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BREAKFAST WITH THE FOOL
Verizon Gets Busy on DSL Front

By Brian Graney (TMF Panic)
August 8, 2000

With a continuing strike idling roughly one-third of its workforce and dominating this week's business press headlines, telecommunications company Verizon (NYSE: VZ) gave investors even more to think about today with a batch of non-strike news. Most notably, the company formed by the combination of the former Bell Atlantic and GTE stepped up its broadband build-out efforts by bulking up its digital subscriber line (DSL) business. In separate releases, the company announced it will acquire privately held OnePoint Communications for undisclosed terms and also combine its own DSL services with those of NorthPoint Communications (Nasdaq: NPNT).

OnePoint provides DSL services to apartment and office buildings in nine major U.S. metropolitan markets, while NorthPoint is a national DSL provider consisting of more than 1,500 central offices in 99 metropolitan statistical areas (MSAs). Under the deal, Verizon will end up owning a 55% stake in the new NorthPoint, which will continue to be a separately traded company. Additionally, Verizon will pump $800 million in cash into the venture, with $350 million of that money earmarked for merger-related payouts to existing NorthPoint shareholders.

Not to be lost amid the DSL news is Verizon's first-ever quarterly financial report as a combined company, which showed Q2 EPS of $0.72 excluding all kinds of onetime items. In the guidance department, the company is expecting revenue growth of 8% to 10% per year with a fiscal 2000 EPS target of $2.90 to $2.94. Earnings growth is being pegged at 9.5% to 11.5% for 2001 and at least 12% for 2002, except that dilution from the OnePoint and NorthPoint deals will end up reducing 2001 EPS growth to the 5% to 6% range. For capital expenditures, the company expects to spend $18 billion in 2000 with "modest" annual increases in capital spending thereafter.

News to Go

E-business application software provider Siebel Systems (Nasdaq: SEBL) agreed to buy privately held interactive online buying software developer OnLink Technologies for $609 million in stock. The company also announced a two-for-one stock split, which will be paid on September 8.

Fibre Channel switches, routers, and hubs maker Gadzoox Networks (Nasdaq: ZOOX) announced that it is changing the accounting treatment for its April acquisition of SmartSAN Systems to purchase accounting from pooling of interest accounting after an unidentified "affiliated shareholder" traded stock during the pooling holding period. As a result of goodwill that must now be amortized and onetime write-offs, the company's Q2 results have been adjusted to a loss of $0.52 per share from the previously reported loss of $0.35 per share. Gadzoox ran up 28% yesterday as traders anticipated that a post-close conference call would deal with more exciting news than a lesson in the subtleties of merger accounting.

As initially reported in this morning's Wall Street Journal, consumer products company Dial Corp. (NYSE: DL) announced that Chairman, President, and CEO Malcolm Jozoff has resigned and will be replaced by former Hasbro (NYSE: HAS) executive Herbert Baum. CFO Susan Riley has also stepped down and will be succeeded by Dial controller Jack Tierney. Additionally, the company warned that its fiscal 2000 earnings will not meet the current consensus estimate of $0.77 per share.

In other boardroom goings-on, online broker Ameritrade Holding Corp. (Nasdaq: AMTD) said CEO Tom Lewis has resigned for personal reasons after less than three months as sole possessor of the job, but over fifteen months after coming to the firm as co-CEO. That's quite a change of heart for Mr. Lewis, who just two weeks ago told Bloomberg News that Ameritrade's business model was "phenomenal... like printing money." With the Presidential elections only a few months away, there may be some jobs opening up at the Bureau of Engraving and Printing pretty soon.

Latin American online services provider AOL Latin America (Nasdaq: AOLA) is scheduled to finally start trading today after the firm delayed its initial public offering last week and cut its expected IPO pricing range to $8 to $10 per share from $15 to $17 per share in a bid to generate more interest from investors. That plan apparently didn't pan out, as the firm ended up selling 25 million shares last night at the bottom of the range for $8 a piece.

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