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Capstone Turbine approves plan to preserve tax-write off losses

Last updated: 02:15 07 May 2019 AEST, First published: 00:51 07 May 2019 AEST

taxes and pencils and calculators
A company can carry forward losses up to 20 years to reduce or eliminate income taxes when it eventually becomes profitable

Capstone Turbine Corporation (NASDAQ:CPST) on Monday announced a new plan to preserve operating losses that can used as tax write-offs in the future. 

The microturbine power company said it had as of March 31 a cumulative federal and state net operating loss carryforwards of about $657.8M and $146.6M, respectively. The losses can be utilized to offset future US federal and state taxable income.

Under US tax law, an unprofitable company can carry foward losses up to 20 years and then use those losses to reduce or eliminate income taxes when it eventually becomes profitable. 

To preserve the tax-write off assets, the Van Nuys, California-based company said it invoked a Net Operating Loss (NOL) Shareholder Rights Agreement to allows Capstone's stockholders “to realize the long-term value of their investment in Capstone.”

Dividend announced

Also, Capstone's board declared a non-taxable dividend of one preferred share purchase right for each outstanding share of its common stock, which will be paid to the stockholders of record at the close of business on May 16.

The rights will be exercisable if shareholder acquires 4.9% or more of Capstone common stock and if a holder that already owns 4.9% or more of Capstone common stock acquires additional shares (other than as a result of a dividend or a stock split).

Capstone's existing stockholders that beneficially own in excess of 4.9% of the common stock will be grandfathered in at their current ownership level. If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase Capstone common stock at a 50% discount.

Rights held by the person or group triggering the rights will be voided and not exercisable, the company said.

The rights are not taxable to Capstone stockholders. The rights will trade with Capstone's common stock and will expire on the first day after the company’s 2019 annual meeting unless the Capstone stockholders ratify the NOL Rights Plan prior to that date.

In that case, the term of the NOL Rights Plan will be extended to three years, the company said.

Capstone Turbine’s stock recently traded up 0.92% to $0.87 a share.

Contact the author: patrick@proactiveinvestors.com

Follow him on Twitter @patrickmgraham

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