Skip to comments.Cat, others criticized by Obama administration for cost estimates
Posted on 03/27/2010 11:46:27 AM PDT by Attention Surplus Disorder
PEORIA - Caterpillar Inc. and other large companies are being criticized by the Obama administration for reporting now that they will take millions of dollars in hits to their earnings because of one portion of the new health care legislation.
Caterpillar and Deere were accused of being premature and irresponsible by U.S. Secretary of Commerce Gary Locke for saying a change to Medicare Part D laws would hurt their earnings in the present quarter.
Those companies are also being questioned about the amounts they are claiming amounts that seem to get larger with every company that makes a report to the U.S. Securities and Exchange Commission about taking a one-time charge as a result of the legislation.
Caterpillar started it all by saying it would take a $100 million hit on its first quarter earnings. Deere & Co. followed with a report it would lose $150 million to its fiscal second quarter earnings.
The largest estimated hit yet, $1 billion, was announced Friday by AT&T.
At issue is what kind of hit corporate America will take because it is losing a tax deduction from Medicare Part D. Before, companies were paid subsidies of $1,330 a year, tax-free, for every retiree for whom it provided a prescription drug plan. Then, that amount could be deducted from the companys taxes.
The new law still provides the subsidy tax free, but companies will no longer be able to deduct it from taxes.
Also on Friday the Wall Street Journal said in a published report that it calculates Caterpillars loss would be more like $7 million, based on the fact Caterpillar told the SEC it expected to receive about $20 million annually from the tax deduction and the 35 percent corporate tax rate that would now be applied to that deduction amount.
But Caterpillar on Friday defended itself, reiterating its belief it must, under accepted accounting rules and regulations, record any one-time tax charge in the quarter in which the legislation causing that charge is signed.
The $100 million, said Caterpillar spokesman Jim Dugan, is our calculation of what that change in Medicare Part D will mean to the company.
Dugan was pressed for further explanation of how the calculation was made, including whether the $100 million was an estimate of what the change will cost Caterpillar in perpetuity since it can only be charged once.
He said further details will be included in Caterpillars first quarter earnings report, which will be released April 26.
On the time of the filing, Dugan said, We felt it was very appropriate and prudent to file the disclosure with the SEC immediately. We tend to take a conservative approach to SEC filings.
Dugan declined to comment on the statement of Commerce Secretary Locke, which he made in a live interview Thursday on CNBC.
He also declined to say anything more about a telephone call made Thursday from the White House to Vice Chairman Doug Oberhelman, which Oberhelman revealed while speaking to the Morton Rotary Club later on Thursday.
While he acknowledged the call was regarding the health care legislation, Oberhelman would not say from it it came or what was said. He did describe the call as productive.
Paul Gordon can be reached at 686-3288 or email@example.com
Copyright 2010 pjstar.com. Some rights reserved
What are you going to do about it obama, take them over and send the board of directors to the salt mines?
Oh boy, here we go. Another parade in front of Congress, grilling CEO’s - Americans are going to boil over if the Democrats keep demonizing everyone that speaks out against them.
Now that is just funny!
Can CAT and other huge businesses survive the FASCIST onslaught of the Obama administration?
And now we learn that Henry ‘nostrilitis’ Waxman is going to haul these CEO’s in front of his committee to answer for these slanders against ObamaCare.
These are thugs in the White House.
What are you going to do about it obama, take them over and send the board of directors to the salt mines?
Can’t say or do anything before they bring in the clowns........paethetic!
I think the real question goes the other way. Obama and the Dems have starting to poke sharp sticks at the Big Dogs now. And, conveniently, the USSC just overturned McCain-Feingold.
Companies have been paying tribute of one kind or another to the left and the Dems for decades. It's always made things more expensive for them, but only incrementally. So although the cumulative cost has been huge, the individual components didn't seem to cost that much.
Until now. Combine these health care costs, the Cap&Trade proposals, and the utterly insane deficits, and you've got a set of circumstances that even the Big Dogs can't ignore.
Which is why all of these big companies have started trotting out such large numbers for what Obamacare is costing them. They're going to push back now, and hard.
So the question is: can the Obama administration survive the political consequences of what they're doing to CAT and other huge businesses?
Yes they can, CLOSE YOUR DOORS, FIRE EVERYBODY, Liquidate all Buildings and other assets, with the exception of those REQUIRED to build Equipment (force any newcomer to MAKE THEIR OWN) and Give nice Severance packages to all Ex-Employees, Move your company to another State that did not Vote for Obamacare. Bankrupt every Blue State, let them waller in their welfare class. This can be done, but will anyone have the Balls to do it?
WE NEED CEO’S LIKE HOWARD HUGHES to stand up to congress.
I have never read about a company later stating that its write downs were less than originally estimated. On the other hand, I have read where companies had to revise their write off to a higher level. That said, given the pressure Wall Street puts on companies to be profitable, I expect any "correction" to revise the write offs will be upward, not downward.
Wouldn’t it be criminal to withhold this kind of information from their investors and future investors? Is Barry asking them to “lie by omission”?
This is beyond insane. Now they want to force companies to lie and hide the disastrous impact of Obamacare on them.
Not asking but forcing them to lie.
I know I’m preaching to the choir, but can’t they get into really big trouble if they were to “not disclose” something that will impact the company?
“Wouldnt it be criminal to withhold this kind of information from their investors and future investors? Is Barry asking them to lie by omission?”
Absolutely and unequivocably. SEC regs compel listed companies (eg; those who have issued publicly-traded stock) to make public any information *as soon as they become aware of it* which may affect or influence their financial results.
As if National Socialist Healthcare isn’t bad enough, Hussein just appointed a rabid ACLU type to a recess appointment to the NLRB. He will impose card check, which couldn’t get through the most radical Congress in history.
There are no laws under Obama now except the laws that favor him politically. The man has crossed all the boundaries allowed under our Constitution.
Careful, guys! Bureaucrats from OSHA, IRS, and other alphabet agencies will show up at your door and say, “We’re from the government and we are here to inspect you!”
Criticism from an Obama Chicago mob group that has already spent the country into a bankrupt state we won’t recover from until
we start drilling for oil and gas. Then, we can sell to the Chinese instead of buying from them.
He took the oath to PROTECT the Constitution. He’s giving the finger to it.
The founding Fathers could run circles around little Barry. His intellect could fit into one of their little fingers.
We have NO state Income Tax in TN, living cost are lower, just stay the H out of Memphis!. Although Nike just built a big facility here last year out in Frayser a burg of Memphis.
They can well fund any Conservative candidate, cut off the flow of money to the demonrats. LOL
Can’t Barry be prosecuted for “coercion”?
“I have never read about a company later stating that its write downs were less than originally estimated.”
Without being able to give you specific examples, it has definitely happened. And, I’d suggest that underestimating adverse impacts vs overestimating isn’t anything like 100:1 in occurrence. Probably not even 10:1. It is largely a matter of corporate ethics and standards. Some companies are conservative in their estimates just as a matter of culture. Of course, the litigation aspects of underestimating impacts of adverse events can be pretty steep. CAT, DE, and T have been around for many, many years, and maybe their conservative ways of running their companies has something to do with that.
Also, consider two generic examples: CAT, I am 100% sure, has a precisely calculated line item in their financials that is based upon a tax advantage based upon existing law. Good, bad, or indifferent, it is there and they’ve been running their biz on the basis of said existing law for years. One day, their corporate attorneys and accountants read newly-enacted law, confer, and believe they will lose said tax advantage. Unless you or I or someone else thinks CAT is being run like Bernie Madoff’s ponzi scheme, where’s the argument?
On the other hand, suppose news comes out as to adverse effects from Vioxx, a drug made by Merck. Or, gas pedals and sudden acceleration issues with Toyotas. You know and I know that a litigation feeding frenzy will result and potentially thousands of cases will be brought. Neither Merck nor Toyota have any practical way of estimating what the impact of all those lawsuits will be over the next several years from the orig date of occurrence. They can state their inability to accurately predict the impact(s). They would be in serious hot water, however, if they made a lowball allowance and badly exceeded it. It’s in these cos’ interests, IMHO, to *overstate* the potential of their current snafus. Wall St. adores “less bad” news, at least lately.
Now if you were to say that *government* cost estimates rarely if ever come in under budget, you’d have my unqualified agreement.
That’s the gilded question: What higher authority exists to bring charges against and prosecute the chief executive?
Congress? Don’t make me laugh!
It’s coarsely analagous with the situation with the Pope and allegations that he covered up accusations of molestation against some Bishop somewhere. Who brings up the Pope on charges? SuperPope?
Get ready for a call from Tax-Cheat-Timmy.
Cat didn't even speak out against Obamanunism, they just reported the elimination of tax exemptions. Think what Zero would have done if anyone dared to exercise their free speech rights!
Thanks for your analysis. I find no holes in it. In the end, however, the results will be what they will be, regardless of what the initial estimates were. As a project manager, I learned you could slip your schedule once; you would be forgiven if your next estimate came in as re-promised and re-budgeted. I suspect most corporations have also learned this lesson, especially as it relates to Wall Street and perceived value.
At least they'll have nice tools down there.
Time for Barry to take his marbles and go home. You are probably correct, he’s King now.
What incentive would they have to understate their earnings? They don’t get a tax deduction for these charges.
CAT and Deere headquarters are located in both around the same area in Illinois, Obama’s own state, its going to hurt the economy big time. I know because I grew up in Knox county Illinois smack dab in the middle of Peoria and Moline, a lot of my friends were employed by either company.
*No* company has or should have an incentive to over or understate their earnings in filed financial statements; That would be a black-letter law violation.
*Some* companies habitually understate *estimates* of earnings pre-filing in order to give their stock a cachet of “upside surpise” potential. Cisco has probably beaten estimates by one penny in maybe 70 of the last 80 earnings announcements/filings. Estimates are not statuatorially regulated in the same way as actually-filed financial statements. IBM has generally reported roughly flat earnings for the past say seven years but somehow always manages to come out with a “beat” from currency offsets/gains/adjustments.
In the case of CAT, and I am not the world’s expert on this, my understanding is that under prior law, certain of their medically-related costs for retirees were subsidized by the gov’t, under the theory that CAT’s providing some benefit relieved the gov’t of having to provide same. Again, don’t take my analysis verbatim, but I believe I have the gist correct. Now, that subsidy is removed, yet CAT is contracturally obligated to continue providing it to their retirees. So, measured from before to after passage of the HC bill, they have in essence and in fact a brand new cost they have to shoulder.
So, at least as I understand it, it is not a tax deduction that went away, nor a tax treatment that has changed, it is by virtue of a loss of a subsidy a brand new burden that fell out of the sky that they suddenly have to pay for.
If Caterpillar isn’t careful, Obama and Geitner will take over their company with Stimulus Fund money.
Insurance executive, tobacco executives, equipment executives. They should all just go on the attack and not give an inch.
But we all live in fear of our government, don't we?
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