01—Abstract
Summary
Summary of the 10-K filed March 25, 1997. Cited figures are marked; the original filing is the authoritative source.
This 10-K, filed March 25, 1997, is for Bell Atlantic Corporation (the predecessor of today's Verizon, which the request identified as VZ), covering fiscal 1996.
The company reported operating revenues of $13,081.4 milliona, down about 2.6% from $13,429.5 million in 1995, and net income of $1,881.5 million, or $4.28 per share. Income before the cumulative effect of an accounting change was $1,739.4 million ($3.96 per share), down from $1,861.8 million in 1995. The 1996 results were helped by a $142.1 million non-cash gain from changing how directory publishing revenues are recognized, and a 1995 gain of about $314 million on cellular property sales had flattered the prior year.
Equity income from the Bell Atlantic NYNEX Mobile wireless partnership rose to $360.4 millionb, offsetting heavy start-up losses in PCS, Omnitel, and other new ventures. The central investor issue is the pending merger of equals with NYNEX Corporation, approved by shareowners in November 1996 and expected to close around April 1997. NYNEX holders would receive 0.768 Bell Atlantic shares per NYNEX share, with NYNEX holders owning about 44% of the combined company.
Management projects about $600 millionc in annual recurring expense savings by the third year after closing, with transition costs of $700 million to $900 million, though the MD&A breaks these costs down differently. Pro forma combined 1996 revenues would be about $29.1 billion. The company's core regulated telephone business faces growing competition under the Telecommunications Act of 1996, including 40 interconnection agreements with competitive local carriers and an expected 1997 push into long distance, while toll revenues declined 3.2% in 1996 from price cuts and competition.
Financially, the company generated $4.4 billiond in operating cash flow and spent about $2.5 billion on capital expenditures. Long-term debt fell to $5.96 billion, and the debt ratio improved to 52.2% from 55.5%.
Dividends were $2.88 per share in 1996, with a post-merger annualized dividend expected at $3.08 per share. The company also restructured its Mexican investment, Iusacell, in February 1997 to gain management control, which will move it from equity to full consolidation accounting and includes put options that could be material.
02—Key points
Key Highlights
- Operating revenues of $13.08 billion in 1996, down 2.6% from $13.43 billion in 1995, with local service up 5.6% and value-added services up 14.8%, offset by declines in toll and other services
- Net income of $1.88 billion ($4.28 per share), including a $142.1 million non-cash cumulative accounting gain from directory publishing; income before that item was $3.96 per share
- Pending merger with NYNEX (0.768 Bell Atlantic shares per NYNEX share), expected to close around April 1997, with about $600 million in targeted annual savings and $700M-$900M in transition costs
- Wireless growth through Bell Atlantic NYNEX Mobile (62% owned, 4.4 million customers), with equity income up 35% to $360.4 million, while PCS and international ventures weighed on earnings
- Strong cash generation: $4.4 billion operating cash flow, $2.5 billion capital spending, and long-term debt reduced to $5.96 billion with a debt ratio of 52.2%
- Growing competitive pressure under the Telecommunications Act of 1996, including 40 interconnection agreements with competitive local carriers and planned 1997 long-distance entry, with toll revenues already declining
- Dividend of $2.88 per share in 1996, with a post-merger annualized dividend expected at $3.08 per share
03—Questions
Frequently Asked Questions
Why did revenue decline in 1996 while net income rose?
Revenue fell about 2.6% to $13.08 billion mainly because of the 1995 sale of the computer maintenance business and lower toll and other service revenue, which fell 72.5% for other services. Net income rose because of the $142.1 million accounting gain from the directory publishing change, plus higher equity income from wireless investments, while 1995 included a large one-time cellular property gain.
What does the NYNEX merger mean for shareholders?
Bell Atlantic shareholders keep their existing shares, while NYNEX holders receive 0.768 Bell Atlantic shares per NYNEX share, leaving NYNEX holders with about 44% of the combined company. Management expects about $600 million in annual savings by the third year after closing and a post-merger long-term EPS growth target of 10-12%. The merger still needed regulatory approvals and was expected to close around April 1997.
How exposed is the core telephone business to competition?
The Telecommunications Act of 1996 is expected to bring significantly more local competition, and the company has signed about 40 agreements with competing carriers that allow discounts of roughly 9% to 25% off retail prices. Intralata toll presubscription, due in several states in 1997, could materially reduce toll revenue, and FCC access charge and universal service reforms could also have a material effect on operating revenue.
What are the main risks in the wireless and international investments?
PCS and new international ventures, including PrimeCo, Omnitel, and the Eurotel companies, are expected to dilute 1997 earnings through start-up losses. The February 1997 Iusacell restructuring gave the company management control and will move it to full consolidation, and it includes up to $150 million in possible financing and put options on the majority owner's stake that could be material if exercised when prices are depressed.
04—Continue