Vacuum Cleaners Discussions

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/11/04/cndyson104.xml

Results on year to December 2006 :-

• Profits up 19 per cent to £115m
• Sales up 9 per cent to £514.7m
• R&D spend increased, up £20m to £70m

James Dyson refinances and takes a £145m/$289m payout.  Here.

DIB:

Interesting article, which is very short on details:

The payout of $289 Million is a debt on the dyson Balance Sheet [read decrease in Assets; decrease in Capital [Retained Earnings] and increase in Liabilities.  That's not good for the dyson company IMHO.  The payout is not from dyson profits on operations.  The payout represents 450 percent more than the company's net profit for 2007 [$64 Million]. 

It raises questions:  Why is Mr. Dyson borrowing money from the company?  Did Mr. Dyson pay himself any compensation for 2007 from company earnings [Income Statement]?  Or, did he borrow from the company's assets [Balance Sheet] for his 2007 compensation?  The latter is not the normal course of business for paying yourself.  Even if you own the business.   

Dyson did it before the new UK capital gains laws go in effect [April 1].  I don't know the specifics of the laws.  My suspicion, based solely on the exigency of the dyson's Board action, is that the new laws do the following: (1)  Preclude private company owners [like Dyson] from making such huge payouts from the assets of their companies as compensation [as does the USA]; and/or (2) Tax the amounts borrowed for compensation at much higher rates [as does the US to discourage the financial practice].  Possibly both.

A side bar:  The article states that dyson appliances captured 20 percent of the US market share in 2005 and 30 percent in 2007?  If appliances is another way of saying "vacuums,' how did it arrive at the percentages?  NPD, the authoritative industry source, as told by Airblade, says dyson share is 9.5- 10 percent.    Did Mr. Dyson take the payout in the form of dyson vacuums?  That would explain it!

Carmine D.

CarmineD wrote:

Just a quick answer to your side bar..............Both numbers are correct.

9.5-10% is UNIT share

20-30% is DOLLAR share

Carmine, the UK Capitol Gains Tax is increasing by 8% in a week or so.  Many are scrambling to avoid this tax.  Here.   Perhaps Dyson paid himself 2 years out.       DIB

Airblade wrote:

Thanks Airblade.  You're right.

Carmine D.

DysonInventsBig wrote:

Thanks DIB:

You're right, and that's probably true.  Mr. Dyson paid himself now for the future...at the expense of adding debt [increasing Liabilities, decreasing Capital, and decreasing Assets] on dyson's balance sheet.  Smart and good move for him.   Good for dyson?  BAd for dyson?  Especially in the current and future economic conditions.  Good financial practice?  Or shakey? 

That payout [$289 Million] is 450 times dyson 2007 net profits [$64 Million].  It will take dyson, based on 2007 results of operations, 4.5 years to recoup Mr. Dyson's future compensation.  In business, that's a long time with alot of future uncertainty. 

The UK CGIT went from 10 percent to 18 percent.  Very low by US standards.  Does the increase warrant a future payout of 450 times 2007 net profit?  By adding substantial debt to the Balance Sheet?  Apparently, the dyson Board thought so and passed approval quickly.  To allow Mr. Dyson to avoid paying the higher income taxes to the UK.  Wonder what his UK house is assessed for property tax purposes?

Carmine D.

DysonInventsBig wrote:

If I understand the UK CGIT correctly from the readings, before the law was changed it was 10-40 percent depending on the time period that the funds were held.  It's called the "taper effect."  Whereby the longer the income producing asset is held, the less tax is owed and paid.  The new UK CGIT changes to a flat rate of 18 percent on April 5.  Lower than the 40 percent but higher than the 10 percent.

Many business owners, like Mr. Dyson, deferred compensation in the past to avoid the 40 percent tax hit and take advantage of the 10 percent rate by waiting [the taper effect].  The April 5th change eliminates the taper effect so there is no longer an advantage to holding the income producing assets.  Owners are pulling the money out of the company that would have been taxed at 10 percent.

My sense is [assuming my understanding is correct], Mr. Dyson pulled out his deferred compensation to keep taxes at 10 percent.  And quite possibly paid himself future compensation, to avoid the 18 percent hit.  Not knowing the specifics, there is no way to know what part of the $289 Million represents deferred compensation to Mr. Dyson and what part is future compensation.  Also, it is not known the amount of the debt on dyson's books for the payment of future compensation.

Carmine D.

 

Carmine, Dyson took a $60m dividend and a $60m approx. salary in this timeframe.  Here.  Assuming James is paying for his proposed school personally.  The school costs as of late, is said by Dyson, will have to be double ($25m to $50m) due to the many hurdles since the original proposal.  James’ business is not my business for sure but here this…  2 yrs salaries, dividends = $240m + $50m (school cost) nearly equals his recent payout.        DIB

DIB:

Thanks, I'll read, haven't yet.  Was curious about the dyson plan for the Engineer School.  And thought what in the world is Mr. D doing with all this money?  And then thought the good part of the $289 Million was for the School and Scholarships. 

Carmine D.

I guess you can't really criticise someone for putting measures in place to avoid paying some tax (although I'm sure some will try) when you're stumping up 50% of the cost for a school to improve the number of future engineers. Dyson often makes a point of mentioning that he's never taken a government subsidy to build his business.

If you read his book 'Against the odds', you'll see in the early days he was very nearly put out of business by a US plastics company, buoyed up with a local development subsidy, who tried to screw him for as much money as they could when production ramped up, then 'vandalised' the moulds when Dyson cancelled the contract.