Verizon Wireless 2008 Annual Report Download - page 20

Selling, General and Administrative Expense
Consolidated selling, general and administrative expense in 2007
increased $1,012 million, or 4.1%, compared to 2006. The increase was
primarily attributable to higher salary and benefits expenses. Also contrib-
uting to the increase was higher sales commission expense at Domestic
Wireless and higher advertising costs at Wireline. Partially offsetting the
increases were lower bad debt expenses and cost reduction initiatives.
Consolidated selling, general and administrative expense in 2007 included
charges of $772 million for severance and related expenses (see “Other
Items”),$146millionformergerintegrationcosts,primarilycomprisedof
Wireline systems integration activities related to businesses acquired and
$84 million related to the spin-off of local exchange and related business
assets in Maine, New Hampshire and Vermont. In addition, during 2007
we contributed $100 million of the proceeds from the sale of our invest-
mentinTELPRItotheVerizonFoundation.
Consolidated selling, general and administrative expense in 2006
included $56 million related to pension settlement losses incurred in
connection with our benefit plans and a 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 selling, general and administrative
expense 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 pretax charge of $184 million for
Verizon Center relocation costs.
Depreciation and Amortization Expense
Depreciation and amortization expense in 2007 decreased $168 million,
or 1.2%, compared to 2006. The decrease was primarily due to lower
rates of depreciation as a result of changes in the estimated useful lives
of certain asset classes at Wireline and fully amortized customer lists at
Domestic Wireless, partially offset by growth in depreciable telephone
plant as a result of increased capital expenditures.
Other Consolidated Results
Equity in Earnings of Unconsolidated Businesses
(dollars in millions)
Years Ended December 31, 2008 2007 2006
Vodafone Omnitel $ 655 $ 597 $ 703
CANTV –– 182
Other (88) (12) (112)
Total $ 567 $ 585 $ 773
Equity in earnings of unconsolidated businesses in 2008 decreased by
$18 million, or 3.1%, compared to 2007. The decrease was primarily
driven by the gain on the sale of an international investment in 2007,
partially offset by higher earnings at Vodafone Omnitel N.V. (Vodafone
Omnitel) in 2008.
Equity in earnings of unconsolidated businesses in 2007 decreased by
$188 million, or 24.3%, compared to 2006. The decrease was primarily
driven by the nationalization of Compañía Anónima Nacional Teléfonos
de Venezuela (CANTV) during 2007, as well as the effect of lower tax ben-
efits at Vodafone Omnitel.
Other Income and (Expense), Net
(dollars in millions)
Years Ended December 31, 2008 2007 2006
Interest income $ 362 $ 168 $ 201
Foreign exchange gains (losses), net (46) 14 (3)
Other, net (34) 29 197
Total $ 282 $ 211 $ 395
Other Income and (Expense), Net in 2008 increased $71 million, or
33.6%, compared to 2007. The increase was primarily attributable to
higher interest income, primarily from our investment in Alltel’s debt
obligations. Partially offsetting the increase were foreign exchange losses
at our international Wireline operations and an impairment charge of
$48 million recorded during the fourth quarter of 2008 related to an
other-than-temporary decline in fair value of our investments in certain
marketable securities.
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 2006, as well as decreased interest
income as a result of lower average cash balances.
Interest Expense
(dollars in millions)
Years Ended December 31, 2008 2007 2006
Total interest costs on debt balances $ 2,566 $ 2,258 $ 2,811
Less capitalized interest costs 747 429 462
Interest expense $ 1,819 $ 1,829 $ 2,349
Weighted average debt outstanding $ 41,064 $ 32,964 $ 41,500
Eective interest rate 6.25% 6.85% 6.78%
Total interest costs in 2008 increased $308 million, compared to 2007, due
to an increase in the weighted average debt level, partially offset by lower
interest rates compared to last year. Interest Expense in 2008 decreased
$10 million compared to 2007 primarily due to higher capitalized interest
costs. Capitalized interest costs include approximately $557 million
related to the development of wireless licenses for commercial service,
primarily as a result of the spectrum acquired in the 700 MHz auction.
The increase in weighted average debt outstanding was primarily driven
by the issuance of $8,000 million of fixed rate notes with varying maturi-
ties, in the first half of 2008, and to a lesser extent, the Verizon Wireless
borrowings during the second half of 2008 (see “Consolidated Financial
Condition”).Partiallyoffsettingthisincreaseintheweightedaveragedebt
outstanding were debt reductions.
Total interest costs in 2007 decreased $553 million, 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 $7,100 million 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.
Minority Interest
(dollars in millions)
Years Ended December 31, 2008 2007 2006
Minority interest $ 6,155 $ 5,053 $ 4,038
The increase in minority interest in 2008 compared to 2007, and in 2007
compared to 2006, was due to the higher earnings in our Domestic
Wireless segment, which has a significant minority interest attributable
to Vodafone Group Plc (Vodafone).
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Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations continued