As Its Domestic Cash Plunges By Record To Early 2010 Levels, Apple Prepares Massive $17 Billion Bond Offering

Tyler Durden's picture

While Apple's earnings report last week left little to be desired, one of the more notable observations was that the company's cash hoard, relentlessly rising until now, had seen its first quarterly dip since Lehman, declining by $8 billion from $158.8 billion to $150.6 billion. Which was to be expected: since the technological company has not had much success with "growthy" innovation since the arrival of Tim Cook, it has been forced to become an activist investor's favorite piggybank, buying back and dividending record amounts of cash. In fact, perhaps the most notable feature of its earnings release was that AAPL would boost its buyback plan by 50% to $90 billion.

One small problem: as everyone knows, when it comes to shareholder friendly actions, Apple can only rely on its domestic cash hoard. The foreign cash, unless it is repatriated and subject to substantial tax withholding, is for all buyback and dividend purposes, meaningless. Also, as most know, starting in 2010, there was a dramatic divergence between the amount of cash AAPL generates domestically versus how much it has in offshore bank accounts.

Which brings us to AAPL's most recent cash update between domestic and foreign holdings. Because while total cash may have dipped by $8 billion, foreign-held cash actually rose by $7.8 billion. Which means that Apple's domestic cash tumbled. By how much? The chart below has the answer.

As that highlighted yellow bar shows, AAPL domestic cash tumbled by a record amount, plunging by nearly half, or $16 billion to be specific, from $34 billion to $18 billion.

What this simply means is that after making the history books with the biggest ever, $17 billion bond offering 12 months ago, Apple is about to issue a whole lot more of debt. Sure enough, as FT reported moments ago, AAPL is preparing another $17 billion in debt, to follow the $17 billion it issued last year, which would make it the joint largest bond offering in history. Again. From the FT:

Apple is preparing the groundwork for another blockbuster debt sale in the region of $17bn that could rank as the second-largest corporate bond sale of all time.

 

Apple plans to use proceeds from the debt sale to fund the buyback rather than tap its $150bn cash pile. About $130bn of that cash is held overseas, 88 per cent of the total, and returning it to the US would lead to a tax charge of up to 35 per cent.

 

A foreign debt sale would probably target the eurozone, where interest rates are lower than in the US, and diversify Apple’s debt investor base.

 

During Apple’s quarterly results call last week, Luca Maestri, Apple’s incoming finance chief, warned that repatriating offshore cash would incur “significant” tax consequences.

 

Apple was likely to raise “an amount of term debt financing similar to what we issued in 2013”, he said, adding that preparations had also been made to tap the commercial paper market for short-term liquidity.

However, considering the less than smashing success of its first record bond offering (the 2043s are trading at 90, the 2023 at 93), this one may be a little more problematic to pull off, and AAPL may have no choice than to boost the cash coupon to find enough buyers who will likely be unable to flip the bonds on the next day.

The goods news for Apple is that unlike IBM, whose debt/capital ratio soared to the highest ever following its surge in debt-funded buybacks, it still has a lot of balance sheet capacity before it has to be worried about a debt downgrade to fund its returns to shareholders. The bad news, is that unless the company finds a way to boost domestic cashflow, or somehow put the offshore cash to good use, it won't be too long before Apple too, has no choice but to do what every other company is doing in the absence of top-line growth: issue record amounts of debt just to keep shareholders happy. 

Needless to say, this strategy works as long as rates are low, but once rates start rising, it stops working.

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y3maxx's picture

...Another sign the American Apocolypse has begun folks... w/ Joe six pack's Mutual Fund $$$ being funneled into Apple's stock and taken out, thru Apple's Debt into the Banker's pockets.

Headbanger's picture

<-- Apple sucks!

<-- Android rules!

 

pods's picture

I'll stick with my now uncool Blackberry Z10.  

On the bright side, at least I am not stuck with iTunes or need to be tethered to a wall outlet to use my phone for more than an hour.

pods

James_Cole's picture

You heard it here folks, aapl done gon broke. Only 150B in the bank and forward p/e 12, these guys are finished. Next week I figure 10$ stock, maybe pennies. This newest loan is the last straw...besides no one even buys their shit anymore, 47.3m iphones are you kidding me? Talk about a dead product. And iphone 6? Seriously guys, I predict 100 people buy that - all of them aapl employees. 

Theosebes Goodfellow's picture

James, at the risk of being rude, you have no idea what you're talking about. Apple isn't "going broke". It's doing smart business within the constraints of facing a confiscatory government. It is simply cheaper to take on cheap debt that it is to pay "confiscatory" taxes on off-shored profits. Move along folks, nothing to see here...

SafelyGraze's picture

apropos of paying-taxes-when-you-repatriate-your-money..

the latest idea for a "smart" refrigerator borrows from this key concept

your purchases from the grocery store are basically free

but your "smart fridge" notes when you remove them and forwards that information to the taxing authorities so that you are taxed at the point-of-consumption (or at the point-of-derefrigeration)

this strategy accomplishes multiple goals

- nominal food prices continue to go down, as reported by retailers

- tax revenues increase, in order to help build new shipping lanes

- video monitoring of your food withdrawals helps keep you on your Fit-For-Life! program 

win-win-win

 

MarsInScorpio's picture

y3maxx:

 

Jobs was a cult. Apple fans are the ultimate sheeple. They are closed-minded, self-righteous, condescending, arrogant, elitists.

 

Their products are amalgamations of previous products others invented. Give credit for uniquely putting the other items into new packages - but subtract that for not having any original products totally created by Apple.

 

Their computers are overpriced, underpowered, lacking software diversity, and highly susceptible to hacking, viri, hardware failure, and obsolescence. Their other products share these characteristics.

 

Tim Cook is nothing but a money-grubbing Jobs wannabe - down to wearing all black and a turtle neck. He lacks the Jobs evangelical gift, and therefore, the excitement is gone.

 

As for Apple users - they are like a Harvard grad: Do you know what you can tell a Harvard grad?

 

Nothing.

 

Sell while you can still get out. Despite Jobs self-anointed feelings of being a god - he isn't. Steve has left the universe, and unlike Elvis, he isn't coming back.

-30-

 

kchrisc's picture

Awesome and succinct analysis of one of the mechanisms of theft.

 

“If ;you guillotine a bankster in the woods, would anyone give a shit?”

aVileRat's picture

On a related note:

 

http://recode.net/2014/04/28/former-ebay-and-pointroll-execs-busted-for-...

So, Ebay exec used his position on private company boards to funnel his friends into the next big promote. Carl was right ?

 

disabledvet's picture

So was Groucho. And Oscar the Grouch.

And Grumps too...who we used to call grand dad...but not the last ten years.

kchrisc's picture

I'm getting good at this.

When I saw this post my very first thought was that this exec was most likely NOT a 'tribe' member. Bingo, bingo.

http://thezog.info/who-controls-e-bay/

After the "only 'non-tribe' members need be indicted" game at SAC, I have been paying attention, and let's just say if I had a batting average similar to my guess success rate I'd be famous and rich.

Though, if they ever indict Corzine, I'll have to go back to the minors.

Batters up!

daveO's picture

It becomes extremely easy when you look at things in that perspective. 

disabledvet's picture

Well after the total annihilation the last time for the Bag...err...Bond-holders...why not double down?!!!

In the mean time the "widows and orphans funds" have popped ten percent YTD while everyone else goes full on Debt Apocalypse.

Yep...winning! Jews have this one figured out perfectly! Why "limit order" yourself to Just Bank America when you can blow a veritable potpourri of State and Local Governments!

I mean WTF assholes. Ten years on and you douchebags are still Net Job LOSERS you stupid loser jerk wads.

Once you start blowing up pension funds "with interest rates at all time record lows" no less then I think the Mighty Mice will get the memo.

"This isn't about money but a Few Greedy Men." Broadcast live and in techno-color of course.

Cthonic's picture

Just watch, whomever lets these guys and their ilk repatriate tax-free, will be the next president.  When the rules no longer allow one to continue winning, change the rules.  K street bonuses all 'round.

bigdumbnugly's picture

What this simply means is that after making the history books with the biggest ever, $17 billion bond offering 12 months ago, Apple is about to issue a whole lot more of debt. Sure enough, as FT reported moments ago, AAPL is preparing another $17 billion in debt, to follow the $17 billion it issued last year, which would make it the joint largest bond offering in history. Again.

 

monkey see - monkey do?

daveO's picture

This monkey is copying kchris.

 http://thezog.info/who-controls-apple/ 

I had to click on 'who controls apple?' on the right. 

63% of the board. Look out below!

The banksters make huge money on these bond sales.

NO SOLICITING's picture

It's good to be the King.

XAU XAG's picture

Debt

 

Is the reason the west is in such a mess

 

 

STACK ON

FieldingMellish's picture

Works for the US Govvy.

Colonel Klink's picture

Rotten Apple for a whole lot of reasons.

Robot Traders Mom's picture

Suckers all over the globe are foaming out the mouth to buy a little wider this time vs Tsy...

www.TopTheNews.com

CPL's picture

LOL!  Like it's a government.  Rediculious nonsense for consumer crap that's only en route to a land fill.  Apple must be about to do the same thing it did in the 90's.  I doubt Gates will bail them out this time.

The government more than likely will though via pension funds under 401k's and RRSP's.

Waterfallsparkles's picture

Stripping the Company of its cash can be dangerous.

Steve Jobs had it right.

Now they are bending to activists that are looking for a stock pop and then will move on leaving Aap with nothing but a decining stock price.

After all they did miss on the IPod numbers.  So they are selling fewer phones.

Ban KKiller's picture

Complex systems fail. Evolve or die or...become fascist. Yeah, thats the ticket. You HAVE to own isomething in the near future.

EBT/Phone/ID all in one. 

slightlyskeptical's picture

So Apple is ripping off US taxpayers to the tune of about $50 billion. Nice.

Dr. Engali's picture

Well now that innovation is dead at the company it's time for the bankers and insiders to suck the bloated pig  dry. Ooops, the Nasdark is pooping again.

 

Edit: When my 71 year old mom is texting me (for the first time ever) from her new iGadget then you know the coolness factor is gone.

813kml's picture

You're lucky that your mom is that advanced, mine still has difficulty making phone calls with her dumb phone.

Now if she could only remember what a window is I might save a couple hours each day answering the same questions repeatedly.

Dr. Engali's picture

It shocked the shit out of me when she sent me her first text ("I love you honey"). I thought somebody was screwing with my head.

813kml's picture

If I ever receive a text from my mom I will know that she has been abducted by aliens.

Chuck Knoblauch's picture

IT MIGHT AS WELL BE A T-BOND OFFERING!

ebworthen's picture

They're like a bank, a government, and a church in one.

Are they providing healthcare yet? 

Oh, that's just the Nurse and Doctor checking my coverage and scrip on their iPads.

After all, quality healthcare requires:  a Mac, an insurance company, the I.R.S., and 3,000+ pages of legislation.

"Amurika....Amurika...Jobs spread his grace on thee..."

What a circle jerk.

youngman's picture

This is the new corporate America...sell bonds to pay dividends and buy back stock that makes your stock options that much more valueable....it produces nothing but commissions....the new American manufacturing....paper..we make IOU paper...now you see why Putin is making his move and China is sidng with him...we are toast and they know it...

daveO's picture

Commissions and Cap. Gains for those at the top, or in the 'inner circle' of piranha. It ultimately comes from the 'bag holding' shareholders. Thanks, suckers.

LawsofPhysics's picture

So, it would appear that apple is becoming a bank?

Makes sense, everyone now knows if you want to "profit" from the remaining theft that can be done, you have to become a bank.  The best part being the

Dr. Engali's picture

They don't make anything, and they've run out of ideas so they might as well rape the company. It's the American way.

813kml's picture

Any disruption to the Foxconn sweatshop will have serious repercussions from the younger generations.  That alone could start a war.

elwind45's picture

Trying to raise çapital in Europe before EU QE or the dollar collapses?

ebworthen's picture

I know, right?  That's just a little more than 1/3 of one month of current FED QE!

Amateurs!

Comte d&#039;herblay's picture

That's what happens when a homosensual is elevated to CEO for PC reasons.

He should be heading an Android device maker. 

Uchtdorf's picture

Betcha Valerie Jarrett has a plan to repatriate some of that cash held in foreign banks.

PoliticalRefugeefromCalif.'s picture

Apple cleaned up a broken music industry with Itunes and Ipod, now they have been dragged into becoming just another commodity provider.

With no innovative vision in an increasingly competitive environment it's starting to look like a cannibal's picnic being planned through creative financing to let prime stock holders out the door.

..who would have thunk?

evernewecon's picture

 

 

If a couple ISP's own the net 

you might as well have a Coleco Adam

or Commodore 64, or the Radio Shack tape deck.

 

 

damicol's picture

The cabbage patch phone company is is set to defraud its small shareholders again.

No new whizz bang cabbage patch phones is a comin.

The smart money will be dumping this shit then moving to short