Who's Money is it Really?

[Gary Childress]

I've included a poll with this thread. Please read at least part of the post below before posting a response to the poll. And keep in mind your votes are publicly displayed, so vote with some care.

EDIT: I missed the option of dividing it among the various parties so feel free to state that in your reply if you don't like the other options.

OK. Yes, this is another piece of yesterday's news perhaps but I'm really curious. What would the resident economic gurus of CFC say about Apple and it's amazing accumulation of cash.

Apple has been extremely successful in the past 15 or so years. As a result they have accumulated some $100 billion excess cash on hand. This cash, however, is being held by the company. I'm not sure what the latest is on the cash excess but for a while Apple was just holding onto the surplus and not distributing it to either the investors nor its employees. In some weird sense its almost as if both sides are seemingly getting screwed.

First off, I think the Marxist interpretation of profit is fundamentally pretty sound in so far as excess cash means someone isn't getting paid their fair share. If a company has stashed away some 100 billion and it is just sitting there then somewhere along the line, someone got short changed.

Surprisingly enough (not really) There is apparently an ugly fight going on over who gets that money or what is to be done with it. I've seen the arguments some investors are making over the money. Clearly they want dividends or buybacks or some form of tangible short term benefit from it. Not sure if there is any employee arguments going on over receiving bonuses or raises based upon that money. But apparently the funds are just sitting there accumulating a rather modest interest return of 1% because they are not being reinvested.

This presents an interesting situation. Suppose 5 years from now Apple goes kerplunk, what happens for investors? They didn't get their dividends and now thier stock is also probably worthless in terms of making any kind of profit. All they have is a piece of paper right now saying "APPL stock" on it. That's all it is is a piece of paper. Not until the investor sells that stock does s/he see any real cash. But if s/he doesn't sell it before some major calamity then s/he not only doesn't get a dividend but all s/he really owns is a worthless piece of paper. I can see some very, very pissed investors if that were to happen. And these days, after what happened with the real estate boom it seems what goes up can always come crashing down.

It seems like an interesting case of who's money is it anyway? Does it belong to the investors, does it belong to the employees? Or should Apple as a corporation just hold onto the money and not give it to anyone, maybe use it for aquisitions or something?

Not knowing a great deal about economics, it's sort of a perplexing issue to me.

Apple: Arguments Against A Dividend, Stock Split And Buyback
March 15, 2012

One of the most controversial debate topics in the investment community is what Apple (AAPL) should do with its cash. Should it pay a dividend, or should it shy away from redistributing its cash? And what about a stock split, or buying back shares? Surely after a move into triple digits, a stock split will make it easier for small investors to buy. Apple can certainly afford to buy back stock, given that it holds so much cash. After much thought, we have come to the conclusion that dividend, stock splits, and buybacks should be avoided, and we outline our arguments below. But first, a quick overview of Apple is in order.

As of the close of trading on March 13, 2012, Apple made another record high, closing at $568.10. Contributors to that particular increase include the general market rally, as well as Jefferies' decision to raise its price target on Apple to $699 from $599. Jefferies also noted that it has seen early evidence of the Apple TV (or iTV), and expects production to reach commercial levels in May or June. As of the close of trading on March 13, Apple has risen an astounding 40%, dramatically outperforming both the S&P 500 (SPY) and the NASDAQ (ONEQ).

As dramatic as Apple's rally has been, especially given its status as the world's largest company by market capitalization, this article is not meant to provide an analysis of where Apple will go from here, and if it is a buy or not. Our intent is to outline the reasons why a dividend and / or buyback is not the best course for Apple to take with its capital at this time. But before we argue against these 2 factors, we must first outline Apple's capital position, as well as arguments for a dividend and / or buyback.

http://seekingalpha.com/article/435871-apple-arguments-against-a-dividend-stock-split-and-buyback

 

[Glassfan]

Apple's profits are accumulating because it's engaging in a tax maneuver. As long as it keeps it's overseas profits overseas, it doesn't have to pay taxes on it. So it just keeps accumulating, in the not unreasonable expectation that the US Congress will continue lowering corporate taxes. It's a tax lean. Numerous corporations employ this tactic, not just Apple. Apple is different in that it has the highest profit ratio on it's devices compared to competitors, a situation which will not continue for much longer as the competition catches up with new, improved devices at lower cost.

Spoiler :

The money is accumulating overseas because corporations are counting on lower U.S. tax rates in the future. At 35 percent, the U.S. corporate tax rate is among the highest for developed countries. In 2004, Congress enacted a one-year "tax holiday" for overseas earnings, and multinationals are hoping for a repeat of that.

Where Apple does differ from other companies is that it sets aside a portion of these overseas profits, marking them as subject to U.S. taxes sometime in the future. Essentially, it's saying "this is money that we'll likely have to pay U.S. federal income taxes on" because we intend to repatriate it, says Willens.

But because Apple doesn't actually bring the profits into U.S. accounts, it doesn't pay the taxes. Instead, it records a tax liability. When Apple reports quarterly results, it subtracts these liabilities from its profits, even though it hasn't actually paid the taxes.

The liabilities accumulate, and as Apple's profits grow, they're piling up faster and faster. - MSNBC, 23Jul12.

Ultimately, if Apple ends-up having to pay the taxes, the profits will disappear into the IRS bureaucracy. The money belongs to the US Government - barring another Apple tax-avoidance "tactic".

 

[Cutlass]

I haven't looked at the details to know what percentage is, as Glassfan said, currently being held as it is to evade taxes, and what portion of it would be turned into tax liabilities if it were repatriated.

However, the tax issue left to the side, it is the investor's money, but they have hired the company managers to make the call. And if the majority of them actually disagree with what the managers have decided, they should then fire the managers. The stockholders are the owners. The executives are the employees of the owners.

 

[Perfection]

All money is a tool of Satan

 

[Traitorfish]

Nothing belongs to anybody/everything belongs to everybody.

 

[NickyJ]

Well, the investors didn't build the company, and neither did the founders of the company, so obviously it's the government's money.

 

[GoodGame]

I'd bet that money disappears into politicians' campaign funds to avoid it ending up in IRS coffers.