Apple’s debt binge

“A few years ago, the Steve Jobs era of Apple – during which it issued no debt – ended,” Josh Arnold writes for Seeking Alpha. “Tim Cook and team found value in issuing debt, mainly to buy back lots and lots of stock. Apple has more cash than any other company in our market by a wide margin but much of that cash is held overseas. A repatriation deal could change that, should it actually get through Congress, but that still seems like a long shot at this point. Until that happens, Apple is likely to continue to issue debt.”

“Apple has tacked on almost $100B in incremental debt to its balance sheet in the past few years,” Arnold writes. “Given that Apple needs its buyback to continue to remove a significant portion of the float going forward in order to maintain its current multiple, the fact that its debt is still so easy to finance is hugely important.”

“If Apple were in the mid-teens in terms of financing costs against operating income, I’d be worried. But given that it is still almost unbelievably under 4%, it can issue another $100B+ in debt and barely notice the additional financing costs,” Arnold writes. “That will drive the buyback while allowing it to pay the sizable dividend as well and keep EPS growth on track going forward. Cook and team have unequivocally done the right thing in terms of issuing debt and it looks to me like maybe it doesn’t have enough debt yet given how easy it is for it to finance its obligations. At any rate, this is very positive for Apple’s EPS growth outlook as the powerful tailwind of the buyback will be here for many years to come.”

Much more in the full article here.

MacDailyNews Take: When the world conspires to hand you free money, take it!

Why Apple is investing $148 billion in corporate debt – May 4, 2017
Apple raises $10 billion in debt ahead of President Trump’s repatriation tax plans – February 3, 2017
Apple has now amassed nearly $80 billion in debt – September 12, 2016


      1. First/Then…
        First, Obamacare is no more of a disaster than the House Bill or the Senate Bill, both driven purely and 100% by Republicans. At least the mess that was and is Obamacare had some some bi-partisan support. Republicans solely own those two pieces of crap. Plus there is absolutely ZERO reason to hold up legislation on repatriation tax rates because of Obamacare other than 100% PURE politics. There is no administrative reason and there is no legal reason to do so. PERIOD.

        Second, repatriation legislation does not have to wait for overall “tax reform” to happen. There have been repatriation tax days over the last several decades where companies could repatriate earnings without any associated tax reform. There is absolutely ZERO reason for the legislature to not do a simple law that states “during the days of XXX through YYY the tax rate for repatriated funds is NN%” where NN% is significantly lower than the current rate.

        Saying anything other than this is grand standing and playing politics and nothing else.

    1. and tax reform to the current Administration and Congress means tax cuts for the wealthy. Those tax cuts must be offset in order to pass them with a simple majority, so the Republicans first have to gut Obamacare to obtain the money to offset those tax cuts.

      Please keep in mind that all of this tax cut discussion ignores the fact that the country still runs at a large annual deficit. Somehow, however, Republicans still cling to the belief that tax cuts are “free” because they will spur additional revenue from increased growth that will offset the reduced tax rates. However, this only works if the effective tax rate is much higher than the current values. Republican math is flawed.

      1. “Republicans still cling to the belief that tax cuts are “free” because they will spur additional revenue from increased growth that will offset the reduced tax rates.”

        so did The Last Good Democrat, JFK, when he did the very same thing. They are both right.

        and, of course, you are wrong.

        “Those who cannot remember the past are condemned to goose-stepping allegiance to The Plantation Party.”

  1. Our Beloved President will eventually overcome the globalist traitorous lobby of Congress and pass his 15% corporate and business taxation plan.

    Capital will rush to our shores and our people in a tsunami of prosperity.

    1. This is beautifully written. Thank you. It reads like a missive from North Korea, extolling the glorious future Dear Leader is bringing to its shores with his magnanimous world leadership.

        1. I guess you didn’t see the videos of the most recent full cabinet meeting where Trump had the reporters record comments from all the Secretaries saying how great and wonderful it is to be allowed to work with Trump and all the great and wonderful things they expect to be able to do under his exalted leadership. (All except Mattis, who refused to make such comments, that is.)

          It really did sound like something out of a Stalinist regime or something out of the previous or current DPRK regimes. The sycophants were out in the extreme.

          To my knowledge nothing like that has ever happened previously under any Presidency — Republican or Democrat.

  2. I love it how MDN and others think Apple’s debt is “free money”. It’s not. Never has been. Never will be.

    Yes, Apple, because of its international financial ratings gets better terms and conditions than virtually any other company (and many countries), but it’s never “free”. No matter how you play the financial games on the books, it is not “free”. Never.

    This is one of the many reasons Jobs made it one of his missions when he took over Apple in the 90s to eliminate ALL of Apple’s long term debt. (Short term debt is an absolute necessary evil to make cash flow work.)

    1. Apple is paying historically low interest rates on its debt. If you factor in inflation and the fact that Apple can write off the interest cost on its taxes, that money is just about as close to “free” as a company can get.

      Apple has found an inexpensive way to funnel money back to its shareholders through buybacks that do not trigger a 35% repatriation tax penalty and do not trigger income taxes on U.S. shareholders. Sounds like a win-win to me.

      To be perfectly clear, I alway discount Apple’s “cash on hand” number by its debt. But all too often the ~$250B number is publicized without noting the associated liabilities.

      1. 4% is sort of cutting it close depending on what tax bracket you’re in. For example if you are in the 25% tax bracket it evens out and you don’t get a benefit either way since you net 3%, the same as the amount you reduce your mortgage principle. It’s worse if you are in a higher tax bracket.

        1. I think you are ignoring the mortgage interest deduction. I don’t have to pay 25% on the whole 4% of income from the investment, but only on the amount (possibly not much over 1%) left over after I deduct the interest paid on the mortgage.

          1. If you have a mortgage you’d be deducting mortgage interest either way. You’d just be paying slightly less interest over the year (and shortening the total number of installments) if you pay down your 3% mortgage vs investing the same amount at 4%. At those interest rates and depending on how many more years remain in your mortgage you might gain (keep) many months worth of mortgage payments at the back end. But saying that if the investment returns are higher than 4%, say 6%+ it would probably be better to invest rather than pay down the mortgage.

    2. Steve Jobs did not like debt and did not like dividends.
      Every year at the shareholder meeting he would get asked about dividends. He would tell the, it was his job to make shareholders rich by driving up the stock price, not by paying a dividend.

      Wall Street likes debt because it generates fees for Banksters and hangers on- the same for M&A.

      Steve Jobs would be running a debt free Apple not paying dividends were he still here. He would tell whining investors to sell the shares if they did not like the company’s direction.

      1. Once your corporation is worth nearly a trillion dollars, it becomes much harder to increase its stock value by the same percentages that Steve Jobs managed in a much, much smaller company. A stock that rises very slowly (without buybacks) and pays no dividends is not a stock that benefits the shareholders.

        1. The answer then might be to break up the company or to declare a special dividend and distribute the cash. Buybacks are financial engineering designed to move the stock price which is usually better served by actually selling something.

          If Apple has all this fucking cash and nowhere to put it, why is there not a workstation Mac for me to buy this afternoon?

  3. This kind of financial engineering as a substitute for making things and selling them is what happened at GM as it declined from the world’s largest industrial company to a steaming pile of shit that had to be bailed out.

    1. Two prospectors in the Old West encountered a bear. One of them took off running. The other said, “Hey, you can’t outrun a bear!” The first replied, “I know, but I only need to outrun you.”

      Apple does not have to meet some abstract notion of perfection, or even measure up to its greatest innovations of years past. It only needs to outrun its competitors. Beating them by a country mile may be emotionally satisfying, but it might also be a waste of money that could be used to finance research and development of future products.

      GM collapsed because its products offered consumers less value for money than competing products. Apple’s products, though certainly less attractive than they should be, are still a better buy for most of us than an exploding Samsung phone or a cheap Dell computer.

      1. No GM was on the path long before the market shifted.

        In the Roger Smith Era, GM spent more money than the combined market cap of Ford, Toyota and Honda and ended up with less than nothing to show for it. He was only one of the long line of fiduciary miscreants that destroyed a once amazingly successful company admired the world over.

        Financial engineering via accounting changes become the order of the day to cover up the ever shrinking iceberg. Eventually the mass became small enough to break up.

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