Verizon to take $970M charge from health care bill

[Bluebear]

NEW YORK – The corporate tax impact of the recent health care overhaul grew Thursday as Verizon Communications Inc. announced it will record a related $970 million non-cash charge in the first quarter.

So far at least 15 companies have disclosed about $2.8 billion in charges prompted by the health care overhaul. Verizon's charge is the second-largest after AT&T, which last week announced a $1 billion charge related to the tax bill.

Verizon and other companies currently receive a government subsidy to keep prescription drug benefits for retirees. They've been able to deduct all of their expenses, but that ends in 2013 under the recently passed legislation.

Companies are announcing the charges now because accounting rules say they have to book them during the period a new law is enacted.

Verizon's announcement follows Wednesday's disclosures by Boeing Co. and Lockheed Martin Corp. that they would record first-quarter charges of $150 million and $96 million, respectively, related to the health care legislation.

Other companies that recently announced charges include Ingersoll-Rand PLC and Goodrich Corp.

http://news.yahoo.com/s/ap/20100402/ap_on_bi_ge/us_verizon_health_care_charge
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Corporate finance is beyond me. Non lo so.

[babylonsister]

1. What's a non-cash charge? And these biggies are bitching?

Hmmm. So do they have any alternative ideas, and where and when were they presented?

[hack89]

7. HCR means they have to pay more than they planned

for retiree prescription drug benefits. The old law allowed them a tax deduction for providing such benefits - HCR reduces the tax deduction. A non-cash charge represents a reduction in earnings for the year.

[babylonsister]

11. Thanks. And ain't that a shame. So they're whining because their

employees might be better covered at a slightly bigger expense to them? And they have no alternative plan to offer to make everybody happy?

:nopity:

[anigbrowl]

14. Nobody is whining. They are required by law to announce it.

They have to file paperwork with the stock exchange commission in a case like this. And financial journalists look at the SEC filings (which are public) every day and report that information. There is no whining, there is no alternative plan. they are just making the required declaration on how the new law will affect the company financially.

[hack89]

15. They are obeying accounting laws - no more no less.

This won't hurt the corporations - they will find other ways to increase their earnings.

[hack89]

17. Why are you assuming that the retirees will have better coverage?

it has nothing to do with current employees - this was you (thru your taxes) helping retirees get prescription drug benefits.

[Psephos]

22. The accounting charge and reports are required by law under Sarbanes-Oxley.

A billion dollars is not a slightly bigger expense, and if that charge against future earnings was not taken, Verizon could be liable for prosecution.

[rufus dog]

23. see post 18

clearly calls out what is happening.

So for the rest of us, let's say the gov't subsidizes our mortgage payments and gives us 28% of our mortgage, then we are allowed to take 100% of the deduction for the mortgage. What would that be called?

I haven't seen any company bitching about this, but if they do, fug them, it was a five year gift and now the party is over on that one.

[hack89]

24. I don't care one way or the other

I just assume that if anyone is to be hurt by all of this it will be the retirees and not the companies.

[MadMaddie]

2. Can some financial minded DU member explain what this means?

All I know is that many of these companies were looking for ways to cut pensions of their retired workers over the last several years so they could improve their bottom lines.

If I understand this correctly the Healthcare legislation will be their excuse.

[Bluebear]

3. Thank you. Somebody help :0

And what are "non-cash" charges? What are they charging it off with, rupees?

[hack89]

5. It represents a reduction in earnings for the companies.

Previously the federal government partially subsidized retired workers prescription drug benefits by allowing the companies to claim a tax deduction. The HCR removes that tax deduction. So HCR does in fact increase companies cost of providing medical benefits to retired workers - I don't know why it was necessary to structure the bill that way.

[Bluebear]

6. That provision starts in 2013, though. Why can they charge it off now?

[hack89]

8. From the OP

"Companies are announcing the charges now because accounting rules say they have to book them during the period a new law is enacted."

I am not an accountant - I have no idea what the actual rules are but I am assuming they are complicated.

[Bluebear]

9. Thanks...

hope you're drying off down there!

[hack89]

10. I'm in good shape - I live on high ground. nt

[anigbrowl]

12. Read your own OP

"Companies are announcing the charges now because accounting rules say they have to book them during the period a new law is enacted."

The law is a fact - it's not something that might vary depending on next year's sales or suchlike, the way taxes do. therefore, as soon as they know how much it will cost them they're required to file that information with the SEC so that it is available to investors.

[SpartanDem]

13. The reason it was removed

is that the deduction in the governments view amounted to double dipping

[hack89]

16. Let's hope that retirees don't get hurt as an un-intended consequence. nt

[rufus dog]

21. WHAT

all caps because I want you to restate that.

[Oregone]

25. It means this reform isn't as business friendly as single-payer would of been

But only friendly to the insurance lobby.

[Skink]

4. I think it means they might have to pay lower dividends and investors might dump their stock?

[Pirate Smile]

18. Here is how I heard it explained - Companies that continued providing prescription drug coverage

after the Prescription Drug Bill was passed got this deal - the government subsidized them 28% but they were also allowed to write off the full 100% in their taxes - including the 28% subsidy from the government. The HC Law gets ride of this double dip. I think they can only write off the 72% they are paying for and can no longer include the 28% which the government pays.

That was the explanation as I heard it explained the other day. I'll look for an actual explanation.


edit to add - it looks like my memory was pretty close:


AT&T said Friday that charge reflected changes to how Medicare subsidies are taxed. Companies say the health care overhaul will require them to start paying taxes next year on a subsidy they receive for retiree drug coverage.

The White House spokesman, Robert Gibbs, said Thursday that tax law closed a loophole.

Under the 2003 Medicare prescription drug program, companies that provide prescription drug benefits for retirees have been able to receive subsidies covering 28 percent of eligible costs. But they could deduct the entire amount they spent on these drug benefits — including the subsidies — from their taxable income.

The new law allows companies to only deduct the 72 percent they have spent.


http://www.nytimes.com/aponline/2010/03/26/business/AP-US-TEC-ATT-Health-Care.html?_r=1&dbk

[Nikki Stone1]

19. The race to the bronze....

We knew this was coming...

[slipslidingaway]

20. That is exactly what I think will happen as well. n/t

[Oregone]

26. Good luck trying to explain this to people. They don't want to get it

Its going to be so sad if the national average actuarial value plummets due to this reform. With it, social mobility will take a few more steps back

[ProgressiveProfessor]

29. It is pretty clear, so I wonder why Waxman says he will hold hearings on it

[leftstreet]

27. +1

[Elwood P Dowd]

28. It was a fucking republican giveaway of billions of dollars in the Medicare Drug Bill ripoff.

I feel so sorry for those scumbags!