Verizon Wireless 2011 Annual Report Download - page 63

nOtEs tO cOnsOlidatEd Financial statEMEnts continued
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Telephone Access Line Spin-off
On July 1, 2010, after receiving regulatory approval, we completed the
spin-off of the shares of a newly formed subsidiary of Verizon (Spinco)
to Verizon stockholders and the merger of Spinco with Frontier
Communications Corporation (Frontier). Spinco held defined assets
and liabilities that were used in Verizon’s local exchange businesses and
related activities in 14 states. The total value of the transaction to Verizon
and its stockholders was approximately $8.6 billion. The accompanying
consolidated financial statements for the year ended December 31, 2010
include these operations prior to the completion of the spin-off.
During 2010 and 2009, we recorded pre-tax charges of $0.5 billion and
$0.2 billion, respectively, primarily for costs incurred related to network,
non-network software and other activities to enable the divested mar-
kets in the transaction with Frontier to operate on a stand-alone basis
subsequent to the closing of the transaction; professional advisory and
legal fees in connection with this transaction; and fees related to the early
extinguishment of debt from the use of proceeds from the transaction.
During 2009, we also recorded pre-tax charges of $0.2 billion for costs
incurred related to our Wireline cost reduction initiatives.
Alltel Divestiture Markets
As a condition of the regulatory approvals to complete the acquisi-
tion of Alltel Corporation (Alltel) in January 2009, Verizon Wireless was
required to divest overlapping properties in 105 operating markets in
24 states (Alltel Divestiture Markets). During the second quarter of 2010,
AT&T Mobility acquired 79 of the 105 Alltel Divestiture Markets, including
licenses and network assets, for approximately $2.4 billion in cash and
Atlantic Tele-Network, Inc. acquired the remaining 26 Alltel Divestiture
Markets, including licenses and network assets, for $0.2 billion in cash.
During the second quarter of 2010, we recorded a tax charge of approxi-
mately $0.2 billion for the taxable gain associated with these transactions.
Other
In December 2011, we entered into agreements to acquire Advanced
Wireless Services (AWS) spectrum licenses held by SpectrumCo, LLC and
Cox TMI Wireless, respectively. The aggregate value of these transactions
is approximately $3.9 billion. The consummation of each of these transac-
tions is subject to various conditions, including approval by the FCC and
review by the Department of Justice (DOJ). These spectrum acquisitions
are expected to close in 2012.
In December 2011, we entered into commercial agreements with affili-
ates of Comcast Corporation, Time Warner Cable, Bright House Networks
and Cox Communications Inc. (the cable companies). Through these
agreements, the cable companies and Verizon Wireless became agents
to sell one another’s products and services and, over time, the cable
companies will have the option, subject to the terms and conditions of
the agreements, of selling Verizon Wireless service on a wholesale basis.
In addition, the cable companies (other than Cox Communications Inc.)
and Verizon Wireless have formed a technology innovation joint venture
for the development of technology and intellectual property to better
integrate wireline and wireless products and services. These commercial
agreements and the formation of the joint venture are currently under
review by the DOJ.
In February 2012, a new joint venture between Verizon and Coinstar, Inc.
was announced. At the outset, Verizon will hold a 65% majority owner-
ship share and Redbox Automated Retail, LLC, a subsidiary of Coinstar, Inc.
will hold a 35% ownership share. The joint venture will be consolidated
by Verizon for reporting purposes. The joint venture will offer access to
physical media rentals through Redbox kiosks and online and mobile
content streaming from Verizon to consumers across the country. The
joint venture plans to introduce its product portfolio, which will include
subscription services, in mid-2012. The initial funding related to the for-
mation of the joint venture is not significant to Verizon.
During 2011, we also entered into agreements with a subsidiary of Leap
Wireless, and with Savary Island Wireless, which is majority-owned by
Leap Wireless, for the purchase of certain of their AWS and PCS licenses in
exchange for cash and our 700 MHz A block license in Chicago. The con-
summation of each of these transactions is subject to customary closing
conditions, including approval by the FCC.
During 2011, we acquired other various wireless licenses and markets
and a provider of cloud software technology for cash consideration that
was not significant.
During 2010, Verizon Wireless acquired the net assets and related
customers of six operating markets in Louisiana and Mississippi in a trans-
action with AT&T Inc. for cash consideration of $0.2 billion. The purchase
price allocation resulted in $0.1 billion of wireless licenses and $0.1 billion
in goodwill.
Merger Integration and Acquisition Related Charges
During 2010, we recorded pre-tax merger integration charges of $0.9
billion primarily related to the Alltel acquisition. These charges were
primarily due to the decommissioning of overlapping cell sites, preacqui-
sition contingencies, handset conversions and trade name amortization.
During 2009, we recorded pre-tax merger integration and acquisition
related charges of $1.2 billion. These charges primarily related to the Alltel
acquisition and were comprised of trade name amortization, re-branding
initiatives and handset conversions. The charges during 2009 were also
comprised of transaction fees and costs associated with the acquisition,
including fees related to the credit facility that was entered into and uti-
lized to complete the acquisition.