Accounting change to hit balance sheets

January 30, 1993|By Bloomberg Business News

NEW YORK -- The biggest charges for adopting a new accounting standard for post-retirement benefits might be yet to come.

The $19.85 billion in new liabilities that appeared recently on the balance sheets of 22 of the nation's best-known companies is likely to pale in comparison to the charges that will show up when the remaining eight members of the Dow Jones industrial average adopt the standard.

The new charges will amount to at least $25.65 billion and could run as high as $37.35 billion, according to estimates by General Motors Corp., American Telephone & Telegraph Co., Eastman Kodak Co., Sears Roebuck & Co. and Proctor & Gamble Co. The remaining three companies used to compile the Dow -- Allied Signal Inc., J.P. Morgan & Co. and Woolworth Corp. -- have neither announced their charges nor released estimates.

The retiree benefits rule requires corporations to estimate what itwould cost to cover the health benefits they have promised employees as part of their retirement packages. Companies also have to show the number on their balance sheets as a liability that would be paid over the years as the health care bills come due. Previously, employers paid the expenses as they came due, instead of showing the potential costs as employees earned the future benefits.

Companies were required by the Financial Accounting Standards Board, which sets accounting rules, to take the charge by the end of the first quarter of this year.

The impact of the rule, known as FASB 106, has been partially offset by another new rule on how companies account for income taxes, known as FASB 109. Among other things, it has allowed some companies that suffered losses from operations in the past to apply those losses to the present and reduce their income taxes.

General Motors could face the biggest charge for retiree health benefits, which the giant automaker is estimating at between $16 billion and $24 billion.

AT&T is estimating the charge at between $5.5 billion and $7.5 billion, Eastman Kodak is projecting a charge of between $1.5 billion and $2.25 billion, Sears sees the costs running at between $1.75 billion and $2.5 billion, and Proctor & Gamble says it is facing a charge of between $900 million and $1.1 billion.

Of the companies that have taken the charges, effects range from a charge of $4.8 billion for E.I. du Pont de Nemours Co. to zero for Walt Disney Co. and McDonald's Corp. Neither Disney nor McDonald's offer retiree benefits to the vast majority of its employees.

The greatest beneficiary of the income tax change has been International Business Machines Corp., which realized a gain of $1.9 billion from its adoption of the rule change.

Costs to employers for their retirees' health care vary greatly, depending on the number of people covered by the benefit plans, the kinds of benefits plans that companies offer and whether the retiree also is covered by Medicare.

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