Telefonica S.A. (TEF) | Analysis of Equity Method Investment

Selected Financial Data

Telefonica S.A.'s selected financial data

USD \$ in millions, translated from EUR €

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Share of profit (loss) of associates (1,681) (824) 101  67  (224)
Investments in associates 3,254  6,571  6,916  7,075  3,866

ROA (equity method investments only)1 -51.66% -12.54% 1.46% 0.95% -5.80%

Source: Based on data from Telefonica S.A. Annual Reports

2012 Calculations

1 ROA (equity method investments only) = 100 × Share of profit (loss) of associates ÷ Investments in associates
= 100 × -1,681 ÷ 3,254 = -51.66%

Item Description The company
Share of profit (loss) of associates This item represents the entity's proportionate share for the period of the net income (loss) of its investee (such as unconsolidated subsidiaries and joint ventures) to which the equity method of accounting is applied. Such amount typically reflects adjustments similar to those made in preparing consolidated statements, including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between cost and underlying equity in net assets of the investee at the date of investment. Telefonica S.A.'s share of profit (loss) of associates declined from 2010 to 2011 and from 2011 to 2012.
Investments in associates This item represents the carrying amount on the entity's balance sheet of its investment in common stock of an equity method investee. This is not an indicator of the fair value of the investment, rather it is the initial cost adjusted for the entity's share of earnings and losses of the investee, adjusted for any distributions (dividends) and other than temporary impairment losses recognized. Telefonica S.A.'s investments in associates declined from 2010 to 2011 and from 2011 to 2012.
ROA (equity method investments only) A profitability ratio calculated as share of profit (loss) of associates divided by investments in associates. Telefonica S.A.'s ROA of equity method investments deteriorated from 2010 to 2011 and from 2011 to 2012.

Summarized Financial Information

Summarized financial information for Telefonica S.A.'s affiliates, subsidiaries, associates, and joint ventures

USD \$ in millions, translated from EUR €

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Total assets 81,556  78,055  74,960  86,423  31,858
Total liabilities 45,779  41,151  37,870  47,662  24,342
Equity 35,777  36,905  37,090  38,760  7,517
Liabilities and equity 81,556  78,055  74,960  86,423  31,858
Operating income 40,409  30,324  26,364  40,583  10,212
Profit for the year (1,330) (697) 918  6,070  (1,249)

Source: Based on data from Telefonica S.A. Annual Reports

Item Description The company
Equity This item represents the disclosure of summarized financial information for unconsolidated subsidiaries and 50 percent-or-less owned entities accounted for using the equity method of accounting. If investments in common stock of corporate joint ventures or other investments accounted for under the equity method are, in the aggregate, material in relation to the financial position or results of operations of an investor, it may be necessary to present summarized information as to assets, liabilities, and results of operations of the investee, or group of investments for which combined disclosure is appropriate, either by individual financial statement caption or in groups, as appropriate. Such summarized financial information may include total equity or capital (as applicable). Equity of Telefonica S.A.'s affiliates, subsidiaries, associates, and joint ventures declined from 2010 to 2011 and from 2011 to 2012.
Profit for the year This item represents the disclosure of summarized financial information for unconsolidated subsidiaries and 50 percent-or-less owned entities accounted for using the equity method of accounting. If investments in common stock of corporate joint ventures or other investments accounted for under the equity method are, in the aggregate, material in relation to the financial position or results of operations of an investor, it may be necessary to present summarized information as to assets of the investee, or group of investments for which combined disclosure is appropriate, either by individual financial statement caption or in groups, as appropriate. Such summarized financial information may, at a minimum, include net income or loss. Profit for the year of Telefonica S.A.'s affiliates, subsidiaries, associates, and joint ventures declined from 2010 to 2011 and from 2011 to 2012.

Adjustments to Financial Data: Proportionate Consolidation

Recognition of Telefonica S.A.'s proportionate share of affiliates, subsidiaries, associates, and joint ventures assets and liabilities instead of net equity.

Telefonica S.A., adjustments to financial data

USD \$ in millions, translated from EUR €

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Weighted average percentage interest in affiliates 9.10% 17.81% 18.65% 18.25% 51.43%
Total assets (as reported) 171,114  168,167  172,207  154,996  139,053
Less: Investments in associates (adjustment) 3,254  6,571  6,916  7,075  3,866
Total assets (adjusted) 175,278  175,494  179,268  163,696  151,571
Total liabilities (as reported) 134,641  132,641  130,163  120,205  111,823
Total liabilities (adjusted) 138,805  139,969  137,225  128,904  124,341
Revenues (as reported) 82,220  81,522  80,596  81,311  80,660
Revenues (adjusted) 85,896  86,921  85,512  88,719  85,911

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Net Profit Margin
Reported net profit margin 6.30% 8.60% 16.74% 13.71% 13.10%
Adjusted net profit margin 6.03% 8.06% 15.78% 12.56% 12.30%
Total Asset Turnover
Reported total asset turnover 0.48 0.48 0.47 0.52 0.58
Adjusted total asset turnover 0.49 0.50 0.48 0.54 0.57
Financial Leverage
Reported financial leverage 6.34 5.99 5.31 4.98 5.80
Adjusted financial leverage 6.50 6.25 5.52 5.25 6.32
Return on Assets (ROA)
Reported ROA 3.03% 4.17% 7.83% 7.19% 7.60%
Adjusted ROA 2.95% 3.99% 7.53% 6.81% 6.97%
Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as net income divided by adjusted revenue. Telefonica S.A.'s adjusted net profit margin deteriorated from 2010 to 2011 and from 2011 to 2012.
Adjusted total asset turnover An activity ratio calculated as adjusted total revenue divided by adjusted total assets. Telefonica S.A.'s adjusted total asset turnover improved from 2010 to 2011 but then slightly deteriorated from 2011 to 2012.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Telefonica S.A.'s adjusted financial leverage increased from 2010 to 2011 and from 2011 to 2012.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Telefonica S.A.'s adjusted ROA deteriorated from 2010 to 2011 and from 2011 to 2012.

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
As Reported
Profit for the year attributable to equity holders of the parent (USD \$ in millions, translated from EUR €) 5,179  7,010  13,491  11,145  10,568
Revenues (USD \$ in millions, translated from EUR €) 82,220  81,522  80,596  81,311  80,660

Net profit margin1 6.30% 8.60% 16.74% 13.71% 13.10%
Adjusted: from Equity Method to Proportionate Consolidation
Profit for the year attributable to equity holders of the parent (USD \$ in millions, translated from EUR €) 5,179  7,010  13,491  11,145  10,568
Adjusted revenues (USD \$ in millions, translated from EUR €) 85,896  86,921  85,512  88,719  85,911

Adjusted net profit margin2 6.03% 8.06% 15.78% 12.56% 12.30%

2012 Calculations

1 Net profit margin = 100 × Profit for the year attributable to equity holders of the parent ÷ Revenues
= 100 × 5,179 ÷ 82,220 = 6.30%

2 Adjusted net profit margin = 100 × Profit for the year attributable to equity holders of the parent ÷ Adjusted revenues
= 100 × 5,179 ÷ 85,896 = 6.03%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as net income divided by adjusted revenue. Telefonica S.A.'s adjusted net profit margin deteriorated from 2010 to 2011 and from 2011 to 2012.

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
As Reported
Revenues (USD \$ in millions, translated from EUR €) 82,220  81,522  80,596  81,311  80,660
Total assets (USD \$ in millions, translated from EUR €) 171,114  168,167  172,207  154,996  139,053

Total asset turnover1 0.48 0.48 0.47 0.52 0.58
Adjusted: from Equity Method to Proportionate Consolidation
Adjusted revenues (USD \$ in millions, translated from EUR €) 85,896  86,921  85,512  88,719  85,911
Adjusted total assets (USD \$ in millions, translated from EUR €) 175,278  175,494  179,268  163,696  151,571

Adjusted total asset turnover2 0.49 0.50 0.48 0.54 0.57

2012 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= 82,220 ÷ 171,114 = 0.48

= 85,896 ÷ 175,278 = 0.49

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as adjusted total revenue divided by adjusted total assets. Telefonica S.A.'s adjusted total asset turnover improved from 2010 to 2011 but then slightly deteriorated from 2011 to 2012.

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
As Reported
Total assets (USD \$ in millions, translated from EUR €) 171,114  168,167  172,207  154,996  139,053
Equity attributable to equity holders of the parent (USD \$ in millions, translated from EUR €) 26,979  28,070  32,447  31,151  23,985

Financial leverage1 6.34 5.99 5.31 4.98 5.80
Adjusted: from Equity Method to Proportionate Consolidation
Adjusted total assets (USD \$ in millions, translated from EUR €) 175,278  175,494  179,268  163,696  151,571
Equity attributable to equity holders of the parent (USD \$ in millions, translated from EUR €) 26,979  28,070  32,447  31,151  23,985

Adjusted financial leverage2 6.50 6.25 5.52 5.25 6.32

2012 Calculations

1 Financial leverage = Total assets ÷ Equity attributable to equity holders of the parent
= 171,114 ÷ 26,979 = 6.34

2 Adjusted financial leverage = Adjusted total assets ÷ Equity attributable to equity holders of the parent
= 175,278 ÷ 26,979 = 6.50

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Telefonica S.A.'s adjusted financial leverage increased from 2010 to 2011 and from 2011 to 2012.

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
As Reported
Profit for the year attributable to equity holders of the parent (USD \$ in millions, translated from EUR €) 5,179  7,010  13,491  11,145  10,568
Total assets (USD \$ in millions, translated from EUR €) 171,114  168,167  172,207  154,996  139,053

ROA1 3.03% 4.17% 7.83% 7.19% 7.60%
Adjusted: from Equity Method to Proportionate Consolidation
Profit for the year attributable to equity holders of the parent (USD \$ in millions, translated from EUR €) 5,179  7,010  13,491  11,145  10,568
Adjusted total assets (USD \$ in millions, translated from EUR €) 175,278  175,494  179,268  163,696  151,571

Adjusted ROA2 2.95% 3.99% 7.53% 6.81% 6.97%

1 ROA = 100 × Profit for the year attributable to equity holders of the parent ÷ Total assets
= 100 × 5,179 ÷ 171,114 = 3.03%

2 Adjusted ROA = 100 × Profit for the year attributable to equity holders of the parent ÷ Adjusted total assets
= 100 × 5,179 ÷ 175,278 = 2.95%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Telefonica S.A.'s adjusted ROA deteriorated from 2010 to 2011 and from 2011 to 2012.