Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted

Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.

Welcome to VZW

BUSINESS ACUMEN®

Acumen Learning, LLC(877) 224-5444

(Terry Tate Video)


How much do you know about Verizon Wireless’

Key Success Measures?(or Key Performance Indicators (KPIs))

Let’s find out!

Important Question!


1 - How much Cash was on hand? $______

2 - How much Cash was generated by Operating Activities? $______

3 - What is our Net Income? $______

4 - What is our Gross Margin? ______%

5 - What is our Net Profit Margin? ______%

6 - What is EBITDA as a % of Revenue? ______%

7 - What is VZW’s latest quarter ARPU? $______

8 - What VZW’s latest quarter Data ARPU? $______

9 - What is Return on Assets (ROA)? ______%

10 - How much did Total Operating Revenues grow? ______%

11 - How much did Net Income grow? ______%

Given all the above, how do we stack up to our competition?

For fiscal year: 2010

Its OK to guess!

35

POP QUIZ!

Page 35


Today's Learning Objectives:

List and describe the 11 key performance measures that are important V W and the Executive Team.

List and describe the 5 business drivers

all successful businesses must focus on.

Create a personal action plan that can positively impact personal performance and company results.

Teach specific components of V W financial statements.

Better articulate company performance & strategy.


Only 5-10% of business start-ups survive past 5 years.

16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study

70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007

Business can be tough!

So why do businesses fail?


Acumen Means?

…the ability to make good business decisions, in a timely manner, with an understanding of how the decision should impact the business.

3



Definition: CASH

Cash

8

What is required to grow and maintain the business.

Cash:“The bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days.”

MEASURES

Cash Flow:“Cash generation or “cash flow” is the difference between the cash that flows into the business and the cash that flows out of the business in a given period of time (month, quarter, annual)”

DEFINITION

See Page 58


(In Millions)

Cash Verizon Wireless

9

Why carry more cash?• Acquisition?• Uncertainty?

Cash

Cash Flow

Partially for the Alltel acquisition: $ 24.0 B assumed debt $ 5.9 B cash $ 29.9 B total (12M Customers!)

(S&P 500 Average Cash: 6%)


Cash Benchmarks

9

(In Millions)

Cash

Cash Flow


CASH Review notes on page 9

4. Benchmark the numbers

2008 2009 2010

Cash $9.2 B $607 M $5.3 B

Cash Flow $18.1 B $21.3 B $25.5 B

9

1. Define Cash Driver• What is required to grow

and maintain the business.

2. Measures of Cash1. Cash: Easily converted into cash in 90 days or

less.

2. Cash Flow :Difference of cash in and cash out over a given period of time.

3. Importance of Cash Driver• Have sufficient cash to run the business

• What is the cost of that cash (capital)

• Enhance shareholder value

• Improve attractiveness to suppliers and customers.



Definition: PROFIT

10

Profit

Profit = Earnings = Income and is the money made after expenses are subtracted from sales.

Gross Profit ($) and Gross Profit Margin (%)Sales (Revenues)

- Cost of Goods Sold (COGS)

EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization

Sales (Revenues) - Cost of Goods Sold (COGS) - Controllable expenses

Net Profit ($) and Net Profit Margin (%): Sales (Revenues) - all expenses (COGS, Controllables, non-controllables)

MEASURES

DEFINITION

Profit = $ Margin =

% #1 - Increase price

#2 - Lower costs

#3 - Both!

Can be expressed in dollars ($) or percent (%).


Sales Price: $1.50

Water - .04Label - .11 Bottle & cap - .15 Packaging (Direct Labor) - .20 Total: .50

$1.50 - .50 = $1.00 Gross Profit = 66.7% Gross Profit Margin

Rent - .03Selling, Gen, & Admin. (SG&A or Overhead) - .30Marketing - .08 Shipping - .19 Total: .60

$1.50 - $.50 - $.60 = $.40 EBITDA = 26.7% EBITDA Margin Interest Expense - .04Taxes - .06 Depreciation /Amortization - .02 Total: .12

$1.50 - $.50 - $.60 - $.12 = $.28 Net Profit = 18.6% Net Profit Margin

(Take notes on Page 11)

Life Spring

Artesian Water

Profit ($) / Margin (%)

COGS

Controllables

Non-Controllables


WHY? They sell commodities.“ I f y o u ’re n o t u n iq u e , y o u b e t te r b e c h e a p ! ”

WHY?

They sell commodities.“If you’re not unique, you better be cheap!”

To drive Profit($) you need either: High Margin (%) or High Volume

High Margin vs. Low Margin(Take notes on Page 11)

30%

32%

21%

3.9%

8.0%

1.7%

High Margins

Low Margins

WHY?

They offer something Unique!

S&P 500 Averages: Net Margin = 11%


= Gross Profit $44,154 Gross Profit Margin 69.08%

Sales (Revenues) $63,919 100% - Costs of Goods Sold (COGS) - $19,765

2010(in Millions)

= Net Profit $16,676 Net Profit Margin 26.09%

- Interest and Taxes - $1,293

$1.00

Roaming, Cell tower leasing, rent & Maint., rent ($845m)

Hand sets, Head sets, Accessories

Income

Earnings

VZW Gross Profit & Net Profit

11

- Selling, General & Adm.(SG&A) - $18,727

= EBITDA $25,427 EBITDA Margin 39.78%

Cost of Goods Sold (COGS) Cost of Service $ 8,342

+ Cost of Equipment $11,423 $19,765

- Depreciation & Amortization - $7,458


Profit Verizon Wireless

Gross Profit Margin (%) = Total Revenues – COGS (Cost of Goods Sold)

EBITDA (%) = Earnings Before Interest, Taxes, Depreciation, & Amortization: (CONTROLABLES)

Net Profit Margin (%) = Total Revenues – All Expenses

11

(In Millions)


Profit Benchmarks

11

(In Millions)


Profit Review notes on page 12

1. Define Profit Driver What is left over after you have subtracted

expenses.

Can be expressed in dollars ($) or as a percent (%).

3. Importance of Profit Driver Net Profit is one of the most important

#’s for the business.

Indicates price strength & cost controls

Identifies ability to manage costs


2008 2009 2010

Gross 68.1% 67.9% 69.08%

EBITDA 39.3% 38.5% 39.85%

Net 26.4% 23.6% 26.09%

11

2. Measures of Profit 1. Gross Profit (Margin):

Revenues/Sales - COGS

2. EBITDA:Earnings before Interest, Tax, Depreciation, & Amortization.

3. Net Profit (Margin) – subtract all expenses.



Definition: ASSETS

12

AssetsWhat we have and how well we use what we have.

• ROA: (Return on Assets)

MEASURES

• ARPU: (Average Revenue Per Unit/User)

• Asset Strength:The ability to remain viable during ups and downs in the marketplace.

DEFINITION

• Data ARPU: – Average Data

• CHURN - % that leave

• Asset Utilization:The ability to efficiently and effectively use assets to generate profits.


Assets Verizon Wireless

ROA = Net Income = $16,676 = 12.08% Total Assets $138,044

13

(In Millions)

Total Assets have increased due to: purchase of 700 MHz spectrum in March 2008, which drives the return on assets % down. Rural Cellular, Alltel etc.


Assets Benchmarks

13

(In Millions)

USA TodayComScore/Forrester Research March 25, 2011Money: Page 2B

"A smartphone typically uses 24 times as much spectrum capacity as a regular cellphone. Nearly 66 million people own smarphones now, and that's growing fast, research firm ComScore reports. And tablets -- which provide many of the same features of the smartphone but on a much bigger screen -- can use 122 times more spectrum capacity as an ordinary cell phone. More than 82 million people will have a tablet in 2015, up from 10.3 million last year, Forrester Research projects.”


Asset Review notes on page 14

1. Define Asset Driver

• What we have and

• How well we use what we have.

2. Measures of Asset• ROA – Percent value of total revenue to

total assets.

• ARPU – Average revenue in dollars gained per user/unit.

• Data ARPU

• CHURN

3. Importance of Asset Driver

• Demonstrates ability to work smarter rather than harder.

• Indicates company invests in “right” assets

• Indication of execution & efficiency


2008 2009 2010

ROA 11.46% 10.93%

12.08%

ARPU $51.72 $50.75

$53.52

13



Definition: GROWTH

14

Growth

The ability to increase year over year, quarter over quarter, and/or month over month.

• Revenue Growth: Top-line Sales (Revenue increase).

MEASURES

• Customer Growth:Increase/decrease in customer base.

• Net Income Growth:Bottom-line (Profit increase).

“In today’s business world, no growth means lagging behind in a world that grows every day…”

“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”

DEFINITION


Growth Verizon Wireless

15

(In Millions)


Growth Benchmarks

15

(In Millions)

Merger:Sprint worth $30 B 2007 Lost 29 BNextel worth $45 B 2008 Lost 3 B Total: $75 B Total

Building out/investing in FiOS. On average, customers pay a monthly bill of $135, about twice the average bill for the Verizon customer.


15

3. Importance of Growth Driver “Investors expect it, employees are energized

by it, customers are generally attracted to it and executives are measured by it.”

Growth Review notes on page 16


2008 2009 2010

Rev Growth 12.4% 25.9% 2.88%

Net Growth 22.8% 10.5% 13.57%

Cust. Growth 12.7% 9.4% 7.6%

1. Define Growth Driver The ability to increase:

year over year quarter over quarter, and/or month over month.

2. Measures of Growth• Revenue Growth:

Top-line Sales or Revenues increase.

• Net Income Growth: Bottom-line or Profit increase.

• Customer Growth:The increase/decrease in the customers.



Definition: PEOPLE

People

16

Customers that has the ability to impact the success of our business:

External Customers Internal Customers Vendor/Re-sellers

• # of Customers:The total # of individual accounts at end of period.

• Churn: Rate at which current users/units terminate with VZW.

MEASURES

DEFINITION


People:

17

What is more important than meeting customer expectations?

Exceeding?

“If I would have asked my customer what they wanted, they would have said a faster horse!”

~Henry Ford

Anticipating Customer Needs & Expectations!


People: (Take Notes on Page 17)

External Customers:1. Have a formal process for listening to your customers2. Anticipating customer needs is critical!

Internal Customers:3. Meet monthly and ask:

#1) Are there any gaps in my performance, and #2) Have my priorities changed?”

Top 2 Reasons Why Companies Fail:

#1 reason: (Too little Cash)#2 reason: Cultural differences.

17


People Verizon Wireless

17

(In Millions)


People Benchmarks

17

(In Millions)


People Review

17

1. Define People Driver

The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business.


2008 2009 2010

# of Cust. 80.00 87.50 94.14

Churn 1.24% 1.44% 1.33%

2. Measures of People# of Customers:Total # of individual accounts at end of period

Churn:Rate at which current users/units terminate

3. Importance of People Driver• Without People, then what happens?• Anticipate and then exceed expectations.• Customer service is for everyone;

o Internal customerso External customerso Vendors customers


1. What is the basic equation for each statement?

2. What is the purpose of the statement?

3. What are the key numbers and how are they trending?

4. How can you impact each statement?

VZW is a privately held company, therefore the following information and documents are Proprietary & Confidential!

VZW Financial Statements

The Annually Reported Financial Statements• Statement of Income (P&L)• Balance Sheet• Statement of Cash Flows

21

Statement of Income Indicates:Profitability

(SG&A) or Overhead

SG&A:

• Salaries• Advertising • Sales commissions• Call center costs• Benefits/Severance• Rent• Bad debt charges• Merger integration

costs• Professional services: Attorney fees, Accounting

(Revenue = Sales)= Top Line

Interest

Taxes

= EBIT

Equation:Revenues – Expenses = Income

Cost Of Goods SoldCOGS

25

EBITDA

Total Rev: $63,919 Total op. costs: -$45,950 $17,969

Depreciation +$ 7,458

$25,427__________________________________________________________________________

EBITDA MARGIN

$25,427

÷ $63,919

39.78%

Net Profit Margin

Net Income: 16,676

Total Rev.: ÷ 63,919

=26.09%

11% = S&P 500 Ave(Income = Earnings = Profit) = Bottom Line

How do you impact this statement?

Gross Profit ($) 63,919 - 8,342 - 11,423

$44,154

Gross Margin (%) $44,154

÷ 63,919

= 69.08%

32% = S&P 500 Ave

REVIEW Teach 1 QuestionP&L

4.7%

-8.2%

2.88%

8.0%

-6.5%

2.4%

_1.5%_

0.81%

8.57%

-72.3%26.8%

14.6%33.9%

13.57%

25

Variance Analysis2010 vs. 2009

How to calculate growthor

Year over year change

This year ÷ Last year - 1 x 100 =

($63,919 ÷ $62,131) = 1.02877

(1.02877 – 1) x 100 = 2.88%

Becomes Cash < 1 year

Most Liquid

Least Liquid

Due First

Due Last

Due in < 1 year

Balance

Equation:Assets = Liabilities + Equity

Assets = Liabilities + Equity 138,044 = 38,622 + 99,422

Snapshot in time

Indicates:Financial Strength

?

Equity

27

Balance SheetREVIEW Teach 2

Questions

Equity Position: 72%

(99,422 / 138,044)

27

2.75%

-18.46%

14.77%

Variance Analysis2010 vs. 2009

Statement of Cash Flow Equation:Cash In – Cash Out = Net Change in

Cash

Purpose:Cash Management

Most important number! = Cash from core business - Cash to run the business

Started Year Ended Year

Net Change in Cash (+/-)

Spending on investments suggests management is investing in the future.

?

?

29

Cash coming in

Cash going out

+$25,547

-$6,671

-$14,152

+$ 607

$ 5,331

Earn it

Sell Assetsset

Borrow it


$63,919 - $8,342 - $11,423 = $44,154

$63,919

$16,676 $63,919

$16,676 $138,044

$63,919 $62,131

$16,676 $14,684 13.57 %

$5,331

$25,547

$16,676

69.08

26.09

12.08 %

2.88 %

$63,919$17,969 + $7,458 =$25,427 39.78 %

1

2

3

4

5

6

9

10

$53.52

$20.51

11

7

8


Chances of the idea being incorporated into their life is... When a Person Says …

*Based on a 1993 Brigham Young University Study

Changing Behavior

“That’s a good idea”… 10%

“I’ll do it!” and commits... 25%

Says when they’ll do it… 40%

Plans how to do it… 50%

Commits to another… 60%

Sets a future specific appointment with the person they committed to...

95%Good Management Technique!

Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement. 47

Where to Find Information:

Click On Investor Relations


One final thought…

“People will work…

hard for a paycheck,

harder for a person, and

hardest for a reason.”

~T. S. Monson

(Multi-national Leader)


Final Exam!

Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement. 50

Documents

Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted