Verizon Wireless 2007 Annual Report Download - page 46

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Notes to Consolidated Financial Statements
NOTE 1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
Verizon Communications Inc. (Verizon or the Company) is one of the
world’s leading providers of communications services. We have two
reportable segments, Wireline and Domestic Wireless, which we operate
and manage as strategic business units and organize by products and
services. For further information concerning our business segments,
see Note 17. Our Wireline segment provides communications services,
including voice, broadband video and data, network access, nationwide
long-distance and other communications products and services, and
also owns and operates one of the most expansive end-to-end global
Internet Protocol (IP) networks. We continue to deploy advanced broad-
band network technology, with our fiber-to-the-premises network (FiOS)
creating a platform with sufficient bandwidth and capabilities to meet
customers’ current and future needs. FiOS allows us to offer our cus-
tomers a wide array of broadband services, including advanced data and
video offerings. Our IP network includes over 485,000 route miles of fiber
optic cable and provides access to over 150 countries across six conti-
nents, enabling us to provide next-generation IP network products and
Information Technology (IT) services to medium and large businesses
and government customers worldwide.
Verizon’s Domestic Wireless segment, operating as Verizon Wireless, pro-
vides wireless voice and data products and other value-added services
and equipment across the United States using one of the most extensive
and reliable wireless networks. Verizon Wireless continues to expand our
wireless data, messaging and multi-media offerings at broadband speeds
for both consumer and business customers.
Consolidation
The method of accounting applied to investments, whether consoli-
dated, equity or cost, involves an evaluation of all significant terms of
the investments that explicitly grant or suggest evidence of control or
influence over the operations of the investee. The consolidated financial
statements include our controlled subsidiaries. Investments in businesses
which we do not control, but have the ability to exercise significant influ-
ence over operating and financial policies, are accounted for using the
equity method. Investments in which we do not have the ability to
exercise significant influence over operating and financial policies are
accounted for under the cost method. Equity and cost method invest-
ments are included in Investments in Unconsolidated Businesses in our
consolidated balance sheets. Certain of our cost method investments
are classified as available-for-sale securities and adjusted to fair value
pursuant to the Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115).
All significant intercompany accounts and transactions have been
eliminated.
We have reclassified prior year amounts to conform to the current year
presentation.
Discontinued Operations, Assets Held for Sale, and Sales of
Businesses and Investments
We classify as discontinued operations for all periods presented any
component of our business that we hold for sale or disposal that has
operations and cash flows that are clearly distinguishable operationally
and for financial reporting purposes from the rest of Verizon. For those
components, Verizon has no significant continuing involvement after dis-
posal and their operations and cash flows are eliminated from Verizon’s
ongoing operations. Sales of significant components of our business
not classified as discontinued operations are reported as either Sales of
Businesses, Net, Equity in Earnings of Unconsolidated Businesses or Other
Income and (Expense), Net in our consolidated statements of income.
Use of Estimates
We prepare our financial statements using U.S. generally accepted
accounting principles (GAAP), which require management to make esti-
mates and assumptions that affect reported amounts and disclosures.
Actual results could differ from those estimates.
Examples of significant estimates include unrealized tax benefits, the
allowance for doubtful accounts, the recoverability of plant, property and
equipment, the recoverability of intangible assets and other long-lived
assets, valuation allowances on tax assets and pension and postretire-
ment benefit assumptions.
Revenue Recognition
Wireline
Our Wireline segment earns revenue based upon usage of our network
and facilities and contract fees. In general, fixed monthly fees for voice,
video, data and certain other services are billed one month in advance
and recognized the following month when earned. Revenue from ser-
vices that are not fixed in amount and are based on usage are recognized
when such services are provided.
We recognize equipment revenue for services, in which we bundle the
equipment with maintenance and monitoring services, when the equip-
ment is installed in accordance with contractual specifications and ready
for the customer’s use. The maintenance and monitoring services are
recognized monthly over the term of the contract as we provide the
services. Long-term contracts are accounted for using the percentage
of completion method. We use the completed contract method if we
cannot estimate the costs with a reasonable degree of reliability.
Customer activation fees, along with the related costs up to but not
exceeding the activation fees, are deferred and amortized over the cus-
tomer relationship period.
Domestic Wireless
Our Domestic Wireless segment earns revenue by providing access to
and usage of our network, which includes roaming revenue. In general,
access revenue is billed one month in advance and recognized when
earned. Access revenue, usage revenue and roaming revenue are rec-
ognized when service is rendered. Equipment sales revenue associated
with the sale of wireless handsets and accessories is recognized when the
products are delivered to and accepted by the customer, as this is consid-
ered to be a separate earnings process from the sale of wireless services.
Customer activation fees are considered additional consideration when
handsets are sold to customers at a discount and are recorded as equip-
ment sales revenue at the time of customer acceptance.
Maintenance and Repairs
We charge the cost of maintenance and repairs, including the cost of
replacing minor items not constituting substantial betterments, princi-
pally to Cost of Services and Sales as these costs are incurred.
Advertising Costs
Advertising costs for advertising products and services as well as other
promotional and sponsorship costs are charged to Selling, General &
Administrative expense in the periods in which they are incurred.
Earnings Per Common Share
Basic earnings per common share are based on the weighted-average
number of shares outstanding during the period. Diluted earnings per
common share include the dilutive effect of shares issuable under our
VERIZON COMMUNICATIONS INC. AND SUBSIDIARIES