Verizon Wireless 2012 Annual Report Download - page 57

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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: the allowance for doubtful
accounts, the recoverability of plant, property and equipment, the
recoverability of intangible assets and other long-lived assets, unbilled
revenues, fair values of financial instruments, unrecognized tax ben-
efits, valuation allowances on tax assets, accrued expenses, pension and
postretirement benefit assumptions, contingencies and allocation of pur-
chase prices in connection with business combinations.
Revenue Recognition
Multiple Deliverable Arrangements
In both our Verizon Wireless and Wireline segments, we offer products
and services to our customers through bundled arrangements. These
arrangements involve multiple deliverables which may include products,
services, or a combination of products and services.
On January 1, 2011, we prospectively adopted the accounting standard
updates regarding revenue recognition for multiple deliverable arrange-
ments, and arrangements that include software elements. These updates
require us to allocate revenue in an arrangement using its best estimate
of selling price if neither vendor specific objective evidence (VSOE) nor
third party evidence (TPE) of selling price exists.
Verizon Wireless
Our Verizon Wireless segment earns revenue primarily by providing
access to and usage of its network. In general, access revenue is billed
one month in advance and recognized when earned. Usage revenue
is generally billed in arrears and recognized 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 considered to be a separate earn-
ings process from providing wireless services. For agreements involving
the resale of third-party services in which we are considered the primary
obligor in the arrangements, we record the revenue gross at the time of
the sale. For equipment sales, we currently subsidize the cost of wire-
less devices. The amount of this subsidy is generally contingent on the
arrangement and terms selected by the customer. The equipment rev-
enue is recognized up to the amount collected when the wireless device
is sold.
Wireline
Our Wireline segment earns revenue based upon usage of its 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 when earned. Revenue from services that are not fixed in
amount and are based on usage is generally billed in arrears and recog-
nized when service is rendered.
We sell each of the services offered in bundled arrangements (i.e., voice,
video and data), as well as separately; therefore each product or service
has a standalone selling price. For these arrangements revenue is allo-
cated to each deliverable using a relative selling price method. Under this
method, arrangement consideration is allocated to each separate deliver-
able based on our standalone selling price for each product or service.
These services include FiOS services, individually or in bundles, and High
Speed Internet.
VERIZON COMMUNICATIONS INC. AND SUBSIDIARIES
Description of Business
Verizon Communications Inc. (Verizon or the Company) is a holding com-
pany, which acting through its subsidiaries is one of the world’s leading
providers of communications, information and entertainment products
and services to consumers, businesses and governmental agencies with
a presence in over 150 countries around the world. We have two report-
able segments, Verizon Wireless and Wireline. For further information
concerning our business segments, see Note 13.
Verizon Wireless provides wireless communications services across one of
the most extensive wireless networks in the United States (U.S.) and has
the largest third-generation (3G) and fourth-generation (4G) Long-Term
Evolution technology (LTE) networks of any U.S. wireless service provider.
The Wireline segment provides communications products and services
including local exchange and long distance voice service, broadband
video and data, IP network services, network access and other services to
consumers, small businesses and carriers in the United States, as well as
to businesses and government customers both in the United States and
in over 150 other countries around the world.
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. For controlled subsidiaries
that are not wholly owned, the noncontrolling interest is included in Net
income and Total equity. Investments in businesses which we do not
control, but have the ability to exercise significant influence over oper-
ating 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 investments 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 accounting
standard related to debt and equity securities. All significant intercom-
pany accounts and transactions have been eliminated.
Basis of Presentation
We have reclassified certain prior year amounts to conform to the current
year presentation.
Corporate, eliminations and other during the periods presented include
a non-cash adjustment of $0.2 billion in 2010, primarily to adjust wire-
less service revenues. This adjustment was recorded to properly defer
previously recognized wireless service revenues that were earned and
recognized in future periods. The adjustment was recorded during 2010,
which reduced Net income attributable to Verizon by approximately
$0.1 billion.