Apple cutting back on bond buys ahead of plans to repatriate foreign cash
As it gets ready to bring billions in foreign cash back to the U.S., Apple is also reportly drawing back on its purchases of corporate bonds.
Some $157 billion of Apple's $285 billion in cash reserves are sunk into corporate debt, making it one of the world's leading lenders, Bloomberg said on Tuesday. Sources didn't offer any more details, except to note that other major tech companies like Alphabet and Oracle are also holding off on bond buys.
At least some of the businesses are taking advantage of a drastic tax cut on repatriated money and liquid securities by the Trump administration, down from 35 percent to just 15.5 percent. While Apple has regularly clashed with Trump and the Republican Party on issues like immigration, privacy, and LBGT rights, it has eagerly accepted the corporate tax break.
The company is expecting to pay a $38 billion bill on the repatriated money, which it's counting towards plans to pump $350 billion into the U.S. economy within the next five years. Some of the company's investments will include a new campus, 20,000 jobs, and more domestic manufacturing.
Apple long refused to bring cash back to the U.S. unless it was granted a tax "holiday," something its lobbyists actively campaigned for. The Obama administration never backed down, presumably worried about hurting government budgets.
Some $157 billion of Apple's $285 billion in cash reserves are sunk into corporate debt, making it one of the world's leading lenders, Bloomberg said on Tuesday. Sources didn't offer any more details, except to note that other major tech companies like Alphabet and Oracle are also holding off on bond buys.
At least some of the businesses are taking advantage of a drastic tax cut on repatriated money and liquid securities by the Trump administration, down from 35 percent to just 15.5 percent. While Apple has regularly clashed with Trump and the Republican Party on issues like immigration, privacy, and LBGT rights, it has eagerly accepted the corporate tax break.
The company is expecting to pay a $38 billion bill on the repatriated money, which it's counting towards plans to pump $350 billion into the U.S. economy within the next five years. Some of the company's investments will include a new campus, 20,000 jobs, and more domestic manufacturing.
Apple long refused to bring cash back to the U.S. unless it was granted a tax "holiday," something its lobbyists actively campaigned for. The Obama administration never backed down, presumably worried about hurting government budgets.
Comments
yes, and to be a little more accurate and I love Tim for this, Congress and in their typical dog and pony show to try and prove to the people they were doing something, they drag Tim in front of the camera's and make an example of him and get him to admit they were doing something morally wrong possibly illegal. Only to have Tim turn it around and said he only following the laws they put in place, and those law do not tax money made outside the US. He said if they want a different outcome they need to change their laws and only they could change the laws. He was not really advocating the tax reduction to bring the money home. In some regards it actually better for apple to take on the debt since it reduce overall taxes in the US.
It's time for corporate heavies to acknowledge those who really do care about the success of their enterprises, not just social media's "warm and fuzzies".
Presumably now both the buying and selling of bonds will cease, resulting in a negligible impact on the overall bond market. Presumably the only people who will lose are the finance companies that broker the bond sales.
That said, yeah... with the recent tax law changes I wouldn't expect Apple to take on new debt at the rate it had been nor hold on to as much generated cash (e.g. in the form of corporate bonds) as it had. Whatever it does with its net-cash, and over whatever time frame it does that, Apple likely won't continue to grow outstanding debt and offsetting cash holdings as fast as it did before.
A small clarification: It's more like $162 billion in corporate debt that Apple held as of the end of this past quarter. It held $157 billion in corporate securities and another $5 billion in commercial paper. Commercial paper is, for the most part, corporate debt. It's just shorter term debt.
I think Apple's quite happy with the recent tax law changes But, while in major ways they are what Apple's advocated for, in other significant ways they aren't
Corporate tax laws are actually more complicated now, at least when it comes to foreign earnings - i.e., earnings of controlled foreign corporations. I think Apple would have liked to seen a significant simplification of corporate tax laws, not new levels of complexity. Mr. Cook has, in the past, advocated for a lowered rate with an elimination of all (or most all) corporate expenditures. That may have actually increased Apple's tax liability some, but it would have been worth it because of the simplification and flexibility that would come from fuller access (at a lowered tax rate) to foreign earnings.
Taking on more debt, rather than spending cash holdings, doesn't really reduce Apple's overall income taxes in the United States. At least, it only does so to the extent Apple is paying more in interest on the money it borrowed than it's getting in return on the money it's, as a result, still holding. In that case, Apple's still seeing a net loss by borrowing money rather than spending cash holdings.
As it is, Apple has to (and has long had to) pay U.S. income taxes on the passive earnings from its cash holdings, even if those holdings aren't repatriated. It's Subpart F income. So spending that cash (and thus losing the interest earned on it) reduces Apple's U.S. income taxes just as borrowing money (and thus deducting the interest paid on it) does.
One simple example I have talked about this before. Apple gets flack about labor abuses in China, even though Apple does not employee any of these workers and China already has laws in place to protect workers, but does not enforce them. So Apple gets attached since China gives the middle finger to these groups so these groups go after Apple since they know Apple will need to respond or the brand will suffer. In the mean time Apple spends lots of time and money fixing the public image in the mean time 1000 other US companies manufacturing in China have workers still being abused and the problem is not fixed by those groups feel good since they got apple to respond to them.