Verizon Wireless 2008 Annual Report Download - page 25

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Depreciation and Amortization Expense
Depreciation and amortization expense in 2008 increased $104 million,
or 1.2%, compared to 2007, mainly driven by growth in depreciable tele-
phone plant and non-network software from additional capital spending,
partially offset by lower rates of depreciation as a result of changes in the
estimated useful lives of certain asset classes. Depreciation and amortiza-
tion expense in 2007 decreased $382 million, or 4.1%, compared to 2006,
mainly driven by lower rates of depreciation as a result of changes in the
estimated useful lives of certain asset classes, partially offset by growth in
depreciable telephone plant from increased capital spending.
Operating Income
(dollars in millions)
Years Ended December 31, 2008 2007 2006
Operating Income $ 3,862 $ 4,494 $ 4,391
Segment operating income in 2008 decreased by $632 million, or 14.1%,
compared to 2007 and increased by $103 million, or 2.3% in 2007 com-
pared to 2006, due to the impact of operating revenues and operating
expenses described above. Non-recurring or non-operational items not
included in Verizon Wireline’s segment income totaled $993 million, $726
million and $458 million in 2008, 2007 and 2006, respectively.
Non-recurring or non-operational items in 2008 primarily included sev-
erance and severance-related costs, pension settlement losses, costs
associated with continued merger integration initiatives, the results
of operations spun-off during the first quarter of 2008 and the costs
incurred in connection with the spin-off related to network, non-network
software,andotheractivities(see“RecentDevelopments”).
Non-recurring or non-operational items in 2007 included costs associated
with severance and other related charges, costs incurred related to net-
work, non-network software, and other activities in connection with the
spin-off of local exchange assets in Maine, New Hampshire and Vermont,
as well as costs associated with merger integration initiatives, principally
related to the acquisition of MCI and other items.
Non-recurring or non-operational items in 2006 included costs associ-
ated with severance activity, pension settlement losses, Verizon Center
relocation-related costs and merger integration costs. Merger integra-
tion costs primarily included costs related to advertising and re-branding
initiatives, facility exit costs, severance costs, labor and contractor costs
related to information technology integration initiatives and employee
retention expenses.
OTHER ITEMS
Facility and Employee-Related Items
During 2008, we recorded net pretax severance, pension and benefits
charges of $950 million ($588 million after-tax, or $.21 per diluted share).
This charge primarily included $586 million ($363 million after-tax) for
workforce reductions in connection with the separation of approximately
8,600 employees and related charges; 3,500 of whom were separated
in the second half of 2008, with the remaining reductions expected to
occur in 2009, in accordance with SFAS No. 112, Employers’ Accounting
for Postemployment Benefits. Also included are net pretax pension settle-
ment losses of $364 million ($225 million after-tax) related to employees
that received lump-sum distributions primarily resulting from our separa-
tion 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.
During the fourth quarter of 2007, we recorded charges of $772 million
($477 million after-tax, or $.16 per diluted share) primarily in connection
with workforce reductions of 9,000 employees and related charges, 4,000
of whom were separated in the fourth quarter of 2007 with the remaining
reductions occurring throughout 2008. 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, or $.09 per diluted share).
These charges included net pretax pension settlement losses of $56 mil-
lion ($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. Also included are pretax
charges of $369 million ($228 million after-tax), for employee severance
and severance-related costs in connection with the involuntary separa-
tion of approximately 4,100 employees.
During 2006, we recorded pretax charges of $184 million ($118 million
after-tax, or $.04 per diluted share) in connection with the relocation of
employeesandbusinessoperationstoVerizonCenterinBaskingRidge,
New Jersey.
Merger Integration Costs
In 2008, 2007, and 2006, we recorded pretax charges of $172 million ($107
million after-tax, or $.03 per diluted share), $178 million ($112 million after-
tax, or $.04 per diluted share) and $232 million ($146 million after-tax, or
$.05 per diluted share), respectively, primarily related to the MCI acquisi-
tion that were comprised mainly of systems integration activities.
Telephone Access Lines Spin-off
In 2008 and 2007, we recorded pretax charges of $103 million ($81 million
after-tax, or $.03 per diluted share) and $84 million ($80 million after-
tax, or $.03 per diluted share), respectively, for costs incurred related to
network, non-network software, and other activities to enable the opera-
tions in Maine, New Hampshire and Vermont to operate on a stand-alone
basis subsequent to the spin-off of our telephone access line operations
in those states, as well as professional advisory and legal fees in connec-
tion with this transaction.
Investment Impairment Charges
During 2008, we recorded a pretax charge of $48 million ($31 million after-
tax, or $.01 per diluted share) related to an other-than-temporary decline
in the fair value of our investments in certain marketable securities.
International Taxes
In December 2007, Verizon received a net distribution from Vodafone
Omnitel of approximately $2,100 million and received an additional
$670 million net distribution in April 2008. During 2007, we recorded
$610 million ($.21 per diluted share) of foreign and domestic taxes
and expenses specifically relating to our share of Vodafone Omnitel’s
distributable earnings.
Other
In 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 MCI merger.
Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations continued