By Nina Trentmann // CFO Journal WSJ
Dec 22, 2017 6:42 am ET
Good morning. AT&T Inc.’s promise to give bonuses worth $1000 to more than 200,000 employees once President Trump signs the tax overhaul might save it $28 million, writesWSJ’s Theo Francis. That however depends on Mr. Trump signing the bill before Dec. 31.
Making the payment now would let AT&T record the expense in 2017, resulting in a $70 million deduction under the current 35% tax rate. Once the new tax rate is in effect in 2018, the bonus expense would mean a $42 million deduction. Should the president sign the bill after Dec. 31, AT&T stands to lose 40% of the tax deduction it could have claimed.
Similar calculations are currently being made for other companies that have pledged tax-bill bonuses, charitable donations or other year-end expenses ahead of the changes in the tax law.
AT&T, like other large companies, is an “accrual” taxpayer, booking income and expenses for tax purposes when it is certain of them, in some cases before the cash changes hand. If the amount is fixed and the commitment is made by year end, accrual companies are on firmer ground claiming the bigger deduction.
THE DAY AHEAD
The U.S. Commerce Department releases durable goods orders, personal income data and new home sales. It also publishes its most recent consumer sentiment reading.
CFO JOURNAL EXCLUSIVE
Decline in European goodwill impairments points to stronger economy. Goodwill impairments by Stoxx Europe 600 companies fell 24% in 2016 from the year before, according to a study by Duff & Phelps LLP, a reflection of improving deal quality and stronger economic growth. European companies recorded 121 impairments worth €28.2 billion ($33.5 billion) last year, down from 146 impairments with a total value of €37.1 billion in 2015, the study found.
At the same time, strong dealmaking activity added €229 billion of goodwill to balance sheets of Stoxx Europe 600 firms in 2016. “European companies have been doing more, but better deals,” said Michael Weaver, managing director at Duff & Phelps. “This is why goodwill has gone up and impairments went down,” Mr. Weaver said.
Toys ‘R’ Us agrees to top up U.K. pension plan. Toy seller Toys ‘R’ Us Inc. Thursday agreed to top up its U.K. pension plan in a move to please creditors. The company will pay an additional £9.8 million ($13.1 million), according to a statement. Another £6 million were pledged over the course of 2019 and 2020. Toys ‘R’ Us said it intends to recover the plan’s deficit during the next ten years. It did not state what the plan’s deficit amounts to or how many employees are covered by the plan.
The company in September filed for chapter 11 bankruptcy protection in the U.S. and plans to close 26 stores in the U.K. It will cut between 500 and 800 jobs in Britain, a spokeswoman said. Creditors of the firm’s U.K. unit Thursday approved a company voluntary agreement that will allow Toys ‘R’ Us continue trading until spring 2018.
Germany’s Klöckner set to benefit from U.S. tax overhaul. Klöckner & Co. SE, a German metals trading and processing firm, said it expects to benefit from the U.S. tax rate cut to 21%. “We generate more than a third of our revenue in the U.S. and will therefore gain from the reduction in the U.S. corporate tax rate, ” said finance chief Marcus Ketter. The company in 2016 generated revenue of around €2 billion ($2.37 billion) in the U.S., Mr. Ketter said. He declined to comment on how much tax Klöckner would pay under the new tax regime.
CORPORATE NEWS
Google’s Eric Schmidt to step down. Google-parent Alphabet Inc. said Eric Schmidt will step down from his post as executive chairman in January, a sign for a generational shift at the tech giant.
Boeing confirms takeover talks with Embraer. Boeing Co. is in takeover talks with Brazilian aircraft maker Embraer SA, a move to defend the U.S. aerospace firm against recent efforts by its greatest rival to capture a larger share of the market for smaller passenger jets. The company’s pursuit fits one of the goals Chief Executive Dennis Muilenburg has set for Boeing, writes Doug Cameron.
Universal Music strikes Facebook-deal. Vivendi SA’s Universal Music Group, the world’s largest record company, licensed its music to Facebook Inc. in a deal that paves the way for a new revenue stream for an industry in the early stages of recovery from years of online piracy and other woes.
Wal-Mart suspends shoplifting punishment. Wal-Mart Stores Inc. suspended programs that require suspected shoplifters to undergo an education program for a fee. This comes as local officials question the legality of asking people for money under threat of criminal sanctions.
Nike sales rise. Nike Inc. sales climbed in its most recent quarter even as profit and revenue in its home market declined. The sportswear company recently decided to sell more directly to consumers instead of through sporting-goods chains and other intermediaries.
Xiaomi sets sights on IPO. Xiaomi Corp., once China’s top smartphone vendor, recently looked like a company past its prime. But a revival this year has brought resurgent sales at home and abroad, and now it is looking to cash in by going public.
Roche shores up cancer portfolio with Ignyta-deal. Roche Holding AG has agreed to buy U.S. cancer-therapy company Ignyta Inc. for $1.7 billion, the Swiss drug maker’s latest move to boost its oncology portfolio as its best-selling treatment faces generic competition.
Sequoia looks to raise $5 billion. Sequoia Capital is moving to raise about $5 billion for its third global growth fund, people familiar with the matter said, the latest sign of increasing ambition in the venture-capital business amid a flood of money from investors.
ADT files for IPO. Home-security company ADT Inc. has filed preliminary documents for an initial public offering, more than a year after it went private in a leveraged buyout.
Papa John’s founder to vacate CEO post. Papa John’s International Inc. founder John Schnatter is stepping down as chief executive after a tumultuous few months at the pizza chain.
REGULATION
The U.S. Treasury building in Washington, Oct. 5, 2016. THE WALL STREET JOURNAL
U.S. Treasury to allow Fannie, Freddie to retain capital buffer. Mortgage-finance firms Fannie Mae and Freddie Mac will retain some of their quarterly earnings as part of an agreement between the Trump administration and their regulator to allow the companies to build a small buffer against future operating losses.
China’s HNA faces calls for U.S. probe. U.S. lawmakers are calling for a national security panel to scrutinize investments by HNA Group Co. in the country, including possibly revoking its approval of earlier deals by the Chinese conglomerate.
TPG settles with SEC. The U.S. Securities and Exchange Commission and private-equity firm Tarrant Capital LP have agreed to a nearly $13 million settlement over TPG’s failure to adequately disclose accelerated monitoring fees associated with three of its boom-era funds.
In other news, the SEC sued Robert Shapiro, accusing the former chief executive of Woodbridge Group of Companies LLC of operating a Ponzi scheme that raised more than $1 billion from individual investors for the now-bankrupt real estate operation.
Congress passes short-term spending bill. The U.S. Congress passed a stopgap spending bill that keeps the government funded through mid-January, avoiding a looming shutdown. But, a number of thorny policy debates are set to resurface next year.
Lotte Group chairman gets suspended prison sentence. A South Korean court sentenced Lotte Group chairman Shin Dong-bin to a 20-month suspended jail sentence for breach of trust and embezzlement, reports Reuters.
ECONOMY
Credit card payments keep growing. Americans increasingly relied on credit cards to make payments in 2016, and made more of those payments remotely, according to new data the U.S. Federal Reserve released Thursday.
U.S. output slightly below estimate. U.S. output grew at a 3.2% annual rate in the third quarter, the government said Thursday. This is slightly below a prior estimate but points to economic momentum ahead of the Republican tax cut, reports CNBC.
Meanwhile, the number of Americans filing applications for new unemployment benefits rose last week, but remains near historic lows.
THE WEEKEND READER
Every weekend we select a handful of in-depth articles we think are worth a bit of your time, either because they peel back the layers on a compelling business story, or somehow make us look at business in a different light.
Ford pioneers an exoskeleton aimed at factory assembly lines. Ford Motor Co. partnered with Ekso Bionics Holdings Inc. in 2015 to develop the Ekso Vest — an exoskeleton aimed squarely at factories, where workers might be faced with injuries caused by repetitive stress, writes Fast Company Design.
How China’s surveillance state overwhelms daily life. Urumqi, a city on China’s Central Asia frontier, may be one of the most closely surveilled places on earth. The country’s efforts to snuff out a violent separatist movement by members of the Uighur ethnic group have turned the autonomous region of Xinjiang — of which Urumqi is the the capital — into a laboratory for high-tech social controls that civil-liberties activists say the government wants to roll out across the country, reports the Wall Street Journal.
How to value a subscription business. Subscription businesses are booming: There are over two thousand of these businesses capitalizing upon customers’ diverse tastes. But, while the industry is growing rapidly, it is also highly volatile. Harvard Business Review explains how investors can assess the financial value of subscription businesses.