Summary
Caterpillar Inc. (CAT) filed an 8-K on March 24, 2010, to disclose a financial impact stemming from the Patient Protection and Affordable Care Act (H.R. 3590), which was signed into law on March 23, 2010. This new legislation will reduce the tax deductibility of drug expenses reimbursed under the Medicare Part D retiree drug subsidy (RDS) program, effective in 2011. Although the tax increase is not immediate, accounting rules require Caterpillar to recognize the full impact in its financial statements in the period the Act was signed. As a result, Caterpillar will record a non-cash charge to earnings in the first quarter of 2010. This charge is estimated to be approximately $100 million after tax and reflects the anticipated increase in taxes due to the reduced deductibility of retiree drug expenses. The company notes that its previously issued 2010 Profit Outlook, based on tax laws in effect as of February 19, 2010, does not include the impact of this new Act.
Key Highlights
- 1Caterpillar Inc. is reporting a financial impact due to the Patient Protection and Affordable Care Act (H.R. 3590) signed on March 23, 2010.
- 2The Act will reduce the tax deduction for drug expenses reimbursed by the Medicare Part D retiree drug subsidy (RDS) program, starting in 2011.
- 3Caterpillar must recognize the accounting impact of this change in the period the Act was signed, even though the tax effect begins in 2011.
- 4A non-cash charge of approximately $100 million after tax will be recorded in Caterpillar's first quarter 2010 earnings.
- 5This charge represents the anticipated increase in taxes due to the change in deductibility of retiree drug expenses.
- 6Caterpillar's previously issued 2010 Profit Outlook does not include the financial impact of this new legislation.