Published March 18, 2013
| 24/7 Wall St.
As Washington tries to find its way out of increasing debt, the debate continues over whether American companies should pay more or less in taxes. Meanwhile, some of the largest U.S. public corporations paid no taxes at all for 2012. As a matter of fact, several of America’s biggest companies received tax credits that rose into the hundreds of millions, or even billions, of dollars. Losing money or taking write-downs has become a sort of benefit for several well-known corporations.
There are several ways a company can avoid paying taxes. One is simple: The corporation loses large sums of money, and as a by-product it pays no taxes or even gets tax credits. Battered retailer J.C. Penney managed to do that last year.
These are the companies paying the least in taxes.
10. Alpha Natural Resources
> Income tax expense: -$550 million
> Earnings before taxes: -$2.99 billion
> Revenue: $6.98 billion
> 1-yr. share price change: -47.43%
> Industry: Coal and fuels
Alpha Natural Resources Inc. (NYSE: ANR), a metal and coal mining company, made the tremendous mistake of buying peer Massey Energy for $7.1 billion. One of Massey’s mines collapsed in 2010 and killed 29 miners, the worst such incident in 40 years. Alpha was left with the bill for a $210 million settlement. Prices for the kind of thermal coal that Alpha produces are also low. Natural gas is often used in the place of coal, adding to the price pressures. These factors caused Alpha to book an asset impairment charge of more than $1 billion and a goodwill write-down of $1.7 billion last year. The write-downs triggered a $2.8 billion operating loss for the year. At least Alpha got a large tax benefit of $550 million.
9. J.C. Penney
> Income tax expense: -$551 million
> Earnings before taxes: -$1.54 billion
> Revenue: $12.99 billion
> 1-yr. share price change: -58.05%
> Industry: Department stores
J.C. Penney Co. Inc. (NYSE: JCP) took an odd path to its tax status. Management ruined the company by changing its merchandising approach. This caused same-store sales to drop more than 20% last year. Revenue from Internet sales fell even more. The fourth quarter was particularly brutal. Revenue dropped 25% to $3.4 billion, and the company posted a net loss of $552 million. J.C. Penney’s worst problems began when it hired former Apple Inc. (NASDAQ: AAPL) retail chief Ron Johnson to run the company. What worked at Apple was not appropriate for a mainstream retailer, which did not have products with near infinite demand. One of J.C. Penney’s largest shareholders, Vornado Realty, dumped a large number of shares recently as it pulled support for the imploding retailer. There are persistent rumors that Johnson will be dumped.
> Income tax expense: -$569 million
> Earnings before taxes: -$2.45 billion
> Revenue: $24.86 billion
> 1-yr. share price change: N/A (Chapter 11)
> Industry: Airlines
AMR Corp., parent of American Airlines, earned much of its tax credit by filing for Chapter 11. The company should emerge from bankruptcy soon, as it merges with US Airways Group Inc. (NYSE: LCC). Most of AMR’s losses, which reached $1.1 billion in the fourth quarter, came from the write-down of the value of its planes and property and because of high jet fuel costs. AMR missed much of the consolidation that went on in the airline industry during the last round of high fuel prices, which coincided with much of the last recession. Because AMR was tardy as a consolidator, it missed out on benefits that often are supposed to to be part of airline marriage United merged with Continental, and Delta with Northwest in an attempt to lower the number of planes they operate, the number of employees they need and the number of routes they fly. A few years later, AMR is getting its merger. However, it has come too late for shareholders.
> Income tax expense: -$638 million
> Earnings before taxes: $679 million
> Revenue: $14.57 billion
> 1-yr. share price change: 22.88%
> Industry: Auto parts and equipment
Lear Corp. (NYSE: LEA), one of the largest suppliers of car parts, filed for Chapter 11 at the peak of the auto industry’s crisis, in 2009. Like General Motors (NYSE: GM) and Chrysler, it emerged from bankruptcy quickly. Lear’s restructuring worked, and it has even worked well enough to cause activist investors to seek board seats to force the company to distribute more cash. But the company’s success is relatively new. In 2010, Lear only made $461 million on $12 billion in revenue. Net income shot up last year to $1.3 billion, although some was due to a tax credits. Audit settlements helped drive the $638 million tax benefits as did valuation credits from operations in other countries.
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