Verizon Wireless 2012 Annual Report Download - page 60

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Foreign Currency Translation
The functional currency of our foreign operations is generally the local
currency. For these foreign entities, we translate income statement
amounts at average exchange rates for the period, and we translate assets
and liabilities at end-of-period exchange rates. We record these transla-
tion adjustments in Accumulated other comprehensive income (loss), a
separate component of Equity, in our consolidated balance sheets. We
report exchange gains and losses on intercompany foreign currency
transactions of a long-term nature in Accumulated other comprehensive
income (loss). Other exchange gains and losses are reported in income.
Employee Benefit Plans
Pension and postretirement health care and life insurance benefits
earned during the year as well as interest on projected benefit obliga-
tions are accrued currently. Prior service costs and credits resulting
from changes in plan benefits are generally amortized over the average
remaining service period of the employees expected to receive benefits.
Expected return on plan assets is determined by applying the return on
assets assumption to the actual fair value of plan assets. Actuarial gains
and losses are recognized in operating results in the year in which they
occur. These gains and losses are measured annually as of December
31 or upon a remeasurement event. Verizon management employees
no longer earn pension benefits or earn service towards the company
retiree medical subsidy (see Note 11).
We recognize a pension or a postretirement plan’s funded status as either
an asset or liability on the consolidated balance sheets. Also, we measure
any unrecognized prior service costs and credits that arise during the
period as a component of Accumulated other comprehensive income
(loss), net of applicable income tax.
Derivative Instruments
We have entered into derivative transactions primarily to manage our
exposure to fluctuations in foreign currency exchange rates, interest
rates, equity and commodity prices. We employ risk management strat-
egies, which may include the use of a variety of derivatives including
cross currency swaps, foreign currency and prepaid forwards and collars,
interest rate and commodity swap agreements and interest rate locks. We
do not hold derivatives for trading purposes.
We measure all derivatives, including derivatives embedded in other
financial instruments, at fair value and recognize them as either assets or
liabilities on our consolidated balance sheets. Our derivative instruments
are valued primarily using models based on readily observable market
parameters for all substantial terms of our derivative contracts and thus
are classified as Level 2. Changes in the fair values of derivative instru-
ments not qualifying as hedges or any ineffective portion of hedges are
recognized in earnings in the current period. Changes in the fair values
of derivative instruments used effectively as fair value hedges are rec-
ognized in earnings, along with changes in the fair value of the hedged
item. Changes in the fair value of the effective portions of cash flow
hedges are reported in Other comprehensive income and recognized in
earnings when the hedged item is recognized in earnings.
Recently Adopted Accounting Standards
During the first quarter of 2012, we adopted the accounting standard
update regarding the presentation of comprehensive income. This
update 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 separate, but consecu-
tive statements. In connection with the adoption of this standard our
consolidated financial statements include a separate statement of com-
prehensive income.
During the first quarter of 2012, we adopted the accounting standard
update regarding fair value measurement. This update was issued to pro-
vide 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.
The adoption of this standard update did not have a significant impact
on our consolidated financial statements.
During the first quarter of 2012, we adopted the accounting standard
update regarding testing of goodwill for impairment. This standard
update gives companies the option to perform a qualitative assessment
to first assess whether the fair value of a reporting unit is less than its car-
rying 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 impairment test is unnecessary. The Company
did not elect to use the qualitative assessment in 2012.
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.