Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

Corporate Capital Expenditures: Do Tax Incentives Really Matter?

• Understand current trends in U.S. Corporate Capital expenditures

• Discover how companies are leveraging technology to create strategic alignment between Finance and Tax, better manage accounting error risk exposures that impact tax liabilities, and mitigate compliance risk

• Identify opportunities to improve the level of collaboration between the office of the CFO and tax professionals at your company

After attending this event you will be able to:

Learning Objectives

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Welcome to Proformative

Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

Corporate Capital Expenditures: Do Tax Incentives Really Matter?Dean Sonderegger, Executive Director, Software Segment, Bloomberg BNALarry Martin, Former Chief Tax Officer, AOL

Dean SondereggerExecutive Director Product ManagementBloomberg BNA, Software Segment

Larry MartinCorporate Tax Expert

Tax Consulting Concepts

Who is with you Today

Introduction Key Findings

1 2 3Trends In Capital

Expenditures

72014

Investments & Spending

6 5 4

Policy InfluenceDepreciation Of Fixed Assets

Internal Errors & Audit Scrutiny

Agenda

U.S. businesses ended 2013 with more than $1.6 trillion in cash reserves, leading analysts to believe that 2014 would mark the start of a corporate spending spree.

More than halfway through the year, U.S. capital expenditures remain underwhelming, raising the question: Could the 2013 expiration of two key corporate tax breaks – bonus depreciation and Section 179 expanded expensing – be to blame? According to tax and accounting leaders at large U.S. organizations, it’s not.

Bloomberg BNA, provider of expert software for tax and accounting professionals, commissioned a study conducted by The Blackstone Group, surveying 100 tax and accounting leaders at firms with average revenues of $7.5 billion to understand how U.S. businesses’ capital investment has changed since 2008, and how tax policy changes impact financial decision making at large companies.

METHODOLOGY

Introduction

So what? While most of the business community welcomed these tax breaks, the incentives aren’t viewed as an economic stimulus.

83% of respondents feel the expiration of expanded expensing and bonus depreciations hasn’t impacted their firms’ capex this year

83%

So what? Companies will continue to hoard cash, despite other economic improvements.

37% of respondents expected their firms’ capex to increase by the end of FY2014

37%

So what? Ironically, the policies most closely aligned to CapEx don’t seem to be the ones that truly influence business decisions.

30% of respondents believe the current tax policy climate inhibits their firms’ spending habits

30%

Introduction: Key Findings

3x as many firms have grown investments compared to those who have cut back, but expenditures remain modest.

40% of respondents claim their organizations' annual capital expenditures have increased, compared to 16% that claim their firms’ capital expenditures have decreased.

Asset intensive firms, defined as organizations in which at least a quarter of all assets are fixed assets, prove more eager to invest than non-asset intensive organizations.

49% of respondents from asset intensive firms claim an increase in CapEx since 2013, compared to 29% from non-asset intensive firms.

DecreasedCapEx

IncreasedCapEx

16%40%29%49%Non-Asset intensivefirms

Asset intensivefirms

Capital Expenditures Leave Much to be Desired

According to respondents, few fluctuations are expected for the remainder of 2014.

51% of respondents expect their firms’ CapEx to stay the same, 37% expect CapEx to increase9% expect CapEx to decrease.

Same CapEx

51%9%

CapEx increase

37%

CapEx decrease 2014

U.S. tax and accounting leaders appear content with the status quo.

Only 31 percent of tax and accounting professionals feel that their firms’ CapEx should be greater than they currently stand. Just over one-third (34%) agree that their organizations have more cash on hand than normal.

31% 34%

2014 Investments: A New Normal

These findings suggest that this anemic period for corporate investment is not a passing trend, but a standard. For U.S. businesses, avoiding CapEx presents short-term benefits and long-term challenges.

“ We certainly believe that returning cash to shareholders should be a part of a balanced capital strategy…when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term results. ”

Laurence Fink, Chairman & CEO, BlackRock, Inc., March 2014

Many firms are dedicating cash to paying dividends and buying back stock, a tactic that has increased stock value for a number of businesses.

Failing to invest in new assets could hold firms back in terms of innovation, production and global competition.

PRO CON

Pros & Cons of Modest Spending

While the majority of respondents’ businesses have used incentives like bonus depreciation and expanded expensing in the past, most feel that the expiration of both has not impacted capital expenditures.

83% feel the expiration of these incentives has not impacted CapEx14% feel the expirations have impacted CapEx

CapEximpacted

83%14%CapEx notimpacted

Not surprisingly, asset intensive firms are more likely to sense a connection between tax policy and investments.

19% of asset intensive firms feel the expiration has impacted CapEx, compared to 9% of non-asset intensive firms.

9%19%Non-Asset intensivefirms

Asset intensivefirms

Firms Can Live with and without, Tax Breaks

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Corporate Capital Expenditures: Do Tax Incentives Really Matter?