Alex and Lynzee China telecom and USA mobility

[Lynzee Lai]

Q1) Analyze the operations of each company. How is the company doing
in this current economic environment? Is the world economy affecting
the company? How?
USA Mobility-how is the company doing? In the event that net cash
provided by operating activities and cash on hand are not sufficient
to meet future cash requirements, USA Mobility may be required to
reduce planned capital expenses, reduce or eliminate its cash
distributions to stockholders, reduce or eliminate its common stock
repurchase program, and/or sell assets or seek additional financing.
USA Mobility can provide no assurance that reductions in planned
capital expenses or proceeds from asset sales would be sufficient to
cover shortfalls in available cash or that additional financing would
be available or, if available, offered on acceptable terms.
USA Mobility believes that future fluctuations in its revenues and
operating results may occur due to many factors, particularly the
decreased demand for its messaging services. If the rate of decline
for the Company’s messaging services exceeds its expectations,
revenues may be negatively impacted, and such impact could be
material. USA Mobility’s plan to consolidate its networks may also
negatively impact revenues as customers may experience a reduction in,
and possible disruptions of, service in certain areas. Under these
circumstances, USA
Mobility may be unable to adjust spending in a timely manner to
compensate for any future revenue shortfall. It is possible that, due
to these fluctuations, USA Mobility’s revenue or operating results may
not meet the expectations of investors, which could reduce the value
of USA Mobility’s common stock and impact the Company’s ability to
make future cash distributions to stockholders
USA mobility-Company ceases to use certain facilities, such as office
buildings and transmitter
LocationsUSA mobility has to have money set aside in order to fight
unexpected litigation and negotiation issues, whereas china does not
have litigation problems.

USA Mobility believes that in the event of them going belly-up they
have a set-up plan to pay out their shareholders. In essence, this is
appealing to shareholders so that they can feel safe about their
investment.

USA Mobility has a terrible strategic plan in that they’re total unit
of paging sales has decreased about 700,000 units in the last year and
they are optimistic that paging units are going to be a major part of
sales in the future. They recognize “annual rate of unit erosion” but
continue to think that paging, as a product, will sustain their
company.


USA Mobility’s target markets are Healthcare, large enterprise, and
governement.

USA Mobility’s site rent expense declined by 35.4% in 2009.

They’re operating efficiency has been going up a lot.
China telecom is in a growth period. Increase of loans and capital
costs, whereas USA mobility is going through a restructuring period
where they are downsizing. Wire lines in China are decreasing by 9.5%
from 2008-2009. While mobile subscribers and wire line broadband
subscribers are increasing at 101% and 20.8% respectively.The
investments in broadband accounted for 51.4% of total capital
expenditures (total capital expenditures was 38,042M RMB). They’re
really emphasized on broadband access, and their broadband access is
in southern urban China. They have 70K new wi-fi hotspots. They use a
differentiation strategy to increase competitive advantage through
innovation. They’re increasing their IT infrastructure. Activation new
services and troubleshooting were shortened by 40%. They are
streamlining value chain.
Their desired image is to appeal to the younger generation. Their
target market is innovators and early adaptors. As a company their
increase in revenues in 2009 was 12.2%, which is good seeing as we are
in a recession. Their operating expenses only increased 2.9%.China
enhanced their 3G Internet, encouraging e-Surfing. China Telecom is
headed to more innovation, whereas USA Mobility is “trying” to stay
with what has worked in the past (old, archaeic stuff).
CT is really invested in creating new products and innovation. They
have 8 product, R & D bases.
They’re making efficiency through coordination and centralized
development of key products. CT is integrating a lot of industry
applications such as “digital city management” and “commerce and
industry administration.”Commerce and industry administration is mid
to high-end customer base comprising government and enterprise.Their
capital expenditures has declined by 21.4% since 2008.


Q2) compare the format of the financial statements. What are the major
differences? Why do these differences exist?
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and judgments
that
affect the reported amounts of assets, liabilities, revenues, expenses
and related disclosures. epurchase shares of its common stock.
China telecom-Telecom goes from non-liquid (property, plant,
equipment) to most liquid and US companies go from most liquid to non-
liquid.
They, telecom, separates non-current to current, whereas the US
companies separate current to long-term.
Telecom puts GOODWILL under non-current assets and US companies put
GOODWILL under intangible assets.
China Telecom  property, plant, equipment under non-current assets
and US companies have a separate section titled Property
Liabilities and Equity are together for Telecom and they are separated
for USA Mobility.USA Mobility has accounts payable along with Telecom.
China Telecom has short-term liabilities and USA Mobility has current
liabities.
China Telecom Accrued expenses and other payables and USA Mobility
says ACCRUED compensation and benefits.
China Telecom Income tax payables USA mobility says accrued taxes.
China Telecom Current portion of deferred revenues USA Mobility says
Deferred Revenue.
IN American balance sheets, it is more itemized. Certain things are
similar but are not completely the same. other things are completely
different. Here, Accounts receivable, net for china telecom and USA
Mobility says accounts receivable. Income tax recoverable for China
Telecom and Tax receivable for USA mobility.USA Mobility says Prepaid
expenses and other vs. China Telecom says Prepayments and other
current assets. USA Mobility separates out their land, building, and
improvements. Instead of saying Construction in progress for China
Telecom, USA Mobility says land, buildings and improvements. They,
china telecom, use more of the british accounting principles. USA
Mobility complies with rules and regulations from the US SEC. They are
mostly worried about telling shareholders what their business and how
it’s comprised. The United States doesn’t care about who you are, as
long as you’re bringing in a profit for shareholders.
USA Mobility uses a lot of flamboyant wording in order to make
themselves stack up to other large American entities.


Q3) compare the first foot note in the most recent annual reports.
Identify any differences in the accounting principles employed by the
companies. What affect do these differences have on their financial
position, results of operations, and cash flows? Is on company more
conservative or liberal than the other in selecting its accounting
principles? Why do you think the difference(s)exist? Also discuss any
accounting principle change that occurred during the period covered by
the financial statements. Was it a mandatory or elective change?
Preparation of Financial Statements — The consolidated financial
statements of USA Mobility have been
prepared in accordance with the rules and regulations of the United
States Securities and Exchange Commission
(the “SEC”).
Goodwill was not
amortized but was evaluated for impairment at least annually, or when
events or circumstances suggested a potential
impairment had occurred. USA Mobility had selected the fourth quarter
to perform this annual impairment test. The
Company evaluated goodwill for impairment between annual tests if
indicators of impairment existed. GAAP
required the comparison of the fair value of the reporting unit to its
carrying amount to determine if there is potential
impairment. The fair value of the
reporting unit was determined based upon generally accepted valuation
methodologies such as market capital-
ization, discounted cash flows or other methods as deemed appropriate.
Accounts Receivable Allowances

Revenue Recognition — Revenue consists primarily of monthly service
rental and maintenance fees charged
to customers on a monthly, quarterly, or annual basis. Revenue also
includes the sale of messaging devices directly
to customers and other companies that resell the Company’s services.
The Company recognizes paging service
revenue over the period the service is performed and revenue from
product sales is recognized at the time of
shipment or installation. How they recognize revenue… The Company
recognizes revenue when four basic criteria have been met: (1)
persuasive
evidence of an arrangement exists, (2) delivery has occurred or
services rendered, (3) the fee is fixed or
determinable and (4) collectability is reasonably assured.

Depreciation Expense -The primary component of these assets is a
transmitter. straight-line basis. Depreciation expense is determined
by the
expected useful life of each tranche of the underlying transmitter
assets. (tranche- multiple loans on an asset)

difference in deprecation area of their notes in note 1. is that
china revalues its assets for monetary basis, where as usa mobility
revalues time and useful life of the asset


Long-Lived Assets -weighted-average method. USA mobility is using
straight line for some depreciation of assets, and weighted average
method for long lived assets. This makes for difficult comparison of
what assets are being depreciated using different method.
First note in USA includes- Shipping and Handling Costs, Advertising
Expenses, Cash Equivalents, Sales and Use Taxes, Fair Value of
Financial Instruments, Stock Based Compensation, Earnings (Loss) Per
Common Share
Note 1 was 6 pages long. Comparatively USA mobility has a lot more
disclosure than china telecom, despite the fact that China telecom is
a much larger company with larger amounts of equity and assets.

China Telecom has to convert all of their currencies attained through
business to RMB, whereas USA Mobility only has to deal with the US$.

China telecom has a relatively short note one. This may be due to the
civil law background and governmental influence. Both of which causes
reduced transparency. foot note 1 talks about principle activities-
what the goal is, who they are subjected by (PRC gov) and where they
operate. Organization is also included-how they are structured, what
kind of enterprise it is ( state owned) , the acquisitions over the
years (previous acquisitions) and change in equity, and mergers with
smaller subsidiaries/companies. Note 1 was 2 pages long

Chinese GAAP has a regulation that states that interest from loans are
capitalized rather than expensed. This causes that interest amount to
bypass the income statement and just show up on the balance sheet.
This inflates the earnings and makes the company look better than how
it is really doing. The main shareholders of Chinese companies is the
government. The government wants their companies to do well, so it
tries to keep cash flow and profits high. This is why we rarely see
Chinese companies incurring losses for the year.

Q4)compare the overall disclosure and information content of the
financial statements. Critique the overall presentation and the
detailed disclosures. Why are the reports different? What are the
unanswered questions in each of the financial statements?
China is less transparent that USA, and we can see this in the 1st
note. USA discloses more on their financial operations, especially
when dealing with costs incurred.
China is code and the US is common law.

Common law is more worried about gaining capital from shareholders and
is therefore more transparent.

Code law is more into keeping things straightforward and for taxes and
investors.

The company recognizes rent expense on a straight-line basis over the
lease period.

It doesn’t follow IFRS because the first note doesn’t include the
financial statement, using the rules and regulations of the United
States Securities and Exchange Commission.
6 Goodwill

On 1 October 2008, the Group acquired the CDMA mobile communication
business and related assets and liabilities, which also included the
entire equity interests of China Unicom (Macau) Company Limited
(currently known as China Telecom (Macau) Company Limited) and 99.5%
equity interests of Unicom Huasheng Telecommunications Technology
Company Limited (currently known as Tianyi Telecom Terminals Company
Limited) (collectively the “CDMA business”) from China Unicom Limited
(currently known as China Unicom (Hong Kong) Limited) and China Unicom
Corporation Limited (currently known as China United Network
Communications Corporation Limited) (collectively “China Unicom”).
The purchase price of the business combination was RMB 43,800 million.
In addition, pursuant to the acquisition agreement, the Group acquired
the customer-related assets and assumed the customer-related
liabilities of CDMA business for a net settlement amount of RMB 3,471
million due from China Unicom. China Unicom subsequently settled this
amount in 2009. The business combination was accounted for using the
purchase method.



Q5)which accounting principles have the biggest impact on the
financial statements of companies in this industry and which have the
least impact? Why? Will any principles affect the financial statements
of one company anymore or less than the other? Why ?
From what we can surmise, USA mobility is moving towards convergence
to IFRS and are working with FASB. Has a big impact because there will
be a difference in the evaluating asset (fair value) .

Extra info
The Company and its subsidiaries file a consolidated Federal income
tax return, and income
tax returns in state. US has 2 systems (tax statements and financial
statements).
China Telecom has all of their items all spread out and same with
Vodafone. USA Mobility has all of their balance sheets together and
items together.
British companies also use non-current to current and so do Chinese
companies.

British companies go assets, equity, and liabilities and so does
china. American companies do assets, liabilities, and equity.

British companies and the Chinese have shareholders equity together.

British companies use a separate area to list itemized contractual
obligations. These contractual obligations are different than the
liabilities in the balance sheet.

When an item of property plant and equipment is revalued, the entire
class of property plant and equipment to which that asset belongs is
revalued simultaneously. When an asset is revalued at an increased
amount, the increase is recognized in equity, in the “revaluation
reserve.”

When it is revalued at a lower amount, the decrease comes out of the
previously recognized as an expense to the original revaluation
reserve.

Assets acquired under leasing agreements, which effectively transfer
substantially all the risks, and benefits incidental to ownership from
the lessor to the lessee are classified as assets under finance
leases.

They amortize leases based on the straight-line basis.

Gains or losses on property, plant and equipment are determined as the
difference between the net disposable proceeds and the carrying
amounts of the asset and are recognized as income or expenses in the
profit or loss of the date of disposal (IAS 16 Section of Assets to be
Revalued).

2) (i)

The cost of an item comprises direct costs of construction,
capitalization of interest charges and foreign exchange differences on
related borrowed funds to the extent that they are regarded as an
adjustment to interest charges during the periods of construction.

2) (j)

Goodwill represents (IFRS 3) the excess of the cost over the Group’s
interest in the fair value of the net assets acquired in the CDMA
acquisition.

2) (k)

IAS 38 Accounting Rules for Purchase from acquired (pg 124 I don’t
know what she was saying) Their Group’s intangible assets comprise of
computer software, customer relationships, acquired in the CDMA
business acquisition (Note 7).

They amortized their computer software (intangible asset) using
straight-line.

2) r

Interest costs incurred in connections with borrowings are calculated
using the effective interest method and are expensed as incurred,
except to the extent that they are capitalized as being directly
attributable to the construction of an asset which necessarily takes a
substantial period of time to get ready for its intended us (IAS 16).

CT offers a comprehensive range of wireline and mobile
telecommunications services including wireline voice, mobile voice,
Internet, managed data and leased line, value-added services,
integrated information application services and other related
services.

CT also provides nation-wide mobile telecommunications and related
services in the mainland of the PRC and Macau Special Administrative
Region of the PRC. The Group also provides leased line and other
related services in certain countries of the Asia Pacific, South
America and North America Regions.

The operations of the Group in the mainland PRC are subject to the
supervision and regulation by the PRC government. The MIIT, pursuant
to the authority delegated to it by the PRC State Council, is
responsible for formulating the telecommunications industry policies
and regulations, including the regulation and setting of tariff levels
for basic telecommunications services.

2) (a)

The accompanying financial statements have been prepared in accordance
with IFRS as issued by the IASB. IFRS includes IAS and
interpretations.

These financial statements also comply with the disclosure
requirements of the Hong Kong Companies Ordinance and the applicable
disclosure provisions of the Rules Governing the Listing of Securities
on the Stock Exchange of Hong Kong Limited.

These financial statements are prepared on the historical cost basis
as modified by the revaluation of certain property, plant and
equipment (Note 2(g)) and available-for-sale equity securities (Note
2(m)).

The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results could differ from those estimates.

Revisions to accounting estimates are recognized in the period in
which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision
affects both current and future periods.

Judgments made by management in the application of IFRS that have
significant effect on financial statements and estimates with a
significant risk of material adjustment in future financial periods
are described in Note 39.

2) (b)

…the profit attributable to minority interests is separately presented
on the face of the consolidated statement of comprehensive income as
an allocation of profit or loss for the year between the minority
interests and the equity holders of the Company.

All significant intercompany balances and transactions and any
unrealized gains arising from intercompany transactions are eliminated
on consolidation. Unrealized gains arising from transactions with
associates are eliminated to the extent of the Group’s interest in the
entity. Unrealized losses are eliminated in the same way as unrealized
gains, but only to the extent that there is no evidence of impairment.

2) c

The functional currency of CT (HK), CT Americas, China Telecom (Macau
Company Limited (“CT Macau”) and China Telecom (Singapore) Pte.
Limited (“CT Singapore”) is Hong Kong dollars (HK$), US dollars (US$),
Macau Pataca (MOP) and Singapore dollars (S$) respectively.

Transactions denominated in currencies other than the functional
currency during the year are translated into the functional currency
at the applicable rates of exchange prevailing on the transaction
dates. Foreign currency monetary assets and liabilities are translated
into the functional currency using the applicable exchange rates at
the end of the reporting period. The resulting exchange differences,
other than those capitalized as construction in progress (Note 2(i)),
are recognized as income or expense in profit or loss.

2) (e)

Trade and other receivables are initially recognized at fair value and
thereafter stated at amortized cost less allowance for impairment of
doubtful debts (Note 2(o)) unless the effect of discounting would be
immaterial, in which case they are stated at cost.

2) (f)

Inventories consist of materials and supplies used in maintaining the
telecommunications network and goods for resale.

Inventories are valued at cost using the specific identification
method or the weighted average cost method, less a provision for
obsolescence.

Inventories that are held for resale are stated at the lower of cost
or net realizable value.

Net realizable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the
estimated costs necessary to make the sale.

2)(g)

Property, plant and equipment are initially recorded at cost, less
subsequent accumulated depreciation and impairment losses (Note 2(o)).

Subsequent to the revaluation as described in Note 4, property, plant
and equipment are carried at revalued amount, being fair value at the
date of the revaluation, less subsequent accumulated depreciation and
impairment losses.