“Over the past few years, the richest company in the world has continued borrowing increasing amounts of money from all over the world,” Evan Niu writes for The Motley Fool. “Apple’s debt position has ballooned considerably ever since it launched its capital return program in 2012. Including commercial paper and long-term debt (current and noncurrent), Apple had an incredible $54 billion in debt at the end of the second quarter, a figure that’s been steadily rising over the years.”
“The Mac maker sold $2 billion in its first sterling-denominated bond offering in July, then proceeded to sell another $2 billion in so-called “Kangaroo” bonds in Australia as it continues to diversify its credit investor base,” Niu writes. “There are many benefits of this debt strategy… Apple gets to avoid repatriation taxes since it doesn’t need to tap foreign reserves, which now consist of nearly 90% of total cash. It gets to fund its share repurchase program, driving significant earnings accretion. Heck, Apple even gets to lower its weighted average cost of capital, or WACC, by essentially swapping out equity capital for debt capital.”
Niu writes, “Yet here’s another reason why investors should love the company’s debt strategy: all that debt comes at no net cost.”
Read more in the full article here.
MacDailyNews Take: Free money, free money, free money.
And certainly smarter than blowing it on U.S. corporate taxes which are far too high.
Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth. – Apple CEO Tim Cook, May 21, 2013
SEE ALSO:
Apple plans record Kangaroo bond debut – August 20, 2015
Apple preps first Kangaroo bond; likely to set Australian corporate bond record – August 17, 2015
Apple’s samurai bond pushes debt to $45.5 billion – June 3, 2015
Apple set to issue $1.6 billion of yen-denominated bonds – May 27, 2015
Why Apple is selling bonds in Switzerland – February 10, 2015
Apple plans debut Swiss franc bond sale; looks to exploit Switzerland’s low interest rates – February 9, 2015
Apple preserves overseas cash hoard, raises $6.5 billion from bond sale funding share buybacks – February 4, 2015
Apple plans $5 billion bond sale; fourth since 2013 – February 3, 2015
Orders pour in for Apple’s $12 billion bond offering – April 30, 2014
Apple debt offering only $12 billion – April 29, 2014
Apple about to join the ranks of the biggest U.S. corporate debtors – April 29, 2014
Apple readies blockbuster $17 billion debt sale – April 28, 2014
Apple plans another massive debt sale to fuel new share repurchases, dividends – April 25, 2014