Verizon Wireless 2014 Annual Report Download - page 46

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
agreements under the current program is not material. The guarantee
liability may increase after initial recognition as a result of changes in
facts or assumptions and we will account for any increase in the guar-
antee liability with a corresponding decrease to revenue. The subsequent
derecognition of the guarantee liability occurs when the guarantor is
released from risk, which will occur at the earlier of the time the trade-in
right is exercised or expires.
Wireline
Our Wireline segment earns revenue based upon usage of its network
and facilities and contract fees. In general, xed 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 xed
in amount and are based on usage is generally billed in arrears and rec-
ognized when service is rendered.
We sell each of the services oered 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.
When we bundle equipment with maintenance and monitoring services,
we recognize equipment revenue when the equipment is installed in
accordance with contractual specications 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 16).
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 eect of shares
issuable under our stock-based compensation plans.
There were a total of approximately 7 million, 8 million and 9 million out-
standing dilutive securities, primarily consisting of restricted stock units,
included in the computation of diluted earnings per common share
for the years ended December 31, 2014, 2013 and 2012, 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 signicant for the
years ended December 31, 2014, 2013 and 2012, respectively.
On January 28, 2014, at a special meeting of our shareholders, we received
shareholder approval to increase our authorized shares of common stock
by 2 billion shares to an aggregate of 6.25 billion authorized shares of
common stock. On February 4, 2014, this authorization became eec-
tive. On February 21, 2014, we issued approximately 1.27 billion shares
of common stock upon completing the acquisition of Vodafone Group
Plc’s indirect 45% interest in Cellco Partnership d/b/a Verizon Wireless.
See Note 2 for additional information.
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 evalu-
ation includes, in addition to persistent, declining stock prices, general
economic and company-specic evaluations. In the event of a determi-
nation that a decline in market value is other-than-temporary, a charge to
earnings 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 rst-in, rst-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 wireline
and wireless operations, we determined that changes were necessary
to the remaining estimated useful lives of certain assets as a result of
technology upgrades, enhancements, and planned retirements. These
changes resulted in an increase in depreciation expense of $0.6 billion
in 2014. While the timing and extent of current deployment plans are
subject to ongoing analysis and modication, we believe the current esti-
mates of useful lives are reasonable.