Verizon Wireless 2011 Annual Report Download - page 48

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Recent Accounting Standards
DuringMay2011,anaccountingstandardupdateregardingfairvalue
measurement was issued to provide a consistent definition of fair
value and ensure that the fair value measurement and disclosure
requirementsaresimilarbetweenU.S.GAAPandInternationalFinancial
ReportingStandards.Thisstandardupdatealsochangescertainfairvalue
measurement principles and enhances the disclosure requirements
particularly for Level 3 fair value measurements. We will adopt this
standard update during the first quarter of 2012. The adoption of this
standard update is not expected to have a significant impact on our
consolidated financial statements.
In June 2011, an accounting standard update regarding the presenta-
tion of comprehensive income was issued to increase the prominence
of items reported in other comprehensive income. The update requires
thatallnonownerchangesinstockholders’equitybepresentedeitherin
a single continuous statement of comprehensive income or in two sepa-
rate, but consecutive statements. This standard update is effective during
the first quarter of 2012. The adoption of this standard is not expected to
have a significant impact on our consolidated financial statements.
In September 2011, an accounting standard update regarding testing of
goodwill for impairment was issued. This standard update gives compa-
nies the option to perform a qualitative assessment to first assess whether
the fair value of a reporting unit is less than its carrying amount. If an entity
determines it is not more likely than not that the fair value of the reporting
unit is less than its carrying amount, then performing the two-step impair-
ment test is unnecessary. This standard update is effective during the first
quarter of 2012. The adoption of this standard is not expected to have a
significant impact on our consolidated financial statements.
ACQUISITIONS AND DIVESTITURES
Terremark Worldwide, Inc.
During April 2011, we acquired Terremark for $19 per share in cash.
Closing and other direct acquisition-related costs totaled approximately
$13millionafter-tax.Theacquisitionwascompletedviaa“short-form”
merger under Delaware law through which Terremark became a wholly
ownedsubsidiaryofVerizon.TheacquisitionenhancedVerizon’sofferings
to business and government customers globally.
Telephone Access Line Spin-off
On July 1, 2010, after receiving regulatory approval, we completed the
spin-off of the shares of a newly formed subsidiary of Verizon (Spinco) to
VerizonstockholdersandthemergerofSpincowithFrontier.Spincoheld
definedassetsandliabilitiesthatwereusedinVerizon’slocalexchange
businesses and related activities in 14 states. The total value of the trans-
action to Verizon and its stockholders was approximately $8.6 billion.
Alltel Divestiture Markets
As a condition of the regulatory approvals to complete the acquisition
of Alltel Corporation in January 2009, Verizon Wireless was required to
divest overlapping properties in 105 operating markets in 24 states (Alltel
DivestitureMarkets).Duringthesecondquarterof2010,AT&TMobility
acquired 79 of the 105 Alltel Divestiture Markets, including licenses
and network assets, for approximately $2.4 billion in cash, and Atlantic
Tele-Network,Inc.acquiredtheremaining26AlltelDivestitureMarkets,
including licenses and network assets, for $0.2 billion in cash.
See Note 2 to the consolidated financial statements for additional infor-
mation relating to the above acquisitions and divestitures.
• 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, 2011. 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 2011 depreciation expense
of $1.2 billion and that a one-year decrease would result in an increase
of approximately $1.6 billion in our 2011 depreciation expense.
ManagEMEnt’s discussiOn and analYsis
OF Financial cOnditiOn and REsults OF OPERatiOns continued