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Verizon 2005 Interactive Annual Report
note 2
ACCOUNTING CHANGE

Directory Accounting
Effective January 1, 2003, we changed our method for recognizing revenues and expenses in our directory business from the publication-date method to the amortization method. The cumulative effect of this accounting change resulted in a charge of $2,697 million ($1,647 million after-tax), recorded as of January 1, 2003.

Stock Based Compensation
As discussed in Note 1, we adopted the fair value recognition provisions of SFAS No. 123 using the prospective method as permitted under SFAS No. 148. The following table illustrates the effect on reported net income and earnings per share if the fair value method had been applied to all outstanding and unvested options in each period.
(dollars in millions, except per share amounts )
Years Ended December 31,   2005     2004     2003  
Net Income, As Reported $ 7,397   $ 7,831   $ 3,077  
Add: Stock option-related employee compensation expense
   included in reported net income, net of related tax effects		   57     53     44  
Deduct: Total stock option-related employee compensation
   expense determined under fair value based method for all
   awards, net of related tax effects		   (57 )   (124 )   (215 )
Pro Forma Net Income $ 7,397   $ 7,760   $ 2,906  
Earnings Per Share                  
Basic – as reported $ 2.67   $ 2.83   $ 1.12  
Basic – pro forma   2.67     2.80     1.05  
Diluted – as reported   2.65     2.79     1.12  
Diluted – pro forma   2.65     2.77     1.06  

After-tax compensation expense for other stock-based compensation included in net income as reported for the years ended December 31, 2005, 2004 and 2003 was $370 million, $254 million and $80 million, respectively.

For additional information on assumptions used to determine the pro forma amounts as well as other information related to our stock-based compensation plans, see Note 14.

Asset Retirement Obligations
We adopted the provisions of SFAS No. 143 on January 1, 2003. SFAS No. 143 requires that companies recognize the fair value of a liability for asset retirement obligations in the period in which the obligations are incurred and capitalize that amount as part of the book value of the long-lived asset. We determined that Verizon does not have a material legal obligation to remove long-lived assets as described by this statement. However, prior to the adoption of SFAS No. 143, we included estimated removal costs in our group depreciation models. Consequently, in connection with the initial adoption of SFAS No. 143 we reversed accrued costs of removal in excess of salvage from our accumulated depreciation accounts for these assets. The adjustment was recorded as a cumulative effect of an accounting change, resulting in the recognition of a gain of $3,499 million ($2,150 million after-tax). Additionally, on December 31, 2005, FASB Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143” became effective. There was no impact of the adoption of FIN No. 47 on Verizon’s results of operations or financial position.
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* This is an interactive electronic version of Verizon’s 2005 Annual Report to Shareholders, and it is intended to be complete and accurate. The contents of this version are qualified in their entirety by reference to the printed version. A reproduction of the printed version is available in PDF format on this website.