Verizon Wireless 2011 Annual Report Download - page 62

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nOtEs tO cOnsOlidatEd Financial statEMEnts continued
Recent Accounting Standards
During May 2011, an accounting standard update regarding fair value
measurement was issued to provide a consistent definition of fair
value and ensure that the fair value measurement and disclosure
requirements are similar between U.S. GAAP and International Financial
Reporting Standards. This standard update also changes certain fair value
measurement principles and enhances the disclosure requirements
particularly for Level 3 fair value measurements. We will adopt this
standard update during the first quarter of 2012. The adoption of this
standard update is not expected to have a significant impact on our
consolidated financial statements.
In June 2011, an accounting standard update regarding the presenta-
tion of comprehensive income was issued to increase the prominence
of items reported in other comprehensive income. The update requires
that all nonowner changes in stockholders’ equity be presented either in
a single continuous statement of comprehensive income or in two sepa-
rate, but consecutive statements. This standard update is effective during
the first quarter of 2012. The adoption of this standard is not expected to
have a significant impact on our consolidated financial statements.
In September 2011, an accounting standard update regarding testing of
goodwill for impairment was issued. This standard update gives compa-
nies the option to perform a qualitative assessment to first assess whether
the fair value of a reporting unit is less than its carrying amount. If an entity
determines it is not more likely than not that the fair value of the reporting
unit is less than its carrying amount, then performing the two-step impair-
ment test is unnecessary. This standard update is effective during the first
quarter of 2012. The adoption of this standard is not expected to have a
significant impact on our consolidated financial statements.
NOTE 2
ACQUISITIONS AND DIVESTITURES
Terremark Worldwide, Inc.
During April 2011, we acquired Terremark Worldwide, Inc. (Terremark),
a global provider of information technology infrastructure and cloud
services, for $19 per share in cash. Closing and other direct acquisition-
related costs totaled approximately $13 million after-tax. The acquisition
was completed via a “short-form” merger under Delaware law through
which Terremark became a wholly owned subsidiary of Verizon. The
acquisition enhanced Verizon’s offerings to business and government
customers globally.
The consolidated financial statements include the results of Terremark’s
operations from the date the acquisition closed. Had this acquisition
been consummated on January 1, 2011 or 2010, the results of Terremark’s
acquired operations would not have had a significant impact on the con-
solidated net income attributable to Verizon. The debt obligations of
Terremark that were outstanding at the time of its acquisition by Verizon
were repaid during May 2011.
The acquisition of Terremark was accounted for as a business combi-
nation under the acquisition method. The cost of the acquisition was
allocated to the assets and liabilities acquired based on their fair values as
of the close of the acquisition, with the excess amount being recorded as
goodwill. The fair values of the assets and liabilities acquired were deter-
mined using the income and cost approaches. The income approach
was primarily used to value the intangible assets, consisting primarily of
customer relationships. The cost approach was used, as appropriate, for
plant, property and equipment. The fair value of the majority of the long-
term debt acquired was primarily valued based on redemption prices.
The final purchase price allocation presented below includes insignificant
adjustments from the initial purchase price to the values of certain assets
and liabilities acquired.
The following table summarizes the allocation of the acquisition cost to
the assets acquired, including cash acquired of $0.1 billion, and liabilities
acquired as of the acquisition date:
(dollars in millions)
Final Purchase
Price Allocation
Assets
Current assets $ 221
Plant, property and equipment 521
Goodwill 1,211
Intangible assets subject to amortization 410
Other assets 12
Total assets 2,375
Liabilities
Current liabilities 158
Debt maturing within one year 748
Deferred income taxes and other liabilities 75
Total liabilities 981
Net assets acquired $ 1,394
Intangible assets subject to amortization include customer lists which are
being amortized on a straight-line basis over 13 years, and other intan-
gibles which are being amortized on a straight-line basis over a period
of 5 years.