Apple Raises $17 Billion in Record Debt Sale

http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?nl=business&emc=edit_dlbkpm_20130430

by JumpCrisscross • 13 years ago

36 60 13 years ago

dealbook.nytimes.com

austenallred• 13 years ago

I think the most interesting thing from this is that Apple, despite having $145 Billion in the bank, wasn't worthy of a triple-A credit rating.

It feels like when I'm trying to get a loan for a car and they won't give it to me because I haven't had a "steady job" for long enough, despite the fact I could buy it in cash with money for my side gigs, or put the whole thing on credit cards if I wanted to. It's two institutions whose values just don't jive.

tempaccount9473• 13 years ago

The ratings agencies were pricing in the risk that Apple lobbyists would not be able to bribe the US Congress to allow overseas profits to be returned tax-free.

Samuel_Michon3• 13 years ago

To be fair, not only Apple has been lobbying for a tax holiday, also parties like Google and Cisco. Both those companies are sitting on cash in tax havens, but I haven’t seen the market act bearish over it.

http://www.bloomberg.com/news/2011-09-29/google-joins-apple-...

ajross• 13 years ago

If your credit cards are really willing to give you an unsecured loan that another bank won't accept a car as collateral on, then someone's risk analysis is wrong.

Regardless, there's a lot of work in analyzing "risk" that has nothing to do with assets. Pull up a list of the most successful tech companies in the world 30 years ago. How many of them look like "AAA" bets today? Do HP or IBM look like solid borrowers in hindsight? At least (I don't think) they never defaulted on a bond. How about DEC or SGI? Even Apple Computer itself went through some pretty lean years where it looked like a pretty bad loan risk during that period.

The point is that companies aren't like economies that can sustain themselves on scale alone. You just can't tell what market conditions (or just plain mismanagement) lie in Apple's future.

SatvikBeri2• 13 years ago

If your credit cards are really willing to give you an unsecured loan that another bank won't accept a car as collateral on, then someone's risk analysis is wrong.

In practice this doesn't happen because large single-item purchases should be denied, especially if they're unusual. If you generally spend $500 of your $10,000 limit on an average of 20 different items, and suddenly try to put one $5,000 item on your credit card without calling your bank ahead of time, it probably won't go through. Source: I worked at a credit card risk department at a major bank.

toomuchtodo3• 13 years ago

I walked away from my townhouse that lost $150K in value (and I would've had to earn $200-300K before tax to pay that off). Bank of America, 2.5 years later, still hasn't foreclosed on it; they just marked me as delinquent payment each month.

PNC Bank wouldn't give me a $10,000 loan to refinance my 6% car loan down to 2%. American Express continues to keep my Platinum Card open with over $75K in available credit. I make well into the $200K/year range.

Risk analysis? Hah.

EDIT: I have the $10K sitting in a PNC savings vehicle, and was still denied.

fpgeek• 13 years ago

In a world where US government debt isn't triple-A either, it's hard to take the distinctions at the high end of the rating scale seriously.

aaronbrethorst2• 13 years ago

US Government debt isn't AAA-rated because the House decided to play chicken with the US economy in 2011.

mynameishere• 13 years ago

I remember some article about a guy in India who ran a business. His employees could get mortgages (or some kind of loan anyway) but he couldn't because he wasn't employed. If you think about it though, it sort-of makes sense. A business is a gigantic liability, and if things get bad, you'll default on a loan before shutting down a company.

SatvikBeri2• 13 years ago

Part of the problem is that banks often have to build their models off of data that isn't sufficiently granular. For example, most banks don't have the ability to distinguish between someone who misses a utility payment because they're absent-minded vs. someone who misses a payment because they're short on cash. Regulations compound the difficulty to some extent, but it's really primarily a data/technology problem at this point.

sdsfds4• 13 years ago

Is this the start of a decline? Apple too busy playing financial games instead of focusing on the product?

dtwhitney• 13 years ago

They are a big enough company that they ought to do both

AdamTReineke• 13 years ago

Their corporate finance team and product development teams are very separate, I'd expect.

adamnemecek• 13 years ago

It would be pretty naive to make that argument.

sdsfds4• 13 years ago

I am pretty naive when it comes to Finance, hence the comment.

coob• 13 years ago

Oppenheimer has to do something with his time other than counting the mountains of cash.

In all serious, no it is not. It's a tax efficient method of getting value to the shareholders whilst still maintaining a massive cash hoard, that's all.

caycep• 13 years ago

Google Braeburn Capital and you'll realize this is nothing new for Apple. They've been good at optimizing their finances for a long long time.

sdsfds4• 13 years ago

Thank you sir, will do.

wklauss5• 13 years ago

Is this the start of a decline? Apple too busy playing on the high-end market instead of focusing on the fast growing low-end?

Is this the start of a decline? Apple loosing profit margins instead of focusing on high-margin products?

Is this the start of a decline? Apple too busy with domestic consumers instead of focusing on the pro market?

Is this the start of a decline? Apple too busy with iPad instead of focusing on the iPhone, his best seller?

Is this the start of a decline? Apple too busy on hardware instead of focusing on services?

etc, etc, etc...

I don't get the doom and gloom surrounding Apple lately. As much as I find John Gruber irritating lately I find myself agreeing with this observation: No matter what Apple does, it seems wrong and it's setting the course of its own demise.

And after that rant... Why is this a hint of the company being more interested in the finance games than in products? Seems to me that its just a decision made by the CFO, that, as usual, is being given too much attention because the company behind it.

sdsfds4• 13 years ago

The thing is, now that it's been more than a year since Steve died people are looking for the first cracks. I myself believe that right now they are simply moving on momentum, I don't really think they have any thrust left. I hope I'm wrong though. Just a gut feeling.

tbatterii• 13 years ago

Mo $$, Mo Problems.

lmg6432• 13 years ago

I think there comes a point after which you have enough money, and you have to wonder what kind of society you are building, what kind of future. This is, after all, the same company that used to have a marketing campaign that featured individuals of considerable moral courage ("think different" / gandhi). But that's just for advertising of course; it's about saying the right things, not actually doing them.

wklauss5• 13 years ago

what should a for-profit company do, then, once its successful?

lmg6432• 13 years ago

they should continue to make great products and build upon their past success. you may not understand the tax angle on their cash, or perhaps you don't care. but i don't think making a profit is mutually exclusive with social responsibility, and i think paying taxes on profit is the deal we signed up for by operating businesses in the US.

gscott2• 13 years ago

The article fails to mention while they have huge sums in the bank, it is overseas so they can't bring it back without paying taxes. It ends up being cheaper to borrow money in the United States then to re-patriate the money from offshore.

craigching• 13 years ago

> The article fails to mention while they have huge sums in the bank, it is overseas so they can't bring it back without paying taxes

Well I just read the article and I was pretty sure that's exactly what it said. Maybe I'm misunderstanding what you're saying?

EDIT: For reference, straight from the article:

"By raising cheap debt for the shareholder payouts, Apple will also avoid a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, the company could have significant tax consequences."

gscott2• 13 years ago

I read it too fast. You're right it is right there... thanks

Samuel_Michon3• 13 years ago

It was mentioned in the article:

“By raising cheap debt for the shareholder payouts, Apple will also avoid a potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, the company could have significant tax consequences.”

socialist_coder3• 13 years ago

What is the point of having 102 billion dollars in overseas bank accounts?

How can it be considered "successful tax planning" when 70% of their profits are sitting overseas and basically UNUSABLE?

I get it, they don't want to pay taxes on it. Well, isn't paying your fair share of taxes on it and then getting to use it better than it just sitting overseas not doing anything?

Are they waiting for a tax holiday? Is there some other strategy here that I'm missing? Why are they content with just leaving their money overseas where they can't do anything useful with it?

tolmasky2• 13 years ago

If the interest on the loan amounts to less than what they'd pay in taxes then its worth it to take the loan and wait for said tax holiday. This is common advice for people too - take a loan if you can get more value out of your cash on hand than paying the interest on said loan. The article cites historically low interest rates -- that means it makes sense to take a loan even ignoring the foreign assets situation, if you feel you can use the money to generate more money than the interest.

socialist_coder3• 13 years ago

I get that it's still beneficial to take the loan. I was more asking about the situation in general, not in relation to this specific loan.

Is the only reason they're waiting because they think there will be a tax holiday? Or is there more to it than that?

One of the things I learned working on freemium games is that if you have too many sales, then people will only buy when there is a sale. I hope the US Govt has learned that lesson and never does another Tax Holiday.

wklauss5• 13 years ago

That's basically it. They are trying to get some tax exemption. And its not only Apple (Google or Amazon are in the exact same position).

My suspicion is that the current "we will manufacture in the US" has to do something with it (Both Google and Apple have announced plans for this), probably some kind of agreement in Washington about capital expenditures being exempt for taxes.

I don't think this is poor planning. International sales grew fest and they found themselves in this situation. If you ask in any other country (esp. in Europe) they'll probably tell you that that money shouldn't be taxed in the US as it was made by selling products on local markets and siphoned away using financial tactics that are frowned upon (selling straight from Ireland, usually).

samstave• 13 years ago

I am not sure it is unusable. THey do most mfg in China - are they not paying for these operations through the funds held outside the US?

rogerbinns• 13 years ago

Note that they do spend billions of that money. For example unlike most companies, Apple buys the manufacturing equipment at Foxconn used to make their products. This means Foxconn doesn't have to take capital risks, and also that the equipment is not available to Foxconn's other customers. (The CNC machining for making unibody macbooks is one example.) There are also rumours of having spent large sums to prop up Sharp.

Some asymco articles on their capital spending (almost all of which is outside of the US):

http://www.asymco.com/2012/12/11/the-new-age-of-capital-inte...

http://www.asymco.com/2012/10/31/hey-big-spender/

http://www.asymco.com/2012/11/07/recapex-the-curious-case-of...

Apple's problem is that they make so much in profits that anything they do ends up not making much of a dent.

mckilljoy• 13 years ago

Selling debt to buy back their stock looks like a pretty safe bet. Most of the debt is starting off below ~2.5% interest -- using that to buyback the stock paying ~3% dividends is immediately saving themselves money, in addition to reducing dilution and propping up the stock price.

mckoss• 13 years ago

Why isn't this tax evasion?

About two-thirds of Apple’s cash — about $102 billion — sits overseas in lower-tax jurisdictions. If it returned some of that cash to the United States to reward its investors, the company could have significant tax consequences.

As a private tax payer - the IRS would have no problem calling this a tax-aviodance "scheme" - and hit me with a big tax bill and penalties.

grecy4• 13 years ago

Because corporations make the laws, they don't follow them.

You paid more tax than Facebook this year!

rayiner• 13 years ago

> As a private tax payer - the IRS would have no problem calling this a tax-aviodance "scheme" - and hit me with a big tax bill and penalties.

That's not actually true. If you could figure out a way to make your salary accrue overseas, you could shift it to a low-tax jurisdiction too. The IRS is actually very anal-retentive about following the letter of the law, and doesn't just capriciously decide to treat the same situation differently depending on who is on the other side of the table.

The difference is not that the law is designed to benefit big corporations, or that big corporations don't follow the law, it's that big corporations with international presences have a more complex tax situation than you do, which they can leverage to minimize their tax liability (in the face of tax haven jurisdictions).

There is pretty much no doubt that everything you earn as a salaried employee in California ought to be taxed by California and the U.S. But if you're a multi-national corporation, why should the U.S. collect taxes on all of your income when part of it may be due to, say, a product made in China being sold to someone living in the UK?

Judson2• 13 years ago

If you earned the money overseas (and paid taxes on it where it was earned), it isn't subject to US taxes, and is therefore, not tax evasion.

Now, Apple's cash takes quite a (currently legal) trip around the world, but the basic principal is the same.

parasubvert3• 13 years ago

Actually, US citizens (and residents) are taxed on their global income. You also must declare all year-maximum bank account balances and/or investments globally if you have assets over $10k (aka FBAR) or risk huge fines or jail. This is why the "Swiss bank account" of yore is deemed tax evasion - there is no legal way as an individual to avoid Uncle Sam.

You can receive a credit for foreign taxes paid but its not always 100%. US There is an exemption if you actually reside overseas for a period (aka. Foreign Earned Income Credit) but the cap is small, maybe $100k or so.

Apple is dealing with a different area, that of foreign subsidiary corporate profits. Repatriating that money to the parent means the parent is recognizing the earnings of the foreign subsidiary for tax purposes.

parasubvert3• 13 years ago

If you are a global corporation and earn money in an overseas subsidiary for spending in that country by the corporation, it is not tax evasion to take out a loan for things you want to spend in the USA.

As an individual US resident, however, you are taxed globally. The equivalent action to Apple here would be having your corporation take a loan out to pay your salary for work performed (products sold) in Germany (for example). The profits stay in Germany; the corp avoids taxes (hopefully more than the loan interest), but you still pay your individual rate.

(IANAL, just my experience as a consultant with a few foreign corps)

ttrreeww• 13 years ago

Time to give some of that to the employees.

Apple Raises $17 Billion in Record Debt Sale

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