Verizon Wireless 2007 Annual Report Download - page 47

Notes to Consolidated Financial Statements continued
45
stock-based compensation plans, an exchangeable equity interest and
zero-coupon convertible notes (see Note 13). As of December 31, 2006,
the exchangeable equity interest and zero-coupon convertible notes
were no longer outstanding.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of 90 days or
less when purchased to be cash equivalents, except cash equivalents
held as short-term investments. Cash equivalents are stated at cost,
which approximates market value.
Short-Term Investments
Our short-term investments consist primarily of cash equivalents held in
trust to pay for certain employee benefits. Short-term investments are
stated at cost, which approximates market value.
Marketable Securities
Marketable securities are included in the accompanying consolidated
balance sheets in Investments in Unconsolidated Businesses or Other
Assets. We continually evaluate our investments in marketable securi-
ties for impairment due to declines in market value considered to be
other than temporary. That evaluation includes, in addition to persistent,
declining stock prices, general economic and company-specific evalu-
ations. In the event of a determination that a decline in market value is
other than temporary, a charge to earnings is recorded for the loss, and a
new cost basis in the investment is established.
Inventories
Inventory consists primarily of wireless equipment held for sale, which is
carried at the lower of cost (determined principally on either an average
cost or first-in, first-out basis) or market. We also include in inventory new
and reusable supplies and network equipment of our local telephone
operations, which are stated principally at average original cost, except
that specific costs are used in the case of large individual items.
Plant and Depreciation
We record plant, property and equipment at cost. Our local telephone
operations’ depreciation expense is principally based on the composite
group remaining life method and straight-line composite rates. This
method provides for the recognition of the cost of the remaining net
investment in local telephone plant, less anticipated net salvage value,
over the remaining asset lives. This method requires the periodic revision
of depreciation rates.
Plant, property and equipment of other wireline and wireless operations
are generally depreciated on a straight-line basis.
The asset lives used by our operations are presented in the following
table:
Average Useful Lives (in years)
Buildings 8 – 45
Central oce equipment 3 – 11
Other network equipment 3 – 15
Outside communications plant
Copper cable 13 – 18
Fiber cable (including undersea cable) 11 – 25
Microwave towers 30
Poles and conduit 30 – 50
Furniture, vehicles and other 1 – 20
When we replace, retire or otherwise dispose of depreciable plant used
in our local telephone network, we deduct the carrying amount of such
plant from the respective accounts and charge it to accumulated depre-
ciation. When the depreciable assets of our other Wireline and Domestic
Wireless operations are retired or otherwise disposed of, the related cost
and accumulated depreciation are deducted from the plant accounts,
and any gains or losses on disposition are recognized in income.
We capitalize network software purchased or developed along with
related plant assets. We also capitalize interest associated with the acqui-
sition or construction of network-related assets. Capitalized interest is
reported as part of the cost of the network-related assets and as a reduc-
tion in interest expense.
In connection with our ongoing review of the estimated remaining useful
lives of plant, property and equipment and associated depreciation rates,
we determined that, effective January 1, 2005, the remaining useful lives
of copper cable and certain components of central office equipment at
our Wireline segment would be shortened by 1 to 2 years. These changes
in asset lives were based on Verizon’s plans, and progress to date on those
plans, to deploy fiber optic cable to homes, replacing copper cable.
Effective January 1, 2007, the remaining useful lives of certain of the
circuit equipment was lengthened from 8 years to 9 years based on
subsequent modifications to our fiber optic cable deployment plan. The
remaining useful lives of buildings was also increased from 42 years to
45 years. The reduction in depreciation resulting from these adjustments
in 2007 was partially offset by increased depreciation resulting from the
shortening of the lives of various types of wireless plant, property and
equipment. While the timing and extent of current deployment plans are
subject to modification, we believe that current estimates of reductions
in impacted asset lives is reasonable and subject to ongoing analysis as
deployment of fiber optic lines continues.
Computer Software Costs
We capitalize the cost of internal-use network and non-network software
which has a useful life in excess of one year in accordance with Statement
of Position (SOP) No. 98-1, “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.” Subsequent additions,
modifications or upgrades to internal-use network and non-network soft-
ware are capitalized only to the extent that they allow the software to
perform a task it previously did not perform. Software maintenance and
training costs are expensed in the period in which they are incurred. Also,
we capitalize interest associated with the development of non-network
internal-use software. Capitalized non-network internal-use software
costs are amortized using the straight-line method over a period of 2 to 7
years and are included in Other Intangible Assets, Net in our consolidated
balance sheets. For a discussion of our impairment policy for capital-
ized software costs under SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144), see “Goodwill and Other
Intangible Assets” below. Also, see Note 9 for additional detail of internal-
use non-network software reflected in our consolidated balance sheets.
Goodwill and Other Intangible Assets
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the
fair value of the identifiable net assets acquired. Impairment testing
for goodwill is performed annually or more frequently if indications of
impairment exist under the provisions of SFAS No.142, Goodwill and Other
Intangible Assets (SFAS No. 142). The impairment test for goodwill uses a
two-step approach, which is performed at the reporting unit level. We
have determined that in our case, the reporting units are our operating
segments since that is the lowest level at which discrete, reliable finan-
cial and cash flow information is available. Step one compares the fair
value of the reporting unit (calculated using a market approach and a
discounted cash flow method) to its carrying value. If the carrying value
exceeds the fair value, there is a potential impairment and step two must
be performed. Step two compares the carrying value of the reporting