Thursday, April 27, 2006
Interesting article in yesterday's Wall Street Journal: Alcatel Stands to Reap Tax Benefit on Merger; Lucent's Operating Losses In Wake of Tech Bubble May Allow Big Deductions, by Jesse Drucker & Sara Silver:
Alcatel SA is merging with Lucent Technologies Inc. to gain access to the vast U.S. telecommunications-equipment market. But the French company will get an added bonus from that $13.4 billion deal: It probably won't have to pay federal taxes on its new U.S. business for years. The lucrative tax savings for Alcatel stem from the wonky world of "net operating losses," a provision of the U.S. corporate-tax code that lets companies carry over tax benefits from years when they lose money to help offset taxes when they return to profit.
During the telecom meltdown that began around 2000, Lucent accumulated some $10 billion in net operating losses, but the Murray Hill, N.J., telecom-equipment maker, which returned to profit in 2003, hasn't been able to use up these credits quickly, largely because it hasn't had much taxable income. Now, thanks to projected earnings from Alcatel and likely savings from merging the two companies, the combined Alcatel-Lucent could generate $3.5 billion in U.S. tax savings from the net operating losses, or NOLs, as they are known in the bookkeeping business. The merged company will have up to 20 years to apply the deductions.