

Apple Raises $17 Billion in Record Debt Sale - JumpCrisscross
http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/?nl=business&emc=edit_dlbkpm_20130430

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austenallred
I think the most interesting thing from this is that Apple, despite having
$145 Billion in the bank, wasn't worthy of a triple-A credit rating.

It feels like when I'm trying to get a loan for a car and they won't give it
to me because I haven't had a "steady job" for long enough, despite the fact I
could buy it in cash with money for my side gigs, or put the whole thing on
credit cards if I wanted to. It's two institutions whose values just don't
jive.

~~~
ajross
If your credit cards are really willing to give you an unsecured loan that
another bank won't accept a car as collateral on, then someone's risk analysis
is wrong.

Regardless, there's a lot of work in analyzing "risk" that has nothing to do
with assets. Pull up a list of the most successful tech companies in the world
30 years ago. How many of them look like "AAA" bets today? Do HP or IBM look
like solid borrowers in hindsight? At least (I don't think) they never
defaulted on a bond. How about DEC or SGI? Even Apple Computer itself went
through some pretty lean years where it looked like a pretty bad loan risk
during that period.

The point is that companies aren't like economies that can sustain themselves
on scale alone. You just can't tell what market conditions (or just plain
mismanagement) lie in Apple's future.

~~~
toomuchtodo
I walked away from my townhouse that lost $150K in value (and I would've had
to earn $200-300K before tax to pay that off). Bank of America, 2.5 years
later, still hasn't foreclosed on it; they just marked me as delinquent
payment each month.

PNC Bank wouldn't give me a $10,000 loan to refinance my 6% car loan down to
2%. American Express continues to keep my Platinum Card open with over $75K in
available credit. I make well into the $200K/year range.

Risk analysis? Hah.

EDIT: I have the $10K sitting in a PNC savings vehicle, and was still denied.

~~~
encoderer
What do you mean $75k in avail credit? I'm just curious. Do you mean you used
the online/phone based "spending check" to see if they would approve a $75k
charge? Except in cases of borderline credit Amex doesn't publish spending
guidelines on charge cards. Unless you meant a revolving product, but usually
when somebody says Platinum they mean the Amex Platinum charge card.

Also, there's some serious caveats and differences here. If it IS a charge
card, you'll have to pay it off within 60 days. If you don't, you'll
definitely see some adverse action from Amex not to mention a HIGH apr. Even
if it is a revolving card like the Amex Skymiles Plat or the MB Plat, if you
start revolving a 5-figure balance Amex will most likely investigate and you
could get investigated (a request for your 1040's) and/or see some adverse
action.

Finally, Amex has a lot more sophisticated risk models than other lenders,
because they have to. I can charge as much on my Amex PR Gold card as all of
my other credit limits combined -- just about $100k. They aren't as Fico
reliant.

Have you seen your Fico scores recently? (There are about a dozen different
true Fico scores, and endless knockoffs that are useless). If you've seen your
Fico from something like MyFico.com and it's over 700 you could still have a
problem with the Auto Enhanced Fico product that many lenders use for auto
loans. That scoring model emphasizes installment loan history which it seems
is your sore spot.

If I were you I'd head over to CreditBoards.com and learn how to clean up the
negative info on your reports and get your auto loan problem fixed up.

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socialist_coder
What is the point of having 102 billion dollars in overseas bank accounts?

How can it be considered "successful tax planning" when 70% of their profits
are sitting overseas and basically UNUSABLE?

I get it, they don't want to pay taxes on it. Well, isn't paying your fair
share of taxes on it and then getting to use it better than it just sitting
overseas not doing anything?

Are they waiting for a tax holiday? Is there some other strategy here that I'm
missing? Why are they content with just leaving their money overseas where
they can't do anything useful with it?

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tolmasky
If the interest on the loan amounts to less than what they'd pay in taxes then
its worth it to take the loan and wait for said tax holiday. This is common
advice for people too - take a loan if you can get more value out of your cash
on hand than paying the interest on said loan. The article cites historically
low interest rates -- that means it makes sense to take a loan even ignoring
the foreign assets situation, if you feel you can use the money to generate
more money than the interest.

~~~
socialist_coder
I get that it's still beneficial to take the loan. I was more asking about the
situation in general, not in relation to this specific loan.

Is the only reason they're waiting because they think there will be a tax
holiday? Or is there more to it than that?

One of the things I learned working on freemium games is that if you have too
many sales, then people will only buy when there is a sale. I hope the US Govt
has learned that lesson and _never_ does another Tax Holiday.

~~~
tolmasky
I'm not sure how foreign assets work, but it may be the case that Apple is
free to use those assets as it sees fit in those other countries. In that
case, it may never make sense to bring the money back without a tax holiday. I
know you think you are sticking it to them by never granting them another tax
holiday, but in reality all you may be doing is accelerating the pace at which
they realize that they aren't an American company so much as a global company.
Its already the case that the products are assembled in China, and someday its
quite possible most of their phones will be _sold_ in China as well, and they
certainly pay taxes for that stuff _in China_ (as well as every other country
they sell products in). Why do you think taxes on profits in other countries
"belong" to America? I think China has as much a claim that Apple should pay
THEM taxes on the work they do America. In a world where more and more of
their profits happen overseas, then penalizing them when they try to bring the
money to the US may just make them realize someday that hey, they should just
do everything overseas and then America won't benefit from Apple at all
(except for the few sales that happen on US soil).

~~~
socialist_coder
That is a good argument. You definitely made me think.

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mckoss
Why isn't this tax evasion?

 _About two-thirds of Apple’s cash — about $102 billion — sits overseas in
lower-tax jurisdictions. If it returned some of that cash to the United States
to reward its investors, the company could have significant tax consequences._

As a private tax payer - the IRS would have no problem calling this a tax-
aviodance "scheme" - and hit me with a big tax bill and penalties.

~~~
Judson
If you earned the money overseas (and paid taxes on it where it was earned),
it isn't subject to US taxes, and is therefore, not tax evasion.

Now, Apple's cash takes quite a (currently legal) trip around the world, but
the basic principal is the same.

~~~
parasubvert
Actually, US citizens (and residents) are taxed on their global income. You
also must declare all year-maximum bank account balances and/or investments
globally if you have assets over $10k (aka FBAR) or risk huge fines or jail.
This is why the "Swiss bank account" of yore is deemed tax evasion - there is
no legal way as an individual to avoid Uncle Sam.

You can receive a credit for foreign taxes paid but its not always 100%. US
There is an exemption if you actually reside overseas for a period (aka.
Foreign Earned Income Credit) but the cap is small, maybe $100k or so.

Apple is dealing with a different area, that of foreign subsidiary corporate
profits. Repatriating that money to the parent means the parent is recognizing
the earnings of the foreign subsidiary for tax purposes.

~~~
Judson
Whew. Lucky for me, my tax situation is simple. Otherwise, it could have been
a few years in the slammer ;)

~~~
parasubvert
It actually really sucked for US citizens overseas, who may have moved when
they were children, or when they dodged a draft in the 60s, and never filed
their 1040s or FBAR.

The worry recently (as the IRS has been cracking down as of late) is any re-
entry to the US with a US passport would lead to a massive tax bill for all
foreign income over the past 40 years. Or for Canadians living in Florida who
never declared their Canadian retirement funds. Fortunately the IRS offered
amnesty in 2008-2010 to most to "come clean and get no penalties".

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lmg643
I think there comes a point after which you have enough money, and you have to
wonder what kind of society you are building, what kind of future. This is,
after all, the same company that used to have a marketing campaign that
featured individuals of considerable moral courage ("think different" /
gandhi). But that's just for advertising of course; it's about saying the
right things, not actually doing them.

~~~
wklauss
what should a for-profit company do, then, once its successful?

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lmg643
they should continue to make great products and build upon their past success.
you may not understand the tax angle on their cash, or perhaps you don't care.
but i don't think making a profit is mutually exclusive with social
responsibility, and i think paying taxes on profit is the deal we signed up
for by operating businesses in the US.

~~~
grecy
> I think paying taxes on profit is the deal we signed up for by operating
> businesses in the US.

Unfortunately, the obligations of a corporation are such that they have to
maximize profits. Avoiding taxes in those ways is not illegal, so big
corporations are obligated to do it.

~~~
Hermel
Bullshit. I'm sick of hearing this myth to justify immoral behaviour of
corporations. The owners of a corporation can freely define its purpose. There
is no legal obligation to maximize profits. And in most countries (I can't
speak for the Anglo-American system), it would not be possible to sue the
management for not doing tax-avoidance unless the shareholders very
specifially required the management to do so at a general assembly.

~~~
grecy
(Sorry, I don't know the exact definitions here)

Couldn't the shareholders dismiss the Board of Directors if they deem they are
making decisions that are not in the best interest of the share price?

~~~
Hermel
They do not need a reason to dismiss the board, a majority vote suffices. The
shareholders own the company, so they can install whatever board they like for
whatever reason they like. I'm not aware of any board that got dismiseed for
not aggressively optimizing taxes. Similarily, shareholders rarely complain
about philantropic programmes of large corporations, for example this:
<http://www.exxonmobil.com/Corporate/community.aspx>

~~~
grecy
Thanks.

Let's be honest, if Facebook decided to give back their $430 million tax
credit and pay 40% on their $1.1 billion of profit, their share price would
take a major dive.

Do you think the board would not be dismissed?

(Same goes for Apple, Google, etc. etc.)

[http://www.forbes.com/sites/robertwood/2013/02/19/tax-
increa...](http://www.forbes.com/sites/robertwood/2013/02/19/tax-increases-
why-facebooks-billion-dollar-income-isnt-taxed-at-all-by-irs/)

~~~
oijaf888
Probably not since I think Zuckerberg et al controls the board.

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mckilljoy
Selling debt to buy back their stock looks like a pretty safe bet. Most of the
debt is starting off below ~2.5% interest -- using that to buyback the stock
paying ~3% dividends is immediately saving themselves money, in addition to
reducing dilution and propping up the stock price.

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gscott
The article fails to mention while they have huge sums in the bank, it is
overseas so they can't bring it back without paying taxes. It ends up being
cheaper to borrow money in the United States then to re-patriate the money
from offshore.

~~~
craigching
> The article fails to mention while they have huge sums in the bank, it is
> overseas so they can't bring it back without paying taxes

Well I just read the article and I was pretty sure that's exactly what it
said. Maybe I'm misunderstanding what you're saying?

EDIT: For reference, straight from the article:

"By raising cheap debt for the shareholder payouts, Apple will also avoid a
potentially big tax hit. About two-thirds of Apple’s cash — about $102 billion
— sits overseas in lower-tax jurisdictions. If it returned some of that cash
to the United States to reward its investors, the company could have
significant tax consequences."

~~~
gscott
I read it too fast. You're right it is right there... thanks

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tbatterii
Mo $$, Mo Problems.

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ttrreeww
Time to give some of that to the employees.

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sdsfds
Is this the start of a decline? Apple too busy playing financial games instead
of focusing on the product?

~~~
wklauss
Is this the start of a decline? Apple too busy playing on the high-end market
instead of focusing on the fast growing low-end?

Is this the start of a decline? Apple loosing profit margins instead of
focusing on high-margin products?

Is this the start of a decline? Apple too busy with domestic consumers instead
of focusing on the pro market?

Is this the start of a decline? Apple too busy with iPad instead of focusing
on the iPhone, his best seller?

Is this the start of a decline? Apple too busy on hardware instead of focusing
on services?

etc, etc, etc...

I don't get the doom and gloom surrounding Apple lately. As much as I find
John Gruber irritating lately I find myself agreeing with this observation: No
matter what Apple does, it seems wrong and it's setting the course of its own
demise.

And after that rant... Why is this a hint of the company being more interested
in the finance games than in products? Seems to me that its just a decision
made by the CFO, that, as usual, is being given too much attention because the
company behind it.

~~~
sdsfds
The thing is, now that it's been more than a year since Steve died people are
looking for the first cracks. I myself believe that right now they are simply
moving on momentum, I don't really think they have any thrust left. I hope I'm
wrong though. Just a gut feeling.

~~~
Samuel_Michon
iMac was introduced in 1998, iPod in 2001, iPhone in 2007, MacBook Air in
2008, and iPad in 2010. All those product lines are still highly profitable.
Even if Apple were not to come up with new product categories in the next two
years, they would continue to grow.

However, Tim Cook hinted at the introduction of a new product category in the
coming year. [http://allthingsd.com/20130424/apple-has-amazing-stuff-
comin...](http://allthingsd.com/20130424/apple-has-amazing-stuff-coming-says-
cook-but-not-until-fall/)

