Hewlett-Packard (HPQ) is cutting 27,000 workers. Meg Whitman's axe helped to move the stock up. Imagine how much higher a 54,000-employee pink slip might have propelled the stock. Even after the 27,000 are gone, HP will still have almost twice as many employees as it did in 2007.
There will be plenty of bodies under payroll. Over the last six years alone, HP has gone on a $43 billion shopping spree, depleting its balance sheet of needed cash, all the while ignoring investing in organic growth, acquiring EDS, 3COM, Palm, 3Par, and the expensive $11.7 billion Autonomy.
Money makes the world go round. So where in the world is HP's money anyway?
I hate to be a wet blanket. With all the hoopla over the human resources chopping block, I'd like to focus on one aspect of HP that everyone has ignored -- the company's cash. Simply, where is it? Or to be precise, where is it domiciled?
You see, HP is a multinational. It sells all over the world. Sixty-five percent of HP's sales are outside the U.S. Witness the teensy-weensy 19.5% tax the company pays: That's the benefit of making your money in low-tax jurisdictions far removed from the hefty U.S. taxman. You avoid paying taxes on money made over there by housing the profits in foreign subsidiaries.
So how much dough is in HP's foreign subsidiaries?
HP doesn't tell you. The company doesn't break down its money like other multinationals. Apple (AAPL) tells investors every 10Q how much cash is held by its foreign subsidiaries. So does Cisco (CSCO). Same goes for Microsoft (MSFT). All spelled out clearly in their 10Qs and 10Ks. Coca-Cola (KO) lets investors know -- $24 billion sits tantalizingly offshore. Just about every other multinational details their foreign holdings.
When it comes to HP, the SEC documents are remarkable for silence.
By the looks of its 19.5% tax rate and the location of sales, I suspect the lion's share of HP cash is over there, not here. Eight billion may seem like a lot. It's not if it is in Europe or Asia and can't get back to the U.S. without incurring a lot of taxation. You get an artificial divide: Money is awkwardly placed and off-limits for running U.S. operations. Especially considering the almost $26 billion in heaping debt the company has amassed buying every conceivable company HP seemed to look at over the last six years. As per its last 10K:
HP has not provided for U.S. federal income and foreign withholding taxes on $29.1 billion of undistributed earnings from non-U.S. operations as of October 31, 2011, because HP intends to reinvest such earnings indefinitely outside of the United States.
Most likely, the majority of the $8 billion is held in HP's overseas subsidiaries, "indefinitely to be reinvested."
Why is the location of the money so important?
HP has to spend to get itself in order. Massive layoffs, restructuring divisions, paying interest on all that debt -- it all costs lots of moolah. Fixing the balance sheet gets considerably harder without easy access to your cash. HP can't dive into most of its $8 billion without getting tax-clobbered. Further, should U.S. taxation of multinationals become tougher, HP would likely be the hardest hit because its balance sheet is the most precarious of the big techs.
Before HP hopefuls declare victory, the cash in the balance sheet might evaporate before your very eyes. Yet another reason HP is in for a tough slog.
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Disclosure: I am long AAPL.