Management’s Discussion and Analysis of Financial Condition and Results of Operations – As Adjusted

Consolidated Results of Operations (4 of 4)

Provision (Benefit) for Income Taxes

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

Years Ended December 31,

 

2010

 

 

 

2009

 

 

 

2008

 

 

 

2010 vs. 2009

 

2009 vs. 2008

Provision (benefit) for income taxes

$

2,467

 

 

$

1,919

 

 

$

(2,319

)

 

 

$

548

 

28.6

 

%

 

$

4,238

 

nm

 

 

Effective income tax rate

 

19.4

 

%

 

14.2

 

%

 

nm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nm – not meaningful

The effective income tax rate is calculated by dividing the provision for income taxes by income before the provision for income taxes. Our effective 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.

The effective income tax rate in 2010 increased to 19.4% from 14.2% in 2009. The increase was primarily driven by a one-time, non-cash income tax charge of $1.0 billion. The one-time non-cash income tax charge was 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 federal 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 were already reflected in Verizon's financial statements, this change 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. The increase was partially offset by higher earnings attributable to the noncontrolling interest.

During 2008, we recorded a pension and postretirement benefit plan remeasurement loss rendering the 2008 effective tax rate not meaningful. Excluding the tax impact of this actuarial loss in 2008, the effective income tax rate decreased in 2009 primarily driven by higher earnings attributable to the noncontrolling interest.

A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is included in Note 13 to the consolidated financial statements.

Net Income Attributable to Noncontrolling Interest

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

Years Ended December 31,

 

2010

 

 

2009

 

 

2008

 

 

2010 vs. 2009

 

2009 vs. 2008

Net income attributable to

 

noncontrolling interest

$

7,668

 

$

6,707

 

$

6,155

 

 

$

961

 

14.3

 

%

 

$

552

 

9.0

 

%

The increase in Net income attributable to noncontrolling interest during 2010 compared to 2009, and 2009 compared to 2008 was due to higher earnings in our Domestic Wireless segment, which has a 45% noncontrolling partnership interest attributable to Vodafone.