Apple Strategy Saves $9.2 Billion in Taxes Also a $100M Yearly in Deductions

Sums done by Moody’s Investment Services (via Bloomberg) confirm reports that Apple’s approach of borrowing the $100b needed to fund its stock buy-back and dividend plans will result in massive tax savings, estimated at $9.2B …

 Based on current rates, Apple will pay interest of about $308 million a year on the $17 billion bond offering, said Gerald Granovsky, a senior vice president at Moody’s.

“From a pure corporate-finance theory perspective, this was a no-brainer,” Granovsky said. 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.

Apple’s $17B bond issue set a new corporate record. Interest in the bonds continued after the sale was completed, with MarketWatch reporting unprecedented levels of trading in Apple bonds in the 48 hours after issue. [Source]

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Apple to Buy Back Shares to Increase Dividends, And Boost Share Prices

Apple now has $145 billion in cash and it needs to do something about it. That’s why Apple CEO Tim Cook just announced during the earnings call that the company will initiate a stock buyback. It means that Apple will use part of its cash to repurchase existing shares, taking them out of the market, increasing existing stockholders’ shares. That investment will go directly to existing investors in the form of a dividend.

Tim Cook announced this program just after reiterating that Apple’s culture is what sets the company apart.

“We have a tremendous culture of innovation,” Cook said. “It’s the same culture that bought the iPhone and the iPad,” he continued.

Last year, Apple announced that it would spend $45 billion over multiple years to hand out as dividends. It is more than doubling this program to $100 billion by the end of 2015. The $55 billion that were set aside today will be used for the share repurchases as well as dividends.

The advantage of a share buyback program is that Apple shows that it is a confident company because it is decreasing the number of shares outstanding. Those programs usually boost the stock. A few days ago, Apple shares dropped below $400 after trading at $700 in September 2012. It represents a stark downturn and something that should slightly worry Apple.

The board has increased the share buyback authorization to $60 billion compared to $10 billion last year. It is the largest share buyback authorization of a public company. The quarterly dividend will be increased as wellfrom $2.65 to $3.05. Apple will pay around $11 billion in dividend every year.

Overall, Apple will hand out $30 billion every year. But what is even more impressive is that the company still expects its cash on hand to grow. [Source]

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