INTERNATIONAL

 ACCOUNTING  
AT&T  Vs.  Verizon  Case  
LORENZO  ROSSI  
1224242  
 
 
1)  
It  is  absolutely  reasonable  to  compare  two  corporations  like  AT&T  and  Verizon,  since  these  two  
are   very   similar   in   characteristics   and   in   the   services   they   offer.   Both   companies   are  
communications   network   providers   and   both   provide   to   general   customers   and   companies  
different  services  like  wireless,  wireline,  broadband  data,  and  video  services  along  with  managed  

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networking   and   wholesale   services.   More   over,   these   two   telecommunication   giants   are  

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structured   in   a   really   close   manner;   they   are   indeed   set   up   on   two   main   operating   branches,  

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which  are  wireless  and  wireline.    

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A  comparison  between  the  two  may  be  made  for  several  different  reasons;  it  could  be  done  a  
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research   to   better   understand   the   industry,   or   to   analyze   and   compare   the   financial   position   of  
each   of   the   companies,   or   even   to   understand   market   strategies   or   to   assess   the   weight   of   a  
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single   company   in   the   entire   industry   and   the   market   share   that   it   possesses.   As   a   financial  
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analyst,  in  my  case,  I  would  definitely  go  and  analyze  the  financial  structure,  position  and  strategy  
of  AT&T  and  Verizon.  From  such  a  research  I  could  gain  important  information  on  who  might  be  
a   future   market   leader,   or   whom   revenues   will   tend   to   increase   over   time,   or   which   of   the   two  
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corporations  may  represent  a  better  investment  for  me  or  for  some  of  my  hypothetical  clients  
willing  to  invest  in  the  telecommunication  industry.  Benefits  from  running  such  a  comparison  are  
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several  and  these  up  mentioned  are  just  a  few,  since  from  the  financial  point  of  view,  these  two  
giant  companies  have  long  stories  to  tell  and  big  questionings  to  be  discovered.  
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2)  
Overall,   people   nowadays   tend   to   have   a   higher   need   of   communication   means   than   it   used   to  
be   in   past   times.   And   this   tendency   is   visible   even   from   year   to   year,   especially   on   the   Wireless  
side   where   every   year   there   is   a   noticeable   and   impressive   surge   in   subscriptions   and   so   in  
revenues  for  these  two  companies.  While  the  wireless  side  is  going  really  strongly  and  really  fast,  

 
https://www.coursehero.com/file/13702395/Accounting-ATT-V-Verizon-Case/
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 the  wireline  is  struggling  and  it  may  be  possible  to  see  it  disappear  in  some  near  future.  The  future  
is  of  course  in  the  wireless  side  of  communications  and  many  people  have  already  abandoned  
the  wireline  towards  wireless.  Overall  though,  the  trend  is  that  of  an  industry  in  constant  and  
rapid   growth,   given   also   by   the   fast   pace   of   technology,   which   goes   hand   by   hand   with   the  
wireless  and  the  communication  industry  as  a  whole.  
 
3)  
Operating Results ($ Millions): 2010 2011 2012 2013 2014
Total Operating Revenue 124,280 126,723 127,434 128,752 132,447
Less: Cost of Services (Excluding
Depreciation) 52,379 57,374 55,228 51,464 60,611

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Less: Selling General & Administrative 32,864 38,844 41,066 28,414 39,697

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Less: Impairment & Other Charges 85 2,910 0 0 2,120
EBITDA 38,952 27,595 31,140 48,874 30,019

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31% 22% 24% 38% 23% 28%

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Less: Depreciation & Amortization 19,379 18,377 18,143 18,395 18,273
EBIT 19,573 9,218 12,997 30,479 11,746

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16% 7% 10% 24% 9% 13%
Less: Interest Expense
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Plus: Equity in Net Income of Affiliates
2,994
762
3,535
784
3,444
752
3,940
642
3,613
175
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Plus: Other Income (1) 1,676 249 134 596 1,652
EBT 19,017 6,716 10,439 27,777 9,960
15% 5% 8% 22% 8% 12%
Less: Taxes -1,162 2,532 2,900 9,224 3,442
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Net Income 20,179 4,184 7,539 18,553 6,518

16% 3% 6% 14% 5% 9%
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Less: Income Attributable to Minority Interest 315 240 275 304 294
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Net Income Attributable to AT&T

Shareholders 19,864 3,944 7,264 18,249 6,224
16% 3% 6% 14% 5% 9%
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Operating Results ($ Millions): 2010 2011 2012 2013 2014

Total Operating Revenue 106,565 110,875 115,846 120,550 127,079
Less: Cost of Services (Excluding
Depreciation) 44,149 45,875 46,275 44,887 49,931
Less: Selling General & Administrative 31,366 35,624 39,951 27,089 41,016
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EBITDA 31,050 29,376 29,620 48,574 36,132

29% 26% 26% 40% 28% 30%
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Less: Depreciation & Amortization 16,405 16,496 16,460 16,606 16,533

EBIT 14,645 12,880 13,160 31,968 19,599
14% 12% 11% 27% 15% 16%
Less: Interest Expense 2,523 2,827 2,571 2,667 4,915
Plus: Equity in Net Income of Affiliates 508 444 324 142 1,780
Plus: Other Income (Expense) 54 -14 -1,016 -166 -1,194
EBT 12,684 10,483 9,897 29,277 15,270
12% 9% 9% 24% 12% 13%
Less: Taxes 2,467 285 -660 5,730 3,314
Net Income 10,217 10,198 10,557 23,547 11,956
10% 9% 9% 20% 9% 11%
Less: Income Attributable to Non-controlling Interest 7,668 7,794 9,682 12,050 2,331
Net Income Attributable to Verizon
Shareholders 2,549 2,404 875 11,497 9,625
2% 2% 1% 10% 8% 4%

 
https://www.coursehero.com/file/13702395/Accounting-ATT-V-Verizon-Case/
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 The  first  table  is  relative  to  Verizon  while  the  second  regards  AT&T.  From  the  margin  analysis  I  
did,  we  may  see  a  common  trend  for  EBIT,  EBT  and  Net  Income  margins,  with  a  little  difference  
that  Verizon  is  more  efficient  since  its  margins  are  on  average  higher  than  AT&T  ones.  There  is  
one   exception   though,   we   may   see   that   Income   attributable   to   minority   interest   (which   may  
represent   preferred   stock   holders)   is   much   higher   for   Verizon,   so   that   the   actual   Net   income  
attributable   to   shareholders’   margin   is   higher   for   AT&T   with   respect   to   Verizon.   Overall,   trends  
are  pretty  much  similar  for  both  companies,  but  we  can  also  notice  how  both  companies  over  
time  tent  to  be  less  and  less  efficient  since  expenses  are  rising  at  a  faster  pace  with  respect  to  
revenues.  

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This  is  the  data  relative  to  Verizon  (reorganized  BS,  showing  NOA,  then  tables  for  NOWC  and  

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ratios).  
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Assets ($ Millions): 2009 2010 2011 2012 2013 2014
Accounts Receivable 12,573 11,781 11,776 12,576 12,439 13,993
Inventory 1,426 1,131 940 1,075 1,020 1,153
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Prepaid Expenses & Other Current Assets 5,247 2,223 4,269 4,021 3,406 3,324
Property, Plant & Equipment 91,985 87,711 88,434 88,642 88,956 89,947
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Wireless Licenses 72,067 72,996 73,250 77,744 75,747 75,341

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Goodwill & Other Intangibles 29,236 27,818 29,235 30,072 30,434 30,367
Other Assets 8,756 5,635 5,155 4,128 4,535 6,628
Investments in Unconsolidated Businesses 3,118 3,497 3,448 3,401 3,432 802
Total Operating Assets 224,408 212,792 216,507 221,659 219,969 221,555
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Cash & Cash Equivalents 2,009 6,668 13,362 3,093 53,528 10,598
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Short-Term Investments 490 545 592 470 601 555

Total Assets 226,907 220,005 230,461 225,222 274,098 232,708

Liabilities & Owners' Equity ($ Millions): 2009 2010 2011 2012 2013 2014
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Accounts Payable & Accrued Liabilities 15,223 15,702 14,689 16,182 16,453 16,680
Other Current Liabilities 6,708 7,353 11,223 6,405 6,664 8,649
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Post-Retirement Obligations 32,622 28,164 32,957 34,346 27,682 33,280

Other Long-Term Liabilities 6,765 6,262 5,472 6,092 5,653 5,574
Deferred Taxes 19,190 22,818 25,060 24,667 28,639 41,578
Total Operating Liabilities 80,508 80,299 89,401 87,692 85,091 105,761

Current Portion of Long-Term Debt 7,205 7,542 4,849 4,369 3,933 2,735
Long-Term Debt 55,051 45,252 50,303 47,618 89,658 110,536

Total Owners' Equity 84,143 86,912 85,908 85,533 95,416 13,676

Total Liabilities & Owners' Equity 226,907 220,005 230,461 225,212 274,098 232,708

Net Operating Assets 143,900 132,493 127,106 133,967 134,878 115,794

Change -11,407 -5,387 6,861 911 -19,084
 

 
https://www.coursehero.com/file/13702395/Accounting-ATT-V-Verizon-Case/
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 Working Capital Ratios 2010 2011 2012 2013 2014
Daily Sales 292 304 317 330 348
Daily Expenses 207 223 236 197 249

DSO 40 39 40 38 40
Days Inventory 9 7 8 8 8
Days Prepaid Expenses 11 19 17 17 13
Days Payable 76 66 68 83 67
Days Other Current Liabilities 36 50 27 34 35
Cash-to-cash Cycle -51 -51 -30 -54 -40
 
Net Working Capital 2009 2010 2011 2012 2013 2014
Accounts Receivable 12,573 11,781 11,776 12,576 12,439 13,993

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Plus: Inventory 1,426 1,131 940 1,075 1,020 1,153

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Plus: Prepaid Expenses & Other Current Assets 5,247 2,223 4,269 4,021 3,406 3,324

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Less: Accounts Payable & Accrued Liabilities 15,223 15,702 14,689 16,182 16,453 16,680

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Less: Other Current Liabilities 6,708 7,353 11,223 6,405 6,664 8,649
Net Working Capital -2,685 -7,920 -8,927 -4,915 -6,252 -6,859

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Following  is  the  data  relative  to  AT&T  instead.  
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Assets ($ Millions): 2009 2010 2011 2012 2013 2014
Accounts Receivable 14,845 13,610 13,231 12,657 12,918 14,527
Prepaid Expenses 1,562 1,458 1,102 1,035 960 831
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Other Current Assets 3,792 2,276 4,137 3,110 4,780 6,925

Property, Plant & Equipment 99,519 103,196 107,087 109,767 110,968 112,898
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Licenses 48,741 50,372 51,374 52,352 56,433 60,824

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Customer Lists 7,393 4,708 2,757 1,391 0 0

Goodwill & Other Intangibles 78,276 79,041 76,054 74,805 75,052 75,831
Other Assets 6,275 6,705 6,467 6,713 8,278 10,998
Deferred Taxes 1,247 1,170 1,470 1,036 1,199 1,142
Investments in Affiliates 2,921 4,515 3,718 4,581 3,860 250
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Total Operating Assets 264,571 267,051 267,397 267,447 274,448 284,226

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Cash & Cash Equivalents 3,741 1,437 3,045 4,868 3,339 8,603
Total Assets 268,312 268,488 270,442 272,315 277,787 292,829

Liabilities & Owners' Equity ($ Millions): 2009 2010 2011 2012 2013 2014
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Accounts Payable & Accrued Liabilities 21,260 20,055 19,956 20,911 21,107 23,592
Prepaid Revenue & Customer Deposits 4,170 4,086 3,872 3,808 4,212 4,105
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Deferred Taxes 1,681 72 1,003 1,026 1,774 1,091

Post-Retirement Obligations 27,847 28,803 34,011 41,392 29,946 37,079
Deferred Taxes 23,579 22,070 25,748 28,491 36,308 37,544
Other Long-Term Liabilities 13,226 12,743 12,694 11,592 15,766 17,989
Total Operating Liabilities 91,763 87,829 97,284 107,220 109,113 121,400

Dividends Payable 2,479 2,542 2,608 2,556 2,404 2,438

Current Portion of Long-Term Debt 7,361 7,196 3,453 3,486 5,498 6,056
Long-Term Debt 64,720 58,971 61,300 66,358 69,290 76,011

Total Owners' Equity 101,989 111,950 105,797 92,695 91,482 86,924

Total Liabilities & Owners' Equity 373,301 369,060 380,420 391,127 402,666 432,218

Net Operating Assets 172,808 179,222 170,113 160,227 165,335 162,826

Change 6,414 -9,109 -9,886 5,108 -2,509

 
https://www.coursehero.com/file/13702395/Accounting-ATT-V-Verizon-Case/
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 Working Capital Ratios 2010 2011 2012 2013 2014
Daily Sales 340 347 349 353 363
Daily Expenses 234 272 264 219 281

DSO 40.0 38.1 36.3 36.6 40.0

Days Prepaid Expenses 6.2 4.1 3.9 4.4 3.0
Days Other Current Assets 9.7 15.2 11.8 21.8 24.7
Days Payable 85.8 73.5 79.3 96.4 84.1
Days Prepaid Revenue 12.2 11.8 11.1 10.8 11.6
Cash-to-cash Cycle -42 -28 -38 -44 -28
 
Net Operating Working Capital 2009 2010 2011 2012 2013 2014
Accounts Receivable 14,845 13,610 13,231 12,657 12,918 14,527
Plus: Prepaid Expenses 1,562 1,458 1,102 1,035 960 831
Plus: Other Current Assets 3,792 2,276 4,137 3,110 4,780 6,925
Less: Accounts Payable & Accrued Liabilities 21,260 20,055 19,956 20,911 21,107 23,592

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Less: Prepaid Revenue & Customer Deposits 4,170 4,086 3,872 3,808 4,212 4,105
Net Working Capital -5,231 -6,797 -5,358 -7,917 -6,661 -5,414

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Here  we  see  net  operating  assets  and  the  amount  of  reinvestment  in  the  business  through  long-­‐
term   assets   from   2009   to   2014   for   AT&T,   from   here   we   may   see   if   the   company   has   been  
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reinvesting  in  the  business  or  not  by  looking  at  the  change  over  the  years.  Overall,  in  these  6  
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years  the  company  has  reinvested  money  into  the  business.  

Net Operating Assets 200,851 201,717 197,903 189,006 205,846 207,060

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Change 866 -3,814 -8,897 16,840 1,214

 
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Ending Balance in Long-term Assets 2010 2011 2012 2013 2014

PPE 103,196 107,087 109,767 110,968 112,898
Licenses 50,372 51,374 52,352 56,433 60,824
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Customer Lists 4,708 2,757 1,391 0 0

Other Assets 6,705 6,467 6,713 8,278 10,998
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Total Ending Balance in Long Term Assets 164,981 167,685 170,223 175,679 184,720

Beginning Balance in Long-term Assets

PPE 99,519 103,196 107,087 109,767 110,968
Licenses 48,741 50,372 51,374 52,352 56,433
Customer Lists 7,393 4,708 2,757 1,391 0
Other Assets 6,275 6,705 6,467 6,713 8,278
Total Beginning Balance in Long Term Assets 161,928 164,981 167,685 170,223 175,679

Depreciation 19,379 18,377 18,143 18,395 18,273

Reinvestment in the business 22,432 21,081 20,681 23,851 27,314

W/o Depreciation 3,053 2,704 2,538 5,456 9,041
 

 
https://www.coursehero.com/file/13702395/Accounting-ATT-V-Verizon-Case/
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 For  Verizon  instead,  we  may  see  underneath,  that  from  2009  to  2014  there  have  been  many  
variations  but  overall  the  company  has  not  much  reinvested  into  the  business  since  over  these  
6  years  NOA  have  actually  decreased  and  long  term  assets  haven’t  changed  much.  
 

Net Operating Assets 157,981 152,441 149,035 157,197 161,203 155,516

Change -5,540 -3,406 8,162 4,006 -5,687

 
Ending Balance in Long-term Assets 2010 2011 2012 2013 2014
PPE 87,711 88,434 88,642 88,956 89,947
Wireless Licenses 72,996 73,250 77,744 75,747 75,341
Investments in Unconsolidated Businesses 3,497 3,448 3,401 3,432 802

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Other Assets 5,635 5,155 4,128 4,535 6,628
Total Ending Balance in Long Term Assets 169,839 170,287 173,915 172,670 172,718

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Beginning Balance in Long-term Assets

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PPE 91,985 87,711 88,434 88,642 88,956
Wireless Licenses
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Investments in Unconsolidated Businesses 3,118 3,497 3,448 3,401 3,432
Other Assets 8,756 5,635 5,155 4,128 4,535
Total Beginning Balance in Long Term Assets 175,926 169,839 170,287 173,915 172,670
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Depreciation
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16,405 16,496 16,460 16,606 16,533

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Reinvestment in the business 10,318 16,944 20,088 15,361 16,581

W/o Depreciation -6,087 448 3,628 -1,245 48
 
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Here  is  Unlevered  FCF  for  Verizon.  

Unlevered FCF 2010 2011 2012 2013 2014

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EBIAT 8,787 7,728 7,896 19,181 11,759

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Less: Change in NOA -5,540 -3,406 8,162 4,006 -5,687

Unlevered FCF 14,327 11,134 -266 15,175 17,446

 
Underneath,  there  is  Unlevered  FCF  for  AT&T  instead.  

Unlevered FCF 2010 2011 2012 2013 2014

EBIAT 11,744 5,531 7,798 18,287 7,048

Less: Change in NOA 866 -3,814 -8,897 16,840 1,214

Unlevered FCF 10,878 9,345 16,695 1,447 5,834

 

 
https://www.coursehero.com/file/13702395/Accounting-ATT-V-Verizon-Case/
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7)  
I  calculate  ROE  as  Total  asset  turnover  times  Profit  margin  times  equity  multiplier.  Instead,  for  
RNOA  I  posed  EBIAT  over  NOA,  for  ROOA  I  posed  (EBIAT  +  (Operating  Liabilities*(1-­‐Tax  Rate))  all  
over  Total  Operating  assets.  I  get  return  from  operating  leverage  as  (op  liab/noa)*(rooa*((0.6)*r))  
and  return  from  financial  leverage  as  (net  debt/equity)*(rnoa-­‐r(1-­‐t)).  
 
This  is  for  AT&T.    
2010 2011 2012 2013 2014

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Total Asset Turnover 46% 47% 47% 46% 45%

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Profit Margin 16% 3% 6% 14% 5%
Equity Multiplier 2.4 2.6 2.9 3.0 3.4

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ROE 18% 4% 8% 20% 7%
 

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2010 2011 2012 2013 2014
RNOA 6.6% 3.3% 4.9% 11.1% 4.3%
ROOA 4.8% 2.5% 3.4% 7.1% 3.0%
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ROE 18% 4% 8% 20% 7%

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Return From Operating Leverage 1.8% 0.7% 1.5% 3.9% 1.3%

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Return From Financial Leverage 11.5% 0.7% 3.3% 9.2% 3.2%

 
 
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This  is  for  Verizon.    

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2010 2011 2012 2013 2014

Total Asset Turnover 48% 48% 51% 44% 55%
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Profit Margin 10% 9% 9% 20% 9%

Equity Multiplier 2.5 2.7 2.6 2.9 17.0
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ROE 12% 12% 12% 25% 87%

 
2010 2011 2012 2013 2014
RNOA 6.6% 6.1% 5.9% 14.2% 10.2%
ROOA 4.6% 4.1% 4.0% 9.2% 5.9%
ROE 11.8% 11.9% 12.3% 24.7% 21.9%

Return From Operating Leverage 2.0% 2.0% 1.9% 5.0% 4.3%

Return From Financial Leverage 5.1% 5.8% 6.4% 10.5% 11.7%
 

 
https://www.coursehero.com/file/13702395/Accounting-ATT-V-Verizon-Case/
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 8)  
By  taking  a  look  at  the  numbers,  postpaid  subscribers  increased  dramatically  in  the  last  5/6  years  
for  both  companies,  while  the  number  of  prepaid  subscribers  decreased  in  the  meanwhile.  So  
totally  the  number  of  total  subscriptions  increased  massively  over  these  years,  and  this  is  mainly  
due   to   postpaid   subscribers;   this   may   be   due   to   improvements   in   technology   over   the   years,  
where   paying   with   credit   cards   and   so   with   postpaid   automatic   refill   accounts   may   have   gotten  
easier.    ARPU  instead  has  decreased  over  time  and  this  is  mainly  due  by  the  customer  shift  toward  
installment  purchases,  and  away  from  extended  service  contracts.  EBIT  and  EBITDA  margins  are  
volatile  but  they  mainly  stay  over  an  average  of  28/30%  for  EBITDA  and  13/16%  for  EBIT.  

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Overall,   there   has   been   a   huge   increase   in   the   wireless   industry.   Both   firms   have   experienced   a  

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rise  in  revenues  and  customers  in  it.  This  may  be  mainly  driven  by  the  fact  that  mobile  devices  
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have   increased   dramatically   in   the   last   few   years   and   so   consequently   the   use   of   wireless  
connection.  More  over,  the  convergence  of  voice,  data  and  video  in  unique  packets  on  wireless  
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platforms  pumped  up  even  more  the  industry.  

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10)  
In  the  wireline  sector,  mainly  corporations,  and  not  much  individual  customers,  are  still  keeping  
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up  the  industry.  This  market  has  seen  a  deteriorating  trend  over  the  last  decade  due  primarily  to  
the  rise  of  the  wireless  connections.  The  wireline  industry  is  mainly  driven  by  the  fact  that  much  
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of  a  packet’s  life  is  wireline  before  becoming  wireless,  so  even  today,  many  people  still  utilize  
wireline  connections  and  this  is  the  key  factor  that  still  keeps  up  the  industry.    
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11)  
The   overall   strategy   for   each   firm   obviously   is   to   move   towards   the   wireless   market   since   it  
represents   the   market   and   the   industry   of   the   future   as   I   think   that   the   wireline   industry   is  
destined  to  die  and  disappear  in  a  near  future.  This  indeed  may  be  seen  from  the  data  given,  as  
we  can  see  that  year  by  year  the  market  for  wireline  has  been  going  down.  The  strategy  is,  in  my  

 
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 opinion,   to   make   as   much   technological   improvements   as   possible   in   the   wireless   industry,   and  
to   invest   more   and   more   capital   on   it   in   order   to   facilitate   the   customer   experience.   I   definitely  
expect  to  see  the  wireless  market  to  increase  massively  and  the  wireline  to  disappear  completely  
over  the  long  run.  

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