Is Cisco short of cash in the U.S.?

By Brad Reese on Mon, 02/16/09 - 5:36pm.

Last week BusinessWeek reported that Cisco will spend $500 million this Friday (Feb. 20, 2009) to pay off debt related to its 2005 purchase of Scientific Atlanta.

According to BusinessWeek:

"That would leave the company with just $2.7 billion stateside—not much for a company that bought back $10 billion of its own chronically range-bound stock in fiscal 2008. Indeed, the company purchased just $600 million of its shares in the quarter that ended on Jan. 31, compared to an average repurchase of $2.7 billion worth of stock in the previous eight quarters."

Cisco's most recent financial report as viewed below is showing $29.5 billion in cash, cash equivalents and investments, but keep in mind that $26.3 billion of this amount is held overseas.

Cisco Cash (in millions) as of Jan. 24, 2009Source: U.S. Securities and Exchange Commission

During the recent Cisco F2Q09 earnings call, Cisco CFO - Frank Calderoni described Cisco's cash position:

"The total cash, cash equivalents and investments at the end of Q2 was $29.5 billion up from $2.8 billion in Q1 fiscal year 2009.

"Of this total balance, $3.2 billion was held within the United States."

Obviously, $26.3 billion (i.e. 89%) of Cisco's cash is held overseas.

Amazingly, during the same earnings call, Cisco CEO John Chambers blasted the U.S. Senate vote on repatriation:

"Unfortunately the repatriation decision was turned down in the Senate last night.

"That would have been a great chance to see an additional $600-750 billion brought back to the U.S. and put into the market which is almost the size of the stimulus package, but I understand the decisions on the politics side and we will move on from that, but that probably should not be part of your analysis in terms of cash availability for me or other players."

In BusinessWeek's report, JMP Securities analyst Sam Wilson gave his take on what Chambers meant during the earnings call with regard to the U.S. Senate repatriation decision and Cisco's $26.3 billion in cash held overseas:

"Cisco made very clear that it wouldn’t repatriate a penny."

Without a doubt yours truly was puzzled as to why Cisco CEO John Chambers appeared to be making the unpatriotic decision of not repatriating Cisco's $26.3 billion in cash back to the U.S.

The answer? Perhaps good old-fashioned greed!

According to a press release from U.S. Senator Byron Dorgan, multinational corporations have been lobbying to get a tax benefit into the stimulus bill to move their money back to the United States at a deeply discounted tax rate:

"The lobbying effort is advocating a repeat of what was specified in 2004 as a one-time only tax break for corporations with funds offshore, when the American Jobs Creation Act of 2004 provided a one-year repatriation tax holiday that reduced the 35% federal tax rate that U.S. companies normally owe on their foreign earnings to just 5.25%."

According to Sen. Byron Dorgan, D-ND:

"There’s another phrase for repatriation – it’s called rewarding the outsourcing of jobs. If we allow U.S. corporations to once again send the money they earn abroad back to the U.S. at a discounted tax rate, it will only lead to more companies moving their profits offshore. The goal is to strengthen our economy with tax policies and investments that will create jobs here. That won’t happen with a tax policy that rewards the outsourcing of U.S. jobs."

Interestingly, Senator Dorgan's press release also noted:

"While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment.

"Instead, as the CRS (Congressional Research Service) analysis shows, the top repatriating corporations closed down facilities and made massive job cuts.

"Another study found that many corporations who benefited from this tax break used the money to repurchase their own stock, which had no impact on job creation."

Not surprisingly, less then a week after the U.S. Senate voted against a deeply discounted tax rate for multinational corporations who repatriate cash back to the U.S., Cisco made the highly unusual announcement that it was offering $4 billion of senior unsecured debt in order to raise cash for general corporate purposes, even though Cisco already had $26.3 billion in cash located overseas.

Note: Cisco did not respond to a request for comment.

Related stories:

HP Brings Home Money, but Not Jobs

Jobs Creation Act: What's in a name?

Ford Takes a Tax Holiday for 'Jobs Creation'

Congress passes stimulus bill with billions for broadband, electronic health records

Is Cisco unpatriotic for refusing to repatriate its cash back to the U.S. at the 35% federal tax rate?

Furthermore, with regard to the ongoing government bailouts of corporations, yours truly is wondering how many billions in taxpayer money has gone or is slated to go to multinational corporations that have $750 billion in cash located overseas and are refusing to bring that cash back to the U.S. in order to avoid paying the 35% federal tax rate?

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