Verizon Wireless 2008 Annual Report Download - page 51

Notes to Consolidated Financial Statements continued
49
Divestiture Markets and Exchange Agreements with AT&T
As part of its regulatory approval for the Rural Cellular acquisition, the
FCC and DOJ required the divestiture of six operating 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 completed an exchange 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 cel-
lular 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 prop-
erties exchanged was approximately $500 million. There was no gain or
loss recognized on the exchange. 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.
Other Acquisitions
In July 2007, Verizon acquired a security-services firm for $435 million,
primarily resulting in goodwill of $343 million and other intangible assets
of $81 million. This acquisition was made to enhance our managed infor-
mation security services to large business and government customers
worldwide. This acquisition was integrated into the Wireline segment.
In connection with the 2006 acquisition of MCI, Inc. (MCI), we recorded
certain severance and severance-related costs and contract termination
costs associated with the merger, pursuant to Emerging Issues Task Force
Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase
Business Combination. At December 31, 2007, there was approximately
$36 million remaining for these obligations which were substantially
resolved during 2008. During 2008, 2007 and 2006, we recorded pretax
charges of $172 million ($107 million after-tax), $178 million ($112 mil-
lion after-tax) and $232 million ($146 million after-tax), respectively,
primarily related to the MCI acquisition that were comprised mainly of
systems integration activities.
NOTE 3
DISCONTINUED OPERATIONS, EXTRAORDINARY ITEM AND
OTHER DISPOSITIONS
Discontinued Operations
Telecomunicaciones de Puerto Rico, Inc.
On March 30, 2007, we completed the sale of our 52% interest in
Telecomunicaciones de Puerto Rico, Inc. (TELPRI) and received gross
proceeds of approximately $980 million. The sale resulted in a pretax
gain of $120 million ($70 million after-tax). Verizon contributed $100 mil-
lion ($65 million after-tax) of the proceeds to the Verizon Foundation.
Verizon Dominicana C. por A.
On December 1, 2006, we closed the sale of Verizon Dominicana C. por
A (Verizon Dominicana). The transaction resulted in net pretax cash
proceeds of $2,042 million, net of a purchase price adjustment of $373
million. The U.S. taxes that became payable and were recognized at the
time the transaction closed exceeded the $30 million pretax gain on the
sale resulting in an overall after-tax loss of $541 million.
Verizon Information Services
In October 2006, we announced our intention to spin-off our domestic
print and Internet yellow pages directories publishing operations, which
have been organized into a newly formed company known as Idearc
Inc. On October 18, 2006, the Verizon Board of Directors declared a divi-
dend consisting of 1 share of the newly formed company for each 20
shares of Verizon owned. In making its determination to effect the spin-
off, Verizon’s Board of Directors considered, among other things, that the
spin-off may allow each company to separately focus on its core busi-
ness, which may facilitate the potential expansion and growth of Verizon
and the newly formed company, and allow each company to determine
its own capital structure.
On November 17, 2006, we completed the spin-off of our domestic print
and Internet yellow pages directories business. Cash was paid for frac-
tional shares. The distribution of common stock of the newly formed
company to our shareowners was considered a tax free transaction for
us and for our shareowners, except for the cash payments for fractional
shares which were generally taxable.
At the time of the spin-off, the exercise price and number of shares of
Verizon common stock underlying options to purchase shares of Verizon
common stock, restricted stock units (RSU’s) and performance stock
units (PSU’s) were adjusted pursuant to the terms of the applicable
Verizon equity incentive plans, taking into account the change in the
value of Verizon common stock as a result of the spin-off.
In connection with the spin-off, Verizon received approximately $2 bil-
lion in cash from the proceeds of loans under a term loan facility of the
newly formed company and transferred to the newly formed company
debt obligations in the aggregate principal amount of approximately
$7.1 billion thereby reducing Verizon’s outstanding debt at that time.
We incurred pretax charges of approximately $117 million ($101 million
after-tax), including debt retirement costs, costs associated with accu-
mulated vested benefits of employees of the newly formed company,
investment banking fees and other transaction costs related to the spin-
off, which are included in discontinued operations.