{"id":203,"date":"2013-04-28T07:31:26","date_gmt":"2013-04-28T07:31:26","guid":{"rendered":"http:\/\/www.extech-solutions.com\/wpextech\/?p=203"},"modified":"2013-04-28T07:32:16","modified_gmt":"2013-04-28T07:32:16","slug":"why-apple-is-borrowing-money-to-pay-for-60b-stock-buyback","status":"publish","type":"post","link":"http:\/\/www.extech-solutions.com\/wpextech\/why-apple-is-borrowing-money-to-pay-for-60b-stock-buyback\/","title":{"rendered":"Why Apple is borrowing money to pay for $60B stock buyback"},"content":{"rendered":"

\"money1\"<\/a>To bolster its stock in the eyes of investors, Apple recently announced it would buy back $60 billion worth of shares. Such a move makes sense \u2013 after all, the iPhone maker does have this cash hoard of nearly $150 billion. However, it turns out Apple won\u2019t touch that money, opting instead to borrow the funds.<\/p>\n

By borrowing the money, Apple keeps its billions out of the reach of U.S. taxes, saving the corporate giant money while also retiring expensive stock dividends.<\/p>\n

You didn\u2019t think there was any altruism involved, did you? The move, however, isn\u2019t without its pitfalls. Moreover, Apple isn\u2019t alone in a corporate game of chess where it\u2019s all about manipulating the tax code, according to a report Friday\u2026<\/p>\n

The Washington Post\u2019s Allan Sloan explains Apple would have to pay U.S. taxes if it used cash in overseas bank accounts to pay for the buyback.<\/p>\n

At $410 per share, the buy back would shrink Apple\u2019s dividend load by $12.20 per share.<\/p>\n

Since dividend payments are not tax-deductible, the company instead will pay interest (which is deductible) of $12.30 per share to borrow the money.<\/p>\n

 <\/p>\n

But, wait, there\u2019s more.<\/p>\n

Along with saving money on the buyback, Apple boosts it\u2019s earnings per share, a factor always noticed by Wall Street. If U.S. taxes were only less for corporations, they\u2019d drop the tax shelters and come on home, right?<\/p>\n

Maybe not, Sloan writes.<\/p>\n

With tax rates at 35 percent, it\u2019s considerably cheaper for Apple to borrow money in the United States than it would be for it to repatriate cash held in foreign subsidiaries. But even if the tax rate were only 25 percent, it would be cheaper for it to borrow than to repatriate.<\/p>\n

But Apple borrowing a massive amount of money comes with the risk of awashing the company with debt, and that\u2019s exactly what nearly killed Apple in the 1990s.<\/p>\n

Tim Cook at D10 \"Tim-Cook-at-D10-image-005\"<\/a><\/p>\n

Analyst Rob Enderle has his doubts, explaining how Cook\u2019s plan could backfire:<\/p>\n

Cook\u2019s stated plan is to eliminate Apple\u2019s cash reserves, increase debt and build a lot more variety into Apple product lines. It reads like he\u2019s planning to return Apple to how it was when Jobs took over \u2013 hopefully short of the \u201cnearly bankrupt\u201d part.<\/p>\n

He suspects the move could be part of Cook\u2019s exit strategy and a way for the CEO to give himself a \u201clucrative golden parachute.\u201d<\/p>\n

Here\u2019s the quote:<\/p>\n

In the near term, though, the buyback will reduce the number of shares in the market.<\/p>\n

In addition, offering a huge dividend will entice more people to buy Apple stock. By the law of supply and demand, which a logistics guy like Cook knows backwards and forwards, the end result, regardless of Apple\u2019s performance, should be a massive stock price increase.<\/p>\n

And Tim Cook holds a lot of stock.<\/p>\n

At any rate, the use of foreign subsidiaries to lower the taxes of U.S. based corporations is mind-boggling.<\/p>\n

Start internationally. You create a subsidiary in a low-tax country, such as Luxembourg.<\/p>\n

That subsidiary owns intellectual property it licenses to other subsidiaries located in high-tax countries. The royalty fees are tax-deductible, allowing a multinational corporation to move cash from a high-tax pocket to a low-tax pocket.<\/p>\n

\"Tim-Cook-holds-iPad-with-Katie-Cotton-Jacqui-Cheng\"<\/a><\/p>\n

Tim Cook holds iPad (with Katie Cotton, Jacqui Cheng)<\/p>\n

It\u2019s a similar story in the United States. Although Apple\u2019s headquarters are in California with a tax rate of 8.84 percent, it has an office in tax-free Nevada.<\/p>\n

\u201cSetting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year,\u201d the NewYork Times reported in 2012.<\/p>\n

As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands \u2014 some little more than a letterbox or an anonymous office \u2013 that help cut the taxes it pays around the world.<\/p>\n

Although Apple is lauded for its creative use of design and technology to develop devices consumers fall over themselves to buy, perhaps the most important employees are tax attorneys, according to the Post.<\/p>\n

So, what\u2019s your position on the subject?<\/p>\n

And did Cook make a grave mistake by borrowing the money instead of spending some of Apple\u2019s cash pile to pay for the stock buyback?<\/p>\n

Source – iDownloadblog, By Ed Sutherland<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

To bolster its stock in the eyes of investors, Apple recently announced it would buy back $60 billion worth of shares. Such a move makes sense \u2013 after all, the iPhone maker does have this cash hoard of nearly $150 billion. However, it turns out Apple won\u2019t touch that money, opting instead to borrow the […]<\/p>\n","protected":false},"author":1,"featured_media":204,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-203","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/posts\/203","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/comments?post=203"}],"version-history":[{"count":3,"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/posts\/203\/revisions"}],"predecessor-version":[{"id":209,"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/posts\/203\/revisions\/209"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/media\/204"}],"wp:attachment":[{"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/media?parent=203"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/categories?post=203"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.extech-solutions.com\/wpextech\/wp-json\/wp\/v2\/tags?post=203"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}