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The Trump administration's tax reform law has proved a windfall for companies, as it reduced the corporate tax rate and provided incentive for repatriating cash held overseas.
The corporate tax rate is now lowered from 35 percent to 21 percent, and bigger companies can now repatriate overseas profits held as cash at a reduced rate of 15.5 percent. For repatriating illiquid assets, the relevant tax rate is now a more modest 8 percent.
Apple Inc. (NASDAQ: AAPL) said on its earnings call that it plans to spend the repatriated profits, aligning its cash with the debt.
In a December note, KeyBanc Capital Markets analyst Andy Hargreaves said he expects Apple's potential tax rate to change from the current 25.5 percent to 12.3 percent in 2018.
The Cash-Debt Balance
Apple ended the fiscal first quarter 2018 with cash, plus marketable securities, of $285.1 billion, up $16.2 billion from the previous quarter. About 94 percent of it was held overseas, the company said on its earnings call.
"Tax reform will allow us to pursue a more optimal capital structure for our company. Our current net cash position is $163 billion. And given the increased financial and operational flexibility from the access to our foreign cash, we are targeting to become approximately net cash neutral over time," Apple CFO Luca Maestri said on the call.
Maestri lauded the tax reform and said it has vested the company with additional flexibility from the access to the foreign cash.
"And in the past, we've been addressing this issue by having to raise debt as the cash was overseas," he said.
Apple issued $7 billion in debt during the quarter, taking its total debt to $122 billion — $110 billion in term loan and $12 billion in commercial paper.
In a Jan. 17 release, Apple said it expects repatriation tax payments of about $38 billion.
Cupertino said it plans to invest over $30 billion in capital expenditures over the next five years and create over 20,000 new jobs through hiring at existing campuses and opening a new one.
See also: Apple Nears Trillion Valuation; Here's The Story Of The Company First To Break The Billion Mark
Fishing In The Debt Market
In February 2017, Apple raised $10 billion in debt through a nine-part bond sale of both fixed and floating rate notes, according to the final pricing term sheet it filed with the SEC.
Apple returned to the debt market in May 2017 with a six-part offering, raising $7 billion in the process.
The company tapped the debt market yet again in September 2017, issuing two-year fixed and floating rate notes, five-year notes, 10-year notes and a 30-year bond. The company raised $5 billion through the offering.