Wag-Aero's Demise

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Chip Sylverne said:
Then any and all expenses from maintaining, advertising, accounting, financing, taxes and every other expense associated with the property, as well as any depreciation, accelerated or otherwise, would have been deducted from income during the course of ownership, which presents a whole host of tax advantages. So my bet would be that the tax paid on the cap gains wouldn't be quite as burdensome as it may appear on the surface.
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Perhaps with a rental property.

Try it with an actual second home - like the one I have in the town where my company’s HQ is located. No tax break there - none at all. And yes, if I sell at a higher price due to inflation, the inflation gain is taxed fully, even though it is the exact same residence as when I bought it. There has been no profit and no income, just inflation….but they will collect tax on it as if it were actual income.
 
StraightnLevel said:
Perhaps with a rental property.

Try it with an actual second home - like the one I have in the town where my company’s HQ is located. No tax break there - none at all. And yes, if I sell at a higher price due to inflation, the inflation gain is taxed fully, even though it is the exact same residence as when I bought it. There has been no profit and no income, just inflation….but they will collect tax on it as if it were actual income.
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If you maintain a second home in a town solely for business purposes, why does your company not own the property and expense it?
 
Chip Sylverne said:
If you maintain a second home in a town solely for business purposes, why does your company not own the property and expense it?
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I’m a public-company exec, not a sole proprietor. The SEC would frown upon that sort of arrangement, and I’m fairly certain that the BoD would never approve it in the first place.
 
StraightnLevel said:
I’m a public-company exec, not a sole proprietor. The SEC would frown upon that sort of arrangement, and I’m fairly certain that the BoD would never approve it in the first place.
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The SEC frowns on no such thing. Corporations commonly own homes for executive residences. I sold a home in Connecticut to Cigna for just that reason. Your BoD is another matter, but maybe have a talk with your compensation committee when your contract comes up. Sell them the house.
 
StraightnLevel said:
No, but the tax code is the same for all of us. You might do well to study it a bit before posting again, as your statements here have made it clear that you don't have a solid grasp of how it works.

Honestly, whenever I see this sort of "tax equality" nonsense, I can tell immediately that it's likely a cut and paste from a political propaganda site, and/or someone who does not understand the tax code and almost certainly has never dealt with the upper income phase-outs and surtaxes. Anyone who understands the details of the tax code or pays those surtaxes knows better than to fall victim to the sort of disinformation that leads to the misconceptions that you are displaying.
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It seems you are the one spouting dogma. I have been in that six figure income bracket, W-2 type, and I sure paid more than 20% federal income tax. The tax code favors passive income compared to the middle to upper middle class wage-earners. That is the reality.
 
Doc Holliday said:
But it would change lives. Start taking away from the top, and the motivation for them to build businesses diminish, and the downstream effect is less employment or even layoffs.
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Do you have data to prove that or just dogma?
 
Ed Haywood said:
One person's passive investment is another person's working capital. Nobody buries their money in a jar, especially not rich people.
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Or they put their money into private equity firms which buy out companies, which do not universally provide working capital. They are as likely to cuts costs by moving the manufacturing overseas thereby increasing the profit margin and then taking it public again, or loading it up with debt, paying themselves off, and then letting the company sink or swim. All the examples cited in this discussion about the horrors of taxing businesses provide examples of small or family owned businesses and ignore the publicly traded companies and the private equity firms.
 
Kristin said:
It seems you are the one spouting dogma. I have been in that six figure income bracket, W-2 type, and I sure paid more than 20% federal income tax. The tax code favors passive income compared to the middle to upper middle class wage-earners. That is the reality.
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It does so to encourage investing. I see nothing wrong with that reality.
 
robin ardoin said:
It does so to encourage investing. I see nothing wrong with that reality.
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Primarily, it offsets the effect of both double taxation of corporate profits and also the effect of inflation.

Personally, I would prefer to see dividends taxed as regular income, but then have the dividend payments treated as an expense deductible to the corporation. That would end the whining from those who don't understand the system.
 
StraightnLevel said:
Primarily, it offsets the effect of both double taxation of corporate profits and also the effect of inflation.

Personally, I would prefer to see dividends taxed as regular income, but then have the dividend payments treated as an expense deductible to the corporation. That would end the whining from those who don't understand the system.
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Oh no!! Not a benefit to those terrible ‘corporations’. Oh the horror.
 
Kristin said:
Do you have data to prove that or just dogma?
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iu
 
Ed Haywood said:
One person's passive investment is another person's working capital. Nobody buries their money in a jar, especially not rich people.
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Not a jar, but how about burying their money in a Rolls-Royce? I found an article about a piece Milton Friedman wrote in Newsweek that explains why wealthy Brits used to prefer to ride around in expensive Rolls-Royces than risk their money in investments: https://www.americanexperiment.org/milton-friedman-explains-why-high-taxes-deter-investment/
 
Kristin said:
Or they put their money into private equity firms which buy out companies, which do not universally provide working capital. They are as likely to cuts costs by moving the manufacturing overseas thereby increasing the profit margin and then taking it public again, or loading it up with debt, paying themselves off, and then letting the company sink or swim. All the examples cited in this discussion about the horrors of taxing businesses provide examples of small or family owned businesses and ignore the publicly traded companies and the private equity firms.
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Private equity companies buy smaller companies and help them grow into bigger companies. I've seen it personally. You're just parroting ideological babble.
 
Dana said:
Better they be bought by ACS than some faceless Chinese corporation.
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that seems to be a little racist. who cares what ethnicity owns a company? ACS is pure garbage and full of liars as I have detailed in a previous post.
 
Kristin said:
Now we just need to fix the capital gains mess that allows billionaires to pay a lower percent in taxes than their low level employees.
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hmmm Elon Musk says he pays millions in taxes. how much extra of your income do you donate to the government so they can make bad decisions with your money?
 
Kristin said:
Or they put their money into private equity firms which buy out companies, which do not universally provide working capital. They are as likely to cuts costs by moving the manufacturing overseas thereby increasing the profit margin and then taking it public again, or loading it up with debt, paying themselves off, and then letting the company sink or swim.
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Which private equity firms specialize in off-shoring? Can you name a few?

PE has several playbooks that they typically implement, and off-shoring isn't one of them.

1) They buy distressed businesses. They then either figure out to make them profitable and sell them whole, or they carve out the valuable assets for sale and shut the remainder down. This business model is not pretty, but it's a necessary function in the market.

2) They buy family-held businesses with no heir where there is not a clear single large-company buyer. When the business has multiple components that are not in a common market space, they will figure out how to split the sub-businesses apart so that they can be sold off to appropriate operating entities (or run them themselves). They also clean up balance sheets by removing owners' personal use items and other unnecessary stuff that private companies don't have the discipline to get rid of (like the owner's plane, non-performing real estate, obsolete capital equipment, etc.). Finally, the PE firms know how to hire execs to run these businesses who can be successors to departing owners and/or family members.

3) They buy multiple small, marginal businesses in a given market segment and combine them to create a single viable entity, which they then can either operate themselves or sell them.

Note that none of these business models involve the sort of investment that is required to move operations offshore. It may have happened a few times here or there, but it's definitely not part of the basic PE model.

You don't have to like PE and how it operates. It helps the conversation if you understand what it is and what it does, however.
 
pfarber said:
that seems to be a little racist. who cares what ethnicity owns a company? ACS is pure garbage and full of liars as I have detailed in a previous post.
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I'm sure you're actually smart enough to have figured this out, but it's not about race or ethnicity. It's about China the nation. China, the nation, is a none-too-friendly competitor of the US, and many people would (quite rightly) like to see China as a nation own less of the US. Again, I'm pretty sure you already knew that, just thought I'd try to pull a bit of stuffing out of that particular straw man.
 
StraightnLevel said:
Which private equity firms specialize in off-shoring? Can you name a few?

PE has several playbooks that they typically implement, and off-shoring isn't one of them.

1) They buy distressed businesses. They then either figure out to make them profitable and sell them whole, or they carve out the valuable assets for sale and shut the remainder down. This business model is not pretty, but it's a necessary function in the market.

2) They buy family-held businesses with no heir where there is not a clear single large-company buyer. When the business has multiple components that are not in a common market space, they will figure out how to split the sub-businesses apart so that they can be sold off to appropriate operating entities (or run them themselves). They also clean up balance sheets by removing owners' personal use items and other unnecessary stuff that private companies don't have the discipline to get rid of (like the owner's plane, non-performing real estate, obsolete capital equipment, etc.). Finally, the PE firms know how to hire execs to run these businesses who can be successors to departing owners and/or family members.

3) They buy multiple small, marginal businesses in a given market segment and combine them to create a single viable entity, which they then can either operate themselves or sell them.

Note that none of these business models involve the sort of investment that is required to move operations offshore. It may have happened a few times here or there, but it's definitely not part of the basic PE model.

You don't have to like PE and how it operates. It helps the conversation if you understand what it is and what it does, however.
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StraightnLevel said:
Which private equity firms specialize in off-shoring? Can you name a few?

PE has several playbooks that they typically implement, and off-shoring isn't one of them.

1) They buy distressed businesses. They then either figure out to make them profitable and sell them whole, or they carve out the valuable assets for sale and shut the remainder down. This business model is not pretty, but it's a necessary function in the market.

2) They buy family-held businesses with no heir where there is not a clear single large-company buyer. When the business has multiple components that are not in a common market space, they will figure out how to split the sub-businesses apart so that they can be sold off to appropriate operating entities (or run them themselves). They also clean up balance sheets by removing owners' personal use items and other unnecessary stuff that private companies don't have the discipline to get rid of (like the owner's plane, non-performing real estate, obsolete capital equipment, etc.). Finally, the PE firms know how to hire execs to run these businesses who can be successors to departing owners and/or family members.

3) They buy multiple small, marginal businesses in a given market segment and combine them to create a single viable entity, which they then can either operate themselves or sell them.

Note that none of these business models involve the sort of investment that is required to move operations offshore. It may have happened a few times here or there, but it's definitely not part of the basic PE model.

You don't have to like PE and how it operates. It helps the conversation if you understand what it is and what it does, however.
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PE is neither all corporate looters, nor all angel investors. Some are pretty much corporate looters, others careful to grow key parts of the acquired businesses. It all depends on the firms structure, environment, rivals and where it is in it's business cycle.
A discussion of specific cases would be a fun flashback to B school.
But the one thing that can be said for all PE partners is the goal to earn an ROC that is taxed at a lower rate primarily due to carried interest preferential treatment.
 
Ed Haywood said:
Private equity companies buy smaller companies and help them grow into bigger companies. I've seen it personally. You're just parroting ideological babble.
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Sometimes it works that way. Many times it does not.
 
pfarber said:
that seems to be a little racist. who cares what ethnicity owns a company? ACS is pure garbage and full of liars as I have detailed in a previous post.
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I couldn't care less about the ethnicity of the corporate owners. The business ethics that are legal or tolerated in the owner's country are another matter, and China is notorious for what we here would consider unethical business practices.

I also don't like to see the ownership of US corporations move overseas no matter where.
 
StraightnLevel said:
Which private equity firms specialize in off-shoring? Can you name a few?

PE has several playbooks that they typically implement, and off-shoring isn't one of them.

1) They buy distressed businesses. They then either figure out to make them profitable and sell them whole, or they carve out the valuable assets for sale and shut the remainder down. This business model is not pretty, but it's a necessary function in the market.

2) They buy family-held businesses with no heir where there is not a clear single large-company buyer. When the business has multiple components that are not in a common market space, they will figure out how to split the sub-businesses apart so that they can be sold off to appropriate operating entities (or run them themselves). They also clean up balance sheets by removing owners' personal use items and other unnecessary stuff that private companies don't have the discipline to get rid of (like the owner's plane, non-performing real estate, obsolete capital equipment, etc.). Finally, the PE firms know how to hire execs to run these businesses who can be successors to departing owners and/or family members.

3) They buy multiple small, marginal businesses in a given market segment and combine them to create a single viable entity, which they then can either operate themselves or sell them.

Note that none of these business models involve the sort of investment that is required to move operations offshore. It may have happened a few times here or there, but it's definitely not part of the basic PE model.

You don't have to like PE and how it operates. It helps the conversation if you understand what it is and what it does, however.
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Yours is a malformed question in that I never said that there were private equity firms that "specialized" in off-shoring. However, they certainly indulge in it. Further, you give some generalized examples of motivations and likely occasionally things worked out that way. Which category do you see Hartzell falling into as they were just bought by private equity and have been busy raises prices dramatically. Did they raise prices, sometimes 30% or more, because the previous owners were too ignorant to do?
 
FastEddieB said:
Pretty sure they already are for the most part. Look at form 1040 for verification. Excluding the edge cases such as tax-free municipal bonds where their dividends are not taxed at all.
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Corporate dividends are divided into two taxable status': qualified and non-qualified. Non-qualified dividends are taxed as regular income, while qualified dividends get a preferential tax treatment similar to long-term capital gains. If you have held the underlying equity for more than 6 months when the dividend is recorded (ex-dividend date), your dividends will likely be qualified; less than 6 months, they are likely non-qualified. In either case, the earnings that the company pays the dividend from have already been taxed at the corporate level, so the dividend tax shareholders pay is a second round of taxation.

www.investopedia.com

What Are Qualified Dividends, and How Are They Taxed?

A qualified dividend is a payment to owners of stock shares that meets the IRS criteria for taxation at the capital gains tax rate.
www.investopedia.com www.investopedia.com
 
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Kristin said:
Yours is a malformed question in that I never said that there were private equity firms that "specialized" in off-shoring. However, they certainly indulge in it.
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Cool. Name a few examples for us.

Kristin said:
Which category do you see Hartzell falling into as they were just bought by private equity and have been busy raises prices dramatically. Did they raise prices, sometimes 30% or more, because the previous owners were too ignorant to do?
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Good question. Since they aren't public I can't see their P&L or balance sheet. Since they aren't in my industry, I never got to see the sale proposal documents. Thus, I can't give an informed opinion, and neither can anyone else who doesn't have access to that information.
 
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Chip Sylverne said:
PE is neither all corporate looters, nor all angel investors.
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I think that this could be said for pretty much all businesses...pretty much all humans, for that matter.

Chip Sylverne said:
But the one thing that can be said for all PE partners is the goal to earn an ROC that is taxed at a lower rate primarily due to carried interest preferential treatment.
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That's a tough one - and WAY beyond the scope of an aviation forum. Yes, they try to operate with a minimum 3-year timeline so that the gains above the hurdle rate qualify for carried interest treatment.

On the one hand, forcing a 3-year minimum investment hold time and a minimum ROI before carried interest rules kick in encourages longer-term thinking and discourages "scorched-earth" PE management approaches.

OTOH, there are a heck of a lot of us in public companies who also have to hold shares over 3-5 year periods (or longer) and have clawback and minimum performance standards....but we all pay the taxes at regular income rates.
 
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Kristin said:
Yours is a malformed question in that I never said that there were private equity firms that "specialized" in off-shoring. However, they certainly indulge in it. Further, you give some generalized examples of motivations and likely occasionally things worked out that way. Which category do you see Hartzell falling into as they were just bought by private equity and have been busy raises prices dramatically. Did they raise prices, sometimes 30% or more, because the previous owners were too ignorant to do?
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The owner of Hartzell dies, leaves the company to his sons. The sons decide to sell the company off and cash out. Now the new owners are trying to get the company profitable (which is the reason anyone buys a company) and in today's market with inflation, they must raise the prices. This is reality.

Should the new owners just continue to sell the product at former prices and watch inflation erode the profit? How long would that model be sustainable?

The brothers sold the company to a PE group. Were there others in line willing to meet or exceed the offer the new owners paid?
 
Doc Holliday said:
The owner of Hartzell dies, leaves the company to his sons. The sons decide to sell the company off and cash out. Now the new owners are trying to get the company profitable
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Correct - you have it nailed.

The other alternative would be for the sons to simply close the doors and walk away. Would that be a better outcome for the industry and employees (rhetorical, obviously)?
 
We could have along discussion on whether a 3 year horizon qualifies as long-term, but I'll leave that.

The third alternative is that PE buys Hartzell cognizant of the fact that it is in a highly regulated, mature industry, with nearly insurmountable regulatory capture preventing new entry, and makes a decision to press the nearly monopolistic pricing advantage.
 
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Chip Sylverne said:
The third alternative is that PE buys Hartzell cognizant of the fact that it is in a highly regulated, mature industry, with nearly insurmountable regulatory capture preventing new entry, and makes a decision to press the nearly monopolistic pricing advantage.
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They are in a niche market as you mention. But also you have to figure in inflation. Increased prices of materials, labor, outsourcing, and of course liability insurance just to name a few.

I don't see it as a monopolistic pricing advantage, but just the reality of the times. They didn't buy the business to break even.
 
Chip Sylverne said:
We could have along discussion on whether a 3 year horizon qualifies as long-term, but I'll leave that.

The third alternative is that PE buys Hartzell cognizant of the fact that it is in a highly regulated, mature industry, with nearly insurmountable regulatory capture preventing new entry, and makes a decision to press the nearly monopolistic pricing advantage.
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On the EAB side of things, there's Whirlwind propeller. But Hartzell bought Whirlwind shortly after PE bought Hartzell. Now even the EAB guys that actually had another option are now almost stuck with a Hartzell product.
 
It's certainly an interesting look into price elasticity of demand. Look at Van's bankruptcy price re-takers for instance, they make MLM conferences seem hinged by comparison. We'll see what Hartzell's repricing yields. The lawnmower sector certainly seems intent in "shrinking to profitability", so I guess we'll see how that pans out.

This is largely the purview of revenue operations anyways anymore. The recreational space is quickly abandoning ship for E-(AB/LSA/blah blah blah) where you can actually switch blades (pun intended) without being beholden to some anachronistic TC/STC. And yes, I'm aware of Whirlwind capture. If anything, that would be a great case study given you can exercise choice against it, absent a TC. So my point about recreational space gravitating to non-TC land still stands.
 
StraightnLevel said:
Cool. Name a few examples for us.


Good question. Since they aren't public I can't see their P&L or balance sheet. Since they aren't in my industry, I never got to see the sale proposal documents. Thus, I can't give an informed opinion, and neither can anyone else who doesn't have access to that information.
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You must have been asleep during the 2012 election and missed all the discussion about Bain Capital, etc. Lots of examples if you want to Google it.

As for Hartzell, all I need to know is that prices jumped overnight about upwards of 30%.
 
Doc Holliday said:
The owner of Hartzell dies, leaves the company to his sons. The sons decide to sell the company off and cash out. Now the new owners are trying to get the company profitable (which is the reason anyone buys a company) and in today's market with inflation, they must raise the prices. This is reality.

Should the new owners just continue to sell the product at former prices and watch inflation erode the profit? How long would that model be sustainable?

The brothers sold the company to a PE group. Were there others in line willing to meet or exceed the offer the new owners paid?
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Did these things happen, or are you just spinning a hypothetical here? Seems unlikely that Hartzell wasn't profitable as it has been buying up other entities at a great rate over the last decade.
 
Kristin said:
Did these things happen, or are you just spinning a hypothetical here? Seems unlikely that Hartzell wasn't profitable as it has been buying up other entities at a great rate over the last decade.
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Apparently you don’t know the actual story behind Hartzell.

Also, apparently, you don’t understand inflation. Or business.
 
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