Verizon Wireless 2010 Annual Report Download - page 23

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21
The effective income tax rate is calculated by dividing the provision
for income taxes by income before the provision for income taxes. Our
effective tax rate is significantly lower than the statutory federal income
tax rate for all years presented due to the inclusion of income attribut-
abletoVodafoneGroupPlc.’s(Vodafone)noncontrollinginterestinthe
Verizon Wireless partnership within our Income before the provision for
income taxes.
The effective income tax rate in 2010 increased to 19.4% from 14.2% in
2009. The increase was primarily driven by a one-time, non-cash income
tax charge of $1.0 billion. The one-time non-cash income tax charge was
a result of the enactment of the Patient Protection and Affordable Care
ActandtheHealthCareandEducationReconciliationActof2010,both
of which became law in March 2010 (collectively the Health Care Act).
Under the Health Care Act, beginning in 2013, Verizon and other com-
panies that receive a subsidy under Medicare Part D to provide retiree
prescription drug coverage will no longer receive a federal income tax
deduction for the expenses incurred in connection with providing the
Management’sDiscussionandAnalysis
ofFinancialConditionandResultsofOperations – As Adjusted continued
subsidized coverage to the extent of the subsidy received. Because future
anticipated retiree prescription drug plan liabilities and related subsi-
dieswerealreadyreflectedinVerizon’sfinancialstatements,thischange
required Verizon to reduce the value of the related tax benefits recog-
nized in its financial statements in the period during which the Health
Care Act was enacted. The increase was partially offset by higher earnings
attributable to the noncontrolling interest.
During 2008, we recorded a pension and postretirement benefit plan
remeasurement loss rendering the 2008 effective tax rate not mean-
ingful. Excluding the tax impact of this actuarial loss in 2008, the effective
income tax rate decreased in 2009 primarily driven by higher earnings
attributable to the noncontrolling interest.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate for each period is included in Note 13 to the consoli-
dated financial statements.
Net Income Attributable to Noncontrolling Interest
(dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2010 2009 2008 2010 vs. 2009 2009 vs. 2008
Net income attributable to
noncontrolling interest $ 7,668 $ 6,707 $ 6,155 $ 961 14.3 % $ 552 9.0 %
Provision (Benefit) for Income Taxes
(dollars in millions)
Increase/(Decrease)
2010 2009 2008 2010 vs. 2009 2009 vs. 2008
Provision (benefit) for income taxes $ 2,467 $ 1,919 $ (2,319) $ 548 28.6 % $ 4,238 nm
Effective income tax rate 19.4 % 14.2 % nm
nm – not meaningful
The increase in Net income attributable to noncontrolling interest during
2010 compared to 2009, and 2009 compared to 2008 was due to higher
earnings in our Domestic Wireless segment, which has a 45% noncontrol-
ling partnership interest attributable to Vodafone.