Verizon Wireless 2007 Annual Report Download - page 24

Selling, General and Administrative Expense
Selling, general and administrative expense increased by $5,512 million,
or 28.3% in 2006 compared to 2005. This increase was driven by the inclu-
sion of the former MCI operations in the Wireline segment subsequent
to the completion of the merger, increases in the Domestic Wireless seg-
ment primarily related to increased salary and benefits expenses, and
non-operational charges.
Consolidated operating expenses in 2006 included $56 million related
to pension settlement losses incurred in connection with our benefit
plans, a net pretax charge of $369 million for employee severance and
severance-related activities in connection with the involuntary separation
of approximately 4,100 employees who were separated in 2006.
Consolidated operating expenses in 2006 also included $207 million
of merger integration costs primarily for advertising and other costs
related to re-branding initiatives and systems integration activities, and
a net pretax charge of $184 million for Verizon Center relocation costs.
Consolidated operating expenses in 2005 included a pretax impairment
charge of $125 million pertaining to our leasing operations for airplanes
leased to airlines experiencing financial difficulties, a net pretax charge
of $98 million related to the restructuring of the Verizon management
retirement benefit plans and a pretax charge of $59 million associated
with employee severance costs and severance-related activities in
connection with the voluntary separation program for surplus union-
represented employees.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $930 million, or
6.8% in 2006 compared to 2005. This increase was primarily due to higher
depreciable and amortizable asset bases as a result of the MCI merger
and, to a lesser extent, increased capital expenditures.
Other Consolidated Results
Equity in Earnings of Unconsolidated Businesses
(dollars in millions)
Years Ended December 31, 2007 2006 2005
Vodafone Omnitel $ 597 $ 703 $ 741
CANTV –182 53
Other (12) (112) (108)
$ 585 $ 773 $ 686
Equity in earnings of unconsolidated businesses decreased by $188 mil-
lion, or 24.3% in 2007 compared to 2006. The decrease is primarily driven
by the nationalization of Compañía Anónima Nacional Teléfonos de
Venezuela (CANTV) during 2007, as well as the effect of lower tax benefits
at Vodafone Omnitel N.V. (Vodafone Omnitel).
Equity in earnings of unconsolidated businesses increased by $87 mil-
lion, or 12.7% in 2006 compared to 2005. The increase is primarily due
to additional pension liabilities that CANTV recognized in 2005, as well
as the effect of favorable operating results and lower taxes in 2006. In
addition, the increase reflects our proportionate share, or $85 million, of
a tax benefit at Vodafone Omnitel in the third quarter of 2006, partially
offset by a similar benefit recorded in the third quarter of 2005 of $76
million. This was offset by lower tax benefits and lower operating results
at Vodafone Omnitel.
Other Income and (Expense), Net
(dollars in millions)
Years Ended December 31, 2007 2006 2005
Interest income $ 168 $ 201 $ 103
Foreign exchange gains (losses), net 14 (3) 11
Other, net 29 197 197
Total $ 211 $ 395 $ 311
Other Income and (Expense), Net in 2007 decreased $184 million, or
46.6% compared to 2006. The decline was primarily attributable to a gain
on the sale of a Wireline investment in the prior year, as well as decreased
interest income as a result of lower average cash balances.
Other Income and (Expense), Net in 2006 increased $84 million, or 27%
compared to 2005. The increase was primarily due to increased interest
income as a result of higher average cash balances coupled with higher
interest rates in 2006 compared to 2005, partially offset by foreign
exchange losses. Other, net in 2005 included a pretax gain on the sale of
a small international business and investment gains and expenses related
to the early retirement of debt.
Interest Expense
(dollars in millions)
Years Ended December 31, 2007 2006 2005
Total interest costs on debt balances $ 2,258 $ 2,811 $ 2,481
Less: capitalized interest costs (429) (462) (352)
Interest expense $ 1,829 $ 2,349 $ 2,129
Weighted average debt outstanding $ 32,964 $ 41,500 $ 39,152
Eective interest rate 6.85% 6.78% 6.30%
Total interest costs decreased $553 million in 2007 compared to 2006, pri-
marily due to a decrease in average debt levels, partially offset by slightly
higher interest rates. Debt levels decreased primarily as a result of the
approximately $7.1 billion reduction from the spin-off of our domestic
print and Internet yellow pages directories business in November 2006,
as well as from debt redemptions and retirements funded by proceeds
from the spin-off and the divestiture of our Caribbean and Latin American
investments during 2006 and the first quarter of 2007.
In 2006, interest costs increased $330 million compared to 2005 primarily
due to an increase in average debt level of $2,348 million and increased
interest rates compared to 2005. Higher capital expenditures in 2006
contributed to higher capitalized interest costs.
Minority Interest
(dollars in millions)
Years Ended December 31, 2007 2006 2005
Minority interest $ 5,053 $ 4,038 $ 3,001
The increase in minority interest in 2007 compared to 2006, and in 2006
compared to 2005, was due to the higher earnings at Domestic Wireless,
which has a significant minority interest attributable to Vodafone Group
Plc (Vodafone).
Provision for Income Taxes
(dollars in millions)
Years Ended December 31, 2007 2006 2005
Provision for income taxes $ 3,982 $ 2,674 $ 2,421
Eective income tax rate 42.0% 32.8% 28.7%
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Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations continued