Verizon Wireless 2010 Annual Report Download - page 76

74
Notes to Consolidated Financial Statements continued
NOTE 17
COMMITMENTS AND CONTINGENCIES
We are currently involved in certain legal proceedings and, as required,
have accrued estimates of the probable and estimable losses for the
resolution of these claims that, individually or in the aggregate, were
not significant. These estimates have been developed in consultation
with outside counsel and are based upon an analysis of potential results,
assuming a combination of litigation and settlement strategies. It is pos-
sible, however, that future results of operations for any particular quarterly
or annual period could be materially affected by changes in our assump-
tions or the effectiveness of our strategies related to these proceedings.
Several state and federal regulatory proceedings may require our tele-
phone operations to pay penalties or to refund to customers a portion
of the revenues collected in the current and prior periods. There are also
various legal actions pending to which we are a party and claims that, if
asserted, may lead to other legal actions. We have established reserves
for specific liabilities in connection with regulatory and legal actions,
including environmental matters that we currently deem to be probable
and estimable. We do not expect that the ultimate resolution of pending
regulatory and legal matters in future periods, including the Hicksville
matter described below, will have a material effect on our financial con-
dition, but it could have a material effect on our results of operations for
a given reporting period.
During 2003, under a government-approved plan, remediation com-
menced at the site of a former Sylvania facility in Hicksville, New York
that processed nuclear fuel rods in the 1950s and 1960s. Remediation
beyond original expectations proved to be necessary and a reassessment
of the anticipated remediation costs was conducted. A reassessment of
costs related to remediation efforts at several other former facilities was
also undertaken. In September 2005, the Army Corps of Engineers (ACE)
accepted the Hicksville site into the Formerly Utilized Sites Remedial
Action Program. This may result in the ACE performing some or all of the
remediation effort for the Hicksville site with a corresponding decrease
in costs to Verizon. To the extent that the ACE assumes responsibility for
remedial work at the Hicksville site, an adjustment to a reserve previously
established for the remediation may be made. Adjustments to the reserve
may also be made based upon actual conditions discovered during the
remediation at this or any other site requiring remediation.
In connection with the execution of agreements for the sales of busi-
nesses and investments, Verizon ordinarily provides representations and
warranties to the purchasers pertaining to a variety of nonfinancial mat-
ters, such as ownership of the securities being sold, as well as indemnity
from certain financial losses. From time to time, counterparties may make
claims under these provisions, and Verizon will seek to defend against
those claims and resolve them in the ordinary course of business.
Subsequent to the sale of Verizon Information Services Canada in 2004,
we continue to provide a guarantee to publish directories, which was
issued when the directory business was purchased in 2001 and had a
30-year term (before extensions). The preexisting guarantee continues,
without modification, despite the subsequent sale of Verizon Information
Services Canada and the spin-off of our domestic print and Internet
yellow pages directories business. The possible financial impact of the
guarantee, which is not expected to be adverse, cannot be reasonably
estimated as a variety of the potential outcomes available under the
guarantee result in costs and revenues or benefits that may offset each
other. We do not believe performance under the guarantee is likely.
As of December 31, 2010, letters of credit totaling approximately $0.1
billion were executed in the normal course of business, which support
several financing arrangements and payment obligations to third parties.
We depend on various key suppliers and vendors to provide us, directly
or through other suppliers, with equipment and services, such as switch
and network equipment, handsets and other devices and equipment,
that we need in order to operate our business and provide products
to our customers. For example, our handset and other device suppliers
often rely on one vendor for the manufacture and supply of critical com-
ponents, such as chipsets, used in their devices. If any of our key suppliers,
or other suppliers, fail to provide equipment or services on a timely basis
or fail to meet our performance expectations, we may be unable to pro-
vide services to our customers in a competitive manner or continue to
maintain and upgrade our network. Any such disruption could increase
our costs, decrease our operating efficiencies and have a material adverse
effect on our business, results of operations and financial condition.
We have several commitments primarily to purchase equipment, soft-
ware, programming and network services, and marketing activities, which
will be used or sold in the ordinary course of business, from a variety of
suppliers totaling $57.3 billion. Of this total amount, we expect to pur-
chase $17.9 billion in 2011, $36.8 billion in 2012 through 2013, $2.1 billion
in 2014 through 2015 and $0.5 billion thereafter. These amounts do not
represent our entire anticipated purchases in the future, but represent
only those items for which we are contractually committed. Our commit-
ments are generally determined based on the noncancelable quantities
or termination amounts. Since the commitments to purchase program-
ming services from television networks and broadcast stations have no
minimum volume requirement, we estimated our obligation based on
number of subscribers at December 31, 2010, and applicable rates stipu-
lated in the contracts in effect at that time. We also purchase products
and services as needed with no firm commitment.