US - Telecommunications giant AT&T is to cut $17bn from retained earnings and take a $2.7bn non-cash charge on its fourth quarter 2010 results following changes to the way it calculates its pension assets.
The company said it is changing its method of recording actuarial gains and losses for pension and other postretirement benefits so they will now be recognised in the year in which they are incurred, rather than amortised over a period of many years.
The move to annual reporting, which will see any changes recorded on the income statement in the fourth quarter each year, is part improve transparency for shareholders, it said.
The cumulative effect of the change will reduce retained earnings, or the portion of net income not paid out in dividends, by about $17 billion, the company said in the filing.
AT&T said it expects the change to a market-based approach will result in simpler, more transparent financial results by linking results directly to current market returns, interest rates and health care costs. The change will not impact AT&T's cash flow or pension funding requirements, the firm added.
A spokesman said: "AT&T expects the impact of this accounting change on its fourth-quarter 2010 results to be a pre-tax, non-cash charge of approximately $2.7bn, or $0.28 per share. This charge is driven by a reduction in the benefit plan discount rate from 6.5% to 5.8%, partially offset by higher-than-expected returns on benefit plan assets and favourable health care cost trends in 2010.
"Going forward, guidance regarding benefit costs will exclude this gain/loss adjustment to be taken each fourth-quarter to reflect actual results. AT&T expects that 2011 adjusted benefit costs will be in line with 2010 adjusted levels."
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