Verizon Wireless 2014 Annual Report Download - page 50

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Oered Rate (LIBOR), plus 1.222%, and the eleven-year Verizon notes bear
interest at a oating rate equal to three-month LIBOR, plus 1.372%. The
indenture that governs the Verizon Notes contains certain negative cov-
enants, including a negative pledge covenant and a merger or similar
transaction covenant, armative covenants and events of default that are
customary for companies maintaining an investment grade credit rating.
An event of default for either series of the Verizon Notes may result in
acceleration of the entire principal amount of all debt securities of that
series. Beginning two years after the closing of the Wireless Transaction,
Verizon may redeem all or any portion of the outstanding Verizon Notes
held by Vodafone or any of its aliates for a redemption price of 100% of
the principal amount plus accrued and unpaid interest. The Verizon Notes
may only be transferred by Vodafone to third parties in specied amounts
during specied periods, commencing January 1, 2017. Any Verizon Notes
held by third parties will not be redeemable by Verizon prior to their
maturity dates. Verizon has agreed to le a registration statement with
respect to the Verizon Notes at least three months prior to the Verizon
Notes becoming transferable.
Other Consideration (Non-Cash Transaction)
Included in the other consideration provided to Vodafone is the indirect
assumption of long-term obligations with respect to 5.143% Class D and
Class E cumulative preferred stock (Preferred Stock) issued by one of the
Purchased Entities. Both the Class D shares (825,000 shares outstanding)
and Class E shares (825,000 shares outstanding) are mandatorily redeem-
able in April 2020 at $1,000 per share plus any accrued and unpaid
dividends. Dividends accrue at 5.143% per annum and will be treated as
interest expense. Both the Class D and Class E shares have been classied
as liability instruments and were recorded at fair value as determined at
the closing of the Wireless Transaction.
Deferred Tax Liabilities
Certain deferred taxes directly attributable to the Wireless Transaction
have been calculated based on an analysis of taxes attributable to the
dierence between the tax basis of the investment in the noncontrol-
ling interest that is assumed compared to Verizon’s book basis. As a result,
Verizon recorded a deferred tax liability of approximately $13.5 billion.
Spectrum License Transactions
Since 2012, we have entered into several strategic spectrum
transactions including:
• During the third quarter of 2012, after receiving the required regula-
tory approvals, Verizon Wireless completed the following previously
announced transactions in which we acquired wireless spectrum that
will be used to deploy additional 4G LTE capacity:
o Verizon Wireless acquired Advanced Wireless Services (AWS) spec-
trum in separate transactions with SpectrumCo and Cox TMI
Wireless, LLC for which it paid an aggregate of $3.9 billion. Verizon
Wireless has also recorded a liability of $0.4 billion related to a
three-year service obligation to SpectrumCo’s members
pursuant to commercial agreements executed concurrently with
the SpectrumCo transaction.
o Verizon Wireless completed license purchase and exchange
transactions with Leap Wireless, Savary Island Wireless, which is
majority owned by Leap Wireless, and a subsidiary of T-Mobile
USA, Inc. (T-Mobile USA). As a result of these transactions, Verizon
Wireless received an aggregate $2.6 billion of AWS and Personal
Communication Services (PCS) licenses at fair value and net cash
proceeds of $0.2 billion, transferred certain AWS licenses to T-Mobile
USA and a 700 megahertz (MHz) lower A block license to Leap
Wireless, and recorded an immaterial gain.
•
During the rst quarter of 2013, we completed license exchange trans-
actions with T-Mobile License LLC and Cricket License Company, LLC,
a subsidiary of Leap Wireless, to exchange certain AWS licenses. These
non-cash exchanges included a number of intra-market swaps that we
expect will enable Verizon Wireless to make more ecient use of the
AWS band. As a result of these exchanges, we received an aggregate
$0.5 billion of AWS licenses at fair value and recorded an immaterial gain.
• During the third quarter of 2013, after receiving the required regulatory
approvals, Verizon Wireless sold 39 lower 700 MHz B block spectrum
licenses to AT&T Inc. (AT&T) in exchange for a payment of $1.9 billion
and the transfer by AT&T to Verizon Wireless of AWS (10 MHz) licenses in
certain markets in the western United States. Verizon Wireless also sold
certain lower 700 MHz B block spectrum licenses to an investment rm
for a payment of $0.2 billion. As a result, we received $0.5 billion of AWS
licenses at fair value and we recorded a pre-tax gain of approximately
$0.3 billion in Selling, general and administrative expense on our con-
solidated statement of income for the year ended December 31, 2013.
• During the second quarter of 2014, we completed license exchange
transactions with T-Mobile USA to exchange certain AWS and PCS
licenses. The exchange included a number of swaps that we expect
will result in more ecient use of the AWS and PCS bands. As a result
of these exchanges, we received $0.9 billion of AWS and PCS spectrum
licenses at fair value and we recorded an immaterial gain.
• During the second quarter of 2014, we completed transactions pursuant
to two additional agreements with T-Mobile USA with respect to our
remaining 700 MHz A block spectrum licenses. Under one agreement,
we sold certain of these licenses to T-Mobile USA in exchange for cash
consideration of approximately $2.4 billion, and under the second
agreement we exchanged the remainder of our 700 MHz A block
spectrum licenses as well as AWS and PCS spectrum licenses for AWS
and PCS spectrum licenses. As a result, we received $1.6 billion of AWS
and PCS spectrum licenses at fair value and we recorded a pre-tax gain
of approximately $0.7 billion in Selling, general and administrative
expense on our consolidated statement of income for the year ended
December 31, 2014.
• During the third quarter of 2014, we entered into a license exchange
agreement with aliates of AT&T Inc. to exchange certain AWS and PCS
spectrum licenses. This non-cash exchange was completed in January
2015 at which time we recorded an immaterial gain.
• On January 29, 2015, the FCC completed an auction of 65 MHz of spec-
trum, which it identied as the AWS-3 band. Verizon participated in that
auction, and was the high bidder on 181 spectrum licenses, for which
we will pay approximately $10.4 billion. During the fourth quarter of
2014, we made a deposit of $0.9 billion related to our participation in
this auction. On February 13, 2015, we made a down payment of $1.2
billion for these spectrum licenses. Verizon has submitted an applica-
tion for these licenses and must complete payment for them in the rst
quarter of 2015.