Telecommunications
Stock presentation
March 8, 2005
David Lazarus
Dongjun(Donny) Ma
Outline
•
•
•
•
•
Sector Recap
SIM holding and performance
Analysis on stocks
Candidates in future
Recommendation
Business Trends
•
•
•
•
•
•
•
•
•
Deregulation
Price Wars
Oligopolies
M&A (US and International)
Voice over Internet (VoIP)
Wireless Video
MP3/Internet/Camera Phones
Fiber Optic Cable
Video on Demand
Sector Outlook
• Market Cap: $360 Billion
• Local and Long Distance Phone Services,
Wireless Networks, Internet/Broadband Services,
Directory Publishing, Business Services
• Voice over Internet (VoIP) increasing market
share
• Industry depends on low interest rates to fuel
heavy capital expenditures
Consolidation Continues…
•Consolidation has led to fewer carriers
in local phone markets. Soon there will
be just 3 or 4 large telecom providers of
local phone service.
•Wireless providers are also looking for
partners, as large capital expenditures
force them to seek economies of scale
through acquisitions.
Verizon Communications
•
•
•
•
•
•
Verizon Communications Inc. is a provider of
communications services with four operating segments:
Domestic Telecom, Domestic Wireless, Information
Services and International
Domestic Telecom services principally represent
Verizon's telephone operations that provide local
telephone services in 29 states and the District of
Columbia
Domestic Wireless products and services include
wireless voice and data services and equipment sales
across the United States
International segment has wireline and wireless
communications operations and investments primarily in
the Americas
100 Billion Market Cap, $71 Billion in sales
Currently in talks to purchase MCI for $6.7 Billion
Business Segments
Segment Information
StockVal ®
VERIZON COMMUNICATIONS CORP (VZ)
FY 2003
Business Segment
Sales $M
Sales %
Profits $M
Profits %
Domestic Telecom
39,602
58.1%
3,335
47.5%
Domestic Wireless
22,489
33%
1,083
15.4%
Information Services
4,114
6%
1,206
17.2%
International
1,949
2.9%
1,392
19.8%
Total
Geographic Segment
Domestic
Other
68,154
100%
7,016
100%
Sales $M
Sales %
Profits $M
Profits %
65,303
96.4%
2,449
3.6%
Information services is only 6% of sales, yet makes up
17% of profits.
Total
67,752
100%
100%
Wireless is 33% of sales and accounts for only 15% of
profits!
Price History (5 yr)
VERIZON COMMUNICATIONS CORP (VZ)
74
StockVal®
69
PRICE 36.2 DATE 02-25-2005
64
64
60
60
56
56
52
49
46
52
49
46
42
40
42
40
37
37
34
32
34
32
30
The Ohio State University 30
Fisher College of Business 28
28
2000
2001
2002
2003
2004
2005
+2
+2
+1
+1
0
0
-1
-1
-2
-2
PRICE MOMENTUM INDEX (OVERBOUGHT/OVERSOLD)
MCI Deal
Announced
Verizon vs S&P 100 (3yr)
StockVal®
TOTAL RETURN COMPARISON
FEB 2002 = 100
S&P 100 COMPOSITE INDEX (SP1)
VERIZON COMMUNICATIONS CORP (VZ)
ANNUAL RATE
+1.2%
-4.4%
CUMULATIVE
+3.6%
-12.8%
110 02/28/02 - 02/28/05
105
SP1
100
96
92
88
VZ
84
80
76
73
70
67
64
61
58
2002
2003
2004
Verizon Compared to Telecom (3yr)
TOTAL RETURN WITH REINVESTMENT COMPARISON StockVal®
FEB 2002 = 100
S&P TELECOM SERVICES SECTOR (S50)
VERIZON COMMUNICATIONS CORP (VZ)
ANNUAL RATE
-2.7%
-4.4%
CUMULATIVE
-7.9%
-12.6%
105 02/28/02 - 02/28/05
100
95
S50
90
VZ
86
82
78
74
70
66
63
60
57
54
2002
2003
2004
Verizon Compared to Telecom (2yr)
TOTAL RETURN WITH REINVESTMENT COMPARISON StockVal®
FEB 2003 = 100
S&P TELECOM SERVICES SECTOR (S50)
VERIZON COMMUNICATIONS CORP (VZ)
ANNUAL RATE
+18.6%
+6.7%
CUMULATIVE
+40.6%
+13.7%
152 02/28/03 - 02/28/05
146
141
S50
136
131
126
121
116
VZ
112
108
104
100
96
92
Q1/03
Q2/03
Q3/03
Q4/03
Q1/04
Q2/04
Q3/04
Q4/04
Q1/05
Revenue growth and earnings flat…
Income Statement
StockVal ®
VERIZON COMMUNICATIONS CORP (VZ)
FYE Dec
2003
% Chg
2002
% Chg
2001
% Chg
2000
% Chg
1999
67752.0
1
67304.0
1
66713.0
4
64236.0
11
57823.0
2797.0
-11
3130.0
-4
3276.0
-6
3490.0
33
2616.0
4761.0
-24
6258.0
129
2731.0
-85
17819.0
35
13168.0
Taxes
1252.0
-22
1597.0
-26
2147.0
-69
7009.0
44
4872.0
Net Income Reported ($ Mil)
3077.0
-25
4079.0
949
389.0
-97
11797.0
43
8260.0
Net Income Adjusted
7283.0
-14
8449.0
-4
8768.0
4
8463.0
14
7445.0
EPS Reported
1.11
-26
1.49
964
0.14
-97
4.31
45
2.97
EPS Adjusted
2.62
-15
3.08
-4
3.21
4
3.09
15
2.68
2789000
2
2745000
1
2730000
0
2737000
-1
2777380
1.54
0
1.54
0
1.54
0
1.54
0
1.54
Revenues ($ Mil)
Cost of Goods & Services
Gross Profit
S G & A Expense
R&D Expense
Interest Expense
Pre-Tax Income
Shares Outstanding (Thou)
Dividends Common (Per Shr)
Dividends Preferred ($ Mil)
2004: 2.79
2005E: 2.55
2006E: 2.66
0.0
0.0
0.0
0.0
0.0
Margins falling…
StockVal ®
Prospective Growth & Margin Check
VERIZON COMMUNICATIONS CORP (VZ)
Price 36.200 02/25/05
Percent Change
Quarter
Revenue
REV
RPS
EARN
EPS
Actual
Year
Profit
EPS
Ago
Margin %
Momentum %
SF
REV
EPS
Mar 03
16,490.0
1
-1
-3
-5
0.69
0.73
11.6
+2
+1
-5
Jun 03
16,829.0
0
-1
-11
-13
0.68
0.78
11.3
0
0
-13
Sep 03
17,155.0
0
-1
-12
-13
0.67
0.77
10.9
+1
0
-14
Dec 03
17,278.0
1
1
-31
-30
0.57
0.82
9.1
0
+1
-35
Mar 04
17,136.0
4
3
-17
-17
0.57
0.69
9.3
0
+4
-18
Jun 04
17,838.0
6
5
-5
-6
0.64
0.68
10.1
+1
+6
-6
Sep 04
18,206.0
6
6
-4
-4
0.64
0.67
9.9
0
+6
-5
Dec 04
18,263.0
6
4
15
12
0.64
0.57
9.9
0
+6
+12
+5
T4Q
71,443.0
5
4
-4
-5
2.49
Mar 05 E
18,093.5
6
5
6
5
0.60
0.57
9.4
+5
Jun 05 E
18,676.3
5
4
1
0
0.64
0.64
9.7
+5
0
Sep 05 E
19,005.8
4
4
2
2
0.65
0.64
9.7
+4
+2
Dec 05 E
19,147.9
5
5
2
2
0.65
0.64
9.6
+5
+2
74,923.5
5
4
3
2
2.54
F4Q E
Point-to-Point Growth Rates (%)
Years
REV
RPS
EARN
9.8
9.6
Long-Term Growth Rate Estimates (%)
Median Estimate
EPS
5.0%
1
5
4
-4
-5
Number of Estimates
3
2
1
-7
-8
Standard Deviation
10
5
4
4
-1
-2
Default GRE Estimate
2.0%
10
4
4
3
2
Analyst GRE Estimate
2.0%
15
3
3
4
3
20
4
3
4
3
Expected Report Date
04/27/05
6
Cash flows uncertain…
Cash Flow Analysis
StockVal ®
VERIZON COMMUNICATIONS CORP (VZ)
FYE Dec
2003
% Chg
2002
% Chg
Net Income Reported ($ Mil)
3077.0
-25
4079.0
Accounting Adjustment
4206.0
-4
4370.0
7283.0
-14
13617.0
20900.0
Capital Expenditures
11884.0
-9
Free Cash Flow Adjusted
9016.0
4
Dividends Common ($ Mil)
4295.1
Free Cash Flow After Dividends
4720.9
Net Income Adjusted
Depreciation & Amort
Cash Flow Adjusted
Net Cash From Operations
2001
% Chg
2000
% Chg
1999
949
389.0
-97
-48
8379.0
11797.0
43
8260.0
-3334.0
-309
8449.0
-4
8768.0
-815.0
4
8463.0
14
7445.0
2
13290.0
-2
-4
21739.0
-2
13523.0
10
12261.0
24
9890.0
22291.0
8
20724.0
20
17335.0
13061.0
-29
8678.0
121
18369.0
4
17633.0
36
13013.0
3922.0
27
3091.0
-28
2
4227.3
1
4322.0
4204.2
0
4215.0
-1
6
4450.7
4277.2
-282.2
75
-1124.0
44.8
22482.0
2
22099.0
13
19526.0
23
15827.0
-7
17017.0
Net Cash From Investing
-12246.0
-80
-6800.0
68
-21324.0
-33
-16055.0
8
-17420.0
Net Cash From Financing
-10959.0
26
Other Cash Flows
Change In Cash & Equiv
-14809.0
1973.0
-1048.0
0.0
0.0
0.0
0.0
0.0
-723.0
490.0
175.0
-1276.0
1329.0
180
1732.0
Capital expenditures totaled $13.3 billion in 2004, compared with
$11.9 billion in 2003. In 2005, overall capital spending is
expected to increase approximately 10 % to $14.6 billion!
And this stock is not cheap…
First Call FY1 Mean Estimate
StockVal®
VERIZON COMMUNICATIONS CORP (VZ)
N D
J
2003
F M A M J J A S O N D
J
2004
F M A M J J A S O N D
J
2005
F M A M J J A S O N D
HI
LO
ME
CU
GR
42
40
38
36
34
42
32
37
36
-5.0%
01-03-2003
02-25-2005
32
PRICE
HI
LO
ME
CU
GR
2.9
2.8
2.7
2.6
2.5
2.95 
2.43
2.64
2.55
-6.3%
01-31-2003
02-25-2005
2.4
FY1 MEAN ESTIMATE (FYE DEC 2005)
HI
LO
ME
CU
15
14
13
12
15.9 
11.7
14.1
14.2
01-31-2003
02-25-2005
11
FY1 PE RATIO
On a positive note…
• Dividend yield of 4.36 %
• # 2 in US wireless market with 44 million customers
• Merger with MCI will increase business-access lines to 18.5
million
• Leader in high speed wireless internet and video services
• This company is making money, although earnings growth is
expected to be only 2 - 4%
• Should be one of the few left standing
DCF Analysis
VZ
(000,000s)
FY04
3,077
13,617
(11,884)
Net income
Depreciation
Capital expenditures
Free Cash Flow of Firm
$
DCF
Terminal Value
$
136,937
$
$
95,000
2,769
34.31
$
$
1.00
4.24%
5.19%
9.43%
2,769
36.42
100,847
Value of VZ
Total Value of Equity
# of shs outstanding (mill)
Value of One Share
Cost Of Equity
Beta
Risk Free Rate (10 yr treasury)
Mkt Risk Premium
CAPM = Expected return=R(f)+beta (Mkt Prem)
# of shs outstanding (000,000's)
Recent Price (3/4/05)
Current Mkt Value of Equity ($ mill)
Long term rate of growth
Mkt Premium
Recent Price
Div/Sh (2004)
Long term rate of growth
K
Mkt Premium (K-Risk Free Rate)
5,504 $
5.20%
$
$
36.42
1.54
5.20%
9.43%
5.19%
FY03
3,509
13,617
(11,884)
5,242 $
FY02
4,661
13,290
(11,984)
5,967 $
FY01
590
13,657
(17,371)
(3,124) $
FY00
10,810
12,261
(17,633)
5,438
Recommendation
• Reduce
ALLTEL
--Stock performance
ALLTEL CORPORATION (AT)
76
PRICE 57.3 DATE 02-25-2005 QR 3.0 NET 4.5%
71
StockVal®
66
EPS Lagged 1-Year
61
61
57
57
53
50
53
50
46
46
43
43
40
40
37
35
37
35
32
30
32
30
The Ohio State University
Fisher College of Business 28
28
2001
2002
THE G-MODEL
IR
3.89
K
5.11
K'
0.00
NE
3.55
PE
16.2
WPE
15.1
WP
53
AP
-7%
Expected Return 1-Yr
3.89
5.11
0.00
3.71 
15.5
15.1
56
-2%
0%
2003
First Call Data
Mean Estimate
Change
High
Low
Total
# Up
# Down
House Estimate
PE Ratio
2004
2005
2005
3.44
+2%
3.54
3.24
24
9
13
2006
3.68
+7%
4.02
3.34
16
6
4
2007
3.80 
+3%
4.04
3.56
2
0
0
16.6
15.6
15.1
2006
Normalized Earnings
FYE December
2005
3.52
2006
3.68 
2007
3.85
2008
4.02
2009
4.20
2010
4.39
2011
4.59
2012
4.79
Alltel
--Financial Analysis (1)
Income Statement
StockVal ®
ALLTEL CORPORATION (AT)
FYE Dec
2004
% Chg
2003
% Chg
2002
% Chg
2001
% Chg
2000
Revenues ($ Mil)
8246.1
3
7979.9
12
7112.4
8
6615.8
5
6308.9
Cost of Goods & Services
-12
1369.1
3449.7
4
3317.1
13
2930.3
8
2707.7
Gross Profit
4796.4
3
4662.8
11
4182.1
7
3908.1
S G & A Expense
1524.2
2
1498.1
16
1297.0
8
1201.1
•
R&D Expense
Interest Expense
369.2
-6
393.8
6
371.0
32
281.6
-1
284.3
1592.0
4
1534.1
13
1360.3
-17
1631.0
-49
3208.0
565.3
-3
580.6
14
510.2
-22
653.0
-51
1325.3
Net Income Reported ($ Mil)
1046.2
-21
1330.1
44
924.3
-13
1067.0
-45
1928.8
Net Income Adjusted
Pre-Tax Income
Taxes
1038.1
9
954.4
5
906.9
-1
913.3
31
699.1
EPS Reported
3.39
-20
4.25
44
2.96
-13
3.40
-44
6.08
EPS Adjusted
3.37
10
3.05
5
2.90
0
2.91
32
2.20
308400
-1
312800
0
312300
0
313500
-1
317200
1.49
5
1.42
4
1.37
3
1.33
3
1.29
0.1
0
0.1
0
0.1
0
0.1
0
0.1
Shares Outstanding (Thou)
Dividends Common (Per Shr)
Dividends Preferred ($ Mil)
•
Expansion trend in
sales, but slow
down in 2004
(Sector is
declining)
Solid operating
margin 24%
(Sector is 15% in
2003)
Alltel
--Financial Analysis (2)
Balance Sheet
StockVal ®
ALLTEL CORPORATION (AT)
FYE Dec
Cash & Equivalents ($ Mil)
Accounts Receivable
Inventories
Other Current Assets
Total Current Assets
Plant & Equipment Gross
Accumulated Depreciation
Plant & Equipment Net
Other Long-Term Assets
Total Long-Term Assets
Total Assets
Accounts Payable
Short-Term Debt
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Long-Term Liabilities
Total Long-Term Liabilities
Total Liabilities
Minority Interest
Preferred Equity
Common Equity
Total Equity
Total Liab & Equity
2004
% Chg
2003
% Chg
2002
% Chg
2001
% Chg
2000
484.9
912.7
156.8
62.4
1616.8
15836.3
8288.2
7548.1
7438.8
14986.9
16603.7
-26
3
28
5
-6
6
14
-1
2
0
0
657.8
890.0
122.1
59.2
1729.1
14909.9
7289.1
7620.8
7311.2
14932.0
16661.1
389
-13
-12
-90
-7
4
8
1
7
4
3
134.6
1018.3
138.5
577.1
1868.5
14320.1
6756.4
7563.7
6812.4
14376.1
16244.6
58
-18
-15
108
6
9
7
12
72
34
30
85.3
1241.2
163.8
277.5
1767.8
13082.0
6300.7
6781.3
3951.6
10732.9
12500.7
27
-3
-32
39
-1
8
13
4
5
4
3
67.2
1273.6
239.9
200.0
1780.7
12113.4
5564.4
6549.0
3757.5
10306.5
12087.2
448.2
225.0
787.1
1460.3
5352.4
1715.1
947.2
8014.7
9475.0
-7
-19
7
-2
-4
21
-17
-2
-2
479.8
277.2
735.7
1492.7
5581.2
1417.7
1147.3
8146.2
9638.9
16
-44
-17
-17
-9
27
-4
-4
-6
413.7
494.7
882.3
1790.7
6145.4
1115.4
1195.0
8455.8
10246.5
-21
859
24
39
59
51
14
50
48
522.1
51.6
711.4
1285.1
3861.5
738.0
1050.3
5649.8
6934.9
-24
-24
-6
-15
-16
240
62
3
-1
688.4
68.3
759.2
1515.9
4611.7
217.0
647.2
5475.9
6991.8
0.3
7128.4
7128.7
16603.7
-25
2
2
0
0.4
7021.8
7022.2
16661.1
0
17
17
3
0.4
5997.7
5998.1
16244.6
0
8
8
30
0.4
5565.4
5565.8
12500.7
-20
9
9
3
0.5
5094.9
5095.4
12087.2
•
•
•
Significant
increase in cash
since 2003.
Need at least 1
billion cash to
acquire Western.
Will be less liquid
in short-term.
Alltel
--Financial Analysis (3)
Cash Flow Analysis
StockVal ®
ALLTEL CORPORATION (AT)
FYE Dec
% Chg
2002
% Chg
2001
% Chg
1330.1
44
924.3
-13
1067.0
-45
1928.8
-375.7
-2056
-17.4
89
-153.7
88
-1229.7
9
954.4
5
906.9
-1
913.3
31
699.1
1299.7
4
1247.7
14
1095.5
1
1082.0
9
988.4
2337.8
6
2202.1
10
2002.4
0
1995.3
18
1687.5
Capital Expenditures
1157.7
-3
1194.4
-2
1213.2
-3
1250.6
7
1164.7
Free Cash Flow Adjusted
Net Income Reported ($ Mil)
Accounting Adjustment
Net Income Adjusted
Depreciation & Amort
Cash Flow Adjusted
2004
% Chg
2003
1046.2
-21
-8.1
98
1038.1
2000
1180.1
17
1007.7
28
789.2
6
744.7
42
522.8
Dividends Common ($ Mil)
459.5
3
444.2
4
427.9
3
417.0
2
409.2
Free Cash Flow After Dividends
720.6
28
563.5
56
361.3
10
327.7
188
113.6
Net Cash From Operations
2466.8
0
2474.7
3
2392.2
27
1882.1
26
1496.3
Net Cash From Investing
-1258.4
1
-1265.9
72
-4494.6
-953
-427.0
66
-1264.3
Net Cash From Financing
-1381.2
-13
-1218.2
-1479.5
-707
-183.4
Other Cash Flows
Change In Cash & Equiv
2079.5
-0.1
532.6
465
94.3
91
49.3
4830
1.0
-172.9
523.2
633
71.4
187
24.9
-50
49.6
•
Solid operating
cash flow in
accordance with
stable operating
income
-- Quality of core
earnings
Alltel
--Valuation Analysis (Absolute Multiple)
ALLTEL CORPORATION (AT) Price 57.3
2001
2002
2003
StockVal®
2004
2005
2006
24
HI
LO
ME
CU
21
18
15
22.5
12.1
16.0
16.5
•
P/E, P/S and
P/Cash at
average position
in 4-yr.
•
PEG at relatively
higher position
02-23-2001
02-25-2005
12
PRICE / YEAR-FORWARD EARNINGS
4
HI
LO
ME
CU
3
3.4
1.1
1.9
2.5
2
02-23-2001
02-25-2005
1
PRICE / YR-FORWARD EPS ESTS / GRE
4
HI
LO
ME
CU
3
3.10
1.73
2.10
2.14
2
02-23-2001
02-25-2005
1
PRICE / SALES
12
HI
LO
ME
CU
10
8
6
11.4
5.8
7.5
7.5
02-23-2001
02-25-2005
4
PRICE / CASH FLOW ADJUSTED
Alltel
--Valuation Analysis (Relative Multiple)
ALLTEL CORPORATION (AT) Price 57.3
2001
2002
2003
StockVal®
2004
2005
2006
1.5
HI
LO
ME
CU
1.2
0.9
0.6
0.3
PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd
2.0
02-23-2001
02-25-2005
HI
LO
ME
CU
1.6
1.2
0.8
0.4
PRICE / YR-FORWARD EPS ESTS / GRE RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50)
1.8
1.4
1.2
1.61
0.53
0.97
0.92
02-23-2001
02-25-2005
HI
LO
ME
CU
1.6
1.21
0.55
0.96
1.00
1.76
1.09
1.43
1.43
02-23-2001
02-25-2005
1.0
PRICE / SALES RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd
2.0
1.8
1.6
1.4
1.2
PRICE / CASH FLOW ADJUSTED RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd
HI
LO
ME
CU
1.87
1.25
1.43
1.44
02-23-2001
02-25-2005
•
•
All on average
level
Correctly priced
relative to sector
More on Alltel
63
ALLTEL CORPORATION (AT)
PRICE 57.3 DATE 02-25-2005
62
StockVal ®
61
61
60
60
59
59
58
58
57
57
56
56
55
55
54
54
53
8/04
9/04
10/04
11/04
12/04
1/05
2/05
53
3/05
5724
60 Day Av g. Volume 1,979
4770
4770
3816
3816
2862
2862
1908
1908
954
• On Jan 6, 2005,
the company
announced to
acquire Western
Wireless
(WWCA)
954
0
0
Volume in Thousands of Shares
44
WESTERN WIRELESS CORPORATION (WWCA)
PRICE 39.2 DATE 02-25-2005
42
StockVal ®
40
40
38
38
36
36
34
34
32
32
30
30
28
28
26
26
24
8/04
9/04
10/04
11/04
12/04
1/05
2/05
24
3/05
• This event
became major
driver of the
stock
performance in
short run
12000
60 Day Av g. Volume 2,527
10000
10000
8000
8000
6000
6000
4000
4000
2000
2000
0
0
Volume in Thousands of Shares
• Deal to be closed
in mid-year
After combined
• Fifth-largest U.S. wireless company
• coverage over one-fourth of the United
States' population
• 10 billion revenue
• 10 million domestic wireless customers in 33
states customers
• 1.6 million international wireless in six
countries
• 3 million wireline customers in 15 states.
Detail of the deal
• Purchase price: $ 39.25 per share
0.535 shares of Alltel stock plus $9.25 in
cash for each Western share.
• Western shareholders will have an option
for all cash or all stock subject to proration.
• Deal to be closed in mid-year
WWCA current price is $ 39.30, with P/E (forward) of
18.28 which is a little bit higher than Alltel’s
Is it a good deal for Alltel?
Western Wireless
84
WESTERN WIRELESS CORPORATION (WWCA)
PRICE 39.2 DATE 02-25-2005
StockVal®
48
28
28
16
16
10
10
6
6
4
4
2
2
The Ohio State University
Fisher College of Business
1
2002
2003
Price Change
%
Diff SP5
1-Day
0.95
0.02
1-Week
1.92
1.04
4-Weeks
4.03
0.89
QTD
33.92
33.97
YTD
33.92
33.97
2004
59.59
50.59
2003
246.42
220.03
2002
-81.24
-57.87
FYE Dec 2003 EPS -0.08
2001
First Call Data
Mean Estimate
Change
High
Low
Total
# Up
# Down
House Estimate
PE Ratio
2004
2005
2004
1.52
NMN
1.65
1.46
5
0
4
2005
2.13
+40%
2.87
1.52
9
2
5
2006
2.02 
-5%
2.25
1.78
2
1
0
25.8
18.4
19.4
2006
Data Page # 1
Revenues ($Mil)
Market Value ($Mil)
Shares Out (Mil)
Daily Volume (Thou)
Daily Volume ($Mil)
Dividend Estimate
Payout Ratio
Retention Rate
Dividend Yield
1,823
3,922
100.0
2,527
99.1
None
1
$2.5 to $39
1400%
return in 2.5
years !!!
Western Wireless
Income Statement
StockVal ®
WESTERN WIRELESS CORPORATION (WWCA)
FYE Dec
Revenues ($ Mil)
Cost of Goods & Services
2003
% Chg
2002
% Chg
2001
% Chg
2000
% Chg
1999
1501.3
27
1186.6
14
1038.0
24
835.0
33
626.8
583.6
22
479.3
23
391.2
74
224.8
37
164.6
Gross Profit
917.7
30
707.3
9
646.8
6
610.1
32
462.2
S G & A Expense
473.0
19
398.4
-4
416.6
41
296.1
35
220.0
158.6
1
6
152.2
52
•
Loss in 2002
and 2001,
because of
one-time or
special charge
•
Rapid growth
in sales
•
Solid operating
margin
R&D Expense
Interest Expense
Pre-Tax Income
Taxes
156.7
-3
161.9
36.9
-92.1
36
-143.6
65.4
-148.8
100.0
-35.0
123.3
0.0
0.0
0.0
Net Income Reported ($ Mil)
-0.3
100
-185.7
-20
-155.1
65.4
-148.8
Net Income Adjusted
-9.8
92
-115.1
-2
-113.1
42.8
-48.1
EPS Reported
0.00
-2.35
-19
-1.97
0.81
-1.94
EPS Adjusted
-0.12
92
-1.46
-1
-1.44
0.53
-0.63
82824
5
78955
0
78625
Shares Outstanding (Thou)
Dividends Common (Per Shr)
Dividends Preferred ($ Mil)
0.00
0.00
0.00
-2
80303
0.00
5
76775
0.00
Western Wireless
Balance Sheet
StockVal ®
WESTERN WIRELESS CORPORATION (WWCA)
FYE Dec
2003
% Chg
2002
% Chg
2001
% Chg
2000
% Chg
1999
Cash & Equivalents ($ Mil)
Accounts Receivable
Inventories
Other Current Assets
Total Current Assets
Plant & Equipment Gross
Accumulated Depreciation
Plant & Equipment Net
Other Long-Term Assets
Total Long-Term Assets
Total Assets
128.6
215.8
30.2
23.1
397.7
1834.8
932.9
901.9
1222.2
2124.0
2521.7
106
35
23
-57
32
15
26
5
-2
1
5
62.4
160.0
24.5
53.3
300.2
1595.0
739.4
855.6
1243.2
2098.8
2399.0
38
9
-28
-24
1
19
42
4
-1
1
1
45.1
147.3
33.8
70.4
296.5
1344.6
521.7
823.0
1250.9
2073.9
2370.4
94
31
96
25
42
42
42
41
4
16
19
23.3
112.1
17.2
56.1
208.7
949.6
367.9
581.7
1206.0
1787.7
1996.5
-46
48
78
85
32
59
62
57
46
50
48
42.7
75.8
9.7
30.3
158.6
596.7
227.2
369.5
824.4
1194.0
1352.6
Accounts Payable
Short-Term Debt
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Long-Term Liabilities
Total Long-Term Liabilities
Total Liabilities
Minority Interest
Preferred Equity
Common Equity
Total Equity
Total Liab & Equity
100.7
47.3
234.8
382.8
2172.9
151.0
39.6
2363.4
2746.2
22.1
70
-67
12
-7
-6
25
182
-4
-4
-3
59.4
141.9
209.6
410.9
2317.1
120.7
14.0
2451.8
2862.7
22.7
-27
174
-21
3
5
314
1734
62
114
15
17
25
13
19.6
2.8
164.2
186.6
1926.4
0.0
0.0
1926.4
2113.0
22.2
64
-54
9
8
-9
80.9
51.7
266.2
398.8
2215.6
0.0
30.2
2245.8
2644.6
25.1
33
38
1444
11.9
0.0
73.9
85.8
1450.0
0.0
0.0
1450.0
1535.8
1.4
-246.6
-246.6
2521.7
49
49
5
-486.4
-486.4
2399.0
-63
-63
1
-299.3
-299.3
2370.4
-116
-116
19
-138.7
-138.7
1996.5
25
25
48
-184.7
-184.7
1352.6
122
117
33
•
Improved in
liquidity
Western Wireless
Cash Flow Analysis
StockVal ®
WESTERN WIRELESS CORPORATION (WWCA)
FYE Dec
2003
% Chg
2002
% Chg
2001
Net Income Reported ($ Mil)
-0.3
100
-185.7
-20
-155.1
65.4
-148.8
Accounting Adjustment
-9.4
70.6
68
42.0
-22.6
100.7
-9.8
92
-115.1
-2
-113.1
42.8
276.4
13
244.2
14
214.6
67
128.2
20
Net Income Adjusted
Depreciation & Amort
Cash Flow Adjusted
% Chg
2000
% Chg
1999
-48.1
106.7
266.6
106
129.2
27
101.5
-41
171.0
192
58.6
Capital Expenditures
250.1
-17
300.4
-21
378.2
44
262.6
56
168.2
Free Cash Flow Adjusted
38
-276.8
-202
-91.5
16
-109.6
16.6
-171.3
Dividends Common ($ Mil)
0.0
0.0
Free Cash Flow After Dividends
16.6
-171.3
38
-276.8
-202
-91.5
16
-109.6
100
72.9
-56
167.0
74
95.7
0.0
0.0
0.0
Net Cash From Operations
324.1
122
145.9
Net Cash From Investing
-180.6
41
-304.3
30
-432.9
33
-644.3
-38
-467.1
Net Cash From Financing
-84.9
171.7
-55
381.7
-17
457.8
11
412.0
Other Cash Flows
Change In Cash & Equiv
7.6
85
4.1
9999
0.0
0.0
0.0
66.2
281
17.3
-20
21.8
-19.5
40.5
•
Solid operating
cash in-flow
Western Wireless
WESTERN WIRELESS CORPORATION (WWCA) Price 39.2
2001
2002
2003
2004
StockVal®
2005
2006
1.8
HI
LO
ME
CU
1.5
1.2
0.9
0.6
PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd
8
02-23-2001
02-25-2005
HI
LO
ME
CU
6
4
2
99.90 +
0.74
0.92
1.13
99.90 +
0.16
0.46
0.48
02-23-2001
02-25-2005
0
PRICE / YR-FORWARD EPS ESTS / GRE RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50)
2.0
HI
LO
ME
CU
1.5
1.0
0.5
1.89
0.12
0.88
1.42
02-23-2001
02-25-2005
0.0
PRICE / SALES RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd
4
HI
LO
ME
CU
3
2
1
4.87
0.43
1.31
1.60
02-23-2001
02-25-2005
0
PRICE / CASH FLOW ADJUSTED RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd
•
Multiples at
relatively higher
position
Pro Forma Combined Financial Measures
Western Wireless (Pre-Synergy) OIBDA for the twelve months ended December 31:
(Dollars in millions)
Operating income under GAAP*
Depreciation and amortization*
OIBDA*
2005
445.0
292.0
$
737.0
2006
509.0
310.0
$ 819.0
$
$
ALLTEL
$
991.7
720.5
1,712.2
Western
Wireless
$ 321.3
256.1
577.4
*-Amounts based on average of Wall Street analyst estimates (Merrill Lynch, Bear Stearns and Lehman Brothers.
Segment OIBDA for the twelve months ended September 30, 2004:
(Dollars in millions)
Wireless segment income under GAAP
Depreciation & amortization
Wireless OIBDA
Wireline segment income under GAAP
Depreciation & amortization
Wireline OIBDA
Communications support services segment income under GAAP
Depreciation & amortization
Communications support services OIBDA
Total Business Segments OIBDA
Adjusted OIBDA for Western Wireless International Operations
for the nine months ended September 30:
(Dollars in millions)
International operations segment income under GAAP
Depreciation and amortization
Stock-based compensation, net
Adjusted OIBDA for international operations
927.2
520.5
1,447.7
66.4
35.1
101.5
$ 3,261.4
2003
(37.2)
51.4
$
14.2
$
-
$
577.4
2004
67.0
66.4
11.3
$ 144.7
$
Pro Forma
$ 1,313.0
976.6
2,289.6
% of total
59.6%
927.2
520.5
1,447.7
37.7%
66.4
35.1
101.5
$ 3,838.8
2.6%
100.0%
Valuation on Acquisition
• Synergy:
 Revenue: opportunity to increase penetration;
opportunity to offer high-value service plans;
expanded roaming relationships
 Operating expenses: corporate overhead; IT
operations; network operations; sales and
marketing; handset/network purchasing
 Operating synergies: $50M-$60M in 2006,
$60M-$70M in 2007, and $70M-$80M in 2008
• Special charge for restructuring in 2005
• Fair acquisition? Some analysts estimate
that the stand-alone value of WWCA is
around $39 per share
Summary on Alltel
• Cost of acquiring Western is close to fair value, at
least close to its stand-alone value
• Market over-reacted to this acquisition, but it will take
time for the market to get the confidence back
• Restructuring cost in short run, synergy in long run.
Less surprise before second quarter of 2006.
• Unlikely to surge before the acquisition is closed—
limit potential in 1-year horizon
Recommendation– sell 50%
Look For Other Candidates
Portrait of Targets of acquisition:
• Wireless, long distance business or
international business
• Attractive customer base
• Improving (or stable) operating cash
flow—solid business operation
• Middle or large market cap.
Look for Potential Targets (1)
330 Public companies in Telecom Service sector
•Market cap >2 billion
•Excluding ADRs
•Not involved large M&As recently
13 companies qualified
•Business Analysis
4 companies
They are: BCE,CTL,CZN,USM
•Financial Analysis
•Detail Business analysis
1 candidate to watch
USM
Look for potential targets (2)
Ticker
Name
Market Cap
Sales
P/E
P/S
P/Cash
BLS
BellSouth Corporation
46,948.04
20,300.00
13.86
2.35
6.73
BCE
BCE Inc. (USA)
22,095.86
15,882.99
18.5
1.38
5.61
TU
TELUS Corporation (USA)
10,670.63
6,273.75
23.79
1.68
5.76
RG
Rogers Communications Inc.
(USA)
10,029.79
4,641.05
NA
1.42
6.66
TDS
Telephone & Data Systems
4,841.64
3,720.39
117.51
1.33
6.72
CTL
CenturyTel, Inc.
4,483.91
2,407.37
13.83
1.95
5.59
CZN
Citizens Communications
4,432.90
2,202.04
53.65
1.86
6.24
AMT
American Tower Corporation
4,330.61
769.86
NA
5.37
37.5
USM
United States Cellular
Corporation
4,218.55
2,837.62
39.59
1.52
7
TLWT
Telewest Global, Inc.
4,044.95
2,430.63
NA
1.67
7.42
NIHD
NII Holdings, Inc.
3,934.26
1,174.80
NA
3.54
72.98
CCI
Crown Castle International
Corp.
3,633.36
696.44
NA
5.18
NA
SSI
SpectraSite Inc.
2,927.59
337.475
71.95
9.51
22.23
Analysis on USM
--Profile
United States Cellular Corporation (USM)
Seventh-largest wireless service provider
A business unit of Telephone and Data
Systems, Inc. [AMEX: TDS], which owns
82% of the company
4,409,000 customers in 26 states
182 majority-owned wireless licenses
CDMA technology
Analysis on USM
--Segment
(IN THOUSANDS)
2003
2002
1,984,671
1,682,020
1,408,253
Inbound roaming
221,737
255,443
272,361
Long-distance and other
217,381
161,430
145,771
2,423,789
2,098,893
1,826,385
158,994
98,693
68,445
2,582,783
2,197,586
1,897,830
Retail service
Service Revenues
Equipment sales
Total Operating
Revenues
2001
Analysis on USM
--Balance sheet
Balance Sheet
StockVal ®
UNITED STATES CELLULAR CORP (USM)
FYE Dec
2003
% Chg
2002
% Chg
2001
% Chg
2000
% Chg
1999
Cash & Equivalents ($ Mil)
Accounts Receivable
Inventories
Other Current Assets
Total Current Assets
Plant & Equipment Gross
Accumulated Depreciation
Plant & Equipment Net
Other Long-Term Assets
Total Long-Term Assets
Total Assets
9.8
287.0
71.0
56.3
424.1
3441.2
1267.3
2173.9
2325.7
4499.5
4923.6
-34
-9
28
-17
-6
12
20
7
5
6
5
14.9
315.3
55.5
67.7
453.3
3085.6
1051.8
2033.8
2212.8
4246.6
4699.8
-49
27
-1
-6
12
37
26
43
14
27
25
28.9
247.4
56.0
71.6
404.0
2253.0
833.7
1419.3
1935.9
3355.2
3759.2
-77
13
15
315
-1
25
27
24
-1
9
7
124.3
219.0
48.8
17.3
409.4
1801.4
655.8
1145.6
1946.2
3091.8
3501.2
-37
12
63
-32
-9
14
29
7
-3
0
-1
197.8
195.7
30.0
25.3
448.8
1579.3
508.3
1071.0
2014.5
3085.5
3534.2
Accounts Payable
Short-Term Debt
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Long-Term Liabilities
Total Long-Term Liabilities
Total Liabilities
Minority Interest
Preferred Equity
Common Equity
Total Equity
Total Liab & Equity
285.6
108.0
188.3
581.9
1144.3
443.0
198.1
1785.5
2367.4
60.1
-7
-79
11
-41
42
23
139
43
6
9
306.9
505.2
169.1
981.2
806.5
359.4
82.7
1248.6
2229.7
55.1
56
91
45
70
100
-7
877
56
62
19
196.8
264.0
116.4
577.1
403.2
388.3
8.5
799.9
1377.1
46.4
-7
380
-11
45
-10
9
-82
-6
10
33
212.3
55.0
131.0
398.3
448.8
357.8
46.8
853.3
1251.7
34.9
44
64
75
-18
-11
8
-14
3
-15
147.1
0.0
79.9
227.0
546.3
402.0
43.3
991.6
1218.6
41.0
2496.2
2496.2
4923.6
3
3
5
2415.0
2415.0
4699.8
3
3
25
2335.7
2335.7
3759.2
5
5
7
2214.6
2214.6
3501.2
-3
-3
-1
2274.6
2274.6
3534.2
Need cash!
Analysis on USM
--Annual Report
Operating income decreased 58% in 2003 and 11%
in 2002. Due to:
 Loss on impairment of intangible assets
Increased costs of acquiring, serving and
retaining U.S. Cellular’s customers,
 Ongoing development of the Chicago market
 Losses on assets held for sale related to the
exchange and sale transactions entered into with
AT&T Wireless
 Increased costs related to the acquisition of and
subsequent brand launch in the Chicago market.
Will TDS SELL USM ?
In 2003, USM contributes to TDS:
• Provides 74.8% of TDS' consolidated
revenues
• Provides 52.8% of TDS’ consolidated
operating income
Will TDS SELL USM ?
Your industry keeps on consolidating. Would you
sell U.S. Cellular?
I’m not the guy that would consider it. The company
is heavily owned by TDS, and they would make that
decision. As of right now and as far as I know, there
is no interest in selling. I’m not advising them to do
that. But I’ve worked in industry long enough that
I’ve had three companies acquired out from under
me. So I know the realities of life. If somebody
decides they got an offer they can’t refuse, I’m sure
that the TDS board would give it consideration, and
so would our board.
--JOHN ROONEY, CEO of USM
April, 2004
Recommendation on Sector
• Underweight
• S&P 500:
• SIM:
3.1%
4.7%
• Reduce to
2.0%
Recommendation
Sell sector to underweight:
• Sell 50% Alltel
• Sell 50% Verizon
Watch:
• USM
• Nokia