carnegie

nunzy said:

Why does Apple get to pay in installments? They could pay the 15 billion in a lump sum and hardly even notice.

davidw said:

gatorguy said:

davidw said:

GeorgeBMac said:

DanielEran said:

GeorgeBMac said:

In the years following the Great Recession Apple and many other companies were borrowing money (at super cheap rates) in order to funnel it out to shareholders as stock buybacks and dividends --which is obviously not a sustainable business model.  But it kept the stock market in a 10 year bull market -- the largest period of sustained growth in its history (Well, actually, the 2nd longest).

But, now that the Fed is raising rates, that mechanism is no longer viable.   So, rather than letting the stock market crash to its fundamental value, they thought up a new ponzi scheme:  The federal government borrows the money, funnels the proceeds to corporations and the corporations funnel it out to their stock holders via share buybacks and dividends.  Essentially, the U.S. government borrows the money from China and gives it to stock holders...

Like all scams, it's a brilliant scheme that works really, really well.   Until it doesn't.

Apple borrowed Bonds against the value of itself, effectively its cash overseas. So it paid extremely low interest for flexibility to avoid paying very high tax penalties. It can now hold that debt and spend its cash pile, and pay off its debt from earnings (or cash, but it can probably invest its cash with a far better return!)

Rates are rising, but Apple no longer needs to issue debt.

How do you think the fed govt "funneling money to corporations"? Apple is distributing its earnings to shareholders. Apple also holds billions in US Govt securities. 

The federal government cut corporate taxes -- which they will have to borrow money to pay for.   Most of that borrowed money is not being invested.  It is being distributed to share holders as dividends and stock buy backs.

GeorgeBMac said:

brucemc said:

SpamSandwich said:

badmonk said:

Thanks DED for the spirited defense of the buybacks!  I find it funny that the haters disparage the buybacks.  It is up their with notch-hate, macpro-hate, no-headphone-jack-hate, siri-hate and my all time favorite home-pod-hate which generates even more controversy than a trump tweet.

The buybacks at current elevated stock levels make less sense than ever. Apple should continue to provide value to investors by growing the company. A buyback amounts to an accounting trick. And I’m thankful that the current administration, not the previous one, had the wisdom to make repatriating overseas funds a reality. 

Let's try this one more time for you.

- Corporations are "owned" by the shareholders.  They are not owned by the US gov't, nor (generally) by whiny people on Internet forums, analysts, or the tech media.
- When a company makes more cash than their business needs (accounting for R&D, growth, new products, M&A, etc), then that is "free cash flow".  The question is what to do with this.  A company could look at taking on more organic growth (increasing R&D in order to deliver new products), purchase other companies to grow business, or return the cash to the owners of the company - the shareholders.
- Having too much excess cash on the balance sheet (e.g. just keeping it) is considered a liability for a company (could be wasted in future by SpamSandwich and thus its future value is less than present).

What is unique about Apple is that they are generating SO MUCH FREE CASH, that they cannot use it all in while "PRUDENTLY / EFFICIENTLY" running their business.  Apple's whole corporate DNA is about focusing on a few "great ideas".  You can only spend so much on those.  It takes time, not just money, to bring new products to market.  Just starting a whole bunch of side projects "because we have the money" is how companies lose focus and destroy their long term value.

So Apple has given back to the shareholders - over $275B USD in the last 6 years it would seem.  If Apple had not done this, their net cash balance would be over $400B, just sitting on the books.  Let it grow too large, and some hedge fund could (try anyways) to raise money to buy out Apple, since with so much cash it would help with the debt load to buy them, and the cash is not reflected well in the share price.  Then said hedge fund would milk the company for all it was worth and that would be it.

While share buybacks at most other companies has been considered controversial, as it is perceived as a means to "goose" the share price in the short term (while siphoning off from investment in business, or accruing large debt), that is not why Apple is doing it.  It is the most efficient means for them to return the cash to the shareholders by having each remaining share (those who don't want to sell) have a larger ownership stake in the company.  

Good story!

The truth is:  The stock buybacks began several years back when Carl Icahn raised enough fuss as an activist shareholder to force it.  At that point, Apple had to borrow the money in order to pay it out to the shareholders.  But, with interest rates near zero that wasn't a big deal.  

Now interest rates are rising which makes that strategy far less appealing.   So, the federal government borrowed money (or will borrow it) to issue tax cuts -- which Apple is now distributing to its stock holders.   So, eventually the American people will have to pay the debt that Apple is distributing....

That is a totally distorted view of is actually happening.

Apple was sitting on over $200B in cash in overseas accounts because they didn't want to pay the current (at the time) tax rate in order to bring money that they don't need, into the US. Money that Apple don't need in the US because their US operation generated enough revenue and profits. Money that Apple had no problem leaving overseas, untaxed by the US. It's been like this for over a decade with Apple...

By lowering the tax rate for bringing in overseas profits, the Federal government collected $38B from Apple alone, when Apple decided to bring their overseas profits into the US.  

It is not really a choice any longer since the indefinite tax deferral has been done away with under the new corporate tax law if I understand correctly. With that said Apple has not yet "repatriated" all that cash, nor paid the nearly $40B tax bill due on it (unless that rumored loophole allowing 8% instead of 15.5% exists and lets them avoid some of it)

But I'm not sure whether that applies to money that is already sitting in overseas accounts. It may only apply to new profits made, after the tax reform. As I understand it, corporations will now have to pay some taxes on overseas profits, regardless if they keep it overseas, as they can no longer defer all of the taxes on it.  I assume that the money Apple have in overseas accounts now, can remain there untouchable by any new tax codes that would tax it, without it being repatriated into the US. That's why a special tax deal was made as an incentive for corporations to repatriate their overseas profits, at a lower tax rate, now.

I don't think the US can all of a sudden change the tax code and start collecting tax on the overseas profits that are in overseas accounts now, even if it's still sitting in an overseas account, as those profits are still subject to the tax code at the time they were made and put into those accounts. That would be like the IRS all sudden changing the tax code and say that the profits made every year in an IRA, will now be subject to a 5% annual tax, even if its still sitting in the account and the tax paid will be credited back to you as you withdraw the money from it. And you now owe a 5% tax on all the profits you're already made in the IRA, over the years you had the account.

Rayz2016 said:

Possibly a silly question then:

Is Apple trying to buy itself out of the stock market circus?

radarthekat said:

Very rough math...

$1.36b in revenue.  If we simply attribute ALL the revenue for the quarter to paying accounts, of which there are 75 million, that gets us $18/account for the quarter, or and average of $6/account per month.  And that’s by attributing ALL the revenue to the paying subs.  So it’s less that $6/account average because some of the revenue comes from the advertising targeted at the 95 million free accounts.