By Tripp Mickle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 18, 2018).
Apple Inc. said it would pay a one-time tax of $38 billion on
its overseas cash holdings and ramp up spending in the U.S., as it
seeks to emphasize its contributions to the American economy after
years of taking criticism for outsourcing manufacturing to
China.
The world's most valuable publicly traded company laid out its
plans Wednesday in a statement that was full of big-dollar figures,
though it said that much of the money reflected Apple's current
pace of spending.
Apple said it would invest $30 billion in capital spending in
the U.S. over five years that would create more than 20,000 jobs.
The total includes a new campus, which initially will house
technical support for customers, and $10 billion toward data
centers across the country. It also will expand from $1 billion to
$5 billion a fund it established last year for investing in
advanced manufacturing in the U.S.
Apple's $38 billion tax commitment is the largest such sum
announced in response to the major overhaul of the U.S. tax code
that President Donald Trump signed into law late last year. That
law included an incentive for U.S. companies to bring home offshore
holdings, with companies required to pay a one-time tax of 15.5% on
overseas profits held in cash and other liquid assets.
U.S. companies have long pushed for such a change to enable them
to repatriate overseas cash without what they considered an
excessive tax hit. Apple on Wednesday cited the tax changes as the
reason for its $38 billion payment. It didn't say how much of its
$252.3 billion in overseas cash holdings it plans to bring home,
though it will be the vast majority, Chief Executive Tim Cook told
ABC News in an interview.
All told, Apple said it would directly contribute $350 billion
to the U.S. economy over the next five years, with the bulk --
about $55 billion this year, for example -- coming from ongoing
spending on parts and services from U.S. suppliers. That number
also includes the federal tax payment and capital spending.
Mr. Cook touted the plans as building on Apple's support for the
U.S. economy. "We have a deep sense of responsibility to give back
to our country and the people who help make our success possible,"
he said in a statement.
The company said in November that it had earmarked $36 billion
to cover deferred taxes on that money, assuming that it would
eventually pay U.S. taxes on a portion of it by bringing it
home.
Mr. Trump praised Apple's announcement on Twitter, saying his
policies allowed the tech giant "to bring massive amounts of money
back to the United States." He added, "Huge win for American
workers and the USA!"
Apple didn't provide historical comparisons for some of the
figures it gave Wednesday. The company previously said it planned
$16 billion in capital expenditures world-wide in the fiscal year
that ends this September, up from $14.9 billion the previous year.
However, Apple doesn't break out its spending in the U.S., making
it difficult to gauge how much of the $30 billion over five years
it announced Wednesday is new.
Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co.,
said Apple's plans are in line with Trump administration goals, but
it isn't clear how many of the commitments are new. And he said the
company could deliver on those commitments with existing cash flow
-- without needing to tap cash holdings.
"It's a nice number and puts a foot forward in line with where
the administration wants to go with adding jobs and building in the
U.S.," he said. But "it's not clear these investments were impacted
in any way by tax reform."
Apple has faced criticism over the past decade for overseas
manufacturing of its iPhones, of which it has sold more than one
billion, rather than making them domestically. Mr. Trump during the
presidential campaign blasted the company for outsourcing. He later
called on Apple to build a factory in the U.S. and last year said
Mr. Cook promised to build three plants in the U.S. Apple also has
been the poster child for parking overseas profits offshore, and
U.S. lawmakers and others have claimed the company sought to avoid
U.S. and international taxes -- a criticism Apple has strongly
rejected.
Apple has responded over the past year by pointing to its
spending on procurement in the U.S. and to the size of the
so-called app economy spawned by the iPhone, which the company says
has created more than 1.6 million U.S. jobs.
The tax overhaul's one-time levy on overseas cash is often
referred to as a repatriation tax, although it applies whether
companies leave their foreign profits overseas or bring them to the
U.S. It is intended as a transition from the previous tax system,
under which the U.S. taxed all world-wide profits of an American
company except those kept overseas, to the new system, in which the
U.S. won't tax most foreign profits at all. Companies may choose to
pay the one-time tax over eight years.
The $38 billion in taxes Apple owes reflects its growth in the
decade since Congress last reduced taxes on overseas holdings. In
2006, Apple recorded a tax charge of $51 million as it repatriated
$1.6 billion in cash held overseas for the fiscal year.
Apple's accumulated foreign profits of $252.3 billion amount to
just over a quarter of the U.S. tech industry's total, a Wall
Street Journal analysis of 311 large public companies found, and
about 9.5% of the $2.65 trillion in foreign profits reported by all
companies in the analysis.
A tax obligation of $38 billion would work out to about 15% of
the S&P 500's total obligation under the repatriation tax,
based on figures from the Journal analysis and a separate analysis
by Zion Research Group. Altogether, the Joint Tax Committee
estimated last month, the tax should raise about $339 billion over
10 years from all companies -- meaning Apple could account for 11%
of the total.
The changes in U.S. tax law triggering Apple's $38 billion tax
obligation don't affect the company's responsibility to repay
Ireland EUR13 billion ($15.9 billion) in unpaid taxes in Europe,
according to a spokesman for Ireland's Department of Finance. Apple
has challenged the ruling.
Apple also told employees Wednesday it is issuing each of them a
bonus of $2,500 in restricted stock, according to a person familiar
with the matter. The planned bonus, reported earlier by Bloomberg,
adds Apple to the growing list of companies that are rewarding
employees due to the new tax law, including AT&T Inc. and
Comcast Corp.
If Apple brings home a large share of its overseas cash it could
decide to apply some of it to more buybacks and dividends. Apple
has returned $233.9 billion to investors since fiscal 2012.
Mr. Sacconaghi expects Apple to provide an update on potential
increases to those programs when it reports quarterly results in
April or May, when it typically announces such plans. That would
give it a chance to see how much cash other companies plan to
return to shareholders from overseas holdings -- moves that could
please investors but aren't as helpful to public perception as
investments in jobs. "No company with that much cash wants to be
the first to do a significant buyback," he said.
Apple's announcement said it currently employs 84,000 people in
the U.S., 4,000 more than it said a year ago. The company said it
would offer more information later this year on its planned new
campus. The facility is expected to be located outside of
California and Texas, where the company already operates campuses:
in Austin, Texas, and its new $5 billion headquarters, Apple Park,
in Cupertino, Calif.
--Theo Francis, Richard Rubin and Natalia Drozdiak contributed
to this article.
Corrections & Amplifications Apple had $252.3 billion in
cash and marketable securities held overseas as of the end of
November. An earlier version of this article incorrectly stated it
had $246 billion overseas.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
January 18, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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