3 Comments

Summary:

Tim Cook could use his speaking slot at the Goldman Sachs tech conference Tuesday to signal how he’s thinking about Apple’s excess cash.

Money - dollars
photo: Flickr / Tracy O

If Apple is coming around on the idea of returning more of its burgeoning cash hoard to investors, Tuesday might be the day we find out some detail on this: Apple CEO Tim Cook has a scheduled speaking slot at the Goldman Sachs Technology conference in the morning.

Apple had $137 billion in cash as of the end of December 2012. Clearly, that’s a lot of money — and significantly more than the $98 billion it had in the bank a year ago when the company admitted it had more than it needed. Since then, Apple’s been able to inflate that number even as it’s offered a $2.65 per share dividend, resulting in Apple already paying out nearly $10 billion. Last week, in response to a prominent investor’s lawsuit, Apple released a public statement that it is exploring different ways to return even more money to shareholders.

The problem with returning more cash, as Bernstein Research analyst Toni Sacconaghi said in a research note to clients Monday, is the location of much of it. To skirt high taxes that accompany bringing profits from international sales back to the U.S., Apple has chosen to leave a lot of its money — 70 percent, or $94 billion — in foreign accounts. Apple already has committed to using much of the cash it has here at home for dividends and share repurchases.

Apple could leave things as they are and take on debt to satisfy investors’ hunger for more payouts, though that would seem anathema to Cook and co. Instead, Sacconaghi believes Apple’s going to have to bite the bullet, pay the IRS, and bring some of that money home in order to appease shareholders. He’s convinced the move would wind up having a positive overall impact:

Deciding to 
pay tax on foreign earnings would negatively impact Apple’s earnings by 10-15% (assuming no 
changes in tax laws) – but not impact the company’s future growth rate – arguably, 2013 
would be a good time for Apple to do that, given earnings expectations are for 0% growth. This is a 
tack taken by Texas Instruments, and the company has returned an average of 138% of FCF to 
shareholders over the past ten years. For Apple, paying out 100% of its current cash flow 
(remember, it has $137B in the bank today) after paying repatriation tax would amount to an 8% 
dividend (or 5.6% at a stock price of $650), while returning 70% of ongoing cash would generate a 
current amount to a 5.9% dividend (4.1%, if the stock was $650).

Cook didn’t make any news when he spoke at the same Goldman Sachs event in 2012. But he did use it as an opportunity to add color on how Apple was thinking about its product lines and its cash situation at the time. A few weeks later he announced Apple would offer a dividend to investors. A similar thing could happen tomorrow. He may or may not make an official announcement, but it’s a good bet he’ll try to signal which way he’s leaning to the investment community.

Image courtesy of Flickr user Tracy O 

  1. This is equal to ~1% of the US national debt… how can the national debt be paid off with companies hoarding this kind on money?, after all this is a debt based money system, and someone has to owe the equivalent of this in debt for this money to even exist.

    Share
    1. The national debt will be paid off when useless programs are cut from the Federal Government. As long as the check and balance is broken in Washington, the debt will not reduce.

      Share
      1. Hi, watch “The money masters” on you tube, it’ll be the best 3.5 hours you ever spent watching a documentary – it explains why the national debt can never be paid off, because banks create money from nothing other than issuing debt. As the the above money remains in circulation, someone must owe the debt – and that is mostly the government.

        Share

Comments have been disabled for this post