Verizon Wireless 2012 Annual Report Download - page 30

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Interest Expense (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Total interest costs on debt balances $ 2,977 $ 3,269 $ 3,487 $ (292) (8.9)% $ (218) (6.3) %
Less Capitalized interest costs 406 442 964 (36) (8.1) (522) (54.1)
Total $ 2,571 $ 2,827 $ 2,523 $ (256) (9.1) $ 304 12.0
Average debt outstanding $ 52,949 $ 55,629 $ 57,278
Effective interest rate 5.6% 5.9% 6.1%
Total interest costs on debt balances decreased during 2012 com-
pared to 2011 primarily due to a $2.7 billion decrease in average debt
(see“ConsolidatedFinancialCondition”)andalowereffectiveinterest
rate. Capitalized interest costs were lower in 2012 primarily due to our
ongoing deployment of the 4G LTE network.
Provision (Benefit) for Income Taxes (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Provision (Benefit) for income taxes $ (660) $ 285 $ 2,467 $ (945) nm $ (2,182) (88.4) %
Effective income tax rate (6.7)% 2.7 % 19.4 %
nm - not meaningful
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.
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 provision
for income taxes. In 2012, we recorded a tax benefit on income before
the provision for income taxes, which resulted in a negative effective
income tax rate. In this circumstance, including the income attributable
toVodafone’snoncontrollinginterestintheVerizonWirelesspartnership
in our income before the provision for income taxes resulted in our nega-
tive effective tax rate being 300.3 percentage points higher during 2012.
In 2011 and 2010, we recorded a tax provision on income before the pro-
vision for income taxes and when we include the income attributable to
Vodafone’snoncontrollinginterestintheVerizonWirelesspartnershipin
our income before the provision for income taxes it resulted in our effec-
tive income tax rate being 7.9 percentage points lower during 2011 and
29.8 percentage points lower during 2010.
The effective income tax rate for 2012 was (6.7)% compared to 2.7% for
2011. The negative effective income tax rate for 2012 and the decrease
in the provision for income taxes during 2012 compared to 2011 was
primarily due to lower income before income taxes as a result of higher
severance, pension, and benefit charges as well as early debt redemption
costs recorded in the current year.
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.
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, 2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Net income attributable to noncontrolling
interest $ 9,682 $ 7,794 $ 7,668 $ 1,888 24.2 % $ 126 1.6 %
The increases in Net income attributable to noncontrolling interest during
2012 compared to 2011, and 2011 compared to 2010 were due to higher
earnings in our Verizon Wireless segment, which has a 45% noncontrol-
ling partnership interest attributable to Vodafone.