Verizon Wireless 2009 Annual Report Download - page 53

Notes to Consolidated Financial Statements continued
51
The following table summarizes the consideration paid and the allocation
of the assets acquired, including cash acquired of $1.0 billion, and liabili-
ties assumed as of the close of the acquisition, as well as the fair value at
the acquisition date of Alltel’s noncontrolling partnership interests:
(dollars in millions)
Assets acquired
Current assets $ 2,760
Plant, property and equipment 3,513
Wireless licenses 9,444
Goodwill 16,353
Intangible assets subject to amortization 2,391
Other assets 2,444
Total assets acquired 36,905
Liabilities assumed
Current liabilities 1,833
Long-term debt 23,929
Deferred income taxes and other liabilities 5,032
Total liabilities assumed 30,794
Net assets acquired 6,111
Noncontrolling interest (519)
Contributed capital 333
Total cash consideration $ 5,925
Included in the above purchase price allocation is $2.1 billion of net assets
to be divested as a condition of the regulatory approval as described
below.
Wireless licenses have an indefinite life, and accordingly, are not sub-
ject to amortization. The weighted average period prior to renewal of
these licenses at acquisition is approximately 5.7 years. The customer
relationships included in Intangible assets subject to amortization are
being amortized using an accelerated method over 8 years, and other
intangibles are being amortized on a straight-line basis or an accelerated
method over a period of 2 to 3 years. Goodwill of approximately $1.4 bil-
lion is expected to be deductible for tax purposes.
Alltel Divestiture Markets
As a condition of the regulatory approvals by the Department of Justice
(DOJ) and the FCC to complete the Alltel acquisition, Verizon Wireless is
required to divest overlapping 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. As of December 31, 2009, total assets and total liabili-
ties to be divested of $2.6 billion and $0.1 billion, respectively, principally
comprised of network assets, wireless licenses and customer relationships
are included in Prepaid expenses and other current assets and Other cur-
rent liabilities, respectively, on the accompanying consolidated balance
sheets as a result of entering into the transactions described below.
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. Verizon Wireless
expects to close the transactions with AT&T Mobility and ATN during the
first half of 2010. Completion of each of the foregoing transactions is sub-
ject to receipt of regulatory approvals.
Pro Forma Information
The unaudited pro forma information presents the combined operating
results of Verizon and Alltel, with the results prior to the acquisition date
adjusted to include the pro forma impact of: the elimination of transactions
between Verizon and Alltel; the adjustment of amortization of intangible
assets and depreciation of fixed assets based on the purchase price alloca-
tion; the elimination of merger expenses and management fees incurred
by Alltel; and the adjustment of interest expense reflecting the assump-
tion and partial redemption of Alltel’s debt and incremental borrowing
incurred by Verizon Wireless to complete the acquisition of Alltel.
The unaudited pro forma results are presented for illustrative purposes
only and do not reflect the realization of potential cost savings, or any
related integration costs. Certain cost savings may result from the merger;
however, there can be no assurance that these cost savings will be
achieved. These pro forma results do not purport to be indicative of the
results that would have actually been obtained if the merger occurred as
of January 1, 2008, nor does the pro forma data intend to be a projection
of results that may be obtained in the future.
The following unaudited pro forma consolidated results of operations
assume that the acquisition of Alltel was completed as of January
1, 2008:
(dollars in millions, except per share amounts)
Year ended December 31, 2008
Operating revenues $ 106,509
Net income attributable to Verizon 6,482
Earnings per common share from net income attributable to Verizon:
Basic 2.28
Diluted 2.27
Consolidated results of operations reported for the year ended December
31, 2009 were not significantly different than the pro forma consolidated
results of operations assuming the acquisition of Alltel was completed
on January 1, 2009.
Acquisition of 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
Corporation (Rural Cellular) in a cash transaction valued at approximately
$1.3 billion. Rural Cellular was a wireless communications service pro-
vider operating under the trade name of “Unicel,” focusing primarily on
rural markets in the United States. We believe that the acquisition has
enhanced Verizon Wireless’s network coverage in markets adjacent to its
existing service areas and has enabled Verizon Wireless to achieve opera-
tional benefits through realizing synergies in reduced roaming and other
operating expenses.
Had this acquisition been consummated on January 1, 2008, the results
of Rural Cellular’s acquired operations would not have had a significant
impact on the consolidated net income attributable to Verizon.