of reasons including corporate performance, credit ratings, monetary policy, inflation, exchange rates, investor behavior and general market volatility.

A sensitivity analysis of the impact of changes in the discount rate and the long-term rate of return on plan assets on the benefit obligations and expense (income) recorded, as well as an increase or a decrease in the actual versus expected return on plan assets as of December 31, 2022 and for the year then ended pertaining to Verizon’s pension and postretirement benefit plans, is provided in the table below. The amounts in the table below related to discount rate changes are gross impacts on benefit obligations and expense, and do not reflect changes in asset values as a result of interest rate changes, for which our pension plan is highly hedged.

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[[GREPCENT_TABLE]]
[["(dollars in millions)","Percentage point change","Increase/(decrease) at December 31, 2022"],["Pension plans discount rate","+0.50","$","(676)"],["","-0.50","740"],["Rate of return on pension plan assets","+1.00","(168)"],["","-1.00","168"],["Postretirement plans discount rate","+0.50","(507)"],["","-0.50","552"],["Rate of return on postretirement plan assets","+1.00","(5)"],["","-1.00","5"]]
[[/GREPCENT_TABLE]]

In addition to our liability hedging assets, we also employ an interest rate hedging strategy to further minimize the impact of discount rate changes on the funded ratio of the pension plan. While the target hedge ratio varies depending on the funded status of the plan and the level of interest rates, the target hedge ratio was greater than 80% at December 31, 2022, significantly limiting volatility.

The annual measurement date for both our pension and other postretirement benefits is December 31. We use the full yield curve approach to estimate the interest cost component of net periodic benefit cost for pension and other postretirement benefits. The full yield curve approach refines our estimate of interest cost by applying the individual spot rates from a yield curve composed of the rates of return on several hundred high-quality fixed income corporate bonds available at the measurement date. These individual spot rates align with the timing of each future cash outflow for benefit payments and therefore provide a more precise estimate of interest cost.

See Note 11 to the consolidated financial statements for additional information.

Income Taxes

Our current and deferred income taxes and associated valuation allowances are impacted by events and transactions arising in the normal course of business as well as in connection with the adoption of new accounting standards, changes in tax laws and rates, acquisitions and dispositions of businesses and non-recurring items. As a global commercial enterprise, our income tax rate and the classification of income taxes can be affected by many factors, including estimates of the timing and realization of deferred income tax assets and the timing and amount of income tax payments. We account for tax benefits taken or expected to be taken in our tax returns in accordance with the accounting standard relating to the uncertainty in income taxes, which requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. We review and adjust our liability for unrecognized tax benefits based on our best judgment given the facts, circumstances and information available at each reporting date. To the extent that the final outcome of these tax positions is different than the amounts recorded, such differences may impact income tax expense and actual tax payments. We recognize any interest and penalties accrued related to unrecognized tax benefits in income tax expense. Actual tax payments may materially differ from estimated liabilities as a result of changes in tax laws as well as unanticipated transactions impacting related income tax balances. See Note 12 to the consolidated financial statements for additional information.

Property, Plant and Equipment

Our Property, plant and equipment balance represents a significant component of our consolidated assets. We record property, plant and equipment at cost. We depreciate property, plant and equipment on a straight-line basis over the estimated useful life of the assets. The estimated useful life is subject to change due to a variety of factors such as change in asset capacity or performance, technical obsolescence, market expectations and competition impacts. In connection with our ongoing review of the estimated useful lives of property, plant and equipment during 2022, we determined that the estimated useful life of our property, plant and equipment would remain unchanged. We expect that a one year increase in estimated useful lives of our property, plant and equipment would result in a decrease to our 2022 depreciation expense of $2.2 billion and that a one year decrease would result in an increase of approximately $3.5 billion in our 2022 depreciation expense.

Accounts Receivable

Accounts receivable are recorded at amortized cost less an allowance for credit losses that are not expected to be recovered. The gross amount of accounts receivable and corresponding allowance for credit losses are presented separately in the consolidated balance sheets. We maintain allowances for credit losses resulting from the expected failure or inability of our customers to make required payments. We recognize the allowance for credit losses at inception and reassess quarterly based on management’s expectation of the asset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, such as the COVID-19 pandemic, as well as management’s expectations of conditions in the future, as applicable. The impact of these factors on the allowance involves significant level of estimation and is subject to uncertainty. Our allowance for credit losses is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics.

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We record an allowance to reduce the receivables to the amount that is expected to be collectible. For device payment plan agreement receivables, we record bad debt expense based on a default and loss calculation using our proprietary loss model. The expected loss rate is determined based on customer credit scores and other qualitative factors as noted above. The loss rate is assigned individually on a customer by customer basis and the custom credit scores are then aggregated by vintage and used in our proprietary loss model to calculate the weighted-average loss rate used for determining the allowance balance. The weighted-average expected loss rate increased 0.44% at December 31, 2022 as compared to at December 31, 2021. We expect that an increase or decrease of 0.25% in the weighted-average loss rate would result in a change of $111 million in the allowance.

We monitor the collectability of our wireless service receivables as one overall pool. Wireline service receivables are disaggregated and pooled by the following customer groups: consumer, small and medium business, global enterprise, public sector and wholesale. For wireless service receivables and wireline consumer and small and medium business receivables, the allowance is calculated based on a 12 month rolling average write-off balance multiplied by the average life-cycle of an account from billing to write-off. The risk of loss is assessed over the contractual life of the receivables and we adjust the historical loss amounts for current and future conditions based on management’s qualitative considerations. For global enterprise, public sector and wholesale wireline receivables, the allowance for credit losses is based on historical write-off experience and individual customer credit risk, as applicable. We consider multiple factors in determining the allowance as discussed above.

If there is a deterioration of our customers’ financial condition or if future actual default rates on receivables in general differ from those currently anticipated, we may have to adjust our allowance for credit losses, which would affect earnings in the period the adjustments are made. See Note 8 to the consolidated financial statements for additional information.

Acquisitions and Divestitures

Spectrum License Transactions

From time to time, we enter into agreements to buy, sell or exchange spectrum licenses. We believe these spectrum license transactions have allowed us to continue to enhance the reliability of our wireless network while also resulting in a more efficient use of spectrum.

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.

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. 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 the year ended December 31, 2022. This early clearance accelerated Verizon's access to more spectrum in a number of key markets to support its 5G technology deployment.

See Note 3 to the consolidated financial statements for additional information regarding our spectrum license transactions.

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. 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

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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 calculated using a probability-weighted discounted cash flow model and significant unobservable inputs, thus representing a Level 3 measurement. 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. 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 twelve months ended December 31, 2022. Payments related to the contingent consideration are expected to continue through 2024. As of December 31, 2022, the fair value of the contingent consideration was $317 million. During 2022, we recorded gains of $57 million related to fair value adjustments for the contingent consideration within Selling, general and administrative expense in our consolidated statement of income. See Note 3 and Note 9 to the consolidated financial statements for additional information.

Bluegrass Cellular

In October 2020, we entered into a definitive agreement to acquire certain assets of Bluegrass, 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. See Note 3 to the consolidated financial statements for additional information.

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. See Note 3 to the consolidated financial statements for additional information.

Other

From time to time, we enter into strategic agreements to acquire various other businesses and investments. See Note 3 to the consolidated financial statements for additional information.

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.