Apple has now amassed nearly $80 billion in debt

“That was fast,” Evan Niu reports for The Motley Fool. “It’s only been about three years since Apple started actively issuing bonds in order to fund its aggressive share repurchase program.”

“The strategy has always been to use bond offerings to bolster its domestic cash position, allowing it to keep the majority of its money mountain abroad and avoid repatriation taxes,” Niu reports. “In that short amount of time, the Mac maker has since accumulated approximately $80 billion in debt, which is greater than the market caps of many companies.”

“At the end of last quarter, Apple had $72.4 billion in total long-term debt (including current and non-current). It then sold $7 billion worth of paper at the end of July, bringing the total to nearly $80 billion. Note that this total does not include commercial paper, which Apple started selling in 2014. Apple currently has $12.5 billion of commercial paper outstanding in addition to long-term debt,” Niu reports. “The debt strategy has been quite successful thus far. Apple has been able to fund its highly accretive share repurchase program without needing to bring foreign cash home, of which there was $215 billion at the end of last quarter. Meanwhile, the interest and dividend income from Apple’s broader investment portfolio actually covers the interest payments and more than services the debt, so there is no net cost to Apple.”

Read more in the full article here.

MacDailyNews Take: As we’ve been saying for the past three years: Free money.

For now.

Hopefully, the next U.S. administration can work with Congress to fix the broken U.S. corporate tax “system,” so that Apple (and other multinationals) can repatriate a significant amount of their offshore mountain of cash.

23 Comments

  1. It is a shame that Apple feels it necessary to spend so much time and effort on these financial maneuvers to please shareholders instead of focusing on product.

    Tax systems are broken the world over. But how could it be otherwise? Tax structures are designed for political convenience, not economic rationality.

    To hope for rational change to tax codes is to be tilting at windmills. Disliked as they are, the fault lies neither with the tax man nor the tax codes. The fault lies within ourselves, how we perceive economic justice, and who we elect to write the tax laws.

    1. like it or not.. thats the first duty of a public company …
      product and financial mangment are seperate departments… one does not come at the cist of the other.. specially not with Apples resources …..

  2. …And this is cheaper than paying US taxes on foreign made profits. When will #MyStupidGovernment recover from its profound illness and wake up? – – Apparently, not this year. We have shite for presidential hopefuls.

  3. Maybe I’m confused, but having income from interest and dividends from investments covering the cost of interest payments for bonds may mean a net zero gain, but that also means that the income above is not adding to Apple but just allowing them to tread water at the mercy of the larger stock market those investments are in.

    1. Doesn’t mean there is no gain. Just that the taxes on their gains are covered.

      Just like my portfolio, I have “unrealized” gains but any taxes I do owe is paid from interest and dividends and I don’t have to sell to cover the taxes.

      1. So you’re saying not only is the interest and dividends covering the interest due on the bonds they sold but also taxes due on that income. That’s well and good. I understand ‘unrealized gains’ could also be ‘unrealized losses’ and still generate dividends. My point is that the interest and dividend income could have easily been reinvested rather than filling the money pit that the bond interest due is becoming. Should the stockmarket the investments are in suddenly crash, not only would there be a possibility of high ‘unrealized losses’ but the loss of the interest and dividend income propping up the bond debt. Apple would still need to pay the bonds + interest putting them further in debt.

    2. This is a complex subject. First Apple invests for safety, not to make a large gain (as far as I know). Interest rates are very low now so including the tax deduction and inflation they might be ahead of the game by borrowing. It all sounds very dramatic because Apple finances are so huge.

      Think of a home buyer faced with choice of cashing in their mutual funds or borrowing to buy a home. Today you might get a 3% 30 year loan which is maybe 2.5% after the tax deduction and maybe 1% considering inflation. Meanwhile your investments will be growing for 30 years so even if you have the money to buy it is better to borrow.

      If interest rates were much higher Apple would not be doing this.

      1. Point taken with your example of buying a home w/o cashing in mutual funds by borrowing. Your example depends on a steady income, or at least enough to cover the interest due. Also with bonds since you really are only paying interest and not paying down principle you must have the funds available to pay off the bonds when they mature or plan for future bond sales to pay off the maturing ones. While you can just ‘give up the home’ if you can’t pay the mortgage, the bond debt remains even if you can no longer pay the interest.

        I can see your reasoning of a 3% 30 year home loan actually being closer to 2.5% after tax deductions but I don’t think inflation would reduce the interest a further 60% (2.5%->1%).

  4. The fortune that Steve built was destroyed by Tim Cook by paying dividends and buying up stock. What an idiotic waste when everything Apple has to offer is lagging the market:competition: phone, tablet, watch, TV, almost everything. Apple carries a debt of 80- billion for getting nothing in return. When an idiot succeeds a genius he destroys everything.

  5. Though the tax rate is 35%, what would apple actual pay? Well, let’s see if they just paid full rate. $200,000,000,000 X 0.35 = $70 billion. You say Apple is $80 billion in debt. Hm? I wonder how much the lawyers are charging them?

    $70 billion < $80 billion are you sure these guys know what they are doing? And if they had just paid the taxes they would have no debt, right?

    1. They wouldn’t have the debt, but they also wouldn’t have the $80B in Apple stock that they bought with the borrowed money. They would just have $70B less money to invest, and the continued annual obligations associated with the outstanding stock. Given Apple’s bond rating, they are paying a ridiculously low interest rate on their bonds and commercial paper, and can get a much higher rate of return on their invested reserves without making any risky investments. Bear in mind that inflation means that the money going out in fixed bond payments in future years will be worth less than it is worth today. Add it all together and they are making money doing it this way.

    2. actual -> actually

      Now think about this, Apple owes 80+ billion in debt. They still have to pay taxes. Even if the tax rate became 15%, they would need loophole after loophole to pay nothing, and Apple would still be out more money then if they had just paid the taxes to begin with, $70 billion. (… vs. 80 billion + interest + lower tax rate tax + the lobbyist, the tax rate accountants, the tax lawyers, political pay outs and offs, time wasted by management on tax avoidance instead of new product development)

      So, no matter what the tax rate is, or will be, Apple would have spent more money avoiding taxes then if they had just paid them. Are you sure, and I mean really sure they know what they are doing? To bring that money into the US, companies want to pay nothing in taxes, period. Funny, in their efforts to pay no taxes, they have spent way more money then if they had just paid the taxes. MAN!

      1. Well, you seem to think that the same people managing product development are the same people managing finance, so I’m guessing you probably don’t know as much about Apple’s financial operation as you think you do.

    1. True, no idea where the investments are placed. However I can’t imagine non-stock/mutual fund investments making high enough gains to cover debt interest unless there is a significant multiple to the current debt invested.

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