AT&T Inc., the largest U.S. phone company, recorded a $10 billion fourth-quarter charge for its pension plan and said smartphone subsidies put pressure on profit in the period.
The Dallas-based company said in a filing Thursday that it lowered its expected long-term rate of return on the pension plan 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 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, it said. Hurricane 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,” Laurence Balter, chief investment strategist at Oracle Investment Research, in Fox Island, Washington, said in an interview. “It’s possible investors are just becoming aware of it. They spend a lot of money on building out, on competing against Verizon, and they need to focus on the balance sheet.”
The shares dropped as much as 1.9 percent to $32.56 in extended trading in New York, after declining less than 1 percent to $33.20 at the close. AT&T’s stock rose 11 percent last year.
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 wireline 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.
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