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, 2009
Source: 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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Why is paying taxes considered "patriotic"?
That's a strange view. Paying a 35% corporate tax rate is not "patriotic", it's highway robbery. Something tells me if the US had a more efficient and lower tax rate this wouldn't be a problem. But charging a high tax rate and calling companies "unpatriotic" for not paying it is not the way to fix the problem and brings the cash (and jobs) back to the US.
Cisco does not have a responsibility to pay taxes, it has a responsibility to generate the greatest return for its shareholders. If the US government makes that goal harder by having high taxes, that's not Cisco's fault, that's Congress' fault. Tell Sen. Dorgan that.
Mike
PS - read the Fair Tax:
http://www.fairtax.org/site/PageServer?pagename=about_faq_answers
Find section half-way down the page about repatriate funds.
Bravo for making Senator Dorgan's point!
Hi Mike,
Bravo for making Senator Dorgan's point!
According to your own link, 2nd paragraph:
"Additionally, other international investors will seek to invest here to avoid taxes on income in their own countries, thereby further spurring the growth of our own economy."
Mike, your own link to justify the reduced tax rate on repatriated funds clearly states:
"International investors will seek to invest here to avoid taxes on income in their own countries."
If international investors will be motivated by the tax break to avoid taxes in their own countries, why won't U.S. investors (i.e. Cisco and other multinational corporations) seek to invest overseas in order to avoid paying the 35% federal corporate tax rate here so that they can later repatriate the earnings of their overseas investments back to the U.S. at the deeply discounted tax rate?
Once again Mike, you have beautifully and succinctly made Senator Dorgan's point!
Finally, according to Senator Dorgan's press release:
"Hewlett-Packard repatriated $14.5 billion and laid off 14,500 workers."
Sincerely,
Brad Reese
BradReese.Com Cisco Refurbished
RE: Bravo for making Senator Dorgan's point!
Brad, What?
Are you seriously saying that if we lower the repatriation rate then companies will send jobs overseas to then funnel the dollars those employees produce back into the US at the discounted rate?
Come on! That's the silliest reason for a tax rate I've ever heard.
If the funds are repatriated into the US they will be deposited in US bank accounts. That increases the money supply which has a multiplier affect based on the velocity of funds in the economy (this is Econ 101). With more money, from private sector resources in the economy, banks can provide more loans because it is now easier for banks to meet the federal reserve ratio. Those loans are used by other companies to produce things, increasing GDP. While the funds are locked out of this country because of high tax rates they can do nothing for the US economy. This also increases the money supply which lowers interest rates (the cost of money). A double benefit.
Now, some will argue that the government can increase also the money supply and it can, but only by printing money. This leads to inflation because the money printed by the government has no intrinsic value, it's just printed.
Or, the government can spend - aka our "Economic Stimulus" plan. But these funds have to come from borrowing which adds to the federal debt.
Both of these government options come at the expense of the taxpayer. Cisco's money in private and would provide an increase to the economy without printing money or increasing the national debt.
So, maybe Congress could lower some spending, lower the repatriation tax rate, and let the private sector help us out of this mess.
Sounds very "patriotic" to me. ;-)
Mike
Explain your link's statement
Mike,
Please explain your link's statement so that I can understand it correctly:
------------------------------
"Additionally, other international investors will seek to invest here to avoid taxes on income in their own countries, thereby further spurring the growth of our own economy."
------------------------------
Are you stating that in order to build shareholder wealth it is necessary to avoid taxes on income in your own country, as stated above in your own link?
Because the above statement clearly states that international investors will seek to invest in order to avoid taxes in their own countries.
Perhaps I should think about how to present a business plan to a venture capitalist showing how the VC will get rich by investing in a company that avoids taxes!
Sincerely,
Brad Reese
BradReese.Com Cisco Refurbished
Cisco needs the money they
Cisco needs the money they floated in bonds so they can help finance deals through their resellers. Cisco is pushing very aggressive financing especially when trying to take over Nortel accounts. Cisco's plan is to become the last resort financier for deals where they can leverage their cash-on-hand against Nortel and HP.
Cisco's Nortel Knockout Targets and Northern Exposure campaign
Thanks!
Very interesting, perhaps you may be referring to the Cisco reseller channel:
Nortel Knockout Targets and Northern Exposure campaign
Sincerely,
Brad Reese
BradReese.Com Cisco Refurbished
Brad Reese twisted logic
Brad – your comments are a perfect example of taking “facts” and manipulating them around just to make a pre-determined point. Corporations have a responsibility to increase shareholder value. That’s why they exist – and when they fail to do that, the shareholders and the market punish them, often severely. They don’t have a mandate to make and manage money “patriotically.” Corporations are rewarded for the completeness of their ability and vision to increase that shareholder value. Why is paying a 35% repatriation tax patriotic? Why is being intelligent enough to not pay it unpatriotic? There is no relationship here.
You assert that all this accumulated cash is from companies that have been outsourcing their jobs overseas. Perhaps you haven’t noticed – Cisco, HP and many of the other companies you namelessly lump together actually generate a significant source of revenue by SELLING things to organizations that exist outside of the US. And generate profit from those sales. And that has nothing to do with outsourcing. So when that cash is generated, and those companies feel it makes better sense for their shareholders and overall corporate health to not skim 35% straight off the top of that, they’re now unpatriotic? Where’s the connection? I’ve looked through numerous corporate mandates (Google and their do no harm, etc.) and I’ve yet to find one that discusses patriotism over fiscal responsibility to its shareholders. In fact, many of these companies are truly global companies and do as much abroad, or nearly so, as they do in the US. So should they be similarly patriotic to all those countries they do business in? What – they can’t afford to do that? OK – then which ones should they be patriotic with? Just the ones they sell the most into? Or the ones where they employee the most people? Or the ones where there is the largest future potential market? Maybe you can help with that….
As long as we’re using the same facts to justify both sides of an argument, you pull in a quote about the top 12 repatriating companies also laying off employees. I read and re-read your note, but I failed to find where you detailed the cause and effect link(s) between those two acts. Most of the top 12 companies can be assumed to be large, fairly successful multinational companies, good at monitoring the markets they maneuver within. You’re insinuating that it’s outside of the realm of possibility that those companies happened to notice or project that there might be a market downturn and were getting in front of it? Or that they were involved in some acquisition or merger (HP and EDS???) and the layoffs were the result of eliminating corporate redundancies? You would have us make the leap that there is a direct correlation between repatriation, greed, and layoffs. In fact, you seem to have some secret data that allows you to deduce that for every $1M in repatriated money HP brought back, one employee had to go. $14.5B back, 14,500 employees gone. Amazing.
Finally, you yourself note that if companies brought their money back because of a tax break, other overseas companies would invest heavily as well. Seems to me to be a possible win-win situation. Congress reduces the rate to something more agreeable, companies pull back in their $600B-$750B in cash, overseas companies pour money in, and the government collects (reduced) taxes on that amount. Considering that $$$ is not coming back to the US right now, most people would agree that some % of $600B-$750B is a lot more than 35% of nothing. And maybe Uncle Sam wouldn’t have needed to take almost $1 trillion of my money (and yours) for a stimulus package.
But that’s still got nothing to do with patriotism – that’s just plain smart business. Who is greedy here? Companies for trying to avoid a 35% tax on the profit they’ve generated or the government for wanting to extort it out of them? Does it really matter? Seems to me there might have been a compromise out there that could have benefited everyone. Instead, this way, no one really wins.
So I’m not sure what axe you have to grind with Cisco or HP – perhaps you’re just a donor to Senator Dorgan, perhaps you hate Cisco for their stance on refurbished/gray market gear, perhaps you don’t like HP because they’re taking a bite out of your business. I’m not really sure. I don’t really care. But why don’t we start by not twisting up the facts with biased logic just to make a (political) point?
Glad you agree that my comments are facts
Glad you agree that my comments are facts (however, please keep in mind that all of my comments are documented with links to the "source" providing the information).
Regarding your statement:
Is it possible according to your statement above, that all or perhaps portions of the $4 billion borrowed by Cisco came from taxpayer bailout money to financial institutions, while Cisco has kept its $23.6 billion in cash overseas safe from the U.S. 35% federal tax rate?
I mean, is it possible that the American taxpayer is funding Cisco's borrowing of $4 billion?
Where is that $4 billion coming from? Afterall, we are in a credit crisis and that $4 billion had to come from somewhere?
Finally, if it is taxpayer bailout money that Cisco is borrowing from financial institutions while keeping its $23.6 billion in cash overseas, is that right in your opinion?
Sincerely,
Brad Reese
BradReese.Com Cisco Refurbished
LOL! Brad Reese - this is
LOL!
Brad Reese - this is the first I've read one of your posts...no wonder.
You've obviously got something against Cisco, despite you doing your best to leech off of their achievements (i.e. products and technologies).
Go build something of your own and stop whinging.
You also demonstrate incredibly low understanding of economics - macro or otherwise. The other posters have intelligently responded to your political brown-nosing, and perhaps reading and understanding their comments might look better (for you) than continuing the rant.
Enough said.
Agree, have a low understanding of economics
Absolutely agree with you.
It is because of my low understanding of economics that I personally can't figure out why Cisco did not want to pay taxes to repatriate its billions in cash overseas and instead borrowed $4 billion from a financial credit market that has received hundreds of billions in taxpayer bailout money.
Nor do I understand why Cisco sales in F3Q09 could be down 20%.
It just doesn't make any sense to me!
Sincerely,
Brad Reese
BradReese.Com Cisco Refurbished
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