3rd UPDATE: Corporate Charges Mount For US Health-Care Bill

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 and generous pension plans are expected to follow suit.

An estimated 1,400 for-profit companies have exposure to a new tax on federal subsidies for prescription drug benefits for retirees. Since the Medicare Part D program was enacted in 2003, the federal government has been providing the tax-free payments to the companies as an incentive to maintain their drug benefit programs.

The companies receiving subsidies include Boeing Co. (BA) Verizon Communications Inc. (VX), Exelon Corp. (EXC), Citigroup Inc. (C), Duke Energy Corp. (DUK), AT&T Inc. (T) and Whirlpool Corp. (WHR), according to company filings with the U.S. Securities and Exchange Commission.

"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."

The issues yet to be resolved include when the actual tax would be start.

In the larger health-care bill bill signed by President Barack Obama Tuesday, the tax would go into effect Jan. 1, 2011. But the so-called fix-it bill accompanying the legislation and approved by the Senate Thursday would delay the start of the tax until 2013.

The subsidy covers about 28% of employers' costs for drug benefits, or an average of $665 a year for each person covered, according to calculations from benefits consultant Towers Watson. At an anticipated 35% combined state and federal tax rate, companies would pay about $233 in taxes per person covered.

Caterpillar expects to receive $20 million in drug subsidies this year, while Deere anticipates $17 million, according to regulatory filings from the companies. Caterpillar, the world's largest construction machinery manufacturer by sales, announced late Wednesday that it will take a $100 million charge to earnings this quarter to reflect the new tax. Farm equipment maker Deere followed early Thursday in announcing a $150 million charge that, like Caterpillar's, wasn't 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 that 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.

Companies are required to recognize the full impact of the tax in the period in which the law was signed. Industry analysts project the impact of Caterpillar's charge against earnings at about 16 cents a share, while Deere's charge is projected at about 35 cents a share.

Analysts surveyed by Thomson Reuters expect Caterpillar to earn 40 cents in the first quarter, excluding one-time costs, while Deere's fiscal second-quarter income is estimated at $1.04.

Caterpillar's stock on Thursday closed up 0.13%, or 8 cents, at $62.14 a share. Deere finished down 0.48%, or 29 cents, at $60.20 a share.

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

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

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