Apple’s cash return options: Pay U.S. tax man or incur massive debt

“It is safe to say that no one disagrees with the proposition that Apple‘s $137.1 billion cash position is more money that the company needs to operate its business,” Eric Savitz reports for Forbes.

MacDailyNews Take: Depending on Apple’s goals, which no one outside the company knows, that may not be enough cash. (Perhaps it was Steve Jobs’ wish to buy Microsoft outright, shut it down and end the Dark Age of Personal Computing in one fell swoop or maybe he wanted to terraform Mars or maybe it’s insurance in the face of recalcitrant content providers (“last chance: sign the deal or we’ll buy you with petty cash”)? Nobody outside of Tim and/or Laurene might know the true reason for accumulating the cash. Apple might have more than enough cash on hand or they might not even be a tenth of the way to their goal.)

“But the fact remains that not all cash is the same, and that in Apple’s case, $94 billion of the total is outside the country; the other $43.1 billion is held inside the U.S.,” Savitz reports. “Bernstein Research analyst Toni Sacconaghi points out in a research note today that he expects Apple’s U.S. net income in FY 2013 to be about $12.4 billion, which he notes is lower than the roughly $13.4 billion the company has committed for dividends and share repurchases. In other words, for Apple to return more cash, the company will have to turn to some other source than domestic cash flow.”

Savitz reports, “Sacconaghi contends that Apple has two options on where to get cash to boost dividends and/or stock buybacks: Pay the tax man [or] Take on massive amounts of debt.”

Read more in the full article here.

MacDailyNews Take: Wasn’t Apple already taxed on that offshore money? Why would Apple want or why should they be forced to pay additional taxes on that money? Not in the best interest of shareholders. As for the idea of incurring debt, we think “debt-free” sounds and feels much better.

Related articles:
Bernstein’s Sacconaghi: Most important for Apple is a capital allocation plan – February 11, 2013
Evaluating David Einhorn’s proposal to Apple – February 9, 2013
The colossal gall of bad Apple investors – February 8, 2013
Cramer: By suing Apple, wrong-headed Einhorn has gone too far – February 8, 2013
Analysts: Apple may crack open its massive, bulging wallet for shareholders – February 8, 2013
Apple with $137 billion in cash considers preferred stock – February 8, 2013
Einhorn’s Apple lawsuit marks biggest investor challenge in years – February 8, 2013
Gamco’s Haverty: Apple’s cash is ‘shareholders’ cash’ (with video) – February 8, 2013
Apple shares surge following company response to Einhorn – February 7, 2013
Greenlight’s Einhorn sues Apple over plan to eliminate preferred stock, wants more cash distributed – February 7, 2013
Greenlight Capital urges Apple shareholders to vote ‘No’ on proposal 2 that would impede Apple’s ability to unlock shareholder value – February 7, 2013
Greenlight’s Einhorn sues Apple, ‘dissatisfied with capital allocation strategy’ – February 7, 2013
Legg Mason’s Miller: Apple stock would rise 50% on ‘sensible capital allocation’ alone – February 6, 2013
Gamco’s Haverty: Apple board can be sued over excessive accumulation of cash (with video) – January 28, 2013
Greenlight’s Einhorn: Apple ‘the best big growth company’; Fed stimulus ‘counterproductive’ – July 10, 2012
David Einhorn says Apple isn’t a below-average company, it’s just priced like one – May 30, 2012


  1. Simply amazing that people without the business knowledge/experience/or inside knowledge held by Tim Cook and Co., can so brazenly offer their “better” ideas for that cash. If they are so smart, how come they aren’t working for Apple?

      1. I’m pretty sure Wall Street considers that cash a huge liability that makes Apple worth almost $300 a share less than Google. Each zero is is dragging down Apple $30 a share. It must be terrible thing for a company to accumulate cash like that. The more cash Apple accumulates, the lower the value of the company. It’s weird how Wall Street can flip positive values into negative values and vice-versa and make it seem like the most natural thing in the world.

        I figure Apple has plenty of options of spending that cash overseas on data centers, factories, retail stores, etc. I’d figure Apple could put plenty of the cash reserve overseas to work and get more out of there than here in the U.S. Use some of that money to improve its image overseas.

    1. instead of speculation why not simply read the official press release from apple. there is no secret plan:
      “By early last year, Apple’s cash balance had built to a point beyond what we needed to run our business and maintain flexibility to take advantage of strategic opportunities…”

  2. Hey MDN, wake up. The offshore money is partially due to royalties they deduct in the USA and record as income in a low tax jurisdiction. They will generate foreign tax credits for the amount they paid on overseas taxes as a credit against repatriation taxes in the USA.

    It’s a tax dodge that most companies are utilizing. Most of the intellectual property in these tax shelters were sold from USA shell companies in the low tax jurisdictions. After the establishment of these tax shelters, IP development is subcontracted to the USA and thus is transfered mostly at or near the cost of the IP, not it’s eventual true worth.

    These original sales (Setting up the tax shelter) largely happened during the Clinton years in the white house and are the most significant reason why there were budget surpluses or close to balanced budgets during that time period. In setting up the tax shelters the IP had to be valued at market value and income tax paid on that estimated one time value. Since then high royalties are deducted in the USA for using the IP sold to the tax shelter from each successive years earnings. That’s how these companies have ended up with massive cash piles overseas.

    1. The cash isn’t even necessarily overseas. Often the cash is held in US banks on US soil, but credited to a foreign subsidiary to avoid the tax payments.

      And MDN, that “overseas” cash may, or may not, have been taxed already. Further taxation is based on the difference between the US’ tax rates and the amount already paid. Profits from some countries, like Japan, already come in tax free because those countries have higher rates.

      1. Not really. I know because I worked at one of the Big 4 accounting firm during those years and was aware of the huge push by those accounting firms on multinational companies that had valuable Intellectual Property. This was a very successful effort and tax accountants earned millions in fees establishing these tax shelters. Unfortunately I was a CPA Auditor, not working in the tax practice, but was relied upon to help sell these shelters. Frankly, most multinational public companies did establish these shelters. It’s the herd mentality. Once a few start, most follow.

        It isn’t even possible to see in Apple financial statements. Because these tax shelters are wholly owned subsidiaries, the entities are consolidated and inter-company royalty transactions I described above are eliminated in consolidation. The only evidence is the massive cash stockpiled by multi-nationals (While Apple holds colossal balances, you can see the same situation at Google, Ford, USX, XOM, HP, Microsoft, etc. All of the companies asking / lobbying for tax holiday to bring the cash back.)

  3. Hey, I have an idea for Washington and most other governments worldwide: Instead of raising my taxes even more, why don’t you stop wasting my money and spend less? Your programs generally suck, keep millions stuck in poverty, and are killing the country.

    The U.S. federal government is supposed to be weak vs. The States and is really supposed to be there to defend the country, protect the borders (LOL!), etc. The U.S. federal gov’t has expanded beyond recognition. This is the problem: The size of the federal government.

    True “liberals” would be for a far smaller, far less intrusive, far-less confiscatory federal government.

      1. Name calling… Typical… Try elevating the discussion with an articulate response refuting F14T16’s claim! Dare you!

        I guess this makes him the ORIGINAL T-BAGGER, folks… Let’s here it for Mr. Benjamin Franklin, Founding Father, and his view on Welfare…

        “…I am for doing good to the poor, but I differ in opinion of the means.—I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer. There is no country in the world [but England] where so many provisions are established for them; so many hospitals to receive them when they are sick or lame, founded and maintained by voluntary charities; so many alms-houses for the aged of both sexes, together with a solemn general law made by the rich to subject their estates to a heavy tax for the support of the poor. Under all these obligations, are our poor modest, humble, and thankful; and do they use their best endeavours to maintain themselves, and lighten our shoulders of this burthen?—On the contrary, I affirm that there is no country in the world in which the poor are more idle, dissolute, drunken, and insolent. The day you passed that act, you took away from before their eyes the greatest of all inducements to industry, frugality, and sobriety, by giving them a dependence on somewhat else than a careful accumulation during youth and health, for support in age or sickness. In short, you offered a premium for the encouragement of idleness, and you should not now wonder that it has had its effect in the increase of poverty. Repeal that law, and you will soon see a change in their manners. St. Monday, and St. Tuesday, will cease to be holidays. SIX days shalt thou labour, though one of the old commandments long treated as out of date, will again be looked upon as a respectable precept; industry will increase, and with it plenty among the lower people; their circumstances will mend, and more will be done for their happiness by inuring them to provide for themselves, than could be done by dividing all your estates among them.”

        (Benjamin Franklin, “On the Price of Corn and the Management of the Poor” (1766), Writings (New York: Library of America, 1987), 587-88).”


        1. Whilst poverty traps (what Ben was on about) are a problem with many welfare programmes, particularly those that just hand out money, the vast majority of your taxes spent by your governments stay in the your economy. That employs people who then pay a % back in taxes and spend the rest domestically. Most of the infrastructure spending that keeps your country moving, basic stuff, roads, schools, defence, water, sewage, even IT, is spent with private industry, US private industry, and thus stays in the domestic economy, employs people, and recirculates. The majority of private capital these days is invested off shore and the profits from that investment sequestered in tax havens. Franklin was right. Handouts don’t work. But if that money were spent in ways that enabled those in poverty traps to better themselves, education and skills training, community jobs, small business loans, ( try borrowing from a bank to start a small biz, impossible terms or no way at all..) clean energy and eficiency programmes, local small scale telecommunications infrastructure in areas the big guys don’t want to service, then you give the majority of those on welfare a way forward. It’s not the money spent, its way you spend it. The stupid thing is that neither side of your politics can work out a way to get to that discussion due to the ideologically based ranting that goes for debate in your media and even here.. Franklin would have understood. There is no black or white solution, only shades of grey.
          The Dr.

          1. Hey, I’d be OK with the hand outs if you had to pass a drug test to qualify. Heck I have to pass one to work and to keep working, why doesn’t the person benefiting from the hand out have to stay drug free?

            1. OK MR False Equivalence, here is a newsflash for you:

              This has already been tried and failed to deliver the response you expect. 1. it is based on the assumption that you have to be a druggy loser to need help. 2. It costs more money than it saves. 3. How are you going justify a saying to poor person who needs food and has nothing, sure I will sign you up just as soon as you give me 50 bucks and pee in this cup..I mean really, where is the money coming from if they do not have it?

              The truth is that here in Florid where this was tried and failed it was always about crony capitalism with our republican gov awarding the contract to….HIS WIFE’S COMPANY.

              Another state (OK i think?) tried it and it didn’t fix anything, just made a testing company a bunch off money on the backs of the poor (MANDATED BY GOVERNMENT) it was something like less than 1% tested positive.

              So are you really a small government conservative? You are advocating additional government oversight, control and intrusion into your life and adding to it’s expense.

              What kind of person decides that the medical condition of addiction means you have to go hungry, meanwhile drunks (also addiction) and cancer patients, well we will help you eat? I mean just think about it a minute and set your own pride aside? Consider yourself moral but adopt amoral positions? Is it really that easy for you to write off people? Never mind that it is a made-up problem as proven already, even if it was real, how do you justify such a position?

            2. I justify my position based on the following:

              1) Obey the law. Alcohol is legalized, other drugs are illegal. Obey the law to suck at the govt’s teet.

              2) Drugs are fueling massive drug cartels in Mexico, Afghanistan, etc. The US is spending billions fighting this. Effectively reducing the people buying this crap would save billions in fighting the drug trafficking more than offsetting the cost of a drug test.

              3) Many employers today are demanding drug tests and are seeing significant numbers of unemployed people fail. Don’t know where your statistics come from, but brother I’m a member of the chamber of commerce and the inability to get qualified people to work in manufacturing plants is a real problem that is going to become even more pronounced as the Baby Boomers retire. The statistic I cite as failing drug testing is real. 100 are qualified to be hired but only 35 are clean.

          1. YEP! and people who like to argue their politics using historical figures need to stop, especially the founding fathers. It was hundreds of years ago, they were fallible men, they didn’t foresee anything and frankly it matters not what they thought then, now, because it is our country and the constitution is a living, breathing document and living, breathing things EVOLVE over time..

            1. Sorry pal, your opinion isn’t worth the time to read. There are guiding principles, though I’m quite sure you don’t have the first idea of what a principle is! When people talk about founding fathers, it was the ideals and principles they laid out that are important and apply just as much today as they did 250 years ago.


              Keep repeating your drivel self centered rhetoric, nobody’s buying it.

  4. Sacconaghi did not say their net income would be 12.4B in ALL of FY 2013. Considering it was over 13B LAST QUARTER. He said US cash flow. Which is a forecast. Which is probably too low.

  5. Apple did not build that pile of money. They did not create their products. These products and all this cash are the result of the hard work and ingenuity of the millions of Federal workers who put in long hours calculating when they can retire with 95% full pay so they can get a 2nd job at 52 and have a lifetime pension over $250K. This is not easy work. But, our Federal workers and the SEIU have created the toll booths, the post office service level innovations, the $600 toilet, the 30,000 page tax code, the brand new 15,000 page Federal manual – how to improve Health Care through Bureaucracy and Fine Print Regulations. These innovators, not Apple, are what made Apple and its products and cash possible. So, Apple, send me all your money and I will put it to good use. I have an idea about a new type of lightbulb, or maybe some guns for Mexican drug cartel goons. I have a lot of good ideas. I am from the Government and I am here to help.

    1. … that Apple did not “create” that pile of money. They built products people wanted to buy and then were forced (by Bush-era Federal Employees wanting extra tax income) to either leave it overseas – where they had already paid taxes – or re-patriate it and pay the additional taxes. What was it Leona Helmsley said? Only the little people pay taxes? I agree with Apple, only FOOLS pay taxes TWICE.
      Please stop blaming the Obama Administration for policies carried over from the prior Administration. You may be too stupid to remember the facts, or think you are so smart to try and put such a fraud over on us, but we don’t buy it.

  6. “It is safe to say that no one disagrees with the proposition that Apple‘s $137.1 billion cash position is more money that the company needs to operate its business,” Eric Savitz reports for Forbes.


    Maybe Apple has the case stored away for rainy periods such as this irrational ‘Apple Bear’ bullshit. Apple already know how worthless and stupid TechTard journalists and manipulative Analcysts can be. They’ve been suffering from irrational idiot behavior from outside the company since the day the first Mac was released. Nothing new here. Apple is very well prepared to weather the storm of stupid.

    1. Typo Correction. Please read: “Maybe Apple has the CASH stored away…”

      BTW: I’m entirely with MDN on this one. Double taxing money has to end. The USA has to honor the other tax systems of our ‘Global Economy’ and stop adding tax to the taxed. That obviously is what rational stockholders want. Put the money to work over here in the USA and be glad it came back to the USA.

  7. Why does he assume that foreign stock holders have to be paid their dividends out of a US bank account? Apple can certainly pay some of the dividends outside the US from foreign accounts and thereby get rid of some of the non-US cash holdings.

  8. Since when did WS and the banksters consider cash as being a liability for a business (or anybody else)? A business with all debts paid and no “liabilities” except payroll is every businessman’s dream. Apple has that dream. They know how quickly it can disappear too. All those who put stock into Apple and are planning to make a killing on dividends at Apple’s expense are doing so without working for those dividends.

  9. @MDN, Apple has ACCOUNTED for US taxes on the foreign profit it “may” repatriate in the future. It hasn’t actually paid that amount. It currently is deferred, sitting in US Treasuries or something.

  10. Borrow 300 $B reduce share count by 50% Earnings will double and stock will go to $850 at current P/E. Use US cash flow to pay down debt. Magical financial engineering.

  11. Lets just get down to it. Big Brother wants your money and it is going to steal it no matter what it takes.

    We are now getting into a situation where you are deemed to have too much money than you really need as determined by big Brother. Wow.

    Scary world

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