With $179 billion in the bank, Apple wants to borrow $5 billion for stock repurchases and...

February 3, 2015

Thanks to the ever-complicated nature of the US tax code, Apple — the most profitable company in history this past quarter — is planning to issue $5 billion in bonds to pay for their ongoing stock repurchasing program and dividends. Yes, Apple, the company that made an eye-watering $18.04 billion in profit last quarter, is looking to borrow money.

Here's exactly what Apple told the SEC they'll do with the money:

We intend to use the net proceeds from sales of the notes, which we estimate will be approximately $__billion, after deducting underwriting discounts and our offering expenses, for general corporate purposes, including repurchases of our common stock and payment of dividends under our program to return capital to shareholders, funding for working capital, capital expenditures and acquisitions and repayment of debt. We may temporarily invest funds that are not immediately needed for these purposes in short-term investments, including marketable securities.

(yep, blank billion dollars)

The bonds would mature in 5-to-30 years. A 10-year bond would be expected to have a yield about 0.95 percentage points higher than one issued by the United States Treasury today.

But why would Apple, with $179 billion in cash on hand, want to borrow a measly $5 billion? It all boils down to taxes — much of Apple's cash is stored with overseas subsidiaries in places like Ireland (Apple is in no way unique among international corporations in this regard), and bringing it back to the United States to spend on things like stock repurchases and dividends would see that cash hit with a a 35% tax. Which, understandably, Apple would like to avoid.

Many in industry and government have pushed for an overseas tax holiday as a way to bring that money back to the US at a reduced tax rate, but such ideas have generally floundered at becoming actual law. Most recently, President Barack Obama proposed levying a one-time tax on these overseas holdings anyway, an idea that's drawn substantial criticism from both sides of the aisle and questions about how exactly the US government would tax earnings that are technically outside its jurisdiction. In the meantime, Apple's borrowing money here because it costs them less in interest than trying to use the money they have over there.

Source: Apple; Via: Wall Street Journal