AT & A ; T Inc. ( NYSE: Thymine ) is a United States telecommunications corporation headquartered in Texas. Founded in 1983 as SBC Communications, it became AT & A ; T Inc. upon purchase of AT & A ; T Corporation in 2005. It is the taking U.S. supplier of wire-line and radio communications. AT & A ; T delivers 3G radio services through AT & A ; T Mobility LLC, a wholly-owned subordinate. Other major sections include broadband cyberspace, digital telecasting, directory publication, and concern communications.
In 2006, AT & A ; T Inc. acquired BellSouth communications corporation, valued at $ 86 billion, absorbing its wire-line, radio, and broadband involvements. AT & A ; T has stated specific future ends in 4G radio, address acknowledgment, telehealth, and digital convergence. Recently, AT & A ; T selected Alcatel-Lucent and Ericsson as equipment suppliers for its LTE ( 4G ) radio deployments. AT & A ; T has over 150 million clients and 280,000 employees. AT & A ; T reported a $ 124 billion operating gross and $ 23 billion net income as of Dec. 31, 2008.
Verizon Communications Inc. ( NYSE: VZ ) is a United States telecommunications corporation headquartered in New York. It was founded in 1983 as Bell Atlantic. Bell Atlantic acquired GTE Corp. in 2000 and changed its name to Verizon Communications Inc. It is the 2nd largest U.S. supplier of wire-line and radio voice services. Verizon Wireless is a joint venture, with Vodafone Group keeping 45 percent ownership. Through its FiOS merchandise, Verizon provides fiberoptic bringing of cyberspace, telecasting, and digital voice. Other major operations include IP webs, applications, and professional services for concern.
In 2008, Verizon stated its end to excel AT & A ; T as the U.S. market leader in wireless voice and informations communications in the United States. It is sharply forcing fiberoptic deployments to battle industry-wide access-line losingss. Verizon has over 91 million clients and 220,000 employees. Verizon reported a $ 97 billion operating gross and $ 6.5 billion net income as of Dec. 31, 2008.
Balance Sheet – unusual points
AT & A ; T:
At Dec. 31, 2008, AT & A ; T reported a current ratio of 0.53, and a long-run assets / long-run liabilities ratio of 1.92. This mismatching indicates that excessively much short-run funding has been used to get long-run assets. AT & A ; T may hold jobs run intoing its short-run duties without extra refinancing. If extra funding can non be obtained, a deficiency of plus liquidness poses a bankruptcy hazard.
At Dec. 31, 2008, AT & A ; T reported good will at $ 71.8 billion, accounting for approximately 27 % of their sum reported assets. This stems from AT & A ; T ‘s aggressive acquisition scheme. The high sum poses a great plus damage hazard. Lone losingss, non additions, can be recorded for good will. If the acquired entities lose value, as judged by an one-year damage trial, the loss of recorded assets and matching write-downs against shareholders ‘ equity can be significant.
At Dec. 31, 2008, Verizon reported wireless licences valued at $ 62.0 billion. These are indefinite-lived intangible plus which account for 30.6 % of Verizon ‘s entire assets. Wireless licences are highly of import for a telecommunications company, but puting such big rating on an intangible is a serious hazard. Estimating just value is really subjective, and any important write-downs ( as judged by a periodic impairment trial ) could endanger shareholders ‘ assurance.
At Dec. 31, 2008, Verizon reported hard currency and hard currency equivalents of $ 9.8 billion. Having such a big sum of hard currency and hard currency equivalents ( investings with a adulthood of 90 yearss or less ) is good for liquidness. However, a important part of this $ 9.8 billion could be converted to less-liquid, higher-interest investings that mature within a twelvemonth, or even long-run investings. Having so much cash-on-hand is a job because it is non being invested to return extra value to the concern.
Income Statement – unusual points
AT & A ; T:
At Dec. 31, 2008, AT & A ; T reported basic earnings-per-share of $ 2.17. During the same period, their nearest market rival, Verizon, reported $ 2.26 basic earnings-per-share. To the common shareholder, this is one of the most of import factors to pull and keep investing. Unless AT & A ; T can accomplish higher earnings-per-share, investors will be more likely to put in their rivals, presenting a menace to AT & A ; T ‘s future growing.
At Dec. 31, 2008, AT & A ; T recorded a net other income ( disbursal ) of – $ 589 million ( versus + $ 615 million in 2007 ) . A closer expression at Note 4 to the fiscal statements reveals that this is wholly attributable to “ Consolidation and Elimination ” disbursals. Reorganization due to acquisition and restructuring has been a important portion of AT & A ; T ‘s market-growth scheme, but they must take attention non to incur inordinate disbursals for the interest of growing. That could take to an overall loss of fight and deficiency of shareholders ‘ assurance.
At Dec. 31, 2008, Verizon recorded a net income of $ 6.4 billion. Their nearest market rival, AT & A ; T, posted a net income of $ 12.9 billion. In footings of absolute Numberss, this gives Verizon less power in the market and besides serves as an indicant to investors that Verizon might non be pull offing its fundss good plenty. Income is indispensable to future value creative activity and enlargement, so Verizon should endeavor to better operational efficiency and attain an income that ‘s more aligned with ( or better than ) its rival.
At Dec. 31, 2008, Verizon recorded a net net income border ( ratio of net income to grosss ) of merely.066, up from their 2007 net income border of.059, but still lower than their 2006 net income border of.070. In general, Verizon ‘s net income border seems low compared to other U.S. telecommunications corporations ( particularly AT & A ; T ) , a mark of direction ‘s inability to bring forth strong returns. This weak fiscal public presentation should raise concerns for stockholders and financers, and it poses a endurance hazard to Verizon.
Cash Flow Statement – unusual points
AT & A ; T:
In 2008, AT & A ; T issued $ 9.5 billion in dividends to shareholders ( which has been increasing bit by bit since 2004 ) . Consistent dividends are good to pull sustained shareholders ‘ assurance and investing, but a dividend payout of $ 9.5 billion is remarkably high. By paying out excessively many extra financess to shareholders, AT & A ; T may be losing out on more moneymaking investing chances that would bring forth better returns.
In 2008, AT & A ; T reported $ 5.6 billion in histories collectible and accumulated liabilities. This sum, due to AT & A ; T ‘s providers or Bankss, must be paid off within 12-months in order to avoid default. This significantly high sum is a restraint against AT & A ; T ‘s working capital. If the company is non able to to the full pay off the debt in clip, its future operations could be hindered.
In 2008, Verizon reported net $ 15.9 billion in acquisitions of licences, investings, and concerns. Such a significant investing introduces a high degree of concern hazard. If Verizon ‘s investings do non show profitableness, non merely will important financess have gone to blow, but more uncertainty will be cast on the corporation ‘s future puting determinations by investors and financers.
In 2008, Verizon accumulated net hard currency influxs from funding activities of $ 13.6 billion. In peculiar, $ 21.6 billion were returns from long-run adoption, while there was a refund of merely $ 4.1 billion in long-run adoption and capital rental duties. It seems that Verizon is utilizing this purchase to accomplish their investment activities discussed antecedently. Such aggressive funding this financial twelvemonth can set heavy restraints on Verizon ‘s ability to get extra funding in future old ages. Verizon is in a unstable place where, if they can non refund the funding in a timely mode, they enter a high hazard of worsening into bankruptcy.
Notes to Financial Statements – unusual points
AT & A ; T:
At Dec. 31, 2008, AT & A ; T reported that $ 14.1 billion of its outstanding debt would maturate within one twelvemonth, compared to merely $ 6.9 billion in the old twelvemonth ( see Note 8 ) . This current debt introduces a liquidness job, since AT & A ; T must be able to bring forth adequate hard currency in the following twelvemonth to refund its financers. This is a important concern hazard for AT & A ; T ; if it is unable to cover its debts in clip, its future funding options will be limited and its concern operations could be in hazard.
As of Jan. 1, 2007, AT & A ; T indicated a loss of $ 123 million in good will related to the “ colony of IRS audit ” in its radio section ( see Note 6 ) . Excess good will is already a job because a high hazard of plus damage is introduced, but devaluation due to an IRS audit raises serious concerns about direction ‘s judgement for proper accounting. Investors are cautious about trips such as this, and a repeating incident could farther faze their assurance in AT & A ; T.
On Jan. 9, 2009 ( beyond the coverage day of the month of the fiscal statements ) , Verizon ‘s radio section closed the acquisition of Alltel Corporation, paying $ 5.9 billion for its equity, but besides geting $ 22.2 billion of its debt duties ( see Note 2 ) . Geting such a monolithic debt puts Verizon at a important funding hazard. The notes reveal that Verizon has relied on recognition to instantly cover the acquisition cost and debt prepayments, with $ 2.5 billion debt that remains outstanding. Verizon faces possible insolvency – in other words, a high hazard of equal refund and future refinancing.
At Dec. 31, 2008, Verizon reported duties for all defined benefit pension programs at $ 29.4 billion ( see Note 15 ) . The future aggregation of this big liability poses a fiscal hazard to Verizon, should they non be appropriately prepared to cover the costs. Along with Verizon ‘s already big debt duties, this is a notable menace to the company ‘s viability.
Balance Sheet – differences
At Dec. 31, 2008, AT & A ; T had a debt-to-equity ratio of 1.75 ( entire liabilities / entire equity ) and Verizon had a debt-to-equity ratio of 3.85. AT & A ; T and Verizon hold similar degrees of entire liabilities ( $ 169 and $ 161 billion, severally ) , but AT & A ; T has a great trade more shareholders ‘ equity ( $ 96.3 versus $ 41.7 billion, severally ) . AT & A ; T ‘s much larger shareholder involvement provides increased fiscal flexibleness and an ability to serve its debt, in comparing to Verizon which should be more cautious in its debt accretion, at hazard of being unable to bring forth adequate hard currency to fulfill its debt duties. AT & A ; T ‘s lower debt-to-equity ratio may hike shareholders ‘ assurance since their investings are better protected in the event of concern diminution. On the other manus, AT & A ; T ‘s lower debt-to-equity ratio may mean that it is non taking advantage of adequate fiscal purchase to bring forth increased net incomes.
At Dec. 31, 2008, AT & A ; T lists “ Customer Lists and Relationships ” as a long-run plus valued at net $ 10.6 billion. Verizon does non such an point listed on their balance sheet, but Note 4 to the fiscal statements reveals that client lists and relationships are a net $ 820 million constituent of “ Other Intangible Assetss ” . This point is a limited-life intangible plus, and is capable to amortisation accretion. The comparatively similar size of each company ‘s client base suggests that these ratings should n’t be so drastically different. Estimating just value of client lists and relationships is really subjective, based on how each company Judgess the ability to bring forth returns. AT & A ; T ‘s high rating compared to Verizon leads to higher one-year write-downs of the plus. Stockholders ‘ assurance could be shaken by excessively high write-downs originating from higher ratings, so Verizon ‘s more conservative rating may be safer in the long-run.
Income Statement – differences
As of 2008, AT & A ; T ‘s income statements divide “ runing grosss ” into five sections: radio service, voice, informations, directory, and other. Verizon ‘s income statement merely specifies a catch-all “ operating grosss ” point, but Note 17 to the fiscal statements identifies two sections: domestic radio and wireline. Both companies ‘ radio sections are tantamount in range. Verizon ‘s wireline section is the equivalent of AT & A ; T ‘s voice & A ; informations sections combined. Notably, AT & A ; T has a more diversified concern portfolio, including its directory services which include the publication of print directories, directory advertisement, internet-based advertisement, and local hunt ; and the other section which includes information services, payphone, and corporate operations. The presentation of AT & A ; T ‘s income statement emphasizes their diverseness of operations in comparing to Verizon. This shows two different attacks to concern variegation. For Verizon, if one of its two sections were to neglect, the fiscal impact would be ruinous. For AT & A ; T, the failure of a individual section would be less terrible on the company as a whole.
Verizon lists “ minority involvement ” as a distinguishable point under runing income with a recorded disbursal of $ 6.16 billion. AT & A ; T does non name a distinguishable point, but Note 4 to its fiscal statements indicate that $ 256 million of minority involvement disbursal is portion of its “ other income ( disbursal ) ” point. Minority involvement disbursal refers to the portion of net income belonging to minority stockholders. In this instance, Vodafone owns a 45 % involvement in Verizon Wireless and receives that portion of the generated income. For Verizon, this is a really big sum of income that it could be roll uping for itself, if it was to take full control of its radio subordinate. If Verizon recognized the full income of its radio subordinate, its overall net income would be more competitory with AT & A ; T. Besides, by giving Vodafone such a big interest in its radio subordinate, there is the possible for a future coup d’etat.
Cash Flow Statement – differences
In 2008, Verizon recorded $ 13.6 billion in net hard currency provided by funding activities, while AT & A ; T recorded $ 4.7 billion in net hard currency used in funding activities. That is, Verizon acquired net debt in its funding activities, while AT & A ; T was able to pay back more funding that it acquired. Because of this, AT & A ; T shows more fiscal solvency than Verizon, as its ability to refund old funding activities boosts stockholder assurance and enhances its record as a dependable adoption spouse for future funding. Verizon ‘s large adoption introduces important concern hazards and a possible for bankruptcy if their operations do n’t return considerable income. On the other manus, Verizon ‘s aggressive funding activities may turn out good if it uses the fundss to successfully turn its market-share, which would be a menace to AT & A ; T.
In 2008, Verizon recorded $ 1.4 billion of purchase of common stock for exchequer, while AT & A ; T recorded $ 6.1 billion of the same. The end of these exchequer stock redemptions is to increase the value of the portions held by shareholders. Both AT & A ; T and Verizon have repurchased portions over the past 5 old ages, with AT & A ; T averaging $ 4.3 billion in redemptions per twelvemonth versus Verizon ‘s $ 1.3 billion per twelvemonth. AT & A ; T ‘s systematically larger repurchasing may mean that it views its portions as undervalued, or that it wants to better its reported earnings-per-share. As celebrated earlier, AT & A ; T ‘s 2008 earnings-per-share were $ 0.09 lower than Verizon ‘s, so this might be a legitimate scheme to pull future shareholder investing. However, the consistent exchequer stock redemptions may be a mark that AT & A ; T is fighting to obtain legitimate involvement from investors, so they are alternatively merely geting their ain portions to blow up the stock ‘s value.