When I write my annual Top 20 Pharma Companies & Top 10 Biopharma Companies report (this year’s edition is soon to post at the website of my day job), I read a lot of annual reports, along with industry analysis, news coverage, and other neat sources.
The annual reports have two parts: the glossy front half, hyping the company to the general public, and the fine-print back half, breaking down a lot of the numbers and providing SEC-mandated information (litigation issues, executive compensation, accounting policies, etc.). It took a couple of years before I started to understand a little of the subtext in the reports.
I’m still no expert with this stuff (or I’d be making a lot more money), but I do find it pretty fascinating. For example, virtually every company I profiled this year included a variation on the following:
On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (AJCA), which creates a temporary incentive for U.S. corporations to repatriate undistributed income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. Although the deduction is subject to a number of limitations and uncertainty remains as to how to interpret certain provisions of the AJCA, we believe we have the information necessary to make an informed decision on the impact of the AJCA on our repatriation plans. Based on that decision, we plan to repatriate [bazillions of dollars] . . .
The upshot of the AJCA was that foreign revenues, which were previously taxed at 38%, were now to be taxed at 5.25% for a single year, if repatriated for the purpose of “creating jobs”. Turns out that a lot of companies have been stowing away a lot of money in foreign revenues, rather than bringing it back to the U.S., where it would have been taxed to bejeesus. Pfizer has decided to bring nearly $37 billion in foreign money into the U.S. under the AJCA. I thought the numbers were pretty astounding, but I had no idea (and no time to research) how much money other major companies were repatriating.
According to this article from BusinessWeek, it turns out my industry is way out in front. In comparison with Pfizer’s enormous stash, Dell’s bringing back just $4.1 billion. Problem is, there’s no way to show that the money’s being used to create jobs. After all, if Pfizer’s R&D budget is $8 billion for 2005, according to the AJCA, they could use the repatriated money for that same R&D budget, and spend the originally budgeted money on buying solid gold rocket cars for all the top executives.
It’s a pretty ineptly named bill since, erversely enough, a bunch of companies benefiting from the American Jobs Creation Act (like Pfizer and Merck) are in the process of dismantling some of their operations and laying off a bunch of employees. Read more about it.