Apple Inc. (NASDAQ:AAPL) is sitting on $150 billion in cash and is planning a $17 billion bond issue to buy back shares. It may sound odd that Apple is borrowing cash for share buybacks, but the Cupertino giant has good reasons to do so.
“We very much appreciate all of the input that so many of our shareholders have provided us on how best to deploy our cash,” stated Apple chief executive Tim Cook during a recent earnings call.
Around 88% of Apple’s cash ($130 billion) is overseas. If Apple brought it back home, the U.S. government would collect around a third of that amount.
“Thanks to Apple’s strong growth and international expansion in recent years we’ve built substantial offshore cash balances,” added Apple’s principal accounting officer and future CFO Luca Maestri. “To repatriate our foreign cash under current U.S. tax law, we would incur significant tax consequences and we don’t believe this would be in the best interest of our shareholders.”
When the SEC asked Apple about its foreign earnings last year, Apple said that most of it was generated by Irish subsidiaries and is “intended to be indefinitely reinvested in operations outside the U.S.” By issuing debt in Europe, the proceeds could be used for the buyback while the interest and principal owed to debt investors would be paid out of from Apple’s Irish cash pile.