What Does Apple Do With its Massive Cash Hoard?
Winning solves a lot of problems. This is true in sports as well as on Wall Street. Apple (NASDAQ:AAPL) was already the most scrutinized publicly traded company, but now that its stock price has taken a hit in recent months, more focus is shifting to its massive cash hoard.
Since hitting an all-time high of $705 per share in September, shares of the tech giant have plunged more than 30 percent. The decline has some investors like David Einhorn demanding ways to return value to shareholders. The Greenlight Capital hedge fund manager, who holds more than 1.3 million Apple shares, has sued Apple in an attempt to block the company from adopting a measure that would allow it to eliminate preferred stock.
In addition, he writes in a filing with the SEC that his fund was “dissatisfied with Apple’s capital allocation strategy.” Einhorn explains, “We believe Apple must examine all of its options to unlock the growing value of its balance sheet for all shareholders. Over the past several months, we have had an ongoing dialog with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple’s existing shareholders.”
Apple is a money-making machine. For its fiscal 2013 first quarter, the company made a net profit of $13.1 billion, one of the best quarterly reports in market history. Between a share repurchase program and dividends, Apple only returned $4.5 billion of cash to shareholders in the quarter, leaving plenty of room for the company to stuff its war chest with greenbacks.
While Apple has been very tight with its cash over the years, here’s the latest breakdown of its holdings…
At the end of December, Apple finished the quarter with a total of $137.1 billion in cash and cash equivalents, short-term marketable securities and long-term marketable securities. This is bigger than the entire market capitalization of Facebook (NASDAQ:FB), Hewlett-Packard (NYSE:HPQ), Dell (NASDAQ:DELL) and Netflix (NASDAQ:NFLX) combined.
However, very little cash is just sitting and collecting dust. According to Apple’s latest 10-Q, the company has just over $7 billion in pure cash, with another $7.3 billion in money market funds and mutual funds. A whopping $50 billion is invested in corporate securities, representing the biggest capital allocation category. U.S. Treasury and agency securities account for $43.6 billion.
Mortgage and asset-backed securities represent $13.7 billion of Apple’s portfolio. Other smaller categories such as non-U.S. government securities, certificates of deposit and time deposits, commercial paper, and municipal securities account for $4.9 billion, $2.4 billion, $2.1 billion and $6.1 billion, respectively. Overall, Apple keeps nearly $100 billion offshore, minimizing taxes.
In response to Geenlight Capital, Apple said in a press statement, “Apple’s management team and Board of Directors have been in active discussions about returning additional cash to shareholders. As part of our review, we will thoroughly evaluate Greenlight Capital’s current proposal to issue some form of preferred stock. We welcome Greenlight’s views and the views of all of our shareholders.”
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