Verizon Wireless 2012 Annual Report Download - page 36

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34
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 $ 22,413 $ 22,158 $ 22,618 $ 255 1.2 % $ (460) (2.0) %
Selling, general and administrative expense 8,883 9,107 9,372 (224) (2.5) (265) (2.8)
Depreciation and amortization expense 8,424 8,458 8,469 (34) (0.4) (11) (0.1)
Total Operating Expenses $ 39,720 $ 39,723 $ 40,459 $ (3) – $ (736) (1.8)
Selling, General and Administrative Expense
Selling, general and administrative expense decreased during 2012 com-
pared to 2011 primarily due to lower allocations related to centralized
administrative functions, and to a lesser extent, lower property and trans-
action tax expenses and employee costs.
Selling, general and administrative expense decreased during 2011 com-
pared to 2010 primarily due to lower pension and other postretirement
benefits and compensation expense, partially offset by higher costs
caused by storm-related events in the third quarter of 2011, as well as the
acquisition of Terremark in the second quarter of 2011.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased during 2012 com-
pared to 2011 due to a decrease in net depreciable assets. The decrease
was partially offset by an increase in amortization expense related to
non-network software.
Depreciation and amortization expense was effectively flat during 2011
compared to 2010 primarily due to a decrease in amortization expense as
a result of a reduction in capitalized non-network software, partially offset
by an increase in depreciation expense primarily due to the acquisition of
Terremark in the second quarter of 2011.
Cost of Services and Sales
Cost of services and sales increased during 2012 compared to 2011,
primarilyduetohighercontentcostsassociatedwithcontinuedFiOS
subscriber growth and vendor rate increases and increased expenses
related to our cloud and data center offerings. Cost of services and sales
wasalsoimpactedbyhighercostsrelatedtoFiOSinstallation,aswellas
higher repair and maintenance expenses caused by storm-related events
in 2012 compared to 2011. The increases were partially offset by a decline
in access costs primarily from management actions to reduce exposure
to unprofitable international wholesale routes and declines in overall
wholesale long distance volumes. Costs related to customer premise
equipment also decreased, which reflects our focus on improving mar-
gins by de-emphasizing sales of equipment that are not part of an overall
enterprise solutions bundle.
Cost of services and sales decreased during 2011 compared to 2010
due to 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, as well as
lower pension and other postretirement benefit expenses. The decrease
was partially offset by higher costs related to repair and maintenance
expenses caused by storm-related events during the third quarter of
2011,contentcostsassociatedwithcontinuedFiOSsubscribergrowth
and the acquisition of Terremark in the second quarter of 2011.
Segment Operating Income and EBITDA (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2012 2011 2010 2012 vs. 2011 2011 vs. 2010
Segment Operating Income $ 60 $ 959 $ 768 $ (899) (93.7)% $ 191 24.9 %
Add Depreciation and amortization expense 8,424 8,458 8,469 (34) (0.4) (11) (0.1)
Segment EBITDA $ 8,484 $ 9,417 $ 9,237 $ (933) (9.9) $ 180 1.9
Segment operating income margin 0.2% 2.4% 1.9%
Segment EBITDA margin 21.3% 23.1% 22.4%
The changes inWireline’s Operating income, Segment EBITDA and
Segment EBITDA margin during the periods presented were primarily
a result of the factors described in connection with operating revenues
and operating expenses above.
Non-recurring or non-operational items excluded from Wireline’s
Operating income were as follows:
(dollars in millions)
Years Ended December 31, 2012 2011 2010
Severance, pension and benefit charges $ – $ – $ 2,237
Access line spin-off related charges – – 79
Impact of divested operations – – (408)
Other costs 56 – –
$ 56 $ – $ 1,908
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued