SBC Communications Inc. said it will take charges of up to $2.3 billion in 1997 following its April purchase of Pacific Telesis Group as the combined company pares operations to improve profit.
The charges, due largely to write-offs on equipment and abandonment of video services projects, will enable the telecommunications company to add $1 billion in annual profit by 2000, SBC said, while resulting in a loss for the second quarter.
The moves will help boost earnings at a faster clip, analysts said, as SBC concentrates on its profitable local phone and wireless businesses and limits spending on cable operations.
“Everybody had to expect some kind of write-off,” said Paul Wright, vice president of Loomis, Sayles & Co., which owns 3.56 million SBC shares, according to recent regulatory filings. “The positive surprise is their reiterating their conviction that they can have even stronger numbers next year.”
Shares in San Antonio-based SBC rose 37.5 cents to close at $60.625.
The company said the charges will range between $1.9 billion and $2.3 billion, with $1.6 billion to $1.9 billion coming in the second quarter. Based on 912 million shares outstanding, that will reduce second-quarter results by as much as $2.08 a share, resulting in a loss.
Edward Whitacre Jr., chairman and chief executive, said the moves represent “an important step toward realizing the benefits offered by this merger.”
SBC completed its $16.5-billion acquisition of Pacific Bell parent Pacific Telesis on April 1, marking the first marriage between two regional Bell operating companies and creating the second-largest U.S. phone company, behind AT&T; Corp.
The merger will result in $500 million more in revenue and a savings of $1.2 billion, or $1 billion after taxes, for SBC, said Donald Kiernan, chief financial officer.
Kiernan said SBC expects revenue to rise as the company increases its penetration of high-profit additional services, such as caller ID, in Pacific Telesis’ regions. SBC has a caller ID penetration rate of 42%, while PacTel’s rate is about 30% in California, he said.
The company said it is combining several operations from each company, including phone directories, long-distance and the Internet.