The Wall Street Journal - September 3, 2004

Lucent Reaches an Agreement
For Tax Refund of $816 Million

By CHRISTOPHER RHOADS
Staff Reporter of THE WALL STREET JOURNAL
September 3, 2004; Page A9

Telecommunications-equipment maker Lucent Technologies Inc. said it reached an agreement with U.S. tax authorities to receive a tax refund of $816 million.

The agreement, which is subject to an audit and approval by the congressional Joint Committee on Taxation, stems from a statute passed in March 2002 to help technology companies recover from the bursting of the technology bubble at the end of the 1990s. The bust led to massive losses, layoffs and bankruptcies.

The statute allows companies to apply losses suffered in 2001 against taxes paid on profits earned during the boom years in the 1990s. The change extended the number of years a company could apply the losses against to five years, from two years under the previous rule.

Lucent, based in Murray Hill, N.J., was among the first companies to seek compensation under the new rule. Other technology and telecom companies, such as Qwest Communications International Inc. and MCI Inc., which was formerly WorldCom Inc., also are expected to seek refunds under the statute.

"It's not finalized and there are some key hurdles to go through, but we're very pleased to get this tentative agreement," said Bill Price, a Lucent spokesman.

Lucent applied its loss in 2001 -- which reached $20 billion on a pretax basis -- against taxes paid on profit as far back as 1996, according to a research note by Ehud Geldblum, an analyst with J.P. Morgan.

Mr. Geldblum estimated Lucent eventually could receive a refund of $1 billion when interest accrued during those years is included.

While the expected tax benefit is "clearly positive for Lucent," it could also complicate the company's discussions with unions to lower retirement benefits, since workers could argue that the windfall means the benefits should be preserved, Mr. Geldblum said in his note.

Lucent said it expects to receive the payment sometime during the 2005 fiscal year. Complicating the matter somewhat is the fact that Lucent was spun off from AT&T Corp. in 1996, one of the years in which Lucent is seeking compensation. Nevertheless, any refund received by AT&T for losses applied to profits from that year -- a process called a net operating loss carryback -- would be paid to Lucent, according to a filing Lucent made with the Securities and Exchange Commission yesterday.

Nonprofit tax groups, such as Citizens for Tax Justice, have complained that the statute unfairly rewards companies for their excesses during the boom years at the expense of taxpayers.

--Nick Baker contributed to this article.

Write to Christopher Rhoads at christopher.rhoads@wsj.com