Apple launches another $7 billion bond sale to fund stock buyback, other programs

Posted:
in AAPL Investors
Apple continues to leverage bond sales and low interest rates to fund both its stock buyback program and green initiatives, with an upcoming $7 billion sale to hit U.S. debt capital markets.




Detailed in a filing with the Securities and Exchange Commission on Nov. 6, Apple's latest bond sale is comprised of six note offerings set to mature in 2019, 2020 and 2023, 2025, 2027, and 2047.

The first note matures on Nov. 13, 2019 and is a $1 billion note at 1.5 percent. The second note is also for $1 billion but at 1.625 percent and matures on Nov. 13, 2020.

The third note matures on Jan. 13, 2023, and is for $750 million at 2 percent. The fourth offering is for $1.5 billion at 2.25 percent and matures on Jan. 13 2025.

Note five matures on Nov. 13, 2027, and is a $1.5 billion offering at 2.25 percent. The final note from this offering is due in 30 years, is worth $1.25 billion, and has a rate of 3 percent.

As it has in the past, Apple has turned to Goldman Sachs, J.P. Morgan, Merrill Lynch, Deutsche Bank, and Morgan Stanley for management.

Apple's last bond sale was worth $5 billion, and was declared in September. The company is thought to be about 75 percent of the way through its capital return program.

The company has turned to bond sales around the world to fuel assorted programs, including Australia, Japan and Canada.
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Comments

  • Reply 1 of 31
    melgrossmelgross Posts: 30,310member
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
  • Reply 2 of 31
    melgross said:
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
    What is the endgame here? Is it really possible to buy back all their stock? I own shares; can they force me to sell them?
  • Reply 3 of 31
    GeorgeBMacGeorgeBMac Posts: 2,000member
    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

  • Reply 4 of 31
    Rayz2016Rayz2016 Posts: 3,400member
    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

    From what I understand, it’s much better for them to leverage ridiculously low interest rates than to take a massive tax hit trying to repatriate the money for dividend payouts. 
    jasenj1Solipatchythepiratejony0brucemc
  • Reply 5 of 31
    blastdoorblastdoor Posts: 1,780member
    melgross said:
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
    They have the cash to pay off all that debt, it's just sitting in foreign accounts. If it wasn't for the oddities of tax law, they wouldn't be issuing debt at all. 

    The thing that bothers me more about it is that management isn't able to come up with good ideas for how to productively employ all of this capital. I think Amazon is overvalued, but I will say this -- at least they know how to reinvest profits to grow the business. 


    SpamSandwichjony0
  • Reply 6 of 31
    radarthekatradarthekat Posts: 2,213moderator
    Here’s my thinking on the subject of share repurchases, written a few years ago but updated tonight to reflect the current market cap and net cash position.  

    Apple - Share repurchase rationale

    I’ve heard a lot of analysts as well as retail investors suggest that share repurchases are nothing more than financial engineering, implying that they do nothing to add value to a company or its stock.

    An additional, and I think significant, value of share repurchases and dividend payments comes from removing unproductive excess cash from the balance sheet. Lets look at Apple, with a $900 billion market cap and about $175 billon of cash and equivalents on the books, net of debt.  Therefore, a dollar invested in Apple represents about 80 cents invested in the actual operating business, which is where the profits come from, and about 20 cents invested to buy a bit of that cash pile, earning about 1%.  Arguably a less-than-ideal allocation of each invested dollar. 

    So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.

    And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster.  Carl Icahn must have had all of these effects in mind - more efficient allocation of investor's dollars, increase in earnings multiple against operating business, and reduction in shares netting an increase in earnings per remaining share - when he approached Tim Cook years ago.  Pity he didn't articulate his case better.

    loquiturjony0brucemc
  • Reply 7 of 31
    blastdoor said:
    They have the cash to pay off all that debt, it's just sitting in foreign accounts. 
    Common misconception: the foreign earnings are not actually held outside the United States. It's all in banks in Manhattan. Apple is just restricted from actively using that money for U.S. operations. 
    patchythepiratejony0
  • Reply 8 of 31

    Rayz2016 said:
    From what I understand, it’s much better for them to leverage ridiculously low interest rates than to take a massive tax hit trying to repatriate the money for dividend payouts. 
    Yeah, the U.S. government is essentially paying them to borrow, which is what makes all the complaints about the repatriation rate ring hollow. That and the fact that capital gains taxes are so low too. The government is bending over backwards to enrich corporations and investors and they're not even the largest segment of the economy. 
  • Reply 9 of 31
    SoliSoli Posts: 6,672member
    Rayz2016 said:
    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

    From what I understand, it’s much better for them to leverage ridiculously low interest rates than to take a massive tax hit trying to repatriate the money for dividend payouts. 
    That's exactly why they do it. I'm sure there are more than a few people on this forum that have bought new cars at 0.00% APRs that they pay over 36 to 60 months instead of dropping the entire amount down at once even thought they can afford to do so.
    jony0
  • Reply 10 of 31
    SoliSoli Posts: 6,672member
    blastdoor said:
    melgross said:
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
    They have the cash to pay off all that debt, it's just sitting in foreign accounts. If it wasn't for the oddities of tax law, they wouldn't be issuing debt at all. 

    The thing that bothers me more about it is that management isn't able to come up with good ideas for how to productively employ all of this capital. I think Amazon is overvalued, but I will say this -- at least they know how to reinvest profits to grow the business. 
    We have people on this forum bitching about Apple building a new campus for $5 billion and we get people complaining that Apple isn't spending their vast profits fast enough. What do you think Apple should do with all their money for all these different countries and regions where they hold their money? What would be the correct way to for them to run a break-even business in all markets?
    patchythepiratebrucemc
  • Reply 11 of 31
    Rayz2016Rayz2016 Posts: 3,400member
    Soli said:
    Rayz2016 said:
    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

    From what I understand, it’s much better for them to leverage ridiculously low interest rates than to take a massive tax hit trying to repatriate the money for dividend payouts. 
    That's exactly why they do it. I'm sure there are more than a few people on this forum that have bought new cars at 0.00% APRs that they pay over 36 to 60 months instead of dropping the entire amount down at once even thought they can afford to do so.
    And that is precisely what I’m going to do with my new iPhone. 
    Solibrucemc
  • Reply 12 of 31
    blastdoorblastdoor Posts: 1,780member
    Soli said:
    blastdoor said:
    melgross said:
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
    They have the cash to pay off all that debt, it's just sitting in foreign accounts. If it wasn't for the oddities of tax law, they wouldn't be issuing debt at all. 

    The thing that bothers me more about it is that management isn't able to come up with good ideas for how to productively employ all of this capital. I think Amazon is overvalued, but I will say this -- at least they know how to reinvest profits to grow the business. 
    We have people on this forum bitching about Apple building a new campus for $5 billion and we get people complaining that Apple isn't spending their vast profits fast enough. What do you think Apple should do with all their money for all these different countries and regions where they hold their money? What would be the correct way to for them to run a break-even business in all markets?
    There are so many options!

    1. own even more of the hardware supply chain. Own fabs, own display manufacturing capacity. Both require big investments.

    2. fund the development of more exclusive content for Apple products, both software and entertainment. 

    3. develop ARM-based SOCs for Macs, and expand the Mac lineup to appeal to more markets

    4. Use deeper discounts to grow marketshare in education, both in the US and internationally. 

    5. Enter a new industry where first-rate UI, silicon, and AI give a comparative advantage. I'm thinking healthcare.

    6. Instead of traditional dividends and share buybacks, start an employee stock ownership program (ESOP) with a goal of eventually becoming 100% employee-owned. That's an investment in Apple employees and the Apple culture. Maybe the best idea on this list. 
  • Reply 13 of 31
    melgrossmelgross Posts: 30,310member
    melgross said:
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
    What is the endgame here? Is it really possible to buy back all their stock? I own shares; can they force me to sell them?
    Well, unless they do what Dell did, and go private, no, they can’t force you to do anything. But think how much it would cost to have Apple go private. Right now, Apple has a market value of $896 bIllion. The offering would have to be a good 30% higher than that. It could possibly be more because Apple is highly profitable and growing.
    SpamSandwich
  • Reply 14 of 31
    SoliSoli Posts: 6,672member
    blastdoor said:
    Soli said:
    blastdoor said:
    melgross said:
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
    They have the cash to pay off all that debt, it's just sitting in foreign accounts. If it wasn't for the oddities of tax law, they wouldn't be issuing debt at all. 

    The thing that bothers me more about it is that management isn't able to come up with good ideas for how to productively employ all of this capital. I think Amazon is overvalued, but I will say this -- at least they know how to reinvest profits to grow the business. 
    We have people on this forum bitching about Apple building a new campus for $5 billion and we get people complaining that Apple isn't spending their vast profits fast enough. What do you think Apple should do with all their money for all these different countries and regions where they hold their money? What would be the correct way to for them to run a break-even business in all markets?
    There are so many options!

    1. own even more of the hardware supply chain. Own fabs, own display manufacturing capacity. Both require big investments.

    2. fund the development of more exclusive content for Apple products, both software and entertainment. 

    3. develop ARM-based SOCs for Macs, and expand the Mac lineup to appeal to more markets

    4. Use deeper discounts to grow marketshare in education, both in the US and internationally. 

    5. Enter a new industry where first-rate UI, silicon, and AI give a comparative advantage. I'm thinking healthcare.

    6. Instead of traditional dividends and share buybacks, start an employee stock ownership program (ESOP) with a goal of eventually becoming 100% employee-owned. That's an investment in Apple employees and the Apple culture. Maybe the best idea on this list. 
    i) And what if Apple's thousands of bean counters have run the numbers better than you and found that it would be a net loss for them to throw money at something simply because they have the money, would you still say they should do it? We've seen other companies throw obscene amounts of money into an industry just to end up folding, being brought out, or pulling out of that market, so why assume that when Apple throws money at something that it will be a guaranteed success?

    ii) Why assume that Apple isn't developing "ARM-based SoCs for Macs"? You do know that the SoC is the easy part of the equation, right?
    edited November 2017
  • Reply 15 of 31
    melgrossmelgross Posts: 30,310member

    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

    Apple has stated very clearly that theY do NOT pay dividends out of borrowed money. All dividends are paid for out of cash generated in the USA. Only stock buybacks are bought using debt. I just don’t like stock buybacks at all. Despite what some think, there has never been any direct evidence that they actually lead to any permanent increase in the share price, despite the theoretical reasons why it should.
    edited November 2017
  • Reply 16 of 31
    melgrossmelgross Posts: 30,310member

    Rayz2016 said:
    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

    From what I understand, it’s much better for them to leverage ridiculously low interest rates than to take a massive tax hit trying to repatriate the money for dividend payouts. 
    Again, Apple does NOT pay dividends out of borrowed money. Stock buybacks are done with borrowed money.
  • Reply 17 of 31
    melgrossmelgross Posts: 30,310member

    blastdoor said:
    melgross said:
    I wish they would stop buying stock back. The shares are already high. I’d rather they somehow figure out a way to increase dividends to the market average of those that do offer them. As the shares rise, the dividend percentage decreases.

    the idea of ever increasing debt, already over $100 billion, for just this purpose, really bothers me.
    They have the cash to pay off all that debt, it's just sitting in foreign accounts. If it wasn't for the oddities of tax law, they wouldn't be issuing debt at all. 

    The thing that bothers me more about it is that management isn't able to come up with good ideas for how to productively employ all of this capital. I think Amazon is overvalued, but I will say this -- at least they know how to reinvest profits to grow the business. 


    If it weren’t for the buybacks, Apple wouldn’t need the money. They wouldn’t have to pay it off.
  • Reply 18 of 31
    melgrossmelgross Posts: 30,310member

    Here’s my thinking on the subject of share repurchases, written a few years ago but updated tonight to reflect the current market cap and net cash position.  

    Apple - Share repurchase rationale

    I’ve heard a lot of analysts as well as retail investors suggest that share repurchases are nothing more than financial engineering, implying that they do nothing to add value to a company or its stock.

    An additional, and I think significant, value of share repurchases and dividend payments comes from removing unproductive excess cash from the balance sheet. Lets look at Apple, with a $900 billion market cap and about $175 billon of cash and equivalents on the books, net of debt.  Therefore, a dollar invested in Apple represents about 80 cents invested in the actual operating business, which is where the profits come from, and about 20 cents invested to buy a bit of that cash pile, earning about 1%.  Arguably a less-than-ideal allocation of each invested dollar. 

    So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.

    And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster.  Carl Icahn must have had all of these effects in mind - more efficient allocation of investor's dollars, increase in earnings multiple against operating business, and reduction in shares netting an increase in earnings per remaining share - when he approached Tim Cook years ago.  Pity he didn't articulate his case better.

    Feh! I’ve been investing since I was a kid, in 1963. I’ve never yet seen a company that bought stock back get a long term advantage from it. The stock sometimes (but not always) gets a bump. Then, it goes back down. It’s all about sales, growth and profits. If that’s doing well, the stock goes up. If it isn’t, the stock goes down.

    a fallacy is that higher earnings per share will have the shares go up by the amount of stock that taken off the market. That is, the increase in earnings per shares seen from the destroyed shares should have the share increase by that percentage. So if 5% are removed, then earnings go up by about 5% per share, and the share should go up by 5%. That’s the simplified argument. I say simplified, because as with everything it’s not really that simple. But it’s the basic concept.

    but it doesn’t work! Economists constantly point out that if these shares weren’t bought, no matter what the market does, and no matter what the company does, the shares will still be up by that amount, but it’s never been proven. I addition, when billions are thrown away, which is exactly what is happening, as calling it investment in the company is wrong, these billions are no longer available.

    but the company could have used them for R&D, production advances, marketing, etc. In other words, everything that would actually increase the company’s competitiveness. But now that money is gone.

    if Apple took $300 million a year, and added it to the marketing for the Mac, it would result in more Mac sales. The same thing is true for every other product line. Apple spends relatively little for marketing when compared to competitors. It’s costs about $15 to $20 billion for a complete 10nm production plant. That’s a lot of money, but Apple spends double that for share buybacks every year. It costs them about $1 billion for a large data center.

    i’d rather see Apple spend for that. and yes, even borrow against the cash for that, if necessary. That’s would add to Apple’s capital investments, which are counted positively on their balance sheet too.

    I also don’t understand the concept of “removing unproductive cash”. What does that mean? Apple invests for the purpose of maintaining their cash. In other words, their investments are not too speculative (a bit of currency hedging there). They make a small profit, after inflation and taxes on this money. So, now they buy $50 billion of their shares back, and retire them. And people, that’s what is happening. Apple is not buying their shares and holding them, except, possibly, a very small amount for compensation. In order to do this, they offer bonds, or borrow money. For the sake of the argument, to, make it simple, let’s say they offer, and borrow dollar for dollar for the number of shares they purchase.

    so, they borrow $50 billion for this. Now, instead of having a slowly accruing amount on $50 billion, they now have $50 billion in debt on which they’re paying interest.

    how exactly, is this benefiting the company, and, in the long run, the shareholders?
    edited November 2017 SpamSandwich
  • Reply 19 of 31
    melgross said:

    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

    Apple has stated very clearly that theY do NOT pay dividends out of borrowed money. All dividends are paid for out of cash generated in the USA. Only stock buybacks are bought using debt. I just don’t like stock buybacks at all. Despite what some think, there has never been any direct evidence that they actually lead to any permanent increase in the share price, despite the theoretical reasons why it should.
    melgross said:

    Rayz2016 said:
    Not to trash Apple -- but I am very suspicious of any company that borrows money in order to pay dividends or other types of payments to stock holders...   Most financial advisors agree it is, generally speaking, a highly suspicious strategy often used to artificially boost a stock price.

    Generally, Dividends should be paid from earnings -- not borrowings.

    That being said:  Not knowing Apple's overall investment strategy -- and knowing that they don't tend to do stupid things, I am inclined to give them the benefit of the doubt.    

    From what I understand, it’s much better for them to leverage ridiculously low interest rates than to take a massive tax hit trying to repatriate the money for dividend payouts. 
    Again, Apple does NOT pay dividends out of borrowed money. Stock buybacks are done with borrowed money.
    Apple routinely lists payment of dividends as one of the intended uses of the proceeds (from debt issuances) in the prospectuses that it files.
  • Reply 20 of 31
    melgrossmelgross Posts: 30,310member


    Rayz2016 said:
    From what I understand, it’s much better for them to leverage ridiculously low interest rates than to take a massive tax hit trying to repatriate the money for dividend payouts. 
    Yeah, the U.S. government is essentially paying them to borrow, which is what makes all the complaints about the repatriation rate ring hollow. That and the fact that capital gains taxes are so low too. The government is bending over backwards to enrich corporations and investors and they're not even the largest segment of the economy. 
    That is totally incorrect.
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