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Pactel Takes $2-Billion Accounting Charge : Telecommunications: Pacific Telesis will absorb full cost of accounting for benefits in one quarter. PacBell will amortize it over 20 years.

April 15, 1993|From Bloomberg Business News

SAN FRANCISCO — Pacific Telesis Group said it will take charges totaling $2 billion, or $4.91 a share, in the first quarter of 1993 to reflect changes in accounting for retiree health benefits and other post-employment benefits.

As a result of the charges, the regional Bell operating company will post an unspecified loss for 1993. In 1992, Pacific Telesis earned $1.14 billion, or $2.83 a share, on revenue of $9.94 billion.

The company said adoption of the mandatory new accounting standards on retiree health benefits will reduce first-quarter earnings by $1.6 billion, or $3.89 a share, while adoption of the accounting change for other post-employment benefits will reduce first-quarter net income by $151 million, or 37 cents a share.

The obligations represent the estimated cost of retiree health benefits and workers' compensation, disability pay, severance and other benefits provided after employment.

Pacific Telesis, however, said adoption of the accounting changes won't affect the company's cash flow.

The remaining $250 million in charges include $210 million for the write-down of commercial real estate in the company's Pactel Properties unit, and for restructuring costs for the planned spinoff of its wireless operations.

Pacific Telesis said it will dispose of Pactel Properties over the next three to five years. Last year, the company said it would separate its wireless operations from its traditional telephone business. It estimates that the spinoff will take place by 1994.

Pacific Telesis said the charges reflect the company's effort to concentrate on its telecommunications business. "We're continuing to narrow the focus of our business and concentrate on what we do best--telecommunications," said Sam Ginn, chairman and chief executive. "As we go forward, our primary effort will be to strengthen the California telecommunications network."

In taking the first-quarter charges, Pacific Telesis Group is recognizing the liability all at once. Pacific Bell, a unit of Pacific Telesis, will amortize the liability over 20 years, consistent with a Public Utilities Commission decision last year, the company said. The recognition of these accounting changes won't affect the company's local phone rates, a spokesman said.

Pacific Telesis also said it would post total liabilities of about $2.9 billion in the first quarter.

All public companies have to adopt the new accounting rule for retiree health benefits. The rule requires companies to account for future retiree health on an accrual basis to anticipate the full cost of those benefits rather than on a cash basis, or when the benefits are actually paid. The second rule change covers workers' compensation, disability pay, severance and other benefits provided after employment, but before retirement.

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