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View Diary: Is Apple about to pull off one of the largest tax dodges in history? (64 comments)

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  •  Well... sort of (2+ / 0-)
    Recommended by:
    The Technomancer, Odysseus

    You are spot on in your analysis.  Apple, as a company, has made the decision to pay 3% interest as opposed to 35% taxes.  Likely that 3% interest is a tax-deductible expense too.  

    However, the debt money will be used for stock buy back.  So the seller of the stock would see a capital gain from the sale.  Also the buyer of the debt will receive dividends.  We don't know where those investors are located so it's difficult to speculate whether or not they would pay taxes on the gains.  Point is there will be some tax received, just nowhere near 35% and not paid by Apple directly.

    I personally think stock buy backs are a stupid waste of capital a kin to basically lighting money on fire.  Cisco and Microsoft have been doing these tactics for years and it's had no affect on their stock price whatsoever.  To me, it's a pretty obvious sign that your company has lost the ability to innovate.  

    I'm not in favor of a tax repatriation holiday but go ahead and let companies do these complex maneuvers to get around the laws.  In the end, local US companies or foreign upstarts looking to invest will make the effort to win.

    •  Stock buybacks are not a waste of capital (6+ / 0-)

      if the company has far more capital than it can effectively use and the current market valuation of the stock is on the low to fair side.

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Wed Apr 24, 2013 at 10:48:08 AM PDT

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      •  Disagree (0+ / 0-)

        Simple supply and demand.  If I take more of my stock off the market, that stock price should go up.  But in the case of Cisco and Microsoft, their stock prices have not moved for years even though the market as a whole has performed well.  So if buying up your stock is not increasing the stock price then you're essentially throwing it in the trash.  

        I can guarantee you that Apple's stock will not rise based on this stock buy back plan.  In fact, a few investment houses have cut their estimates on Apple moving forward meaning the announcement will likely cause the stock to drop.  Therefor, waste. of. money.

        •  From the corporate side... (5+ / 0-)
          Recommended by:
          Odysseus, nextstep, FG, erush1345, VClib

          ...a stock buyback represents the idea that the company feels their stock is undervalued, and with a P/E ratio in the single digits, it probably is.

          It also helps Apple compete for talent in Silicon Valley, as the stock option packages matter a lot more than raw salary to the engineers around here.

          Any sufficiently advanced technology is indistinguishable from magic. -- Clarke's Third Law

          by The Technomancer on Wed Apr 24, 2013 at 11:03:51 AM PDT

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        •  Cisco & Microsoft had extremely high P/Es (3+ / 0-)
          Recommended by:
          Odysseus, FG, erush1345

          and they were coming down after the tech bubble.  So you are looking at a balance of movements - some that move the price up and others that move down - the fact that the net movement was down does not mean the up movements did not have an impact.

          Stock buybacks when the stock had high valuations (such as when the P/E was greater than its organic growth rate) are mis-timed buybacks - consistent with my above comment.

          Companies that have large excessive cash frequently have the problem that management spends the cash by overpaying for bad acquisitions - which is far worse than a buyback that does not result in an increase of the stock price.

          The most important way to protect the environment is not to have more than one child.

          by nextstep on Wed Apr 24, 2013 at 11:12:25 AM PDT

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        •  It is true that in general stock buybacks (0+ / 0-)

          mean that the Company can't think of anything better to do with their money, and that may really be true in Apple's case. However, if you are a Company officer or Board member, you might appreciate some efforts to push up the value of your equity. It may be one reason why Warren Buffet opposes granting of stock options.

          For if there is a sin against life, it consists perhaps not so much in despairing of life as in hoping for another life and in eluding the implacable grandeur of this life. - Albert Camus

          by Anne Elk on Wed Apr 24, 2013 at 01:11:13 PM PDT

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          •  Anne - Buffet opposes stock options? (0+ / 0-)

            What I have read many times is that Buffet was one of the strongest advocates for having options show up in GAAP P&Ls as a compensation expense charged against current earnings. If you have a link to something that states that he opposes the granting of stock options to employees I'd like to read it.

            "let's talk about that"

            by VClib on Wed Apr 24, 2013 at 10:04:51 PM PDT

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    •  True. (1+ / 0-)
      Recommended by:
      Odysseus

      But many of the institutional and individual holders of the stock will be paying a capital gains rate far lower than the corporate tax rate.  Hell, if they bought the stock when it was flirting with $700 (or anywhere above the current price, for that matter), they'll be able to claim a capital loss and credit that against other gains.

      I'm fine with the actual idea behind a stock buyback, especially when it doesn't even represent half a company's cash hoard.  Apple's not gonna be buying anything that requires them to have 12 digits in the back, and if shareholders feel they can get better value investing that money in other companies, let them!

      Unless Apple's directors and management are taking the company in a radically different direction, however, I highly doubt that this is solely to return money to investors.  They can't do anything with it overseas since their capital expenditures are nearly all in the US, so they might as well return it and make the shareholders happy while leaving their US cash hoard relatively untouched.

      Any sufficiently advanced technology is indistinguishable from magic. -- Clarke's Third Law

      by The Technomancer on Wed Apr 24, 2013 at 10:52:28 AM PDT

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