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Appendix H: Verizon Wireless Promotional Timeline
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25
Appendix J: Discounted Cash Flow Model for Verizon Communications
Discounted Cash Flow Model for Verizon Communications
All figures in millions, except per share data
Operating scenario: Base Case
Last fiscal year end date: 12/31/09
Valuation / deal date: 12/10/10
Stub year fraction: 5.8%
Weighted average cost of capital: 6.9%
Free cash flow buildup
2010 2011 2012 2013 2014 2015 2016
12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16
Total Revenues 106,729.9 108,864.5 111,803.9 114,822.6 117,922.8 121,106.7 124,376.6
EBITDA 33,552.1 34,223.1 35,147.1 36,096.1 37,070.7 38,071.6 39,099.5
EBIT 17,185.4 17,529.1 18,002.4 18,488.4 18,987.6 19,500.3 20,026.8
Tax rate 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
EBIAT 13,748.3 14,023.3 14,401.9 14,790.7 15,190.1 15,600.2 16,021.4
Depreciation & Amortization 16,366.7 16,694.0 17,144.8 17,607.7 18,083.1 18,571.3 19,072.7
Accounts receivable 125.7 (248.9) (342.8) (352.1) (361.6) (371.3) (381.3)
Inventories 193.3 (41.9) (57.7) (59.3) (60.9) (62.5) (64.2)
Deferred income taxes (assets) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Prepaid expenses 52.5 (103.9) (143.1) (146.9) (150.9) (155.0) (159.1)
Other current assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accounts payable (366.3) 79.4 109.4 112.3 115.3 118.5 121.6
Accrued expenses (94.4) 187.0 257.4 264.4 271.5 278.9 286.4
Taxes payable 72.2 75.8 79.6 83.6 87.8 92.1 96.8
Other current liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred tax (liabilities) 965.5 1,013.8 1,064.5 1,117.7 1,173.6 1,232.2 1,293.9
Cash from working capital 948.5 961.2 967.3 1,019.7 1,074.9 1,132.9 1,194.0
Capital expenditures (16,876.5) (17,214.1) (17,678.8) (18,156.2) (18,646.4) (19,149.8) (19,666.9)
Unlevered free cash flows 14,186.9 14,464.4 14,835.1 15,261.9 15,701.6 16,154.6 16,621.2
Unlevered FCFs attributable to Verizon 7,802.8 7,955.4 8,159.3 8,394.1 8,635.9 8,885.0 9,141.7
Discount factor 0.996 0.932 0.871 0.815 0.762 0.713 0.667
Midyear adjustment factor 1.002 1.034 1.034 1.034 1.034 1.034 1.034
Present value of free cash flows 7,787.8 7,664.1 7,351.6 7,073.6 6,806.3 6,549.3 6,302.3
Sum of present values of FCFs 49,535.0
Terminal value Equity value calculations Shares Outstanding Worksheet
Growth in perpetuity method Enterprise value 179,876.6 Basic Shares Outanding : 2,836.0
Long term growth rate 3.5% Calculation of net debt: Current Share Price: $34.04
Free cash flow (t+1) 9,461.6 Current portion of long-term debt 6,105.0 Options / Warrants Data
Terminal value 276,548.1 Short term debt 1,100.0 # of options $ strike # In-the-$
Midyear adjusted terminal value 285,958.4 Long term debt 55,051.0 Batch 1 28.905 $53.00 0.000
Present value of terminal value 190,653.3 Convertible debt 0.0 Batch 2 0.000
Enterprise value 240,188.3 Minority interest 0.0 Batch 3 0.000
Convertible preferred stock 0.0 Batch 4 0.000
Exit multiple method Less: Excess cash (2,499.0) Batch 5 0.000
Exit EV / EBITDA multiple 5.0x Less: Equity investments (3,535.0) Batch 6 0.000
LTM EBITDA at end of projection 39,099.5 Net debt 56,222.0 Total in-the-$ options: 0.000
Terminal value 195,497.6 Equity value 123,654.6 Total $ proceeds: $0.0
Present value of terminal value 130,341.6 Shares outstanding 2,836.0 Total shares repurchased: 0.000
Enterprise value 179,876.6 Equity value / share $43.60 Basic shares outstanding 2,836.0
New shares from options: 0.0
Select a terminal value method New shares from convert. pref. stock:
Perpetual growth = 1 / Exit multiple = 2 2 New shares from convertible debt:
Enterprise value 179,876.6 Total Shares Outstanding: 2,836.0
Terminal value as percent of total value 72.5%
Analysis of WACC
Cost of debt Capital structure
Cost of debt 4.7% Current capital structure Target capital structure
Marginal tax rate 20.0% Market value % Weight override % Weight
Cost of debt after tax shield 3.8% Net debt 56,222.0 36.8% 36.8%
Equity 96,537.4 63.2% 63.2%
Cost of equity Total 152,759.4
Risk-Free Rate (rf) 3.3%
Market Risk Premium (rm-rf) 7.6% Weighted average cost of capital
Raw (observed) beta 0.62 Weighted average cost of capital: 6.9%
Cost of equity using relevered industry beta 8.8%
Industry beta calculation
Comps Raw beta Share price Shares Market cap. Debt D / E Tax rate Unl. Beta Weigh. Beta
Relev.
Beta
VZ 0.62 $34.04 2,836.0 96,537.4 56,222.0 58.24% 20.00% 0.42 0.15
T 0.67 $28.46 5,910.0 168,198.6 68,966.0 41.00% 32.40% 0.52 0.32
S 1.10 $4.03 2,987.0 12,037.6 20,298.0 168.62% 30.30% 0.51 0.02
276,773.7 Average: 0.48 0.49 0.72
Sources: Verizon 2009 10-K, Morningstar Analyst Reports, Bloomberg, and Capital IQ.
Projected Annual Forecast
26
Appendix K: Financial Statement Model for Verizon Communications
Financial Statement Model for Verizon Communications
General assumptions Nonrecurring items
Company Name
Verizon
Communications Pre-tax 2007 2008 2009
Latest Fiscal year end (mm/dd/yy) 12/31/09 Nonrecurring expense/(income) in COGS
Current share price $34.04 Nonrecurring expense/(income) in SG&A and Other
Current date 12/10/10 Nonrecurring expense/(income) in nonoperating (income)/loss
After-tax - LEAVE BLANK IF NO AFTER-TAX DATA PROVIDED BY CO. EXPLICITLY
Morningstar EPS estimates Nonrecurring items in COGS
12/31/09 $1.29 Nonrecurring items in SG&A
12/31/10 $2.24 Nonrecurring items in nonoperating (income)/loss 11.0
12/31/11 $2.25 Total nonrecurring charges per share
Expected EPS growth rate (2010-2011) 0.45%
Income Statement
Actual Projected Annual Forecast
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16
Total Revenues 93,469.0 97,354.0 107,808.0 106,729.9 108,864.5 111,803.9 114,822.6 117,922.8 121,106.7 124,376.6
Cost of goods sold - REPORTED 37,547.0 39,007.0 44,299.0
Cost of goods sold - PRO FORMA 37,547.0 39,007.0 44,299.0 40,557.4 41,368.5 42,485.5 43,632.6 44,810.7 46,020.5 47,263.1
SG&A - REPORTED 25,967.0 26,898.0 32,950.0
SG&A - PRO FORMA 25,967.0 26,898.0 32,950.0 32,620.5 33,272.9 34,171.3 35,093.9 36,041.4 37,014.6 38,014.0
Depreciation and Amortization Expense - REPORTED 14,377.0 14,565.0 16,532.0
Depreciation and Amortization Expense - PRO FORMA 14,377.0 14,565.0 16,532.0 16,366.7 16,694.0 17,144.8 17,607.7 18,083.1 18,571.3 19,072.7
Operating profit - EBIT 15,578.0 16,884.0 14,027.0 17,185.4 17,529.1 18,002.4 18,488.4 18,987.6 19,500.3 20,026.8
Interest expense 1,829.0 1,819.0 3,102.0 3,858.3 3,485.7 3,107.5 2,707.2 2,281.9 1,830.3 1,580.1
Nonoperating income / (loss) - REPORTED 211.0 282.0 90.0
Nonoperating income / (loss) - PRO FORMA 211.0 282.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0
Pretax income - EBT 13,960.0 15,347.0 11,015.0 13,417.1 14,133.4 14,984.9 15,871.2 16,795.7 17,759.9 18,536.7
Taxes - REPORTED 3,982.0 3,331.0 1,210.0
Taxes - PRO FORMA 3,971.0 3,331.0 1,210.0 2,683.4 2,826.7 2,997.0 3,174.2 3,359.1 3,552.0 3,707.3
Equity in income of affiliates, after tax (enter as +) 585.0 567.0 553.0 547.5 558.4 573.5 589.0 604.9 621.2 638.0
Minority interest expense, after tax (enter as - ) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net Income 10,574.0 12,583.0 10,358.0 11,281.1 11,865.1 12,561.4 13,286.0 14,041.5 14,829.2 15,467.4
Net Income Attributable to noncontrolling interest 5,053.0 6,155.0 6,707.0 5,076.5 5,339.3 5,652.6 5,978.7 6,318.7 6,673.1 6,960.3
Net Income Attributable to Verizon 5,521.0 6,428.0 3,651.0 6,204.6 6,525.8 6,908.8 7,307.3 7,722.8 8,156.0 8,507.0
Net Income 10,574.0 12,583.0 10,358.0 11,281.1 11,865.1 12,561.4 13,286.0 14,041.5 14,829.2 15,467.4
Common dividends 4,773.0 4,994.0 5,271.0 5,740.8 6,037.9 6,392.3 6,761.0 7,145.5 7,546.3 7,871.1
Pro Forma EBITDA Reconciliation
EBIT 15,578.0 16,884.0 14,027.0 17,185.4 17,529.1 18,002.4 18,488.4 18,987.6 19,500.3 20,026.8
Depreciation & amortization 14,377.0 14,565.0 16,532.0 16,366.7 16,694.0 17,144.8 17,607.7 18,083.1 18,571.3 19,072.7
EBITDA 29,955.0 31,449.0 30,559.0 33,552.1 34,223.1 35,147.1 36,096.1 37,070.7 38,071.6 39,099.5
Pro Forma Basic EPS Reconcilliation
Preferred dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net income for basic EPS 5,521.0 6,428.0 3,651.0 6,204.6 6,525.8 6,908.8 7,307.3 7,722.8 8,156.0 8,507.0
Basic shares outstanding 2,898.0 2,849.0 2,841.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0
Basic EPS $1.91 $2.26 $1.29 $2.19 $2.30 $2.44 $2.58 $2.72 $2.88 $3.00
Pro Forma Diluted EPS Reconciliation
Adjustment to net income for diluted EPS calc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net income for diluted EPS 5,521.0 6,428.0 3,651.0 6,204.6 6,525.8 6,908.8 7,307.3 7,722.8 8,156.0 8,507.0
Stock options, restricted stock, and converts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Diluted shares outstanding 2,898.0 2,849.0 2,841.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0
Diluted EPS $1.91 $2.26 $1.29 $2.19 $2.30 $2.44 $2.58 $2.72 $2.88 $3.00
Morningstar consensus EPS $1.29 $2.24 $2.25 $2.26 $2.27 $2.28 $2.29 $2.30
Model variance from consensus ($0.00) ($0.05) $0.05 $0.18 $0.31 $0.44 $0.59 $0.70
Income statement assumptions
Revenue growth (%) 4.2% 10.7% -1.0% 2.0% 2.7% 2.7% 2.7% 2.7% 2.7%
Gross profit margin (%) 59.8% 59.9% 58.9% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0%
SG&A margin 27.8% 27.6% 30.6% 30.6% 30.6% 30.6% 30.6% 30.6% 30.6% 30.6%
D&A margin 15.4% 15.0% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3%
EBIT margin (%) 44.4% 45.0% 43.6% 13.1% 16.6% 17.6% 17.6% 17.6% 17.6% 17.6%
Effective tax rate (%) 28.4% 21.7% 11.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
D&A growth (%) 1.3% 13.5% -1.0% 2.0% 2.7% 2.7% 2.7% 2.7% 2.7%
Income in equity affiliates growth (%) (3.1%) (2.5%) -1.0% 2.0% 2.7% 2.7% 2.7% 2.7% 2.7%
Minority interest growth (%) 0.0% 0.0% -1.0% 2.0% 2.7% 2.7% 2.7% 2.7% 2.7%
Dividend payout ratio 86.5% 77.7% 144.4% 144.4% 144.4% 144.4% 144.4% 144.4% 144.4% 144.4%
27
Balance Sheet
12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16
Cash and equivalents (inc. investment securities) 10,291.0 2,499.0 2,134.6 2,177.3 2,236.1 2,296.5 2,358.5 2,422.1 9,432.3
Accounts receivable 11,703.0 12,573.0 12,447.3 12,696.2 13,039.0 13,391.1 13,752.6 14,123.9 14,505.3
Inventories 2,092.0 2,289.0 2,095.7 2,137.6 2,195.3 2,254.6 2,315.4 2,378.0 2,442.2
Deferred income taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Prepaid expenses 1,989.0 5,247.0 5,194.5 5,298.4 5,441.5 5,588.4 5,739.3 5,894.2 6,053.4
Other current assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Investments in unconsolidated businesses 3,393.0 3,535.0 4,082.5 4,640.9 5,214.4 5,803.4 6,408.3 7,029.5 7,667.5
PP&E 86,546.0 91,466.0 93,823.9 95,839.9 97,598.0 99,133.5 100,278.8 101,245.3 102,078.5
Wireless Licenses 61,974.0 72,067.0 72,067.0 72,067.0 72,067.0 72,067.0 72,067.0 72,067.0 72,067.0
Goodwill 6,035.0 22,472.0 22,472.0 22,472.0 22,472.0 22,472.0 22,472.0 22,472.0 22,472.0
Other Intangibles 5,199.0 6,764.0 4,916.0 3,420.0 2,196.0 1,209.0 627.0 239.0 0.0
Other non-current assets 13,130.0 8,339.0 8,339.0 8,339.0 8,339.0 8,339.0 8,339.0 8,339.0 8,339.0
Total Assets 202,352.0 227,251.0 227,572.4 229,088.3 230,798.2 232,554.3 234,357.9 236,210.1 245,057.1
Accounts payable 3,856.0 4,337.0 3,970.7 4,050.1 4,159.4 4,271.8 4,387.1 4,505.5 4,627.2
Accrued expenses 7,822.0 9,442.0 9,347.6 9,534.5 9,792.0 10,056.3 10,327.9 10,606.7 10,893.1
Taxes payable 2,136.0 1,444.0 1,516.2 1,592.0 1,671.6 1,755.2 1,843.0 1,935.1 2,031.9
Other current liabilities (non-debt) 7,099.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0
Employee benefit obligations 32,512.0 32,622.0 32,622.0 32,622.0 32,622.0 32,622.0 32,622.0 32,622.0 32,622.0
Current portion of long-term debt 3,506.0 6,105.0 6,105.0 9,646.0 5,884.0 5,857.0 3,524.0 0.0 0.0
Short term debt (Revolving credit facility) 1,487.0 1,100.0 1,409.0 1,846.8 5,522.8 5,060.0 4,176.3 548.0 0.0
Long term debt 46,959.0 55,051.0 48,946.0 39,300.0 33,416.0 27,559.0 24,035.0 24,035.0 24,035.0
Convertible Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred income taxes 11,769.0 19,310.0 20,275.5 21,289.3 22,353.7 23,471.4 24,645.0 25,877.2 27,171.1
Other non-current liabilities 6,301.0 6,765.0 6,765.0 6,765.0 6,765.0 6,765.0 6,765.0 6,765.0 6,765.0
Total Liabilities 123,447.0 142,884.0 137,665.0 133,353.7 128,894.6 124,125.7 119,033.2 113,602.6 114,853.3
Noncontrolling interest 37,199.0 42,761.0 47,837.5 53,176.8 58,829.4 64,808.1 71,126.8 77,799.9 84,760.2
Series Preferred Stock ($.10 par value; none issued) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Common Stock and APIC 40,588.0 40,405.0 40,405.0 40,405.0 40,405.0 40,405.0 40,405.0 40,405.0 40,405.0
Treasury stock (contra account) (4,839.0) (5,000.0) (5,000.0) (5,000.0) (5,000.0) (5,000.0) (5,000.0) (5,000.0) (5,000.0)
Comprehensive (accumulated) loss (13,372.0) (11,479.0) (11,479.0) (11,479.0) (11,479.0) (11,479.0) (11,479.0) (11,479.0) (11,479.0)
Other equity account 79.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0
Retained earnings 19,250.0 17,592.0 18,055.9 18,543.7 19,060.2 19,606.5 20,183.9 20,793.6 21,429.6
Total Shareholders' Equity 78,905.0 84,367.0 89,907.4 95,734.5 101,903.7 108,428.6 115,324.7 122,607.5 130,203.8
Total Liabilities + Shareholders' Equity 202,352.0 227,251.0 227,572.4 229,088.3 230,798.2 232,554.3 234,357.9 236,210.1 245,057.1
Balance check 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Supporting Schedules
12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16
Working Capital
1. Grow with revenues (default)
2. Override i: Days of revenues (Avg. collection period) 44.0 42.6
3. Overide ii: Absolute projection
Accounts receivable 11,703.0 12,573.0 12,447.3 12,696.2 13,039.0 13,391.1 13,752.6 14,123.9 14,505.3
1. Grow with COGS (default)
2. Override i: Inventory Days 19.6 18.9
3. Overide ii: Absolute projection
Inventories 2,092.0 2,289.0 2,095.7 2,137.6 2,195.3 2,254.6 2,315.4 2,378.0 2,442.2
1. Grow with SG&A (default)
2. Overide: Absolute projection
Prepaid expenses 1,989.0 5,247.0 5,194.5 5,298.4 5,441.5 5,588.4 5,739.3 5,894.2 6,053.4
1. Straight-line (default)
2. Overide: Absolute projection
Other current assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
1. Grow with COGS (default)
2. Override i. Payables Payment Period 36.2 35.7
3. Overide ii: Absolute projection
Accounts payable 3,856.0 4,337.0 3,970.7 4,050.1 4,159.4 4,271.8 4,387.1 4,505.5 4,627.2
1. Grow with SG&A (default)
2. Overide: Absolute projection
Accrued expenses 7,822.0 9,442.0 9,347.6 9,534.5 9,792.0 10,056.3 10,327.9 10,606.7 10,893.1
1. Grow with taxes (default)
2. Overide: Absolute projection
Taxes payable 2,136.0 1,444.0 1,516.2 1,592.0 1,671.6 1,755.2 1,843.0 1,935.1 2,031.9
1. Straight-line (default)
2. Overide: Absolute projection
Other current liabilities (non-debt) 7,099.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0 6,708.0
Intangible assets
Purchase of intangible assets
Amortization (enter as -) (1,383.0) (1,970.0) (1,848.0) (1,496.0) (1,224.0) (987.0) (582.0) (388.0) (239.0)
Intangibles 5,199.0 6,764.0 4,916.0 3,420.0 2,196.0 1,209.0 627.0 239.0 0.0
PP&E
Capital expenditures 17,238.0 17,047.0 16,876.5 17,214.1 17,678.8 18,156.2 18,646.4 19,149.8 19,666.9
Recurring asset sales (enter as -) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Depreciation (13,182.0) (14,562.0) (14,518.7) (15,198.0) (15,920.8) (16,620.7) (17,501.1) (18,183.3) (18,833.7)
PP&E 86,546.0 91,466.0 93,823.9 95,839.9 97,598.0 99,133.5 100,278.8 101,245.3 102,078.5
Diluted Shares outstanding
Treasury share $ repurchases (1,368.0) (166.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Value of shares issued 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Expected average share price $30.06 $30.19 $30.33 $30.46 $30.60 $30.74 $30.87 $31.01
Consensus EPS growth 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Shares repurchased 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shares issued 0.0 0.0 0.0 0.0 0.0 0.0 0.0
End of period basic shares outstanding 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0
Weighted average basic shares outstanding 2,849.0 2,841.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0 2,836.0
Investments in unconsolidated businesses (Equity method)
Equity in income of unconsolidated businesses 547.5 558.4 573.5 589.0 604.9 621.2 638.0
Dividends (enter as -)
Equity in unconsolidated businesses (from balance sheet) 3,393.0 3,535.0 4,082.5 4,640.9 5,214.4 5,803.4 6,408.3 7,029.5 7,667.5
Noncontrolling interest (Consolidation method)
Noncontrolling interest expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Income attributable to noncontrolling interest 5,076.5 5,339.3 5,652.6 5,978.7 6,318.7 6,673.1 6,960.3
Dividends (enter as -)
Noncontrolling interest (from balance sheet) 37,199.0 42,761.0 47,837.5 53,176.8 58,829.4 64,808.1 71,126.8 77,799.9 84,760.2
28
Cash Flow Statement
12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16
Net Income 11,281.1 11,865.1 12,561.4 13,286.0 14,041.5 14,829.2 15,467.4
Depreciation & amortization 16,366.7 16,694.0 17,144.8 17,607.7 18,083.1 18,571.3 19,072.7
Changes in working capital
Accounts receivable 125.7 (248.9) (342.8) (352.1) (361.6) (371.3) (381.3)
Inventories 193.3 (41.9) (57.7) (59.3) (60.9) (62.5) (64.2)
Deferred income taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Prepaid expenses 52.5 (103.9) (143.1) (146.9) (150.9) (155.0) (159.1)
Other current assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accounts payable (366.3) 79.4 109.4 112.3 115.3 118.5 121.6
Accrued expenses (94.4) 187.0 257.4 264.4 271.5 278.9 286.4
Taxes payable 72.2 75.8 79.6 83.6 87.8 92.1 96.8
Other current liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred tax liabilities 965.5 1,013.8 1,064.5 1,117.7 1,173.6 1,232.2 1,293.9
Equity income in affiliates (547.5) (558.4) (573.5) (589.0) (604.9) (621.2) (638.0)
Dividends received from affiliates 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Minority interest expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cash from operations 28,048.9 28,961.9 30,099.9 31,324.3 32,594.5 33,912.2 35,096.1
Purchase of fixed assets (capital expenditures) (16,876.5) (17,214.1) (17,678.8) (18,156.2) (18,646.4) (19,149.8) (19,666.9)
Proceeds from sale of fixed assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Purchases of intangible assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Purchases/Proceeds from other long-term assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cash from investing (16,876.5) (17,214.1) (17,678.8) (18,156.2) (18,646.4) (19,149.8) (19,666.9)
Convertible preferred stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Common stock and APIC 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Treasury stock repurchases 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Comprehensive accumulated loss 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other equity account 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Common and preferred dividends (5,740.8) (6,037.9) (6,392.3) (6,761.0) (7,145.5) (7,546.3) (7,871.1)
Dividends to noncontrolling interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increases / (decreases) in debt (5,796.0) (5,667.2) (5,970.0) (6,346.8) (6,740.7) (7,152.4) (548.0)
Cash from financing (11,536.7) (11,705.1) (12,362.3) (13,107.8) (13,886.1) (14,698.6) (8,419.0)
Total increase/decrease of cash (364.4) 42.7 58.8 60.4 62.0 63.7 7,010.2
Debt
Current portion of LTD 3,506.0 6,105.0 6,105.0 9,646.0 5,884.0 5,857.0 3,524.0
Reclassification of LTD to CP of LTD (6,105.0) (9,646.0) (5,884.0) (5,857.0) (3,524.0)
Discretionary (paydown)/borrowing of long term debt
Long term debt 46,959.0 55,051.0 48,946.0 39,300.0 33,416.0 27,559.0 24,035.0 24,035.0 24,035.0
Discretionary (paydown)/borrowing of convertible debt
Convertible debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Calculation of short term debt
Cash @ beginning of the year (end of last year) 2,499.0 2,134.6 2,177.3 2,236.1 2,296.5 2,358.5 2,422.1
Plus: Free cash flows prior to debt during year % of sales 5,431.6 5,709.9 6,028.8 6,407.2 6,802.7 7,216.0 7,558.1
Less: Minimum cash balance 2.0% 2,134.6 2,177.3 2,236.1 2,296.5 2,358.5 2,422.1 2,487.5
Total cash available / (debt required) for short term debt paydown (309.0) (437.8) (3,676.0) 462.8 883.7 3,628.4 7,492.7
Short term debt 1,487.0 1,100.0 1,409.0 1,846.8 5,522.8 5,060.0 4,176.3 548.0 0.0
Interest expense
Current portion of long-term debt 3,506.0 6,105.0 6,105.0 9,646.0 5,884.0 5,857.0 3,524.0 0.0 0.0
Short term debt 1,487.0 1,100.0 1,409.0 1,846.8 5,522.8 5,060.0 4,176.3 548.0 0.0
Long term debt 46,959.0 55,051.0 48,946.0 39,300.0 33,416.0 27,559.0 24,035.0 24,035.0 24,035.0
Convertible debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total debt 51,952.0 62,256.0 56,460.0 50,792.8 44,822.8 38,476.0 31,735.3 24,583.0 24,035.0
Interest expense 1,819.0 3,102.0 3,858.3 3,485.7 3,107.5 2,707.2 2,281.9 1,830.3 1,580.1
Average interest rate 6.3% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%
Sources: Verizon 2009 10-K, Morningstar Analyst Reports, Bloomberg, and Capital IQ.
29
Appendix L: Accounting Performance Indicators
Profitability Return on Assets Return on Capital Return on Equity Total Revenue Net Income
Verizon Communications 5.70% 8.80% 8.80% 107,808,000,000 $ 10,358,000,000 $
AT&T Inc. 5.00% 7.80% 12.60% 123,018,000,000 $ 12,535,000,000 $
Sprint Nextel -1.10% -1.60% -12.80% 32,260,000,000 $ (2,436,000,000) $
Financial Current Ratio Quick Ratio Total Debt / Equity EBIT/Interest Expense EPS
Verizon Communications 0.8x 0.5x 149.6% 6.3x $1.29
AT&T Inc. 0.7x 0.5x 70.7% 6.4x $2.12
Sprint Nextel 1.3x 1.0x 116.4% - -$0.84
Market Valuation (As of
12/10/2010)
Market Cap P/E Ratio Dividend Yield Price / Book
Total Enterprise Value /
EBIT
Verizon Communications $96,223,690,000 15.6x 5.49% 2.0x 9.55x
AT&T Inc. $170,739,900,000 13.25x 5.69% 1.6x 10.12x
Sprint Nextel $12,605,300,000 - - 0.6x NM
Margin Analysis Gross Margin % Operating Margin Net Profit Margin Divident Payout %
Verizon Communications 60.50% 18.10% 3.40% 144.40%
AT&T Inc. 59.00% 17.50% 10.20% 77.10%
Sprint Nextel 49.10% -3.20% -7.60% -
Asset Turnover Total Asset Turnover Inventory Turnover A/R Turnover Fixed Asset Turnover
Verizon Communications 0.5x 19.5x 8.8x 1.2
AT&T Inc. 0.5x 57.7x 7.2x 1.2x
Sprint Nextel 0.6x 28.4x 10.1x 1.6x
Three-Year Growth Total Revenue Net Income EPS Dividend
Verizon Communications 6.90% -16.20% -11.80% 4.90%
AT&T Inc. 25.00% 19.40% 3.90% 6.90%
Sprint Nextel -7.70% - - NA
Sources: Capital IQ; 2009 10-Ks for Verizon, AT&T & Sprint; Yahoo! Finance
Telecommunications Industry Accounting Performance Indicators
(All Numbers As Of December 31, 2009, Unless Otherwise Stated)
30
Appendix M: Consolidated Statements of Income
Consolidated Statements of Income
Verizon Communications Inc. and Subsidiaries
(dollars in millions, except per share amounts)
Years Ended December 31, 2009 2008 2007
Operating Revenues $ 107,808 $ 97,354 $ 93,469
Operating Expenses
Cost oI services and sales (exclusive oI items shown below) 44,299 39,007 37,547
Selling, general and administrative expense 32,950 26,898 25,967
Depreciation and amortization expense 16,532 14,565 14,377
Total Operating Expenses 93,781 80,470 77,891
Operating Income 14,027 16,884 15,578
Equity in earnings oI unconsolidated businesses 553 567 585
Other income and (expense), net 90 282 211
Interest expense (3,102) (1,819) (1,829)
Income Before Provision for Income Taxes, Discontinued
Operations and Extraordinary Item 11,568 15,914 14,545
Provision Ior income taxes (1,210) (3,331) (3,982)
Income Before Discontinued Operations and Extraordinary Item 10,358 12,583 10,563
Income Irom discontinued operations, net oI tax - 142
Extraordinary item, net oI tax - (131)
Net Income $ 10,358 $ 12,583 $ 10,574
Net income attributable to noncontrolling interest $ 6,707 $ 6,155 $ 5,053
Net income attributable to Verizon 3,651 6,428 5,521
Net Income $ 10,358 $ 12,583 $ 10,574
Basic Earnings Per Common Share
(1)
Income beIore discontinued operations and extraordinary item
attributable to Verizon $ 1.29 $ 2.26 $ 1.90
Income Irom discontinued operations attributable to Verizon, net oI tax - 0.05
Extraordinary item attributable to Verizon, net oI tax - (0.05)
Net Income attributable to Verizon $ 1.29 $ 2.26 $ 1.91
Weighted-average shares outstanding (in millions) 2,841 2,849 2,898
Diluted Earnings Per Common Share
(1)
Income beIore discontinued operations and extraordinary item
attributable to Verizon $ 1.29 $ 2.26 $ 1.90
Income Irom discontinued operations attributable to Verizon, net oI tax - 0.05
Extraordinary item attributable to Verizon, net oI tax - (0.05)
Net Income attributable to Verizon $ 1.29 $ 2.26 $ 1.90
Weighted-average shares outstanding (in millions) 2,841 2,850 2,902
(1)
Total per share amounts may not add due to rounding
See Notes to Consolidated Financial Statements
Source: VERZON COMMUNCATONS NC, 10-K, February 26, 2010 |cwe|ec c] Vc|r|rsta|
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31
Appendix N: Consolidated Balance Sheets
Consolidated Balance Sheets
Verizon Communications Inc. and Subsidiaries
(dollars in millions, except per share amounts)
At December 31, 2009 2008
Assets
Current assets
Cash and cash equivalents $ 2,009 $ 9,782
Short-term investments 490 509
Accounts receivable, net oI allowances oI $976 and $941 12,573 11,703
Inventories 2,289 2,092
Prepaid expenses and other 5,247 1,989
Total current assets 22,608 26,075
Plant, property and equipment 228,518 215,605
Less accumulated depreciation 137,052 129,059
91,466 86,546
Investments in unconsolidated businesses 3,535 3,393
Wireless licenses 72,067 61,974
Goodwill 22,472 6,035
Other intangible assets, net 6,764 5,199
Other investments - 4,781
Other assets 8,339 8,349
Total assets $ 227,251 $ 202,352
Liabilities and Equity
Current liabilities
Debt maturing within one year $ 7,205 $ 4,993
Accounts payable and accrued liabilities 15,223 13,814
Other 6,708 7,099
Total current liabilities 29,136 25,906
Long-term debt 55,051 46,959
Employee beneIit obligations 32,622 32,512
DeIerred income taxes 19,310 11,769
Other liabilities 6,765 6,301
Equity
Series preIerred stock ($.10 par value; none issued) -
Common stock ($.10 par value; 2,967,610,119
shares issued in both periods) 297 297
Contributed capital 40,108 40,291
Reinvested earnings 17,592 19,250
Accumulated other comprehensive loss (11,479) (13,372)
Common stock in treasury, at cost (5,000) (4,839)
DeIerred compensation - employee stock ownership plans and other 88 79
Noncontrolling interest 42,761 37,199
Total equity 84,367 78,905
Total liabilities and equity $ 227,251 $ 202,352
See Notes to Consolidated Financial Statements
Source: VERZON COMMUNCATONS NC, 10-K, February 26, 2010 |cwe|ec c] Vc|r|rsta|
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32
Appendix O: Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Verizon Communications Inc. and Subsidiaries
(dollars in millions)
Years Ended December 31, 2009 2008 2007
Cash Flows from Operating Activities
Net Income $ 10,358 $ 12,583 $ 10,574
Adjustments to reconcile net income to net cash provided by operating
activities - continuing operations:
Depreciation and amortization expense 16,532 14,565 14,377
Employee retirement beneIits 5,095 1,955 1,720
DeIerred income taxes 1,384 2,183 408
Provision Ior uncollectible accounts 1,306 1,085 1,047
Equity in earnings oI unconsolidated businesses, net oI
dividends received 389 212 1,986
Extraordinary item, net oI tax - 131
Changes in current assets and liabilities, net oI eIIects Irom
acquisition/disposition oI businesses:
Accounts receivable (1,393) (1,085) (1,931)
Inventories 235 (188) (255)
Other assets (102) (59) (140)
Accounts payable and accrued liabilities (1,251) (1,701) (567)
Other, net (988) (1,993) 59
Net cash provided by operating activities continuing operations 31,565 27,557 27,409
Net cash used in operating activities discontinued operations - (570)
Net cash provided by operating activities 31,565 27,557 26,839
Cash Flows from Investing Activities
Capital expenditures (including capitalized soItware) (17,047) (17,238) (17,538)
Acquisitions oI licenses, investments and businesses, net oI cash acquired (5,958) (15,904) (763)
Net change in short-term investments 84 1,677 169
Other, net (410) (114) 1,267
Net cash used in investing activities continuing operations (23,331) (31,579) (16,865)
Net cash provided by investing activities discontinued operations - 757
Net cash used in investing activities (23,331) (31,579) (16,108)
Cash Flows from Financing Activities
Proceeds Irom long-term borrowings 12,040 21,598 3,402
Repayments oI long-term borrowings and capital lease obligations (19,260) (4,146) (5,503)
Increase (decrease) in short-term obligations, excluding current maturities (1,652) 2,389 (3,252)
Dividends paid (5,271) (4,994) (4,773)
Proceeds Irom sale oI common stock - 16 1,274
Purchase oI common stock Ior treasury - (1,368) (2,843)
Other, net (1,864) (844) (1,102)
Net cash provided by (used in) Iinancing activities continuing operations (16,007) 12,651 (12,797)
Net cash used in Iinancing activities discontinued operations -
Net cash provided by (used in) Iinancing activities (16,007) 12,651 (12,797)
Increase (decrease) in cash and cash equivalents (7,773) 8,629 (2,066)
Cash and cash equivalents, beginning oI year 9,782 1,153 3,219
Cash and cash equivalents, end oI year $ 2,009 $ 9,782 $ 1,153
See Notes to Consolidated Financial Statements
Source: VERZON COMMUNCATONS NC, 10-K, February 26, 2010 |cwe|ec c] Vc|r|rsta|
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33
Appendix P: Consolidated Statements of Changes in Equity
Consolidated Statements of Changes in Equity
Verizon Communications Inc. and Subsidiaries
(dollars in millions, except per share amounts, and shares in thousands)
Years Ended December 31, 2009 2008 2007
Shares Amount Shares Amount Shares Amount
Common Stock
Balance at beginning oI year 2,967,610 $ 297 2,967,610 $ 297 2,967,652 $ 297
Other - - (42)
Balance at end oI year 2,967,610 297 2,967,610 297 2,967,610 297
Contributed Capital
Balance at beginning oI year 40,291 40,316 40,124
Shares issued-employee and shareowner plans - 58
Other (183) (25) 134
Balance at end oI year 40,108 40,291 40,316
Reinvested Earnings
Balance at beginning oI year 19,250 17,884 17,324
Adoption oI tax accounting standards - (134)
Adjusted balance at beginning oI year 19,250 17,884 17,190
Net income attributable to Verizon 3,651 6,428 5,521
Dividends declared ($1.87, $1.78 and $1.67 per share) (5,309) (5,062) (4,830)
Other - 3
Balance at end oI year 17,592 19,250 17,884
Accumulated Other Comprehensive Loss
Balance at beginning oI year attributable to Verizon (13,372) (4,484) (7,503)
Spin-oII oI local exchange businesses in Maine, New Hampshire and
Vermont (Note 3) - 44
Adjusted balance at beginning oI year (13,372) (4,440) (7,503)
Foreign currency translation adjustments 78 (231) 838
Unrealized gains (losses) on marketable securities 87 (97) (4)
Unrealized gains (losses) on cash Ilow hedges 87 (40) 1
DeIined beneIit pension and postretirement plans 1,641 (8,564) 1,943
Other - 241
Other comprehensive income (loss) 1,893 (8,932) 3,019
Balance at end oI year attributable to Verizon (11,479) (13,372) (4,484)
Treasury Stock
Balance at beginning oI year (127,090) (4,839) (90,786) (3,489) (56,147) (1,871)
Shares purchased - - (36,779) (1,368) (68,063) (2,843)
Other (Note 10) (5,000) (166)
Shares distributed
Employee plans 142 5 468 18 33,411 1,224
Shareowner plans 6 - 7 13 1
Balance at end oI year (131,942) (5,000) (127,090) (4,839) (90,786) (3,489)
Deferred Compensation-ESOPs and Other
Balance at beginning oI year 79 79 191
Amortization 9 (112)
Balance at end oI year 88 79 79
Noncontrolling Interest
Balance at beginning oI year 37,199 32,266 28,310
Net income attributable to noncontrolling interest 6,707 6,155 5,053
Other comprehensive income (loss) 103 (30) 5
Total comprehensive income 6,810 6,125 5,058
Distributions and other (1,248) (1,192) (1,102)
Balance at end oI year 42,761 37,199 32,266
Total Equity $ 84,367 $ 78,905 $ 82,869
Comprehensive Income
Net income $ 10,358 $ 12,583 $ 10,574
Other comprehensive income (loss) 1,996 (8,962) 3,024
Source: VERZON COMMUNCATONS NC, 10-K, February 26, 2010 |cwe|ec c] Vc|r|rsta|
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34
Appendix Q: References
1. Harris, Elizabeth A. 2010. "He Tested the Market", item in "Big Deal" real estate column, page 2 of
the "Real Estate" section, The New York Times
2. Topolsky, }oshua 2uu9. "veiizon iemoves gloves, begins 'Theie's a map foi that' anti-AT&T au
campaign". engauget.com. http:mobile.engauget.com2uu91uuSveiizon-iemoves-gloves-
begins-theies-a-map-foi-that-anti-atanu. Retiieveu 2uu9-12-17
S. Patel, Nilay (2uu9-11-12). "AT&T auus veiizon's Islanu of Nisfit Toys holiuay aus to lawsuit,
uemanus they be yankeu off the aii". engauget.com.
http:www.engauget.com2uu91112atanut-auus-veiizons-islanu-of-misfit-toys-holiuay-
aus-to-lawsuit. Retiieveu 2uu9-12-17.
4. "The Bistoiy of veiizon Communications". "#$%&'( )%$#*#++.
http:investoi.veiizon.compiofilehistoiy. Retiieveu 2uu7-uS-u7.
S. Chang, Rita. 2uu9. "With $1uuN Satuiation Campaign, Bioiu Will Be Impossible to Avoiu
Naiketing Casts veiizon Bevice as Antithesis of the 0biquitous IPhone."
http:auage.comaiticle.aiticle_iu=14uS81
,- Paiekh, Rupal 2uu9. "NcCann to Lose veiizon Wiieless to NcuaiiyBowen; Fios in Review.
Bentsu-0wneu Shop's Success With Bioiu Launch Belpeu It Net Noie of Telecom uiant's
Business." http:auage.comagencynewsaiticle.aiticle_iu=14S1S1
7. Ante, Spencei E., Aiik Besseluahl, anu Robeit Bof. 2uu9. "vERIZ0N N0BILIZES AuAINST TBE
iPB0NE." ./+%(#++)##0 no. 41S4: 27. ./+%(#++ 1'/$2# 3$#4%#$, EBSC05'+6 (accesseu Becembei
1S, 2u1u)
8. }ackson, Bonny. 2uu8. "veiizon taps LTE foi its 4u netwoik. (covei stoiy)." 7'8%*# 9:;%'
<#25('*'=> 26, no. 1: 1u-11. ./+%(#++ 1'/$2# 3$#4%#$, EBSC05'+6 (accesseu Becembei 1S, 2u1u).
9. 2uu7. "veiizon Wiieless Announces 4u Path Baseu on uSN." <#*#2'44/(%2:6%'(+ 9#?'$6+ 7S, no.
24: 8-9. ./+%(#++ 1'/$2# 3$#4%#$, EBSC05'+6 (accesseu Becembei 1S, 2u1u).
1u. Ante, Spencei E. 2uu9. "veiizon Wiieless Piepaies foi the iPhone." ./+%(#++)##0-2'4 S. ./+%(#++
1'/$2# 3$#4%#$, EBSC05'+6 (accesseu Becembei 1S, 2u1u).
11. Patel, Kunui. 2u1u. "WILL CALLINu 0N vERIZ0N BRINu STALLEB IPB0NE SALES 0P AuAIN.."
@;A#$6%+%(= @=# 81, no. S6: S. ./+%(#++ 1'/$2# 3$#4%#$, EBSC05'+6 (accesseu Becembei 1S, 2u1u).
12. Cheng, Rogei. 2u1u. "With veiizon on the Boiizon, iPhone 0seis Weigh Leaving AT&T--but
Theie's a Catch." ):** 16$##6 B'/$(:* C D:+6#$( D;%6%'(, 0ctobei u9. BS. ./+%(#++ 1'/$2# 3$#4%#$,
EBSC05'+6 (accesseu Becembei 1S, 2u1u).
35
1S. Cheng, Rogei. 2u1u. "Suige of iPhones Fuels AT&T Sales." ):** 16$##6 B'/$(:* C D:+6#$( D;%6%'(,
0ctobei 22. BS. ./+%(#++ 1'/$2# 3$#4%#$, EBSC05'+6 (accesseu Becembei 1S, 2u1u).
EF- PC Nag: http:www.pcmag.comaiticle2u,2817,2S7S676,uu.asp
1S. veiizon Communications: 2uu9 Annual Repoit
16. veiizon Communications Inc. Foim 1u-K foi the peiiou: Becembei S1, 2uu9
17. veiizon Coipoiate website: http:www22.veiizon.comabout
18. Capital IQ: http:www.capitaliq.com
19. Bloombeig: http:www.bloombeig.com
2u. 0ne Souice: http:globalbb.onesouice.com
21. Yahoo Finance: http:finance.yahoo.com
22. Noiningstai Equity Reseaich, veiizon Communications Inc. Analyst Repoit As of 0ctobei 29,
2u1u
2S. IBISWoilu 0S Wiieless Telecommunications Caiiieis Inuustiy Naiket Reseaich Repoit:
http:www.ibiswoilu.com.ezpioxy.libiaiy.wisc.euuinuustiyusuefault.aspx.inuiu=1267
24. http:www.engauget.comphotosatanuts-complaint-foi-tempoiaiy-iestiaining-oiuei-ovei-
veiizon#2417999
2S. Spiint Coveiage: http:coveiage.spiint.comINPACT.jsp.ECIB=vanity:coveiage
26. AT&T Coveiage: http:www.wiieless.att.comcoveiageviewei#.type=voice
27. T-Nobile Coveiage: http:coveiage.t-mobile.comuefault.aspx.NapType=Bata
28. }B Powei anu Associates: http:businesscentei.jupowei.comBefault.aspx
29. Consumei Repoits: http:www.consumeiiepoits.oigcioinuex.htm
Su. Cieuit Suisse Repoit: http:www.businessinsiuei.comiphone-att-cieuit-suisee-2u1u-9#
S1. NPB uioup Repoit: http:www.npu.compiessieleasespiess_1u11u1.html
S2. Accentuie Repoit: The Best anu the Rest:
http:www.accentuie.comulobalReseaich_anu_Insights0utlookBy_AlphabetTheBestAnuT
heRest.htm