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You are here: MacNN Forums > News > Mac News > Apple stock buyback loan expected to save company money on taxes

Apple stock buyback loan expected to save company money on taxes
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MacNN Staff
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Apr 26, 2013, 10:05 AM
Apple's plan to take out a loan for its $60 billion stock buyback is about saving taxes, notes the Washington Post. Although the company has $145 billion in cash reserves, roughly two-thirds of that is situated outside the US, and Apple has so far avoided repatriating the money in order to bypass a 35 percent tax rate. Taking out a loan for $60 billion means the company must still pay interest, but this is offset by not having to pay out dividends on the shares it's reclaiming.

The Post's Allan Shoan remarks that if Apple's loan comes with an interest rate of 3 percent -- higher than the company will likely pay -- and it buys back shares at a price of $410 each, the interest per share should be about $12.30, just 10 cents more than the annual dividend payout the same share currently demands. Interest is tax-deductible however, and even with a 35 percent tax rate, it's thought that Apple could owe just $8 per share using the loan plan.
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Apr 26, 2013, 12:29 PM
OK, OK, it makes sense. It's financially the right thing to do.
But it still just feels wrong to take out a loan when you have cash to pay for something.
Though I did not know the place, I set out for the land of my dreams
When I arrived at the land of my dreams, I found I did not know the place
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Apr 26, 2013, 12:35 PM
Geoduck, Not to worry, you are making the same mistake that people who think the country should be run like a household make.

The rules are different when you get that big. Taxes change rates and efforts. You have to think long term. Ps if Apple buys back 60 Billion in shares, it will have enough space to do a 2for1 split if it wishes. It cannot do that now (not enough shares authorized).

PS, The country also runs on different rules. Can you print your own money? Do you think that at some point the country will just RETIRE and quit doing its job??? Many big differences between them and us.

Reality, what a concept! :-)
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Apr 26, 2013, 03:49 PM
Apple doesn't have a need to repatriate money so great that it does so at a cost of 35%.

That statement stands by itself, it's useless to link the stock buy back specifically to the non transfer of money from the countries where it was earned, to the United States to face a 35% penalty.

The writer is speculating that with a buy back so large, Apple's choices are to repatriate money or to take a loan. Those are some of the choices, also not buying back stock is a very easy choice.

The dividend per share logic - is completely bizarre. How the dividend works out per share has no impact on anything, Apple isn't required to pay any amount anyway, they set that.

Cook is trying to maniuplate the stock price, while ignoring what caused it to drop so much in the first place - which was a vote of no confidence on Apple's future growth by the market, based on their failure to deliver key products.

Cook says he won't deliver a product unless its of Apple quality - which is great, but doesn't mean you dont' deliver products, it was supposed to mean you did so - and at Apple quality. Not having a prepay phone is bad, not having a 5" phone out by now - unforgivable.
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Apr 26, 2013, 04:18 PM
Originally Posted by RockoT3k View Post
not having a 5" phone out by now - unforgivable.
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Apr 26, 2013, 05:42 PM
I don't think Apple cares that much about the short term status of it's stock, or whether "the market" thinks this, or that.

A correction in the stock value was due, and at least to me, seems to be less ridiculously inflated. It is good Apple is taking steps to stabilize things.

I'm pretty sure Apple doesn't make prepay phones or non-prepay phones.
Oh, and I agree with Spheric Harlot, above.
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