Companies are sitting on record cash piles: click the picture for the top 10 cash hoarders - Photo credit: Philip Taylor PT  Corporate America has dramatically increased its cash piles over the past few years, stashing more and more Benjamins every year since 2007. In 2012, U.S. non-financial companies filled their coffers with an additional $130 billion, taking their total cash to a record $1.45 trillion as the economy has stagnated and the labor market has moved sideways. At the same time, a prohibitive corporate tax scheme coupled with emerging market growth have pushed U.S. firms to keep 58% of their cash, or $840 billion, overseas.  Much has been said about Apple’s ever-expanding cash pile, which grew to $137 billion by the end of last year and currently makes up 9.5% of the total U.S. pie, but the iPhone maker is not alone. U.S. firms, particularly in the technology, healthcare/pharma, and automotive sector have continued stashing cash on the back of tight cost controls, modest economic growth domestically, and a solid performance abroad, according to Moody’s.  The top five holders, Apple, Microsoft, Google, Pfizer, and Cisco, held $347 billion, or about one-fourth of the total, while earning a spot in the top 50 now requires a minimum of $4.9 billion, up 69% from 2006. And the top 50 are getting richer: by year-end they were sitting on $889 billion, or 61% of the total pie, compared to $784 billion or 59% the previous year. (Click here to see the top 10 cash hoarders and how much they are sitting on).  Apple is driving the concentration. The tech sector, which is the largest cash hoarder with $556 billion or 38% of the total, has seen pile grow 60% since 2009. “Apple alone represents $103 billion or 26% of the total $396 billion increase in corporate cash since 2009,” the report notes. After tech, the healthcare/pharma sector was sitting on $196 billion (14% of the total), consumer products firms held $125 billion (9%), energy companies had $112 billion (8%), and the automakers $73 billion (5%).  There are several reasons behind the massive buildup in liquid reserves observed since the financial crisis. Moody’s cites “modest economic growth, the relative strength of performance overseas (with Asian strength offsetting European weakness) and tight cost control). Interestingly, company revenues ticked up 2% to $11.1 trillion while cash flow from operations remained flat at $1.4 trillion, yet corporate cash piles grew 10%.  Firms have favored capital expenditure and dividend spending at the expense of share repurchases and acquisitions, Moody’s explained. “The skewing of shareholder returns toward dividends, recently announced dividend increases, and currently higher stock price valuations may reduce the economic motivation of share buybacks” which fell 14% to $194 billion, compared to an equivalent 14% jump in dividends to $320 billion. Capex continues to consumer the largest share of cash flow, at about 57% over the past seven years, hitting a record $829 billion in 2012. Acquisition spending actually fell last year to $321 billion, “but still [remained] well above the annual average of $240 billion in 2008-2010.”  In Pictures: Companies With The Largest Cash Piles  Another striking number from the report is the high-and-rising percentage of overseas cash balances. In 2012, that figure grew 20% to $840 billion, or more than half the total corporate stash. The seven companies that report their overseas liquidity held an average 75% of their cash out of the U.S. Amgen, Oracle, Cisco, and Microsoft all held even more than that, with the latter sitting on $61 billion, or 89% of total cash, abroad.  Several factors, including the high tax cost of repatriating the money, have pushed companies to sit on it abroad, according to Moody’s. “Based on better overseas growth prospects and domestic cash consumption represented by dividends, share buybacks, and the majority of acquisitions, we expect overseas cash balances will continue to grow unless tax laws encourage U.S. companies to repatriate money,” they explained. Given the Obama Administration’s stand on taxes and political gridlock in Washington, this doesn’t seem set to change any time soon:  There have been years of mild flirtations with corporate tax reform that would incent companies to permanently repatriate overseas funds. Given the political cycle and strong differences on both sides of the aisle in Washington, we do not anticipate any material tax law changes over the near term that would prompt material overseas cash repatriation, whether in the form of a 2004-style Homeland Investment Act of more fundamental long-term tax reform.  Growing cash piles on flat revenues and operating cash flows indicate firms are increasingly sitting on the Benjamins they generate. The U.S. economy appears to be on track for a mild recovery, after years of sub-par growth, while the labor market remains depressed. Firms are facing tough pressure to spend their cash, as Apple’s Tim Cook recently experienced, with billionaire hedge fund manager David Einhorn suing the company and proposing the issuance of perpetual preferred shares. Activism is also on the rise, as investors look to unlock value from massive cash hoards, while management seems to push back and ask investors for time to invest efficiently.  U.S. companies will have to figure out how to effectively manage their cash flows, and avoid having to pay onerous taxes for repatriating foreign cash. At the same time, if the economy begins to pick up, hiring should gather steam, possibly forcing firms to tap their stash. Yet, keeping that liquidity untouched and abroad will do little to help the economy, and, on the face of it, appears unproductive.
U.S. companies continue to grow their cash hoards, which hit a record $1.45 trillion last year, according to a report by Moody's.  The share of cash held overseas has also increased, as high taxes make it difficult for companies to repatriate their overseas profits.