Bloomberg News

AT&T Has $10 Billion Pension Charge, Sees Margin Pressure

January 18, 2013

AT&T Posts $10 Billion Pension Charge, Sees Pressure on Profit

AT&T, slated to report its full earnings on Jan. 24, said it sold about 10.2 million smartphones last quarter. Photographer: Chris Ratcliffe/Bloomberg

AT&T Inc. (T:US), the largest U.S. phone company, recorded a $10 billion fourth-quarter charge for its pension plan and said smartphone discounts and costs related to Superstorm Sandy cut into profit.

The Dallas-based company said in a filing (T:US) yesterday that it lowered its expected long-term rate of return on the pension to 7.75 percent, citing “continued uncertainty” for the stock market and the U.S. economy.

AT&T, slated to report its full-year earnings after the bell on Jan. 24, said it sold about 10.2 million smartphones last quarter. The high subsidies it doles out on these devices squeezed profit in the period, the company said. Sandy and other storms also hurt earnings, primarily in the wireless segment, lowering fourth-quarter operating income by about $175 million.

“The company has deep pension problems -- they are not funding the pension enough,” said Laurence Balter, chief investment strategist at Oracle Investment Research in Fox Island, Washington. “They spend a lot of money on building out, on competing against Verizon, and they need to focus on the balance sheet.”

The shares rose 0.7 percent to $33.44 at the close in New York. The stock climbed 11 percent last year.

‘Refined’ Costs

At Dec. 31, AT&T reduced its assumed discount rate for the pension to 4.3 percent, resulting in an actuarial loss of about $12 billion, it said. That was offset in part by about $1.9 billion from an asset gain and $100 million from other gains and actuarial assumptions.

The company also said it “refined” the allocation of its costs of providing services among its segments. While that didn’t affect its consolidated results, it changed the landline and wireless segments and it has made adjustments retrospectively to the segment information from previous periods.

While smartphones require subsidies to encourage consumer purchases, gaining customers for the devices is key to AT&T’s strategy because they use more data -- and therefore have higher bills -- than subscribers who buy regular phones.

The company has been seeking to bounce back from the third quarter, when it added just 151,000 contract subscribers. That compared with 1.5 million net additions at AT&T’s biggest rival, Verizon Wireless.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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