Verizon Wireless 2008 Annual Report Download - page 27

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ofourinvestmentinTELPRI.In2006,investingactivitiesofdiscontinued
operations included net pretax cash proceeds of $2.0 billion in connec-
tion with the sale of Verizon Dominicana.
Cash Flows Provided By (Used In) Financing Activities
During 2008, net cash provided by financing activities was $13.6 billion,
compared with the net cash used in financing activities of $11.7 billion in
2007. Proceeds from borrowings during 2008 were approximately $24.0
billion. Cash flow used in financing activities primarily included net debt
repayments of $4.1 billion, dividend payments of $5.0 billion, and pur-
chases of Verizon common stock for treasury of $1.4 billion.
Our total debt increased by $20.8 billion in 2008. Verizon Communications
issued $11.5 billion of fixed rate debt with varying maturities. Domestic
Wireless issued $10.4 billion of debt for the purchase of Alltel’s debt obli-
gationsacquiredinthesecondquarter,thepurchaseofRuralCellularand
subsequentrepaymentofRuralCellulardebt,andtoraisecashtofinance
a portion of the purchase price of the Alltel acquisition which closed on
January 9, 2009. Partially offsetting the increase in total debt, including
an increase in commercial paper outstanding, was the repayment of $4.1
billion of term debt.
In November 2008, Verizon issued $2.0 billion of 8.75% notes due 2018
and $1.3 billion of 8.95% notes due 2039, which resulted in cash proceeds
of $3.2 billion net of discount and issuance costs. In April 2008, Verizon
issued $1.3 billion of 5.25% notes due 2013, $1.5 billion of 6.10% notes
due 2018, and $1.3 billion of 6.90% notes due 2038, resulting in cash
proceeds of $4.0 billion, net of discounts and issuance costs. In February
2008, Verizon issued $0.8 billion of 4.35% notes due 2013, $1.5 billion of
5.50% notes due 2018, and $1.8 billion of 6.40% notes due 2038, resulting
in cash proceeds of $4.0 billion, net of discounts and issuance costs. In
January 2008, Verizon utilized a $0.2 billion fixed rate vendor financing
facility due 2010.
Verizon Wireless’s financing activities included:
•
On December 19, 2008, Verizon Wireless and Verizon Wireless Capital
LLC as the borrowers, entered into a $17.0 billion credit facility (Bridge
Facility) in order to complete the acquisition of Alltel and repay certain
of Alltel’s outstanding debt. On December 31, 2008, the Bridge Facility
was reduced to $12.5 billion. On January 9, 2009, Verizon Wireless bor-
rowed $12.4 billion under the Bridge Facility and the unused commit-
ments under the Bridge Facility were terminated. The Bridge Facility
has a maturity date of January 8, 2010. Interest on borrowings under
the Bridge Facility is calculated based on the London Interbank Offered
Rate(LIBOR)fortheapplicableperiod,thelevelofborrowingsonspeci-
fied dates and a margin that is determined by reference to our long-
termcreditratingissuedbyStandardandPoor’sRatingService(S&P).If
the aggregate outstanding principal amount under the Bridge Facility is
greater than $6.0 billion on July 8, 2009 (the 180th day after the closing
date of the Alltel acquisition), we are required to repay $3.0 billion on
that date (less the amount of specified mandatory or optional prepay-
ments that have been made as of that date). The remaining aggregate
outstanding principal amount must be repaid on the maturity date. We
expect to refinance or repay the borrowings under the Bridge Facility
within the next 12 months by utilizing a combination of internally gen-
erated free cash flows, net proceeds from the required disposition of
assets in connection with the Alltel acquisition and new borrowings.
• In December 2008, Verizon Wireless obtained net proceeds of $2.4
billion from the issuance of €0.7 billion of 7.625% notes due 2011, €0.5
billion of 8.750% notes due 2015 and £0.6 billion of 8.875% notes due
2018. Concurrent with the borrowings, Verizon Wireless entered into
cross currency swaps primarily to exchange the proceeds from British
Pound Sterling and Euros into U.S. dollars and fix its future interest
and principal payments in U.S. dollars. As a result of these swaps,
Verizon Wireless exchanged the aggregate principal amounts for cash
proceeds of $2.4 billion, which were used to finance a portion of the
purchase price of the Alltel acquisition on January 9, 2009.
• In November 2008, Verizon Wireless obtained proceeds of $3.5 billion,
net of discounts and issuance costs, from the issuance in a private
placement of $1.3 billion of 7.375% notes due November 2013 and
$2.3 billion of 8.500% notes due November 2018.
• On September 30, 2008, Verizon Wireless and Verizon Wireless Capital
LLC entered into a $4.4 billion Three-Year Term Loan Facility Agreement
(Three-Year Term Facility) with Citibank, N.A., as Administrative Agent,
with a maturity date of September 30, 2011. Verizon Wireless borrowed
$4.4 billion under the Three-Year Term Facility in order to repay a por-
tion of the 364-Day Credit Agreement as described below. Of the $4.4
billion, $0.4 billion must be repaid at the end of the first year, $2.0 bil-
lion at the end of the second year, and $2.0 billion upon final maturity.
Interest on borrowings under the Three-Year Term Facility is calculated
basedontheLIBORratefortheapplicableperiodandamarginthat
is determined by reference to the long-term credit rating of Verizon
Wireless issued by S&P and Moody’s Investors Service (if Moody’s sub-
sequently determines to provide a credit rating for the Three-Year Term
Facility). Borrowings under the Three-Year Term Facility currently bear
interest at a variable rate based on LIBOR plus 100 basis points.The
Three-Year Term Facility includes a requirement to maintain a certain
leverage ratio.
• On June 5, 2008, Verizon Wireless entered into a $7.6 billion 364-
Day Credit Agreement with Morgan Stanley Senior Funding Inc. as
Administrative Agent, which included a $4.8 billion term facility and
a $2.8 billion delayed draw facility. On June 10, 2008, Verizon Wireless
borrowed $4.8 billion under the 364-Day Credit Agreement in order
to purchase the Alltel debt obligations acquired in the second quarter
and, during the third quarter, borrowed $2.8 billion under the delayed
drawfacilitytocompletethepurchaseofRuralCellularandtorepay
RuralCellular’sdebtandpayfeesandexpensesincurredinconnection
therewith. During 2008, $4.4 billion of the 364-Day Credit Agreement
was repaid using proceeds from the Three-Year Term Loan Facility;
the remainder of the borrowings under the 364-Day Credit Agreement
was also repaid during 2008.
• On February 4, 2009, Verizon Wireless and Verizon Wireless Capital LLC
co-issued in a private placement $3.5 billion of 5.55% notes due 2014
and $0.8 billion of 5.25% notes due 2012, resulting in cash proceeds of
$4.2 billion, net of discounts and issuance costs. Verizon Wireless will use
the net proceeds from the sale of these notes to repay a portion of the
borrowings outstanding under the Bridge Facility described above.
As of December 31, 2008, we had current assets of $26.1 billion, including
cash and cash equivalents of $9.8 billion and short-term investments of
$0.5 billion. Our current liabilities of $25.9 billion included debt maturing
within one year of $5.0 billion.
Historically, we fund our operations primarily with cash from operations,
cash on hand, and access to the commercial paper markets. However, if
the economic conditions should worsen or we do not maintain our cash
flows from operations, we could see a negative impact on our liquidity in
2009. We believe we can meet our debt service requirements in the next
twelve months as we expect to continue to generate free cash flow and
maintain access to the commercial paper markets.
Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations continued