5. D.R. Horton
> Income tax expense: -$673 million
> Earnings before taxes: $322 million
> Revenue: $4.72 billion
> 1-yr. share price change: 58.50%
> Industry: Home building
D.R. Horton Inc. (NYSE: DHI) operates in one of the sectors hardest hit by the recession — home building. The company lost $2.6 billion in 2008 and $545 million in 2009. Horton’s situation has improved substantially since then. Last completed fiscal year, the company had net income of $956 million on revenue of $4.4 billion. Donald R. Horton, chairman of the board, said when the company released results, “Our fiscal 2012 financial results reflect continued improvement in the housing market and in our company’s performance. Our fourth quarter pre-tax income of $99.2 million was our highest in 22 quarters and contributed to our fiscal 2012 pre-tax income of $242.9 million, the highest since fiscal 2006.” Horton’s tax situation was driven by “a reduction of the company’s valuation allowance for its deferred tax asset.” As such, the amount had no effect on the company’s operating performance.
> Income tax expense: -$680 million
> Earnings before taxes: -$1.65 billion
> Revenue: $6.64 billion
> 1-yr. share price change: 7.14%
> Industry: Utilities
Ameren Corp. (NYSE: AEE), the utility holding company, took huge write-downs last year on its merchant generation group, which marketed much of the power the company produced. Ameren said it would exit the business soon because the revenue it could get from power production was too low compared to the high cost of fuel. Ameren was fortunate recently to find a ready buyer in energy firm Dynergy Inc. (NYSE: DYN). Among other benefits to the company, the sale, according to Reuters, “removes $825 million in debt from Ameren’s balance sheet and will create an estimated $180 million in tax benefit.” Beyond these problems, Ameren is a relatively successful company. In 2011, the year before it took the write-offs, the company had revenue of $7.5 billion and net income of $526 million. Revenue in 2012 was $5.9 billion. Without the $2.6 billion impairment cost associated with its merchant business, the company would have been profitable again.
3. Caesars Entertainment
> Income tax expense: -$871 million
> Earnings before taxes: -$2.25 billion
> Revenue: $8.59 billion
> 1-yr. share price change: 44.72%
> Industry: Casinos and gaming
Caesars Entertainment Corp. (NASDAQ: CZR), the casino operator, is another example of a relatively successful company that decided to write off some of its mistakes as well as the damage caused to its Atlantic City operations by Hurricane Sandy. Caesars also exited its attempts to enter the Biloxi, Miss., market. As a result, Caesars “loss from continuing operations net of income taxes” was nearly $1.4 billion. Because Caesars is so highly leveraged with debt, it would have lost money anyway. Last year’s interest expense was $2.1 billion, about the same as in 2011. Caesars is not growing, so it will have a challenge even with the write-downs it took in 2012. Last year’s revenue did not grow significantly from the year before. Caesars continues to be challenged by several other gaming companies, including Wynn Resorts Ltd. (NASDAQ: WYNN) and MGM Resorts International (NYSE: MGM). Also, Caesars operations in Missouri, Indiana and Illinois have already suffered drops in sales. The one hope of expansion that Caesars anticipates is the legalization of online gambling in some of the markets in which it operates.
2. Bank of America
> Income tax expense: -$1.12 billion
> Earnings before taxes: -$3.07 billion
> Revenue: $75.17 billion
> 1-yr. share price change: 50.68%
> Industry: Financial services
Bank of America Corp.’s (NYSE: BAC) tax credits are unique, compared to other companies with large tax benefits. The bank settled a number of lawsuits with the U.S. government, most of which had to do with litigation over past home loan practices. Its 2012 settlement with the federal government over home loan foreclosure practices cost it $2.5 billion. Its settlement with Fannie Mae over troubled loans the bank sold to customers cost it $2.7 billion. Bank of America claims that these settlements put most of its problems behind it. When the firm announced full year earnings, its Chief Financial Officer Bruce Thompson said, “We addressed significant legacy issues in 2012 and our strengths are coming through.” The bank has also continued its restructuring in the wake of the 2008 financial crisis, during which it made the questionable decisions to buy broker Merrill Lynch and subprime mortgage firm Countrywide Financial.
1. General Motors
> Income tax expense: -$34.83 billion
> Earnings before taxes: -$28.70 billion
> Revenue: $152.26 billion
> 1-yr. share price change: 9.91%
> Industry: Automobile manufacturers
Unlike J.C. Penney, GM did not receive its tax benefit because of operating success. The company received an “automotive interest expense” tax credit from the government, which was related to impairment of assets and amortization. This and related write-offs mean GM may not have to pay federal taxes for several years. Absent the write-offs GM has done relatively well recently. Revenue reached $152.3 billion last year, up from $135.3 billion in 2010. GM’s greatest challenge going forward is the losses in its European operations, which are made up mostly of its Opel and Vauxhall businesses. These losses have hurt global net income, offsetting some of GM’s success in the United States and China. GM has posted red ink in Europe for 13 straight years, and the car industry there is so troubled that there is no end in sight.