It's no secret that Apple (NASDAQ: AAPL ) has a lot of cash. It's also no secret that much of this cash is held by the iPhone maker's foreign subsidiaries, subjecting it to taxation upon repatriation into the United States.
While most companies in the United States would love to be burdened with Apple's growing hoard of cash, it nevertheless presents its own unique set of challenges. More specifically, investors want a piece of it.
Over the last year, Apple has become an unlikely target of activist investors -- I say "unlikely" because its market capitalization makes it virtually impossible for any single shareholder to accumulate a large enough stake in the Cupertino-based company to force it to do anything.
In February, Greenlight Capital's David Einhorn sued Apple, accusing it of having a "problem" hoarding cash to the detriment of shareholders. More recently, activist investor Carl Icahn has personally discussed the issue with Apple CEO Tim Cook and put forward a formal shareholder proposal requiring the company to buyback $150 billion worth of stock.
To be clear, both Einhorn and Icahn have a point. With interest rates hovering near historic lows, Apple's portfolio of short- and long-term marketable securities aren't likely yielding much above 0% on an inflation-adjusted basis.
With this in mind, it's hard to conclude that even Apple would disagree with these complaints. But the problem is that most of Apple's cash -- 76% to be precise, as you can see in Figure 1 -- is held by overseas subsidiaries.
Adding fuel to the fire, moreover, is the fact that this problem is only gaining momentum. This point is illustrated in Figure 2, which shows that Apple's cash hoard has grown both in size and in the proportion that's held captive in foreign subsidiaries.
A decade ago, its balance sheet showed a total of $4.6 billion in cash and equivalents, 55% of which was held overseas. By this year, the total had grown to $147 billion, 76% of which was outside of the United States (as far as the Internal Revenue Service was concerned).
What will Apple do with this? To date, it's announced the decision to distribute $100 billion to shareholders through 2015 via dividends and buybacks. That leaves the issue of continuing positive cash flow -- and particularly once Apple realizes the lift from its China Mobile deal.
The net result is that, despite where Apple's cash is held, the company's shareholders are likely to see an increased amount of capital returned to them over the foreseeable future.
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