LOCAL ECONOMIC SNAPSHOT | CASH MANAGEMENT

Saving for a rainy day

By WILL DEENER
Special Contributor wwrdeener@aol.com

KYLE ALCOTT
Staff Artist kalcott@dallasnews.com

U.S. companies have been hoarding cash since the financial crisis of 2008, and they currently sit on a mountain of money. Companies in the Standard & Poors 500 Index now hold $1.4 trillion in cash and other liquid assets on their balance sheets. That is an increase of about 7 percent from the same time a year ago. To put that in perspective, this is double the amount of cash companies held in 2001. Opinions differ as to why corporations are hoarding so much cash.

Sitting on a mountain of cash

Companies in the Standard & Poors 500 Index have been adding to their cash balances for years.
(In trillions) 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$692.8 billion

$833 billion

$939.1 billion

$1.11 trillion

$1.03 trillion

$1.03 trillion

$1.19 trillion

$1.08 trillion

$1.21 trillion

$1.31 trillion

$1.41 trillion

Largest cash hoarders

The following companies in the Standard & Poors 500 Index are the largest holders of cash and cash equivalents. Only one of these companies, Ford Motor Co., reduced its cash holdings in the past year.
Cash and equivalents for third quarter 2011 (in billions) $137.8 $57.4 $53.9 $44.4 $44.2 $42.6 $34.8 $33.2 $31.7 $30.9 One-year growth rate 11.1% 30% 62.8% 14% 22.3% 27.6% 0.9% -25.2% 33.9% 39.8%

Largest cash holders in the Dallas-Fort Worth area

Company Exxon Mobil Corp. AT&T Inc. AMR Corp. Fluor Corp. Texas Instruments Inc. Kimberly Clark Corp. J.C. Penney Co.* Southwest Airlines Co. Dr. Pepper Snapple Group Inc. GameStop Corp.* $2.1 $3.1 $0.88 $2.6 $3.5 $0.32 $0.71 $1.4 $5.5 $5.0 $2.4 $2.6 $1.2 $1.1 $3.7 $0.65 $0.44 Cash holdings as of Dec. 31, 2010 (in billions) $8.5 Cash holdings as of Sept. 30, 2011 (in billions) $11 $10.8

Company General Electric Co. Microsoft Corp. Morgan Stanley Cisco Systems Inc. Goldman Sachs Group Inc. Google Inc. Berkshire Hathaway Inc. Ford Motor Co. Oracle Corp. Johnson & Johnson

*J.C. Penneys and GameStops cash holdings were as of Oct. 29, 2011, and as of Jan. 29. 2011, respectively

Spending on big-ticket items

Although some companies like to hoard cash, others are finally starting to spend it again. The following companies ranked highest in capital expenditures. All 10 sectors of the S&P 500 Index increased their capital spending in the third quarter (the most recent data available). Capital expenditures refer to cash spent to buy factory equipment, machinery, plants and other big-ticket items.
Amount of capital spending for third quarter 2011 (in billions) $7.5 $6.8 $5.2 $4.6 $3.9 $3.8 $3.7 $3.6 $2.7 $2.5 Change from the third quarter 2010 -4.1% 21.2% -5.3% 462.2% 2.8% -17.9% 23.4% 57.9% 99.2% 80%

Spending on share buybacks

Some companies believe the most prudent way to spend their cash is by purchasing their own stock. Stock repurchases have become increasingly popular in recent years because typically it decreases the number of outstanding shares, which increases the earnings per share. Over the past 12 months companies in the S&P 500 repurchased $403 billion in stock. The biggest:
Share buybacks over the last 12 months (in billions) $22.4 $15.1 $11.5 $10.6 $8.6 $6.2 $5.9 $5.7 $5.0 $4.3 Reduction in shares outstanding 4.6% 5.3% 6.2% 8.3% 2.5% 11.1% 3.1% 0.4% 3.8% 5%

Company Exxon Mobil Corp. Chevron Corp. AT&T Inc. Apple Inc. Wal-Mart Stores Inc. Verizon Communications Inc. Chesapeake Energy Corp. ConocoPhillips Intel Corp. General Electric Co.

Company Exxon Mobil Corp. IBM Corp. Intel Corp. ConocoPhillips JPMorgan Chase & Co. Inc. Goldman Sachs Group Inc. Pfizer Inc. The Coca-Cola Co. The Walt Disney Co. Amgen Inc.

SOURCES: FastSet Research Systems Inc.; Yahoo Finance/U.S. Securities and Exchange Commission

The bottom line

Companies are not deploying cash, not hiring and not expanding because of the economic slowdown in the United States, in Europe and in the emerging markets, which has been one of the fastest-growing areas in the past couple years. Now if we start to see a pickup in those areas, you will start to see companies putting cash back into developing their businesses. John Butters, senior earnings analyst, FactSet Research Systems Inc. Companies should return more of this cash to shareholders in the form of dividends. Investors are clamoring for that, and it makes sense. We are starting to see companies raise their dividend payout ratios to about 30 percent, but that is still well below the historical average of 50 percent. Far too much cash is being held in the overseas subsidiaries of U.S. companies. Those who run these companies dont want to bring it back here because of the tax consequences. Just think of this. Microsoft Corp. holds about $58 billion in cash, but some $51 billion of that remains overseas. Will Deener, special contributor, The Dallas Morning News

Charles B. Carlson, contributing editor of Dow Theory Forecasts