A very good argument can be made that Apple has become the poster child of responsible share repurchases. The company has relied on its stellar free cash flow to fund share repurchases over the years. Prior to U.S. tax reform and Apple keeping cash generated outside the U.S. in foreign subsidiaries, Apple issued debt at roughly the same pace as foreign cash generation. This resulted in Apple having $285 billion of cash, cash equivalents, and marketable securities on the balance sheet at the end of 1Q18. After two years of aggressive share repurchases, Apple’s cash total is now closer to $200 billion.
By funding buyback with free cash flow, share repurchases have had zero impact on the amount of cash Apple wants to spend on organic growth initiatives including R&D, M&A, and capital expenditures. Apple is using truly excess cash that it has no use for to repurchase its shares.
Partly to provide a buffer against adverse market conditions and to retain M&A flexibility, Apple is following a net cash neutral strategy which means that the amount of cash held on the balance sheet will eventually equal the amount of outstanding debt. Given Apple’s current debt holdings, this amounts to holding approximately a $100 billion cash cushion in the event of a rainy day. On top of that, given Apple’s unique capex-light business model, the company is able to generate tens of billions of dollars of free cash flow each year even with lower sales due to a global recession.
