Eaton Corporation (ETN) announced the addition of a $25 million charge to its first quarter results due to the recently passed health care legislation. The charge in the form of a one-time income tax expense relates to the retiree drug coverage subsidy.
The new Health Care and Education Reconciliation Act of 2010 was passed by the Obama administration to fix the loopholes in previous health care legislation. The new law prohibits the businesses from writing off of deferred income tax assets as it eliminates the non-taxable nature of the retiree drug subsidy received by the company.
Although this change in income tax deductibility does not take effect until 2013, Eaton is required to recognize the charge in the first quarter of 2010 when the Act was signed into law. The company said this charge was not included in guidance for first quarter or full year 2010.
In its year-end call, Eaton had guided first quarter earnings of $0.75−$0.85 per share and full-year 2010 earnings in the range of $3.70−$4.00.
Cleveland, Ohio-based Eaton Corporation is a diversified power management company and a global technology leader in electrical components and systems for power quality, hydraulics components, aerospace fuel, and truck and automotive drivetrain and powertrain systems. The company sells its products to customers in more than 150 countries. Eaton has approximately 70,000 employees. The company’s 2009 sales were $11.9 billion.
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