HOUSE_OVERSIGHT_023076.jpg

repatriating companies—which accounted for 52% of the total repatriated amount— actually reduced their US workforce and decreased their R&D spending following the repatriation act. The authors of the NBER study point out that cash is fungible, and firms were able to bypass the guidelines on how repatriated cash should be used. Table 7 shows the top 15 repatriating companies following the HIA, and IRS estimates for the proportion of repatriated cash by industry are in Table 8. Table 7: Top 15 repatriating companies based on the 2004 HIA Table 8: Corporations Repatriating Dividends Under IRC Section 965, p 15 rep. ig comp. P patriating Divide Company Repatriated Amount ($bn) Selected Items, by Selected Major and Minor Industry of the Parent Pfizer 355 Corporation, Tax Years 2004-2006 Merck 15.9 Industry % of Repatriated Cash Dividends Hewlett Packard 145 Pharmaceutical and medicine manufacturing 29% Johnson & Johnson 107 Computer and electronic equipment manufacturing 19% IBM 95 Other manufacturing 8% z c, g Oy Schering-Plough 94 ood manufacturing . 6% 2 90 Other chemical manufacturing 5% Bristol Myers . Information {including software publishers} 4% Eli Lilly 8.0 Finance, insurance, real estate, rental and leasing 4% DuPont 17 Transportation equipment manufacturing 3% Pepsi Co, Inc. 74 Management of companies and enterprises 3% Intel 62 All other industries 2% Coca-Cola 6.1 Paper manufacturing 2% Altria 60 Machinery manufacturing 2% Procter & Gamble 58 Electrical equipt, appliance & component manufacturing 2% Oracle 34 Other services 2% : Basic chemical manufacturing 2% Source: Data provided by corporations in response to U.S. Senate Permanent Subcommittee on Fabricated metal product manufacturing 1% Investigations survey Retail trade 1% Wholesale trade, nonduarable goods 1% Wholesale trade, durable goods 1% Profiessional, scientific and technical services 1% Transportation and warehousing 0% Plastics and rubber products manufacturing 0% Primary metal manufacturing 0% Note: all figures are IRS estimates Source: IRS (https:/Awww.irs.gov/pub/irs-soi/O8codivdeductbul pdf} Our data for the S&P 500 similarly suggests that share repurchases saw the biggest pick-up in terms of cash use from when the HIA was passed in October 2004 through the end of 2006. Buybacks jumped over 200% over this period, where they went from 12% of operating cash flows to 33% of operating cash flow by the end of 2006. Chart 5: Capex, dividends, buybacks and M&A for the S&P 500 ex-Financials: increase from 10/31/2004-12/31/2006 and % of Operating Cash Flow during both dates 60% 250% © 50% 200% 3 2 Z 40% 2 5 150% © S 30% S [=>] — 5 0 100% gs % = oO o S 50% § = 10% § 32 .— 0% 0% * Capex Dividends Net Buybacks Acquisitions m % of OCF - 10/31/2004 (LHS) =m % of OCF - 12/31/2006 (LHS) = @ % increase (RHS) Source: FactSet, BofA Merrill Lynch US Equity & US Quant Strategy (https://www.hsgac.senate.gov/subcommittees/investigations/media/new-data-show-corporate- offshore-funds-not-trapped-abroad-nearly-half-of-so-called-offshore-funds-already-in-the-united-states) BankofAmerica <2” 8 Equity Strategy Focus Point | 29 January 2017 Merrill Lynch HOUSE_OVERSIGHT_023076