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Verizon Communications, Inc.

Integrated Company Analysis














By: Amanda Frederick, Eric Hansch, Tawa Rasheed-Rahji, Kyle Schmitz, Ida Shea
December 14, 2010

On our honor, we have neither given nor received unauthorized aid in completing this academic work.
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Executive Summary
Verizon Communications Inc., headquartered in New York, is a global leader in providing broadband
and other wireless and wireline communications services to mass market, business, government and wholesale
customers. Verizon Wireless operates Americas most reliable wireless network, serving more than 93 million
customers. Verizon also provides converged communications, information and entertainment services over
Americas most advanced fiber-optic network, and delivers innovative, seamless business solutions to
customers around the world. A Dow 30 company, Verizon employs a workforce of 195,000 and last year
generated revenues of more than $107 billion.
Company History
Verizon Communications Inc. (Verizon) was formed on June 30, 2000, with the $52 billion merger of
Bell Atlantic Corp and GTE Corp., two of the worlds largest telecommunications companies. Government
regulation and high infrastructure costs largely shaped the evolution of the telecommunications industry,
necessitating mergers and acquisitions for sustainable growth. During this merger between Bell Atlantic and
GTE, Bell Atlantic and London-based Vodafone Group Plc announced their agreement to create a new wireless
business Verizon Wireless (VW). Verizon is the majority owner (55 percent) of VW, with management
control of the joint venture.
With the acquisition of MCI in 2006 for $8.6 billion, Verizon became a leading provider of advanced
communications and information technology solutions to large-business and government customers worldwide.
After the acquisition of Alltel Corp. in early 2009, VW became the largest wireless service provider in the U.S.,
as measured by the total number of customers.
In addition to growth through acquisition, Verizon also grew substantially through its investment in
technology and infrastructure. Over a five-year period from 2003-2007, Verizon invested more than $74 billion
more than any other telecom or cable company in America to maintain, upgrade, and expand its technology
infrastructure. This includes nearly $30 billion on the VW network alone. Buoyed by these significant network
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investments, VW has become the nations leading provider according to many important industry measures
customer satisfaction, innovation, network reliability, and cash flow generation.
Competitive Landscape
Verizon operates in a highly competitive telecommunication services market. While the
telecommunications industry is more than 100 years old, the industry today finds itself at the beginning of a
new communications era. The mega-trends in telecommunications the shifts from analog to digital
technology, from wired to wireless platforms, and from narrowband to broadband services have
fundamentally changed the way people communicate. Verizons primary competitors in the wireless sector
include AT&T, T-Mobile, and Sprint Nextel. In addition, in many markets it competes with regional wireless
service providers such as MetroPCS, Leap Wireless, and U.S. Cellular. Verizon is currently the #2 U.S.
telecom services provider overall after AT&T, and the company holds the top spot in wireless services ahead of
AT&T. Verizon can attribute its success to operating the most reliable wireless network and the most widely
available wireless broadband network in the country. The U.S. Enterprise market, serving large-business and
government customers, has consolidated in recent years, resulting in two major competitors AT&T and
Verizon.
Recommendations
BK veiizon must continue to invest moie than its competitois in capital expenuituies to maintain
theii position as the highest quality wiieless pioviuei.
DK vW must inciease uata limits in 4u seivice plans.
EK In contiact negotiations, veiizon shoulu not saciifice piicing stiuctuie to obtain the iights to
maiket the iPhone.
.K veiizon must continue to seek out opeiating paitneiships with companies such as Apple anu
uoogle to avoiu missing out on the next big thing.
5K veiizon must focus on uivesting poitions of ueclining wiieline segment anu builuing up Fi0S
business.
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Marketing Overview: Verizon Wireless Competition Influences All
Competition is fierce in the wireless telecommunications industry, especially between the two largest
providers in the US- Verizon Wireless (VW) and AT&T. This competition has influenced every aspect of the
value chain including the positioning, brand equity, promotions, pricing, and products that VW offers.
Products: Wireless Network, Mobile Devices, and Customer Service
The wireless telecommunications industry is highly commoditized, and therefore, it is important for
VW to differentiate itself in order to create unique added value. VWs product offerings can be simplified into
three groups: the actual service (or network), the mobile device, and customer service.
Networks are the backbone of any telecommunication companys operations, adding long-term value
for their customers. These networks require heavy investment which limits market entrance threats. However,
the strong competition within the industry forces companies to constantly maintain and improve these networks.
VW has put a great deal of time and money into improving its network and has the highest capital expenditure
of any wireless provider over the last three years (Appendix A). CDMA and GSM are the two major families of
wireless technology. CDMA is generally only used in the U.S., whereas GSM is the predominant technology
used across the globe. Each family has different generations of technology which lend to the 3G, third
generation, and 4G, fourth generation, marketing nomenclatures. A wireless tech reference guide has been
included to make this clear (Appendix B).
VWs 3G network depends on CDMA technology and is the most expansive 3G network in the U.S.
(Appendix C). VWs network showcases superior reliability, capacity and coverage. Consumer Reports ranks
VW as the top overall wireless provider and they are the clear winner in JD Powers wireless call quality
performance study (Appendix D). VWs strong network operations have allowed them to differentiate
themselves and it is vital that VW continues to deliver on this differentiator as they launch their 4G network.
VW has selected GSMs LTE technology for its 4G wireless network because of their confidence in the
potential and acceptance of this technology. VW needs to upgrade towards a 4G network to satisfy customers
increasing data requirements, as well as transitioning to the GSM family to give their wireless devices global
reach. Transitioning from CDMA to GSM is a complete overhaul for VW and it will be a challenging
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endeavor. However, VW cannot continue to influence standards and device innovation if it does not begin
operating with the most prevalent network technology. VWs 4G decision signals a strong management team
that is willing to lead with long-term value in mind.
In regards to mobile devices, VW is constrained to the innovations of others. But, they have positioned
themselves well by creating an open development program that publishes the technical interface standards
required to design products that are compatible with their network, thereby allowing devices not sold by VW to
work on their network. VW has also shown their willingness to support their suppliers products with
substantial marketing dollars. Increasing product demand and sales is mutually beneficial, but this support
urges device manufacturers to create innovative designs that can be launched as a VW flagship product. These
characteristics allow VW to offer a vast line of wireless products without becoming tied to one particular brand
or device like AT&T with the iPhone.
Many sources, including the WSJ, have reported that Apple is finalizing a version of its iPhone 4 that
will work on VWs 3G network. This deal, which has not been confirmed by Apple or Verizon, would end
AT&Ts exclusivity of the iPhone. The iPhone is a highly demanded wireless device, but its success has placed
an excessive burden on AT&Ts wireless network. AT&T was not prepared for the load increase and has a
tarnished quality record thanks to the iPhones rapid success. The iPhone would increase VWs customer base
and thus its network load significantly (Appendix E). VW knows this and seems prepared to maintain its high
level of quality and service to support a Verizon iPhone.
Customer service is another link into the value chain where a company can differentiate its product
offerings. Consumer Reports ranks VW highest in customer support, though it received mixed signals in JD
Powers customer care and wireless retail sales satisfaction surveys (Appendix E). However, and most
importantly, VW has shown the lowest post-paid churn rate (the proportion of contractual customers who leave
in a given time period) for the last three years (Appendix F). VW should continue to strive to further separate
themselves with pronounced customer service levels.
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Distribution Channels
VW distributes products predominately through direct channels. Company-operated stores are a core
component of its distribution and have the highest customer retention rate of all distribution channels. Indirect
retail stores, such as Best Buy, Wal-Mart, Costco and Target, also sell VW products and services. Additionally,
VW operates business-to-business organizations that focus on the wireless communications needs of business
customers. Finally, VW offers fully-automated end-to-end web-based sales of wireless phones, accessories and
service in all markets.
Pricing
Pricing plays an important role in the competitiveness of the wireless industry. In general, wireless
pricing plans are numerous and confusing. VW has tiered pricing plans that allow for the different data- and
voice-usage needs of its customers. In 2010, VW launched a streamlined group of plans with unlimited minutes
and messaging to provide their customers with simplified pricing options. Simplifying these plans is one
example of how VW has improved its added-value through means other than network quality. Accordingly,
VW able to take a premium pricing position, capturing the value it brings to the market.
Promotions
The VW value proposition has been successful because the company has delivered consistent and
credible messaging. Even the name, Verizon, a word coined from veritas and horizon, conveys company
value: certainty, reliability, and horizon, or forward thinking.
VW has communicated the attribute of reliability and certainty since the introduction of the test man
campaign in 2002. This campaign features a man in the desert asking Can you hear me now? followed by
the slogan, We never stop working for you. As VWs network has grown and investment in advertising has
ramped up, (Verizon now has the second largest advertising spend annually in the country behind Proctor &
Gamble) the value of its network and its reliability remains the pillar of its differentiating factor in the
competitive market place.
Beginning in 2005, VWs campaigns shifted from service to the actual advantages of its network. This
single-attribute campaign highlighted VWs strength as a larger and more reliable network over the
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competition. Consumer insights played a large role in the 2008 campaigns that played off of old horror films
where characters would warn VW customers to be aware of the Dead Zone. The scenarios showed typical
scenes where access to a working cell phone and network are critical: during storms, travel, or when relied upon
for a comforting form of entertainment- i.e. while doing laundry. The VW customer confidently retorts, Ive
got Verizon.
It was not until 2009 that VW directly went after competition. The company did so in a number of
ways; however, both models stayed true to VWs value- the network. In response to AT&T and its exclusive
ability to sell the iPhone, VW launched its Theres a map for that campaign underlining that a phone is only
as good as its network. At this time, AT&T customers, and more specifically iPhone users, were flooding the
internet with complaints regarding bad service, dropped calls, and lag time. VW was able to approach this
consumer gap by investing $100 million in billings and launching the Droid to compete directly with the iPhone
(Appendix H). Droids are exclusive VW smartphones that employ Googles Android OS. Largely thanks to
VW, smartphones with the Android OS now serve more consumers overall. Additionally, according to NPDs
Q3 2010 report, the Android OS is the most popular smartphone platform. The Android OS accounted for 44%
of overall smartphone purchases in Q2, while Blackberry fell to 22% and Apple moved up to 23%. However,
the NPD report shows that the iPhone 4 is still the most popular individual smartphone.
Financial Analysis
Financial Statement Analysis
Verizon reports financial information on a consolidated basis, reporting a single net income result for its
combined wireline, wireless and other business segments. While Verizon reports operating revenue and
expense information for each segment, it does not explicitly report net income figures for each business unit.
This is of importance for an analysis of Verizon because of the 45% ownership stake that Vodafone holds in
VW. Verizon reports this ownership stake as a non-controlling interest on its financial statements. Aside
from Verizons special ownership structure, Verizons financial statements are in line with financial reporting
for their main competitors, AT&T and Sprint and the statements are reliable and comparable.
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Verizon recognizes revenue (from access and usage of network both voice and data) for their postpaid
wireless segment when revenue is earned, though payment is received one month in advance. Revenue for
equipment sales, including activation fees, is recognized when products are delivered to and accepted by the
customer. Wireline earns revenues based upon usage of network and facilities. The company charges a fixed
monthly fee for voice, video, data, and certain other services which is billed one month in advance and revenue
is recognized when earned. Revenue for Wireline equipment is recognized when equipment is installed and
ready for customer use. Wireline also provides maintenance and monitoring services, for which revenue is
recognized monthly over the term of the contact. Long-term contracts are recognized by percent-of-completion
method. Customer activation fees are deferred and amortized over the estimated customer relationship period.
Verizon recognizes inventory costs, primarily for wireless and wireline equipment, at the lower of cost
(generally on an average cost or FIFO basis) or market price. Verizons inventory also includes new and
reusable supplies and network equipment of local telephone operations, which are stated principally at average
original cost. For large individual items, Verizon uses specific costs.
Important intangible assets owned by telecommunications companies are wireless spectrum licenses.
These licenses provide companies with the right to utilize designated radio frequency spectrum and are essential
to the wireless business. The FCC sells wireless licenses at auction for a 10-year period. However, renewal of
licenses has historically been a routine process at a nominal cost. Therefore, Verizon and other wireless carriers
treat wireless licenses as indefinite-lived intangible assets, which they test periodically for impairment.
Accounting Performance Metrics
Verizon and its closest competitor, AT&T, are very similar in many of the accounting performance
indicators. For the fiscal year ending December 31, 2009, Verizon had a Return on Equity of 8.8%, compared
to a Return on Equity of 12.6% for AT&T. Sprint, another wireless competitor, had a ROE of (12.8%), and had
much lower performance indicators overall. Verizon net income in 2009 was approximately $10.4 billion, $2
billion less than AT&Ts net income of $12.5 billion, and Sprint incurred a loss of $2 billion. Both AT&T and
Verizon had dividend yields for the year of approximately 5.5%. A factor affecting Verizons results in 2009
was the acquisition of Alltel.
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The Alltel acquisition impacted both revenues and expenses for the year, as well as significantly
increased Verizon debt in 2009. In the acquisition, Verizon acquired approximately $24 billion of Alltel
principal debt in return for 100% of the equity in the company and cash consideration of $5.9 billion. The
addition of new customers increased revenues and expenses for Verizon. Additionally, Verizon spent
approximately $954 million for merger integration and acquisition costs related to the Alltel acquisition.
Throughout 2009, Verizon entered into credit facilities and issued notes that the company used to purchase
Alltel debt obligations. Resultantly, Verizons long term-debt increased from $46 billion to $55 billion from
2008 to 2009, primarily related to the Alltel acquisition.
Verizon has a consistent policy of paying substantial dividends. In 2009, Verizon paid out 144% of its
portion of net income in dividends. The Board of Directors increased dividends in 2009 by 3.3%, making it the
third year in a row they increased dividends based on a belief that the companys cash flows and balance sheet
were strong.
Future Financial Performance
To analyze Verizons current and projected financial performance, we performed a Discounted Cash
Flow analysis. As a result of this analysis, we calculated an equity value per share of $43.60, approximately
$10 above Verizons share price of $34.04 on December 10, 2010. We believe this to be an accurate
assessment of Verizons growth potential given the strength of Verizons technology and network, plus
continued high levels of advertising spending, resulting in increased customer growth.
To arrive at this estimate, we reviewed past financial performance by Verizon, as well as market analyst
reports. As a result of Verizons record of acquisitions (Alltel in 2009 and MCI in 2006), historical growth
rates are not a reliable indicator of future performance. Following analyst recommendations, we projected
revenue growth for Verizon as a whole of -1% for 2010, 2% for 2011, and 2.7% per year for the next 5 years.
Two main segments drive Verizons growth: Wireless, which has experienced growth through acquisition and
increase data usage and smartphone adoption, and Wireline, which includes FiOS and traditional wired
telephone service. Wireless has been experiencing substantial growth in recent years, while Wireline has
experienced steady declines in customers, despite some customer addition due to the implementation of FiOS.
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One of the critical assumptions that we made was for capital expenditures. Verizon has differentiated
itself based on superior network quality, which requires significant capital expenditures. In the previous three-
years, Verizon spent an average of $17 billion on capital expenditures each year. We forecast that spending on
capital expenditures would increase from 2009 levels at the yearly revenue growth rate. To maintain its
technological advantage, Verizon must continue to significantly invest in its network and infrastructure.
Verizon primarily finances its capital expenditures through bank loans and commercial paper.
Recommendations
VW launched its 4G LTE network in 38 cities and 60 airports on December 5
th
2010. As VW expands its
4G network, the company must continue to invest more in capital expenditures than any other wireless
provider to maintain their differentiated position as the highest quality wireless provider. This position has
proven to provide excess free cash, even with the heavy spend in capital expenditures and advertising, over
the last five years.
VW is currently offering mobile broadband USB modems with two pricing tiers. VW is capping the data
usage of their 4G consumers to avoid network congestion issues, but speed tests have shown that these
limits can be exceeded within hours due to the 4G LTE networks increased data transfer speeds. To fully
align with customers desires, VW needs to find a way to increase data limits without compromising the
network. VW should pay attention to how quickly it releases new 4G products, making sure to allow time
to build out and test the network.
VW does not need the iPhone to outperform the competition. Likewise, the fact that Apple is losing out to
Google in the smartphone battle allows VW to control negotiations with Apple to acquire the iPhone. VW
should not make the contract and pricing sacrifices that AT&T did to sell the iPhone. VW is the only
company (of U.S. wireless carriers) who can lend supplementary brand equity to the iPhone and Apple is
aware of this.
VW needs to make sure that it does not miss out on the next big thing. This means continuing to
strengthen relationships with Google and Apple. Additionally, the future will lead to many new
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applications for the 4G network. For example, the network may allow your home appliances to
communicate with each other in an energy management system. VW should recognize potential industry
leaders for new products and invest time and intellectual knowledge into these relationships.
Verizon should closely monitor Wireline performance and continue to look for opportunities to divest
unprofitable business and focus on the more profitable Mass Market (FiOS) operating segment. We
forecast that traditional Wireline (home landline telephone service) will continue to decline.
Conclusion
VW has been able to build itself an extremely strong base by way of its entire marketing platform, over
the past 10 years. The attention to competition has been a common thread through every aspect of the wireless
business: pricing, products, promotion, and placement (distribution). Furthermore, VW has positioned a single
attribute the strength of its network-at the core of its brand. VWs brand leans on this attribute for relevance,
differentiation, and credibility. As VW continues to evolve and grow its target market, the company must
continue to protect - through investing in research and development - and leverage - through promotion and
products - its most important asset, the network. Moreover, it is the added value that the network provides
which VW relies upon: its superior network and service allows VW consumers to use their mobile devices to
the fullest capacity, providing an experience unrivaled by any other wireless provider.
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Appendices
Appendix A: Capital Expenditure Comparison Wireless Industry

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Appendix B: Wireless Technology Quick Reference Guide
Wireless Technology Family Trees

3G-4G Technology Comparisons
16
3G & 4G Technologies Company Comparisons

4G Current Company Offerings
17
Appendix C: 3G Network Coverage Maps
18
Appendix D: JD Power and Consumer Reports Customer Satisfaction Surveys

JD Power Wireless Call Quality Ratings

JD Power Customer Care Ratings

19
Consumer Reports Wireless Provider Rankings 2010

20
Appendix E: iPhone Potential Customer Survey (Credit Suisse)

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Appendix F: Customer Acquisition and Churn Rates

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Appendix G: Verizon Wireless Value Chain
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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