IV. Proposed Accounting Treatment for Sale Proceeds

Pursuant to Federal Communications Commission (FCC) and Commission regulations, Verizon records the value of its One Verizon Way property in two separate accounts - one for buildings and another for land. The book value of the buildings located at One Verizon Way was $50,519,416 in 1985, when the Property was put into service. This book value was based upon the buildings' original costs and depreciated on a straight-line basis at 4 percent per year, with adjustments for capital improvements. The net book value of the buildings is

projected to be $26,161,325 on July 1, 2002, the expected closing date for the sale. The book value of the land located at One Verizon Way is $8,438,673. The land is not subject to depreciation and therefore, its book value equals its original cost.

According to Verizon, it will follow the Commission's rules for treatment of the proceeds from sale of the Property under Verizon's approved settlement under NRF,³ and in accordance with the FCC's accounting regulations.⁴

First, Verizon will apportion the net proceeds of the sale⁵ between the land and the buildings located on the land. Specifically, Verizon will calculate the percentages of the total net book value in the land account and the building account at the time of closing, and will multiply the respective percentages by the net sales proceeds to determine the allocation of the proceeds between the land and the building accounts. Verizon estimates that based on its projections of net book value at the time of closing, the allocation will be 24.4% of the net sales price to land and 75.6% to buildings.

Second, Verizon will record the net proceeds to the appropriate accounts. For the proceeds allocated to the building account, any proceeds above the net book value will be recorded to accumulated depreciation, as required by salvage accounting principles in Part 32, and not to an income account.⁶ For the proceeds allocated to land, any proceeds above the net book value of land, i.e. any "gain on sale of land," will be recorded as other operating in income.

Finally, Verizon will calculate the portion of the gain on sale of land allocated to ratepayers based on the mechanism adopted in D.93-09-038. Under this mechanism, the ratepayers are allocated a pro rata portion of such gains based on the number of months the asset was in service prior to January 1, 1990, divided by the total number of months the asset was in service. The gain is then aggregated and compared to a credit of $4 million, which was assumed in developing Verizon's start up annual revenue requirement. Any amount greater than the $4 million credit is returned to ratepayers through an end-user billing adjustment in Verizon's annual price cap filing.⁷