Human Capital & Careers

HP Brings Home Money, but Not Jobs

The timing of Hewlett-Packard's $14.5 billion repatriation is more than a little ironic.
Stephen TaubAugust 17, 2005

Hewlett-Packard Co. is the latest business to take advantage of the American Jobs Creation Act of 2004.

HP announced that in the third and fourth quarters, it will repatriate $14.5 billion in cash from foreign earnings. As a result, it added, the company took a $988 million adjustment on an after-tax basis in the June quarter, primarily related to a tax adjustment resulting from this repatriation.

Last year’s Jobs Creation Act temporarily drops the tax rate for repatriated earnings from 35 percent to 5.25 percent. (A company would pay no tax on 85 percent, and if it were subject to the 35 percent corporate tax rate on the balance, it would effectively pay 5.25 percent on the total amount.) To qualify for this rate, however, the company must plan to reinvest the repatriated funds in certain permitted U.S. business activities. Indeed, in a conference call Wednesday, HP chief executive officer Mark Hurd told reporters that the company plans to use the $14.5 billion in cash to make “strategic acquisitions,” according to Bloomberg.

Another permitted activity, of course, would be creating new jobs in the United States; economists at J.P. Morgan Chase & Co. predicted that the tax holiday could yield as many as 600,000 such jobs. On the other hand, companies cannot spend the cash on such items as dividends, share buybacks, or executive compensation. But as CFO noted earlier this summer in “Out of Exile,” the restrictions Congress imposed on how companies can use their savings are looser than they appear. Indeed, many analysts predict that much of the money will go to the very things that aren’t allowed under the rules.

It’s more than a little ironic, then, that as Hewlett-Packard repatriates $14.5 billion, it’s in the midst of laying off 14,500 workers. HP isn’t the only company, however, to take advantage of the “Jobs Creation Act” after announcing that jobs would disappear.

Last week, Motorola Inc. announced it would repatriate $4.4 billion in foreign earnings in the second half of the year, and that it would record a third-quarter tax benefit of more than $200 million related to the repatriation. During 2004, about 1,750 employees were “separated” from the company, according to a regulatory filing; another 415 or so departed during the first half of 2005.