Friday, March 26, 2010

3M's hit to earnings from the healthcare bill (MMM)

Well, at least return on equity will increase!  Umm, because there will be less equity to earn a return on....

From the press release:
ST. PAUL, Minn.--(BUSINESS WIRE)--3M Company (NYSE:MMM - News) said today that it expects to record a one-time non-cash charge of $85 to $90 million after tax, or approximately 12 cents per share, in the first quarter of 2010, resulting from the recently enacted Patient Protection and Affordable Care Act, including modifications made in the Health Care and Education Reconciliation Act of 2010 passed by Congress on March 25, 2010. The charge is due to a reduction in the value of the company’s deferred tax asset as a result of a change to the tax treatment of Medicare Part D reimbursements. The company’s 2010 GAAP earnings expectations, as provided in 3M’s Form 8-K dated January 28, 2010, were based on tax law in effect as of that date and therefore did not include the impact of the Act.
To be fair, we usually focus on return on tangible equity, which nets out intangibles like this.  If anything, this non-cash hit to earnings will let 3M - and thousands of other companies - pay less in taxes this year as this write-down reduces pretax earnings.  So that Healthcare Act just put us even more into the red...

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