Why is Apple not in debt

Apple has a problem that many corporations would like to have: It doesn't know what to do with all the money. The IT group, headquartered in Cupertino, California, has incredible cash reserves of around $ 145 billion, and the trend is rising. Analysts were worried: What should be done with this money sensibly: Pay back debts? There are none. Invest in product development? Happened anyway. Finance acquisitions? Who should Apple want to take over?

The most dangerous competitor is Samsung. The South Koreans have already outstripped the US group with their highly successful smartphones. The recently introduced flagship Samsung Galaxy S4 could become a mega seller. But a Samsung takeover is not only out of reach for Apple - it would be ruled out for antitrust reasons.

Thus, Apple boss Tim Cook has decided on something that has long been considered taboo in the group: The iPhone, iPad and iPod smiths are distributing dividends to their shareholders. The company founder Steve Jobs (who died in 2011) had consistently refused to do so since 1995. Initially, it was important to him to free the group from its financial misery at the time in the mid-1990s. Later he wanted to avoid debts at all costs - which led to the lavishly endowed postage fund.

Share in financial success claimed

The charismatic Apple legend Steve Jobs was overlooked, but not his successor Tim Cook. Soon after Jobs' death, there were increasing votes among the owners demanding a share in the financial success. Hedge fund manager David Einhorn (Greenlight Capital) even dragged Apple to court to get the treasure chest. "Apple has a problem. We think it's a money problem. The company has a mentality like in the Great Depression," he told CNBC in February 2013. Apple was just hoarding too much cash. With the motto "It's your money" he courted the favor of other shareholders.

The advance was successful. Since July 2012, the owners can look forward to regular donations for the first time in more than a decade and a half. Initially, however, these were rather modest. On April 23, however, Apple announced that it wanted to more than double the payouts. A total of $ 100 billion is to be distributed by the end of 2015.

It is vying for the favor of the shareholders: They have become suspicious of whether Tim Cook can build on the legendary innovative strength of Steve Jobs. Compared to the high of 702.10 dollars in September 2012, the paper has dropped to 440 dollars.

Bonds for distribution

As announced on Tuesday, the technology giant is now issuing bonds for the first time in 17 years. What at first seems completely grotesque: Why on earth does a corporation sitting on huge mountains of cash incur extra debts? The first reason is the unbeatably favorable conditions: a better environment for corporate bonds will not return anytime soon. The interest rates charged in return for the loan are at all-time lows.

The second reason: The immense Apple wealth would not be freely available for distribution. Much of the money is with subsidiaries outside of the United States. If the profits were brought back to the States, they would have to be taxed. And US corporation tax is a whopping 35 percent. That's why Apple is making a virtue out of necessity and prefers to get the money for the distributions via the capital market.

For many years, Apple has been a model for how multinational corporations - cleverly but legally - exploit global loopholes to reduce their tax burden. Google, Amazon and Starbucks have also made headlines.

Creative juggling

By creatively juggling corporate profits, license fees and trademark rights between, for example, the USA, Ireland, the Netherlands and a Caribbean offshore destination such as Bermuda or the Cayman Islands, multinational corporations can reduce their tax burden to a fraction. According to earlier calculations by the "New York Times", Apple had reduced its tax bill in the US by 2.4 billion US dollars - and effectively taxed its global results at just 9.8 percent.

Only a few weeks ago, the OECD made such profit shifts an issue, which can lead to ruinous tax competition between states. And EU tax commissioner Algirdas Semeta also wants to put "aggressive tax planning" on the agenda of the next EU summit. Since the criticism of such practices has increased, Apple has added a short line to its quarterly reports published by the media: "Tax rate of 26 percent" was read in the latest quarterly publication. That would roughly correspond to the rates that "normal" US corporations (apart from the high-tech sector) pay taxes.

Sparkling clean and with reserves

You don't have to be a great prophet: the Apple bond, which was launched on Tuesday, will reach record dimensions. Experts speak of the largest non-bank debt security of all time. The volume will initially amount to 15 billion US dollars - overall, Apple wants to raise around 60 billion dollars within three years.

Demand will probably also be record-breaking: When will there be an opportunity to subscribe to debt from a corporation that is not only spotlessly clean, but also has reserves that are three times the economic output of Bulgaria? There is one question that investors should ask themselves - especially those who are interested in the longest term of 30 years: Will Apple still exist in 2043 - and if so, what will it produce? iPhones probably won't be anymore ...