Verizon Wireless 2006 Annual Report Download - page 53

Notes to Consolidated Financial Statements continued
51
Pro Forma Information
The following unaudited pro forma consolidated results of opera-
tions assume that the MCI merger was completed as of January 1
for the periods shown below:
(dollars in millions, except per share amounts)
Years Ended December 31, 2006 2005
Revenues $88,371 $85,739
Income before discontinued operations
and cumulative effect of accounting change 5,480 6,724
Net income 6,197 8,176
Basic earnings per common share:
Income before discontinued operations
and cumulative effect of accounting change 1.88 2.30
Net income 2.13 2.79
Diluted earnings per common share:
Income before discontinued operations
and cumulative effect of accounting change 1.88 2.28
Net income 2.12 2.76
The unaudited pro forma information presents the combined oper-
ating results of Verizon and the former MCI, with the results prior to
the acquisition date adjusted to include the pro forma impact of: the
elimination of transactions between Verizon and the former MCI; the
adjustment of amortization of intangible assets and depreciation of
fixed assets based on the purchase price allocation; the elimination
of merger expenses incurred by the former MCI; the elimination of
the loss on the early redemption of MCI’s debt; the adjustment of
interest expense reflecting the redemption of all of MCI’s debt and
the replacement of that debt with $4 billion of new debt issued in
February 2006 at Verizon’s weighted average borrowing rate; and to
reflect the impact of income taxes on the pro forma adjustments
utilizing Verizon’s statutory tax rate of 40%. The unaudited pro
forma results for 2005 include $82 million for discontinued opera-
tions that were sold by MCI during the first quarter of 2005. The
unaudited pro forma results for 2005 include approximately $300
million of net tax benefits resulting from tax reserve adjustments
recognized by the former MCI primarily during the third and fourth
quarters of 2005, including audit settlements and other activity.
The unaudited pro forma consolidated basic and diluted earnings
per share for 2006 and 2005 are based on the consolidated basic
and diluted weighted average shares of Verizon and the former MCI.
The historical basic and diluted weighted average shares of the
former MCI were converted for the actual number of shares issued
upon the closing of the merger.
The unaudited pro forma results are presented for illustrative pur-
poses only and do not reflect the realization of potential cost
savings, or any related integration costs. Certain cost savings may
result from the merger; however, there can be no assurance that
these cost savings will be achieved. Cost savings, if achieved,
could result from, among other things, the reduction of overhead
expenses, including employee levels and the elimination of dupli-
cate facilities and capital expenditures. These pro forma results do
not purport to be indicative of the results that would have actually
been obtained if the merger occurred as of the beginning of each of
the periods presented, nor does the pro forma data intend to be a
projection of results that may be obtained in the future.
Other Acquisitions
In August 2002, Verizon Wireless and Price Communications Corp.
(Price) combined Price’s wireless business with a portion of Verizon
Wireless. The resulting limited partnership, Verizon Wireless of the
East LP (VZ East), is controlled and managed by Verizon Wireless.
In exchange for its contributed assets, Price received a limited part-
nership interest in the new partnership which was exchangeable
into the common stock of Verizon Wireless if an initial public
offering of that stock occurred, or into the common stock of Verizon
on the fourth anniversary of the asset contribution date. On August
15, 2006, Verizon delivered 29.5 million shares of newly-issued
Verizon common stock to Price valued at $1,007 million in
exchange for Price’s limited partnership interest in VZ East. As a
result of acquiring Price’s limited partnership interest, Verizon
recorded goodwill of $345 million in the third quarter of 2006 attrib-
utable to its Domestic Wireless segment.
On November 29, 2006, we were granted thirteen 20MHz licenses
we won in an FCC auction that concluded on September 18, 2006.
We paid a total of $2,809 million for the licenses, which cover a
population of nearly 200 million.
NOTE 3
DISCONTINUED OPERATIONS AND SALES
OF BUSINESSES, NET
Verizon Information Services
In October, 2006, we announced our intention to spin-off our
domestic print and Internet yellow pages directories publishing
operations, which have been organized into a newly formed com-
pany known as Idearc Inc. (Idearc). On October 18, 2006, the
Verizon Board of Directors declared a dividend consisting of 1 share
of Idearc for each 20 shares of Verizon owned. In making its deter-
mination to effect the spin-off, Verizon’s Board of Directors
considered, among other things, that the spin-off may allow each
company to separately focus on its core business, which may facil-
itate the potential expansion and growth of Verizon and Idearc, and
allow each company to determine its own capital structure.
On November 17, 2006, we completed the spin-off of Idearc. Cash
was paid for fractional shares. The distribution of Idearc common
stock to our shareholders is considered a tax free transaction for us
and for our shareowners, except for the cash payments for frac-
tional shares which are generally taxable.
At the time of the spin-off, the exercise price of and number of
shares of Verizon common stock underlying options to purchase
shares of Verizon common stock, restricted stock units (RSU’s) and
performance stock units (PSU’s) were adjusted pursuant to the
terms of the applicable Verizon equity incentive plans, taking into
account the change in the value of Verizon common stock as a
result of the spin-off.
In connection with the spin-off, Verizon received approximately $2.0
billion in cash from the proceeds of loans under an Idearc term loan
facility and transferred to Idearc debt obligations in the aggregate
principal amount of approximately $7.1 billion thereby reducing
Verizon’s outstanding debt at that time. We incurred pretax charges
of approximately $117 million ($101 million after-tax), including debt
retirement costs, costs associated with accumulated vesting bene-
fits of Idearc employees, investment banking fees and other
transaction costs related to the spin-off, which are included in dis-
continued operations.