Apple (AAPL) has one of the biggest cash hoards in history, yet it has borrowed $35 billion in the past year and a half. Strange, no? Why does a company as rich as Apple need to ask other people for money?
Most of Apple’s cash is overseas, where it can’t easily be gotten at. And the world’s most valuable company is giving mountains of money to its shareholders—$130 billion over two and a half years. Apple Chief Executive Officer Tim Cook told analysts in April that the size and pace of its “capital-return program” is “unprecedented.” The following charts make clear just what Apple’s up to.
It all starts with profits, which Apple is producing in abundance. Net income has averaged more than $9 billion for the past nine fiscal quarters. That’s far more than Apple needs to fund development of future products. In its latest quarter, it had less than $4 billion in capital spending—a fraction of the almost $13 billion it generated from operations.
So the cash keeps piling up. When Apple says “cash,” it generally means cash plus marketable securities—things that could be quickly turned into cash. To avoid the high U.S. corporate income tax rate, Apple arranges its businesses so a lot of its profit is generated for tax-accounting purposes outside of the U.S. Only 12 percent of its cash is held in the U.S. And as Chief Financial Officer Luca Maestri told analysts in April, “To repatriate our foreign cash under current U.S. tax law, we would incur significant cash tax consequences, and we don’t believe this would be in the best interest of our shareholders.”
That’s one reason cash-rich Apple is borrowing money. The other reason, of course, is that borrowing is supercheap for Apple. Interest rates on its debt range from 0.45 percent for three-year debt to 4.45 percent for 30-year obligations.
Which brings us to the capital-return program. “Return” is a modest term for Apple, since the money that shareholders are getting back is in most cases more than they put in. The bulk of the program is share purchases, which are scheduled to reach $90 billion by the end of 2015. Most of the rest is dividends. There’s also a sliver called “net share settlement,” which has to do with the exercise of stock options.
Apple announced its capital-return program in March 2012 at $45 billion. It raised the target amount to $100 billion in April 2013, and then to “over” $130 billion in April 2014. It takes a program of that scale to keep cash from burning a hole in Apple’s corporate pocket.
