Senator Marco Rubio (R-Florida) made the news a few weeks ago for comments that seemed to slam the U.S. tax reform legislation, which he voted for at the end of 2017. “There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers,” Rubio said in an interview with The Economist. “In fact they bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.”
The legislation reduced the corporate tax rate from 35 percent to 21 percent, and it allowed companies to pay a one-time 15.5 percent tax — down from 35 percent they would have previously paid — on cash held overseas.
While this legislation doesn’t only apply to the tech companies that SDxCentral covers, several of them stood to benefit from the tax reform and the ability to repatriate their billions in overseas cash.
We selected seven companies that fit this category. Among them are companies such as Microsoft and Alphabet that say the new cash flow will not impact their strategies when it comes to investing and spending their money. Almost all of the companies will use a portion of the money to increase their stock buybacks and dividends. Some will spend more on acquisitions. A couple, including AT&T and Verizon, shared some of the boon with their employees. Apple was the only company on our list that said it would hire more workers.
Cisco repatriated $67 billion of its offshore funds as part of a plan it announced in its Q2 2018 earnings report. Cisco CFO Kelly Kramer said at the time the company planned to use the money to increase its dividend and repurchase $31 billion in shares of its own stock. In its most recent earnings call, Kramer said Cisco has $25 billion remaining for stock buybacks, which she expects the company to use in the next 18 to 21 months.
It’s unclear just how much money AT&T has overseas. But the service provider gave $1 billion in $1,000 bonuses to about 200,000 “frontline employees,” who were all union-represented, non-management, and frontline managers. An AT&T spokesperson confirmed to SDxCentral that the bonuses were paid at the end of 2017.
Additionally, in its fourth quarter earnings call with investors it said that in September 2017 it made a number of decisions “with tax reform in mind.” These decisions included $200 million in bonuses, $800 million to its employee and retiree medical trust, $100 million to its charitable foundation, and “a number of other steps,” according to the Seeking Alpha transcript of the call.
AT&T also increased its 2018 capex by $1 billion, bringing its anticipated capex spending for 2018 to $23 billion.
In addition to the stock buyback, Juniper increased its quarterly dividend by 80 percent to $0.18 a share. It also said some of the repatriated cash will be invested into the business, including possible acquisitions.
Before the 2017 tax reform bill, Microsoft had about $132 billion in overseas funds, one of the largest sums for American companies. In its Q2 2018 earnings call, CFO Amy Hood indicated that the company regularly makes acquisitions and investments without regard to tax repatriation. She also said, “Even this quarter, we returned almost all of our free cash flow generation in dividends and share repurchase.”
In 2018 the company has acquired both Avere Systems and PlayFab.
In its Q3 2018 earnings call Hood said, “We returned $6.3 billion to shareholders through dividends and share repurchases, increasing total shareholder return by 37 percent. We nearly doubled our year-over-year amount buyback, accelerating our pace from the prior quarter and now have roughly $30 billion remaining of our current $40 billion share repurchase authorization.”
Verizon stands to bring back $4 billion in overseas cash. It intends to use the cash to increase its contributions to the Verizon Foundation Fund to $300 million, a $200 million increase, over the next two years. It will also strengthen its balance sheet. And earlier this year Verizon made a $1 billion voluntary contribution to its pension plans.
Additionally, it said it would give every employee 50 shares of restricted stock at the February 1, 2018 price. A single share of Verizon closed that day at $54.30. This offer excluded management. Verizon confirmed to SDxCentral that the first half of these shares were already granted.
Alphabet paid a one-time charge of $9.9 billion for repatriating foreign earnings in Q4 of 2017, indicating that it brought back the majority of its more than $52 billion in overseas cash. However, in its fourth quarter 2017 earnings call it said that there would be “no change in our approach to our capital allocation framework.”
The company said that it will continue to focus on long-term investing, both organically and strategically; remain active with mergers and acquisitions; continue to focus on capex; and continue its current share repurchasing and return on capital strategies.
While Amazon stands to repatriate $8.6 billion in cash overseas, when SDxCentral reached out for comment on the matter, a spokesperson replied “We don’t have anything to comment on that.”
In its fourth quarter 2017 earnings call with investors Amazon Director of Investor Relations Dave Fildes did say that it “recorded a provisional tax benefit for the impact of the new tax legislation of approximately $789 million,” which was a result of the reduced corporate tax rate and remeasurement of federal net deferred tax liabilities.
Apple made statements that it planned to bring back the majority of its $252.3 billion in overseas cash as a result of the lowered tax. It noted that it would pay a $38 billion one-time payment to repatriate this sum.
With this money, Apple said it would invest $30 billion in capital expenditures in the U.S. over the next five years, spend $10 billion on building data centers in the U.S., increase its spending to U.S.-based component suppliers and manufacturers from $1 billion to $5 billion; and open a new domestic campus in a location where the company didn’t already have a presence.
The company says its push to reinvest in the U.S. economy will create 20,000 jobs over the next five years, according to Apple CEO Tim Cook in a statement.