BellSouth to take $100 million Q3 charge on Katrina

BellSouth this week said it will incur a $100 million asset impairment charge in the third quarter due to damage caused by Hurricane Katrina.

In early September - about a week after Katrina devastated the Gulf Coast and the City of New Orleans - BellSouth made an initial estimate of the future cost for network restoration, including capital and expense, of $400 million to $600 million. Since that time, full damage assessments have not been completed as access to certain areas remains limited, the carrier stated in an 8-K files with the SEC this week.

"This estimate is subject to many uncertainties, the most significant of which include completion of physical surveys, the government's specific plans for reconstruction of the City of New Orleans and the resulting impact on our network design," the filing states.

Based on preliminary damage assessments, BellSouth concluded that the extent of damage to the company's property, plant and equipment in these areas will require recognition of an asset impairment. BellSouth said it estimated the impairment based on the "best available information" utilizing damage assessments to date.
 
As a result, the carrier will record an after-tax charge of approximately $100 million in the third quarter of 2005. This estimate is subject to revision as more information becomes available, BellSouth stated.

BellSouth said it is self-insured for its outside plant where the most significant damage was incurred. BellSouth also has a blanket insurance policy which covers central office equipment and buildings with a $60 million deductible.

The carrier said it is working with its insurance carriers to determine to what extent insurance proceeds will offset any losses. No offsetting benefit for insurance recoveries is expected to be recorded against the loss in the third quarter 2005 results, BellSouth said.