Verizon Wireless 2012 Annual Report Download - page 62

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Wireline
HUGHES Telematics, Inc.
On June 1, 2012, we agreed to acquire HUGHES Telematics, Inc. (HUGHES
Telematics) for approximately $12 per share in cash for a total acquisition
price of $0.6 billion and we completed the acquisition on July 26, 2012. As
a result of the transaction, HUGHES Telematics became a wholly-owned
subsidiary of Verizon. The consolidated financial statements include the
results of HUGHES Telematics’ operations from the date the acquisition
closed. Upon closing, we recorded approximately $0.6 billion of good-
will, $0.1 billion of other intangibles, and assumed the debt obligations
of HUGHES Telematics, which were approximately $0.1 billion as of the
date of acquisition, and which were repaid by Verizon. Had this acquisition
been completed on January 1, 2012 or 2011, the results of the acquired
operations of HUGHES Telematics would not have had a significant impact
on the consolidated net income attributable to Verizon. The acquisition
has accelerated our ability to bring more telematics offerings to market for
existing and new HUGHES Telematics and Verizon customers.
The acquisition of HUGHES Telematics was accounted for as a business
combination 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.
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.
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, we recorded pre-tax charges of $0.5 billion, primarily for
costs incurred related to network, non-network software and other activi-
ties to enable the divested markets in the transaction with Frontier to
operate on a stand-alone basis subsequent to the closing of the trans-
action; 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.
Other
In February 2012, Verizon entered into a venture with Redbox Automated
Retail, LLC (Redbox), a subsidiary of Coinstar, Inc., to offer customers
nationwide access to media rentals through online and mobile con-
tent streaming as well as physical media rentals through Redbox kiosks.
Verizon holds a 65% majority ownership share in the venture and Redbox
holds a 35% ownership share. The venture is consolidated by Verizon
for reporting purposes. In December 2012, the venture introduced its
product portfolio, which includes subscription services, under the name
Redbox Instant by Verizon. The initial funding related to the formation of
the venture is not significant to Verizon.
During 2011, we acquired a provider of cloud software technology for
cash consideration that was not significant.