management’s discussion and analysis
of financial condition and results of operations

Consolidated Results of Operations (3 of 3)

Other Consolidated Results

Equity in Earnings of Unconsolidated Businesses

Equity in earnings of unconsolidated businesses decreased $64 million, or 12.6%, in 2011 compared to 2010 and $45 million, or 8.1%, in 2010 compared to 2009 primarily due to changes in earnings from operations at Vodafone Omnitel N.V. and the related foreign exchange gains and losses due to movements of the Euro against the U.S. dollar.

Other Income and (Expense), Net

Additional information relating to Other income and (expense), net is as follows:

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

Years Ended December 31,

 

2011

 

 

2010

 

 

2009

 

2011 vs. 2010

 

2010 vs. 2009

Interest income

$

68

 

$

92

 

$

75

 

$

(24

)

(26.1

)

%

 

$

17

 

22.7

 

%

Foreign exchange gains (losses), net

 

(9

)

 

5

 

 

 

 

(14

)

nm

 

 

 

 

5

 

 

 

Other, net

 

(73

)

 

(43

)

 

16

 

 

(30

)

69.8

 

 

 

 

(59

)

nm

 

 

Total

$

(14

)

$

54

 

$

91

 

$

(68

)

nm

 

 

 

$

(37

)

(40.7

)

 

nm – not meaningful

Other income and (expense), net decreased during 2011 compared to 2010 primarily driven by higher fees related to the early extinguishment of debt (see ’Other Items”) and foreign exchange losses at our
international wireline operations, partially offset by gains on sales of short-term investments.

Other income and (expense), net decreased during 2010 compared to 2009 primarily due to fees incurred during the third quarter of 2010 related to the early extinguishment of debt. Partially offsetting the decrease was higher distributions from investments and foreign exchange gains at our international wireline operations.

Interest Expense

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

Years Ended December 31,

 

2011

 

 

 

2010

 

 

 

2009

 

 

2011 vs. 2010

 

2010 vs. 2009

Total interest costs on debt balances

$

3,269

 

 

$

3,487

 

 

$

4,029

 

 

$

(218

)

(6.3

)

%

 

$

(542

)

(13.5

)

%

Less capitalized interest costs

 

442

 

 

 

964

 

 

 

927

 

 

 

(522

)

(54.1

)

 

 

 

37

 

4.0

 

 

Total

$

2,827

 

 

$

2,523

 

 

$

3,102

 

 

$

304

 

12.0

 

 

 

$

(579

)

(18.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average debt outstanding

$

55,629

 

 

$

57,278

 

 

$

64,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective interest rate

 

5.9

 

%

 

6.1

 

%

 

6.3

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest costs on debt balances decreased during 2011 compared to 2010 primarily due to a $1.6 billion decrease in average debt (see ’Consolidated Financial Condition”) and a lower effective interest rate. Capitalized interest costs were lower in 2011 primarily due to our ongoing deployment of the 4G LTE network.

Total interest costs on debt balances decreased during 2010 compared to 2009 primarily due to a $6.8 billion decline in average debt. Interest costs during 2009 included fees related to the bridge facility that was entered into and utilized to complete the acquisition of Alltel Corporation (Alltel), which contributed to the higher effective interest rate.

Provision for Income Taxes

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

Years Ended December 31,

 

2011

 

 

 

2010

 

 

 

2009

 

 

2011 vs. 2010

 

2010 vs. 2009

Provision for income taxes

$

285

 

 

$

2,467

 

 

$

1,919

 

 

$

(2,182

)

(88.4

)

%

 

$

548

 

28.6

 

%

Effective income tax rate

 

2.7

 

%

 

19.4

 

%

 

14.2

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

The effective income tax rate is calculated by dividing the provision for income taxes by income before the provision for income taxes. Our effective income 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, which resulted in our effective income tax rate being 7.9, 29.8 and 14.0 percentage points lower during 2011, 2010 and 2009, respectively.

The effective income tax rate in 2011 decreased to 2.7% from 19.4% in 2010. This decrease was primarily driven by lower income before provision for income taxes as a result of higher pension and benefit charges recorded in 2011 as well as tax benefits from state valuation allowance reversals in 2011. The decrease was also due to a one-time, non-cash income tax charge of $1.0 billion recorded during the three months ended March 31, 2010 as 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 are already reflected in Verizon’s financial statements, this change in law 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 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 for the Health Care Act described above. The increase was partially offset primarily by higher earnings attributable to Vodafone’s noncontrolling interest in the Verizon Wireless partnership.

A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is included in Note 12 to the consolidated financial statements.

Net Income Attributable to Noncontrolling Interest

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

Years Ended December 31,

 

2011

 

 

2010

 

 

2009

 

2011 vs. 2010

 

2010 vs. 2009

Net income attributable to noncontrolling interest

$

7,794

 

$

7,668

 

$

6,707

 

$

126

 

1.6

 

%

 

$

961

 

14.3

 

%

The increases in Net income attributable to noncontrolling interest during 2011 compared to 2010, and 2010 compared to 2009 were due to higher earnings in our Verizon Wireless segment, which has a 45% noncontrolling partnership interest attributable to Vodafone.