Cisco Systems Inc. committed Wednesday to use at least half of its free cash flow to reward shareholders through dividends and share buybacks. On a conference call after the release of the results, an analyst asked Chief Financial Officer Frank Calderoni how Cisco could fund that, when most of its cash is in overseas accounts.
Like many other multinationals, Cisco doesn't bring back much of the money it makes overseas to the U.S., because it doesn't want to pay U.S. corporate income taxes.
QUESTION: How much of your cash flow is generated in the U.S.? When I do the math of how much cash flow you generate and then deduct the dividends I'm not left with much for U.S. cash flow to do the buybacks unless most of your buybacks are done overseas.
RESPONSE: Both have to be funded out of U.S. cash. As you know, we mentioned had a U.S. cash balance at the end of the fourth quarter of a little over $6 billion. That would be what we would use both for the dividend as well as the buyback and any other U.S. needs we have, we would have to fund out of that.
We will continue as far as forecasting what we would generate in the U.S. from an operations perspective and work in that flow. The other aspect ... as far as taking into consideration some previously taxed cash that we have which is outside the United States that we have the potential right now, based on our analysis, to bring back and use as part of this in the near term.
Clearly I would not go out there and make a commitment to a plan or framework with a 50 percent commitment if we didn't have the ability to kind of work through that. The dividend right now, with the increase we had today, would be about $2.8 billion on an annual basis.
