Why mega-rich Apple – with $150 billion in cash – has to borrow $17 billion

“A company sitting on a $150 billion cash pile planning a $17 billion bond issue to buy back its shares? It sounds like a bad joke, and Apple, the company in question, is keenly aware of it,” Leonid Bershidsky writes for Bloomberg View. “‘We very much appreciate all of the input that so many of our shareholders have provided us on how best to deploy our cash,’ Apple chief executive Tim Cook said during the recent earnings call, trying hard not to sound sarcastic. He was just about to reveal the expansion of the company’s $100 billion buyback program to $130 billion, but, as it later transpired, the cash pile was not to be depleted: Apple would use borrowed funds instead.”

“Luca Maestri, who will soon take over as Apple’s chief financial officer, explained the reason for this strange behavior during the same earnings call,” Bershidsky writes. “‘Thanks to Apple’s strong growth and international expansion in recent years we’ve built substantial offshore cash balances,’ he said. ‘To repatriate our foreign cash under current U.S. tax law, we would incur significant tax consequences and we don’t believe this would be in the best interest of our shareholders.'”

“Specifically, 88 percent of Apple’s cash, or $130 billion, is overseas, and were the company to bring it home, the taxman would claim about a third of it,” Bershidsky writes. “Last year, when the Securities and Exchange Commission asked Apple about its foreign earnings, the iPhone maker replied that most of it was generated by Irish subsidiaries and ‘intended to be indefinitely reinvested in operations outside the U.S.’ If Apple issues debt in Europe, the proceeds could be used for the buyback, while the interest and principal owed to debt investors would be paid out of the Irish cash pile.”

“It is, perhaps, not entirely unwise for the U.S. to have tax rules that force American companies to globalize. It adds to their financial stability, speeds up their growth and increases their access to innovative technology and is, in the end, good for both these companies’ U.S. shareholders and for the government,” Bershidsky writes. “It would, however, be interesting to see where U.S. companies’ cash would flow if the U.S. adopted Ireland’s 12.5 percent corporate tax rate… As Richard Burton, Ireland’s minister for enterprise, once said, “we make no apologies for having a regime that’s designed to promote employment in this economy.” While the U.S. does have a more global role to play, perhaps it should also be less apologetic about promoting its own growth.”

Read more in the full article here.

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33 Comments

    1. First, Apple ISN’T paying 12.5% to Ireland for all that overseas money. For the vast majority of it, they are funneling it to Bermuda, to pay 0%.

      Second, even if the US rate was 12.5%, Apple wouldn’t repatriate the cash, because interest rates are so low. And if the interest rate is significantly lower than the tax rate, they borrow. That’s why Apple wants another “repatriation” holiday where the rate goes to < 5%.

            1. Fine. Normal people counter with a description of what they believe the truth is.

              Trolls counter with “You don’t know what you are blithering about”

            2. It’s is unnecessary. Your statement is false on its face. Your claim that the majority of Apple’s holdings are held in Bermuda is just plainly a lie. . . Easily discovered in any cursory examination of Apple’s Financial statements and Apple’s overall tax rate of 26-27% gives lie to your absurd claim of 0% taxation. . . especially given that these are published, audited documents under penalty of perjury. Your bald lies are what I was calling you on. Tim Cook testified under oath before Congress on these issues. . . making your egregious statement even worse.

            3. And once again, all you come up with is “you are wrong, and you can search for how you are wrong” without actually saying x,y, z is wrong, and this is what it actually is.

              First, Apple employes “Routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean, an accounting technique known as the “Double Irish With a Dutch Sandwich”

              Second, I was mistaken. Reports just mention Apple using a Caribbean country as part of the Double Irish, to avoid paying tax in Ireland. Google specifically uses Bermuda.

              Third, while Tim Cook did mention that 26% tax rate they paid worldwide, actual tax analysts know that number is greatly inflated, and that Apple DEFINITELY has NOT paid that amount of money to gov’ts that year.

            4. You are the one making EXTRAORDINARY claims, not me, I don’t have to prove the facts presented in Apple’s sworn testimony before Congress. You are the one claiming they are lying. YOU are the one who must prove guilt. You have to show the smoking gun, not just make innuendos and accusations about “reports” and what “Google” does are red herrings that are irrelevant. Apple PUBLISHES its tax returns. That 26-27% tax rate is in AUDITED financial statements that are open to any one. Go look them up. It’s paid. The only liar here is you. Multi-national corporations have too many eyes looking over their shoulders to do what you are claiming. Don’t you know the officers would wind up in prison? AND be held personally responsible to the stockholders? Sheesh! Didn’t you pay attention to the laws passed after the Enron debacle? Please NAME your tax analysts who can prove your assertions and have them contact the US Attorney and California Franchise Tax Board, the Internal Revenue Service and the taxing agencies of every nation Apple conducts business in, and provide your findings. Show THEM where Apple has not paid their due taxes! I repeat. YOU made the claim, the burden of proof lies on YOU! I, and Apple, have nothing to prove. The facts stand on their own.

  1. Apple:-)

    Keep up the ( growth ) good work! Globally!!!
    Money talks … Keep makin’ more!! Keep it AAPL management 🙂

    Listen to all the noise and at the end of the day … Do da Apple thing!!

    Proud AAPL share holder 🙂 Soon 7x times mo!!!

    Buy AAPL stocks 🙂

  2. What could be easy becomes complex once the innocent light of simplicity shines through the compound prism of local, state, federal and international taxes and regulations.

    In a sense, I do not blame the United States for demanding its piece, Ireland for taking advantage of outside investment with laws clearly designed to welcome the wealth of foreign nations (even if it’s just a holding pattern with only a sliver of fiscal benefit — but some being better than none) or Apple for studying its options and being as frugal as possible with company funds and shareholder money.

    And yet, the combination of the three still manages to cast a freakish, blurry, nausea-inducing glow on the business landscape that I can’t help myself but to resent.

    1. I do not understand your logic at all.

      You said: “I do not blame the United States for demanding its piece,”
      . . . This is stupid, stupid, stupid. The US is NOT demanding its peace. A few headline grabbing politicians are making demands and then people like you castigate (resent) Apple when ALL that Apple has done is 100% comply with the LAW of the USA.

      WHY do you resent the business landscape? The businesses and Apple are not “skirting” or manipulating it. They are only following the laws of your government.

      The US is getting what its laws require – pure and simple. If you are angry or resentful, write your congressman to change laws, not castigate a company that obeys the law.

      1. I’m a member of the business landscape. And I’m a big fan of Apple.

        I think the point I was bouncing about was the idea that each of these things on their own is fine — it is the combination that doesn’t work so well.

        In a simple world, a company with billions upon billions of dollars does not borrow money. In this world, that bizarre act makes perfect sense. Hence, it is a disjointed and overly complex system that we are all a part of.

        I don’t think any Congressman can fix that, frankly.

        1. “In a simple world, a company with billions upon billions of dollars does not borrow money.”

          Sure they do! It all depends upon what the cost of the money is and what you plan to do with it. I can pay cash for a car, or I can borrow cheaply and put my cash to better use elsewhere.

      2. The U.S. IS demanding its piece if Apple brings its money into the U.S. And that piece would be about 1/3, which means no company in its right mind would bring billions into the U.S. it did not have to.

    1. I don’t know what the frack Obama is. He does the quaint slightly liberal agenda while dumping the USA into Neo-Feudalism by way of our Corporate Oligarchy and it’s draconian abuse of US citizens.

      Maybe Obama is following the money. OR, he’s simply insane.

      1. I’ve concluded that his abject lack of experience combined with a rhetorical self-love and a deference to expertise beyond his own has created a perfect storm of ineptitude.

        I really wanted to accept the man but it is difficult after so many policy failures and critical hesitations. Is it so wrong of me to admit my own weakness and wrongness with respect to a world leader?

  3. Simple fix would be to do as the President recommended, lower the corporate tax to 20 to 25% and remove all loopholes, including not paying tax on foreign earnings. For some reason the House is opposed to this. Perhaps because many companies effectively pay no or little tax with the current 35% rate?

    1. “Closing the loopholes’ is meaningless political talk. There’s reasons these loopholes exist. They make certain people tons of money, and these people pay lobbyists and politicians to keep loopholes open and make new loopholes where old ones are closed.

      If want to talk about closing loopholes, and be real about it, you need also talk a revolutionary removal of big money’s influence on Washington.

        1. Mmmm… no. Those mortgage interest deductions you talk about are there to help people wealthier than I am save money.

          Maybe in your small group of (all-white?) moneyed friends and family, assuming everyone owns one or multiple homes is a safe assumption. But here in the rest of America, where houses are fucking expensive, you are just likely to find renters like myself who file with standard deductions.

      1. Some loopholes are not loopholes but the legitimate COST of making income. The truth is that business do not pay any taxes at all. . . They can’t. . . EVERY PENNY THEY MUST PAY IN TAXES COMES FROM ONE SOLE SOURCE: you, the customer. Every tax the business pays is built into the price of the product YOU buy. Every tax.

  4. Why???!!

    It’s because Tim Cook is an ignorant, foolish, sausage swallowing twink!

    A babboon with a learning disability could run Apple better.

    There are child molesters that are bothered by Cook’s strange grin.

    I’m glad there are less keynotes, as this guy is about as interesting as molding cheese, as innovative as a baloney sandwich, and about as entertaining as a Mexican soap opera!

    1. Yes, I believe you have hit the nail on the head with your astute and well-reasoned line of thinking. I can only assume that your erudite knowledge comes from close association – has Tim had your sausage in his mouth? Are you the baboon to whom you refer? Are you also the child molester? And the last sentence, well, you may be trying to be evasive here, but that’s you you’re describing, right? Thanking you for sharing your unusual insight, I look forward to hearing more from you, the next CEO of Apple Inc.!

      Cheers!

      dmz

  5. Let’s not kid ourselves here. The answer to the headline doesn’t have anything to do with government or competition or anything related to the operation Apple’s fundamental business. Cook is taking on debt for one reason only: to get Wall Street parasites off his back. By accepting their loans and – ON PAPER – shifting assets to liabilities, Wall Street assholes are placated temporarily. Problem is, all the foreign money that Apple squirreled away would give a FAR greater return on investment if it was given to the Retail division for overseas expansion, to the Marketing department for teaching the FUD slingers what Apple is all about, and to R&D and production departments to get new hardware in the hands of people who are waiting for the next generation of Apple technologies.

    Jobs had a spine and he was more than happy to tell Wall Street to take a hike. Cook’s indecision allowed obscene amounts of profits pile up largely unused, which of course made the sharks of Wall Street circle in for the kill. Cook gave in, and so now Apple leadership is clearly going to be spending as much time dealing with slimy commercial banks instead of focusing 100% on user experience. That is extremely disappointing.

    Before the retorts come in about how much money Cook made Apple last quarter, allow me a prebuttal: Cook didn’t produce squat! Apple is printing money from its iTunes store and the sales of its cellular-connected gadgets, both of which Jobs ushered in. Nothing Cook has released has performed better than anything Jobs oversaw while he was stricken with cancer and working part time. Despite having practically an order of magnitude more resources at his fingertips and full health, Cook endlessly talks about an exciting future while delivering derivative products LATE. The financial games that Apple is playing now is just more indication that Apple is becoming a bureaucratic corporation more intent on pleasing Wall Street than they are in pleasing the customer base. If you need any more evidence, plot profit growth of Apple and Samsung side by side over the last 5 years. There is no reason Apple shouldn’t have destroyed Samsung by now — except poor leadership.

    1. I agree with you wholeheartedly, Mike.

      However, trying to convince loyal MDN followers that Tim Cook is a dud is like trying to teach calculus to a pet rock!

      Good luck with that.

      The motto at MDN when it comes to Timid Cook is: “See no evil, hear no evil, speak no evil.”

  6. … IOW: #MyStupidGovernment forces companies to bring their foreign made profits into the USA by way of loans with a FAR lower interest rate than the taxation % level #MyStupidGovernment would impose.

    What’s better?
    Bring your profits home via ~5% interest rate loans
    OR
    Let #MyStupidGovernment rip you for the default 35% income rate for foreign made profits?

    I wonder.

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