The recent health care reform bill has shown its impact on corporate tax structure this Thursday when Verizon Communications Inc. a phone company announced it will record a related $970 million non-cash charge in the first quarter.
Verizon has joined 15 other corporate big-wigs who have disclosed nearly $2.8 billion in charges prompted by the health care overhaul. Verizon comes second largest after AT&T which last week announced a $1 billion charge related to the tax bill.
These companies currently receive a government subsidy to keep prescription drug benefits for retirees. Under prior law, those subsidies were tax-exempt. But this ends in 2013 after this new law. The announcements need to be made now well in advance because accounting rules say they have to book them during the period a new law is enacted. The costs may reduce corporate profits by as much as $14 billion as companies account for the impact of the health-care reforms.
35% of the 223,000 Verizon workers are represented by unions including the Communication Workers of America. “We’ll continue to negotiate with the companies on these issues,” said Candice Johnson, a spokeswoman for the Communications Workers of America. Verizon however said this new law “may have significant implications for both retirees and employers.”
Jonathan Schildkraut, an analyst at Jefferies & Co. in New York said, “While it is a non-cash charge, it does reflect real value destruction, based on expected cash flows over the life of the company.” He goes on to advise investors to buy Verizon shares though he does not own any himself. In spite of a hole in the profits Schildkraut said this will not affect the company’s strength against rivals.
“This bill doesn’t make Verizon any less well positioned vis-à-vis cable competitors or AT&T,” he said. “It doesn’t make AT&T any less well positioned.”
Verizon rose 26 cents to $31.28 at 4 p.m. in New York Stock Exchange composite trading. In the after hours trading the stocks further rose by 2 cents. The stock had dropped 5.6 percent this year.