Verizon Wireless 2011 Annual Report Download - page 84

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nOtEs tO cOnsOlidatEd Financial statEMEnts continued
NOTE 16
COMMITMENTS AND CONTINGENCIES
In the ordinary course of business Verizon is involved in various commer-
cial litigation and regulatory proceedings at the state and federal level.
Where it is determined, in consultation with counsel based on litigation
and settlement risks, that a loss is probable and estimable in a given
matter, the Company establishes an accrual. In none of the currently
pending matters, including the Hicksville and ActiveVideo Networks Inc.
(ActiveVideo) matters described below, is the amount of accrual mate-
rial. An estimate of the reasonably possible loss or range of loss in excess
of the amounts already accrued cannot be made at this time due to
various factors typical in contested proceedings, including (1) uncertain
damage theories and demands; (2) a less than complete factual record;
(3) uncertainty concerning legal theories and their resolution by courts or
regulators; and (4) the unpredictable nature of the opposing party and its
demands. We continuously monitor these proceedings as they develop
and adjust any accrual or disclosure as needed. We do not expect that
the ultimate resolution of any pending regulatory or legal matter in
future periods, including the Hicksville and ActiveVideo matters, will have
a material effect on our financial condition, 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 pre-
viously 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.
Verizon is currently involved in approximately 50 federal district court
actions alleging that Verizon is infringing various patents. Most of these
cases are brought by non-practicing entities and effectively seek only
monetary damages; a small number are brought by companies that sell
products and seek injunctive relief as well. These cases have progressed
to various degrees and a small number may go to trial in the coming 12
months if they are not otherwise resolved. In August 2011, a jury found
that Verizon is infringing four ActiveVideo patents related to Verizon’s
FiOS TV video-on-demand service (VOD), and entered a verdict for
ActiveVideo for $115 million, which the court subsequently increased by
$24 million. The jury, however, rejected ActiveVideo’s claim that Verizon
had willfully infringed its patents and the court stayed execution of the
payments to ActiveVideo. Verizon was also later enjoined from continuing
to use two of these allegedly infringed ActiveVideo patents and ordered
to pay ActiveVideo approximately $11 million per month from August
2011 to May 2012. The court deferred the onset of the injunction until
May 2012, and the orders to make payments to ActiveVideo were stayed.
Verizon has filed appeals addressing these rulings and is working with its
vendors, Cisco and Ericsson, to redesign its VOD system.
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, 2011, letters of credit totaling approximately $0.1 bil-
lion, which were executed in the normal course of business and support
several financing arrangements and payment obligations to third parties,
were outstanding.
We have several commitments primarily to purchase handsets and
peripherals, equipment, software, 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 $51.1 billion. Of this total
amount, we expect to purchase $22.8 billion in 2012, $24.6 billion in 2013
through 2014, $3.1 billion in 2015 through 2016 and $0.6 billion there-
after. These amounts do not represent our entire anticipated purchases
in the future, but represent only those items for which we are contractu-
ally committed. Our commitments are generally determined based on
the noncancelable quantities or termination amounts. Purchases against
our commitments for 2011 totaled approximately $13 billion. Since the
commitments to purchase programming services from television net-
works and broadcast stations have no minimum volume requirement, we
estimated our obligation based on number of subscribers at December
31, 2011, and applicable rates stipulated in the contracts in effect at
that time. We also purchase products and services as needed with no
firm commitment.