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

Apple's (AAPL 0.51%) 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.

In this segment from Industry 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.

This podcast was recorded on Feb. 3, 2017.

Dylan Lewis: Speaking of their international 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 business outside 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 Stanley analyst Katy Huberty asked [CEO] Tim Cook on the call about what 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's one 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 give a lot of clear guidance on what he's thinking. But, you could buy some companies. He keep saying that Apple is open to really 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 would actually like to see is strengthen the balance sheet. The whole reason they have the $70 billion-plus in debt is because it's always been a way to avoid the repatriation taxes. So, if they can repatriate 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 that the 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 can bring back a ton of money, I would expect them to keep generating 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 them even more time to keep pursuing the same strategy. And if 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, where they had to repatriate a lot of that cash that's held overseas, they still have quite a bit to work with. I think on the call, Huberty specifically asked about what merger and acquisition activity to expect, or if they might continue to invest in original content and programming that would make the Apple ecosystem seem a little bit more appealing. I think because she led with that question and had some specific examples of where cash might go, Cook's response followed along with that. But, I was hoping we might get some color about an increase in the dividend, or an update on what the company was thinking with share repurchase where they'd have that extra capital on hand. But, nothing there at the moment. Cook was notoriously cagey, as always, in his response. 

Niu: Yeah. He didn't really give a lot away there. They usually 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 accretive to that earnings-per-share figure, even though net income was actually down slightly relative to a year ago, in part because of foreign exchange headwinds and things of that nature. So, right now, they are up to about $144 billion in cumulative repurchases, and the current authorization is $175 billion. So they still have plenty of room. They only have one more quarter before they update it again. But I would expect them to give another update and increase it again in a couple months, because this business creates so much cash that 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're trying 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: And that's with them continuing to invest in the future, as well. You hear about some of the different projects that they may or may not be funding, and some of the initiatives they might be pushing. It's not like they're sitting on their heels here. They're certainly 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.