Verizon Wireless 2014 Annual Report Download - page 22

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Cost of Services and Sales
Cost of services and sales increased during 2014 compared to 2013 pri-
marily due to an increase in cost of equipment sales of $5.3 billion as a
result of an increase in the number of devices sold as well as an increase
in the cost per unit. The increase in the number of devices sold was
driven, in part, by the launch of new devices.
Cost of services and sales decreased during 2013 compared to 2012 pri-
marily due to a decrease in cost of equipment sales of $0.4 billion, which
was partially due to a decline in postpaid upgrades, decreased data
roaming, a decline in cost of data services and a decrease in network
connection costs due to the deployment of Ethernet backhaul facili-
ties primarily targeted at sites upgrading to 4G LTE, partially oset by an
increase in cost of network services.
The changes in the table above during the periods presented were pri-
marily a result of the factors described in connection with operating
revenues and operating expenses.
Segment Operating Income and EBITDA (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2014 2013 2012 2014 vs. 2013 2013 vs. 2012
Segment Operating Income $ 26,760 $ 25,997 $ 21,768 $ 763 2.9 % $ 4,229 19.4 %
Add Depreciation and amortization expense 8,459 8,202 7,960 257 3.1 242 3.0
Segment EBITDA $ 35,219 $ 34,199 $ 29,728 $ 1,020 3.0 $ 4,471 15.0
Segment operating income margin 30.5% 32.1% 28.7%
Segment EBITDA margin 40.2% 42.2% 39.2%
Segment EBITDA service margin 48.5% 49.5% 46.6%
Selling, General and Administrative Expense
Selling, general and administrative expense increased during 2014
compared to 2013 primarily due to a $0.2 billion increase in advertising
expense and gains recorded in the rst quarter of 2013 related to wire-
less license exchange agreements, partially oset by a decline in sales
commission expense, which was driven by the adoption of Verizon Edge.
Selling, general and administrative expense increased during 2013 com-
pared to 2012 primarily due to higher sales commission expense in our
indirect channel. Indirect sales commission expense increased $1.1 bil-
lion during 2013 compared to 2012 primarily as a result of increases in
indirect gross additions and upgrades, as well as the average commission
per unit, as the mix of units continues to shift toward smartphones and
more customers activate data services.
Depreciation and Amortization Expense
The increase in depreciation and amortization expense during 2014 com-
pared to 2013, and 2013 compared to 2012, respectively, was primarily
driven by an increase in net depreciable assets.
Non-operational items excluded from Wireless’ Operating income
were as follows:
(dollars in millions)
Years Ended December 31, 2014 2013 2012
Gain on spectrum license transactions $ (707) $ (278) $ –
Severance, pension and benet (credits)
charges 86 (61) 37
Other costs 109 – –
$ (512) $ (339) $ 37
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
Operating Expenses (dollars in millions)
Increase/(Decrease)
Years Ended December 31, 2014 2013 2012 2014 vs. 2013 2013 vs. 2012
Cost of services and sales $ 28,825 $ 23,648 $ 24,490 $ 5,177 21.9 % $ (842) (3.4) %
Selling, general and administrative expense 23,602 23,176 21,650 426 1.8 1,526 7.0
Depreciation and amortization expense 8,459 8,202 7,960 257 3.1 242 3.0
Total Operating Expenses $ 60,886 $ 55,026 $ 54,100 $ 5,860 10.6 $ 926 1.7