UPDATE: Corporate Charges Mount For US Health-Care Overhaul

The corporate cost of the landmark U.S. health-care overhaul continued to mount Thursday, as companies announced special charges that will put a dent in profit expectations.

Caterpillar Inc. (CAT) and Deere & Co. (DE) announced a combined $250 million in charges against earnings in the current quarter ending March 30. Other companies with large ranks of retirees with generous pension plans are expected to follow suit.

U.S. companies from a broad swathe of industry sectors had warned in the run-up to last weekend's health vote that they faced exposure to new taxes in the legislation targeted at federal subsidies that companies receive for providing prescription drug benefits for retirees and their spouses. More than 3,500 U.S. companies extend drug coverage to their retirees, according to an estimate from Towers Watson, an employee benefits consulting firm.

"We were disappointed to learn that the tax was included in the bill," said John Calagna, a spokesman for insurance company MetLife Inc. (MET) "We're concerned about it." He said the company is still evaluating its expenses from the legislation.

The negative reactions of companies drew a rebuke from U.S. Commerce Secretary Gary Locke.

"The rules ... and a lot of the regulations on how this will affect large businesses haven't even been published yet," he said in an interview on CNBC. "So for them to come out, I think, is premature and irresponsible."

Caterpillar, the world's largest construction machinery manufacturer by sales, was one of the most vocal opponents, and announced late Wednesday that it will take a $100 million charge to earnings this quarter to reflect taxes stemming from the newly enacted U.S. health-care legislation.

Farm equipment maker Deere followed suit Thursday with a $150 million charge that, like Caterpillar's, was not included in its existing guidance. Steel maker AK Steel (AKS) said Tuesday it will record a $31 million charge against first-quarter earnings.

About 40,000 Caterpillar retirees receive company-sponsored drug benefits, which are more generous than the Medicare drug plan, which requires recipients to pay some out-of-pocket expenses.

The charge is expected to be a one-time cost, but Caterpillar argues that higher taxes and other potential cost increases related to insurance mandates in the legislation will hinder the company's recovery this year after a 75% profit plunge in 2009.

"From our point of view, a tax increase like this cannot come at a worse time," said Jim Dugan, a Caterpillar spokesman.

Although the tax doesn't take effect until 2011, the company said it is required to recognize the impact in the period in which the law was signed. Industry analysts estimate the impact of Caterpillar's charge at about 13 cents a share. Analysts surveyed by Thomson Reuters expect the company to earn 40 cents, excluding one-time costs.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(Doug Cameron and Mark Taylor contributed to this article.)

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