Verizon Wireless 2012 Annual Report Download - page 28

growth and the acquisition of Terremark in the second quarter of 2011.
Partially offsetting the increase were lower non-operational charges noted
in the table below, a decrease in access costs resulting primarily from
management actions to reduce exposure to unprofitable international
wholesale routes and declines in overall wholesale long distance volumes.
Selling, General and Administrative Expense
Selling, general and administrative expense increased during 2011 com-
pared to 2010 primarily due to higher severance, pension and benefit
charges and costs caused by storm-related events as well as higher sales
commission expense at our Verizon Wireless segment. Partially offset-
ting the increase was the absence of merger integration and acquisition
related charges and access line spin-off charges during 2011 and a
decrease in compensation expense at our Wireline segment.
Depreciation and Amortization Expense
Depreciation and amortization expense increased during 2011 com-
pared to 2010 as a result of growth in depreciable assets at our Wireless
segment and the acquisition of Terremark in the second quarter of 2011,
partially offset by lower non-operational charges noted in the table
below and amortization expense as a result of a reduction in capitalized
non-network software at our Wireline segment. The change in depre-
ciation and amortization expense was also partially attributable to the
impact of divested operations.
Non-operational Charges
Non-operational charges included in operating expenses (see "Other
Items") were as follows:
(dollars in millions)
Years Ended December 31, 2012 2011 2010
Severance, Pension and Benefit Charges
Cost of services and sales $ – $ – $ 1,723
Selling, general and administrative expense 7,186 5,954 1,331
7,186 5,954 3,054
Merger Integration and Acquisition
Related Charges
Cost of services and sales – – 376
Selling, general and administrative expense – – 389
Depreciation and amortization expense – – 102
– – 867
Access Line Spin-off Related Charges
Cost of services and sales – – 42
Selling, general and administrative expense – – 365
– – 407
Litigation Settlements
Selling, general and administrative expense 384 – –
Other Costs
Cost of sales and services 40 – –
Selling, general and administrative expense 236 – –
276 – –
Total non-operating charges included in
operating expenses $ 7,846 $ 5,954 $ 4,328
See“OtherItems”foradescriptionofothernon-operationalitems.
26
Consolidated Operating Expenses
(dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Cost of services and sales $ 46,275 $ 45,875 $ 44,149 $ 400 0.9 % $ 1,726 3.9 %
Selling, general and administrative expense 39,951 35,624 31,366 4,327 12.1 4,258 13.6
Depreciation and amortization expense 16,460 16,496 16,405 (36) (0.2) 91 0.6
Consolidated Operating Expenses $ 102,686 $ 97,995 $ 91,920 $ 4,691 4.8 $ 6,075 6.6
Consolidated operating expenses increased during 2012 and 2011 pri-
marilyduetohighernon-operationalcharges(see“OtherItems”)aswell
as increased operating expenses at Verizon Wireless. The changes in con-
solidated operating expenses during 2011 were also favorably impacted
by divested operations.
2012 Compared to 2011
Cost of Services and Sales
Cost of services and sales includes the following costs directly attrib-
utable to a service or product: salaries and wages, benefits, materials
and supplies, content costs, contracted services, network access and
transport costs, wireless equipment costs, customer provisioning costs,
computer systems support, costs to support our outsourcing contracts
andtechnicalfacilitiesandcontributionstotheUniversalServiceFund.
Aggregate customer care costs, which include billing and service pro-
visioning, are allocated between Cost of services and sales and Selling,
general and administrative expense.
Cost of services and sales increased during 2012 compared to 2011 pri-
marily due to higher cost of equipment sales, increased cost of network
services and increased data roaming, partially offset by a decrease in cost
for data services, a decrease in network connection costs and a decrease
in the cost of long distance at our Verizon Wireless segment. Also contrib-
uting to the increase were higher content costs associated with continued
FiOSsubscribergrowthandvendorrateincreases,increasedexpenses
relatedtoourcloudanddatacenteroffering,highercostsrelatedtoFiOS
installation as well as higher repair and maintenance expenses caused by
storm-related events in 2012, partially offset by declines in access costs
and customer premise equipment costs at our Wireline segment.
Selling, General and Administrative Expense
Selling, general and administrative expense includes: salaries and wages
and benefits not directly attributable to a service or product; bad debt
charges; taxes other than income taxes; advertising and sales commis-
sion costs; customer billing; call center and information technology costs;
regulatory fees; professional service fees; and rent and utilities for admin-
istrative space. Also included are a portion of the aggregate customer
care costs as discussed above.
Selling, general and administrative expense increased during 2012 com-
pared to 2011 primarily due to higher non-operational charges noted in
the table below as well as higher sales commission expense and costs
associated with regulatory fees at our Verizon Wireless segment.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased during 2012 com-
pared to 2011 primarily due to a decrease in depreciable assets at our
Wireline segment, partially offset by an increase in amortization expense
related to non-network software.
2011 Compared to 2010
Cost of Services and Sales
Cost of services and sales increased during 2011 compared to 2010
primarily due to higher cost of equipment sales at our Verizon Wireless
segment, as well as increased costs at our Wireline segment related to
repair and maintenance expenses caused by storm-related events during
2011,highercontentcostsassociatedwithcontinuedFiOSsubscriber
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued