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Microsoft Excel LibreOffice Calc

Verizon Communications Inc. (VZ)


Analysis of Goodwill and Intangible Assets

Advanced level


Accounting Policy on Goodwill and Intangible Assets

Goodwill

Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if impairment indicators are present.

To determine if goodwill is potentially impaired, Verizon has the option to perform a qualitative assessment. However, Verizon may elect to bypass the qualitative assessment and performs an impairment test even if no indications of a potential impairment exist. The quantitative impairment test for goodwill is performed at the reporting unit level and compares the fair value of the reporting unit (calculated using a combination of a market approach and a discounted cash flow method) to its carrying value. Estimated fair values of reporting units are Level 3 measures in the fair value hierarchy.

Under the qualitative assessment, Verizon considers several qualitative factors, including the business enterprise value of the reporting unit from the last quantitative test and the excess of fair value over carrying value from this test, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and Earnings before interest, taxes, depreciation and amortization (EBITDA) margin projections), the recent and projected financial performance of the reporting unit, as well as other factors.

The market approach includes the use of comparative multiples of guideline companies to corroborate discounted cash flow results. The discounted cash flow method is based on the present value of two components, a projected cash flows and a terminal value. The terminal value represents the expected normalized future cash flows of the reporting unit beyond the cash flows from the discrete projection period. The fair value of the reporting unit is calculated based on the sum of the present value of the cash flows from the discrete period and the present value of the terminal value. The discount rate represents Verizon’s estimate of the weighted-average cost of capital, or expected return, that a marketplace participant would have required as of the valuation date. If the carrying value exceeds the fair value, an impairment charge is booked for the excess carrying value over fair value, limited to the total amount of goodwill of that reporting unit. During the fourth quarter of 2018, Verizon updated its five-year strategic planning review for each of its reporting units. Those plans considered current economic conditions and trends, estimated future operating results, Verizon’s view of growth-rates and-anticipated future economic and regulatory conditions.

Intangible Assets Not Subject to Amortization

A significant portion of Verizon’s intangible assets are wireless licenses that provide the wireless operations with the exclusive right to utilize designated radio frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time, generally ten years, such licenses are subject to renewal by the Federal Communications Commission (FCC). License renewals have occurred routinely and at nominal cost. Moreover, Verizon has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the wireless licenses. As a result, Verizon treats the wireless licenses as an indefinite-lived intangible asset. Verizon re-evaluates the useful life determination for wireless licenses each year to determine whether events and circumstances continue to support an indefinite useful life. Verizon aggregates the wireless licenses into one single unit of accounting, as Verizon utilizes the wireless licenses on an integrated basis as part of the nationwide wireless network.

Verizon tests the wireless licenses for potential impairment annually or more frequently if impairment indicators are present. Verizon has the option to first perform a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. However, Verizon may elect to bypass the qualitative assessment in any period and proceed directly to performing the quantitative impairment test. Verizon’s quantitative assessment consists of comparing the estimated fair value of the aggregate wireless licenses to the aggregated carrying amount as of the test date. Using a quantitative assessment, Verizon estimates the fair value of the aggregate wireless licenses using the Greenfield approach. The Greenfield approach is an income based valuation approach that values the wireless licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except the wireless licenses to be valued. A discounted cash flow analysis is used to estimate what a marketplace participant would be willing to pay to purchase the aggregated wireless licenses as of the valuation date. If the estimated fair value of the aggregated wireless licenses is less than the aggregated carrying amount of the wireless licenses, then an impairment charge is recognized. As part of the qualitative assessment, Verizon considers several qualitative factors including the business enterprise value of the Wireless segment, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and EBITDA), margin projections, the recent and projected financial performance of the Wireless segment, as well as other factors.

Interest expense incurred while qualifying activities are performed to ready wireless licenses for their intended use is capitalized as part of wireless licenses. The capitalization period ends when the development is discontinued or substantially completed and the license is ready for its intended use.

Intangible Assets Subject to Amortization and Long-Lived Assets

Verizon’s intangible assets that do not have indefinite lives (primarily customer lists and non-network internal-use software) are amortized over their estimated useful lives. All of Verizon’s intangible assets subject to amortization, and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indications of impairment are present, Verizon would test for recoverability by comparing the carrying amount of the asset group to the net undiscounted cash flows expected to be generated from the asset group. If those net undiscounted cash flows do not exceed the carrying amount, Verizon would perform the next step, which is to determine the fair value of the asset and record an impairment, if any. Verizon re-evaluates the useful life determinations for these intangible assets each year to determine whether events and circumstances warrant a revision to their remaining useful lives.

Source: 10-K (filing date: 2019-02-15).


Goodwill and Intangible Asset Disclosure

Verizon Communications Inc., balance sheet: goodwill and intangible assets

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Customer lists hidden hidden hidden hidden hidden
Non-network internal-use software hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Other intangible assets, gross amount hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden
Other intangible assets, net amount hidden hidden hidden hidden hidden
Wireless licenses hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden
Wireless licenses, goodwill and other intangible assets hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

Item Description The company
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Verizon Communications Inc.’s goodwill increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.
Wireless licenses, goodwill and other intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Verizon Communications Inc.’s wireless licenses, goodwill and other intangible assets increased from 2016 to 2017 and from 2017 to 2018.

Adjustments to Financial Statements: Removal of Goodwill

Verizon Communications Inc., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Equity Attributable To Verizon
Equity attributable to Verizon (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Equity attributable to Verizon (adjusted) hidden hidden hidden hidden hidden
Adjustment to Net Income Attributable To Verizon
Net income attributable to Verizon (as reported) hidden hidden hidden hidden hidden
Add: Oath goodwill impairment hidden hidden hidden hidden hidden
Net income attributable to Verizon (adjusted) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).


Verizon Communications Inc., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios: Removal of Goodwill (Summary)

Verizon Communications Inc., adjusted financial ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net Profit Margin
Reported net profit margin hidden hidden hidden hidden hidden
Adjusted net profit margin hidden hidden hidden hidden hidden
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

Financial ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Verizon Communications Inc.’s adjusted net profit margin ratio improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Verizon Communications Inc.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted 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.
Verizon Communications Inc.’s adjusted financial leverage ratio increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Verizon Communications Inc.’s adjusted ROE improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Verizon Communications Inc.’s adjusted ROA improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

Verizon Communications Inc., Financial Ratios: Reported vs. Adjusted


Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Verizon hidden hidden hidden hidden hidden
Operating revenues hidden hidden hidden hidden hidden
Profitability Ratio
Net profit margin1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Verizon hidden hidden hidden hidden hidden
Operating revenues hidden hidden hidden hidden hidden
Profitability Ratio
Adjusted net profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

2018 Calculations

1 Net profit margin = 100 × Net income attributable to Verizon ÷ Operating revenues
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net income attributable to Verizon ÷ Operating revenues
= 100 × hidden ÷ hidden = hidden

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Verizon Communications Inc.’s adjusted net profit margin ratio improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Operating revenues hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Activity Ratio
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Operating revenues hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Activity Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

2018 Calculations

1 Total asset turnover = Operating revenues ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Operating revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Verizon Communications Inc.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets hidden hidden hidden hidden hidden
Equity attributable to Verizon hidden hidden hidden hidden hidden
Solvency Ratio
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets hidden hidden hidden hidden hidden
Adjusted equity attributable to Verizon hidden hidden hidden hidden hidden
Solvency Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

2018 Calculations

1 Financial leverage = Total assets ÷ Equity attributable to Verizon
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted equity attributable to Verizon
= hidden ÷ hidden = hidden

Solvency ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted 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.
Verizon Communications Inc.’s adjusted financial leverage ratio increased from 2016 to 2017 but then slightly decreased from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Verizon hidden hidden hidden hidden hidden
Equity attributable to Verizon hidden hidden hidden hidden hidden
Profitability Ratio
ROE1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Verizon hidden hidden hidden hidden hidden
Adjusted equity attributable to Verizon hidden hidden hidden hidden hidden
Profitability Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

2018 Calculations

1 ROE = 100 × Net income attributable to Verizon ÷ Equity attributable to Verizon
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Adjusted net income attributable to Verizon ÷ Adjusted equity attributable to Verizon
= 100 × hidden ÷ hidden = hidden

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Verizon Communications Inc.’s adjusted ROE improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Verizon hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Profitability Ratio
ROA1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Verizon hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Profitability Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-23).

2018 Calculations

1 ROA = 100 × Net income attributable to Verizon ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net income attributable to Verizon ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Verizon Communications Inc.’s adjusted ROA improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.