Verizon Wireless 2006 Annual Report Download - page 30

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activities and increase its self-sufficiency. Consequently, we
recorded a net gain of $500 million after taxes, or $.18 per diluted
share related to this transaction and the accrual of the Verizon
Foundation contribution.
Also during 2004, we sold all of our investment in Iowa Telecom pre-
ferred stock, which resulted in a pretax gain of $43 million ($43
million after-tax, or $.02 per diluted share). This preferred stock was
received in 2000 in connection with the sale of access lines in Iowa.
There were no similar items in 2006 and 2005.
Spin-off Related Charges
In 2006, we recorded pretax charges of $117 million ($101 million
after-tax, or $.03 per diluted share) for costs related to the spin-off of
Idearc. These costs primarily consisted of banking and legal fees, as
well as filing fees, printing and mailing costs. There were no similar
charges in 2005 and 2004.
Merger Integration Costs
In 2006, we recorded pretax charges of $232 million ($146 million
after-tax, or $.05 per diluted share) related to integration costs asso-
ciated with the MCI acquisition that closed on January 6, 2006.
These costs are primarily comprised of advertising and other costs
related to re-branding initiatives and systems integration activities.
There were no similar charges incurred in 2005 and 2004.
Facility and Employee-Related Items
During 2006, we recorded pretax charges of $184 million ($118 mil-
lion after-tax) in connection with the continued relocation of
employees and business operations to Verizon Center located in
Basking Ridge, New Jersey. During 2005, we recorded a net pretax
gain of $18 million ($8 million after-tax) in connection with this relo-
cation of our new operations center, Verizon Center, including a
pretax gain of $120 million ($72 million after-tax) related to the sale
of a New York City office building, partially offset by a pretax charge
of $102 million ($64 million after-tax) primarily associated with relo-
cation, employee severance and related activities. There were no
similar charges incurred in 2004.
During 2006, we recorded net pretax severance, pension and benefits
charges of $425 million ($258 million after-tax, including $3 million of
income recorded to discontinued operations, or $.09 per diluted
share). These charges included net pretax pension settlement losses
of $56 million ($26 million after-tax, or $.01 per diluted share) related
to employees that received lump-sum distributions primarily resulting
from our separation plans. These charges were recorded in accor-
dance with SFAS No. 88, Employers’ Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits (SFAS No. 88), which requires that settlement losses be
recorded once prescribed payment thresholds have been reached.
Also included are pretax charges of $369 million ($228 million after-
tax, or $.08 per diluted share), for employee severance and
severance-related costs in connection with the involuntary separation
of approximately 4,100 employees. In addition, during 2005 we
recorded a charge of $59 million ($36 million after-tax, or $.01 per
diluted share) associated with employee severance costs and sever-
ance-related activities in connection with the voluntary separation
program for surplus union-represented employees.
During 2005, we recorded a net pretax charge of $98 million ($59 mil-
lion after-tax) related to the restructuring of the Verizon management
retirement benefit plans. This pretax charge was recorded in accor-
dance with SFAS No. 88, and SFAS No. 106, Employers’ Accounting
for Postretirement Benefits Other Than Pensions (SFAS No. 106) and
includes the unamortized cost of prior pension enhancements of
$430 million offset partially by a pretax curtailment gain of $332 mil-
lion related to retiree medical benefits. In connection with this
restructuring, management employees: no longer earn pension bene-
fits or earn service towards the company retiree medical subsidy after
June 30, 2006; received an 18-month enhancement of the value of
their pension and retiree medical subsidy; and receive a higher sav-
ings plan matching contribution.
During 2004, we recorded pretax pension settlement losses of $805
million ($492 million after-tax) related to employees that received
lump-sum distributions during 2004 in connection with the voluntary
separation plan under which more than 21,000 employees accepted
the separation offer in the fourth quarter of 2003. These charges
were recorded in accordance with SFAS No. 88. In addition, we
recorded a $7 million after-tax charge in income from discontinued
operations, related to the 2003 separation plan.
Tax Matters
During 2005, we recorded tax benefits of $336 million in connection
with capital gains and prior year investment losses. As a result of the
capital gain realized in 2005 in connection with the sale of our
Hawaii businesses, we recorded a tax benefit of $242 million related
to capital losses incurred in previous years. The investment losses
pertain to Iusacell, CTI Holdings, S.A. (CTI) and TelecomAsia.
Also during 2005, we recorded a net tax provision of $206 million
related to the repatriation of foreign earnings under the provisions of
the American Jobs Creation Act of 2004, for two of our foreign
investments.
As a result of the capital gain realized in 2004 in connection with the
sale of Verizon Information Services Canada, we recorded tax bene-
fits of $234 million in the fourth quarter of 2004 pertaining to prior
year investment impairments. The investment impairments primarily
related to debt and equity investments in CTI, Cable & Wireless plc
and NTL Incorporated.
Other Special Items
During 2006, we recorded pretax charges of $26 million ($16 million
after-tax, or $.01 per diluted share) resulting from the extinguishment
of debt assumed in connection with the completion of the
MCI merger.
As discussed in the “Cumulative Effect of Accounting Change” sec-
tion, during 2006, we recorded after-tax charges of $42 million ($.01
per diluted share) to recognize the adoption of SFAS No. 123 (R).
During 2005, we recorded pretax charges of $139 million ($133 mil-
lion after-tax, or $.05 per diluted share) including a pretax
impairment charge of $125 million ($125 million after-tax, or $.04 per
diluted share) pertaining to aircraft leased to airlines involved in
bankruptcy proceedings and a pretax charge of $14 million ($8 mil-
lion after-tax, or less than $.01 per diluted share) in connection with
the early extinguishment of debt.
In the second quarter of 2004, we recorded an expense credit of $204
million ($123 million after-tax, or $.04 per diluted share) resulting from
the favorable resolution of pre-bankruptcy amounts due from MCI that
were recovered upon the emergence of MCI from bankruptcy.
Also during 2004, we recorded a charge of $113 million ($87 million
after-tax, or $.03 per diluted share) related to operating asset losses
Management’s Discussion and Analysis
of Results of Operations and Financial Condition continued