Verizon Wireless 2012 Annual Report Download - page 58

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
When we bundle equipment with maintenance and monitoring services,
we recognize equipment revenue when the equipment is installed in
accordance with contractual specifications and ready for the customer’s
use. The maintenance and monitoring services are recognized monthly
over the term of the contract as we provide the services.
Installation related fees, along with the associated costs up to but not
exceeding these fees, are deferred and amortized over the estimated cus-
tomer relationship period.
For each of our segments we report taxes imposed by governmental
authorities on revenue-producing transactions between us and our cus-
tomers on a net basis.
Maintenance and Repairs
We charge the cost of maintenance and repairs, including the cost of
replacing minor items not constituting substantial betterments, princi-
pally to Cost of services and sales as these costs are incurred.
Advertising Costs
Costs for advertising products and services as well as other promotional
and sponsorship costs are charged to Selling, general and administrative
expense in the periods in which they are incurred (see Note 15).
Earnings Per Common Share
Basic earnings per common share are based on the weighted-average
number of shares outstanding during the period. Where appropriate,
diluted earnings per common share include the dilutive effect of shares
issuable under our stock-based compensation plans.
There were a total of approximately 9 million, 6 million and 3 million stock
options and restricted stock units outstanding included in the computa-
tion of diluted earnings per common share for the years ended December
31, 2012, 2011 and 2010, respectively. Outstanding options to purchase
shares that were not included in the computation of diluted earnings
per common share, because to do so would have been anti-dilutive for
the period, were not significant for the year ended December 31, 2012
and included approximately 19 million and 73 million weighted-average
shares for the years ended December 31, 2011 and 2010, respectively.
We are authorized to issue up to 4.25 billion and 250 million shares of
common stock and Series Preferred Stock, respectively.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of 90 days or
less when purchased to be cash equivalents. Cash equivalents are stated
at cost, which approximates quoted market value and include amounts
held in money market funds.
Marketable Securities
We have investments in marketable securities, which are considered
“available-for-sale” under the provisions of the accounting standard for
certain debt and equity securities, and are included in the accompanying
consolidated balance sheets in Short-term investments, Investments in
unconsolidated businesses or Other assets. We continually evaluate our
investments in marketable securities 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 eco-
nomic and company-specific evaluations. In the event of a determination
that a decline in market value is other-than-temporary, a charge to earn-
ings is recorded for the loss, and a new cost basis in the investment is
established.
Inventories
Inventory consists of wireless and wireline 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.
Plant and Depreciation
We record plant, property and equipment at cost. Plant, property and
equipment of wireline and wireless operations are generally depreciated
on a straight-line basis.
Leasehold improvements are amortized over the shorter of the estimated
life of the improvement or the remaining term of the related lease, calcu-
lated from the time the asset was placed in service.
When the depreciable assets of our wireline and 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 and depreciate network software purchased or developed
along with related plant assets. We also capitalize interest associated with
the acquisition or construction of network-related assets. Capitalized
interest is reported as a reduction in interest expense and depreciated as
part of the cost of the network-related assets.
In connection with our ongoing review of the estimated remaining
average useful lives of plant, property and equipment at our local tele-
phone operations, we determined that there were no changes necessary
for average useful lives for 2012, 2011, and 2010. In connection with our
ongoing review of the estimated remaining average useful lives of plant,
property and equipment at our wireless operations, we determined that
changes were necessary to the remaining estimated useful lives as a result
of technology upgrades, enhancements, and planned retirements. These
changes resulted in increases in depreciation expense of $0.4 billion and
$0.3 billion in 2011 and 2010, respectively. While the timing and extent of
current deployment plans are subject to ongoing analysis and modifica-
tion, we believe the current estimates of useful lives are reasonable.
Computer Software Costs
We capitalize the cost of internal-use network and non-network software
that has a useful life in excess of one year. Subsequent additions, modifi-
cations or upgrades to internal-use network and non-network software
are capitalized only to the extent that they allow the software to perform
a task it previously did not perform. Planning, software maintenance and
training costs are expensed in the period in which they are incurred. Also,
we capitalize interest associated with the development of internal-use
network and non-network software. Capitalized non-network internal-
use software costs are amortized using the straight-line method over a
period of 3 to 7 years and are included in Other intangible assets, net
in our consolidated balance sheets. For a discussion of our impairment
policy for capitalized software costs, see “Goodwill and Other Intangible
Assets” below. Also, see Note 3 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 in the fourth fiscal quarter. The Company
has the option to perform a qualitative assessment to determine if
the fair value of the entity is less than its carrying value. However, the
Company may elect to perform an impairment test even if no indications
of a potential impairment exist. 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