What is the primary reason for the reported $970 million charge?

The primary reason for the charge is a change in federal tax law enacted by the Patient Protection and Affordable Care Act. This legislation eliminates the federal income tax deduction for the portion of retiree prescription drug coverage expenses that are subsidized by Medicare Part D.

Is this $970 million charge an operational expense or a cash outflow?

No, this is a one-time, non-cash tax charge. It reflects an adjustment to the value of deferred tax benefits recognized in Verizon's financial statements due to the new tax law. It does not represent an immediate cash outflow from operations.

How will this impact Verizon's financial statements for the first quarter of 2010?

Verizon expects to record this charge in its first quarter 2010 financial statements. While it will reduce reported net income for the quarter, it is a non-cash item and is not expected to affect the company's operational cash flows or its ability to fund ongoing business activities.

Does this change the company's existing retiree health benefit obligations?

No, the filing states that future anticipated retiree health care liabilities and related subsidies were already reflected in Verizon's financial statements. The change is in the tax deductibility of these expenses, not in the underlying obligation to provide the benefits.

VZ 8-K SEC Disclosure — Apr 1, 2010

Summary

Verizon Communications Inc. (VZ) filed an 8-K on April 1, 2010, to report a significant one-time, non-cash tax charge. This charge, estimated at approximately $970 million, is a direct consequence of the recently enacted Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The new legislation affects companies like Verizon that receive Medicare Part D subsidies for retiree prescription drug coverage by disallowing a federal income tax deduction for the subsidized portion of these expenses.

Key Highlights

1Verizon expects to record a non-cash tax charge of approximately $970 million in Q1 2010.
2The charge is due to changes in federal tax law stemming from the Patient Protection and Affordable Care Act.
3Specifically, the law impacts companies receiving Medicare Part D subsidies for retiree prescription drug coverage.
4The tax deduction for subsidized retiree health expenses will no longer be allowed to the extent of the subsidy.
5Future anticipated retiree health care liabilities and related subsidies were already reflected in financial statements.
6This charge is a one-time event and does not impact ongoing operational cash flows.

VERIZON COMMUNICATIONS INC 8-K Report, Corporate Update (Apr 1, 2010)

Summary

Key Highlights

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