Verizon Wireless 2009 Annual Report Download - page 52

50
Recent Accounting Standards
In June 2009, the accounting standard regarding the requirements of
consolidation accounting for variable interest entities was updated to
require an enterprise to perform an analysis to determine whether the
entity’s variable interest or interests give it a controlling interest in a vari-
able interest entity. The adoption of this standard, effective January 1,
2010, is not expected to have a significant impact on our consolidated
financial statements.
In September 2009, the accounting standard regarding multiple deliver-
able arrangements was updated to require the use of the relative selling
price method when allocating revenue in these types of arrangements.
This method allows a vendor to use its best estimate of selling price if
neither vendor specific objective evidence nor third party evidence of
selling price exists when evaluating multiple deliverable arrangements.
This standard update is effective January 1, 2011 and may be adopted pro-
spectively for revenue arrangements entered into or materially modified
after the date of adoption or retrospectively for all revenue arrangements
for all periods presented. We are currently evaluating the impact that this
standard update will have on our consolidated financial statements.
In September 2009, the accounting standard regarding arrangements
that include software elements was updated to require tangible products
that contain software and non-software elements that work together to
deliver the products essential functionality to be evaluated under the
accounting standard regarding multiple deliverable arrangements. This
standard update is effective January 1, 2011 and may be adopted pro-
spectively for revenue arrangements entered into or materially modified
after the date of adoption or retrospectively for all revenue arrangements
for all periods presented. We are currently evaluating the impact that this
standard update will have on our consolidated financial statements.
NOTE 2
ACQUISITIONS
Acquisition of Alltel Corporation
On June 5, 2008, Verizon Wireless entered into an agreement and plan
of merger with Alltel Corporation (Alltel), a provider of wireless voice
and data services 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.
We expect to experience substantial operational benefits from the acqui-
sition of Alltel, including additional combined overall cost savings from
reduced roaming costs by moving more traffic to our own network,
reduced network-related costs from the elimination of duplicate facilities,
consolidation of platforms, efficient traffic consolidation, and reduced
overall expenses relating to advertising, overhead and headcount. We
expect reduced combined capital expenditures as a result of greater
economies of scale and the rationalization of network assets. We believe
that the use of the same technology platform is facilitating the integra-
tion of Alltel’s network operations with ours.
We have substantially completed the appraisals necessary to assess the
fair values of the tangible and intangible assets acquired and liabilities
assumed, the fair value of noncontrolling interests, and the amount of
goodwill recognized as of the acquisition date.
The fair values of the assets acquired and liabilities assumed were deter-
mined using the income, cost, and market approaches. The fair value
measurements were primarily based on significant inputs that are not
observable in the market other than interest rate swaps (see Note 10)
and long-term debt assumed in the acquisition. The income approach
was primarily used to value the intangible assets, consisting primarily
of wireless licenses and customer relationships. The income approach
indicates value for a subject asset based on the present value of cash
flows projected to be generated by the asset. Projected cash flows are
discounted at a required market rate of return that reflects the relative
risk of achieving the cash flows and the time value of money. The cost
approach, which estimates value by determining the current cost of
replacing an asset with another of equivalent economic utility, was used,
as appropriate, for plant, property and equipment. The cost to replace
a given asset reflects the estimated reproduction or replacement cost
for the asset, less an allowance for loss in value due to depreciation.
The market approach, which indicates value for a subject asset based
on available market pricing for comparable assets, was utilized in com-
bination with the income approach for certain acquired investments.
Additionally, Alltel historically conducted business operations in certain
markets through non-wholly owned entities (Managed Partnerships). The
fair value of the noncontrolling interests in these Managed Partnerships
as of the acquisition date of approximately $586 million was estimated
by using a market approach. The market approach indicates value based
on financial multiples available for similar entities and adjustments for
the lack of control or lack of marketability that market participants would
consider in determining fair value of the Managed Partnerships. The fair
value of the majority of the long-term debt assumed and held was pri-
marily valued using quoted market prices.
Notes to Consolidated Financial Statements continued