SEC Company Response from VERIZON COMMUNICATIONS INC (VZ) (CIK 0000732712) (VZ) — Aug 25, 2005
VERIZON COMMUNICATIONS INC (VZ) (CIK 0000732712)
Date: Aug. 25, 2005 · CIK: 0000732712 · Accession: 0001193125-05-174199
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-10415, 333-124008
Referenced dates: August 19, 2005, July 20, 2005
Letter
Division of Corporation Finance Division of Corporation Finance Division of Corporation Finance Division of Corporation Finance Division of Corporation Finance MCI, Inc. Form 10-K for the year ended December 31, 2004 Form 10-Q for the quarter ended March 31, 2005 File No. 001-10415
Dear Ms. Anderson, Mr. Pappas, Mr. Moffatt, Ms. Virga and Mr. Suehiro:
Thank you for taking the time to talk with us on Tuesday about the registration statement on Form S-4 (the “S-4”) of Verizon Communications Inc. (“Verizon”). As you kindly suggested, on behalf of Verizon and MCI, Inc. (“MCI”), we are enclosing for your
August 24, 2005
Page 2 of 16
review revised disclosure responsive to the comments of the staff of the Commission (the “Staff”), set forth in the Staff’s letter, dated August 19, 2005.
For the convenience of the Staff, each of the Staff’s comments is reproduced and is followed by the corresponding response of Verizon or MCI, as the case may be. The S-4 has been marked to indicate changes from the amendment to the S-4 filed with the Commission on August 15, 2005. All references to page numbers in Verizon’s responses are to the pages in the marked version of the S-4.
In response to the Staff’s comments, MCI has previously provided to you drafts of an amended MCI Form 10-K for 2004 and an amended MCI Form 10-Q for the first quarter of 2005 that will include revised disclosure with respect to the Staff’s comments. MCI also previously provided to you additional proposed changes to the draft of the amended MCI Form 10-K in response to the Staff’s comments in its July 22, 2005 letter. As discussed below, MCI believes that no additional revisions are applicable to the MCI Form 10-K or MCI Form 10-Q in connection with the Staff’s August 19, 2005 comment letter.
Form S-4
Prospectus Cover Page/Letter to Shareholders
1. In the fifth sentence of the fourth paragraph, please further clarify that there could be a substantially greater purchase price adjustment, in part because Verizon does not intend to prepare an estimate until shortly before closing and it could have a materially different view than MCI on the calculation of the estimated liabilities.
Response No. 1:
We have revised the letter to shareholders as requested.
Summary, page 1
Potential Downward Purchase Price Adjustment, page 4
2. Revise the last paragraph of this subsection to clarify that Verizon may calculate a substantially higher estimate when it calculates the estimated liabilities shortly before closing.
Response No. 2:
As requested, we have revised page 6 to clarify that if Verizon has a materially different view of how to calculate the specified liabilities, the purchase price adjustment could be materially greater than the top of MCI’s estimated range.
August 24, 2005
Page 3 of 16
Summary Selected Unaudited Condensed Consolidated Pro Forma Financial Information, page 21
3. Please revise your presentation to show separately Verizon’s two views and MCI’s two views. Since Verizon is not assuming any responsibility for MCI’s views, the second to the last sentence of the first paragraph on page 22, “…[i]n all other respects...” should be removed. Each set of pro formas, Verizon’s view and MCI’s view, should stand independently. Please also comply with this comment on pages 138 and 160.
Response No. 3:
We have revised pages 21, 22, 139 and 162 as requested.
4. Please revise the heading for page 23 to indicate that these are Verizon’s views. Also change the heading for the $20.40 downward price adjustment to one that may be clearer, such as Zero or No Merger Consideration. Please also comply with this comment on pages 25 and 140 through 159.
Response No. 4:
We have revised pages 23, 25 and 141 through 161 as requested.
5. Please revise the heading for page 24 to indicate that these are MCI’s views. Present separately here MCI’s view regarding no downward purchase price adjustment. Please also comply with this comment on pages 25, 138 and 160 through 177.
Response No. 5:
We have revised pages 24, 25, 139 and 162 through 173 to reflect MCI’s estimation of no downward purchase price adjustment. In addition, in accordance with our conversation with the Staff on August 23, 2005, to indicate that the presentations reflect MCI’s estimates of the range of downward purchase price adjustments, we have revised the headings on pages 24, 27 and 162 to read “PRESENTATIONS REFLECTING MCI’S ESTIMATED RANGE OF DOWNWARD PURCHASE PRICE ADJUSTMENTS.”
August 24, 2005
Page 4 of 16
Unaudited Comparative Per Share Information, page 25
6. Please revise your presentation to state on page 26 that the $20.40 price adjustment would result in MCI shareholders receiving nothing for their MCI stock.
Response No. 6:
We have revised page 25 to indicate that MCI stockholders would receive no merger consideration for their shares under the scenario reflected in the presentation of pro forma financial information that assumes a downward purchase price adjustment of $20.40 per MCI share.
7. Clearly label each view—Verizon’s and MCI’s—on pages 26 and 27.
Response No. 7:
We have revised pages 26 and 27 as requested and in accordance with our August 23, 2005 conversation with the Staff. Please see our response to comment 5.
8. Please present MCI’s other view that there will be no purchase price adjustment.
Response No. 8:
We have revised pages 25 and 27 as requested.
Unaudited Pro Forma Condensed Consolidated Financial Information
Introduction, page 138
9. Please tell us your consideration of the financial reporting under the accounting literature for the MCI restricted shares and other equity-based awards discussed in Section 1.11 of the merger agreement.
Response No. 9:
The MCI restricted shares and other equity-based awards reflected in the unaudited condensed consolidated pro forma financial information consist of the restricted shares of MCI common stock issued to its employees. As disclosed in Note 2, footnote (1) on page 156, the pro forma financial information assumes that unvested MCI restricted shares are vested as provided in the change in control provisions in the MCI restricted stock plan, as described in Section 1.11 of the merger agreement and the last paragraph on page 151. Consequently, pro forma financial reporting assumes that all of the restricted shares are vested and exchanged for Verizon common shares on the closing of the merger. This is consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.” Paragraph 6 of SFAS No. 141 indicates that in a purchase transaction, “if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on the fair value of the consideration given.” This includes Verizon common shares exchanged for MCI restricted shares.
August 24, 2005
Page 5 of 16
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements —Verizon’s View with No Purchase Price Adjustment
Note 2. Purchase Price, page 146
10. Please revise to clarify here and throughout the document your basis for using $35.52 for the assumed price per share of Verizon common stock.
Response No. 10:
We have revised pages 147, 157 and 169 as requested.
Note 5. Pro Forma Adjustments, page 148
11. Please tell us here in (c) and in all other presentations of the various views why you have used 286.3 million shares to calculate the special cash dividend of $5.60 per share. Tell us if the shares held by Verizon are excluded from receipt of the dividend.
Response No. 11:
We have revised pages 149, 159, 171 and 190 as requested. After the merger agreement was signed, Verizon purchased 43.4 million shares of MCI common stock. Accordingly, these shares are not excluded from receiving the dividend because MCI will pay the dividend to all shareholders prior to the closing of the merger. However, as the revised disclosure indicates, the pro forma financial information does not reflect the payment of the special cash dividend on those shares. The payment of the special cash dividend is not reflected because it would be an intercompany transaction, and as such, it should be eliminated in the pro forma financial information.
12. Please present separately the payment of the special cash dividend and the impact on interest income of the purchase of 43.4 million shares and payment of the special cash dividend.
Response No. 12:
We have revised pages 149, 159, 171 and 190 as requested.
13. Please revise (k) here and in other views to show the calculation of the Verizon shares issued.
Response No. 13:
We have revised pages 151, 173 and 191 as requested.
August 24, 2005
Page 6 of 16
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements—Verizon’s View with Zero Purchase Price
Note 5. Pro Forma Adjustments, page 157
14. Please present separately the adjustment in (a) to accrue the additional liabilities equal to $20.40 per MCI share subject to the exchange.
Response No. 14:
We have revised page 159 as requested.
15. Please present separately the adjustment in (b) to provide a valuation allowance related to any deferred income tax benefit. Provide the calculation of the adjustment.
Response No. 15:
We have revised page 159 as requested.
MCI’s Views, pages 160-177
16. Item 4 of your Form 10-K for June 30, 2005 discloses that your disclosure controls and procedures were not effective as of
June 30, 2005 due to a material weakness in your internal control over accounting for income taxes. Disclose this information when discussing your estimate of specified liabilities that are related to income taxes and discuss why you believe that you are in a position to reliably estimate income tax related specified liabilities both now and prior to closing as required by the merger agreement.
Response No. 16:
MCI continues to believe that this material weakness will not cause the actual results to vary from the estimate, as MCI previously advised the Staff in a letter, dated July 20, 2005. We have also revised the disclosure as requested on pages 33, 104 and 188.
August 24, 2005
Page 7 of 16
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements—MCI’s View with $0.21 Purchase Price Adjustment
Note 2. Purchase Price, page 165
17. Please revise your sensitivity analysis for adjustment to stock purchase price to show the range of the per share price of an MCI share for the potential downward purchase price adjustment for specified liabilities and other adjustments as shown in the first column.
Response No. 17:
We have revised page 178 as requested.
18. In (2), provide a detailed calculation regarding how you determined the new exchange ratio of .5684.
Response No. 18:
We have revised page 179 as requested.
19. In the last paragraph on page 167, disclose how you determined that the amount of previously paid and remaining specified liabilities would have to exceed $8.5 billion for the merger consideration to be reduced to zero.
Response No. 19:
We have revised pages 97 and 181 as requested.
MCI Presentation of Selected Recorded Liabilities and Specified Liabilities Amounts, page 168
General Response on Comments 20-34:
We note that many of the Staff’s comments with respect to MCI’s estimate of the potential downward purchase price adjustment appear to reflect the Staff’s application of Regulation S-X Article 11 standards (and in particular that adjustments must be “factually supportable”) to MCI’s preparation of a forward-looking estimate. As the Staff is aware, the pro forma financial statements that are required to be included in the S-4 are Verizon pro forma financial statements, which are based on certain assumptions made by Verizon. Verizon has presented the pro forma information showing merger consideration of $20.40 and no merger consideration. During the review process, the legal staff also asked MCI to prepare and disclose its estimate of the purchase price adjustment, which MCI agreed to provide. MCI’s estimate is a projection of a future event using assumptions MCI believes to be reasonable. After MCI provided that estimate, at the request of the accounting staff, we included in the S-4 a supplementary presentation that sets forth the effect on Verizon’s pro formas of MCI’s current high-end estimate of a downward purchase price adjustment of $0.21 per MCI share.
As discussed with the Staff in our conversation on August 23, 2005, we believe that, under these circumstances, the “factually supportable” standard should be applied in a manner that is consistent with the nature of the underlying estimate which, as noted
August 24, 2005
Page 8 of 16
above, is a projection of future events and of the results of a future negotiation or arbitration. MCI has made a good faith effort to interpret and apply the standards of the merger agreement, and has used its best judgment to arrive at an estimate of the course of future events. MCI has also disclosed the issues it considered, the judgments it made, the issues it believes will need to be resolved with Verizon and the financial implications of these issues.
20. Please reflect all the quantified exclusions in the footnotes in the schedule that you have presented. The schedule should clearly reflect the gross amount of the specified liabilities before offset and adjustments. The offsets and adjustments should be presented separately with reference to the appropriate section of the merger agreement that permits such offset or adjustment. If you continue to show unsupported reductions in specified liabilities for which you have not received Verizon’s agreement, please state that these are unsupported and show the impact of each here and wherever the results of your interpretations appear in the document.
Response No. 20:
MCI has quantified the exclusions in the footnotes to MCI’s schedule, with the exception of offsets. As discussed with the Staff in our conversation on August 23, 2005, MCI has not quantified the aggregate amount it applied as offsets in order to arrive at its estimate of the amount of specified liabilities because in preparing its analysis, MCI did not find it necessary to separately quantify each offsetting item. Due to the uncertainties regarding the validity of various claims by and against MCI, the amount of each claim, costs of pursuing or defending claims and ultimate recoveries, MCI and its counterparties will frequently enter into global settlements, some of which involve a cash payment by or to MCI. The amount of previously paid specified liabilities reflects those cash payments that have already been paid in global settlements of this type. Similarly, MCI’s estimate reflects MCI’s judgment as to the amount of cash needed to resolve outstanding claims taking into account offsetting claims. MCI does not have a separate computation of the gross amount of specified liabilities before offsets and adjustments. However, as we discussed during our conversation, we have provided disclosure in the S-4 on pages 101, 102, 185 and 186, which includes the factual support for MCI’s treatment of the offsets.
August 24, 2005
Page 9 of 16
21. Please revise the heading for the first column, Face Value of Claim Amount at 6/30/05, to a heading that will allow you to also ref
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CORRESP 1 filename1.htm SEC Response Letter August 24, 2005 Michele M. Anderson, Esq. Legal Branch Chief Division of Corporation Finance Albert Pappas, Esq. Staff Attorney Division of Corporation Finance Kyle Moffatt Accounting Branch Chief Division of Corporation Finance Sharon Virga Senior Staff Accountant Division of Corporation Finance Dean Suehiro Senior Staff Accountant Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: Verizon Communications Inc. Response Letter dated August 19, 2005 Amendment No. 5 to Form S-4–File No.333-124008 MCI, Inc. Form 10-K for the year ended December 31, 2004 Form 10-Q for the quarter ended March 31, 2005 File No. 001-10415 Dear Ms. Anderson, Mr. Pappas, Mr. Moffatt, Ms. Virga and Mr. Suehiro: Thank you for taking the time to talk with us on Tuesday about the registration statement on Form S-4 (the “S-4”) of Verizon Communications Inc. (“Verizon”). As you kindly suggested, on behalf of Verizon and MCI, Inc. (“MCI”), we are enclosing for your August 24, 2005 Page 2 of 16 review revised disclosure responsive to the comments of the staff of the Commission (the “Staff”), set forth in the Staff’s letter, dated August 19, 2005. For the convenience of the Staff, each of the Staff’s comments is reproduced and is followed by the corresponding response of Verizon or MCI, as the case may be. The S-4 has been marked to indicate changes from the amendment to the S-4 filed with the Commission on August 15, 2005. All references to page numbers in Verizon’s responses are to the pages in the marked version of the S-4. In response to the Staff’s comments, MCI has previously provided to you drafts of an amended MCI Form 10-K for 2004 and an amended MCI Form 10-Q for the first quarter of 2005 that will include revised disclosure with respect to the Staff’s comments. MCI also previously provided to you additional proposed changes to the draft of the amended MCI Form 10-K in response to the Staff’s comments in its July 22, 2005 letter. As discussed below, MCI believes that no additional revisions are applicable to the MCI Form 10-K or MCI Form 10-Q in connection with the Staff’s August 19, 2005 comment letter. Form S-4 Prospectus Cover Page/Letter to Shareholders 1. In the fifth sentence of the fourth paragraph, please further clarify that there could be a substantially greater purchase price adjustment, in part because Verizon does not intend to prepare an estimate until shortly before closing and it could have a materially different view than MCI on the calculation of the estimated liabilities. Response No. 1: We have revised the letter to shareholders as requested. Summary, page 1 Potential Downward Purchase Price Adjustment, page 4 2. Revise the last paragraph of this subsection to clarify that Verizon may calculate a substantially higher estimate when it calculates the estimated liabilities shortly before closing. Response No. 2: As requested, we have revised page 6 to clarify that if Verizon has a materially different view of how to calculate the specified liabilities, the purchase price adjustment could be materially greater than the top of MCI’s estimated range. 2 August 24, 2005 Page 3 of 16 Summary Selected Unaudited Condensed Consolidated Pro Forma Financial Information, page 21 3. Please revise your presentation to show separately Verizon’s two views and MCI’s two views. Since Verizon is not assuming any responsibility for MCI’s views, the second to the last sentence of the first paragraph on page 22, “…[i]n all other respects...” should be removed. Each set of pro formas, Verizon’s view and MCI’s view, should stand independently. Please also comply with this comment on pages 138 and 160. Response No. 3: We have revised pages 21, 22, 139 and 162 as requested. 4. Please revise the heading for page 23 to indicate that these are Verizon’s views. Also change the heading for the $20.40 downward price adjustment to one that may be clearer, such as Zero or No Merger Consideration. Please also comply with this comment on pages 25 and 140 through 159. Response No. 4: We have revised pages 23, 25 and 141 through 161 as requested. 5. Please revise the heading for page 24 to indicate that these are MCI’s views. Present separately here MCI’s view regarding no downward purchase price adjustment. Please also comply with this comment on pages 25, 138 and 160 through 177. Response No. 5: We have revised pages 24, 25, 139 and 162 through 173 to reflect MCI’s estimation of no downward purchase price adjustment. In addition, in accordance with our conversation with the Staff on August 23, 2005, to indicate that the presentations reflect MCI’s estimates of the range of downward purchase price adjustments, we have revised the headings on pages 24, 27 and 162 to read “PRESENTATIONS REFLECTING MCI’S ESTIMATED RANGE OF DOWNWARD PURCHASE PRICE ADJUSTMENTS.” 3 August 24, 2005 Page 4 of 16 Unaudited Comparative Per Share Information, page 25 6. Please revise your presentation to state on page 26 that the $20.40 price adjustment would result in MCI shareholders receiving nothing for their MCI stock. Response No. 6: We have revised page 25 to indicate that MCI stockholders would receive no merger consideration for their shares under the scenario reflected in the presentation of pro forma financial information that assumes a downward purchase price adjustment of $20.40 per MCI share. 7. Clearly label each view—Verizon’s and MCI’s—on pages 26 and 27. Response No. 7: We have revised pages 26 and 27 as requested and in accordance with our August 23, 2005 conversation with the Staff. Please see our response to comment 5. 8. Please present MCI’s other view that there will be no purchase price adjustment. Response No. 8: We have revised pages 25 and 27 as requested. Unaudited Pro Forma Condensed Consolidated Financial Information Introduction, page 138 9. Please tell us your consideration of the financial reporting under the accounting literature for the MCI restricted shares and other equity-based awards discussed in Section 1.11 of the merger agreement. Response No. 9: The MCI restricted shares and other equity-based awards reflected in the unaudited condensed consolidated pro forma financial information consist of the restricted shares of MCI common stock issued to its employees. As disclosed in Note 2, footnote (1) on page 156, the pro forma financial information assumes that unvested MCI restricted shares are vested as provided in the change in control provisions in the MCI restricted stock plan, as described in Section 1.11 of the merger agreement and the last paragraph on page 151. Consequently, pro forma financial reporting assumes that all of the restricted shares are vested and exchanged for Verizon common shares on the closing of the merger. This is consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.” Paragraph 6 of SFAS No. 141 indicates that in a purchase transaction, “if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on the fair value of the consideration given.” This includes Verizon common shares exchanged for MCI restricted shares. 4 August 24, 2005 Page 5 of 16 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements —Verizon’s View with No Purchase Price Adjustment Note 2. Purchase Price, page 146 10. Please revise to clarify here and throughout the document your basis for using $35.52 for the assumed price per share of Verizon common stock. Response No. 10: We have revised pages 147, 157 and 169 as requested. Note 5. Pro Forma Adjustments, page 148 11. Please tell us here in (c) and in all other presentations of the various views why you have used 286.3 million shares to calculate the special cash dividend of $5.60 per share. Tell us if the shares held by Verizon are excluded from receipt of the dividend. Response No. 11: We have revised pages 149, 159, 171 and 190 as requested. After the merger agreement was signed, Verizon purchased 43.4 million shares of MCI common stock. Accordingly, these shares are not excluded from receiving the dividend because MCI will pay the dividend to all shareholders prior to the closing of the merger. However, as the revised disclosure indicates, the pro forma financial information does not reflect the payment of the special cash dividend on those shares. The payment of the special cash dividend is not reflected because it would be an intercompany transaction, and as such, it should be eliminated in the pro forma financial information. 12. Please present separately the payment of the special cash dividend and the impact on interest income of the purchase of 43.4 million shares and payment of the special cash dividend. Response No. 12: We have revised pages 149, 159, 171 and 190 as requested. 13. Please revise (k) here and in other views to show the calculation of the Verizon shares issued. Response No. 13: We have revised pages 151, 173 and 191 as requested. 5 August 24, 2005 Page 6 of 16 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements—Verizon’s View with Zero Purchase Price Note 5. Pro Forma Adjustments, page 157 14. Please present separately the adjustment in (a) to accrue the additional liabilities equal to $20.40 per MCI share subject to the exchange. Response No. 14: We have revised page 159 as requested. 15. Please present separately the adjustment in (b) to provide a valuation allowance related to any deferred income tax benefit. Provide the calculation of the adjustment. Response No. 15: We have revised page 159 as requested. MCI’s Views, pages 160-177 16. Item 4 of your Form 10-K for June 30, 2005 discloses that your disclosure controls and procedures were not effective as of June 30, 2005 due to a material weakness in your internal control over accounting for income taxes. Disclose this information when discussing your estimate of specified liabilities that are related to income taxes and discuss why you believe that you are in a position to reliably estimate income tax related specified liabilities both now and prior to closing as required by the merger agreement. Response No. 16: MCI continues to believe that this material weakness will not cause the actual results to vary from the estimate, as MCI previously advised the Staff in a letter, dated July 20, 2005. We have also revised the disclosure as requested on pages 33, 104 and 188. 6 August 24, 2005 Page 7 of 16 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements—MCI’s View with $0.21 Purchase Price Adjustment Note 2. Purchase Price, page 165 17. Please revise your sensitivity analysis for adjustment to stock purchase price to show the range of the per share price of an MCI share for the potential downward purchase price adjustment for specified liabilities and other adjustments as shown in the first column. Response No. 17: We have revised page 178 as requested. 18. In (2), provide a detailed calculation regarding how you determined the new exchange ratio of .5684. Response No. 18: We have revised page 179 as requested. 19. In the last paragraph on page 167, disclose how you determined that the amount of previously paid and remaining specified liabilities would have to exceed $8.5 billion for the merger consideration to be reduced to zero. Response No. 19: We have revised pages 97 and 181 as requested. MCI Presentation of Selected Recorded Liabilities and Specified Liabilities Amounts, page 168 General Response on Comments 20-34: We note that many of the Staff’s comments with respect to MCI’s estimate of the potential downward purchase price adjustment appear to reflect the Staff’s application of Regulation S-X Article 11 standards (and in particular that adjustments must be “factually supportable”) to MCI’s preparation of a forward-looking estimate. As the Staff is aware, the pro forma financial statements that are required to be included in the S-4 are Verizon pro forma financial statements, which are based on certain assumptions made by Verizon. Verizon has presented the pro forma information showing merger consideration of $20.40 and no merger consideration. During the review process, the legal staff also asked MCI to prepare and disclose its estimate of the purchase price adjustment, which MCI agreed to provide. MCI’s estimate is a projection of a future event using assumptions MCI believes to be reasonable. After MCI provided that estimate, at the request of the accounting staff, we included in the S-4 a supplementary presentation that sets forth the effect on Verizon’s pro formas of MCI’s current high-end estimate of a downward purchase price adjustment of $0.21 per MCI share. As discussed with the Staff in our conversation on August 23, 2005, we believe that, under these circumstances, the “factually supportable” standard should be applied in a manner that is consistent with the nature of the underlying estimate which, as noted 7 August 24, 2005 Page 8 of 16 above, is a projection of future events and of the results of a future negotiation or arbitration. MCI has made a good faith effort to interpret and apply the standards of the merger agreement, and has used its best judgment to arrive at an estimate of the course of future events. MCI has also disclosed the issues it considered, the judgments it made, the issues it believes will need to be resolved with Verizon and the financial implications of these issues. 20. Please reflect all the quantified exclusions in the footnotes in the schedule that you have presented. The schedule should clearly reflect the gross amount of the specified liabilities before offset and adjustments. The offsets and adjustments should be presented separately with reference to the appropriate section of the merger agreement that permits such offset or adjustment. If you continue to show unsupported reductions in specified liabilities for which you have not received Verizon’s agreement, please state that these are unsupported and show the impact of each here and wherever the results of your interpretations appear in the document. Response No. 20: MCI has quantified the exclusions in the footnotes to MCI’s schedule, with the exception of offsets. As discussed with the Staff in our conversation on August 23, 2005, MCI has not quantified the aggregate amount it applied as offsets in order to arrive at its estimate of the amount of specified liabilities because in preparing its analysis, MCI did not find it necessary to separately quantify each offsetting item. Due to the uncertainties regarding the validity of various claims by and against MCI, the amount of each claim, costs of pursuing or defending claims and ultimate recoveries, MCI and its counterparties will frequently enter into global settlements, some of which involve a cash payment by or to MCI. The amount of previously paid specified liabilities reflects those cash payments that have already been paid in global settlements of this type. Similarly, MCI’s estimate reflects MCI’s judgment as to the amount of cash needed to resolve outstanding claims taking into account offsetting claims. MCI does not have a separate computation of the gross amount of specified liabilities before offsets and adjustments. However, as we discussed during our conversation, we have provided disclosure in the S-4 on pages 101, 102, 185 and 186, which includes the factual support for MCI’s treatment of the offsets. 8 August 24, 2005 Page 9 of 16 21. Please revise the heading for the first column, Face Value of Claim Amount at 6/30/05, to a heading that will allow you to also ref