Verizon Wireless 2010 Annual Report Download - page 37

35
Management’sDiscussionandAnalysis
ofFinancialConditionandResultsofOperations – As Adjusted continued
• We maintain benefit plans for most of our employees, including, for
certain employees, pension and other postretirement benefit plans.
At December 31, 2010, in the aggregate, pension plan benefit obliga-
tions exceeded the fair value of pension plan assets, which will result
in higher future pension plan expense. Other postretirement benefit
plans have larger benefit obligations than plan assets, resulting in
expense. Significant benefit plan assumptions, including the discount
rate used, the long-term rate of return on plan assets and health care
trend rates are periodically updated and impact the amount of benefit
plan income, expense, assets and obligations. A sensitivity analysis of
the impact of changes in these assumptions on the benefit obligations
and expense (income) recorded, as well as the on the funded status
due to an increase or a decrease in the actual versus expected return
on plan assets as of December 31, 2010 and for the year then ended
pertaining to Verizon’s pension and postretirement benefit plans is
provided in the table below.
(dollars in millions)
Percentage
point
change
Increase
(decrease) at
December 31, 2010*
Pension plans discount rate +0.50 $ (1,341)
-0.50 1,472
Rateofreturnonpensionplanassets +1.00 (256)
-1.00 256
Postretirement plans discount rate +0.50 (1,348)
-0.50 1,494
Rateofreturnonpostretirementplanassets +1.00 (31)
-1.00 31
Health care trend rates +1.00 2,788
-1.00 (2,303)
* In determining its pension and other postretirement obligation, the Company used
a 5.75% discount rate. The rate was selected to approximate the composite interest
rates available on a selection of bonds available in the market at December 31, 2010.
The bonds selected had maturities that coincided with the time periods during which
benefits payments are expected to occur, were non-callable and available in sufficient
quantities to ensure marketability (at least $0.2 billion par outstanding).
• Ourcurrentanddeferredincometaxes,andassociatedvaluationallow-
ances, are impacted by events and transactions arising in the normal
course of business as well as in connection with the adoption of new
accounting standards, changes in tax laws and rates, acquisitions and
dispositions of businesses and non-recurring items. As a global com-
mercial enterprise, our income tax rate and the classification of income
taxes can be affected by many factors, including estimates of the
timing and realization of deferred income tax assets and the timing
and amount of income tax payments. We account for tax benefits
taken or expected to be taken in our tax returns in accordance with the
accounting standard relating to the uncertainty in income taxes, which
requires the use of a two-step approach for recognizing and measuring
tax benefits taken or expected to be taken in a tax return. We review
and adjust our liability for unrecognized tax benefits based on our best
judgment given the facts, circumstances, and information available at
each reporting date. To the extent that the final outcome of these tax
positions is different than the amounts recorded, such differences may
impact income tax expense and actual tax payments. We recognize
any interest and penalties accrued related to unrecognized tax benefits
in income tax expense. Actual tax payments may materially differ from
estimated liabilities as a result of changes in tax laws as well as unan-
ticipated transactions impacting related income tax balances.
• Our Plant, property and equipment balance represents a significant
component of our consolidated assets. We record plant, property
and equipment at cost. Depreciation expense on our local telephone
operations is principally based on the composite group remaining life
method and straight-line composite rates, which provides for the rec-
ognition of the cost of the remaining net investment in local telephone
plant, less anticipated net salvage value, over the remaining asset lives.
An increase or decrease of 50 basis points to the composite rates of
this class of assets would result in an increase or decrease of approxi-
mately $0.6 billion to depreciation expense based on year-end plant
balances at December 31, 2010. We depreciate other plant, property
and equipment on a straight-line basis over the estimated useful life of
the assets. We expect that a one-year increase in estimated useful lives
of our plant, property and equipment that we depreciate on a straight
line basis would result in a decrease to our 2010 depreciation expense
of $1.0 billion and that a one-year decrease would result in an increase
of approximately $1.2 billion in our 2010 depreciation expense.
Recent Accounting Standards
On January 1, 2011, we prospectively adopted the accounting stan-
dard update regarding revenue recognition for multiple deliverable
arrangements. This method allows a vendor to allocate revenue in an
arrangement using its best estimate of selling price if neither vendor spe-
cific objective evidence nor third party evidence of selling price exists.
Accordingly, the residual method of revenue allocation is no longer per-
missible. The adoption of this standard update is not expected to have a
significant impact on our consolidated financial statements.
On January 1, 2011, we prospectively adopted the accounting standard
update regarding revenue recognition for arrangements that include
software elements. This update requires tangible products that contain
software and non-software elements that work together to deliver the
products’essentialfunctionalitytobeevaluatedundertheaccounting
standard regarding multiple deliverable arrangements. The adoption of
this standard update is not expected to have a significant impact on our
consolidated financial statements.