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Apple is debt free and has $145 BILLION in cash. $103 BILLION of it is in offshore accounts.
Stockholders were increasingly becoming frustrated at lack of dividends reflecting that profit and stock was falling fast - from $700 a share to $400 a share...
SO... Apple came up with a great idea. It would borrow super cheap government bond money - $17 Billion - and give that to the stockholders - thus avoiding any income taxes whatsoever.
Clever, huh? But damn that 60 year old Mom & Pop hardware store owner making $300,000 a year pre-tax not willing to pay 39% of it just in federal taxes.
"
company has to execute. This is no substitute for that.”
By raising cheap debt for the shareholder payout, Apple also avoids 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, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.
“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”
The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drug maker Roche Holding in 2009, according to Dealogic.
Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 percent. In November, Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 percent, while the five-year note yielded 0.68 percent.
“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst with Standard & Poor’s Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”
On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 percent to a 30-year bond that yields 3.85 percent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 percent. While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset."
FULL STORY HERE:
http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?hpw
Stockholders were increasingly becoming frustrated at lack of dividends reflecting that profit and stock was falling fast - from $700 a share to $400 a share...
SO... Apple came up with a great idea. It would borrow super cheap government bond money - $17 Billion - and give that to the stockholders - thus avoiding any income taxes whatsoever.
Clever, huh? But damn that 60 year old Mom & Pop hardware store owner making $300,000 a year pre-tax not willing to pay 39% of it just in federal taxes.
"
company has to execute. This is no substitute for that.”
By raising cheap debt for the shareholder payout, Apple also avoids 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, it could have significant tax consequences for the company. In some ways, the bond issue is a response to that tax situation.
“They have been so successful with their tax planning that they’ve created a new problem,” said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. “They’ve got so much money offshore.”
The $17 billion debt sale by Apple is the largest corporate issuance on record, surpassing a $16.5 billion deal from the drug maker Roche Holding in 2009, according to Dealogic.
Apple joins a parade of large companies issuing debt with astonishingly low yields. Last week, Nike sold bonds that mature in 10 years that yielded only 2.27 percent. In November, Microsoft set the record for the lowest yield on a five-year bond, issuing the debt at 0.99 percent. In comparison, the yield on the 10-year Treasury on Tuesday was 1.67 percent, while the five-year note yielded 0.68 percent.
“If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it’s a way for them to raise money in an effort to create better returns for their shareholders,” said Steven Miller, a credit analyst with Standard & Poor’s Capital IQ. “The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money.”
On Tuesday, Apple issued six different securities, with maturities ranging from a three-year note yielding 0.45 percent to a 30-year bond that yields 3.85 percent. The largest piece, a $5.5 billion issue, is a 10-year yielding 2.4 percent. While good for the company, longer-term bonds with yields this low can fall steeply in price if interest rates go up, hurting investors who hold them. Still, $3 billion of the Apple debt are notes whose interest rates are periodically reset."
FULL STORY HERE:
http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?hpw