The business implications of tax reform: will manufacturers seize the opportunity?

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A game changer for most industrial manufacturers

The most significant tax reform legislation in more than three decades promises to improve the business environment for manufacturing companies. The bill lowers corporate tax rates, provides easier access to foreign cash, and allows for the favorable expensing of capital acquisitions. The new expensing provisions will provide a demand catalyst for many goods produced by companies in the sector and serve as additional impetus to invest in and modernize their operations.

Preparing for change

Tax reform is a catalyst for change, shifting the focus of manufacturers from cost reduction to growth. Manufacturers should prepare for these changes in the business environment. Following are several overarching issues to consider.

  • Deploying additional cash: invest in manufacturing capacity, digitize manufacturing plants, improve back-office processes, upgrade IT, CRM capabilities
  • Investing in growth: current business vs. new market opportunities; organic vs. inorganic growth or return capital to shareholders
  • Preparing for a demand increase: sales and marketing messaging, production levels, supply chain efficiencies and adjustments
  • Changing capital structure: borrow in the US or abroad; global treasury function

Adding value to increase impact

Manufacturing executives each play an important role in seizing the opportunities related to tax reform. Following is a sampling of issues to consider:

Chief Executive Officer

  • Have you reprioritized your investment options, including M&A activity?
  • What is the impact of being able to access foreign cash more tax-efficiently?
  • Have you quantified the incremental free cash flow impact for the next 3 years?
  • What are investor’s current expectations for using incremental cash flow?
  • Has there been internal dialogue on prioritization of investment options?
  • Have you assessed the tax implications on executive compensation in 2018?
  • What’s your communications plan around the tax reform impact for the company?

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Chief Financial Officer

  • Have you quantified the incremental free cash flow impact?
  • Do you need to establish new treasury capabilities to take advantage of overseas financing?
  • What is the impact on your ability to raise new debt capital?
  • How should capital expenditures and investments change?
  • Do you have a strategy for determining which capital investments in operations should be accelerated or added to take advantage of repatriated cash and full expensing?

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Chief Operating Officer

  • What is the impact of incremental, one-time cash inflows and new capital expense policies on your budget priorities?
  • Have you evaluated the impact of tax reform on your suppliers, based on their footprint and entity structure?
  • Are you examining your supply chain footprint in light of new tax provisions (e.g., BEAT, GILTI, FDII)?
  • Is the current total cost structure for the existing operating model now sub-optimized?

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Contact us

Jeff Sorensen

Industrial Products Industry Leader, PwC US

John Livingstone

Global Industrial Manufacturing & Automotive Tax Leader, PwC US

Ryan Hawk

Industrial Products Advisory Leader, PwC US

Rajiv Jetli

US Advisory Principal, PwC US

Paul Elie

Industrial Products Deals Leader, PwC US

Bill Hull

Principal, Risk and Regulatory, PwC US

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