Verizon sees $600 million accounting change charge

NEW YORK (Reuters) - Verizon Communications Inc VZ.N plans to report a $600 million charge for the full year 2010 due to a change in the way it accounts for retirement benefits, following the lead of rival AT&T Inc. T.N

Lowell McAdam, Verizon president and COO, speaks at Verizon's iPhone 4 launch event in New York January 11, 2011. REUTERS/Brendan McDermid

Like AT&T, Verizon said on Friday it is looking to make its financials easier to understand by changing its pension accounting to recognize gains and losses in the year they are incurred, rather than amortizing them over time.

Verizon said the charge would cut a penny off its earnings per share in each quarter of 2010, including fourth-quarter earnings, which it plans to report on January 25.

On a conference call with analysts, it reiterated its expectation that it would reach the upper end of its earnings per share expected growth rate for the second half of 2010. This would now imply second-half earnings per share of $1.05 to $1.10, including the new charges.

Stifel Nicolaus analyst Christopher King said investors would be unlikely to react strongly to the news as it does not change key measures such as cash flow.

“From a valuation standpoint it’s not impacting their long-term post-retirement pension obligations,” King said.

Verizon shares were up 40 cents or 1.2 percent at $35.01 on the New York Stock Exchange.

It said the pretax charge it is taking for the full year is primarily due to a lower discount rate, partially offset by a return on assets that was higher than expected as well as favorable healthcare trends. The discount rate is used to calculate pension obligations based on interest rates.

Verizon said the estimated return on its pension assets was about 14 percent in 2010 compared with an assumption of 8.5 percent, resulting in an actuarial gain of about $1 billion.

For 2011 it said it has lowered its assumption for a return on pension assets to 8 percent from 8.5 percent.

When it reports annual results next week, Verizon is expected to post revenue of $26.47 billion for the fourth quarter and $105.9 billion for the full year 2010, according to Thomson Reuters I/B/E/S.

Last week AT&T said it would take a $2.7 billion noncash charge for its fourth quarter due its pension accounting change. Both operators plan to report results next week.

Another big U.S. company, Honeywell International Inc HON.N, a maker of cockpit electronics, led the way with a similar change to its accounting announced in November.

Reporting by Sinead Carew; editing by Derek Caney, Gerald E. McCormick and Matthew Lewis