Verizon Wireless 2008 Annual Report Download - page 32

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133, (SFAS No. 161). This statement requires additional disclosures for
derivative instruments and hedging activities that include how and why
an entity uses derivatives, how these instruments and the related hedged
items are accounted for under SFAS No. 133 and related interpretations,
and how derivative instruments and related hedged items affect the
entity’s financial position, results of operations and cash flows. SFAS No.
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The adoption of SFAS No.
161 on January 1, 2009 did not have an impact on our consolidated
financial statements.
InDecember2007,theFASBissuedSFASNo.141(R),Business Combinations,
(SFASNo.141(R)),toreplaceSFASNo.141,Business Combinations. SFAS No.
141(R)requirestheuseoftheacquisitionmethodofaccounting,defines
the acquirer, establishes the acquisition date and broadens the scope
to all transactions and other events in which one entity obtains control
over one or more other businesses. This statement is effective for busi-
ness combinations or transactions entered into for fiscal years beginning
onorafterDecember15,2008.UpontheadoptionofSFASNo.141(R)
we will be required to expense certain transaction costs and related fees
associated with business combinations that were previously capitalized.
This will result in additional expenses being recognized relating to the
2009 closing of the Alltel transaction. In addition, with the adoption of
SFASNo.141(R)changestovaluationallowancesfordeferredincometax
assets and adjustments to unrecognized tax benefits generally will be
recognized as adjustments to income tax expense rather than goodwill.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No. 51, (SFAS
No. 160). SFAS No. 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the retained interest
and gain or loss when a subsidiary is deconsolidated. This statement is
effective for financial statements issued for fiscal years beginning on or
after December 15, 2008 which will be applied prospectively, except
for the presentation and disclosure requirements which will be applied
retrospectively for all periods presented. Upon the initial adoption of
this statement we will change the classification and presentation of
Noncontrolling Interest in our financial statements, which we currently
refer to as minority interest. Additionally, we conduct certain business
operations in certain markets through non-wholly owned entities. Any
changes in these ownership interests may be required to be measured
at fair value and recognized as a gain or loss, if any, in earnings. SFAS No.
160 will also result in a lower effective income tax rate for the Company
due to the inclusion of income attributable to noncontrolling interest in
income before the provision for income taxes. However, the income tax
provision will not be adjusted as a result of SFAS No. 160.
RefertoNote1intheconsolidatedfinancialstatementsforadiscussion
of the accounting pronouncements adopted during 2008.
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
Recent Developments
Alltel Corporation
On June 5, 2008, Verizon Wireless entered into an agreement and plan
of merger with Alltel and its controlling stockholder, Atlantis Holdings
LLC, an affiliate of private investment firms TPG Capital and GS Capital
Partners, to acquire 100% of the equity of Alltel in an all-cash merger.
After satisfying all closing conditions, including receiving the required
regulatory approvals, Verizon Wireless closed the acquisition on January
9, 2009 and paid approximately $5.9 billion for the equity of Alltel.
Immediately prior to the closing, the Alltel debt associated with the
transaction, net of cash, was approximately $22.2 billion. Alltel provides
wireless voice and advanced data services to residential and business
customers in 34 states.
In connection with this transaction, on June 10, 2008, Verizon Wireless
purchased from third parties approximately $5.0 billion aggregate prin-
cipal amount of debt obligations of certain subsidiaries of Alltel for
approximately $4.8 billion plus accrued and unpaid interest. These debt
obligations are included in the amount of Alltel net debt, referenced
above, immediately prior to the closing referenced above.
Rural Cellular Corporation
On August 7, 2008, Verizon Wireless acquired 100% of the outstanding
commonstockandredeemedallofthepreferredstockofRuralCellularin
acashtransaction.RuralCellularwasawirelesscommunicationsservice
provideroperatingunderthetradenameof“Unicel,”focusingprimarily
on rural markets in the United States. Verizon Wireless believes that the
acquisition will further enhance its network coverage in markets adjacent
to its existing service areas and will enable Verizon Wireless to achieve
operational benefits through realizing synergies in reduced roaming and
other operating expenses. Under the terms of the acquisition agreement,
VerizonWirelesspaidRuralCellular’scommonshareholders$728million
incash($45pershare).Additionally,allclassesofRuralCellular’spreferred
shareholders received cash in the aggregate amount of $571 million.
AspartofitsapprovalprocessfortheRuralCellularacquisition,theFCC
and Department of Justice (DOJ) required the divestiture of six oper-
atingmarkets,includingall ofRural Cellular’s operations inVermont
and New York as well as its operations in Okanogan and Ferry, WA (the
Divestiture Markets). On December 22, 2008, Verizon Wireless com-
pleted an exchange transaction with AT&T. Pursuant to the terms of the
exchange agreement, as amended, AT&T received the assets relating to
the Divestiture Markets and a cellular license for part of the Madison, KY
market. In exchange, Verizon Wireless received cellular operating markets
in Madison and Mason, KY and 10 MHz PCS licenses in Las Vegas, NV,
Buffalo, NY, Erie, PA, Sunbury-Shamokin, PA and Youngstown, OH. Verizon
Wireless also received AT&T’s minority interests in three entities in which
Verizon Wireless holds interests plus a cash payment. The preliminary
aggregate value of properties exchanged was approximately $500 mil-
lion. In addition, subject to FCC approval, Verizon Wireless will acquire
PCS licenses in Franklin, NY (except Franklin county) and the entire state
of Vermont from AT&T in a separate cash transaction that is expected to
close in the first half of 2009.
Telephone Access Lines Spin-off
On January 16, 2007, we announced a definitive agreement with FairPoint
Communications, Inc. (FairPoint) providing for Verizon to establish a sepa-
rate entity for its local exchange and related business assets in Maine,
New Hampshire and Vermont, spin-off that new entity into a newly
formed company, known as Northern New England Spinco Inc. (Spinco),
to Verizon’s shareowners, and immediately merge it with and into
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Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations continued