Apple Raises $7 Billion in Debt Ahead of Trump's Proposed Tax Holiday

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Apple has raised $7 billion in debt in a six-part bond sale, according to the company's final pricing term sheet filed with the Securities and Exchange Commission today. The fixed and floating notes mature between 2020 and 2027.

Apple said it entered 2017 with $256.8 billion in cash and marketable securities, but approximately 93 percent of that amount is held outside of the United States. Those foreign reserves would be subject to up to a 35 percent corporate tax rate if repatriated, so Apple turns to the debt markets to raise money at a cheaper cost.

Apple will use the $7 billion raised to continue funding dividend payments and share buybacks. Apple expanded its share repurchase authorization by an additional $50 billion this week, and the company says it expects to spend a total $300 billion in cash under its capital return program through March 2019.

Apple also typically puts the money towards operational expenses, repayment of earlier debt, and acquisitions of other companies. Then there's Apple's new $1 billion advanced manufacturing fund announced by CEO Tim Cook earlier this week, which will need to be funded eventually as well.

Apple may not have to raise as much through debt markets in the future, as U.S. President Donald Trump has expressed his desire for a tax holiday that would allow domestic companies to repatriate foreign cash at a discounted tax rate. Reports have suggested the rate could be as low as 10 percent.

Interestingly, unlike many of Apple's recent bond offerings, today's sale does not include any notes with 30-year maturities. Some analysts believe Apple may be avoiding long-term bonds given the possibility of a tax holiday.

Peter Tchir of Brean Capital in a note to clients obtained by Barron's:
This is the 7th time Apple has come to market with a big slate of bonds. They started in 2013 with no debt and should be at about $100 billion by the end of today. In each of those prior deals they issued 30 year bonds - but not this time. Is it uncertainty over taxes? Talk about an ultra-bond on treasury side? Repatriation? Maybe it means nothing, but I think it is at least mildly curious that they aren't doing a new long bond here.
Apple's financial chief Luca Maestri this week acknowledged "there is a lot that still needs to happen there," in regards to the Trump administration's tax plans. "The program we're announcing today reflects the current tax legislation in this country," he said. "Obviously we will reassess our situation if things change."

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Article Link: Apple Raises $7 Billion in Debt Ahead of Trump's Proposed Tax Holiday
 

WarHeadz

macrumors 6502a
Aug 30, 2015
900
5,167
Long Beach, California
Trump probably doesn't remember he ever said that. He has the memory of a goldfish. I wouldn't count on him making good on it.
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Apple may not have to raise as much through debt markets in the future, as U.S. President Donald Trump has expressed his desire for a tax holiday that would allow domestic companies to repatriate foreign cash at a discounted tax rate. Reports have suggested the rate could be as low as 10 percent.
 

melgross

macrumors 6502
Jan 23, 2004
345
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New York City
I don't think this will be used for dividend payments. Cook has already stated about a year ago, that dividend payouts are only from cash earned here, in the states. Money borrowed is for share buybacks and sometimes, capital investments, such as plant equipment and R&D.
 

whooleytoo

macrumors 604
Aug 2, 2002
6,574
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Cork, Ireland.
I'm not a tax expert, can anyone explain the benefits behind moving cash stateside? Can't Apple spend the money just the same regardless of what country the bank account is located in?
Not sure. It might be partially due to the negative press against companies seen (rightly or wrongly) as international tax dodgers. It could also be that with the EU's €13 billion Apple ruling, Apple may be wary of putting their eggs in one basket by holding too much of the money in one jurisdiction.
 

melgross

macrumors 6502
Jan 23, 2004
345
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New York City
I'm not a tax expert, can anyone explain the benefits behind moving cash stateside? Can't Apple spend the money just the same regardless of what country the bank account is located in?
It's stated in the article. Profits earned outside the US are subject to the US tax. The US is about the only country that taxes profits from foreign sources. So if Apple brings those profits back, they're subject to a tax that can be as much as 35%. Borrowing money for Apple is cheap, about 2-3%. So it costs a lot less to borrow the money for use here, in the US, than bringing those profits back.

So no, they can't just spend the money no matter which bank it's in without paying the taxes. And most of their money isn't in cash in a bank, it's in short term, medium term and long term investments,
 

Carnegie

macrumors 6502a
May 24, 2012
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I'm not a tax expert, can anyone explain the benefits behind moving cash stateside? Can't Apple spend the money just the same regardless of what country the bank account is located in?
To be clear, when we say repatriate we really mean distribute those earnings from a foreign subsidiary to the parent U.S. company. The money can be anywhere (to the extent it might be thought of as being somewhere). The foreign subsidiary can have it invested in a number of different ways. In Apple's case, most of it is loaned to other corporations. A big chunk of it is in U.S. Treasuries. Some of it is in MBSs or U.S. agency debt.

To answer your question though: No, Apple can't spend that money just the same regardless of whether it has been distributed to the parent U.S. company. It can't use it to build things here in the United States, it can't use it to pay employees here (i.e. employees of the parent company), it can't use it to pay dividends, it can't use it to buy back shares. One way of thinking about it is this: The parent company can't use that money, but the foreign subsidiary can.
 

melgross

macrumors 6502
Jan 23, 2004
345
209
New York City
Sorry, it's for billionaires only.
Actually, that's not true. Any American who earns income abroad is subject to this tax when bringing their income home. It's the difference in the taxes they pay locally, wherever they are, and the higher US tax. If there is a change in that law, and Trump wants to have it done, and Congress agrees, it could affect every American working, and being paid, out of the country.
 

RogerWilco

macrumors 6502a
Jul 29, 2011
755
1,244
Actually, that's not true. Any American who earns income abroad is subject to this tax when bringing their income home. It's the difference in the taxes they pay locally, wherever they are, and the higher US tax. If there is a change in that law, and Trump wants to have it done, and Congress agrees, it could affect every American working, and being paid, out of the country.
Perhaps so, but the machinations used by Apple (and other large multinationals) to move and shelter their profits are not available to "any American". The IRS is going to great lengths to monitor and penalize individuals who try and evade taxes through offshore accounts.
 

shareef777

Suspended
Jul 26, 2005
2,445
3,272
Chicago, IL
Actually, that's not true. Any American who earns income abroad is subject to this tax when bringing their income home. It's the difference in the taxes they pay locally, wherever they are, and the higher US tax. If there is a change in that law, and Trump wants to have it done, and Congress agrees, it could affect every American working, and being paid, out of the country.
If you believe that, then I've got a wall to sell you!
 

Return Zero

macrumors 6502a
Oct 2, 2013
818
1,962
Kentucky
The tax holiday shouldn't give them a lower rate than regular Americans have to pay on overseas income.
Agreed in general, but in this case it's money that wouldn't otherwise be repatriated (necessarily). It isn't hurting Apple too much to keep it there, so without a tax holiday or some other incentive, the potential tax revenue from it is as good as gone.
 
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Zorn

macrumors 65816
Feb 14, 2006
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To be clear, when we say repatriate we really mean distribute those earnings from a foreign subsidiary to the parent U.S. company. The money can be anywhere (to the extent it might be thought of as being somewhere). The foreign subsidiary can have it invested in a number of different ways. In Apple's case, most of it is loaned to other corporations. A big chunk of it is in U.S. Treasuries. Some of it is in MBSs or U.S. agency debt.

To answer your question though: No, Apple can't spend that money just the same regardless of whether it has been distributed to the parent U.S. company. It can't use it to build things here in the United States, it can't use it to pay employees here (i.e. employees of the parent company), it can't use it to pay dividends, it can't use it to buy back shares. One way of thinking about it is this: The parent company can't use that money, but the foreign subsidiary can.
Isn't that really just semantics, though? Okay, Apple Inc. can't use the money to build a building in the U.S., but couldn't Apple Ireland, Inc. (which is the same company) just write the check to cover that expense?
 

neuropsychguy

macrumors 65816
Sep 29, 2008
1,322
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Where do I sign up for this tax holiday when it's available ...
You can make a lot of money overseas, pay taxes to those countries, and then keep your money over there because you don't want to be double-taxed. If you fall into that boat, you might just qualify.
 
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gnipgnop

macrumors 65816
Feb 18, 2009
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At current rates it's basically free money.
This is what these kinds of articles always fail to mention: large corporations like Apple are basically being paid by the government to borrow money due to the current rock bottom interest rates. That's why it's so cynical for companies to complain about the repatriation taxes. They're already getting an unbelievable deal from the government in the form of bond rates vs. interest rates. Giveaways on top of giveaways...
 
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