Verizon Wireless 2009 Annual Report Download - page 54

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The acquisition of Rural Cellular has been accounted for as a business
combination under the purchase method. The following table sum-
marizes the allocation of the acquisition cost to the assets acquired,
including cash acquired of $42 million, and liabilities assumed as of the
acquisition date:
(dollars in millions)
Assets acquired
Wireless licenses $ 1,095
Goodwill 925
Intangible assets subject to amortization 206
Other assets 971
Total assets acquired 3,197
Liabilities assumed
Long-term debt 1,505
Deferred income taxes and other liabilities 376
Total liabilities assumed 1,881
Net assets acquired $ 1,316
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. Included in Other assets in the
table above are assets that were divested of $485 million. On December
22, 2008, we exchanged these assets and an additional cellular license
with AT&T for assets having a total aggregate value of approximately
$495 million.
Merger Integration and Acquisition Costs
During 2009, we recorded pretax charges of $1,211 million ($380 million
attributable to Verizon after-tax) for merger integration activities primarily
related to the Alltel acquisition including trade name amortization, re-
branding initiatives and handset conversion costs. Additionally, the 2009
charges also included transaction fees and costs associated with the
acquisition, including fees related to the credit facility that was entered
into and utilized to complete the acquisition.
In 2008 and 2007, we recorded pretax charges of $174 million ($107
million attributable to Verizon after-tax) and $178 million ($112 million
after-tax), respectively, primarily comprised of systems integration activi-
ties and other costs related to re-branding initiatives, facility exit costs
and advertising associated with the MCI acquisition.
Other
On May 8, 2009, Verizon Wireless entered into an agreement with AT&T to
purchase certain assets of Centennial Communications Corporation for
$240 million. Completion of the foregoing transaction is subject to the
receipt of regulatory approval.
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.
NOTE 3
DISPOSITIONS, DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM
Dispositions
2009
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.
During 2009, we recorded pretax charges of $453 million ($287 million
after-tax) for costs incurred related to our Wireline cost reduction initia-
tives, as well as network, non-network software and other activities to
enable the markets to be divested to operate on a stand-alone basis sub-
sequent to the closing of the transaction with Frontier, and professional
advisory and legal fees in connection with this transaction.
2008
On March 31, 2008, we completed the spin-off of the shares of Northern
New England Spinco Inc. to Verizon shareowners and the merger of
Northern New England Spinco Inc. with FairPoint Communications, Inc.
As a result of the spin-off, our net debt was reduced by approximately
$1.4 billion. The consolidated statements of income for the periods pre-
sented include the results of operations of the local exchange and related
business assets in Maine, New Hampshire and Vermont through the date
of completion of the spin-off.
Notes to Consolidated Financial Statements continued