See Apple's Foreign Cash Dilemma in 2 Charts

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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Read/Post Comments (9) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 06, 2013, at 9:37 AM, melegross wrote:

    The percentage overseas looks worse now that Apple is giving so much away. All of that money is coming from US held cash and investments.

  • Report this Comment On December 06, 2013, at 11:40 AM, Jezza wrote:

    Another chart that would be interesting is one showing the US tax provisions recorded by Apple for the overseas earnings represented by the overseas cash balances

  • Report this Comment On December 07, 2013, at 12:29 PM, skeptic94 wrote:

    The likely plan here would to find a new home in a tax friendly country at least for any additional operations. this wouldn't be difficult with just about every other country in the world being more tax friendly toward business.

  • Report this Comment On December 07, 2013, at 2:13 PM, Kauaicat wrote:

    There are 2 points to be made from this article:

    1. Apple is making most of its money overseas, as are many other US-based multinationals. This leads me to the conclusion that the U.S. stock market is no longer a barometer for the U.S. economy, but one for the global economy.

    2. Our high corporate income taxes make it good business to leave these global profits in low-tax jurisdictions. Lowering our corporate tax rates would cause an influx of this cash into our economy, and lessen the urge for multinational corporations to deploy this otherwise stagnant cash into non-core business acquisitions to the detriment of stockholders.

  • Report this Comment On December 07, 2013, at 2:57 PM, YogaDaddy50 wrote:

    I was hoping to find an in-depth discussion of the tax implications for repatriating profits. Is there tax relief if the repatriated funds are invested in the U. S.? There must be other ways to incentivize profit repatriation besides just lower corporate tax rates, especially given we always hear of big companies that pay little or no taxes.

  • Report this Comment On December 08, 2013, at 5:29 PM, AnsgarJohn wrote:

    Do they have to bring it through the US to pay dividends to foreign shareholders? ( I live in Holland ;)

  • Report this Comment On December 08, 2013, at 11:06 PM, scitracker wrote:

    YogaDaddy50 raises a good point. Why can't our representatives use their resources to devise multiple methods that this offshore money can be repatriated and utilized to create jobs, etc and at the same time reduce or eliminate corporate taxes for those corporations willing to participate? Just think if the GOP/Democrats would spend as much time, talent and money to help our economy instead of trying to denigrate each other and shut down our government? Why doesn't MF initiate a campaign to demand action from our congress instead of gridlock? It's pretty obvious the status quo only continues to exacerbate the growing divide between the richest Americans and the former middle class.

  • Report this Comment On December 09, 2013, at 8:50 AM, zgpa wrote:

    Why don't they be good citizens and pay the taxes as a stockholder I would not object

  • Report this Comment On December 16, 2013, at 2:07 PM, Peak2Trough wrote:

    Ok, here's an honest question I have not yet seen asked or answered anywhere:

    Why does Apple need to repatriate the foreign dollars in order to buy back shares when their shares trade on local exchanges in those countries?

    Just allocate both foreign and domestic dollars for the share repurchase and effect the actual purchase on the exchange local to the respective capital allocated.

    What am I missing that makes that unworkable?

    P2T

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