BT 1998 Annual Report Download - page 24

N A N C I A L R E V I E W
The number of retired members and other current
beneficiaries in the pension fund has been increasing in
recent years and, at 31 December 1997, was approximately
45% higher than the number of active members.
Consequently, BT’s future pension costs and contributions
will depend to a large extent on the investment returns of
the pension fund and could fluctuate in the medium term.
MCI/WorldCom merger
On 1 October 1997, WorldCom announced its intention
to offer shares in its company to MCI shareholders as an
alternative to the proposed BT/MCI merger. Following
an improved offer from WorldCom in November 1997,
BT agreed that it would support the proposed merger of
MCI with WorldCom to which the MCI board had agreed
on the same day. Consequently, the proposed merger
between BT and MCI, originally announced in November
1996, was terminated.
Under the WorldCom agreement, BT will sell its holding of
136 million Class A common shares in MCI to WorldCom
for US$51 per share in cash at the time the MCI/WorldCom
merger is completed. WorldCom expects the merger, which
is subject to regulatory clearance, to be completed later
in 1998. At that time, BT will account for the proceeds of
approximately US$7 billion and the consequent profit on
the sale of its investment, which will depend on the
sterling:US dollar exchange rate.
Also under the WorldCom agreement, BT has agreed
to acquire MCI’s 24.9% equity interest in the Concert
Communications Services joint venture at a price to
be negotiated.
Year 2000
The BT Year 2000 Programme deals with all the issues
arising from the inability of many computer systems and
electronic devices to deal with the year 2000 date change
and other critical event-related dates. BT takes the Year
2000 issue very seriously and has established a
comprehensive group-wide business programme which is
monitored regularly at Board level. BT has estimated the
total cost to be in the region of £300 million representing
primarily the upgrading of existing software and including
internal costs. Cur rent forecasts indicate that the
programme is being managed within budget.
The programme has been in place since 1995 and BT aims
to achieve compliance with substantially all of its major
systems by 31 December 1998. BT recognises, however, its
dependence on suppliers with whom it is working closely.
Both BT’s suppliers and the BT programme have been
making progress and the company’s intention is that
telecommunications services provided by BT in the UK
will not be significantly affected and that customers will
continue to receive the cur rent levels of service and care.
One of BT’s cur rent priorities is to build the same level of
confidence in international services which are heavily
dependent on overseas telecommunications companies.
Although BT does not yet have sufficient information to
guarantee current levels of service to all international
destinations, it has been instrumental in a number of
initiatives aimed at improving the global situation and BT
will continue to work closely with government, international
bodies and with the companies themselves.
BT is also working actively with its customers, suppliers
and UK organisations to secure appropriate contingency
plans, both internally and at a national level.
Impact of inflation
In accordance with a requirement of BT’s main licence,
the group’s annual accounts for the 1997 financial year
prepared on a cur rent cost basis were published in
September 1997. These accounts showed that the group’s
current cost profit before tax was £2,419 million, compared
with £3,203 million under the historical cost convention.
The group’s current cost total assets at 31 March 1997
were £29,225 million, compared with £25,062 million
under its historical cost accounts. The current cost
accounts for the 1998 financial year are to be published
by 30 September 1998.
Environment
When removing old analogue exchange equipment from
buildings, BT recycles the metal content and takes special
care to ensure that any hazardous materials are properly
disposed. Although BT receives proceeds from the sale of
recovered materials, this is more than offset by the cost of
dealing with hazardous materials, contracting and planning
their removal and preparing the released site for further
development. BT believes that the total cost of dealing with
these hazardous materials will not be significant.