Verizon Wireless 2006 Annual Report Download - page 55

Notes to Consolidated Financial Statements continued
53
Income from discontinued operations, net of tax presented in the
consolidated statements of income included the following:
(dollars in millions)
Years Ended December 31, 2006 2005 2004
Operating Revenues $5,077 $5,595 $ 5,812
Income before provision for income taxes 2,041 2,159 3,251
Provision for income taxes (1,282) (789) (1,319)
Income on discontinued operations,
net of tax $759 $1,370 $ 1,932
Verizon Hawaii Inc.
During the second quarter of 2004, we entered into an agreement to
sell our wireline and directory businesses in Hawaii, including Verizon
Hawaii Inc. which operated approximately 700,000 switched access
lines, as well as the services and assets of Verizon Long Distance,
Verizon Online, Verizon Information Services and Verizon Select
Services Inc. in Hawaii, to an affiliate of The Carlyle Group. This trans-
action closed during the second quarter of 2005. In connection with
this sale, we received net proceeds of $1,326 million and recorded a
net pretax gain of $530 million ($336 million after-tax).
NOTE 4
OTHER STRATEGIC ACTIONS
Spin-off Transaction Charges
In 2006, we recorded pretax charges of $117 million ($101 million
after-tax) for costs related to the spin-off of Idearc. These costs pri-
marily 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) related to integration costs associated with the MCI
acquisition that closed on January 6, 2006. These costs are prima-
rily 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 bene-
fits charges of $425 million ($258 million after-tax, including $3 million
of income recorded to discontinued operations). These charges
included net pretax pension settlement losses of $56 million ($26 mil-
lion after-tax) related to employees that received lump-sum
distributions primarily resulting from our separation plans. These
charges were recorded in accordance 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), for employee severance and sev-
erance-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) associated
with employee severance costs and severance-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
million after-tax) related to the restructuring of the Verizon manage-
ment retirement benefit plans. This pretax charge was recorded in
accordance 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 million related to retiree medical benefits. In connection
with this restructuring, management employees: no longer earn pen-
sion benefits 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 will
receive a higher savings 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 volun-
tary 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 addi-
tion, 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 a tax benefit of $336 million in connec-
tion 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 ben-
efits 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 Charges and Special Items
During 2006, we recorded pretax charges of $26 million ($16 million
after-tax) resulting from the extinguishment of debt assumed in
connection with the completion of the MCI merger.
During 2006, we recorded after-tax charges of $42 million to recog-
nize the adoption of SFAS No. 123 (R).
During 2005, we recorded pretax charges of $139 million ($133 mil-
lion after-tax) including a pretax impairment charge of $125 million
pertaining to aircraft leased to airlines involved in bankruptcy pro-
ceedings and a pretax charge of $14 million ($8 million after-tax) in
connection with the early extinguishment of debt.