Instead of using its own cash hoard to reward shareholders, Apple plans to go into debt for the first time ever.
Apple CEO Tim Cook said late Tuesday that the company will double the amount it returns to shareholders through share buybacks and dividends by 2015, but will "access the debt market" to pay for it.
Borrowing money seems odd for a company like Apple (AAPL), which has $144 billion in cash. But more than $100 billion of that is overseas. If Apple were to try to bring that cash back to the United States, it could be taxed at the top corporate tax rate of 35%.
And that doesn't sit well with Apple.
"We are continuing to generate significant cash offshore and repatriating this cash would result in significant tax consequences under current U.S. tax law," said Apple finance chief Peter Oppenheimer during an analyst call Tuesday.
Oppenheimer has been very vocal about wanting the current tax laws changed. Just last month, he said those laws "provide a considerable economic disincentive" for U.S. companies that might otherwise consider bringing back substantial amounts of cash.
But Apple also recognized the need to respond to growing calls from its investors (including David Einhorn), who want to see more shareholder reward programs. Many have been disgruntled by the company's cash hoard and the fact that Apple's stock has tumbled more than 40% from its all-time high last September.
"We remain firmly committed to our objective of delivering attractive returns to shareholders through both our business performance and return of capital," said Cook during Tuesday's conference call.
Apple's decision to tap the debt market comes at a time when borrowing is cheap. The Federal Reserve is holding interest rates near record lows and the average yield on investment grade U.S. corporate debt is around 2.6%, according to RBS credit strategist Edward Marrinan, who said companies with a AA-rating like Apple's can borrow at a rate of less than 2%.
Apple is not the first company to voice concern about the repatriation tax. Fellow tech giants Google (GOOG), Microsoft (MSFT) and Cisco (CSCO) were all part of a lobbying effort in Washington last year to push lawmakers to at least temporarily lower the repatriation tax rate to about 5% from 35%, as they had previously done under the 2004 tax holiday.
Everything comes at a cost, including the Fed's low rate policy and multiple rounds of monetary easing.
Not one to pass up a good musical reference, noted bond guru and Pimco managing director Bill Gross' latest missive is aptly titled "Money for Nothin' Writing checks for free" in a nod to Dire Straits. In the past, Gross has cited The Beatles and Flavor Flav in pieces.
In his first investment outlook MORECatherine Tymkiw - Jan 3, 2013 1:46 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
They say you can't fight the Fed. But the bond market is giving it the good old college try.
The Federal Reserve announced last week that it was expanding its current bond buying program and that it MOREPaul R. La Monica - Dec 18, 2012 12:26 PM ET
It's going to be tough to call, but three of the world's biggest investors agree that the next big money-making opportunity will be when interest rates rise from their historic lows and the bond bubble bursts.
"The greatest fortune made in the next five years is probably going to be made by some group or individual who figures out when the interest rate market will turn," said billionaire David Rubenstein, MOREHibah Yousuf - Dec 12, 2012 4:31 PM ET
Despite widespread expectations for another rate cut, the Reserve Bank of India left its key interest rate at 8% Monday, citing growing inflation concerns.
The move, or lack thereof, puts greater pressure on India's government to get its fiscal house in order.
The central bank aggressively cut its interest rate in April for the first time in three years in an effort to boost growth "based on the premise that the process MOREHibah Yousuf - Jun 18, 2012 11:53 AM ET
The world is hungry for U.S. debt.
Foreigners increased their holdings of long-term U.S. debt by $25.6 billion in April, up from a $21.9 billion increase in March, according to the Treasury Department's latest report on foreign holdings of U.S. debt released Friday morning.
The United Kingdom, France and the Caribbean had the biggest appetites for U.S. government-backed debt, according to the Treasury International Capital data (TIC) for April.
China, the U.S. government's MOREMaureen Farrell - Jun 15, 2012 12:06 PM ET
Shares of McDonald's and KFC-owner Yum! Brands declined Friday amid growing fears about slowing economic growth in China.
McDonald's announced that its sales at stores open at least a year in the Asia, the Middle East and Africa region declined 1.7% in May, with particular weakness in Japan and China.
In fact, sales in China declined for the first time since November 2009, said Lynne Collier, analyst at Sterne Agee. Collier said that her conversations MOREHibah Yousuf - Jun 8, 2012 12:36 PM ET
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