Dow Jones Newswires | Caterpillar Inc. said it will take a $100 million charge to earnings this quarter to reflect taxes stemming from the newly enacted U.S. health-care legislation.

Deere & Co., the biggest U.S. maker of farm equipment, said
Thursday that changes to the health care law signed into law this week
will raise related costs this year by $150 million and became the
second major company in as many days to say it would take a charge for
fiscal 2010.

The world’s largest construction equipment manufacturer by sales
warned last week that provisions in the legislation would subject it to
federal income taxes on the subsidies it receives for providing
prescription drug benefits for its retirees and their spouses.

Since the Medicare Part D program was enacted in 2003, the Peoria
company and more than 3,500 others that already provided drug-benefit
expenses to retirees have received tax-free subsidies as an incentive
to maintain their drug programs.

The subsidies average $665 per person covered by a company-sponsored
prescription program, according to benefits consultant Towers Watson.

About 40,000 Caterpillar retirees receive company-sponsored drug
benefits, which are more generous than Medicare’s 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 percent 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 charge at 13 cents a share.
Analysts surveyed by Thomson Reuters expect the company to earn 40
cents, excluding one-time costs.

Both companies said it was a one-time charge as they adjust to the new level of expected taxes.

Deere and Caterpillar were among the 10 companies that sent a letter to Congressional leaders in December warning of cost increases. Others were: Boeing Co., Con-Way Inc., Exelon Corp., Navistar Inc., Verizon, Xerox Corp., Public Service Enterprise Group Inc., and Met Life Inc.

The companies say federal subsidies have covered 28 percent of the cost of retiree prescription drug coverage. The government offered the subsidies so that more companies would continue to offer coverage to retirees and keep them off of government-funded Medicare Part D.

Under the health care reforms passed this week, that subsidy will be taxed starting next year, which the companies predicted could significantly increase government health care costs because companies may drop coverage.

“Taxing the subsidy means that more companies will eliminate or reduce the coverage, and more retirees will shift to Medicare Part D, which will creare more cost for both the government and the retirees,” the companies wrote in their letter.

Deere spokesman Ken Golden said it would be premature to comment on whether this tax change will affect what benefits Deere offers to retirees in the future.

But Golden said Thursday that since the health care law has been signed, companies have to account for a known future cost.

A technical snag had lawmakers scrambling to fix the final piece of legislation Thursday, though leading Democrats say they do not expect any major problems.

Deere, based in Moline, Ill., said it expects to record most of the $150 million charge in its second quarter, and its 2010 earnings forecast of about $1.3 billion did not account for the expense hike.

Caterpillar also said the tax-law change is not reflected in its 2010 profit outlook of about $2.50 per share.

This impact was not included in the 2010 outlook for net income attributable to Deere & Company of approximately $1.3 billion disclosed in the company’s first-quarter earnings report on Feb. 17.