Verizon Wireless 2011 Annual Report Download - page 34

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Interest Expense (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2011 2010 2009 2011 vs. 2010 2010 vs. 2009
Total interest costs on debt balances $ 3,269 $ 3,487 $ 4,029 $ (218) (6.3)% $ (542) (13.5) %
Less capitalized interest costs 442 964 927 (522) (54.1) 37 4.0
Total $ 2,827 $ 2,523 $ 3,102 $ 304 12.0 $ (579) (18.7)
Average debt outstanding $ 55,629 $ 57,278 $ 64,039
Effective interest rate 5.9 % 6.1 % 6.3 %
Total interest costs on debt balances decreased during 2011 com-
pared to 2010 primarily due to a $1.6 billion decrease in average debt
(see“ConsolidatedFinancialCondition”)andalowereffectiveinterest
rate. Capitalized interest costs were lower in 2011 primarily due to our
ongoing deployment of the 4G LTE network.
Provision for Income Taxes (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2011 2010 2009 2011 vs. 2010 2010 vs. 2009
Provision for income taxes $ 285 $ 2,467 $ 1,919 $ (2,182) (88.4)% $ 548 28.6 %
Effective income tax rate 2.7 % 19.4 % 14.2 %
Total interest costs on debt balances decreased during 2010 compared to
2009 primarily due to a $6.8 billion decline in average debt. Interest costs
during 2009 included fees related to the bridge facility that was entered
into and utilized to complete the acquisition of Alltel Corporation (Alltel),
which contributed to the higher effective interest rate.
The effective income tax rate is calculated by dividing the provision
for income taxes by income before the provision for income taxes. Our
effective income tax rate is significantly lower than the statutory federal
income tax rate for all years presented due to the inclusion of income
attributabletoVodafoneGroupPlc.’s(Vodafone)noncontrollinginterest
in the Verizon Wireless partnership within our income before the provi-
sion for income taxes, which resulted in our effective income tax rate
being 7.9, 29.8 and 14.0 percentage points lower during 2011, 2010 and
2009, respectively.
The effective income tax rate in 2011 decreased to 2.7% from 19.4% in
2010. This decrease was primarily driven by lower income before provi-
sion for income taxes as a result of higher pension and benefit charges
recorded in 2011 as well as tax benefits from state valuation allowance
reversals in 2011. The decrease was also due to a one-time, non-cash
income tax charge of $1.0 billion recorded during the three months ended
March31,2010as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companiesthatreceiveasubsidyunderMedicarePartDto
provide retiree prescription drug coverage will no longer receive a fed-
eral income tax deduction for the expenses incurred in connection with
providing the subsidized coverage to the extent of the subsidy received.
Because future anticipated retiree prescription drug plan liabilities and
relatedsubsidiesarealreadyreflectedinVerizon’sfinancialstatements,
this change in law required Verizon to reduce the value of the related tax
benefits recognized in its financial statements in the period during which
the Health Care Act was enacted.
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 for the Health Care Act described above. The
increase was partially offset primarily by higher earnings attributable to
Vodafone’snoncontrollinginterestintheVerizonWirelesspartnership.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate for each period is included in Note 12 to the consoli-
dated financial statements.
ManagEMEnt’s discussiOn and analYsis
OF Financial cOnditiOn and REsults OF OPERatiOns continued
Net Income Attributable to Noncontrolling Interest (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2011 2010 2009 2011 vs. 2010 2010 vs. 2009
Net income attributable to
noncontrolling interest $ 7,794 $ 7,668 $ 6,707 $ 126 1.6 % $ 961 14.3 %
The increases in Net income attributable to noncontrolling interest during
2011 compared to 2010, and 2010 compared to 2009 were due to higher
earnings in our Verizon Wireless segment, which has a 45% noncontrol-
ling partnership interest attributable to Vodafone.