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Cash Overseas


dcollon
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I'm wondering if anyone else on the board has had discussions with any management teams regarding overseas cash.  If so, I would enjoy hearing any items of interest. 

 

I'm getting very tired of the unwillingness to bring cash back to the U.S.  I understand the tax situation, but in some of the situations I'm focused on there is really no excuse given the opportunity to buyback their stock at very attractive earnings and free cash flow yields.  Actually in one situation, the company is unwillinig to even give me a rough idea (percentage wise) of how much of their cash is actually held overseas.  They are only willing to say a "vast majority".

 

I would appreciate any other stories and/or excuses from companies that some of you may follow.

 

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Really funny that you bring this up. I was just about to post a question about this. I really don't understand the tax situation and implications. Can you give me a quick rundown? And I guess you need to put some sort of discount on the cash when looking at these companies? Thanks

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Ya its a cop out. People will pay an accountant millions to save hundreds of thousands in taxes so ......

 

I think taxes should be viewed as part of the costs to receive a return. It would have been wise to take a 10%-30% tax hit to buy stock with the remaining proceeds at a severe discount to IV but what do I know....

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I know this sounds crazy...but I think Congress eventually "get's it" and the next form of stimulus will be some form of repatriation of cash and using balance sheets that have cash (company's) vs. balance sheets that don't have cash (the US Gov.) to stimulate the government.

 

 

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I'm wondering if anyone else on the board has had discussions with any management teams regarding overseas cash.  If so, I would enjoy hearing any items of interest. 

 

I'm getting very tired of the unwillingness to bring cash back to the U.S.  I understand the tax situation, but in some of the situations I'm focused on there is really no excuse given the opportunity to buyback their stock at very attractive earnings and free cash flow yields.  Actually in one situation, the company is unwillinig to even give me a rough idea (percentage wise) of how much of their cash is actually held overseas.  They are only willing to say a "vast majority".

 

I would appreciate any other stories and/or excuses from companies that some of you may follow.

 

 

Can they borrow against the cash as collateral to carry out buybacks? I'm just wondering whether the two are incompatible as you have put it - keeping cash offshore and buybacks.

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They could borrow against the cash to buyback stock, but it doesn't solve my main frustration, which is leaving cash overseas holding out hope the government changes course.  I don't see any reason why many of these companies couldn't bring back 20, 30, 40% of overseas cash pay the tax on move on.  The remaining balance can stay outside the country and hope for better tax policy.

 

I have also seen companies buyback there stock overseas if they are trading on a foreign exchange. 

 

Shah, I hope you are right.

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Foreign cash might flow back to the US more readily if US GAAP rules treated international cash holdings as already repatriated. Corporations wouldn't have to pay an actual tax until repatriation of the cash but they would have to show a tax liability on their balance sheets (lowering retained earnings in their book value). Current rules keep cash away from productive use at home.

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Foreign cash might flow back to the US more readily if US GAAP rules treated international cash holdings as already repatriated. Corporations wouldn't have to pay an actual tax until repatriation of the cash but they would have to show a tax liability on their balance sheets (lowering retained earnings in their book value). Current rules keep cash away from productive use at home.

 

At the same time, it might also motivate some to spend overseas to show a quick boost to BV.

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All the fed need do is rescind the on-shore restrictions that underpin the Euro$ market. All of a sudden the vast majority of offshore US currency will flood on-shore & in very short order. Instant domestic inflation, material USD devaluation, & a haircut to all foreign holder of USD denominated debt. 

 

SD

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They could borrow against the cash to buyback stock, but it doesn't solve my main frustration, which is leaving cash overseas holding out hope the government changes course.  I don't see any reason why many of these companies couldn't bring back 20, 30, 40% of overseas cash pay the tax on move on.  The remaining balance can stay outside the country and hope for better tax policy.

 

Not sure whether you are looking at this from a nationalistic viewpoint (i.e. corporations should pay their fair share) or as a shareholder. As a purely capitalistic shareholder, I see no reason why a corporation should pay any more taxes than they have to. Buffett believes in the rich paying their share but he games the tax system pretty well.

 

The problem is with the tax laws, not the corporations that use every loophole they can get to their advantage.

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I have also seen companies buyback there stock overseas if they are trading on a foreign exchange.  

 

I assumed that would be treated as a taxable repatriation.  Otherwise, why aren't they all doing this?  Company can then issue shares on the US exchange.  Buy back on one, issue on the other.  Repatriated cash.  No, this must be taxable, that's too much of a scam.

 

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I have also seen companies buyback there stock overseas if they are trading on a foreign exchange.  

 

I assumed that would be treated as a taxable repatriation.  Otherwise, why aren't they all doing this?  Company can then issue shares on the US exchange.  Buy back on one, issue on the other.  Repatriated cash.  No, this must be taxable, that's too much of a scam.

 

 

I think that you are right because when the repatriated income tax was temporarily lifted in 2004, most of the money went into stock buybacks and dividends, and 15 multinationals repatriated over half of the cash.

 

 

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OEC,

 

I'm not looking at it from a Nationalistic point of view.  I'm looking at it from a capitalist point of view and as a shareholder I would rather pay the tax and have the cash back here to buyback stock in the situations I'm looking at.  It's my opinion, that the businesses are trading at a large enough discount to fair value that the tax hit would be more than made up by reducing share count at current prices. 

 

In addition, given the tendencies of management in many situations to waste cash in m&a deals I would once again rather have the cash. 

 

Obviously, this is just my opinion and I respect your view.

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I have also seen companies buyback there stock overseas if they are trading on a foreign exchange.  

 

I assumed that would be treated as a taxable repatriation.  Otherwise, why aren't they all doing this?  Company can then issue shares on the US exchange.  Buy back on one, issue on the other.  Repatriated cash.  No, this must be taxable, that's too much of a scam.

 

My guess is that they'd have to hold the shares in the subsidiary and not cancel them.

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I have also seen companies buyback there stock overseas if they are trading on a foreign exchange.  

 

I assumed that would be treated as a taxable repatriation.  Otherwise, why aren't they all doing this?  Company can then issue shares on the US exchange.  Buy back on one, issue on the other.  Repatriated cash.  No, this must be taxable, that's too much of a scam.

 

My guess is that they'd have to hold the shares in the subsidiary and not cancel them.

 

My reaction, perhaps based on ignorance, is: "so what"?  What extra benefit does cancellation bring?  None of this stops them from issuing new shares if they simply want the cash moved to the US.

 

The end result is that the non-company-subsidiary shareholders collectively control the company and divide the value of the company amongst themselves -- whether or not the subsidiary shares were cancelled.

 

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OEC,

 

I'm not looking at it from a Nationalistic point of view.  I'm looking at it from a capitalist point of view and as a shareholder I would rather pay the tax and have the cash back here to buyback stock in the situations I'm looking at.  It's my opinion, that the businesses are trading at a large enough discount to fair value that the tax hit would be more than made up by reducing share count at current prices. 

 

In addition, given the tendencies of management in many situations to waste cash in m&a deals I would once again rather have the cash. 

 

Obviously, this is just my opinion and I respect your view.

 

But I thought we agreed that they can do the buybacks without having to repatriate the cash? I agree with your point about mgmt wasting cash on bad M&A deals; but I wonder whether this is a function of the "institutional imperative" rather than the because of the offshore cash.

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Wikipedia suggests that some countries have a restriction on how much Treasury Stock can be owned by the company, as a % of total capitalization -- any idea if the US has such a restriction?:

 

http://en.wikipedia.org/wiki/Treasury_stock#Limitations_of_treasury_stock

 

That restriction would limit this idea of buying back shares on foreign exchange but not cancelling them.

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I'm not a tax expert, but here is an example of what I mentioned a few posts ago.

 

http://www.cfo.com/article.cfm/9250375?f=related

 

 

Interesting article. I wonder why we don't hear more similar stories of corporations laundering money that is subject to unrepatriated income tax. The parent could guarantee the subsidiary debt and dividend the amount borrowed.

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Whatever the number of jobs, I would put the odds of a temporary tax levy pretty high. Obama does not have a lot of cards to play, if he could get the jobs and the shareholders happy at no direct cost why would he not... That is why I won Cisco, it's a nice speculation imbedded in a nice investment.

 

BeerBaron

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Obama does not have a lot of cards to play, if he could get the jobs and the shareholders happy at no direct cost why would he not...

 

Rigid ideaology.  But I hope you are right and practicality takes hold here.

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