The end to Apple’s cash dilemma

“With the U.S. Senate passing its tax bill earlier this month, the probability of a U.S. corporate tax overhaul has never been higher,” Neil Cybart writes for Above Avalon. “While differences between the House and Senate tax bills still have to be reconciled in conference, the end to Apple’s cash dilemma is in sight.”

“Both bills move the U.S. to a territorial-based tax system,” Cybart writes. “In addition, both bills include deemed repatriation at a 14% rate. (The Senate bill calls for a 14.49% tax rate.) The repatriation tax change alone benefits Apple to the tune of tens of billions of dollars. More importantly, the tax changes will allow Apple to develop a sustainable long-term strategy for managing its cash and balance sheet.”

“Apple is a cash-generating machine. In FY2017, Apple reported $64B of operating cash flow, nearly as much as that of Alphabet, Facebook, and Amazon combined,” Cybart writes. “On a free cash flow basis, which is a measure of how much cash is generated after taking into account capital expenditures and other costs associated with running the business, Apple’s $50B of free cash flow was $2B more than free cash produced by Alphabet, Facebook, and Amazon combined.”

“A territorial-based tax system will allow Apple to manage future cash generation much more efficiently. The days of Apple being stuck with too much cash in international subsidiaries are numbered,” Cybart writes. In addition, concerns surrounding Apple issuing too much debt will subside as the company will no longer need to rely on debt issuance to fund share buyback and quarterly cash dividend. These changes amount to a sustainable strategy for Apple to use when managing its massive balance sheet. There is finally light at the end of Apple’s cash dilemma tunnel.”

Read more in the full article here.

MacDailyNews Take: You thought you saw AAPL buybacks before? You haven’t seen anything, yet!

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17 Comments

    1. Did Apple need federal help in laundering its cash?

      America needs improved education, infrastructure, voting systems and dramatic updates to aging transportation.

      The last thing America needs is another $1.8 billion debt — corporate welfare since future taxation must rise inevitably to pay off the sweetheart deal republican corporate donors have been promised.

      Will you track the corporate executive bonuses that blossom after this tax sham goes into effect? Or will you just rub your greedy little hands as corporations spend billions in stock buybacks? With no requirement to actually create jobs in America, why would they change their 3rd world outsourcing strategies? Corporations care about wages, not tax rates. They already control tax laws via their puppets in Congress. They can’t control wages other than go shopping for the cheapest workers anywhere in the world. Which is what they will always do. Duh.

        1. You amnesiac. You do under who actually is tasked to write laws, don’t you?

          For the first year of the Obama administration, he had a financial implosion to manage, with bipartisan bailout bills flying in all directions. Some say he shouldn’t have signed them, but the corporate welfare did right the boat. Year 2, democratic congress delivered a health care bill that funded healthcare for 22 million Americans while paving the way to , yes, lower costs for all. It cost less long term than Georgie Dubya Bushes unfunded Medicare Part D debt bloating giveaway, but who’s counting. The change costs and a botched website build set that up for partisan obstruction and misrepresentation. Then the last six years of the Obama administration, Boner and Corrupticonnell blocked all legislation. Rethugs had congress and could have made to s of reforms to the tax code, many that Obama was asking for. But no, the partisan thugs would not allow Obama to see any tax reform bill lest he get credit for it. No, Mcconnell declared his goal was to make Obama a one termer. He failed and Boner fried himself on a tanning booth.

          Americans did see 7 years of steady growth while the republican party did nothing but whine whine whine.

          1. A bipartisan commission (Simpson Boles Commission) told Mr Obama that tax reform was essential for economic prosperity, especially after our economic ship hit an iceberg. Instead of righting the economic ship, Mr. O pursued the most divisive programs in the history of our country. That is just bad management and all Americans suffered for it, especially those who can least afford it. Mr O piled one bad one bad policy on top of another. Good riddance. I am no Trump fan but Mr. O was insufferable.

      1. “Did Apple need federal help in laundering its cash?”
        Launder? What are you talking about? Apple paid about $10,000,000,000 in taxes to the US Treasury last year. That’s paid, not deferred, not booked, not pending.

        “America needs improved education, infrastructure, voting systems and dramatic updates to aging transportation.”
        Both parties have already agreed since when Obama was still in office, to use any repatriation taxes to update aging transportation infrastructure.

        “future taxation must rise inevitably to pay off the sweetheart deal republican corporate donors have been promised.”
        Whether it works or not, the idea is that future tax revenues will rise due to increased GDP growth, even if tax rates are lower. A smaller percentage of a bigger number may result in a bigger number. We’ll see if they’re right. Also, Apple is not a republican corporate donor, and neither are many other tech companies based in California. They tend strongly liberal.

        “Will you track the corporate executive bonuses that blossom after this tax sham goes into effect?”
        No, there will be plenty of busybodies who’ll do it for us. If bonuses “blossom”, that’s the responsibility of the boards of directors, since they determine executive compensation. The shareholders elect the boards, so if exec compensation blossoms, the shareholders only have themselves to blame.

        “Or will you just rub your greedy little hands as corporations spend billions in stock buybacks?”
        And what is wrong with buybacks?

        “With no requirement to actually create jobs in America, why would they change their 3rd world outsourcing strategies?”
        That money was already overseas. If they wanted to invest in foreign factories, they could already do that with that foreign-earned income without any US taxes. The idea that this would increase outsourcing is just as silly as the idea that it would increase domestic jobs. Any plans by US multis are going to happen regardless.

        “They already control tax laws via their puppets in Congress”
        If that were true, why has it taken so many years for tax reform to possibly happen? Tax rates go up and down depending upon the Party in control. They are going down now, but they’ll surely go back up in the future.

        1. One thing always missing from the “corporate greed” argument is that nearly all working Americans have retirement plans (including union workers and lower middle class workers) , 401Ks, IRA’s, etc. These plans are based on investment in successful corporations that are held by the institutions that manage these plans. It is not smart to want these companies to be successful.
          The argument sounds like “I don’t want them to be successful even though it will hurt me too because I don’t make as much as they do.”

    1. A one-time dividend offering is attractive but I’d rather Apple use that money to make a worthwhile acquisition. I think that would be the only thing that could make Apple more attractive to big investors and boost the P/E. Amazon and Alphabet seem to keep making acquisitions and their P/Es keep growing. That’s what I’d like to see happen with Apple.

      I’ll just settle for increased dividends over the long run. Boeing just increased their quarterly dividend 20% (that’s no joke) and that’s something I’d like to see Apple do rather than give it in a one-time lump sum dividend payment.

  1. I don’t mind SOME stock buybacks but I’m looking for a big acquisition that doesn’t include hardware. I’d like to see Apple shore up its software and services revenue. Get into some business that’s not so cyclical as iPhones. I’m sure software would give Apple overall slightly better profit margins to make the company more valuable with higher cash flow.

    I’m somewhat unhappy that Apple passed up on a cloud business because Wall Street absolutely loves the cloud and supposedly that’s where there’s a lot of growth to be had over the long-term. The constant praise of Amazon’s, Alphabet’s, and Microsoft’s (supposedly unlimited growth) cloud businesses gives me a headache.

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