Moody's Investors Service put out a "Special Comment" earlier this month entitled, "US Corporate Cash Pile Totals $1.2 Trillion; Over Half Sits Overseas." Subtitled, "Technology, pharmaceuticals, energy and consumer products hold the most cash," it says, "US non-financial companies rated by Moody's held $1.24 trillion in cash as of December 2011, up 3.0% from the record level of $1.20 trillion at the end of 2010. We estimate nearly $700 billion, or 57% of that cash, is held overseas. These amounts reflect the relative strength of most emerging market economies over the last few years, the negative tax consequences of permanently repatriating money to the US, and the disproportionate consumption of cash for domestic purposes, such as dividends, share buybacks, and the majority of acquisitions. Unless there is permanent tax reform that lowers taxes on overseas profits, we expect the absolute and proportionate amount of cash held overseas will continue to rise."
Moody's summary continues, "The top 50 holders of cash account for $749 billion. This total includes liquid long-term investments, and is up 13% from $665 billion in 2010. The top five cash kings include Apple Inc., Microsoft, Cisco, Google and Pfizer. Together, these five companies have $276 billion or 22% of the total non-financial corporate cash balances, up from $207 billion or 17% in 2010. Apple could account for about $150 billion or 12% of total corporate cash by the end of 2012, up from $97 billion or 8% as of year-end 2011."
They add, "Investment grade companies rated by Moody's hold $848 billion of cash, or 77% of the rated non-financial corporate universe, down slightly from $852 billion in 2010 but up from $579 billion in 2006. Technology, pharmaceuticals, energy and consumer products are the most cash-flush industries, representing $779 billion or 63% of the corporate cash total."
Moody's report explains, "We attribute a large part of US companies' solid 2011 performance to a combination of modest overall economic growth, the strength of their overseas performance (with Asian strength offsetting European weakness) and tight cost controls. To the extent that non-US regions continue to pace overall economic growth, we expect overseas operations will represent a growing portion of US companies' earnings."
They tell us, "From a credit perspective, the liquidity and operating flexibility provided by high cash balances are positive factors. The cash helps ensure that companies can retire near-term maturing debt if the capital markets are disrupted and withstand a significant deterioration in business conditions. At the same time, large cash balances can be qualitatively negative. They can encourage management to deploy the cash in ways that heighten business or financial risk, such as making expensive acquisitions outside of a company's core strategy. Positively we believe the tax on permanently repatriated money encourages a level of discipline, restrains companies from making credit-weakening decisions, such as paying large dividends or aggressively buying back common stock, since this requires domestic cash and companies are generally loathe to pay taxes in order to enter into discretionary outlays."
Moody's adds, "Still, cash-rich companies are able to use relatively less debt to fund acquisitions and keep leverage lower than it would be if they funded acquisitions with additional debt. Some companies have been able to fund acquisitions almost entirely with overseas cash (for example Microsoft's $8.5 billion purchase of Skype in October 2011). As a result, over the last year, there have been many instances where companies made acquisitions and maintained their credit ratings thanks to the high proportion of existing cash (or common stock) they used to fund the acquisition."
The report's "Top 50 Cash Rich Companies" include: Apple ($97.6B), Microsoft ($51.7B), Cisco Systems ($46.7B), Google ($44.6B), Pfizer ($35.2B), Johnson & Johnson ($32.3B), General Motors ($31.6B), Oracle ($31.0B), Ford Motor Company ($22.9B), Qualcomm ($22.0B), Amgen ($20.6B), Merck ($18.0B), Chevron Corporation ($16.1B), Intel ($14.8B), Dell ($14.8B), Coca-Cola ($14.0B), Verizon Communications ($14.0B), Exxon Mobil ($13.1B), IBM ($11.9B), Bristol-Myers Squibb ($11.6B), Boeing ($11.3B), EMC ($10.8B), Eli Lilly ($10.6B), News Corporation ($9.4B), General Electric Company ($8,4B), Ebay ($8.2B), Hewlett-Packard ($8.1B), Abbott Laboratories ($8.1B), United Continental Holdings ($7.8B), Devon Energy ($7.1B), Wal-Mart Stores ($6.6B), ConocoPhillips ($6.4B), United Technologies ($6.0B), Costco Wholesale ($5.9B), Corning ($5.8B), Sprint Nextel ($5.6B), Loews ($5.2B), Time Warner Cable ($5.2B), Motorola Solutions ($5.1B), Mastercard ($4.9B), Freeport-McMoRan ($4.8B), United Parcel Service ($4.3B), American Airlines ($4.0B), Las Vegas Sands ($3.9B), Occidental Petroleum ($3.8B), 3M ($3.7B), Mosaic ($3.6B), Lockheed Martin ($3.6B), AT&T ($3.2B), and AES ($3.1B).
