With $179 billion in the bank, Apple wants to borrow $5 billion for stock repurchases and dividends

Thanks to the ever-complicated nature of the US tax code, Apple — the most profitable company in history this past quarter — is planning to issue $5 billion in bonds to pay for their ongoing stock repurchasing program and dividends. Yes, Apple, the company that made an eye-watering $18.04 billion in profit last quarter, is looking to borrow money.

Here's exactly what Apple told the SEC they'll do with the money:

We intend to use the net proceeds from sales of the notes, which we estimate will be approximately $__billion, after deducting underwriting discounts and our offering expenses, for general corporate purposes, including repurchases of our common stock and payment of dividends under our program to return capital to shareholders, funding for working capital, capital expenditures and acquisitions and repayment of debt. We may temporarily invest funds that are not immediately needed for these purposes in short-term investments, including marketable securities.

(yep, blank billion dollars)

The bonds would mature in 5-to-30 years. A 10-year bond would be expected to have a yield about 0.95 percentage points higher than one issued by the United States Treasury today.

But why would Apple, with $179 billion in cash on hand, want to borrow a measly $5 billion? It all boils down to taxes — much of Apple's cash is stored with overseas subsidiaries in places like Ireland (Apple is in no way unique among international corporations in this regard), and bringing it back to the United States to spend on things like stock repurchases and dividends would see that cash hit with a a 35% tax. Which, understandably, Apple would like to avoid.

Many in industry and government have pushed for an overseas tax holiday as a way to bring that money back to the US at a reduced tax rate, but such ideas have generally floundered at becoming actual law. Most recently, President Barack Obama proposed levying a one-time tax on these overseas holdings anyway, an idea that's drawn substantial criticism from both sides of the aisle and questions about how exactly the US government would tax earnings that are technically outside its jurisdiction. In the meantime, Apple's borrowing money here because it costs them less in interest than trying to use the money they have over there.

Source: Apple (opens in new tab); Via: Wall Street Journal

Derek Kessler is Special Projects Manager for Mobile Nations. He's been writing about tech since 2009, has far more phones than is considered humane, still carries a torch for Palm, and got a Tesla because it was the biggest gadget he could find. You can follow him on Twitter at @derekakessler.

  • I don't blame them. They worked to hard to earn their money only to fork over a decent chunk of it to the government. The tax code here in California is ridiculous. Sony Z3, Nexus 5, or Surface Pro 3
  • No harder than anybody else. It’s a double edged sword - if they don’t want to bring it back to benefit the US than the foreigners can benefit from it. (If I read the situation right). Very patriotic.
  • Patriotic? Apple is an international company. It's only their headquarters that resides within the US. What we need is a whole lot less government. Get Uncle Sam's hand out of my pocket and Apple's.
  • Oh please. Apple are no different to you and I in that they are obligated to pay tax, EXCEPT that they can afford greasy lawyers to beat the system. But guess what, the government will put up the tax of everybody else to meet the shortfall in part.
  • Patriotic? greedy.. and not Apple. The US Govt. Most Govt's, including Korea, are under 10% for repatriation as as STANDARD rate. We FORCE our businesses into this position. Encourage them to relocate their base of operations outside the US. 35% is the highest rate in the world. No one tops the US repatriation rate. Until congress gets a clue that we COMPETE for international businesses largely threw how much we TAX, we will likely continue to see businesses either avoid bringing cash back or loose them all together by relocating to a less tax-hostile country. I know Tim Cook said he didn't want to, and would not likely do that.. but.. still, it's something looms for any business we arrogantly think we can just hold hostage here in the US. We call ourselves a country of consumerism and push for competition, but don't compete internationally to keep big business? smells in congress.
  • Our politicians are idiots ... Drop this rate to 15% and let the economy work. Excessive tax on people (comapnies are people) is a stupid policy.
  • A tax cut to 15% would have little impact on Apple, as they pay 0% using Irish-double-Dutch tax strategies. Sent from the iMore App
  • 6% actually. not 0, and average of 26% for all US based earnings.. the lower % is oversea's only earnings.. In-fact, that loophole is going to be close in ... 2017? they closed it after EU sued and put pressure on Ireland calling it illegal. Was a big hubbub over if Ireland would leave EU over that. They didn't, and will soon be over 11% if I remember.. Will look it up.. was a few months back.. Love facts.
  • Er, no. Though, admittedly, I was too lose in my wording. Apple does not pay 0% overall -- but they do pay close to 0% on earnings routed through AOI and associated subsidiaries, and those are the funds in question. http://en.wikipedia.org/wiki/Double_Irish_arrangement
    (If you turn your nose at Wikpedia, read the first 2 references) As for the 2017 arrangement, Ireland has agreed to unify some tax codes within the nation, but not to halt the process that allows one company within Ireland and one company outside of Ireland to effectively hide profits from each other. The number is not 11%, but 12.5%, and will impact Apple little, if at all. http://www.finegael.ie/latest-news/2014/ireland-has-nothing-to-fe-1/ Yes, facts. Edit: Apologies for the snark. If I am wrong (and I hope I am), I would love to see the articles. I would like to see the corporate tax rate come down, if it would have the desired effect.
  • Don't hate the player, hate the game!
  • They earned the money outside the US. Bring it in and face a 35 % tax. Then they will want to expand outside the US (Open retail stores and all) or pay Chinese manufacturers and the government with tax the money again to take it outside. Apple says "No Thank you, We will keep it outside" Guess US does not want Apple. Tim Cook has already stated that if the government taxes companies because R & D happens in the US, then companies will shift R & D to other countries. It is sales that happened outside the US. Other countries' money that Apple is trying so hard to bring in, but the government wants to tax it and force companies to keep it outside. Don't these people realise that money bought in can be used to try and move manufacturing to the US?
  • I think it is all kinda sickening in the first place. So People cannot afford college have to beg to borrow money, and people can avoid paying taxes instead of trying to figure out how to settle all of this madness. These people get to go home and sleep in peace while others who are making 60k or less are paying about 25% in taxes. That is kinda steep when it come to not having money.
  • Ahhhhhh, NO!!!!!!!! Sent from the iMore App