| Notes to Financial Statements | |
| 6 Months Ended
Jun. 30, 2009
USD / shares
|
| Notes to Financial Statements [Abstract] | |
| 1.Basis of Presentation |
1.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (SEC) rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements included in the Verizon Communications Inc. (Verizon, or the Company) Annual Report on Form 10-K for the year ended December31, 2008. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown including normal recurring accruals and other items. We have evaluated subsequent events through July30, 2009, the date these condensed consolidated financial statements were filed with the SEC. The results for the interim periods are not necessarily indicative of results for the full year.
We have reclassified prior year amounts to conform to the current year presentation.
Recently Adopted Accounting Pronouncements
On January1, 2009, we adopted the accounting pronouncement on noncontrolling interests in consolidated financial statements, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. As required by this pronouncement, we retrospectively changed the classification and presentation of noncontrolling interest in our financial statements for all prior periods, which we previously referred to as minority interest. The adoption of this pronouncement also resulted in a lower effective income tax rate for the Company due to the inclusion of income attributable to Vodafone Group Plc.s (Vodafone), noncontrolling partnership interest in Income before the provision for income taxes. However, the income tax provision was not adjusted as a result of adopting this pronouncement.
The adoption of the following accounting pronouncements during the first six months of 2009 did not result in a significant impact to our condensed consolidated financial statements:
On January1, 2009, we adopted the accounting pronouncements relating to business combinations, including assets acquired and liabilities assumed arising from contingencies. These pronouncements require the use of the acquisition method of accounting, define the acquirer, establish the acquisition date and apply to all transactions and other events in which one entity obtains control over one or more other businesses. These pronouncements also amend the accounting and disclosure requirements for assets and liabilities in a business combination that arise from contingencies. Upon our adoption of these pronouncements, we were required to expense certain transaction costs and related fees associated with business combinations that were previously capitalized. In addition, with the adoption of these pronouncements, changes to valuation allowances for deferred income tax assets and adjustments to unrecognized tax benefits generally are to be recognized as adjustments to income tax exp |
| 2.Acquisitions |
2.
Acquisitions
Acquisition of Alltel Corporation
On June5, 2008, Verizon Wireless entered into an agreement and plan of merger with Alltel Corporation (Alltel), a provider of wireless voice and advanced data services to residential and business customers in 34 states, and its controlling stockholder, Atlantis Holdings LLC, an affiliate of private investment firms TPG Capital and GS Capital Partners, to acquire, in an all-cash merger, 100% of the equity of Alltel for cash consideration of $5.9 billion. Verizon Wireless closed the transaction on January9, 2009.
We expect to experience substantial operational benefits from the acquisition of Alltel, including additional combined overall cost savings from reduced roaming costs by moving more traffic to our own network, reduced network-related costs from the elimination of duplicate facilities, consolidation of platforms, efficient traffic consolidation, and reduced overall expenses relating to advertising, overhead and headcount. We expect reduced combined capital expenditures as a result of greater economies of scale and the rationalization of network assets. We also anticipate that the use of the same technology platform will enable us to rapidly integrate Alltels operations with ours.
The acquisition of Alltel has been accounted for as a business combination under the acquisition method. We have commenced the appraisals necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, the fair value of noncontrolling interests, and the amount of goodwill recognized as of the acquisition date. As the values of certain assets, liabilities and noncontrolling interests are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The valuations will be finalized within 12 months of the close of the acquisition. When the valuations are finalized, any changes to the preliminary valuation of assets acquired, liabilities or noncontrolling interests assumed may result in significant adjustments to the fair value of the net identifiable assets acquired and goodwill.
The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost, and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market other than interest rate swaps (see Note 5) and long-term debt assumed in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of wireless licenses and customer relationships. The income approach indicates value for a subject asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to |
| 3.Dispositions |
3.
Dispositions
2009
On May13, 2009, we announced that we will spin off a newly formed subsidiary of Verizon (Spinco) to our stockholders.Spinco will hold defined assets and liabilities of the local exchange business and related landline activities of Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, and in portions of California bordering Arizona, Nevada and Oregon, including Internet access and long distance services and broadband video provided to designated customers in those areas.Immediately following the spin-off, Spinco will merge with Frontier Communications Corporation (Frontier) pursuant to a definitive agreement with Frontier, and Frontier will be the surviving corporation.The transactions do not involve any assets or liabilities of Verizon Wireless.The assets and liabilities that will be held by Spinco are currently included in Verizons continuing operations.
Depending on the trading prices of Frontier common stock prior to the closing of the merger, Verizon stockholders will collectively own between approximately 66% and 71% of Frontiers outstanding equity immediately following the closing of the merger, and Frontier stockholders will collectively own between approximately 29% and 34% of Frontiers outstanding equity immediately following the closing of the merger (in each case, before any closing adjustments).The actual number of shares of common stock to be issued by Frontier in the merger will be calculated based upon several factors, including the average trading price of Frontier common stock during a pre-closing measuring period subject to a collar mechanism, the total number of Verizon shares outstanding at that time and other closing adjustments.Verizon will not own any shares of Frontier after the merger.
Both the spin-off and merger are expected to qualify as tax-free transactions, except to the extent that cash is paid to Verizon stockholders in lieu of fractional shares.
In connection with the spin-off, Verizon will receive from Spinco approximately $3.3 billion in value through a combination of a special cash payment to Verizon, a reduction in Verizons consolidated indebtedness, and, in certain circumstances, the issuance to Verizon of debt securities of Spinco.In the merger, Verizon stockholders are expected to receive approximately $5.3 billion of Frontier common stock, assuming no closing adjustments.
The transaction is subject to the satisfaction of certain conditions, including receipt of state and federal telecommunications regulatory approvals. If the conditions are satisfied, we expect this transaction to close during the second quarter of 2010.
2008
On March31, 2008, we completed the spin-off of the shares of Northern New England Spinco Inc. to Verizon shareowners and the merger of Northern New England Spinco Inc. with FairPoint Communications, Inc. As a result of the spin-off, our net debt was reduced by approximately $1.4 billion. The condensed consolidated statements of income for the periods presented include the results of operations of the local exchange and related bus |
| 4.Wireless Licenses, Goodwill and Other Intangible Assets |
4.
Wireless Licenses, Goodwill and Other Intangible Assets
Wireless Licenses
Changes in the carrying amount of wireless licenses are as follows:
(dollars in millions)
Balance at December31, 2008 $ 61,974
Wireless licenses acquired (Note 2) 9,444
Capitalized interest on wireless licenses 367
Reclassifications, adjustments and other (77 )
Balance at June30, 2009 $ 71,708
Reclassifications, adjustments and other primarily includes the reclassification of wireless licenses associated with the pre-merger operations of Verizon Wireless that are included in the Alltel Divestiture Markets (see Note 2) as held for sale and included in Prepaid expenses and other in the accompanying condensed consolidated financial statements. As of June30, 2009, and December31, 2008, $12.2 billion and $12.4 billion, respectively, of wireless licenses were under development for commercial service for which we are capitalizing interest costs.
Renewals of licenses have occurred routinely and at nominal costs, which are expensed as incurred. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of our wireless licenses. As a result, we treat the wireless licenses as an indefinite-lived intangible asset. The average remaining renewal period of our wireless license portfolio was 8.3 years as of June30, 2009.
Goodwill
Changes in the carrying amount of goodwill are as follows:
(dollars in millions)
Domestic
Wireless Wireline Total
Balance at December31, 2008 $ 1,297 $ 4,738 $ 6,035
Acquisitions (Note 2) 16,229 16,229
Reclassifications, adjustments and other (68 ) (7 ) (75 )
Balance at June30, 2009 $ 17,458 $ 4,731 $ 22,189
Reclassifications, adjustments and other primarily include the reclassification of goodwill associated with the pre-merger operations of Verizon Wireless that are included in the Alltel Divestiture Markets (see Note 2) as held for sale and included in Prepaid expenses and other in the accompanying condensed consolidated financial statements.
Other Intangible Assets
The following table displays the details of other intangible assets:
(dollars in millions) At June30, 2009 At December31, 2008
Gross Amount Accumulated Amortization Net Amount
Gross
Amount Accumulated Amortization Net Amount
Other intangible assets:
Customer lists (6 to 8 years) $ 3,114 $ (709 ) $ 2,405 $ 1,415 $ (595 ) $ 820
Non-network internal-use software (2 to 7 years) 8,460 (4,276 ) 4,184 8,099 (4,102 ) 3,997
Other (1 to 25 years) 852 (209 ) 643 465 (83 ) 382
Total $ 12,426 $ (5,194 ) $ 7,232 $ 9,979 $ (4,780 ) $ 5,199
Customer lists, Non-network software and Other at June30, 2009, include $2,508 million related to the Allt |
| 5.Fair Value Measurements |
5.
Fair Value Measurements
The following table presents the assets measured at fair value on a recurring basis as of June30, 2009:
(dollars in millions) Level1(1) Level2(2) Level3(3) Total
Assets:
Short-term investments $ 178 $ 182 $ $ 360
Investments in unconsolidated businesses 324 324
Other assets 1,302 1,302
(1) quoted prices in active markets for identical assets or liabilities
(2) observable inputs other than quoted prices in active markets for identical assets and liabilities
(3) no observable pricing inputs in the market
Upon closing of the Alltel acquisition (see Note 2), the $4.8 billion investment in Alltel debt, which was classified as Level 3 at December31, 2008, became an intercompany loan and is eliminated in consolidation.
The fair value of our short-term and long-term debt, excluding capital leases, is determined based on market quotes for similar terms and maturities or future cash flows discounted at current rates. The fair value of our long-term and short-term debt, excluding capital leases, was approximately $68 billion and $53 billion at June30, 2009 and December31, 2008, respectively, as compared to the carrying value of approximately $65 billion and $52 billion at June30, 2009 and December31, 2008, respectively.
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 strategies which may include the use of a variety of derivatives including cross currency swaps, foreign currency and prepaid forwards and collars, equity options, 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. The derivative instruments discussed below 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 instruments 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 recognized 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 (loss) and recognized in earnings when the hedged item is recognized in earnings.
Interest Rate Swaps
We have entered into domestic interest rate swaps to achieve a targeted mix of fixed and variable rate debt, where we principally receive fixed rates and pay variable rates based on London Interbank Offered Rate (LIBOR). These swaps are designated as fair value hedges and hedge against changes in the fair value of |
| 6.Debt |
6.
Debt
Verizon Wireless
On December19, 2008, Verizon Wireless and Verizon Wireless Capital LLC, as the borrowers, entered into a $17.0 billion credit facility (Bridge Facility). On January9, 2009, Verizon Wireless borrowed $12.4 billion under the Bridge Facility in order to complete the acquisition of Alltel and repay certain of Alltels outstanding debt as described below. Through June30, 2009, Verizon Wireless used cash generated from operations and the net proceeds from the sale of the notes described below to repay all of the borrowings under the Bridge Facility. As of June30, 2009, no borrowings were outstanding under the Bridge Facility and the commitments under the Bridge Facility have been terminated.
In connection with the Alltel acquisition, Verizon Wireless assumed approximately $23.9 billion of debt, of which approximately $2.3 billion remains outstanding to third parties as of June30, 2009. Under the terms of a tender offer that was completed on March20, 2009, $0.2 billion aggregate principal amount was redeemed for a loss that was not significant.
In February 2009, Verizon Wireless and Verizon Wireless Capital LLC co-issued $4.3 billion aggregate principal amount of three and five-year fixed rate notes in a private placement resulting in cash proceeds of $4.2 billion, net of discounts and issuance costs. In May 2009, Verizon Wireless and Verizon Wireless Capital LLC co-issued $4.0 billion aggregate principal amount of two-year fixed and floating rate notes in a private placement resulting in cash proceeds of approximately $4.0 billion, net of discounts and issuance costs.
In June 2009, Verizon Wireless issued in a private placement $1.0 billion aggregate principal amount of floating rate notes due 2011. Commencing on December27, 2009 and on each interest payment date thereafter, both the note holders and Verizon Wireless have the right to require settlement of all or a portion of these notes at par. Accordingly, these notes are classified as current maturities in the condensed consolidated balance sheet.
Cellco Partnership (d/b/a Verizon Wireless) and Verizon Wireless Capital LLC filed a registration statement with the SEC on July6, 2009 to register a total of approximately $11.8 billion of new notes which may, once theregistration statement is declared effective by the SEC, be exchanged for privately placed debt with similar terms, pursuant to the requirements of registration rights agreements. The privately placed debt includes the debt issued in November of 2008, as well as February and May of 2009. This Report on Form 10-Q does not constitute an offer of any securities for sale.
Verizon Communications
In March 2009, Verizon issued $1.8 billion of 6.35% notes due 2019 and $1.0 billion of 7.35% notes due 2039, resulting in cash proceeds of $2.7 billion, net of discounts and issuance costs, which was used to reduce our commercial paper borrowings, repay maturing debt and for general corporate purposes. In December 2008, we entered into a $0.2 billion vendor provided credit facility and in January 2009, we borrowed the entire amount available under this facility. During the first half of 2009, $ |
| 7.Stock-Based Compensation |
7.
Stock-Based Compensation
Verizon Communications Long-Term Incentive Plan
In May 2009, Verizon shareholders approved the 2009 Verizon Communications Inc. Long-Term Incentive Plan (the Plan) which permits the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units and other awards. The maximum number of shares available for awards from the Plan is 115million shares. The Plan amends and restates the previous long-term incentive plan.
Restricted Stock Units
The Plan provides for grants of Restricted Stock Units (RSUs) that generally vest at the end of the third year after the grant. The RSUs are classified as liability awards because the RSUs will be paid in cash upon vesting. The RSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the performance of Verizons stock. Dividend equivalent units are also paid to participants at the time the RSU award is paid.
The following table summarizes Verizons Restricted Stock Unit activity:
(shares in thousands) RestrictedStock Units
Weighted-Average Grant-Date
Fair Value
Outstanding, beginning of year 21,820 $ 35.01
Granted 6,427 31.59
Payments (9,349 ) 31.64
Cancelled/Forfeited (62 ) 35.92
Outstanding, June30, 2009 18,836 35.52
Performance Share Units
The Plan also provides for grants of Performance Share Units (PSUs) that generally vest at the end of the third year after the grant if certain threshold performance requirements have been satisfied. The PSUs are classified as liability awards because the PSUs will be paid in cash upon vesting. Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award.
The following table summarizes Verizons Performance Share Unit activity:
(shares in thousands) PerformanceShare Units
Weighted-Average Grant-Date
Fair Value
Outstanding, beginning of year 33,214 $ 35.04
Granted 13,056 31.59
Payments (17,141 ) 31.58
Cancelled/Forfeited (169 ) 33.95
Outstanding, June30, 2009 28,960 35.54
As of June30, 2009, unrecognized compensation expense related to the unvested portion of RSUs and PSUs was approximately $470 million and is expected to be recognized over a weighted-average period of approximately two years.
Verizon Wireless Long-Term Incentive Plan
The 2000 Verizon Wireless Long-Term Incentive Plan (the Wireless Plan) provides compensation opportunities to eligible employees and other participating affiliates of Verizon Wireless. The Wireless Plan provides rewards that are tied to the long-term performance of Verizon Wireless. Under the Wireless Plan, Value Appreciation Rights (VARs) were granted to eligible employees. As of June30, 2009, all VARs were fully vested.
The following table summarizes the Value Appreciation Rights activity:
(shares in thousa |
| 8.Employee Benefits |
8.
Employee Benefits
We maintain noncontributory defined benefit pension plans for many of our employees. In addition, we maintain postretirement health care and life insurance plans for certain of our retirees and their dependents, which are both contributory and non-contributory and include a limit on the companys share of cost for certain recent and future retirees.
Net Periodic Benefit (Income) Cost
The following table summarizes the benefit (income) cost related to our pension and postretirement health care and life insurance plans:
(dollars in millions) Pension HealthCareandLife
Three Months Ended June30, 2009 2008 2009 2008
Service cost $ 96 $ 94 $ 78 $ 79
Interest cost 481 489 442 426
Expected return on plan assets (735 ) (794 ) (75 ) (80 )
Amortization of prior service cost 28 13 100 98
Actuarial loss, net 28 10 59 66
Net periodic benefit (income) cost (102 ) (188 ) 604 589
Settlement loss 416
Total (income) cost $ 314 $ (188 ) $ 604 $ 589
(dollars in millions) Pension HealthCareandLife
Six Months Ended June30, 2009 2008 2009 2008
Service cost $ 192 $ 190 $ 156 $ 160
Interest cost 962 980 883 855
Expected return on plan assets (1,469 ) (1,594 ) (151 ) (160 )
Amortization of prior service cost 56 27 200 197
Actuarial loss, net 56 20 119 133
Net periodic benefit (income) cost (203 ) (377 ) 1,207 1,185
Settlement loss 416
Total (income) cost $ 213 $ (377 ) $ 1,207 $ 1,185
Severance, Pension and Benefit Charges
During the three and six months ended June30, 2009, we recorded pension settlement losses of $416 million ($253 million after-tax), related to employees that received lump-sum distributions primarily resulting from our previous separation plans in which prescribed payment thresholds have been reached.
Employer Contributions
During the three months ended June30, 2009, we contributed $29 million to our qualified pension trusts, $18 million to our nonqualified pension plans and $426 million to our other postretirement benefit plans. During the six months ended June30, 2009, we contributed $64 million to our qualified pension trusts, $77 million to our nonqualified pension plans and $842 million to our other postretirement benefit plans. The anticipated qualified pension trust contributions for 2009 disclosed in Verizons Annual Report on Form 10-K for the year ended December31, 2008, have not changed. Our estimate of the amount and timing of required qualified pension trust contributions for 2009 is based on current proposed Internal Revenue Service regulations under the Pension Protection Act of 2006.
Severance Benefits
During the three and six months ended June30, 200 |
| 9.Equity and Comprehensive Income |
9.
Equity and Comprehensive Income
Equity
Changes in the components of equity were as follows:
Six Months Ended June30, 2009 Six Months Ended June30, 2008
(dollars in millions) Attributable to Verizon Noncontrolling Interest Total Equity Attributable to Verizon Noncontrolling Interest Total Equity
Balance at beginning of period $ 41,706 $ 37,199 $ 78,905 $ 50,581 $ 32,288 $ 82,869
Spin-off of local exchange businesses in Maine, New Hampshire and Vermont 44 44
Adjusted balance at beginning of period 41,706 37,199 78,905 50,625 32,288 82,913
Net income 3,128 3,242 6,370 3,524 2,929 6,453
Other comprehensive income (loss) 630 82 712 312 (2 ) 310
Comprehensive income 3,758 3,324 7,082 3,836 2,927 6,763
Contributed capital (189 ) (155 ) (344 ) (26 ) (26 )
Acquisition of noncontrolling interests 266 266 1 1
Dividends declared (2,613 ) (2,613 ) (2,450 ) (2,450 )
Common stock in treasury 3 3 (1,101 ) (1,101 )
Distributions and other 7 (485 ) (478 ) 3 (583 ) (580 )
Balance at end of period $ 42,672 $ 40,149 $ 82,821 $ 50,887 $ 34,633 $ 85,520
Noncontrolling interest included in our condensed consolidated financial statements primarily include Vodafones 45% ownership interest in our Verizon Wireless joint venture.
Comprehensive Income
Comprehensive income (loss) consists of net income and other gains and losses affecting equity that, under generally accepted accounting principles, are excluded from net income. Significant changes in the components of Other comprehensive income (loss), net of income tax expense (benefit), are described below.
ThreeMonthsEnded June30, SixMonthsEnded June30,
(dollars in millions) 2009 2008 2009 2008
Net Income $ 3,160 $ 3,404 $ 6,370 $ 6,453
Other Comprehensive Income (Loss), Net of Taxes
Foreign currency translation adjustments 188 (28 ) 30 149
Net unrealized gain on cash flow hedges 47 1 85 1
Unrealized gain (loss) on marketable securities 39 (12 ) 24 (44 )
Defined benefit pension and postretirement plans 371 102 491 206
Other comprehensive income attributable to Verizon 645 63 630 312
Other comprehensive income (loss) attributable to noncontrolling interest 46 (3 ) 82 (2 )
Total Comprehensive Income $ 3,851 $ 3,464 $ 7,082 $ 6,763
Comprehensive income attributable to noncontrolling interest $ 1,723 $ 1,519 $ 3,324 $ 2,927
Comprehensive income attributable to |
| 10.Segment Information |
10.
Segment Information
Reportable Segments
We have two reportable segments, which we operate and manage as strategic business units and organize by products and services. We measure and evaluate our reportable segments based on segment operating income. The use of segment operating income is consistent with the chief operating decision makers assessment of segment performance.
Beginning in 2009, we changed the manner in which the Wireline segment reports Operating revenues to align our financial presentation to the continued evolution of the wireline business. Accordingly, there are four marketing units within the Wireline segment: Mass Markets, Global Enterprise, Global Wholesale and Other. Mass Markets includes consumer and small business revenues. Global Enterprise includes all retail revenue from enterprise customers, both domestic and international. Global Wholesale includes all wholesale revenues, both domestic and international. Other primarily includes operator services, payphone services and revenues from the former MCI mass markets customer base.
Corporate, eliminations and other includes unallocated corporate expenses, intersegment eliminations recorded in consolidation, the results of other businesses, such as our investments in unconsolidated businesses, lease financing, and other adjustments and gains and losses that are not allocated in assessing segment performance due to their non-recurring or non-operational nature. Although such transactions are excluded from the business segment results, they are included in reported consolidated earnings. Gains and losses that are not individually significant are included in all segment results, since these items are included in the chief operating decision makers assessment of segment performance.
The reconciliation of segment operating revenues and expenses to consolidated operating revenues and expenses below also include those items of a non-recurring or non-operational nature. We exclude from segment results the effects of certain items that management does not consider in assessing segment performance, primarily because of their non-recurring and/or non-operational nature. We believe that this presentation will assist readers in better understanding our results of operations and trends from period to period.
During the first quarter of 2008, we completed the spin-off of our local exchange and related business assets in Maine, New Hampshire and Vermont (see Note 3). Accordingly, Wireline results from these operations have been reclassified to Corporate and Other to reflect comparable operating results.
Our segments and their principal activities consist of the following:
Segment Description
Domestic Wireless
Domestic Wirelesss products and services include wireless voice, data services and other value-added services and equipment sales across the United States.
Wireline
Wirelines communications services include voice, Internet access, broadband video and data, next generation Internet Protocol network services, network access, long distance and other services. We provide these services to consumers, carriers, businesses a |
| 11.Commitments and Contingencies |
11.
Commitments and Contingencies
Several state and federal regulatory proceedings may require our telephone 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 which, 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 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 commenced 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 any of the sites requiring remediation.
In connection with the execution of agreements for the sales of businesses and investments, Verizon ordinarily provides representations and warranties to the purchasers pertaining to a variety of nonfinancial matters, such as ownership of the securities being sold, as well as indemnity from certain financial losses.
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 since a variety of the potential outcomes available under the guarantee result in costs and revenues or benefits that may offset each other. In addition, performance under the guarantee is not likely. |
