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AT&T (T) To Record $10B Pension Charge In Q4, Sees Near-Term Earnings Pressure

 January 18, 2013 09:13 AM

(By Balaseshan) AT&T Inc. (NYSE: T) anticipates taking a hefty charge of about $10 billion in the fourth quarter related to its pension and post-employment benefit plans. The provider of telecom services expects near-term earnings pressure due to high subsidies on smartphones.

The second largest wireless carrier in the U.S said its fourth-quarter total smartphone sales were around 10.2 million devices.

AT&T expects a near-term pressure on operating income, margins, and earnings per share in the fourth quarter of 2012 due to the high subsidies on these devices.

The company said projected reduction in its fourth-quarter operating income as a result of storms, including Superstorm Sandy, is about $175 million, which primarily impacts its Wireless segment.

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At December 31, 2012, the company cut its assumed discount rate to 4.3%, resulting in an actuarial loss of about $12.0 billion. An asset gain, which is about $1.9 billion in excess of assumed rate of return of 8.25%, partially offset the impact of the discount rate.

Despite this gain, AT&T has lowered its expected long-term rate of return on asset assumption to 7.75% due to the continued uncertainty in the securities markets and U.S. economy in 2013. Gains on claims experience and other actuarial assumptions of about $100 million also partially offset the loss associated with the lower discount rate.

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In a regulatory filing, the Dallas, Texas-based company said actuarial gains and losses are managed on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, this loss will not affect segment operating results or margins.

AT&T refined the allocation of costs associated with providing services among segments, based on a review of inter-segment allocations. While this change did not impact AT&T's total consolidated results, it impacted costs allocated to the Wireline and Wireless segments.

On January 8, the company said it averaged more than 110,000 smartphone sales a day during the fourth quarter as customers flocked to its portfolio of the latest devices from Google Inc.'s (NASDAQ: GOOG) Android, Apple Inc. (NASDAQ: AAPL) and Microsoft's (NASDAQ: MSFT) Windows.

T closed Thursday's regular session at $33.20. The stock has been trading between $29.02 and $38.58 for the past 52 weeks.



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