Debt-free Apple to take on debt to avoid huge U.S. repatriation tax hit

“The most interesting part of Apple’s earnings report wasn’t its $43.6 billion in revenue or $9.5 billion in net profit. Nor was it the 37.4 million iPhones and 19.5 million iPads sold over the last three months,” Peter Lauria reports for BuzzFeed. “It was the fact that, despite having just under $145 billion in cash and short-term marketable securities on its balance sheet, the company plans to borrow money by issuing debt for the first time in its history.”

“Sure, the company needs to find money to fund the extra $50 billion it plans to spend on share buybacks by 2015, which at a total of $60 billion makes it the largest single share repurchase program in corporate history. It also needs more money for its 15% dividend increase to $3.05 per share,” Lauria reports. “But taken together those moves only amount to $100 billion in extra cash between now and 2015, which Apple can easily fund from its normal business operations — cash flow from operations for the second quarter alone totaled $12.5 billion.”

Lauria reports, “The real reason Apple is borrowing money is because more than two-thirds of its $145 billion cash pile resides overseas, and bringing it back to the U.S., known as ‘repatriating,’ would subject the company to a huge tax hit… Apple isn’t alone in wanting to keep its cash overseas to avoid taxes. A study of 60 U.S. companies by the Wall Street Journal in March found that together they kept a total of $166 billion offshore last year, or more than 40% of their annual profits.”

Read more in the full article here.

Related articles:
Apple’s massive $100 billion capital return program is a perfect tax arbitrage – April 26, 2013
Apple to tap a hungry debt market; strong demand likely from investors eager to get cash off sidelines – April 25, 2013
Debt-free Apple plans to borrow to finance massive capital-return program – April 23, 2013
Apple beats Street on EPS and revenue; ups quarterly dividend by 15%; ups buybacks to $60 billion – April 23, 2013
Apple paid $6 billion in U.S. federal income taxes, 1/40th of all corporate income taxes collected by U.S. government in 2012 – January 5, 2013
Google, Apple, eBay shouldn’t pay taxes – people should pay taxes – November 25, 2012
So how much did Apple really pay in taxes? – November 1, 2012
Apple’s showdown with the U.S. government over taxes on offshore cash – July 13, 2012
Apple‘s $74 billion tops list of U.S. tech companies’ overseas cash – July 9, 2012
Apple’s dividend move puts spotlight on foreign cash holdings, repatriation tax reform – March 20, 2012
Apple: Good start; and what about the overseas cash? – March 19, 2012
Apple’s foreign cash hoard piles up: $54 billion and rapidly growing – January 11, 2012
Senator John McCain eyes Apple’s $54 billion overseas cash pile – November 3, 2011
Google joins Apple in push for U.S. repatriation tax holiday – October 3, 2011
Apple lobbies Obama for tax holiday, wants to bring overseas bounty home – August 24, 2011
U.S Senate Democrat Schumer allies with Apple, other multinationals on repatriation tax talks – June 21, 2011
U.S. companies push for tax break on foreign cash – June 20, 2011
Apple, Oracle, Duke Energy, others organize lobbying blitz for tax holiday – February 17, 2011


  1. As I said in a post a couple of days ago, it’s far, far cheaper for Apple to borrow money at a very low rate than it is to pay taxes on bringing overseas money back to the U.S. Plus, Apple still has the cash to invest, which can even offset the interest it pays on the borrowed funds.

    1. It may be cheaper to borrow, but it would be even cheaper to not borrow, and just have the overseas holding companies buy AAPL with the funds they hold. Buy-back accomplished, and asset growth as the shares appreciate …

      1. What you don’t understand is that Apple can borrow at the lowest rates available, given its debt/credit rating. Add to that the fact that the debt it incurs is tax-deductible at a rate equal to the cost of the debt. Net cost at current interest rates: ZERO.

        I’m not a fan of a company carrying debt, but in this case, it’s a clever move.

        For a patient investor with a long-term focus, the combination of reinvested dividends and the stock buy-backs will pay off nicely. Add to this the stupid meme of Wall Street and drive-by pundits that Apple will never innovate again, and you have an opportunity. I believe that one year from now, people will again be chattering about a new wave of innovations from Apple, setting the stage for another big rise in the company’s stock price. Patient investors will be rewarded in many ways.

  2. “A study of 60 U.S. companies by the Wall Street Journal in March found that together they kept a total of $166 billion offshore last year, or more than 40% of their annual profits.”

    n (Government, Politics & Diplomacy) Politics an alliance of parties or interests to further common aims.

    collusion n
    (Law) a secret agreement between opponents at law in order to obtain a judicial decision for some wrongful or
    improper purpose.

    con·spir·a·cy n.
    An agreement between two or more persons to commit a crime or accomplish a legal purpose through illegal action.

    1. Just because they are not giving you their money does not make it a government collusion between cartels to create a conspiracy.

      Maybe you think the Boston explosions were a government conspiracy.???

  3. I read an article in the last month or so that indicated that even though Apple would owe tax on all the overseas money when they repatriate it, the tax owed to the US has already been “accounted for” on the books somehow. Meaning… when they say AAPL has 100B or so offshore, that number wouldn’t magically shrink down to ~65B after they pay Uncle Sam. Anyone else familiar with this?

    1. That’s correct. The tax due, if repatriated, is being carried on the books as a liability. If they can bring the money back with a ‘tax holiday’ lower rate then the excess would transfer from a liability to an asset and then they would have even more money in the bank.

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