01—Abstract
Summary
Summary of the 10-K filed March 25, 1998. Cited figures are marked; the original filing is the authoritative source.
This 10-K for Bell Atlantic Corporation (the filing header says Verizon Communications, but the content is Bell Atlantic's 1997 report, filed before the 2000 Verizon merger) covers a year dominated by the August 14, 1997 merger with NYNEX, under which NYNEX became a subsidiary and NYNEX shareowners received 0.768 Bell Atlantic shares per NYNEX share.
The company recognized about $519 milliona in merger-related costs in 1997 and targets roughly $1.1 billion in annual recurring expense savings and about $300 million in annual capital savings by 2000, through about 3,100 management position eliminations, network consolidation, and procurement centralization. Telephone subsidiaries generated about 80% of 1997 operating revenue, and capital expenditures were about $6.6 billion. The telephone business faces growing local competition under the 1996 Telecommunications Act, and the company is pursuing entry into in-region long distance, with a New York FCC petition planned for the second half of 1998.
The company also holds a broad portfolio of international and wireless investments, including Bell Atlantic Mobile with about 5.4 million U.S. customers, a 42.1% economic interest in Grupo Iusacell in Mexico, a 24.95% stake in Telecom New Zealand, an 18.5% stake in Cable and Wireless Communications in the UK, and a 17.45% stake in Omnitel in Italy. In February 1998 it issued about $2.5 billionb of exchangeable notes tied to its TCNZ stake.
Key risks include the outcome of the District Court ruling on the Act's line-of-business restrictions (stayed pending appeal), FCC access-charge and universal service rulemakings, a union contract expiration in August 1998 covering about 70%c of its 141,000 employees, and Year 2000 remediation. Full financial statements, MD&A, and selected financial data are incorporated by reference from the 1997 Annual Report to shareowners and were not included in the text provided.
02—Key points
Key Highlights
- NYNEX merger closed August 14, 1997; 1997 merger-related costs were about $519 million ($200M direct, $223M severance, $96M transition and integration).
- Targeted run-rate savings by 2000 of about $1.1 billion in recurring expenses and about $300 million a year in capital, plus about $400 million a year in added revenue from the product portfolio.
- Telephone subsidiaries produced about 80% of 1997 operating revenue across 31 LATAs; Consumer Services was about $9.5 billion and Wholesale Services about $5.8 billion.
- Capital expenditures were about $6.6 billion in 1997, up from $6.4 billion in 1996; about 92% of access lines were served by digital capability at year-end 1997.
- Wireless portfolio includes Bell Atlantic Mobile (about 5.4 million customers), PrimeCo PCS joint venture (about 387,000 customers), and international stakes in Iusacell, Omnitel, STET Hellas, and others.
- Issued about $2.5 billion of exchangeable notes in February 1998, exchangeable into Telecom New Zealand shares, to fund general corporate purposes including short-term debt repayment.
- Dividends declared rose to $0.77 per quarter in the second half of 1997 from $0.72 in 1996; 1997 stock traded between $56.75 and $91.75, with 1,233,500 shareowners of record.
03—Questions
Frequently Asked Questions
What did shareholders of NYNEX receive in the merger, and what synergies are targeted?
NYNEX shareowners received 0.768 of a Bell Atlantic share for each NYNEX share. Management targets about $1.1 billion of annual recurring expense savings and about $300 million of annual capital savings by 2000, achieved through eliminating about 3,100 management positions, consolidating networks and real estate, and centralizing procurement. Transition and integration costs are expected to total $400 million to $500 million over the three years after closing.
When can Bell Atlantic enter the in-region long distance market, and what could delay it?
The company plans to petition the FCC for New York entry in the second half of 1998 and to enter at least one more state by year-end. Entry depends on FCC approval and the outcome of appeals of a December 1997 District Court ruling that found the Act's BOC-only restrictions unconstitutional; that ruling is stayed pending appeal. Management cannot assure that approvals will arrive in time.
How exposed is the company to local competition and regulatory changes?
Competition is expected to increase substantially. The telephone subsidiaries had signed about 330 interconnection or resale agreements with competitors as of March 1, 1998, generally at discounts of 15% to 29% from retail prices. FCC access charge reform begins in January 1998 and shifts certain costs to flat-rate charges, and universal service support for 1998 is about $1.5 billion. Many state regulatory plans cap prices or eliminate earnings limits, which can benefit earnings, but intraLATA toll revenue is already declining where presubscription has been implemented.
What are the main labor and legal risks disclosed?
About 70% of employees are union-represented, and collective bargaining agreements expire in August 1998, creating strike or cost risk. A securities class action dating to 1991 was resolved in the company's favor: summary judgment was granted in April 1997 and affirmed by the Third Circuit in January 1998.
04—Continue