Thursday, April 1, 2010

Verizon Reports 1Q Earnings Reduction of $970 Million Because of Health Care Law

Verizon Communications Inc. announced late tonight that it will incur a $970 million loss of earnings because of the new federal health-care law, according to a Bloomberg report by Amy Thomson and Olga Kharif.

The one-time, non-cash cost will be taken in the first quarter, New York-based Verizon said late today in a regulatory filing.

Verizon follows AT&T Inc., the biggest U.S. carrier, Deere & Co., Caterpillar Inc. and other companies in disclosing similar expenses after losing a tax benefit for retiree plans. The costs may reduce corporate profits by as much as $14 billion as companies account for the impact of the health-care reforms, according to benefits consulting firm Towers Watson.

“While it is a non-cash charge, it does reflect real value destruction, based on expected cash flows over the life of the company,” said Jonathan Schildkraut, an analyst at Jefferies & Co. in New York. Schildkraut, who expected the expense to be about $750 million, advises investors to buy Verizon shares and doesn’t own any himself.

A charge-off, made by a company against earnings, does not require an initial outlay of cash. Non-cash charges are typically against the depreciation, amortization and depletion accounts on a company's balance sheet. Companies take these charges against earnings because of extraordinary circumstances such as accounting policy changes or significant depreciation of asset's market value. Any sort of charge will usually result in lower earnings in the period when the charge was made. They are sometimes also referred to as a write down.

Many large companies made similar announcements today as corporate America's balances sheets took huge hits. Reuters complied this list of companies announcing the write downs:

* 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.

* Deere & Co., a maker of farm equipment, said it expected to record a $150 million charge, mostly in its current fiscal second quarter.

* No. 2 plane maker Boeing said it would take an income tax charge of $150 million, or 20 cents per share, against first-quarter results.

* Caterpillar said accounting standards required 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.

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

* Lockheed Martin Corp., the world's biggest defense contractor, said it expected to record a $96 million after-tax charge in the first quarter, which would translate to around 25 cents per share.

* 3M Co., which makes products ranging from Post-It notes to optical films for flat-panel televisions, will record a one-time, noncash charge of up to $90 million, or 12 cents per share.

* Ingersoll-Rand Plc, a maker of air compressors and cooling systems, expects to record a noncash charge of $41 million, or 12 cents a share.

* AK Steel Holding Corp. will record a noncash charge of about $31 million in the first quarter.

* Eaton looks for a $25 million noncash charge in the first quarter.

* Diversified manufacturer ITW said it would take a $22 million charge for the change, lowering its first-quarter earnings per share by 4 cents.

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

* Honeywell International Inc. expects a one-time charge of $13 million related to the health care legislation.

* Aircraft parts supplier Goodrich Corp. sees a first-quarter charge of about $10 million, or 8 cents per share.

* Carpenter Technology looks for a $5.9 million, 13 cent- per-share, charge.

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

In the meantime, Congress is pushing corporate chief executive officers to come to Capitol Hill to prove to Democrats that these companies will actually incurr those costs.

Energy and Commerce Subcommittee Chairman Henry Waxman (D-Calif.) and subcommittee chairman Bart Stupak (D-Mich.) announced that the Subcommittee on Oversight and Investigations will hold a hearing on April 21 to hear from executives from Caterpillar, Verizon, Deere and AT&T.

Waxman and Stupak, according to Livia Sappington of World News Vine, say that the claims by the companies are without merit and “are a matter of concern” as the Congressional Budget Office reported that large companies employing more than 50 employees would save on premium cost up to 3 percent per person by 2016. ...

... an association of chief executive officers from leading U.S. companies, The Business Roundtable asserted last November that a savings of more than $3,000 per employee would be attained in the next ten years as a result of the new legislation. The committee requested that the four companies present any reports prepared relating to how health care reform might impact their businesses; any documents or e-mail messages between executives relating to such analysis, and the explanation of accounting methods resulting in their conclusions.

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