- Summary: Canadian telecommunications-equipment company Nortel Networks Corp. (NT) has been stubbornly fighting giving up nearly $4 billion in net deferred tax assets and credits, citing that it would likely again become profitable in the near future. But according to a recent report by research firm Glass, Lewis & Co., the company's string of losses in past years dating to their most recent quarter (1Q06) suggests it might need to write down the value of tax credits earned in past years to offset tax liabilities on future earnings. As of the most recent figures available, Nortel had $3.9 billion in net deferred tax assets, an amount larger than any other asset on its balance sheet and one that dwarfed its $675 million in shareholder equity. Under GAAP rules, a company is supposed to write down the value of its deferred tax assets -- or establish or increase a "valuation allowance" tied to them -- if it appears more likely that it won't be able to use some or all of them before they expire. During the last 3 years, Nortel has posted a combined pretax operating loss of $218 million. The company continued that trend in the first quarter of 2006, with a pretax operating loss of $159 million meaning that they continue to be unable to take advantage of their large tax-deferred assets.
- Comment on related stocks/ETFs: For more on the continued struggles and string of bad luck faced by Nortel, read Investopedia Advisor's July 12 post Nortel May Never Recover Its Old Glory.
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