economic_stimulus_package_igf_and_agilysys_june_2008.ppt

IBM Global Financing, Americas

© 2006 IBM Corporation1IBM & IGF do not, nor do they intend to, offer or provide tax or accounting advice to clients. Clients should consult with their own financial and legal advisors. Any tax or accounting treatment decisions made by or on behalf of the

client are the sole responsibility of the client.

Leveraging the Economic Stimulus Package

Presented by IBM Global Financingand Agilysys, Inc.

June 17, 2008




IBM & IGF do not, nor do they intend to, offer or provide tax or accounting advice to clients. Clients should consult with

their own financial and legal advisors. Any tax or accounting treatment decisions made by or on behalf of the client are the

sole responsibility of the client.

NOTE: All financial examples are for illustration onlyThey do not constitute an offer to finance for a particular

customer




2008 Economic Stimulus Bill

Provides substantial tax advantages for businesses that acquire capital goods and put them into service in 2008

– Signed February 13th, 2008– Similar to the 2004 “ERTA” (Economic Recovery Tax Act) amendment– Taxable US clients may benefit from “bonus depreciation” – Small Businesses receive additional tax benefit if they spend less than

$1,050,000 in Capital Expenditures in 2008

Accelerated, or “bonus” depreciation is a positive after-tax benefit on new equipment and software purchased in 2008

– 60% depreciation in first year on hardware rather than the usual 20% maximum (effectively an additional 40%)

– An additional 50% first year depreciation on software

By claiming additional or “bonus” depreciation in 2008, clients may reduce their taxable income, therefore reducing taxes to be paid in 2008

– Note that this “reverses out” in later years; this is a tax timing benefit




Accelerated Depreciation Benefits - Hardware

Accelerated DepreciationDoes not impact Accounting Books

For Tax Purposes Only

Assumptions:Purchase: $1,000,000Put in Use 9/1/2008Client Tax Rate 35%

ESP Depr 2008 $600,000Standard Depr 2008 $200,000Additional Depr $400,000 x Tax Rate x 35%Tax Benefit $140,000

Standard Depreciation under MACRSAcquisition year - MACRS 20%Depr 2008 $200,000

Under ESPDepr Bonus under ESP 40%Acquisition year - MACRS 20%Depr 2008 $600,000




Accelerated Depreciation Benefits -Software

Accelerated DepreciationDoes not impact Accounting Books

For Tax Purposes Only

Assumptions:Purchase: $1,000,000Put in Use 9/1/2008Client Tax Rate 35%

ESP Depr 2008 $555,556Standard Depr 2008 $111,111Additional Depr $444,444 x Tax Rate x 35%Tax Benefit $155,556

Standard Depreciation - 36 month straight lineProrated for calendar year 4/36Depr 2008 $111,111 11.1% of the purchase

Depreciation Under ESPDepr Bonus under ESP 50%Proration of remaining 50% 4/36 (4/36 * 50% = 5.5555%)Depr 2008 $555,556 55.5% of the purchase




Agilysys and IGF can help you leverage ESP tax benefits and facilitate key I/T projects

Overcome budget or cash constraints in 2008 on both hardware and software acquisitions

Accelerate planned technology refreshes while managing remaining book values

Maximize on the Small Business Incentive by balancing capital expenditures with “true” leases

Provide affordable “true” lease options where accelerated depreciation has limited or no value




Overcome budget or cash constraints in 2008on hardware acquisitions

Financing options and deferrals to match budget Tax benefit may actually “generate cash” in 2008

Assumptions:Purchase: $1,000,000Planned in Use 3/1/2009Accelerated Plan 9/1/2008Client Tax Rate 35% 60 month term, IGF Low Rate Financing

Purchase in 1Q2009 2008 2009Put in Use by 3/1/09Purchase of HW (1,000,000)$ Tax Benefit of Depreciation 70,000$ Net Cash Impact -$ (930,000)$

Purchase in 3Q08 2008 2009Put in Use by 9/1/08Purchase of HW (1,000,000)$ Tax Benefit of Depreciation 210,000$ 56,000$ Net Cash Impact (790,000)$ 56,000$

Finance 3Q08 Acquisition 2008 2009Put in Use by 9/1/09, FPO lease or loanMonthly Financing Payments (77,843)$ (233,529)$ Tax Benefit of Depreciation 210,000$ 56,000$ Net Cash Impact 132,157$ (177,529)$

Finance with Deferral 2008 2009Put in Use 9/1/09, 4 mo deferral-FPO lease or loanMonthly Financing Payments -$ (255,174)$ Tax Benefit of Depreciation 210,000$ 56,000$ Net Cash Impact 210,000$ (199,174)$




Accelerate Software Acquisitions and/or Timing on Roll-out of Software Tax depreciation benefit combined with IGF financing option allows acquisition six

months earlier with minimal or no impact to current period cash or to the Net Present Value of the total project cash streams

Assumes $1,000,000 purchase price, 36 month term, IGF Low Rate Financing, Subject to credit approval, Client tax rate 35%, client IBR for NPV analysis is 9%

Purchase in 1Q2009 2008 2009 2010 2011 2012 TotalPurchase of SW (1,000,000)$ (1,000,000)$ Tax Benefit of Depreciation 87,500$ 116,667$ 116,667$ 29,167$ 350,000$ Net Cash Impact -$ (912,500)$ 116,667$ 116,667$ 29,167$ (650,000)$ NPV @9% (576,339)$

Purchase in 3Q2008 2008 2009 2010 2011 2012 TotalPurchase of SW (1,000,000)$ (1,000,000)$ Tax Benefit of Depreciation 194,444$ 58,333$ 58,333$ 38,889$ 350,000$ Net Cash Impact (805,556)$ 58,333$ 58,333$ 38,889$ -$ (650,000)$ NPV @9% (617,350)$

Finance in 3Q2008 2008 2009 2010 2011 2012 TotalFinancing Payments (122,792)$ (368,376)$ (368,376)$ (245,584)$ (1,105,129)$ Tax Benefit of Depreciation 194,444$ 58,333$ 58,333$ 38,889$ 350,000$ Net Cash Impact 71,652$ (310,043)$ (310,043)$ (206,695)$ -$ (755,129)$ NPV @9% (581,059)$




Accelerate Hardware acquisition while managing remaining book value on existing assets




Maximize Small Business Incentive for 2008 Additional tax write-off for clients spending less than $1,050,000 in Total

Capital Expenditures in 2008

$250,000 additional write-off in current year if <$800,000, on a sliding scale, write-off declines to $0 as total expenditure reaches $1,050,000

Provides even greater depreciation write-off in current year (up to 73%)

Clients can use IGF “true leases” on hardware to balance total capital and expense to maximize tax benefits available to small business

Expense CapitalPurchases

Expense

DDoes not qualify

for added incentive

CapitalPurchases

Qualifies for added incentiveMaximizes up-front write-off

Minimizes use of cashCash $0K

Cash $1,400K

IGF True Leases $600K

IGF SW Loan $600KCash $200K

Planned Capital Purchases:Hardware $ 600KSoftware $ 600KOther Capital $ 200KTotal $1,400K




Accelerated Depreciation may have limited value

Lower Depreciation / Higher Taxes in future years

Alternative Minimum Tax (AMT) status may limit deductions

Exempt from Federal Taxes

Already generating Book Losses for tax purposes

Prefer Fair Market Value leasing

– Financial, technological, asset management considerations

You can still find value in the ESP through IGF….




IGF Economic Stimulus Advantage Offering

$272K

POWER6- 570

Lease payment without ESA $6,822/mo for 36 pmts

Lease payment with ESA pricing $6,726/mo for 36 pmts

OR

Lease payment with ESA deferral $0.00 for 3 pmts

$6,822/mo for 36 pmts* Example for illustrative purposes only, rate reduction is $0.35/$1K financed for 2Q/08; Lease example represents FMV lease for 36 mths; best credit customer. Assumes Q2 installation. Actual financing rates based on customer’s credit rating, financing terms, offering type, equipment type and options. Note that deferral results in 39 month total term. Other restrictions may apply.

I/T Hardware acquired on a “true” lease qualifies for IGF ESA offering (IBM and non-IBM hardware) IGF retains the rights to tax benefits on hardware Client receives lower rate or a free 3 month deferral

–Reduction to lease rate in 2Q08 is ~ $.35/$1000 financed–Rate reduction is over entire lease term–Offering expires 12/31/08




Advantages of fair market value leasing

$271,774

$225,634

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

POWER6 570 Purchase POWER6 570 Lease

17% savings over purchase

PV of lease payments

New monthly payment is 5%

lower than original lease

payment

Est

. mon

thly

pay

men

t ($)

Lease Term (Months)

Initial 36mo Lease

12 4836

POWER5+ 570

$6,079 / month*

24 60

Technology Upgrade

New Base Lease

36mo

POWER6 570 MES Upgrade

$6,378 / month*

FMV leasing reduces total cost of ownership Pay for portion of asset used (IGF takes residual value position) Transfers risk of obsolescence IGF also assumes cost and risk of disposal

FMV leasing facilitates timely technology refresh, end of lease or mid-lease Increases flexibility Eliminates book loss issues




Suggested Actions

Understand the leverage in the Economic Stimulus Package

Utilize the tax benefits of bonus depreciation to generate incremental cash in 2008 to fund additional I/T investment

Analyze the benefits of accelerating I/T projects planned for 2009, use financing to achieve the maximum benefit

Leverage fair market value leasing to reduce your total cost of ownership, address budget challenges, shift technology risk, and mitigate disposal obstacles

Take advantage of IGF’s ESA offering – lower rates or free 3 month deferral - on true leases accepted by December 31, 2008

Engage Agilysys Financial Solutions and IGF to help develop financial options to fund your information technology needs




Financial Solution Resources

Agilysys Financial Solutions

John O’Brien, Director of Financial Solutions [email protected], 732-692-1968

Michelina Di Sibio, Financial Solution Manager Northeast [email protected], 440-519-7680

Bill Murray, Financial Solution Manager Southeast [email protected], 888-833-2106 X5250

Nick Tocci, Financial Solution Manager Central and West [email protected], 440-519-8414

IBM Global Financing

Financial consulting resources available by geography in partnership with Agilysys Financial Solutions Organization

Graham Butler, Financial Client Executive for Agilysys [email protected], 770-863-2312

Jim Goldman, Financial Client Executive for Agilysys [email protected], 513-826-1358

economic_stimulus_package_igf_and_agilysys_june_2008.ppt

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