UPS says healthcare rules no biggie…

You may remember back in March, shortly after the health care reform legislation was passed, that a small company called AT&T (T) made a big splash by announcing plans to take a $1 billion charge to cover the cost of the new regulations. Soon after, several other companies followed suit. The basic reasoning for the charges was that under reform, the government was eliminating a big tax break for providing prescription drug coverage to retirees.

So you can imagine our surprise — shock even — as we were flipping through United Parcel Services’ (UPS) recent 10-Q and came across this statement:

The enactment of the “Patient Protection and Affordable Care Act” and “The Health Care and Education Reconciliation Act of 2010” in 2010 will bring significant changes to the U.S. health care system. The legislation eliminated the tax deductibility of Medicare Part D subsidies for retiree prescription drug coverage; however, this impact was not material to our financial results.

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Whoa, Bessie, we thought. How could a company like AT&T need to take a $1 billion charge and a company like UPS deem the very same reform not material? While the two companies are by no means identical, there certainly are enough similarities in their workforce: both have large groups of retirees who were represented by unions.

We’re not calling AT&T a liar here — at least not as long as our Iphone is still under contract — though we did debunk the charges in a footnotedPro post back on April 1. But it does seem a bit odd that the very same legislation would result in a $1 billion charge at one company and not be material at the other.

Image source: Davies & Starr

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Posted in Buried treasure Tags: 10Qs, health reform, new disclosures

6 Comments »

6 Responses to “UPS says healthcare rules no biggie…”

1. Brendan Says:
   August 17th, 2010 at 2:38 pm

   AT&T’s deferred income tax liabilities are 18times the size of those at UPS. So when the healthcare bill passed, AT&T had a larger writedown than UPS did.

   http://www.sec.gov/Archives/edgar/data/732717/000073271710000074/att2q10.htm

2. Not so fast... Says:
   August 17th, 2010 at 6:30 pm

   Correct. It all depends how retiree medical is structured, funded, etc. at each company. I wouldn’t be so quick to call AT&T liars. No company takes a $1 billion writedown just for convenience sake, and certainly note merely to make some sort of political statement. Even the members of Congress who attacked AT&T and other companies eventually withdrew their threats of hauling them before Congress for a dressing-down.

3. InvestmentPal Says:
   August 17th, 2010 at 7:40 pm

   Verizon too has taken a $1bn charge. “Hotline On Call” has a list of companies which has taken similar charges:
   - AT&T: $1B
   - Verizon: $970M
   - John Deere: $150M
   - Boeing: $150M
   - Prudential: $100M
   - Caterpillar: $100M

4. Michelle Leder Says:
   August 17th, 2010 at 9:31 pm

   So maybe I am being a wee bit too cynical here. But it did seem awfully strange that within days of the legislation passing, and long before any real rules were promulgated, that AT&T announced a $1 billion charge. As the Church Lady used to say: “How convenient!”

5. Bot so fast... Says:
   August 18th, 2010 at 10:09 am

   My guess is that they had been following the legislation closely but couldn’t take the charge until the bill actually became a law because these things can always change at the last minute. Once Bill became Law (see “Schoolhouse Rock–I’m Just A Bill”), they were pretty much required to do it. Would be interesting to see if any of these companies signaled in earlier filings that some kind of charge may be coming should the legislation pass.

6. Flee Says:
   August 18th, 2010 at 11:38 am

   I suspect ATT read the bill and knew how it would apply to their situation long before it became final. This is common sense and due diligence and what their legal and tax depts are supposed to do. Unfortunately Congress does not perform the same kind of due diligence as evidenced by Mr. Waxman’s utter surprise at the actions of ATT and others. The legislators were only familiary with the provisions of the bill rather than the consequences.