Verizon Wireless 2007 Annual Report Download - page 51

Notes to Consolidated Financial Statements continued
49
Board of Directors established a record date of March 7, 2008, and a closing
date of March 31, 2008, for the proposed spin-off of shares of Spinco to
Verizon shareowners.
During 2007, we recorded pretax charges of $84 million ($80 million
after-tax) for costs incurred related to certain network and work center
re-arrangements, the isolation and extraction of related business informa-
tion, and other activities to separate the wireline facilities and operations
in Maine, New Hampshire and Vermont from Verizon at the closing of the
transaction, as well as professional advisory and legal fees in connection
with this transaction.
Upon the closing of the transaction, Verizon shareowners will own approx-
imately 60 percent of the new company, and FairPoint shareowners will
own approximately 40 percent. Verizon Communications will not receive
any shares in FairPoint as a result of the transaction. In connection with
the merger, Verizon shareowners will receive one share of FairPoint stock
for approximately every 53 shares of Verizon stock held as of the record
date. The proposal relating to the merger was approved by the FairPoint
shareowners in August 2007. Both the spin-off and merger are expected
to qualify as tax-free transactions, except to the extent that cash is paid to
Verizon shareowners in lieu of fractional shares.
Based upon the number of shares (as adjusted) and price of FairPoint
common stock (NYSE: FRP) on the date of the announcement of the
merger, the estimated total value to be received by Verizon and its shar-
eowners in exchange for these operations was approximately $2,715
million. This consisted of (a) approximately $1,015 million of FairPoint
common stock that was to be received by Verizon shareowners in the
merger, and (b) $1,700 million in value that was to be received by Verizon
through a combination of cash distributions to Verizon and debt securi-
ties issued to Verizon prior to the spin-off. Verizon currently intends to
exchange these newly issued debt securities for certain debt that was
previously issued by Verizon, which would have the effect of reducing
Verizon’s then-outstanding debt. The actual total value to be received
by Verizon and its shareowners will be determined in part based on the
number of shares (as adjusted) and price of FairPoint common stock on
the date of the closing of the merger. This value is now expected to be
less than $2,715 million because (a) FairPoint expects to issue approxi-
mately 54 million shares of common stock in the merger and the price
of FairPoint common stock has declined since the announcement of the
merger (the closing price of FairPoint common stock on the last business
day prior to the announcement of the merger was $18.54 per share) and
(b) in connection with the regulatory approval process, Verizon currently
expects to make additional contributions of approximately $320 million
to the entity that will merge with FairPoint.
Verizon Hawaii Inc.
During 2005, we sold 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 for $1,326 mil-
lion in cash proceeds. In connection with this sale, we recorded a net
pretax gain of $530 million ($336 million after-tax).
NOTE 3
OTHER ITEMS
Other Tax Matters
During 2005, we recorded tax benefits of $336 million in connection with
the utilization of prior year loss carry forwards. As a result of the capital
gain realized in 2005 in connection with the sale of our Hawaii busi-
nesses, we recorded a tax benefit of $242 million related to the capital
losses incurred in previous years.
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.
Facility and Employee-Related Items
During the fourth quarter of 2007, we recorded a charge of $772 million
($477 million after-tax) primarily in connection with workforce reductions
of 9,000 employees and related charges, 4,000 of whom were terminated
in the fourth quarter of 2007 with the remaining reductions expected to
occur throughout 2008 (see Note 15). In addition, we adjusted our actu-
arial assumptions for severance to align with future expectations.
During 2006, we recorded net pretax severance, pension and benefits
charges of $425 million ($258 million after-tax). These charges included
net pretax pension settlement losses of $56 million ($26 million 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 (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 a vol-
untary separation program for surplus union-represented employees.
During 2006, we recorded pretax charges of $184 million ($118 million
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 mil-
lion after-tax) in connection with this relocation, 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 mil-
lion after-tax) primarily associated with relocation, employee severance
and related activities.