Verizon Wireless 2009 Annual Report Download - page 37

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OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
Recent Developments
Telephone Access Lines Spin-off
On May 13, 2009, we announced plans to spin off a newly formed subsidiary
of Verizon (Spinco) to our stockholders. Spinco will hold defined assets and
liabilities of the local exchange business and related landline activities of
Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina,
Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, and
in portions of California bordering Arizona, Nevada and Oregon, including
Internet access and long distance services and broadband video provided
to designated customers in those areas. Immediately following the spin-
off, Spinco plans to merge with Frontier Communications Corporation
(Frontier) pursuant to a definitive agreement with Frontier, and Frontier will
be the surviving corporation. The transactions do not involve any assets
or liabilities of Verizon Wireless. The merger will result in Frontier acquiring
approximately 4 million access lines and certain related businesses from
Verizon, which collectively generated annual revenues of approximately $4
billion for Verizon’s Wireline segment.
Depending on the trading prices of Frontier common stock prior to the
closing of the merger, Verizon stockholders will collectively own between
approximately 66% and 71% of Frontier’s outstanding equity imme-
diately following the closing of the merger, and Frontier stockholders
will collectively own between approximately 29% and 34% of Frontier’s
outstanding equity immediately following the closing of the merger (in
each case, before any closing adjustments). The actual number of shares
of common stock to be issued by Frontier in the merger will be calcu-
lated based upon several factors, including the average trading price of
Frontier common stock during a pre-closing measuring period (subject
to a collar) and other closing adjustments. Verizon will not own any shares
of Frontier after the merger.
Both the spin-off and merger are expected to qualify as tax-free transac-
tions, except to the extent that cash is paid to Verizon stockholders in lieu
of fractional shares.
In connection with the spin-off, Verizon expects to receive from Spinco
approximately $3.3 billion in value through a combination of a special
cash payment to Verizon, a reduction in Verizon’s consolidated indebt-
edness, and, in certain circumstances, the issuance to Verizon of debt
securities of Spinco. In the merger, Verizon stockholders are expected to
receive approximately $5.3 billion of Frontier common stock, assuming the
average trading price of Frontier common stock during the pre-closing
measuring period is within the collar and no closing adjustments.
The transaction is subject to the satisfaction of certain conditions,
including receipt of state and federal telecommunications regulatory
approvals. If the conditions are satisfied, we expect this transaction to
close during the second quarter of 2010.
Alltel Corporation
On June 5, 2008, Verizon Wireless entered into an agreement and plan of
merger with Alltel, a provider of wireless voice and advanced data ser-
vices to consumer and business customers in 34 states, and its controlling
stockholder, Atlantis Holdings LLC, an affiliate of private investment firms
TPG Capital and GS Capital Partners, to acquire, in an all-cash merger,
100% of the equity of Alltel for cash consideration of $5.9 billion and the
assumption of approximately $24 billion of aggregate principal amount
of Alltel debt. Verizon Wireless closed the transaction on January 9, 2009.
As a condition of the regulatory approvals that were required to complete
the Alltel acquisition, Verizon Wireless is required to divest overlap-
ping properties in 105 operating markets in 24 states (Alltel Divestiture
Markets). These markets consist primarily of Alltel operations, but also
include a small number of pre-merger operations of Verizon Wireless.
On May 8, 2009, Verizon Wireless entered into a definitive agreement
with AT&T Mobility LLC (AT&T Mobility), a subsidiary of AT&T Inc. (AT&T),
pursuant to which AT&T Mobility agreed to acquire 79 of the 105 Alltel
Divestiture Markets, including licenses and network assets for approxi-
mately $2.4 billion in cash. On June 9, 2009, Verizon Wireless entered into
a definitive agreement with Atlantic Tele-Network, Inc. (ATN), pursuant to
which ATN agreed to acquire the remaining 26 Alltel Divestiture Markets
that were not included in the transaction with AT&T Mobility, including
licenses and network assets for $200 million in cash. We expect to close
both the AT&T Mobility and ATN transactions during the first half of 2010.
Completion of each of the foregoing transactions is subject to receipt of
regulatory approvals.
Environmental Matters
During 2003, under a government-approved plan, remediation com-
menced at the site of a former Sylvania facility in Hicksville, New York
that processed nuclear fuel rods in the 1950s and 1960s. Remediation
beyond original expectations proved to be necessary and a reassessment
of the anticipated remediation costs was conducted. A reassessment of
costs related to remediation efforts at several other former facilities was
also undertaken. In September 2005, the Army Corps of Engineers (ACE)
accepted the Hicksville site into the Formerly Utilized Sites Remedial
Action Program. This may result in the ACE performing some or all of the
remediation effort for the Hicksville site with a corresponding decrease
in costs to Verizon. To the extent that the ACE assumes responsibility for
remedial work at the Hicksville site, an adjustment to a reserve previously
established for the remediation may be made. Adjustments to the reserve
may also be made based upon actual conditions discovered during the
remediation at this or any other site requiring remediation.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations continued