Talks Begin on Corporate Tax Revisions

Talks on Corporate-Tax Revisions Set to Start.

One likely focus of the discussions will be finding ways to use an overhaul to encourage more investment in the U.S.

President Barack Obama pushed through a temporary tax break on new business equipment as a spur to investment in last month's tax deal that extended Bush-era income-tax levels.

But many experts believe more fundamental tax changes are needed to draw investment to the U.S. and strengthen the tepid recovery. That has led Mr. Obama and his top aides to consider embracing a corporate-tax overhaul as a major goal for the new Congress, where business-friendly Republicans have gained power. Recalibrating corporate taxes also could boost the administration's efforts to mend frayed relations with business leaders.

Several possible elements of a revised corporate-tax structure could encourage investment. A lower U.S. tax rate, for example, could reduce some incentives for U.S. companies to shift assets to lower-tax countries. Many corporate leaders want Washington to reverse its longstanding policy and let them bring back billions in overseas profits without being taxed in the U.S.

Finding any new tax breaks that can meet the administration's tough budgetary standards is likely to prove a struggle. Mr. Obama is insisting that changes to the corporate-tax code not add significantly to the government's already dire fiscal problems.

That means the budgetary cost of new tax benefits—including a lower rate—likely would have to be made up through elimination of other popular business breaks.

S & P Forecasts by Industry

Boosted largely by much stronger economic trends in emerging markets, and moderate gains in the U.S. economy, many parts of the Industrials sector started to recover in 2010, according to analysts at Standard & Poor's Equity Research.

"Operating results were also greatly assisted by aggressive streamlining programs implemented by companies over the course of the severe economic downturn that started in late 2007," said Michael Jaffe, Industrials Group Head at S&P Equity Research. "We expect these trends to continue in 2011, for the most part."

The projections by S&P's Industrials equity analysts for 2011 are as follows:

1. We expect increased global industrial activity to drive higher shipping demand at Logistics companies, with the most robust performances likely in air and ocean freight. We also see this improved demand allowing rate increases to be more fully absorbed than they have been in recent years. We believe that FedEx (NYSE: FDX 93 *****) is well positioned to benefit from these expected trends.

2. We see a favorable demand outlook causing airlines to become more aggressive in increasing capacity. We believe that will drive significant production increases at Boeing (NYSE: BA 69 ****) and Airbus, but are concerned that too many seats might become available. We view AMR Corp. (NYSE: AMR 8 ***) as an airline that could be hurt considerably if excess capacity were to occur.

3. We do not expect any other major U.S. airline mergers, since we believe there are few remaining suitable partners.

4. We expect aftermarket growth (about 5% to 7%) to return in commercial aerospace markets in 2011, following essentially flat results in 2010, as we see more profitable airlines beginning to spend more freely on maintenance, repair and overhaul. A company that we see greatly benefiting from any upturn in aftermarket spending is Precision Castparts (NYSE: PCP 143 *****).

5. We forecast ongoing rises in capacity utilization across the trucking industry, as volumes have started to increase modestly, and a number of financially weak carriers (mostly small private carriers) have shut down. With the North American Class 8 heavy truck fleet at its oldest average age (6.7 years) in the 31 years of data available through ACT Research, an independent commercial vehicle research organization, we expect the recent upturn in truck sales (off of a very low base) to strengthen further in 2011. We believe that engine maker Cummins (NYSE: CMI 110 *****) will be greatly boosted by this expected rebound in heavy trucks markets.

6. We think Industrials companies will further expand their footprints in emerging markets. We think the most aggressive expansion will take place in areas such as Construction Equipment, Industrial Machinery, and Engineering & Construction, which will likely continue to be boosted by infrastructure development and improvement in emerging markets, and the industrialization of economies. One company that has been putting significant focus on its emerging market footprint is Caterpillar (NYSE: CAT 94 ****).

7. We expect business to revive further at Human Resources and Employment Services companies. Although we believe that the level of new hires will remain modest in coming periods in U.S. markets, we still think that relatively stripped down businesses will need to add to their staffs as demand for products and services starts to improve somewhat. With businesses likely to maintain cautious operating stances, we think they will continue to focus on hiring temporary workers, an area dominated by placement companies. We also think that labor trends in emerging markets will remain much stronger than those in Western economies. We think that Kelly Services (NNM: KELYA 20 *****) will be boosted by its concentration on non-professional temporary placements, and its presence in foreign markets.

8. We believe that Agricultural Equipment companies will continue to post sales and profit gains, as the big rise seen in crop prices in the summer of 2010 should cause farmers to lift their business spending. In line with this forecast, we believe that Deere (NYSE: DE 84 ****) will experience solid demand for its farm equipment. However, we also believe that investors should keep in mind that part of the rise in crop prices was transient in nature, as droughts and fires in Russia led to lower than expected global wheat and corn supplies.

9. Following a dearth of acquisitions in 2009 and a pickup in 2010, we believe that Industrial Machinery companies will increase the pace of acquisitions in 2011. We think that a rising stock market and greater availability of debt financing will make funds more readily available to fund the potential takeovers. We also note that a number of companies, such as Illinois Tool Works and Dover Corp have indicated that the pipeline of potential deals has been increasing.

10. We expect trends to soften in Defense markets, as the President's current review of Afghanistan may lead to a July 2011 start date for troop withdrawal, and the U.S. continues to withdraw troops from Iraq. In addition, a five-year, $100 billion Pentagon overhead cost reduction, mandated by Secretary of Defense Gates, seems unlikely to be reinvested in weapons programs (as originally intended), in our view. We think L-3 Communications Holdings (NYSE: LLL 74 ***), whose products are being used in current war efforts, will be limited by these expected changes in U.S. military activities.

Tuesday, January 11, 2011

Source Monitor Daily

http://www.monitordaily.com/app_enews/news.asp?news_ID=27182

Finding "Real" Value

With the economy up in the air and the unknown looming upon the leasing industry, we have seen many leasing companies, brokers and funding sources rise and fall throughout the past few years. Most originators, who have found success over the last few years and more specifically over the past year, have gravitated to a specific niche or limited their efforts to a few industries. Vendors and end-users want to conduct business with financial partners who understand their specific industries, their specific challenges, and are able to speak their language. Brokers who try to be all things to all potential customers become experts in nothing and spend more time chasing miss-matched transactions than they spend funding transactions which are properly aligned with their capabilities. Originators who are focused are able to provide greater value to their stakeholders and are able to increase their personal incomes more quickly. There are no better or worse industries to focus one’s energies, the important factors are to choose an industry which you have an interest in, which you can develop funding capabilities and an industry which you have a passion to penetrate on multiple levels.
“Real” value is derived from knowledge and an originator’s ability to transform knowledge into quantified results. Every broker’s primary function is to prospect and to deliver superior services to his/her stakeholders. Superior service cannot be delivered unless the originator has knowledge which is otherwise in limited supply. Therefore, it must be an ongoing process to improve your knowledge in relationship to every aspect of the leasing/financing process. Some of the greatest attractions for entrepreneurs to enter our industry are the dynamics, the flexibility, and the creativity of our business. Along with these factors comes the responsibility of originators to embrace change; to be pro-active in innovating and providing new solutions to new challenges. The strongest brokers embrace a higher level of knowledge; they no longer chase transactions with the lowest common denominators, but are able to attract stronger vendors, stronger funders and stronger credit clients because of their ability to add “real” value to every transaction.
The future is bright for the best brokers and originators. The market craves expertise, knowledge and value-added services. Funders, vendors and end-users need our services now more than ever. Success will not be delivered to those originators who are not pro-active. However, for those originators who are willing to deliver superior service and are willing to aggressively pursue new relationships by providing “real” value, 2011 will provide an abundance of new opportunities.

Mazuma Capital  is committed to our client's success.  Our unique capabilities and innovative product offerings provide solutions accelerating financial growth.  Servicing rising companies, established companies, brokers and vendors, Mazuma continues to secure its position as the middle-market industry leader.

Source: World Leasing News

BANKS IN NEED OF REFORM-

Economists are concerned that recent reform will not be enough to prevent the need for more bailouts.  In recent months, regulators around the world have taken steps to ensure that banks will be able to weather tough times. New international rules will require big global banks to hold more equity to protect their depositors and other creditors. In the U.S., lawmakers have adopted measures intended to mitigate risk at big banks and keep close tabs on potential threats throughout the financial system.

Over the past few days, though, economists here offered many reasons why the recent banking reforms fall short. Among their concerns: The new capital requirements aren't tough or simple enough, there is too much uncertainty about how governments will deal with distress at the biggest lenders. It seems that there has been little done to prevent the kind of crisis that could occur if trouble broke out at many smaller institutions, such as hedge funds.

Recent history suggests that a capital requirement of 7% won't be enough to fend off bailouts. Many banks that required government support during the latest crisis, including the Citigroup and Royal Bank of Scotland, whom both had capital levels exceeding 7% just before trouble hit in the third quarter of 2007.

Another issue is banks' excessive reliance on short-term borrowing to finance their activities. Tougher rules could push more financial activity away from banks into other areas that don't face the same regulations. The so-called shadow banking sector, which includes everything from hedge funds to derivative markets, already plays a larger role in credit markets than traditional banking.

New financial rules in the U.S. provide regulators with more power to oversee the shadow banking sector, and shed light on it by creating incentives to shift more derivatives trades into places where they can be monitored. But regulators have yet to work out exactly how they will identify dangerous situations in which many players have become exposed to similar risks.

*The capital equipment leasing sector offers attractive alternatives for those seeking finance options.  With tax incentives still available and many options to fit the financial goals of customers, leasing is something that is worth looking into for businesses of all sizes.  The economy has not been kind to businesses over the past few years.  There are many once profitable companies who are finding it harder and harder to secure financing, and banks can't look at the external factors that have left a mark on businesses. When seeking financing for new/used equipment many businesses look to Mazuma Capital.  A lease originator, Mazuma Capital is a funding source that works for businesses, promotes growth and profitability.

Jet-Leasing Firms Go on Buying Spree

Airbus and Boeing Co. are on track for a sales rebound in 2010, far outpacing expectations this time last year.

Higher airline traffic has been the main engine. But a less obvious factor is resurgent airplane-leasing companies, signaling new life in a corner of the aviation business that was gasping during the 2008 market meltdown.

Lessors account for more than 35% of orders at Airbus this year, up from 5% last year. At Boeing, lessors have placed 21%, up from 12%. The two companies next month are expected to report a combined rise of about 50% in all orders for this year, net of cancellations.

US businesses push back on lease accounting change

Here at Mazuma Capital Corp we have been talking a lot about the new lease accounting changes scheduled to be put into effect in 2011.  As a lease originator the big question is how detrimental will this change be on an already wounded economy and struggling industry?  Changes to off balance sheet accounting have been a topic of discussion for quite sometime, but many feel this is the wrong time to implement. The change could ultimately triple debt limits in loan agreements for some companies.

We hear that things are looking up and companies are beginning to hire, yet those in the trenches feel otherwise.  So what will happen to all of the U.S. businesses who currently have significant leases off the books? Is it a possibility for profitable companies to tank overnight due to this change?

It seems that business groups are gearing up to delay proposed accounting rules that would bring hundreds of billions of dollars in leases onto corporate balance sheets, even as backers say the revisions will give investors crucial information. Many companies - with the help of the leasing industry - have avoided putting leases on the books by structuring them to fall below the 90 percent threshold. Such leases are considered operating leases and only require a rental expense on the income statement.

At issue are rules proposed by U.S. and international standard setters. The changes are meant to address complaints that investors are not getting a complete picture of companies' debt because massive lease obligations are relegated to footnotes in financial statements. The changes could cause companies to avoid leases entirely.  The changes will be more complex, forcing many businesses to do things that hinder growth and development.

The lease accounting changes will take a few years to fully take effect, but there will be causalities. What will this mean for the leasing industry that have assisted in growth and profitability for U.S. businesses? The S & P reports that there is at least $549 Billion in lease liabilities lurking off balance sheets. That's $549 Billion that will be off the books one day and on the books the next day.  Here is a little information on what we can expect from businesses that currently use leases from Delta Airlines to McDonald’s.

Financial statements would change significantly at airlines, which lease many of their aircraft rather than owning them. Delta Air Lines, which had about $17 billion in long-term debt at year-end 2009, would see that number jump by roughly $8 billion.

McDonald's Corp, which leases about 14,000 restaurant locations and is a lessor for another 19,000, may have to spend as much as $100 million because of technology and staff resources required for the accounting change, the company said in a letter to rule-makers last month.

The new standards are a joint project of the Financial Accounting Standards Board, which sets U.S. accounting rules, and the International Accounting Standards Board, which sets international standards. The boards are holding public meetings through Jan. 6 before crafting a final rule.

Sources:

S& P

Reuters Business

2011 Looking Bright for U.S. Company Growth and Purchases

Companies are looking to expand and that means new equipment purchases in the near future.  This outlook is bright coming off of two tough years in the equipment leasing industry.  Slow growth combined with economic uncertainty was not a good combination for the leasing industry.  There seems to be a bright light at the end of this tunnel. Forecasts seem promising and the tax benefits for companies to buy are enticing.

Investment by U.S. companies in equipment and software in the third quarter was up 15% from a year earlier to $1.08 trillion, nearly matching prerecession levels, government data show.

Corporations received more incentives to invest Dec. 17, when President Obama signed into law a tax compromise reached by Congress that, among other things, lets companies deduct from taxable income 100% of certain types of investments in 2011.

It seems that big U.S. companies have cleaned up their balance sheets and, appear to be flush with cash.  These U.S. companies are open to using the cash in 2011 on factories, stores and even hiring. Companies worked hard the last few years and especially in 2010 to preserve cash, and are slowly coming around to spending it.  According to Bloomberg Business U.S. companies are turning around and starting to feel comfortable with the economic outlook.

The maker of specialty glass and ceramics is investing $300 million to expand its research and development center near its headquarters in Corning, N.Y., adding about 100 researchers and Ph.D.s. It also is spending $800 million on a liquid-crystal display factory in China and building more LCD capacity in Taiwan.

Engine maker Cummins Inc., meantime, plans to add about 2,500 U.S. jobs in 2011, many requiring engineering or other technical skills. In 2010, Cummins raised its U.S. employment by only 185 people. The company has about 14,800 U.S. employees.

At the end of the third quarter, cash held by 419 nonfinancial companies in the Standard & Poor's 500 list was up 49% from three years ago—before the start of the recession—while total debt was up a more modest 14%, according to an analysis by The Wall Street Journal.

The good news: The improvement in just the past year was even more pronounced: cash was up 10.6% from the 2009 level, while debt grew 2%.

Profits are higher, too, after companies slashed their work forces and closed less-efficient operations. Total U.S. corporate profits in 2010's third quarter rose 26% from a year earlier to $1.64 trillion, the highest in four years, according to government data.

With this stronger foundation, coupled with new confidence about the global economy, corporations are looking to expand.  Continued growth in the mining and energy businesses around the world is expected to fuel a wide range of U.S. companies. IT spending seems to be on everyone’s mind and will head up the priority spending list this new year.

Source:

Standard & Poors Capital IQ

Bloomberg Business

Wall Street Journal