Saturday, January 24, 2015

Assessing Strategically ... (The Minor Consequence of Underestimating the Big Tangible Picture)

(updated on 1.26.15)

Q: Could AT&T have made a better assessment on the case of mortality assumptions? 

Yes.   ... AT&T risk analysis professionals did not anticipate this situation because they did not consider the other technological-driven social-economic factors that was affected by the information economy. 

By seeing the right sequence of events that affects the presumption of improved quality of life for their specific group of retired workers, the initial assessment could have lowered the cost of $8 Billion.

In the information economy, the intake of "health-related" information usually improves in most cases regardless of the cerebral quality of the recipients. 

Without performing a deep profile on this specific group,  one could presume that this group worked for a world class information service company where the receipt of high-speed, quality information is the norm while securing good heath care is still a part of their company policy.  

Good health care and constant messages of good health practices usually create a longer mortality for the majority of that group.  ... 

Due to the simplicity of those messages that centers on the first two levels of Maslow's hierarchy of needs and wants. Then, the more mindful recipients would become more cautious in their heath-related decisions.

Simultaneously, health care has also improved dramatically. After awhile, some of this group of "mindfully smart" retired workers  who practiced good health conscious habits, evolved forward, to a decent healthy life .   While it is good for this group who is living a good life. this situation caused a minor glitch to their former employer's bottom line. 

In summary The risk analysts under-assessed the situation.

Here Is AT&T's Epic $8 Billion Friday-Night News Dump

The running joke in news is that companies dump news when people aren't looking, like before holidays or on Friday nights before long weekendsAT&T met the latter criteria this week.

On Friday night, AT&T disclosed that in the fourth quarter, it will take a $7.9 billion noncash, pretax loss related to an adjustment in assumptions made for its pension plan.
The company announced that on Dec. 31, it adjusted its assumed discount rate for its pension obligation to 4.3%. Previously, the company had used a 5% discount rate, according to its most recent 10-K filed with the SEC. 
The discount rate used to measure a pension obligation is what the company assumes the pension fund will return over time in order to meet its obligations. Cutting this rate means that, basically, AT&T's pension fund is expected to yield less now than it was previously, and so as a result the company will have to put additional capital into the fund to meet its future obligations.
The company also said that contributing to the loss were "updated mortality assumptions," which means that people covered under AT&T's pension plan are now living longer.
And in addition to the pension adjustment, AT&T disclosed that its Q4 results will include a $2.1 billion charge due to the abandonment of network assets after the company determined that some copper assets won't be needed to support its network in the future. 
Shares of AT&T were little changed in after-hours trade on Friday, as these kinds of impairments and hiccups can't be totally unexpected for a company that employed more than 240,000 at the end of 2013 and has a market cap of more than $170 billion.
On Twitter, Bloomberg's Joe Weisenthal noted that in January 2013, the company also took a $10 billion pension charge.
But still, this isn't the best news, and burying news on a Friday night can give the impression that a company is hoping not everyone notices. Or something like that.

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