EFTA00716987.pdf

From: To: Subject: Date: Attachments: Inline-Images: Richard Kahn Jeffrey Epstein <jeevacation@gmail.com> Fwd: AAPL US: Apple Inc. - Deep Dive - Benefit from lower U.S. tax rate, but border tax could be onerous - BUY - United States Fri, 13 Jan 2017 13:18:11 +0000 AAPL.pdf flag11700899.jpg; logo11700899.jpg; rpt11700899.jpg; emai111700899.jpg; bamllogo11700899.jpg; image0OlgifOlD26D71D83241B0.gif; bamllogo11700899(1).jpg; flag11700899(1).jpg; logo11700899(1).jpg; emaill1700899(1).jpg; rpt11700899(1).jpg; image00 1 gifOlD26D71D8324180(1).gif Richard Kahn HBRK Associates Inc. New York, NY 10022 Phone Fax 646-350-0954 Cell Begin forwarded message: From: "Ens, Amanda" Date: January 13, 2017 at 7:52:11 AM EST To: "Rich Kahn"‹ Subject: AAPL US: Apple Inc. - Deep Dive - Benefit from lower U.S. tax rate, but border tax could be onerous - BUY - United States Reply-To: "Ens, Amanda" Global Research EFTA00716987 Apple Inc. Deep Dive - Benefit from lower U.S. tax rate, but border tax could be onerous Maintain Rating: BUY PO: 125.00 USD I Price: 119.25 USD Equity I 13 January 2017 Key takeaways • We present a deep dive on taxes. Lowering the U.S. statutory rate to 20% could be $0.75-$1.30 accretive to earnings • A border-adjusted tax could reduce Apple's annual earnings by $1.50. The combined impact could reduce earnings by $0.20-$0.75 • Apple could repatriate all its foreign cash by paying the deferred tax liability on Balance Sheet if repatriation tax is 10% FULL REPORT Deep dive into the implications of lower tax rates We look at three aspects of potential tax law reform and their implications on Apple, while acknowledging that there is significant uncertainty around any ultimate legislation. First, we consider a lowering of the repatriation tax on foreign eamings from 35% to 10%. Second, we look at the potential EPS benefit from a lowering of the U.S. statutory tax rate from 35% to 20% combined with removal of interest deductibility. Third, we consider the impact of a potential border-adjusted tax rate. We conclude: 1) existing deferred tax liability on the balance sheet could allow for substantially all of Apple's foreign cash to be repatriated to the U.S. (Fig 2) if the tax rate on such is reduced to 10%, 2) lowering the U.S. statutory tax rate could be $0.75-$1.30 accretive to earnings (higher if Apple continues to declare —45% of its foreign eamings as permanently reinvested outside the U.S), and 3) a border-adjusted tax could reduce Apple's annual earnings by -$1.50 or the net impact could reduce earnings by $0.20-$0.75. Maintain Buy. Deferred tax liability could allow significant repatriation Apple has $216bn (-91%) of its cash outside the U.S., and approximately 67% of Apple's annual global earnings are foreign. Apple has designated a cumulative $110bn of foreign earnings as indefinitely reinvested outside the U.S. and has provisioned for U.S. taxes on the remaining portion. Every year, Apple provisions for U.S. taxes on about 70% of its global earnings. If the repatriation rate is reduced to 10%, Apple could substantially repatriate all of its offshore cash by paying the taxes already provisioned. This would allow for a significant arsenal of cash for incremental capital return and , in our view. EFTA00716988 Lower statutory tax benefit could be offset by border tax Figure 4 shows that Apple could lower its effective tax rate to 16% by continuing to designate a portion of its foreign earnings indefinitely reinvested outside the U.S (EPS accretion of about $1). By our estimate, a border-adjusted tax would lower earnings by -$1.50 and the net impact of both statutory tax reduction to 20% and a border-adjusted tax would reduce earnings by $0.20-0.75 (Fig 6). It may be beneficial for Apple to provision U.S. taxes on its entire foreign earnings so that it can repatriate more cash for capital returns, , debt pay-down or Mi investments. Wamsi Mohan Research Analyst MLPF&S +1 646 855 3854 This report is intended for Click here to access the Research Library Road the research report, available through the link above, for complete information including important disclosures and analyst certification(s). The research report and the link to such report are for the use of Bank of America Merrill Lynch customers only and all copying, redistribution, retransmission, publication, and any other dissemination or use of the contents thereof are prohibited. There may be more recent information available. Please visit one of the electronic venues that carry BofA Merrill Lynch Global Research reports or contact your Bank of America Merrill Lynch representative for further information. 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