Despite Generous Capital Returns, Apple Inc. Still Has More Cash Than Ever Before

By Motley Fool Staff Markets Fool.com

Apple's (NASDAQ: AAPL)overseas cash position continues to grow at an incredible rate, and the possibility of some type of repatriation holiday is the highest it has been in years, thanks to the new Trump administration.

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In this segment fromIndustry Focus: Tech, Motley Fool analyst Dylan Lewis and senior technology specialist Evan Niu discuss Apple's cash position and financial structure.

A full transcript follows the video.

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This podcast was recorded on Feb. 3, 2017.

Dylan Lewis: Speaking of theirinternational segments, I think it might make sense to check in on their cash hoard a little bit. As of their recent report, Apple is sitting on $246 billion in cash. Because they do so much businessoutside of the U.S. and because of certain current tax regulations, $230 billion of that total, or roughly 94%, is held outside the U.S.Morgan Stanleyanalyst KatyHubertyasked [CEO] Tim Cook on the call aboutwhat the company might be thinking with the current administration,and the possibility of repatriating some of that cash. I think that was a question a lot of people wanted an answer to.

Evan Niu:Yeah. That'sone of the big things that the Trump administration is pushing, is this tax reform,including a potential repatriation holiday. If they could bring back a lot of that cash,there are certainly a couple things they could do with it. Cook didn't really givea lot of clear guidance on what he's thinking. But, you could buy some companies. Hekeep saying that Apple is open toreally big acquisitions if they fit,if they make sense, all these things. But he's basically not concerned about pricing anymore. You could buy some companies, you could invest in the U.S.,you could potentially bring production back. Obviously, that's another big thing that Trump is pushing.

Another thing I wouldactually like to see is strengthen the balance sheet. The whole reason they have the $70 billion-plus in debt is because it'salways been a way to avoid the repatriation taxes. So, if they canrepatriate at appealing rates,it might also make sense to pay down some of that debt,because that way, you can avoid some of the interest expense, and it strengthens your balance sheet a little. Not thatthe balance sheet is weak, by any stretch of the imagination. It all nets out in the end. But,logistically, it would be nice to bring that money back, pay down some debt. Because, if this is a one-time deal that they canbring back a ton of money,I would expect them to keepgenerating ridiculous amounts of cash overseas, and then they would want to raise more debt, again,to be able to tap that,in the same way they have been doing, but if they could pay down that debt, that basically gives themeven more time to keep pursuing the same strategy. Andif they're taking advantage of a one-time tax holiday,I think that would make sense, from a corporate finance standpoint.

Lewis:Yeah. Even with $70 billion in debt, wherethey had to repatriate a lot of that cash that's heldoverseas, they still have quite a bit to work with. I think on the call, Hubertyspecifically asked about what merger and acquisition activityto expect,or if they might continue to invest in original content and programmingthat would make the Apple ecosystem seem a little bit more appealing. I think because she led with that questionand had some specific examples of where cash might go, Cook'sresponse followed along with that. But,I was hoping we might get some colorabout an increase in the dividend, or anupdate on what the company was thinking with share repurchasewhere they'd have that extra capital on hand. But,nothing there at the moment. Cook wasnotoriously cagey, as always, in his response.

Niu:Yeah. He didn't really give a lot away there. Theyusually update their capital return program every April. So,next quarter, we will get some insight. They did buy back $11 billion in shares this quarter. Which partially helps juice the earnings-per-share number, which is another record,because they are able to retire so many shares.They retired something like 62 million shares last quarter. That's really highly accretiveto that earnings-per-share figure,even though net income was actually down slightly relative to a year ago,in part because offoreign exchange headwinds and things of that nature. So,right now, they are up to about $144 billion incumulative repurchases, and the current authorization is $175 billion. Sothey still have plenty of room. They only have one more quarterbefore they update it again. ButI would expect them to give another update and increase it again in a couple months,because this businesscreates so much cashthat they literally have no idea what to do with it.[laughs] I mean,think about how much money they have given back,and the fact that they still have more money now than they've ever had before. So, it's like, they'retrying to give this cash back at this ridiculous rate,but they generate so much of it that it still adds on a net basis to their total cash position, even after giving back so much over the years. It's mind-boggling.

Lewis:Andthat's with them continuing to invest in the future, as well. You hear aboutsome of the different projects that they may or may not be funding, and some of theinitiatives they might be pushing. It'snot like they're sitting on their heels here. They'recertainly throwing money into seeing where tech might be going. It's just that,with this type of money available to them, you can only do so much of it with reinvesting in the business and with R&D. I mean,that's the beauty of having a cash cow business like that.

Niu:It's just insane how much they make.

Dylan Lewis owns shares of Apple. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.