Apple Inc. (AAPL)’s $216 Billion Cash Pile Is Not What It Seems

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Apple Inc. (AAPL)’s $216 Billion Cash Pile Is Not What It Seems
ElisaRiva / Pixabay

Apple released its latest earnings report on Tuesday, detailing again a giant cash pile as Chief Executive Tim Cook continued to boast about having “the mother of all balance sheets.” However, in reality, the cash pile is not as big as it looks, says a report from MarketWatch.

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Apple has no real cash

Market watchers are very fascinated by the fact that Apple Inc. (NASDAQ:AAPL) has more than $215 billion in reserve, and they believe the cash-rich firm will probably go on an acquisition spree or buy back more of its stock.

In contrast, on the conference call Tuesday, Chief Financial Officer Luca Maestri promised that the company plans on going further into debt. This left many wondering why. The reason is because the huge cash pile the company has been talking about is not actually cash, nor is it “on hand.” Above all, it does not even take the company’s debt into account.

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Apple’s balance sheet states that it has about $16.7 billion in cash and equivalents. The company has stashed the majority of the assets in its reserve in long-term marketable securities, indicating that it plans to let those funds earn interest for a term longer than a year. Such funds roughly amount to $177.7 billion, the report says.

More importantly, all its cash and securities and proceeds from sales outside the U.S. are stashed overseas, suggesting that the company won’t bring them back so as to avoid the huge amount of taxes it would be required to pay in the U.S. On Tuesday, Maestri informed investors that a whopping $200 billion of its reserves, or 93%, are overseas. Cook expressly said that if Apple tries to bring that cash home, it will have to sacrifice 40% of the amount, and this is something it will not do.

Debt in home, surplus overseas

Apple has its cash and securities piling up overseas, but in the U.S., it is piling up the debt. The company’s long-term debt obligations are about $53.2 billion, and its non-current liabilities amount to $32.2 billion. This is after executing a series of bond sales. The cash promised to its shareholders is not included in those debts, and the company mostly uses its bond sales for financing them, the report says.

In fourth quarter of 2015, Apple spent more than $8.8 billion on stock repurchases and dividends, and now it is a little more than three-quarters of the way through its $200 billion capital return program. The company has promised another $47 billion to shareholders. To meet such needs, the company plans to take on more debt.

“We also plan to be very active in the U.S. and international debt markets in 2016 in order to fund our capital return activities,” Maestri said.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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6 COMMENTS

  1. You said, “… all those Off Shore Long Term Securities were pushed to the limit in order to take at least some advantage of all that cash now presumably locked into Terms as long as 25yrs.”

    “Presumably” meaning you know nothing.

    I said “The long term stuff is borrowings, not investments.”

    i.e. year, they have locked in 25 year borrowings, but not locked in 25 year investments.

    Notice, I didn’t say “presumably”.

    You said “On the long term the estimates are for Apple earning around 2% Interest on around 65% of their cash pile.”

    Estimates. So you still know nothing.

    Apple have $177 Billion plus in long term marketable securities. Of that, we don’t even know that 65% is interest bearing, because Apple declares “interest and divided income” as a single line item.

    You said “Marketable? What does that mean? Well basically they can sell these long term securities for up to face value on the day it’s sold. But rarely are marketable securities sold for full value and they also must pay transaction fees”

    Grow up. Marketable means that you can sell them in the marketplace, for what the market will pay. If interest rates are below the ticket rate, then the market will pay over face value. At the rate and scale that Apple is trading, there is an “efficient market” and transaction fees are irrelevant. During the last 12 months, Apple bought $166 B and sold $107 B worth of these marketable securities. That’s how locked in for 25 years they are.

    You said “Otherwise…. who would buy marketable securities not set to mature for anywhere between 3 and 25yrs?”

    Someone who want’s the higher ticket rate that they’re yielding. It’s an efficient market.

    You do ask dumb questions for for someone with such a high opinion of his own ignorance.

  2. Cook did not say that if the bring back the $200B, that it would cost them 40% of it, because it wouldn’t.

    That $200B already has significant amounts of tax paid and Apple would only have to pay the difference to make the total tax up to 40%.

  3. The statement “Apple has no real cash” is not entirely true and very out of context. The article reads “The company has stashed the majority of the assets in its reserve in long-term marketable securities…” – Marketable Securities are investments that Apple has made, which means the mentioned $177.7b was, at one point, liquid cash. Although the money is invested in securities, it is still an asset on the company’s balance sheet, since those marketable securities can be converted (sold) for money.

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