Financial life in a big town

Cash is king, and Big Tech companies have it pouring out their ears.

A combination of cost-cutting tactics and an improving economic climate have driven tech-sector profits way up this year. In the second quarter, technology industry earnings are on track to rise 66% compared to last year, according to Thomson Reuters.

That has led to massive stockpiles of cash at some of the world’s tech giants. The eight biggest companies in the industry are sitting on a collective stash of more than $194 billion.

But CEOs playing the role of Scrooge McDuck won’t impress many shareholders. With cash earning next to nothing nowadays, investors want companies to put their cash to good use. The result: A tech M&A frenzy that industry analysts think is just getting started.

Companies can use excess cash to pay a dividend to shareholders, but there’s only so much businesses want to give away, and tech companies are notoriously stingy with their dividend payments. Companies can also buy back their own shares, but some argue that strategy isn’t a great deal for shareholders. Another path is to invest internally, ramping up spending on research, development and hiring.

Instead, tech companies have lately gone with a third option: buying up companies that catch their eye.

In August alone, Intel (INTC, Fortune 500) bought McAfee for $7.7 billion and acquired Texas Instruments’ cable modem unit, IBM (IBM, Fortune 500) bought Unica for $480 million, and Google (GOOG, Fortune 500) bought Slide for about $200 million. Dell (DELL, Fortune 500) bid $1.15 billion last week for storage company 3PAR, but Hewlett-Packard outbid it on Monday to the tune of $1.6 billion — after scooping up security software company Fortify last week.

Analysts say the buyout boom is fueled by companies’ reluctance to gamble on hiring and internally developing new product lines. It’s safer — and often cheaper — to buy up those others have built.

"Everyone’s done a great job at cutting costs and making themselves profitable, but investors are asking where the growth is," said Eric Johnson, director of the Center for Digital Strategies at Dartmouth University’s Tuck School of Business low interest personal loan. "Cost-cutting has created a toxic environment in many firms for internal investments, and you can’t beat the speed to growth of an acquisition."

There is often a snowball effect in acquisitions, leading some companies to snap up smaller companies simply so they don’t get left out of the action.

But it also doesn’t hurt that the cost of capital is extremely cheap right now, and a lot of potential takeover targets are attractively priced. The economic downturn has hammered many stocks, allowing buyers to offer generous premiums on valuations that are much lower than they would have been a few years ago. IBM purchased Unica at a 120% premium, and Intel offered 60% more for McAfee’s shares than they were going for at the time. HP’s 3PAR (PAR) offer is a staggering 149% higher than 3PAR’s shares traded at before Dell announced its offer.

Those three takeover targets do business in analytics, security and storage, respectively — high-growth areas that yield technology applicable to a wide array of business uses. They’re exactly the kinds of companies that make attractive takeover bait.

The question is how long this trend will last. So far this year, there have been 21 billion-dollar deals worth a total of $46.4 billion, according to The 451 Group. That compares to just six last year, totaling $19.7 billion.

Some say the coast is clear for many more deals.

"There are still plenty of attractive transactions to be done," said Murray Beach, managing director of TM Capital’s technology group. "Our clients’ pipeline suggests this trend will continue, and there will be a pretty significant rise in these deals for the foreseeable future." 

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The Wauwatosa Plan Commission on Monday deferred until next month a decision on whether to dedicate $12 million to support a new University of Wisconsin-Milwaukee campus.

City officials are considering paying to build roads and utilities on an undeveloped 88.9-acre site where the UWM Real Estate Foundation Inc. has proposed building Innovation Park, which includes university buildings, private housing and a research park. The city would create a tax incremental financing district to pay for the $12 million in infrastructure construction costs.

The TIF district would let Wauwatosa borrow money for the projects, and then pay off the debt using increased property taxes from new development on the land Same day payday loans.

The Wauwatosa Plan Commission held a public hearing on the proposal on Monday night, but unanimously voted to table the proposal until Sept. 13 to gather more information, said Nancy Welch, Wauwatosa community development director.

If the Plan Commission approves the proposal on Sept. 13, the Wauwatosa Common Council could vote on the plan during its Sept. 21 meeting.

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fast cash loan is fast becoming a viable financial option for consumers who need a few extra dollars.

THURSDAY

Information Modeling — The St. Louis Council of Construction Consumers sponsors "ABCs of Building Information Modeling" to improve efficiency, savings and quality in the workplace.

— 7 a.m. Engineers Club, 4359 Lindell Boulevard, St. Louis

— $40 for members; $60 for nonmembers. Register online at www.slccc.net.

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The cities of Sacramento and West Sacramento are examining whether one or more new Sacramento River crossings are needed to better connect the two communities, and want members of the public to weigh in on the matter.

A non-scientific survey was launched Monday as part of the Sacramento River Crossing Study: http://www.cityofsacramento.org/transportation/planning-policy/SacRiverCrossingsStudy.html. The online survey is available here.

The survey will accept one response per computer through June 24. Results will be released in mid-July.

“The nine-question survey will take just a few minutes to complete, but we believe it will yield a wealth of insight,” Sacramento city operations manager Fran Halbakken said in a news release. “For example, what kind of crossing is envisioned to address riverfront development on both sides of the river? Is the need best addressed by building one or more new facilities? Should a new structure be dedicated to public transit and bicycles/pedestrians or cars or all of the above modes? Where should it be located? That’s what we are exploring with the public low fee payday loans.”

The cities kicked off a joint feasibility study in April. It is intended to evaluate a number of alternatives from a “no build” option to multiple crossings and locations.

A final report is set to go to the city councils by the end of the year.

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A flood of temporary Census workers in May led to the biggest jump in jobs in ten years, the government reported Friday.

Employers added 431,000 jobs in the month, up from 290,000 jobs added in April. It was the biggest gain in jobs since March 2000.

But Census hiring was responsible for 411,000 of May’s increase in employment. Private sector employers also added 41,000 jobs in the period, well below the 218,000 private sector job gains in April. Government payrolls other than Census declined by 21,000 jobs in May, due largely to job cuts by state and local governments.

It was a disappointing number for private sector hiring, as economists surveyed by Briefing.com had forecast an overall gain of 500,000 in May. U.S. stocks traded sharply lower on the report, with the Dow Jones industrial average down more than 200 points in midday trading.

"This is a timely reminder that, although the economic outlook is improving, the recovery is still pretty fragile," said Paul Ashworth, senior U.S. economist for Capital Economics.

Despite the spike in hiring, the unemployment rate declined only modestly, to 9.7% from 9.9% in April. Economists had forecast it would decline to 9.8%.

After nearly two years of constant job losses, the U.S. economy has added 982,000 jobs so far in 2010, adding workers in every month, a sign that the labor market is improving beyond the short-term Census jobs. But the modest gain shows that employers are still cautious about adding staff.

Christina Romer, chair of the White House Council of Economic Advisers, said the lower unemployment rate was encouraging, even if the slowing of private sector job growth was reason for concern.

But Republicans were quick to criticize the report as proof that the Obama administration had taken the wrong path on trying to create jobs.

"Let me be clear — during challenging times, a job is a job," said Rep. Eric Cantor, the House Republican Whip. "Yet government jobs that are paid for by taxing small business people and borrowing from the Chinese are not signs of a healthy economic recovery."

Rep. Carolyn Maloney, D-NY, said she was encouraged by the numbers in the report, and that it was important to recognize how much the labor market has improved.

"The job picture is very different from what it was a year ago," said Maloney, one of the chairs of Congress’ Joint Economic Committee. "We’re on an upwards trend. The road to recovery is bumpy, but we’re trending in the right direction."

Shrinking gains: Just over half of private sector industries added jobs in the month, while 46% continued to shave jobs from their payrolls. Job gains in the private sector were far more widespread during the previous three months.

Manufacturers added 29,000 jobs in the month, but that was balanced out by a 35,000 job loss in construction. Retailers also trimmed 6,600 jobs and financial firms cut 12,000 jobs. Some sectors that added jobs, such as leisure and hospitality or health care, posted their smallest gains in months.

The Census Bureau wasn’t the only employer adding temporary jobs, as there was a gain of 31,000 jobs in temporary help services.

Scot Melland, CEO of Dice Holdings, a provider of specialized career Web sites, said he was surprised by the weak private sector hiring. A semi-annual survey by his firm had found employers in the process of stepping up hiring. Despite the disappointing numbers, he still expects job growth to pick up through the rest of this year.

"You don’t want to read too much into one months’ results," he said. "It could be a month of digestion and we move on from here. The indicators are still positive."

Bright spots: The good news in the report beyond Census was in hours worked, which increased to an average of 33.5 hours from 33.4. That helped to lift weekly wages and also cut the number of part-time workers who wanted full-time jobs by 343,000, as workers who had their hours cut during the recession were put back on full-time status.

Job seekers are also somewhat less discouraged, as the number of unemployed workers who wanted jobs but had stopped looking for work declined by 114,000.

But the problem of long-term unemployment continued to worsen as those out of work more than six months rose to a record 6.8 million, or nearly half of all unemployed workers.

"The U.S. unemployment rate is likely to be higher for longer during the current recovery due to a structural mismatch between workers and jobs," said John Silvia, chief economist for Wells Fargo Securities 

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LITTLE ROCK, Ark. — Wal-Mart Stores Inc. announced a program Thursday in which its workers can receive college credit from the online American Public University and receive a tuition discount from the school.

The company also said it will commit $50 million over three years to help workers pay for books and tuition above the reduced tuition rate. After the reduction, tuition will cost $212.50 per undergraduate credit hour and $255 for graduate credits.

Wal-Mart Chief Administrative Officer Tom Mars said the program grew out of a larger commitment to cultivate talent within the company. The plan is open to domestic workers at Walmart and Sam’s Club stores.

Alicia Ledlie, Wal-Mart senior director for associate development, said nearly three-quarters of Wal-Mart workers contacted in a survey said they preferred online study to attending a local college.

Ledlie said Wal-Mart looked at 81 colleges, including brick-and-mortar schools, and found American Public University, based in Charles Town, W.Va., to be the best fit.

Wal-Mart workers receive job training in areas ranging from ethics to retail inventory management, for which they can receive credit, she said.

Sara Martinez Tucker, a former U.S. undersecretary of education who is on Wal-Mart’s external advisory council, said Wal-Mart would have had to form a tremendous coalition of schools to offer a similar program through local community colleges and universities.

Tucker said it is helpful to employees because they don’t have to apply for reimbursement from their employer.

Students won’t have to pay for credits awarded based on their training.

American Public University, with 70,000 students, offers more than 100 certificate and degree programs.

The credit for training can be applied mainly to business- and retail-related courses. Wal-Mart said the school will have evaluated for credit jobs held by 70 percent of Wal-Mart workers by 2012. That covers about 1 million workers.

Wal-Mart also offers scholarships through its foundation and offers assistance to workers seeking GEDs.

Wal-Mart executives said the link with the school will help workers attain better jobs both inside and outside the company.

Tucker noted that if 10 percent of Wal-Mart’s U.S. workers get degrees, "that would be like adding three Ohio State’s worth of graduates."

American Public University is accredited in various ways, including national accreditation by the Accrediting Commission of the Distance Education and Training Council. It is run by for-profit American Public Education Inc.

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Readers — good for them — want to make sure I have my facts right.

I’m not a tax consultant, but my understanding is that the IRS does not allow the strategy you wrote about to obtain tax-free capital gains (selling a mutual fund and buying it back the next day). You’re not allowed to buy back the same investment.

Several readers said the same thing and asked that I run a correction.

But there is nothing to correct. These readers are probably thinking about the so-called "wash-sale rule" that says you cannot claim a capital loss if you sell a security and buy the same or a "substantially identical" security within 30 days, either before or after the sale.

The rule does not apply if you sell at a gain, however. This gives investors who qualify an easy way to secure tax-free gains under a zero percent long-term capital gains rate still in effect through the end of 2010 for taxpayers in the 15 percent and under tax brackets.

My mail tells me many people still don’t know this: If your taxable income for the year, including any long-term capital gains, does not exceed the top of the 15 percent bracket ($68,000 for joint filers and $34,000 for singles in 2010), then your long-term gains are tax-free.

(For a gain to be considered long-term, you must have held the security more than a year.)

Therefore, if you are sitting on long-term paper gains on an investment you want to keep, and if realizing those gains won’t push you beyond the 15 percent tax bracket, it probably makes sense to sell and buy back.

Some caveats: Make sure you have no net capital losses that would be offset by the gains, negating any tax benefit. Consider any possible price change between the time you sell and buy back, and whether any commissions or trading restrictions apply payday loans.

On another topic, several readers wondered why I’m so insistent on wanting low fees for variable annuities that guarantee minimum lifetime withdrawals regardless of how the annuity investments perform.

Why would I care about the fees if I’m getting my guaranteed payments for as long as I live, even after principal is depleted? Aren’t the actual account balance and fees immaterial? What exactly am I missing here?

This reader — and others who made similar comments — are missing a basic understanding of how these annuities work and why anyone would consider them.

Variable annuities with guaranteed lifetime withdrawals are different from so-called immediate income annuities. With the latter, you typically hand out your principal to an insurance company and in return you get an income for life, period.

The variable annuities I wrote about do guarantee that, no matter how badly your investments perform, you’ll get a minimum income for life.

But this income is typically much less than what you would get for the same premium amount in a plain-vanilla immediate annuity.

Therefore, it makes no sense to invest in these variable annuities just for the guaranteed withdrawals — you can get more income with an immediate income annuity.

The reason to consider investing in the variable annuities is that, with the peace of mind offered by the guarantee, you can invest more aggressively and potentially achieve higher returns. You definitely want to do better than the minimum guarantee, and the more fees you pay, the more difficult — if not impossible — it becomes to do so.

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A new brick building stands out from some of its dilapidated and rundown neighbors along Martin Luther King Drive in the Ville neighborhood.

A sign outside the building, home to a new retail center, says, "Success Starts Here" and beckons prospective business owners to inquire about renting space.

A promotional goods and lettering business catering to fraternities and sororities already fills one of the eight storefronts in the 7,200-square-foot building. A women’s wig store is slated to open next month. And a sandwich shop is in the works.

Habitat for Neighborhood Business, a local nonprofit run by current and former business executives, hopes to fill all of the storefronts by the fall.

"Our mission is to target economically challenged areas," said Terry Donohue, Habitat’s president and executive-in-residence at St. Louis University’s Center for Entrepreneurship, one of the partners on the project. "Our goal is to bring businesses back into the neighborhoods in the hope that they will spark some more economic development and job growth in the neighborhood."

This is the first freestanding center the group has built, which was one of its original goals when Habitat was founded about five years ago, said Donohue, a retired Enterprise Rent-a-Car vice president.

The project cost including land and construction was about $1.2 million. Construction began in late 2008 and finished up in the latter half of last year.

A 2006 study by researchers at St. Louis University found a large retail gap in the Ville neighborhood, with some of the greatest needs being a grocery, dry cleaners, a pharmacy and more restaurants, Donohue said. He hopes that some of his tenants will be able to fill those needs but added that the group doesn’t have the resources to recruit specific businesses.

"We’re just trying to find people who are interested in opening a retail or service business in that neighborhood," he said.

Habitat has interviewed hundreds of people interested in moving into the new retail space in the last couple of years. Many of them were already running businesses out of their homes, he said.

"We found a lot of bright people with good business ideas," Donohue said. "But you have to have your own skin in the game. You have to have equity."

And the economy has only made it harder for new entrepreneurs to build enough equity to secure a loan, he said.

For those who have enough startup money, Habitat offers them storefront space at a discounted rate — 50 percent off an estimated market rate in the first year, 25 percent off the second year and 10 percent off after that.

In addition, it pays part of the costs to attend training courses on how to run a business, provides established industry executives as mentors, gives them a computer to keep their records and has SLU students help them with their monthly accounting.

The SLU student who helps Robert Jones manage his books and inventory using a computer accounting system has been a big help, said the owner of Alpha One Greek & Promotional Items, which opened in December.

Jones, 46, had run his business out of his home and through a website for about 10 years. Then a couple of years ago he started looking for a brick-and-mortar store, but he put those plans on hold when the economy tanked.

He jumped when he heard about the new retail center, not only because of its location in an urban neighborhood but also because of the extra help it provided — the discounted rent, the emotional support and accounting help.

He has three employees, all of whom are students at Harris-Stowe State University. He’s been pleased with the business at his store thus far and is planning more marketing in the future.

"I’ve gotten a lot of traffic from Harris-Stowe," he said. "Now I want to push it to Wash U and SLU."

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If you haven’t started your 2009 tax return, get going — and be ready to pay for help even if you haven’t before.

"Most people will need all the help they can get" this year, said Mildred Carter, senior federal tax analyst with tax publisher CCH, a Wolters Kluwer business. One big reason: The American Recovery and Reinvestment Act enacted by Congress in February 2009 contained more than 50 provisions affecting 2009 and 2010 tax returns, and some were changed again in November by the Worker, Homeownership and Business Assistance Act.

The result is a bunch of new deductions and credits (and tax forms and worksheets) that can lower your tax bill but make things more complicated. "The one certainty," Carter said, "is that whatever route you take, it’s best to start early."

If you hire a professional, go with know-how and experience. For referrals, ask your friends, business associates and your local or state certified public accountant and/or enrolled agent organizations.

If you opt for do-it-yourself software, go with a reputable name. TurboTax (www.turbotax.com), H&R Block at Home (www.hrblockathome.com) and TaxAct (www.TaxAct.com) offer quality products for returns of different levels of complexity. Many are free, particularly for simpler returns.

I’ve used TurboTax’s Home & Business for years and like it for its thorough yet plain-English interview questions. I also appreciate the "help" features — such as a free "Live Community" where other users and tax experts can answer questions — and the navigation options, including being able to see interview questions and related tax forms at the same time. Your choice of software may come down to individual preferences and the program that best fits your needs.

Even if you get help, it pays to be aware of significant tax law changes for 2009 returns. "Tax-return preparation is a chore, and the desire to take shortcuts is common," said Bob Scharin, senior tax analyst for the Tax & Accounting business of Thomson Reuters. "But make sure you take the time to check for tax breaks, and if you are using the services of a professional, ask questions and gather the information they will need to calculate the tax deductions and credits to which you are entitled."

Potential tax breaks are plentiful — for buying a car, a house, going to college, making your home energy-efficient or even holding a job (the latter is the new "Making Work Pay" credit).

But the devil is in the details, with many complex eligibility requirements and "phase-outs" that reduce or eliminate tax savings based on income.

One example: First-time home buyers may be entitled to a refundable tax credit of 10 percent of the purchase price, with a maximum credit of $8,000. In addition, for home purchases after Nov. 6, 2009, those who owned and lived in a home for at least five consecutive years out of the eight-year period preceding the purchase may be entitled to a credit of up to $6,500. The home buyer credit phases out for modified adjusted gross income of $75,000 to $95,000 for singles ($150,000 to $170,000 for joint filers) for purchases before Nov. 7, 2009, and $125,000 to $145,000 ($225,000 to $245,000 for joint filers) for purchases made after Nov. 6.

Get it?

But don’t despair. With a qualified professional or tax-preparation software — you can bet the pro will be using software — you don’t have to memorize all these details.

"Just know there are credits available," said Bob Meighan, vice president of TurboTax. "Don’t worry about the details; just put your numbers in."

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Medicine Shoppe and Medicap pharmacists in seven states sued Cardinal Health in federal court Tuesday, alleging the health care products distributor failed to make good on promises it made when it asked them to switch to a new franchise agreement.

The lawsuit filed in U.S. District Court in Columbus, Ohio, says franchise holders who agreed to the change offered in March 2009 are paying lower fees than others, while all are getting fewer supports and services from the Cardinal-owned Medicine Shoppe International Inc. and Medicap Pharmacies Inc. It says many who have the lower fees were charged "grossly unfair" penalties to switch from their old agreements.

Pharmacists want a return of penalties paid and for all franchisees to be charged the lower fees or be allowed to cancel their franchise agreements, said St free 3-in-1 credit report. Louis attorney David Harris, who represents the pharmacists. Plaintiffs include Medicine Shoppe franchisees in California, South Dakota and Kansas and Medicap franchisees in Pennsylvania, Idaho, Iowa and North Carolina.

Harris said the suit seeks class-action status and could include more than 600 franchises that account for $1 billion in drug sales for Cardinal. Most signed 20-year agreements.

Medicine Shoppe, which Cardinal acquired in 1995, had been based in Earth City but the pharmacy chain moved its headquarters to Dublin, Ohio, last year.

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