the money problem apple doesn't want you to know about
TRANSCRIPT
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The Money Problem Apple Doesn’t Want You To Know About
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Apple’s balance sheet
• As of its latest quarterly report, it held $203 billion in cash and cash equivalents.
• Activist Carl Icahn has been demanding that the company return more cash to investors.
• But there’s a catch.
It’s often cited as one of the stock’s key strengths
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Show me the money
• Apple is avoiding American corporate taxes, and it could cost as much as 35% to repatriate its overseas hoard.
• Instead, it’s borrowing money to return capital to shareholders.
• But its debt load has ballooned.
Almost 90% of its cash is kept overseas
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That’s a lot of coin
Since Apple first issued $17 billion in debt in 2013, it has been adding about $15 billion in borrowings a year.
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That’s a lot of coin
But it has also been making equivalent amounts of long-term investments.
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It’s not a problem today
• It’s made $51 billion in the last four quarters.
• Interest expense is approaching $1 billion.• But interest income more than cancels it
out.
The company is more profitable than any other in the U.S.
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It’s not a problem today
• Over the last four quarters, it’s returned $50 billion to shareholders in dividends and buybacks.
• That’s equal to its total amount of free cash flow minus investments.
• If profits keep growing, that’s not a problem.
But it may not be able to return capital at this pace
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But fortunes change
• The tech industry changes quickly - just ask its old rival Blackberry.
• It’s heavily dependent on one product - the iPhone.
• The company has swooned before - profits fell 11% in 2013.
Apple has a number of risks
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Other companies have made the same mistake
IBM shares have faltered as the company has borrowed money to buy back shares.
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Or a better example
• Over $3 billion went out the door to shareholders between 2000-2011 as the company took out debt to help fund the repurchases.
• Radio Shack declared bankruptcy earlier this year.
When Radio Shack was flying high around 2000, the company spent liberally on buybacks
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Apple isn’t about to turn into Radio Shack
• As long as it keeps making long-term investments to balance out the debt, the stock should be safe.
• But if its performance deteriorates, that debt burden could become a significant liability.
But this rate of debt accumulation is not sustainable.
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