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SBC to Write Off as Much as $2.3 Billion This Year

From Bloomberg News

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.”

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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.

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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.


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