Health overhaul to hit corporate profits

Tue Mar 30, 2010 2:42pm EDT

(Reuters) – U.S. companies have started to tally up the financial hit they say they will take as a result of the U.S. healthcare overhaul signed into law last week by President Barack Obama.

The government continues to pay subsidies to large companies, including AT&T Inc, Caterpillar Inc and Deere & Co, to help pay for prescription drug benefits for their large ranks of retirees.

However, the revamped law no longer allows companies to deduct the amount of the subsidies from their taxable income. Corporate America complains that the change amounts to a tax hike, while the White House says it essentially closes a tax loophole.

Not all big companies are warning of trouble. General Electric Co, for example, says it does not expect a “significant material impact” on its first-quarter results.

But a number of large U.S. employers have started detailing the expected hit to their bottom line. The latest warnings came from Prudential Financial Inc, which said on Monday that it would take a $100 million charge in the first quarter, and Allegheny Technologies Inc, which expects a $5 million charge.

The tally so far:

* AT&T said it would record a $1 billion noncash charge for the first quarter and evaluate prospective changes to the healthcare benefits it offers to both active and retired workers, according to a filing with the U.S. Securities and Exchange Commission.

* In a regulatory filing, Caterpillar described the regulatory change as a tax hike. It said accounting standards require the world’s largest maker of earth-moving equipment to book a $100 million after-tax charge to reflect the change during the first quarter.

* Deere, a maker of farm equipment, said it expects to record a $150 million charge, mostly in its current fiscal second quarter. The expense was not included in the company’s earlier 2010 forecast, which called for net income of about $1.3 billion.

* No. 2 life insurer Prudential said it expects a $100 million charge during the first quarter.

* 3M Co, which makes products ranging from Post-It notes to optical films for flat-panel televisions, will record a one-time non-cash charge of up to $90 million, or 12 cents per share. It said its January forecast of 2010 earnings did not include the impact of the healthcare law.

* Diversified U.S. manufacturer Honeywell International Inc in January estimated that healthcare reform would trim its first-quarter earnings by 4 cents to 5 cents per share. A Honeywell spokesman said last week that the company had not updated the earlier cost estimate and would continue to review the legislation.

* AK Steel Holding Corp will record a non-cash charge of about $31 million in the first quarter due to a reduction in the value of its deferred tax asset as a result of a change to the tax treatment of Medicare Part D reimbursements.

* Valero Energy Corp said it expects to take a charge of $15 million to $20 million in the first quarter due to the new healthcare legislation, and said it expects further tax costs to be calculated later.

* Metals processor Allegheny looks for a first-quarter one-time, non-cash charge of about $5 million, or 5 cents per share, due to the new healthcare law.

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