Verizon Wireless 2013 Annual Report Download - page 16

2012 Compared to 2011
Cost of Services and Sales
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 oset 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 Wireless segment. Also contributing
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oering,highercostsrelatedtoFiOS
installation as well as higher repair and maintenance expenses caused by
storm-related events in 2012, partially oset by declines in access costs
and customer premise equipment costs at our Wireline segment.
Selling, General and Administrative Expense
Selling, general and administrative expense increased during 2012 com-
pared to 2011 primarily due to higher non-operational charges (see
“OtherItems”)aswellashighersalescommissionexpenseandcosts
associated with regulatory fees at our 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 oset by an increase in amortization expense
related to non-network software.
Non-operational (Credits) Charges
Non-operational (credits) charges included in operating expenses (see
"Other Items") were as follows:
(dollars in millions)
Years Ended December 31, 2013 2012 2011
Gain on Spectrum License Transaction
Selling, general and administrative expense $ (278) $ – $ –
Severance, Pension and Benet
(Credits) Charges
Selling, general and administrative expense (6,232) 7,186 5,954
Litigation Settlements
Selling, general and administrative expense – 384 –
Other Costs
Cost of services and sales – 40 –
Selling, general and administrative expense – 236 –
– 276 –
Total non-operating (credits) charges
included in operating expenses $ (6,510) $ 7,846 $ 5,954
See“OtherItems”foradescriptionofothernon-operationalitems.
14
Consolidated Operating Expenses
(dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
Cost of services and sales $ 44,887 $ 46,275 $ 45,875 $ (1,388) (3.0)% $ 400 0.9 %
Selling, general and administrative expense 27,089 39,951 35,624 (12,862) (32.2) 4,327 12.1
Depreciation and amortization expense 16,606 16,460 16,496 146 0.9 (36) (0.2)
Consolidated Operating Expenses $ 88,582 $ 102,686 $ 97,995 $ (14,104) (13.7) $ 4,691 4.8
Consolidated operating expenses decreased during 2013 primarily due
to non-operational credits recorded in 2013 as well as non-operational
chargesrecordedin2012(see“OtherItems”).Consolidatedoperating
expenses increased during 2012 primarily due to higher non-operational
charges(see“OtherItems”)as wellas increasedoperating expenses
at Wireless.
2013 Compared to 2012
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, benets, 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 decreased during 2013 compared to 2012
primarily due to a decrease in cost of equipment sales, decreased data
roaming, a decline in cost of data services and a decrease in network
connection costs at our Wireless segment, as well as a decrease in costs
related to customer premise equipment, a decline in access costs and the
net eect of storm-related insurance recoveries at our Wireline segment.
Partially osetting these decreases were higher content costs associated
withcontinuedFiOSsubscribergrowthandvendorrateincreasesatour
Wireline segment, as well as increases in cost of network services at our
Wireless segment.
Selling, General and Administrative Expense
Selling, general and administrative expense includes: salaries and wages
and benets 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in“CostofServicesandSales”above.
Selling, general and administrative expense decreased during 2013 com-
pared to 2012 primarily due to the non-operational credits recorded in
2013 and declines in employee costs at our Wireline segment as well as
thenon-operationalchargesrecordedin2012(see“OtherItems”).This
decrease was partially oset by higher sales commission expense at our
Wireless segment.
Depreciation and Amortization Expense
Depreciation and amortization expense increased during 2013 com-
pared to 2012 primarily due to an increase in net depreciable assets at
our Wireless segment and an increase in amortization expense at our
Wireline segment. These increases were partially oset by a decline in net
depreciable assets at our Wireline segment.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued