The Money Problem Apple Doesn’t Want You To Know About

Apple’s balance sheet

• As of its latest quarterly report, it held $203 billion in cash and cash equivalents.

• Activist Carl Icahn has been demanding that the company return more cash to investors.

• But there’s a catch.

It’s often cited as one of the stock’s key strengths

Show me the money

• Apple is avoiding American corporate taxes, and it could cost as much as 35% to repatriate its overseas hoard.

• Instead, it’s borrowing money to return capital to shareholders.

• But its debt load has ballooned.

Almost 90% of its cash is kept overseas

That’s a lot of coin

Since Apple first issued $17 billion in debt in 2013, it has been adding about $15 billion in borrowings a year.

That’s a lot of coin

But it has also been making equivalent amounts of long-term investments.

It’s not a problem today

• It’s made $51 billion in the last four quarters.

• Interest expense is approaching $1 billion.• But interest income more than cancels it

out.

The company is more profitable than any other in the U.S.

It’s not a problem today

• Over the last four quarters, it’s returned $50 billion to shareholders in dividends and buybacks.

• That’s equal to its total amount of free cash flow minus investments.

• If profits keep growing, that’s not a problem.

But it may not be able to return capital at this pace

But fortunes change

• The tech industry changes quickly - just ask its old rival Blackberry.

• It’s heavily dependent on one product - the iPhone.

• The company has swooned before - profits fell 11% in 2013.

Apple has a number of risks

Other companies have made the same mistake

IBM shares have faltered as the company has borrowed money to buy back shares.

Or a better example

• Over $3 billion went out the door to shareholders between 2000-2011 as the company took out debt to help fund the repurchases.

• Radio Shack declared bankruptcy earlier this year.

When Radio Shack was flying high around 2000, the company spent liberally on buybacks

Apple isn’t about to turn into Radio Shack

• As long as it keeps making long-term investments to balance out the debt, the stock should be safe.

• But if its performance deteriorates, that debt burden could become a significant liability.

But this rate of debt accumulation is not sustainable.

The Next Billion-Dollar iSecret