Following is the statement of cash flows for Verizon.

Required

a. Why does Verizon add back depreciation to compute net cash flows from operating activities? What does the size of the depreciation add-back indicate about the relative capital intensity of this industry?

b. Verizon reports that it invested $16,17 million in property and equipment. These expenditures are necessitated by market pressures as the company faces stiff competition from other communications companies, such as Comcast. Where in the 10-K might we find additional information about these capital expenditures to ascertain whether Verizon is addressing the company's most pressing needs? What relation might we expect between the size of these capital expenditures and the amount of depreciation expense reported?

c. Verizon's statement of cash flows indicates that the company paid $6,403 million in debt payments. What problem does Verizon's high debt load pose for its ability to maintain the level of capital expenditures necessary to remain competitive in its industry?

d. During the year, Verizon paid dividends of $ 5,230 million but did not repay a sizeable portion of its debt. How do dividend payments differ from debt payments? Why would Verizon continue to pay dividends in light of cash demands for needed capital expenditures and debt repayments?

e. Provide an overall assessment of Verizon's cash flows for 2012. In the analysis, consider the sources and uses of cash.

Transcribed Image Text:

VERIZON Statement of Cash Flows For Year Ended December 31, 2012 ($ millions) Cash Flows from Operating Activities Net Income..... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense.. Employee retirement benefits.... Deferred income taxes ..... Provision for uncollectible accounts.. Equity in earnings of unconsolidated businesses, net of dividends received Changes in current assets and liabilities, net of effects from acquisition/disposition of businesses Accounts receivable.... Inventories... Other assets Accounts payable and accrued liabilities. Other, net... Net cash provided by operating activities. Cash Flows from Investing Activities Capital expenditures (including capitalized software) Acquisitions of investments and businesses, net of cash acquired. Acquisitions of wireless licenses, net... Proceeds from dispositions ...... Net change in short-term investments. Other, net. Net cash used in investing activities. $10,557 16,460 8,198 (952) 972 77 (1,717) (136) 306 1,144 (3,423) 31,486 (16,175) (913) (3,935) - 27 494 (20,502)