Verizon Wireless 2008 Annual Report Download - page 50

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Repayment of Alltel Debt and New Borrowings
On December 19, 2008, Verizon Wireless and Verizon Wireless Capital
LLC, as the borrowers, entered into the $17.0 billion credit facility
(Bridge Facility) with Bank of America, N.A., as Administrative Agent.
On December 31, 2008, the Bridge Facility was reduced to $12.5 billion.
As of December 31, 2008, there were no amounts outstanding under
this facility.
On January 9, 2009, immediately prior to the closing of the Alltel acquisi-
tion, we borrowed $12,350 million under the Bridge Facility in order to
complete the acquisition of Alltel and repay certain of Alltel’s outstanding
debt. The remaining commitments under the Bridge Facility were ter-
minated. 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 specified dates and a margin that is determined
by reference to our long-term credit rating issued by S&P. If the aggre-
gate outstanding principal amount under the Bridge Facility is greater
than $6.0 billion on July 8th, 2009 (the 180th day after the closing of the
Alltel acquisition), we are required to repay $3.0 billion on that date (less
the amount of specified mandatory or optional prepayments that have
been made as of that date). The Bridge Facility includes a requirement
to maintain a certain leverage ratio. We are required to prepay indebted-
ness under the Bridge Facility with the net cash proceeds of specified
asset sales, issuances and sales of equity and incurrences of borrowed
money indebtedness, subject to certain exceptions.
On February 4, 2009, Verizon Wireless and Verizon Wireless Capital LLC
co-issued a private placement of $3,500 million of 5.55% notes due 2014
and $750 million of 5.25% notes due 2012, resulting in cash proceeds
of $4,211 million, net of discounts and issuance costs. The net proceeds
from the sale of these notes were used to repay a portion of the borrow-
ings outstanding under the Bridge Facility.
After the completion of the Alltel acquisition and repayments of Alltel
debt, including repayments completed through January 28, 2009,
approximately $2.5 billion of Alltel debt that is owed to third parties
remained outstanding.
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 mar-
kets 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.
The consolidated financial statements include the results of Rural
Cellular’s operations from the date the acquisition closed. Had this
acquisition been consummated on January 1, 2008 or 2007, the results
of Rural Cellular’s acquired operations would not have had a significant
impact on our consolidated income statement. In connection with the
acquisition, Verizon Wireless assumed $1.5 billion of Rural Cellular’s debt.
This debt was redeemed on September 5, 2008, using proceeds from
new debt borrowings by Verizon Wireless (see Note 10). The aggregate
value of the net assets acquired was $1.3 billion based on the cash con-
sideration, as well as closing and other direct acquisition-related costs of
approximately $12 million.
In accordance with SFAS No. 141, the cost of the acquisition was pre-
liminarily allocated to the assets acquired and liabilities assumed based
on their fair values as of the close of the acquisition, with the amounts
exceeding the fair value being recorded as goodwill. As the values of
certain assets and liabilities are preliminary in nature, they are subject
to adjustment as additional information is obtained. The valuations will
be finalized within 12 months of the close of the acquisition. When the
valuations are finalized, any changes to the preliminary valuation of
assets acquired or liabilities assumed may result in adjustments to the
fair value of the identifiable intangible assets acquired and goodwill.
The following table summarizes the preliminary allocation of the acqui-
sition cost to the assets acquired, including cash acquired of $42 million,
and liabilities assumed as of the acquisition date and adjustments made
thereto during the three months ended December 31, 2008:
(dollars in millions)
As of
August 7, 2008 Adjustments
Adjusted as of
August 7, 2008
Assets acquired
Wireless licenses $ 1,014 $ 82 $ 1,096
Goodwill 935 (2) 933
Intangible assets subject
to amortization 197 1 198
Other acquired assets 1,007 (34) 973
Total assets acquired 3,153 47 3,200
Liabilities assumed
Long-term debt 1,505 – 1,505
Deferred income taxes
and other liabilities 342 42 384
Total liabilities assumed 1,847 42 1,889
Net assets acquired $ 1,306 $ 5 $ 1,311
Included in Other acquired assets are $490 million of assets that have
been divested pursuant to the exchange agreement with AT&T, as
described below. Adjustments were primarily related to ongoing revi-
sions to preliminary valuations of wireless licenses and other tangible
and intangible assets acquired that were subsequently divested to AT&T,
and revised estimated tax bases of acquired assets and liabilities.
Wireless licenses acquired have an indefinite life, and accordingly, are
not subject to amortization. The customer relationships are being
amortized using an accelerated method over 6 years, and other
intangibles are being amortized on a straight-line basis over 12 months.
Goodwill of approximately $115 million is expected to be deductible
for tax purposes.
Notes to Consolidated Financial Statements continued