Verizon Wireless 2013 Annual Report Download - page 18

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Total interest costs on debt balances increased during 2013 compared to
2012 primarily due to the issuance of $49.0 billion of xed and oating
rate notes to nance theWirelessTransaction (see“Acquisitions and
Divestitures”)resultinginanincreaseinaveragedebtaswellasanincre-
mental increase in interest expense of $0.7 billion, partially oset by a
lower eective interest rate (see“Consolidated Financial Condition”).
Capitalized interest costs were higher in 2013 primarily due to increases
in wireless licenses that are currently under development.
Provision (Benet) for Income Taxes (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
Provision (Benet) for income taxes $ 5,730 $ (660) $ 285 $ 6,390 nm $ (945) nm
Eective income tax rate 19.6 % (6.7)% 2.7 %
nm - not meaningful
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eectiveinterest
rate. Capitalized interest costs were lower in 2012 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
eective income tax rate is signicantly lower than the statutory federal
income tax rate for all years presented due to the inclusion of income
attributabletoVodafone’snoncontrollinginterestintheVerizonWireless
partnership within our income before the provision for income taxes. In
2013 and 2011, we recorded a tax provision on income before the provi-
sion for income taxes and when we included 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 eec-
tive income tax rate being 13.7 percentage points lower during 2013 and
7.9 percentage points lower during 2011. In 2012, we recorded a tax ben-
et on income before the provision for income taxes, which resulted in
a negative eective 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 negative eective tax rate being 300.3 percentage points
higher during 2012.
VerizoncompletedtheacquisitionofVodafone’s45%indirectowner-
shipinterestinVerizonWirelessonFebruary21,2014.Ourprovisionfor
income taxes and eective income tax rate subsequent to the closing
willreectthechangeinVerizon’sownershipinterestinVerizonWireless.
Our provision for income taxes and eective income tax rate will increase
subsequent to the closing due to the inclusion of the provision for
incometaxespreviouslyattributabletoVodafone’sownershipinterest.
The eective income tax rate for 2013 was 19.6% compared to (6.7)%
for 2012. The increase in the eective income tax rate and provision for
income taxes was primarily due to higher income before income taxes
as a result of severance, pension and benet credits recorded during
2013 compared to lower income before income taxes as a result of sever-
ance, pension and benet charges as well as early debt redemption costs
recorded during 2012.
The eective income tax rate for 2012 was (6.7)% compared to 2.7% for
2011. The negative eective 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 benet charges as well as early debt redemption
costs recorded during 2012.
A reconciliation of the statutory federal income tax rate to the eective
income tax rate for each period is included in Note 12 to the consoli-
dated nancial statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
Net Income Attributable to Noncontrolling Interests (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
Net income attributable to noncontrolling
interests $ 12,050 $ 9,682 $ 7,794 $ 2,368 24.5 % $ 1,888 24.2 %
The increases in Net income attributable to noncontrolling interests during
2013 compared to 2012 and 2012 compared to 2011 were due to higher
earnings in our Verizon Wireless segment, which had a 45% noncontrolling
partnership interest attributable to Vodafone as of December 31, 2013.
Interest Expense (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
Total interest costs on debt balances $ 3,421 $ 2,977 $ 3,269 $ 444 14.9 % $ (292) (8.9) %
Less Capitalized interest costs 754 406 442 348 85.7 (36) (8.1)
Total $ 2,667 $ 2,571 $ 2,827 $ 96 3.7 $ (256) (9.1)
Average debt outstanding $ 65,959 $ 52,949 $ 55,629
Eective interest rate 5.2% 5.6% 5.9%
We expect Net income attributable to noncontrolling interests to
decline substantially in 2014 as a result of the Wireless Transaction
(see“AcquisitionsandDivestitures”).Thenoncontrollingintereststhat
remained after the completion of the Wireless Transaction primarily relate
to wireless partnerships.