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Apple Raises $17 Billion in Record Debt Sale (nytimes.com)
36 points by JumpCrisscross 1422 days ago | hide | past | web | 60 comments | favorite



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.


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.


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.

In practice this doesn't happen because large single-item purchases should be denied, especially if they're unusual. If you generally spend $500 of your $10,000 limit on an average of 20 different items, and suddenly try to put one $5,000 item on your credit card without calling your bank ahead of time, it probably won't go through. Source: I worked at a credit card risk department at a major bank.


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.


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.


The ratings agencies were pricing in the risk that Apple lobbyists would not be able to bribe the US Congress to allow overseas profits to be returned tax-free.


To be fair, not only Apple has been lobbying for a tax holiday, also parties like Google and Cisco. Both those companies are sitting on cash in tax havens, but I haven’t seen the market act bearish over it.

http://www.bloomberg.com/news/2011-09-29/google-joins-apple-...


In a world where US government debt isn't triple-A either, it's hard to take the distinctions at the high end of the rating scale seriously.


US Government debt isn't AAA-rated because the House decided to play chicken with the US economy in 2011.


Has the US missed a debt payment yet?



My question was more rhetorical, but thanks for the reference.

Until the US misses a debt payment, it should still have maintained its 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.

Part of the problem is that banks often have to build their models off of data that isn't sufficiently granular. For example, most banks don't have the ability to distinguish between someone who misses a utility payment because they're absent-minded vs. someone who misses a payment because they're short on cash. Regulations compound the difficulty to some extent, but it's really primarily a data/technology problem at this point.


I remember some article about a guy in India who ran a business. His employees could get mortgages (or some kind of loan anyway) but he couldn't because he wasn't employed. If you think about it though, it sort-of makes sense. A business is a gigantic liability, and if things get bad, you'll default on a loan before shutting down a company.


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?


Note that they do spend billions of that money. For example unlike most companies, Apple buys the manufacturing equipment at Foxconn used to make their products. This means Foxconn doesn't have to take capital risks, and also that the equipment is not available to Foxconn's other customers. (The CNC machining for making unibody macbooks is one example.) There are also rumours of having spent large sums to prop up Sharp.

Some asymco articles on their capital spending (almost all of which is outside of the US):

http://www.asymco.com/2012/12/11/the-new-age-of-capital-inte...

http://www.asymco.com/2012/10/31/hey-big-spender/

http://www.asymco.com/2012/11/07/recapex-the-curious-case-of...

Apple's problem is that they make so much in profits that anything they do ends up not making much of a dent.


That's basically it. They are trying to get some tax exemption. And its not only Apple (Google or Amazon are in the exact same position).

My suspicion is that the current "we will manufacture in the US" has to do something with it (Both Google and Apple have announced plans for this), probably some kind of agreement in Washington about capital expenditures being exempt for taxes.

I don't think this is poor planning. International sales grew fest and they found themselves in this situation. If you ask in any other country (esp. in Europe) they'll probably tell you that that money shouldn't be taxed in the US as it was made by selling products on local markets and siphoned away using financial tactics that are frowned upon (selling straight from Ireland, usually).


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.


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.


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).


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


I am not sure it is unusable. THey do most mfg in China - are they not paying for these operations through the funds held outside the US?


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.


> 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.

That's not actually true. If you could figure out a way to make your salary accrue overseas, you could shift it to a low-tax jurisdiction too. The IRS is actually very anal-retentive about following the letter of the law, and doesn't just capriciously decide to treat the same situation differently depending on who is on the other side of the table.

The difference is not that the law is designed to benefit big corporations, or that big corporations don't follow the law, it's that big corporations with international presences have a more complex tax situation than you do, which they can leverage to minimize their tax liability (in the face of tax haven jurisdictions).

There is pretty much no doubt that everything you earn as a salaried employee in California ought to be taxed by California and the U.S. But if you're a multi-national corporation, why should the U.S. collect taxes on all of your income when part of it may be due to, say, a product made in China being sold to someone living in the UK?


If you are a global corporation and earn money in an overseas subsidiary for spending in that country by the corporation, it is not tax evasion to take out a loan for things you want to spend in the USA.

As an individual US resident, however, you are taxed globally. The equivalent action to Apple here would be having your corporation take a loan out to pay your salary for work performed (products sold) in Germany (for example). The profits stay in Germany; the corp avoids taxes (hopefully more than the loan interest), but you still pay your individual rate.

(IANAL, just my experience as a consultant with a few foreign corps)


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.


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.


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


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".


Because corporations make the laws, they don't follow them.

You paid more tax than Facebook this year!


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.


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


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.


> 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.


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.


(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?


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


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...


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


I hear this a lot, but it's not really true in practice. Suppose that natural resource extraction becomes temporarily more profitable than software. Do software companies suddenly switch get into the mining business?

The maximize profit argument is not an absolute imperative, and is often used to justify bad behaviour.


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

What happens when you don't sold your product in the US? Why does the profit of Apple selling an iPad in UK have to result in them paying taxes in US instead on UK?

Why does Apple Operating Europe (Cork, Ireland, 100% owned by Apple Inc. but not operated in the US) has to pay them?

I really understand and adhere to the basic idea you are trying to defend but it's just not so simple with multinationals (Apple or any other), especially if the regulatory system leaves enough holes for them to make structures like this.


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.


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.


> 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."


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


It was mentioned in 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.”


Mo $$, Mo Problems.


Time to give some of that to the employees.


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


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.


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.


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...


Those cracks where there with Steve Jobs as well. For some reason people tend to forget the bad business decisions he made. But he made plenty. Was the period between the iPod an the iPhone just also coasting on momentum? Because if that was the case, I think they are going to be ok.


Oppenheimer has to do something with his time other than counting the mountains of cash.

In all serious, no it is not. It's a tax efficient method of getting value to the shareholders whilst still maintaining a massive cash hoard, that's all.


Their corporate finance team and product development teams are very separate, I'd expect.


Google Braeburn Capital and you'll realize this is nothing new for Apple. They've been good at optimizing their finances for a long long time.


Thank you sir, will do.


They are a big enough company that they ought to do both


It would be pretty naive to make that argument.


I am pretty naive when it comes to Finance, hence the comment.




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