“Apple readied to sell $7bn worth of bonds on Thursday in its third tap of US debt capital markets this year, as the iPhone maker takes advantage of record low borrowing costs.,” Eric Platt reports for The Financial Times.
“The five-part sale, across fixed and floating rate notes, was roughly three times over subscribed at $21bn, according to two people familiar with the deal,” Platt reports. “Maturities ranged from three to 30 years.””
“The Cupertino, California-based company has become a staple of US capital markets as it seeks to fund its dividend and share buyback programme,” Platt reports. “Since 2013 Apple has raised more than $74bn through debt markets, according data provider Dealogic.”
Read more in the full article here.
MacDailyNews Take: More free money!
I don’t get it. Why would you take on debt to pay dividends? Shouldn’t dividend come out of the profits?
Because all their profits are outside the USA and they’d have to pay tax to bring them back.
Sheer idiocy. It’s not free money. There is a rate attached to these coupons.
It’s kind of free in that every dollar raised is backed by a dollar overseas which Apple has invested somewhere, probably in bonds at a higher rate.
Silly man.
They get super cheap interest rates until there is a way for them to bring overseas cash back into the US. The tax hit on bringing overseas cash hone are too high right now. When that changes, you will see them using local profits to fund the buybacks and dividends.
You have to look at the bigger picture in order to understand it better.
Apple has a huge amount of cash, but most of it is held overseas and that cash cannot be used to pay dividends or buy back stock. If Apple were to bring that cash into the US, it would be taxed at 35%.
By issuing bonds, Apple raises cash at rates that are massively lower than bringing back the offshore cash.
While I understand that, bonds come due at some time. Do you expect Apple to take out more bonds to pay the ones due in addition to funding buybacks and dividends should it come to that?
That’s pretty normal. When bonds come due you issue more.
I see.. However as bond debt increases wouldn’t it be reasonable that lenders would charge gradually higher rates on new bonds to pay off the old?
Apple is only using the cash to buyback shares. In this instance $7B will buyback roughly 0.07B shares at current price. When they retire all those shares, Apple will save $0.15B annually in dividends. That’s 2.2% per year of the original loan amount.
The interest rate is pretty close to that so essentially Apple borrows money to reduce its # of outstanding shares so that it cost less to post dividends.
The major downside for me is that Apple has to pay back that money at some point. Given the huge amount of overseas money that is not a big deal assuming it can be repatriated at a low tax rate.
The cost of dividends are typically less than the cash generated in the US each quarter so they do not use debt to pay this.
The Apple store has a “tax” on any thing sold in the store of 30%. They feel that this 30% is just the right amount to cover costs and run the store and have a of profit, even if the developers (Amazon, Pandora, and other like them) think it way to much. But they won’t bring back money into the US because it is taxed at 35%. Why is 35% not a fair value? What number will make them happy? What would be “fair”? How do you determine that magical lower percentage rate is the correct one? I know a lot of people will think it is to high no matter what the number is.
Apple has two choices here. It can either pay an additional 35% tax to bring it’s overseas cash into the US ( cash which has already been taxed where it was earned ), or alternatively it can issue bonds and get free money, while leaving that cash overseas for the time being.
The US rates for repatriating money are pretty high in these days of global corporations. If the US treasury were to revise it’s rate downward, it might well tempt Apple to think again, but with things the way that they currently are, Apple is adopting this entirely legal method of raising cash instead of paying two lots of taxation on it’s overseas income.
That is not completely correct. Apple would pay the difference from tax rate in the originating country and the tax rate in the US. Also it is probably only what apples tax rate is if that revenue is to be considered as income form the current year.
Irregardless Apple would still have to pay a significant amount of tax for repatriation.
How can anyone take you seriously if you don’t know the word “too”?
However, on the 30% store sale fee, did you know that before the App Store software was stocked and sold for a fee of around 70% to 80%? The 30% Apple charges is way way better, wouldn’t you say?
First, DON’T FEED THE TROLL!
A little off topic but like Paul said, 30% for a “fee” is WAY better than any on the shelf deal we ever received. I used to be in the gaming business developing games for Nintendo, Sega, Sony, etc. We normally received 3%-6%. So, getting a full 70% I’d take any day of the week.
But Scott, Frank or whatever name you give yourself. You don’t have to sell anything in the App Store or on iTunes. There are plenty of other options available for selling your products.
Now, go away already.
God only asks 10%. Why should government ask for more?
Tim Cook’s Apple is rotten to the core. Yes, dividends should come from profits but Apple’s revenue is decreasing. Significant numbers of consumers are not finding Apple products worth the money Apple is asking. Cinema Display is a relic that Apple still offers. The Macs are burdened with vintage technology. Additionally, Apple has promised more then it had delivered. Steve Jobs vehemently stated he “cracked it”, but Apple has delivered nothing. El Crapitan was a world wide embarrassment.
There was a man named Frank
Who was a bit of crank
When asked to explain why he was such a ubiquitous little troll
He said, wait a sec just taking a wank.
There was a kid named L’il Frank,
His tantrum posts defined him as a crank
No intelligent thought Frank put in his jot
His Mom & Dad still need to give him a proper spank.
There was a moron named Frank
Every post he wrote really stank
Civility and intelligence aside, he would post his diatribes
Can’t someone have him walk the plank?
There is an MDN troll named Frank
Who harsh words and immature actions are a prose blank
Knuckle dragging and drool, he continuously looks the fool
Please jab him with the sharp end of a shank
I’m not inviting your doofus rhyming criticisms anymore than your voluminous charlatan posting aka waste of screen space.
Mac/Frank, give it up you juvenile homosexual-obsessed moron. The only one being mounted daily here is you in your jail cell or junior high PE class.
‘Frank’! You’re losing it! You’re not the first post in the comments section! Watch your back of ScamScum might tell you “YOU’RE FIRED!” LOL LOL LOL.
OR ScamScum might tell you “YOU’RE FIRED!”
More coffee please.
“Significant numbers of consumers are not finding Apple products worth the money”
In nine years, Apple has sold more iPhones than the total sales of Rubik Cubes and Harry Potter books combined ( Rubik: 45 years to sell 350 million at about $20 each, Potter: 20 years to sell 450 million at about $15 each ). Nobody could possibly sell a billion of a $500 device unless a hell of a lot of people think they’re worth the money.
“Significant numbers of blahblahblah…”
And yet Apple continues to have a remarkable number of SWITCHERS AND Apple owns the mobile phone profits market. So WTF does ‘significant’ mean?
Spin, FUD, rhetoric, bombast, propaganda, marketing vomitus, disinformation, agitprop, ad nauseam. It’s all part of a normal day of Apple news.
Frank you are tiresome. Because of your cranky attitude, I just look at the first line of your posts and then move on. You are losing your audience. You are becoming ho-hum.
If my posts are irrelevant why do you keep commenting?
People are fascinated by train wrecks like you, unfortunately. The only thing you deserve it to be shunned by everyone here and in society in general. Sociopathic jerks like you will never “get better.” You love the attention being a born and bred troll.
And again I’ll bore everyone by pointing out that the ABSURDITY of Apple taking on debt is ALL thanks #MyStupidGovernment charging an outrageous rate for foreign-made-profits. That money remains outside the USA, which is loony. The debt/bonds method is a work around to allow Apple access to their own money as they choose. Fscking crazy. You’d think #MyStupidGovernment would bend over backwards to get those BILLION$ into the USA.
The fear is that eventually Apple US’s bond debt will be high enough that rates will be pushed up on future bonds forcing a repatriation of funds anyway.