Verizon Wireless 2012 Annual Report Download - page 45

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• We maintain benefit plans for most of our employees, including, for
certain employees, pension and other postretirement benefit plans.
At December 31, 2012, 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 on the funded status due to
an increase or a decrease in the actual versus expected return on plan
assets as of December 31, 2012 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, 2012*
Pension plans discount rate +0.50 $ (1,350)
-0.50 1,504
Rateofreturnonpensionplanassets +1.00 (239)
-1.00 239
Postretirement plans discount rate +0.50 (1,678)
-0.50 1,886
Rateofreturnonpostretirementplan
assets +1.00 (24)
-1.00 24
Health care trend rates +1.00 3,251
-1.00 (2,669)
* In determining its pension and other postretirement obligation, the Company used a
weighted-average discount rate of 4.20%. The rate was selected to approximate the
composite interest rates available on a selection of high-quality bonds available in the
market at December 31, 2012. 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 $0.3 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. We depreciate 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 would result in a decrease to our 2012 depreciation
expense of $1.5 billion and that a one-year decrease would result in
an increase of approximately $1.8 billion in our 2012 depreciation
expense.
Recent Accounting Standards
InJuly2012,theaccountingstandardupdateregardingtestingofintan-
gible assets for impairment was issued. This standard update allows
companies the option to perform a qualitative assessment to determine
whether it is more likely than not that an indefinite-lived intangible asset
is impaired. An entity is not required to calculate the fair value of an indef-
inite-lived intangible asset and perform the quantitative impairment test
unless the entity determines that it is more likely than not the asset is
impaired. We will adopt this standard update during the first quarter of
2013. The adoption of this standard update is not expected to have a
significant impact on our consolidated financial statements.
InFebruary2013,theaccountingstandardupdateregardingreclassifica-
tions out of accumulated other comprehensive income was issued. This
standard update requires companies to report the effect of significant
reclassifications out of accumulated other comprehensive income on
the respective line items in our consolidated statements of income if the
amountbeingreclassifiedisrequiredunderU.S.GAAPtobereclassified
initsentiretytonetincome.Forotheramountsthatarenotrequired
underU.S.GAAPtobereclassifiedintheirentiretytonetincomeinthe
same reporting period, an entity is required to cross-reference other dis-
closuresrequiredunderU.S.GAAPthatprovideadditionaldetailabout
those amounts. We will adopt this standard in the first quarter of 2013.
The adoption of this standard update is not expected to have a signifi-
cant impact on our consolidated financial statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued