Summary
Verizon Communications Inc. (VZ) filed an 8-K on November 2, 2012, to disclose the ratification of new three-year labor contracts with the CWA and IBEW, effective through August 1, 2015. These agreements, covering approximately 43,000 associates, introduce changes to medical and prescription drug plans, requiring contributions towards healthcare premiums for both active and current retirees. Verizon anticipates these changes will yield annual benefits cost savings in the range of $250 million to $500 million, beginning in 2013 and increasing over the contract term. The company also noted that these savings estimates exclude potential future cost avoidance from limitations on pension benefits for new hires and current retirees, as well as wage increases and other flexible work rule provisions. Furthermore, the filing indicates that Verizon expects to record a significant charge in the fourth quarter of 2012 related to the remeasurement of pension and other postemployment benefit assets and liabilities, influenced by updated actuarial assumptions and a pension annuitization transaction. Separately, the company acknowledged the impact of Hurricane Sandy on its wireless and wireline businesses in the Northeast, stating that significant remediation efforts are underway and that the financial impact on fourth-quarter operating results is currently indeterminate but expected to be significant.
Key Highlights
- 1Verizon ratified new three-year labor contracts with CWA and IBEW, extending through August 1, 2015, covering approximately 43,000 employees.
- 2The new contracts include changes to medical and prescription drug plans, requiring contributions towards healthcare premiums for active employees and current retirees.
- 3Verizon estimates annual benefits cost savings of $250-$500 million starting in 2013 from these labor agreements.
- 4The cost savings estimates exclude potential future cost avoidance related to pension plan changes for new hires and certain other contract provisions.
- 5A significant charge is expected in Q4 2012 due to pension and postemployment benefit remeasurement and a pension annuitization transaction.
- 6Hurricane Sandy has impacted Verizon's Northeast operations, with significant remediation underway and an expected material, though currently unquantifiable, impact on Q4 2012 financial results.