Trader Talk

Pisani: AT&T Takes $1 Billion Health Care Charge


AT&T joins Deere and Caterpillar in taking a charge (in this case, $1 billion) due to the health care reform bill.

You will be hearing this from many companies. In this case, there is a charge to earnings this quarter for companies that get a 28 percent subsidy from the feds for prescription drug coverage for their Medicare retirees. That subsidy is being reduced.

The companies are required to recognize the accounting impact in the period the Act was signed, even though the tax increase doesn't take effect until next year.

As Credit Suisse noted, "the hit to earnings is recognizing the effect of a tax increase in the future and shoving it into current period results."

Some will have a greater hit than others, but in almost all cases the charge to earnings as a percentage of market cap is well below 1 percent.

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