Apple exceeds targets in latest bond sale, raises $10 billion

Posted:
in AAPL Investors
Looking to generate more money for its shareholder return program without repatriating foreign cash, Apple has completed a sale of $10 billion in bonds, with underwriters including Deutsche Bank, Goldman Sachs, JPMorgan, and others.




The company on Thursday sold a mix of floating and fixed-rate notes, due in 2019, 2020, 2022, 2024, 2027, and 2047, according to U.S. Securities and Exchange Commission filings seen by AppleInsider. The largest individual concentration was $2.25 billion in notes due in 2027, with a fixed rate of 3.35 percent.

Apple had originally been aiming to raise between $6 billion and $8 billion, the Financial Times said on Friday. The final total represents the company's fourth-largest bond sale of all time -- the top spot being held by an Apr. 2013 offering which raised $17 billion, setting the record for a U.S. corporation. It was also Apple's first bond offering since 1996, prior to the return of Steve Jobs.

Since launching a program of buybacks and dividends in 2012, Apple has kicked back about $195 billion to shareholders. Because most of its $246 billion in cash reserves are held outside the U.S., this has meant turning to bond sales to avoid paying the taxes it would owe if it repatriated the foreign money.

Apple has issued over $90 billion in debt since 2013, $25 billion of that in 2016 alone. The latest sale should, in fact, push the company's adjusted debt over the $100 billion mark.

The use of bond sales could slow down again with U.S. President Donald Trump in power. While Apple CEO Tim Cook has often publicly opposed Trump's positions, especially on immigration, he has been warm to the idea that Trump may enable a "tax holiday" for U.S.-based multinationals, letting them repatriate cash at a lower tax rate.

Breaks on repatriated cash would be "very good for the country, and good for Apple," Cook said during a quarterly results call earlier this week.

Comments

  • Reply 1 of 18
    blastdoorblastdoor Posts: 1,954member
    Repatriating foreign cash would be nice but it will be cold comfort if the US goes to war with China over
    "islands" in the South China Sea 
  • Reply 2 of 18
    MacProMacPro Posts: 18,368member
    blastdoor said:
    Repatriating foreign cash would be nice but it will be cold comfort if the US goes to war with China over
    "islands" in the South China Sea 
    That's "inevitable" we have been told!  Not to mention "a new war in the middle east" ...   

    I would think Tim's recent stand on certain issues almost guarantees a personal, vendetta style response against Apple though.
  • Reply 3 of 18
    SoliSoli Posts: 9,271member
    MacPro said:
    blastdoor said:
    Repatriating foreign cash would be nice but it will be cold comfort if the US goes to war with China over
    "islands" in the South China Sea 
    That's "inevitable" we have been told!  Not to mention "a new war in the middle east" ...   

    I would think Tim's recent stand on certain issues almost guarantees a personal, vendetta style response against Apple though.
    Why do you think Tim Cook has a vendetta against Apple?
    edited February 2017
  • Reply 4 of 18
    I remember when Apple used to be practically debt-free and Jobs was always boasting about it. I think Apple needs to acquire some business that mainly deals in domestic sales. There's too much cash being made overseas that Apple can't touch without a huge tax penalty. Apple should get into the cloud business or search business dealing with domestic customers. It's nice Apple is able to get all these bonds but it seems like they're overdoing it. I'm not sure if it's giving Apple that much of an advantage despite low interest rates. Eventually they'll have to repatriate some overseas cash. Apple must be playing the waiting game because they know some tax break is coming this year.
  • Reply 5 of 18
    crowleycrowley Posts: 6,018member
    Soli said:
    MacPro said:
    blastdoor said:
    Repatriating foreign cash would be nice but it will be cold comfort if the US goes to war with China over
    "islands" in the South China Sea 
    That's "inevitable" we have been told!  Not to mention "a new war in the middle east" ...   

    I would think Tim's recent stand on certain issues almost guarantees a personal, vendetta style response against Apple though.
    Why do you think Tim Cook has a vendetta against Apple?
    Tim's stance almost guarantees that the Trump administration will make a personal, vendetta style response against Apple.  Would've thought that was clear, if nothing else Tim doesn't seem the petty type.
    radarthekatblastdoor
  • Reply 6 of 18
    SoliSoli Posts: 9,271member
    crowley said:
    Soli said:
    MacPro said:
    blastdoor said:
    Repatriating foreign cash would be nice but it will be cold comfort if the US goes to war with China over
    "islands" in the South China Sea 
    That's "inevitable" we have been told!  Not to mention "a new war in the middle east" ...   

    I would think Tim's recent stand on certain issues almost guarantees a personal, vendetta style response against Apple though.
    Why do you think Tim Cook has a vendetta against Apple?
    Tim's stance almost guarantees that the Trump administration will make a personal, vendetta style response against Apple.  Would've thought that was clear, if nothing else Tim doesn't seem the petty type.
    Ok. I read his comment as Tim, the subject, having the vendetta, which was odd for multiple reasons. I see now that he's suggesting the Trump administration will have a vendetta against Apple. Thanks.
    edited February 2017
  • Reply 7 of 18
    MacPro said:
    That's "inevitable" we have been told!  Not to mention "a new war in the middle east" ...   

    don't you mean the war against Eurasia. After all BB is in DC.
  • Reply 8 of 18
    ciacia Posts: 83member
    Years ago (mid-2000's) I remember reading an interview with Steve Jobs about why it was important for Apple to be holding so much cash, which at the time was tiny compared to what they hold now. He said that he always wanted enough cash on hand to be able to run Apple for at least 2 years even if they weren't making a dime. This was just after the time that Apple had paid off it's outstanding debts around the early/mid-2000's, being debt free for the first time in decades. I can't find it now, but really wish I could. I wonder if this mentality is still what drives Apple to hold so much cash on hand. That being said, how much cash does it take for Apple to run it's operations every year now? If Apple stopped making a profit, how long could they operate with the cash in the bank before they go into debt? I understand they have quite a bit of debt now though these bond sales, but even after (hypothetically) paying those bonds off they still would hold over $100 billion in the bank.
  • Reply 9 of 18
    SoliSoli Posts: 9,271member
    cia said:
    That being said, how much cash does it take for Apple to run it's operations every year now? If Apple stopped making a profit, how long could they operate with the cash in the bank before they go into debt? I understand they have quite a bit of debt now though these bond sales, but even after (hypothetically) paying those bonds off they still would hold over $100 billion in the bank.
    Wouldn't that be revenue minus net income?

    For 2015 that's $215.639 billion - $45.687 billion = $169.952 billion × 2 = $339.904 billion. Of course, projected costs for the two upcoming years are what Apple would use should they follow that method.

    Source: https://en.wikipedia.org/wiki/Apple_Inc.
  • Reply 10 of 18
    Soli said:
    cia said:
    That being said, how much cash does it take for Apple to run it's operations every year now? If Apple stopped making a profit, how long could they operate with the cash in the bank before they go into debt? I understand they have quite a bit of debt now though these bond sales, but even after (hypothetically) paying those bonds off they still would hold over $100 billion in the bank.
    Wouldn't that be revenue minus net income?

    For 2015 that's $215.639 billion - $45.687 billion = $169.952 billion × 2 = $339.904 billion. Of course, projected costs for the two upcoming years are what Apple would use should they follow that method.

    Source: https://en.wikipedia.org/wiki/Apple_Inc.
    No, it would be Operating Expenses, i.e., Revenue minus Operating Income (Oper Inc is the same as Earnings before Interest and Taxes).
    edited February 2017
  • Reply 11 of 18
    SoliSoli Posts: 9,271member
    Soli said:
    cia said:
    That being said, how much cash does it take for Apple to run it's operations every year now? If Apple stopped making a profit, how long could they operate with the cash in the bank before they go into debt? I understand they have quite a bit of debt now though these bond sales, but even after (hypothetically) paying those bonds off they still would hold over $100 billion in the bank.
    Wouldn't that be revenue minus net income?

    For 2015 that's $215.639 billion - $45.687 billion = $169.952 billion × 2 = $339.904 billion. Of course, projected costs for the two upcoming years are what Apple would use should they follow that method.

    Source: https://en.wikipedia.org/wiki/Apple_Inc.
    No, it would be Operating Expenses, i.e., Revenue minus Operating Income (Oper Inc is the same as Earnings before Interest and Taxes).
    Are you saying that if they didn't have any sales they would then not have any interest or taxes to pay? If so, what are the new calculations?
  • Reply 12 of 18
    Soli said:
    Soli said:
    cia said:
    That being said, how much cash does it take for Apple to run it's operations every year now? If Apple stopped making a profit, how long could they operate with the cash in the bank before they go into debt? I understand they have quite a bit of debt now though these bond sales, but even after (hypothetically) paying those bonds off they still would hold over $100 billion in the bank.
    Wouldn't that be revenue minus net income?

    For 2015 that's $215.639 billion - $45.687 billion = $169.952 billion × 2 = $339.904 billion. Of course, projected costs for the two upcoming years are what Apple would use should they follow that method.

    Source: https://en.wikipedia.org/wiki/Apple_Inc.
    No, it would be Operating Expenses, i.e., Revenue minus Operating Income (Oper Inc is the same as Earnings before Interest and Taxes).
    Are you saying that if they didn't have any sales they would then not have any interest or taxes to pay? If so, what are the new calculations?
    I don't follow the question: it is implicitly assumed they would have sales. You said "revenue minus net income." I said "revenue minus operating income." Just being a little more precise, that's all.

    (The OP referred to Jobs saying he wanted to have enough cash to run a couple of years of "operations".)
  • Reply 13 of 18
    blastdoorblastdoor Posts: 1,954member
    sog35 said:
    I remember when Apple used to be practically debt-free and Jobs was always boasting about it. I think Apple needs to acquire some business that mainly deals in domestic sales. There's too much cash being made overseas that Apple can't touch without a huge tax penalty. Apple should get into the cloud business or search business dealing with domestic customers. It's nice Apple is able to get all these bonds but it seems like they're overdoing it. I'm not sure if it's giving Apple that much of an advantage despite low interest rates. Eventually they'll have to repatriate some overseas cash. Apple must be playing the waiting game because they know some tax break is coming this year.
    Dude. US sales gets taxed at 35%-45%

    Adding more US sales isn't solving anything.
    Where do you get 35% to 45%?

    Maybe you're referring to the statutory corporate tax rate, but that's a tax on profits, not sales. 

    Also, the effective tax rate on profits is lower than that -- more like 25 to 30%. 

    But even if Apple did pay a tax rate on profits of 45%, that still leaves them with 65%. Apple makes a big profit on every unit they sell, so that's definitely worth going after. 
  • Reply 14 of 18
    MacProMacPro Posts: 18,368member
    Soli said:
    MacPro said:
    blastdoor said:
    Repatriating foreign cash would be nice but it will be cold comfort if the US goes to war with China over
    "islands" in the South China Sea 
    That's "inevitable" we have been told!  Not to mention "a new war in the middle east" ...   

    I would think Tim's recent stand on certain issues almost guarantees a personal, vendetta style response against Apple though.
    Why do you think Tim Cook has a vendetta against Apple?
    I don't.   Paragraph two followed on from paragraph one.
    edited February 2017
  • Reply 15 of 18
    MacProMacPro Posts: 18,368member
    crowley said:
    Soli said:
    MacPro said:
    blastdoor said:
    Repatriating foreign cash would be nice but it will be cold comfort if the US goes to war with China over
    "islands" in the South China Sea 
    That's "inevitable" we have been told!  Not to mention "a new war in the middle east" ...   

    I would think Tim's recent stand on certain issues almost guarantees a personal, vendetta style response against Apple though.
    Why do you think Tim Cook has a vendetta against Apple?
    Tim's stance almost guarantees that the Trump administration will make a personal, vendetta style response against Apple.  Would've thought that was clear, if nothing else Tim doesn't seem the petty type.
    Thank you. 
  • Reply 16 of 18
    sog35 said:
    I remember when Apple used to be practically debt-free and Jobs was always boasting about it. I think Apple needs to acquire some business that mainly deals in domestic sales. There's too much cash being made overseas that Apple can't touch without a huge tax penalty. Apple should get into the cloud business or search business dealing with domestic customers. It's nice Apple is able to get all these bonds but it seems like they're overdoing it. I'm not sure if it's giving Apple that much of an advantage despite low interest rates. Eventually they'll have to repatriate some overseas cash. Apple must be playing the waiting game because they know some tax break is coming this year.
    Dude. US sales gets taxed at 35%-45%

    Adding more US sales isn't solving anything.
    Yes...  Like Sog said.
  • Reply 17 of 18
    davidwdavidw Posts: 975member
    blastdoor said:
    sog35 said:
    I remember when Apple used to be practically debt-free and Jobs was always boasting about it. I think Apple needs to acquire some business that mainly deals in domestic sales. There's too much cash being made overseas that Apple can't touch without a huge tax penalty. Apple should get into the cloud business or search business dealing with domestic customers. It's nice Apple is able to get all these bonds but it seems like they're overdoing it. I'm not sure if it's giving Apple that much of an advantage despite low interest rates. Eventually they'll have to repatriate some overseas cash. Apple must be playing the waiting game because they know some tax break is coming this year.
    Dude. US sales gets taxed at 35%-45%

    Adding more US sales isn't solving anything.
    Where do you get 35% to 45%?

    Maybe you're referring to the statutory corporate tax rate, but that's a tax on profits, not sales. 

    Also, the effective tax rate on profits is lower than that -- more like 25 to 30%. 

    But even if Apple did pay a tax rate on profits of 45%, that still leaves them with 65%. Apple makes a big profit on every unit they sell, so that's definitely worth going after. 


    The US tax rate on US profits (taxable income) is 35-45% (depending on State tax). With Apple, their 26% effective tax rate is largely due to taking into account the foreign taxes paid on their foreign profits, that are not subject to US taxes (until they are brought back into the US). Thus Apple has an effective tax rate of about 26% on ALL their profits. That is not that same as saying Apple paid an effective tax rate of 26% on their US profits. Apple still owes the rest of the 35-42% on their foreign profits if they bring those profits back into the US. Unless there's a tax holiday. 

    Different industries have different ways of lowering their effective tax rate by using different tax credits for the industries. This largely requires that the corporation reinvest some of their taxable income in a certain way, pertaining to their industries or they already did. (Like maybe Apple is getting a tax credit for the money they spent installing solar power on their new HQ.) Corporations that over paid their taxes one year can apply that over payment toward next year taxes, thus lowering the effective tax rate for the year. That year's US profit , minus any tax credit, was still taxed at about 35-42%.

    The effective tax rate in only meaningful to investors as a means of measuring how well a corporation is managing their tax liabilities from one year to the next or among different corporations of the same industry. It s not a metric that corporations use to measure how profitable they are because the effective tax rate can change from year to year, for different reasons and is only known after all the figures are in. But the US statutory tax rate of 35-42% on taxable income is a known. Lowering the effective tax rate doesn't always mean more profit because some of the taxable income must be reinvested a certain way, in order for it not to be taxed.

    This being said, it makes no difference if Apple makes their profit in the US or on foreign soils. Foreign profits will be subject to the same tax rate as US profits, when they are brought into the US. (This after deducting any foreign taxes already paid.)  Thus Apple increasing US profit to avoid of issuing more debt with bonds (to pay for dividends and buy backs) would be the same as using their already foreign profit cash pile, because the taxes they have to paid on the profits will be the same. In other words, tax wise, using foreign profits in the US is the same as if those profits were made in the US.     

    Soli
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