Apple Inc. (NASDAQ:AAPL) plans to spend $100 billion in share buy-backs in the next few years. AAPL recently sold $17 billion’s worth of corporate bonds in order to fund its buy-back plan.
During FY 13 second quarter earnings call Apple Inc. (NASDAQ:AAPL) announced that it has a cash balance of $145 billion where two-thirds of this money is in overseas subsidies. If Apple Inc. (NASDAQ:AAPL) were to bring the cash back to the US, the company would be liable to pay huge taxes and therefore borrowed the money in form of corporate debt.
According to a report published by Bloomberg, Apple Inc. (AAPL) saved approximately $9.2 billion in taxes by borrowing a part of the money that it requires for the stock buy-back plan. The figures were provided by Moody’s Investment Services and a senior vice president at Moody’s said, “From a pure corporate-finance theory perspective, this was a no-brainer,”. The report further mentions:
If the funds had come from Apple’s offshore cash pile of about $100 billion, the Cupertino, California-based iPhone maker would have had to pay a 35 percent tax to repatriate the money, Granovsky said. That means Apple avoided about $9.2 billion in taxes. And since interest payments are tax-deductible, that’s another $100 million a year, Granovsky said.
The $17 billion corporate debt sale set a new record as the world’s largest debt sale. A report by The Financial Times reveals that the demand for the bond reached $52 billion as bond investors were confident about Apple’s cash structure.
Apple’s stock has dropped since its September record due to investors being skeptical about the company’s ability to bring the “next big thing” to the market. Investors are likely waiting for Apple to enter into new markets with the widely rumoured Apple TV or smart watch.