The Morning Ledger: Uncertainty Hangs Over R&D Tax Credit

December 3, 2013 by  
Filed under Solar Energy Tips

    [David Hall]

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The clock is ticking on the RD tax credit, and businesses have no way of knowing if it will be renewed. The perpetual uncertainty around the credit is pushing some companies to shift research overseas and making it harder for smaller firms to compete with larger rivals, writes Emily Chasan in today’s Marketplace section. Lawmakers “play chicken with it,” says Dell CFO Brian Gladden. “What companies do is they make decisions based on an assumption that it’s not going to happen.” If Dell can’t count on the credit in the U.S., he says, any incremental research spending drifts to other countries, where costs are lower or taxes credits are more generous.

Congress has extended the credit more than a dozen times since it first went into effect, often retroactively. The measure last expired at the end of 2011, was made retroactive for 2012 and extended through 2013. This forced hundreds of companies to reflect all of last year’s RD credits in this year’s first-quarter financial results. For example, iRobot recorded a gain of about eight cents a share in the first quarter—a big jump for a company that earned 61 cents a share for all of 2012, says CFO Alison Dean. Since iRobot spends about 12% of its annual revenue on research, the credit temporarily pushed its effective tax rate down to 5.8%. That made financial forecasting more difficult for the company and the analysts who follow it. With the credit’s future in doubt once again, Ms. Dean is planning for a 2014 tax rate that will be much higher. “We are trying to build credibility with our investor base, and it doesn’t help us,” she says.

For smaller companies, the credit can mean the difference between posting a profit and posting a loss. “This year it made a meaningful difference,” says Lynn Atchison, CFO of online vacation-rentals company HomeAway. The renewal of the credit has helped push the company’s effective tax rate this year down to about 32% from almost 50% last year. Ms. Atchison says HomeAway is deciding which of dozens of potential research proposals to fund next year. If the credit is extended the company may decide to fund “a project that didn’t make the first cut.”


U.S. auto sales are expected to rebound in November to a seasonally adjusted annualized rate of about 15.8 million to 16 million vehicles. October’s weakness probably reflected the government shutdown rather than the increase in long-term interest rates since May, writes Ahead of the Tape’s Spencer Jakab. Meanwhile, credit conditions keep getting looser. Overall auto-loan balances hit an all-time high last month at $783 billion, up 15% in a year. A record 84.5% of car buyers used a loan or lease in the second quarter.

Markets flash: Asia finished mostly lower and Europe is down in early trade as upbeat manufacturing data from the U.S. stokes fears that the Fed could pull back on its bond-buying program soon. DJIA futures are also lower.


Chobani hires PG veteran as new CFO. Yogurt maker Chobani has named Dipak Golechha, an 18-year veteran of Procter Gamble, as its new chief financial officer, Maxwell Murphy reports. Mr. Golechha, who will start on Jan. 1, has been a divisional CFO at PG, most recently for its global feminine health and hygiene business, where he also is chief operating officer. Before that, he was CFO for its global snacks division. The appointment of Mr. Golechha is the latest in a string of executive appointments at the company. “[It was] definitely a difficult decision,” said Mr. Golechha, given nearly two decades at PG. “I’m definitely not running away from PG,” he said. Instead he wanted to pursue the opportunity to be part of Chobani’s quickly growing business. While he said he will need to start work before he can discuss his immediate plans for Chobani’s finance team, Mr. Golechha said that “the first order, and the constant order, is value creation.”

Companies keep poison pills in reserve. One of the mainstays of corporate defenses against hostile takeovers has fallen to at least a nine-year low in popularity, writes Vipal Monga. Just 5.26% of all shareholder rights plans, or so-called poison pills, adopted by U.S. companies this year have been aimed at fending off unwanted takeover offers, instead of other goals, such as holding off activist investors. That’s down from nearly 13.9% for all of last year, and the lowest percentage since at least 2004. This year’s drop in the number of poison pills parallels the drop in hostile bids. There have only been four such takeover attempts this year, compared with 12 for all of last year. Companies are keeping the pills in reserve, said John Laide, a vice president at Factset’s SharkWatch unit. “It makes sense to wait until you actually need one.”


Dow Chemical launches makeover. Dow Chemical plans to shed at least $5 billion worth of low-margin businesses, including the products that sparked its creation more than a century ago, the Journal’s Doug Cameron writes. The company is trying to stop making basic chemicals in favor of higher-value products like agricultural seeds and packaging materials, said Chairman and Chief Executive Andrew Liveris. Going forward, the company is touting its work in nutrition, energy and even fashion, where Dow is betting that better technology can bring in higher profit margins. The company is re-engineering everything from Omega oils as a way to fight bad fat in the U.S. diet, to creating long-life solar shingles and antimicrobial fabrics.

Madoff’s ex-finance chief takes the stand. Frank DiPascali, Bernie Madoff’s one-time chief financial officer, told jurors yesterday that the Ponzi scheme stretched back “as far as I can remember,” to his earliest days at the firm as a 19-year-old in the mid-1970s, Reuters reports. Mr. DiPascali is the government’s star witness in its case against five former Madoff employees charged with abetting Madoff’s fraud. While defense attorneys are expected to argue he is merely trying to earn a more lenient sentence for himself, Mr. DiPascali’s testimony represents the most detailed depiction to date of daily activity within the now-disgraced investment firm and how it deceived customers and regulators, the WSJ says. He said that, to his knowledge, none of the trades Mr. Madoff’s firm recorded in the accounts for investment customers ever actually took place. Asked if the staff created trades out of thin air, he answered, “Literally, yes.”

Twitter draws lukewarm ratings. With Twitter 57% above its IPO price, two of the five firms that served as lead underwriters for the company’s offering last month came out with “hold” ratings on the stock, the WSJ reports. And one analyst recommended investors sell Twitter shares. Citing an “unattractive valuation” for the stock, Bank of America Merrill Lynch’s Justin Post slapped Twitter with an “underperform” rating—the equivalent of a “sell.”

Hilton IPO could raise $2.7 billion. Hilton set terms for its expected return to the public markets next week, in an offering that could raise as much as $2.7 billion if it is well received by investors, the WSJ reports. The IPO would mark Hilton’s return to a public listing after being acquired by Blackstone at the height of the private-equity boom in 2007 as part of a $25 billion leveraged buyout. A major use of the cash raised in the offering will be to pay down debts related to the buyout.


Yuan overtakes euro in global trade finance. China’s yuan overtook the euro to become the second-most used currency in global trade finance in 2013, Bloomberg reports. The currency had an 8.66% share of letters of credit and collections in October, compared with 6.64% for the euro, according to the Society for Worldwide Interbank Financial Telecommunication. International use of the yuan is increasing as China opens up its capital markets. In the first nine months of this year, about 17% of China’s global trade was settled in the currency, compared with less than 1% in 2009.

U.K. initiative targets boardroom excesses. An “Investor Forum” will be created to tighten checks on all London-listed companies over pay, auditing and strategy and to promote long-term decision-making, the FT reports. The forum, established by some of Britain’s biggest shareholders, intends to unite investors around the world to help them rein in excessive pay and mismanagement. The forum will set up an engagement action group, led by one or more investors in each company. Concerns about a company would be passed on to all shareholders, providing them with an opportunity to have their say on the issue and become involved in the engagement process.

Volcker rule set for final steps. At least three U.S. regulators will meet on Dec. 10 to adopt the final version of the Volcker rule banning banks from making speculative bets with their own money, Bloomberg reports. The agencies’ approval would be the final stage in the process of adopting the rule.


Aveo Pharmaceuticals, a cancer-therapeutics firm based in Cambridge, Mass., said in a regulatory filing that Chief Financial Officer David Johnston is resigning to pursue another opportunity. An external search for his successor is underway, and in the meantime his responsibilities will be managed by President and Chief Executive Tuan Ha-Ngoc. Mr. Johnston received compensation last year valued at $1 million, including a base salary of $339,848 and option awards valued at $264,355, according to a proxy filing.

Hill-Rom Holdings, a hospital-equipment manufacturer based in Batesville, Ind., hired James Saccaro as its chief financial officer and senior vice president. He succeeds Michael Macek, who held the position on an interim basis and will remain with the company as its treasurer and vice president. Mr. Saccaro was most recently vice president and global franchise leader of specialty therapies at Baxter International. At Hill-Rom he will receive a base salary of $460,000, a sign-on award valued at $1.5 million, and be eligible for the company’s short- and long-term incentive plans.

Covanta Holding, a Morristown, N.J. firm with interests in both waste-to-energy conversion and insurance, promoted Bradford J. Helgeson to chief financial officer. He succeeds Sanjiv Khattri, who is stepping down with immediate effect, according to a regulatory filing. Mr. Helgeson was most recently the company’s treasurer. Mr. Khattri “has graciously offered his support in the transition prior to moving on to his next endeavor,” said Chief Executive Anthony Orlando, in a press release. Compensation plans for Mr. Helgeson weren’t immediately released. Mr. Khattri received compensation last year valued at $1.3 million, according to a proxy filing.

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