There is an article on zerohedge.com from September 2012 that has been referenced in a few articles that what Apple (AAPL) has invested its cash and investments in is not disclosed. The article says there are no SEC filings for Braeburn Capital, Apple's "subsidiary" that manages its holdings. While that is technically correct since there are no filings for it, all one needs to do is go to Apple's 10K filings.
Below is the latest 10K information from September 2012, which describes the categories and amounts of Apple's holdings. As you can see, while there is "only" $10.7 billion in cash equivalents (bottom of the fifth column), there is almost $40 billion or 33% in U.S. Treasury and agency securities. The largest portion at $46 billion, or 38%, is in corporate securities.
2012 | ||||||||||||||||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | Cash and | Short-Term | Long-Term | ||||||||||||||||||||||
Cash | $ | 3,109 | $ | 0 | $ | 0 | $ | 3,109 | $ | 3,109 | $ | 0 | $ | 0 | ||||||||||||||
Level 1: | ||||||||||||||||||||||||||||
Money market funds | 1,460 | 0 | 0 | 1,460 | 1,460 | 0 | 0 | |||||||||||||||||||||
Mutual funds | 2,385 | 79 | (2 | ) | 2,462 | 0 | 2,462 | 0 | ||||||||||||||||||||
Subtotal | 3,845 | 79 | (2 | ) | 3,922 | 1,460 | 2,462 | 0 | ||||||||||||||||||||
Level 2: | ||||||||||||||||||||||||||||
U.S. Treasury securities | 20,088 | 21 | (1 | ) | 20,108 | 2,608 | 3,525 | 13,975 | ||||||||||||||||||||
U.S. agency securities | 19,540 | 58 | (1 | ) | 19,597 | 1,460 | 1,884 | 16,253 | ||||||||||||||||||||
Non-U.S. government securities | 5,483 | 183 | (2 | ) | 5,664 | 84 | 1,034 | 4,546 | ||||||||||||||||||||
Certificates of deposit and time deposits | 2,189 | 2 | 0 | 2,191 | 1,106 | 202 | 883 | |||||||||||||||||||||
Commercial paper | 2,112 | 0 | 0 | 2,112 | 909 | 1,203 | 0 | |||||||||||||||||||||
Corporate securities | 46,261 | 568 | (8 | ) | 46,821 | 10 | 7,455 | 39,356 | ||||||||||||||||||||
Municipal securities | 5,645 | 74 | 0 | 5,719 | 0 | 618 | 5,101 | |||||||||||||||||||||
Mortgage- and asset-backed securities | 11,948 | 66 | (6 | ) | 12,008 | 0 | 0 | 12,008 | ||||||||||||||||||||
Subtotal | 113,266 | 972 | (18 | ) | 114,220 | 6,177 | 15,921 | 92,122 | ||||||||||||||||||||
Total | $ | 120,220 | $ | 1,051 | $ | (20 | ) | $ | 121,251 | $ | 10,746 | $ | 18,383 | $ | 92,122 | |||||||||||||
Also on page 55 of Apple's 10K is the following:
"The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade, with the primary objective of minimizing the potential risk of principal loss."
Overall, I don't believe Apple's investment holdings are at risk of losing a material amount of value.
I have done an analysis to determine how much "excess" cash Apple has after taking into account what taxes would be owed on its international investments (profits earned overseas) and a set aside for corporate activities. I assumed a 35% tax rate on the overseas investments, and set aside $20 billion as of September 2013 for a cushion to be available for investments ranging from acquisitions to funding suppliers' capital equipment.
After you tax the overseas investments and set aside the $20 billion, Apple would have about $72 billion excess cash and investments which equates to about $76 per share currently. This should grow to about $103 per share after dividends in September 2013, which would be 20% of Wednesday's closing price of $517.
While stocks can always go lower, I believe 20% helps to build a floor on the stock price, especially since the shares are trading at just over 10x my calendar 2013 EPS of $50.
Disclosure: I am long AAPL.
Additional disclosure: Sand Hill Insights is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Sand Hill Insights does not purport to tell or suggest which investment securities readers should buy or sell. Readers should conduct their own research and due diligence and obtain professional advice before making investment decision. Sand Hill Insights will not be liable for any loss or damage caused by information obtained in our materials. Readers are solely responsible for their own investment decisions.
