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Why Apple, With $178 Billion In Cash, Is Raising Debt
As noted earlier, one of the reasons Treasurys are selling off today is because bond investors, who are preparing to consumer yet another batch of $5 billion in Apple bonds to fund repurchases of AAPL stock, have been shorting matched Treasurys for rate lock/interest-rate hedge purposes. That this may have led correlation algos to buy up stocks (because TSYs sell offs have become one of the most bullish stock signals yet, alongside sudden, unexpected surges in crude) is hardly surprising: after all AAPL now accounts for all the earnings growth in Q4.
But another, more relevant, question is why does Apple, which at least check had $178 billion in total cash and investments, need to issue debt to buy back its shares?
The answer is simple: virtually all of AAPL's cash growth in the December 31 quarter took place offshore, where its cash hoard rose from $137 billion to $158 billion (mostly thanks to the previously mentioned surge in Chinese iPhone purchases). How much of Apple's cash is domestic? As the following chart shows, a paltry $20 billion of AAPL's cash, or barely above 10%, is held domestically - one of the lowest levels in the past 4 years - and can be used for such corporate activities as stock buybacks and dividends.
In other words, companies like Apple are praying to their offshore gods that Obama's initiative to impose a one-time tax on offshore profits and cash holdings, is dead on arrival. Which, luckily for AAPL, GOOG, and every other cashflow positive tech company, it is.
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Boom. This is what is commanly referred to as "calling a bluff". The U.S. is now just as corrupt and fascist as the rest of the world.
"winning"
Interesting times indeed.
In Apple We Trust.
No, seriously, think about it. Traders are shorting US Treasuries to go long Apple bonds? I know that's basically a pair trade, but I also think it indicates they perceive Apple as at least as credit worthy as the US government.
Anyone that shorts U.S. treasuries deserves what they get. Look at the E.Z. A place where many countries actually have balanced budgets and yet many of their yields are negative.
what is the ratio to debt ????
Return the world to "mark to market" accounting and then I might be able to answer that question.
If Apple was a great American corporation....
Could it manufacture products back in the USA to spur job growth here in the states?
Could they pay American rank and file employees higher wages?
Could they lower product prices to increase market share?
Could they pay management more bonuses?
Could they reward stockholders with higher stock valuations and dividends?
It is a moral choice as well as a financial choice how they use 178 billion. Apple is a great international company that really does not give a shit about Americans. I give you 178 billion reasons why Apple is part of the NWO problem and not to be envied.
"The money is overseas", bullshit. Its held in segregated accounts of JPM, Citi, Barclays etc. but its only a keystroke away.
Usually Rate Lock is done by Issuer or Agent to lock in current financing level. Short vol adjusted block of Treasuries so if rates rise by the time of the debt issue what you lose in higher financing cost you gain on short of treasuries?
Yeah, AAPL can't "repatriate" their foreign cash else it gets taxed NOW.
Can anybody confirm that buying back a corps own stock on foreign exchanges is considered "repatriating" foreign profits?
"The cash is overseas, if you bring it back, it gets taxed.
Sell bonds in US, that's how you can effectively repatriate cash, at a cost of say 3%, instead of paying tax on it at say 30%."
Still don't get the connection between Apple and the entire treasury complex.
My understanding on debt is that Treasury announced 75 billion plus in issuance of short term debt from today through the rest of the year.
That's a lot of debt in my view...and a very aggressive way to finance fedreral spending.
they probably need as much money as they can get to triple the wages of the chinese workers who make their iphones then choose to jump out the window. they really hate to lose conscientous help like this.
So if I hold my cash offshore from profits that were likely generated here in the states, regardless of what I say in my reports, then I can declare them tax free too? Woohoo! Oh, wait, that only works for corporations and politicians. 2 laws bitches.
No, corporations are now equal to people. Get your cash to a friendly island banker, ASAP!
I know many who are. There is no longer any legal ground for the IRS to stand on. Talk about shooting yourself in the foot. TPTB are intentionally trying to destroy the .gov so that the next "crisis" can start.
It fascinating to watch. Viewed through the lens that every major turn or event where the govenrment is involved leads to some measure of chaos is pretty wild. Even the wookie endorsing American Sniper over the weekend takes a confusuion aspect when you consider how the left sees that movie. Up is down.
No way to get out of the way at this point. Bring the kids in close and stay vigilent.
American sniper. Movie about US sniper fighting a war because of non existent weapons of mass destruction. 130,000 civilllians killed since the start of the war.
911 x 43.
130,000? More like 1,000,000+
"a friendly island banker"
Please identify that trustworthy institution and let me know how that works out.
I won't hold my breath
Corporations might have the same rights as people, but people do not have the same rights as corporations.
Moral: "Thou shall incorporate" if at all cost, and have HQ offshore if possible. (Single-Member LLCs are SOL, of course).
Yep. I've been trying to figure out how to get taxed on my 'net' income rather than my gross.
Seems that corps get to deduct all expenses from gross, like electric, rent, phones, internet, cars, etc.
If I did that, my net income would be 0, thus my tax liability would be negative or at least 0.
Hmm.
You are a wage serf. "Fuck you, pay me."
This is key. It is another barrier to entry. Have to pay an accountant, lawyer and banker to manage your business' cash flow. Don't make enough to do that? Then you have to pay the technocrats their full cut. Either way it cuts out the fresh kid on the block.
As part of the double-standard that is highly preferential to sizable corporations, although individual might go to jail for tax fraud and other financial malfeasance, large corporations do not go to jail, nor do their executives.
Rather, they pay a fine, that they then pass on to their shareholders. And customers, in the case of banks.
I'm not a tax specialist or a CPA, but I'm guessing that when the net income of your business (LLC or S-corp) reaches the high 6-figure levels, it becomes more profitable to move your HQ offshore -- depending on the Breakeven point of the Cost/Benefit for your situation.
Perhaps this is something that Tyler or one of the regular ZH writers can write about?
Even if your corporation is headquartered and incorporated overseas, it will still have to pay US taxes on income earned in the US.
Apple pays income tax on its US income; however, it earns a shit-ton of money from operations overseas, and it doesn't have to pay US taxes on that foreign income as long as it stays overseas.
Of course, the monumental injustice is that human persons who are US citizens are taxed on their income WHEREVER IT IS EARNED. If there was any justice, US citizens would be held to the same standard as US corporations. But as we know, corporations are given massive preferential treatment over actual human beings. Which is immoral and perverse.
Maybe AAPL and GOOG need to reconsider corporate headquarters as insurance just in case the "one-time tax" ("one-time"... just like income tax, right?) has legs.
Never mind
Get to work Mr. Bullard! You fucktard.
Get to work Mr. Bullard! You fucktard.
obama is coming for that cash.....
"... and can be used for such corporate activities as stock buybacks and dividends" and raises and bonuses to the company's core people.
pun intended
Assets + Resreves = Liabilities
Expand cash, expand debt.
14% of 178 billion is nothing. Obama needs to raise that number.
Shit. Using that logic, why not take 100%? The Federal Budget is a black hole, it will absorb anything you throw into it, and still not go away.
How much gold does Apple have in its vaults?
Gold iPhones, that's about it
Need to think of Apple as akin to a Sovereign Wealth Fund.
Instead of oil they pump out i-consumables. And instead of banking petrodollars, they bank appledollars.
But there's one big difference; where petrodollars are recycled into bonds or stock, appledollars sit there unrecycled.
Money never sleeps.
No matter where on the planet Apple has their $178B cash parked, someone is leveraging it 10X and dabbling in Greek government bonds, oil futures, Shake Shack options, who knows what. Ask Mr. Corzine how it works.
The reason The Honorable Mr. Corzine wasn't prosecuted for gross misuse of clients' money is that he would have proven in court that his actions were no different than anyone else in the Big Finance world. His position in Greek bonds went sour is all. The loss was big enough that MF Global couldn't cover it, and several billion dollars in clients' "segregated" funds got "vaporized".
The Applebucks are in play X10; you can take that to the bank (if you dare).
Yes, "money" never sleeps, however, in the absence of real justice and rule of laws and contracts, fiat most certainly dies.
Full faith and credit...
"And you don't realize there is no world anymore! It's only corporations!" - Number Two
Or... like an 1800s Southern Plantation owner leveraging off of slave labor (African then, Chinese now) as it sells through the merchant bankers of boston, New York City and Philadelphia (back then) Netherlands, Luxembourg and Ireland (now).
iWatch gimmick is using too much Net neutrality ISP carbon footprint throttling to check the time on your watch or pick out the phone in your skinny jeans. We must find out how we can increase 2.0, 5.0 to 7.0 GB unlimited access under LTE free Wi-Fi. We can start tracking customers and send cell broadcasting information to the idiots who don’t know about security settings on their smartphone.
/SARC
I have no cash except what I need to operate my family finances.
Very little in stocks and no bonds.
Getting ugly out there.
Sheeeesh, $178 Billion is a butt load of cash.
Just wait until they start pandering NATGAS as an alternative computer power source opposed to dirty/green coal cars built under solutions to global climate incentive’s.
http://www.cmegroup.com/trading/energy/natural-gas/natural-gas.html
Another Semi-peripheral cunt that will lose money under policymakers Good luck twat.
that's 178 billion that isn't needed by the company, idle cash, that is helping pump the sandp. that money represents the welfare state the usa has become. most of it was made exporting jobs to china to re-import goods back into the usa. all of that re-import derived money should be taxed to help pay for the welfare state it helps create. at least then the money can flow back to the usa by leveling the labor arbitrage field.
They're not doing a pair trade. They're setting up rate locks to take out the interest rate risk of buying Apple bonds. When they distribute the new Apple bonds, they'll unwind their rate locks and buy back the treasuries they sold.
Buy an Indonesianesque country, declare a D.C. styled corporate government, make your own laws, sell iCrap around the world, appoint me to the board/cabinet.
I don't get it, are they going to use their foreign funds to buy their domestic bonds and pay themselves the interest, repatriating the funds tax-free? No? If they sell the bonds to domestic holders, then, um, ... I still don't get it, except they think they can pay less interest than their secular growth rate and this is a standalone.
Using RMB Hubs to sell corporate paper in foreign currencies?
I dont understand apple, why would they just continue hoarding year after year?
What on earth could they need 160 billion offshore cash for??
Is there something bigger going on here? Are they waiting for better or worse days? Or is it just plain shareholder stupidity?
I wonder how much of that money is narcotics money?
random999, a few random comments to put you on the right path:
"Shareholder stupidity" and "market stupidity" questions should be considered in the context of current rulings on insider trading in link below:
http://www.wsj.com/articles/appeals-court-overturns-two-insider-trading-...
Income taxes are regressive, especially for low income people who spend a greater proportion of their income on necessities than do rich. Income tax came into being by way of 16’th amendment. This amendment was part of progressive era bankster machinery installed starting in 1912. Ultimately, 16’th and IRS were installed so taxpayer would backstop banks. Remember TARP?
Apple and other companies take rents on the working population. When Oligarchs don’t pay, somebody else has to, and that is the American middle class. This is why a high value, tax paying middle class is disappearing, as the tax burden and other hidden rent costs are dissipating their energies. Rent costs are also hidden in prices, especially usury mechanism of private banking.
Even though the industrial revolution was recently put into hyperdrive with advent of high speed communications and smart machines (robots), wealth is being distributed into oligarchy via rent mechanisms. Duped Senators and House members cannot see these rents because rental theory is not taught in schools, and they are on a bribery hook via 17’th amendment. 17’th is direct election of Senators, which was installed into law by our bankster friends starting in 1912.
Washington and lobbyist activity grew dramatically after progressive era reforms; State Senators became beholden to lobbyists and money interests rather than their electorate. Federalism was undone and the former U.S. passed into history.
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?pagewanted=all&_r=0
Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.
Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan.
Apple also takes out loans because it is cheaper to borrow money and pay interest than to pay taxes. To repeat: IT IS CHEAPER TO BORROW AND PAY INTEREST than to pay taxes. Shielding income in this way further funds private banker finance of wall street, and is yet another rent scheme.
Accountants and business color within the law, but our laws are perverse and have been altered to take rents, especially starting in 1912.
MEFOBILLS
First: Is there anything in our financial system that is not a fraud?
Second: I live in DC and I deal with small business. We just lost another account in Maryland because the business is closing down. It has been very slow from the beginning of the year. If keeps this way many won’t make to the end of the year, I believe.
Third: Dubaibanker, a Hedger, post this:
I say that it will be sometime in March.....or latest by June.....countries that are NOT insulated from the collapsing EU and US banks or the USD and EUR will also go down and take their economies, banks, real estate..everything down with them and another few million will be jobless around the world before June 2015, sadly!
http://www.zerohedge.com/news/2015-01-30/it-begins-energy-giant-chevron-suspends-stock-buyback-blames-cash-flow-squeeze#comment-5726005
Wonder if you, or anyone else, would care to comment.
"Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan."
Oooh, $2.4 billion. Big whoop. Who gives a shit when we are adding a trillion dollars to Federal debt every year, and unfunded liabilities are increasing by tens of trillions every year.
Let's pause for a moment of sanity....CORPORATIONS PAY TAXES ON INCOME THEY EARN OVERSEAS. They pay taxes in the country in which it is earned. They just haven't paid US taxes on the money. The US is the only civilized country that demands taxes on income earned (and taxes paid on it) in ANOTHER country. It just so happens that US taxes are some of the highest in the world right now and that's why the company is doing it. All you ZH'ers should also know that corporations don't pay taxes only individuals do. Saddle a company with extra expenses and it just raises its prices. A corporation is only a pass-through entity.
Why doesn't the US lower its corporate tax rate to the same lower rate as some of those "socialist countries in Europe" and then Apple would be happy to bring the money home!
How about eliminating the income tax for human persons, and doubling it for Corporations? Yes, the corporation will simply pass the cost on to the consumer, but THE CONSUMER CAN CHOOSE NOT TO BUY THE PRODUCT.
Human persons cannot choose whether to pay income taxes-- that is mandatory.
It is clear to see one of these offers human beings free choice, the other is simply wage slavery.
Dr G, OP is about domestic corporations, not offshore corporations.
"Home" is where the HQ is located.
So U.S. citizens who work abroad are taxed, but U.S. corporations that sell abroad are not.
Oh yeah, and U.S. corporations are "individuals" according to the Supine Court.
"Swing low, sweet chariot...comin' for to carry me home.."
"On a long enough timeline the survival rate of everyone......." Let us collectively donate our AAPL shares to the Greek government and invest in HUAWEI. This solves at least three problems: (i) the Greek debt (ii) NSA gets more info about Greece (iii) we own shares in a rising star
I guess that helps to explain why wages in America are stagnant. Any profits you earn abroad will be charged a 35% penalty, even if you plan to invest those profits back into the business stateside. What a wonderful way to incentivize the gutting of american industry.
I have an answer to Apple's problem. Get rid of the government!!!!
What about pay taxes?
They ARE paying taxes-- they pay US income tax on earned US income, and foreign income tax on earned foreign income.
What you want is for Apple to pay income tax TWICE-- once when they pay foreign taxes, and again when they bring the foreign money onshore. Apple is CHOOSING not to double-pay income taxes by keeping the money offshore.
Fuck the Feds and their sticky fingers. Those greasy fucks are adding a trillion dollars to our debt EVERY YEAR. How about they start by reducing spending???
You guys do realise apple is giving a loan to itself right...? Theres no better way to reduce taxes than invent liabilities