D.C.-area companies are sitting on lots of cash — but some is trapped overseas

From The Washington Business Journal:

Greater Washington companies may be sitting on tens of billions in cash — but much of it is held overseas to avoid the tax consequences of bringing it back stateside.

Publicly traded companies in the D.C. area are sitting on about $160 billion in cash, according to their Securities and Exchange Commission filings. But some of the larger companies with overseas operations won’t be bringing it home anytime soon, which means the region could be missing out on a potential economic boost.

Falls Church-based General Dynamics Corp. (NYSE: GD) has about $2.2 billion in cash and marketable securities, according to recent filings. But about $1.1 billion of that is held overseas.

“Should this cash be repatriated, it generally would be subject to U.S. federal income tax,” the company said in its SEC documents.

Meanwhile Reston-based VeriSign Inc. (NASDAQ: VRSN) has about $1.7 billion in cash, with about $1.4 billion held by overseas subsidiaries, and the company intends to indefinitely reinvest that cash outside the United States, according to filings. If the cash was brought home, the company said it would be required to accrue and pay additional taxes.

Companies could pay up to 35 percent in taxes — the top corporate rate — if they bring their cash home, but the U.S. tax code allows them to keep the money overseas in countries with lower rates, creating a disincentive to repatriate them, said Clifford Rossi, a professor of the practice at the Robert H. Smith School of Business at the University of Maryland.

If companies brought that money home, on their own or with the help of tax reforms or special breaks from Congress, it could boost company operations, worker productivity and flow through the supply chain to smaller businesses, he said.

“It could provide a fairly powerful engine of growth to get the economy growing at a faster rate than it is growing today,” Rossi said.

Not all publicly traded companies disclose the cash they are keeping overseas, but some other local companies that do include:

  • Arlington-based energy giant The AES Corp. (NYSE: AES) is sitting on about $3.3 billion in cash, and about $2.75 billion is held by overseas subsidiaries (the company operates in 17 countries).
  • Tysons-based MicroStrategy Inc. (NASDAQ: MSTR) reports $618.5 million in cash, with about $309.6 million overseas.
  • Falls Church-based Northrop Grumman Corp. (NYSE: NOC) has about $1.4 billion in cash, with about $182 million of it overseas.

For local economist Stephen Fuller, head of the Stephen S. Fuller Institute at George Mason University, any repatriated cash only adds to the local economy if companies spend them on new production facilities, make additional investments or give it to their stockholders, who then perhaps spend it.

“I think it has a positive effect, but it does depend on what the corporations do with the repatriated funds,” Fuller said. “If it were back here, ultimately it would trickle back into the economy and create demand.”

If companies did decide to reward their shareholders through dividends or stock buyback programs, it would mean the repatriated money mostly benefited wealthier people.

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