Notes of interest from Apple's Q4 2018 earnings report and conference call

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  • Reply 21 of 29
    asdasd said:
    joebloggs said:
    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    They were probably avoiding insider trading charges by avoiding buying when they had information not available to the general public.
    Does that make any sense? The information they had was such that stock prices would likely fall. So if any insider trading law applied to these buybacks then it would apply as they didn’t lose out in buying what they would have known (exclusively) before the announcement to be overvalued shares. 

    but of course insider trading can’t apply to buybacks as companies always have inside information about themselves and yet its legal. 
    Insider trading rules (i.e. 17 CFR §240.10b5-1) can apply to corporate share buybacks. The disclosure requirements for a company buying back its own shares are different from those of, e.g., Section 16 officers. But a company still isn't allowed to trade on the basis of material nonpublic information (in breach of a duty...).

    That said, in practice the bar has been set fairly high when it comes to what amounts to material information. Not all information which might affect stock price is regarded as material. But particularly important information - e.g., that a company is close to a merger agreement or, I would think, that it is about to miss revenue guidance by a substantial amount - is.
  • Reply 22 of 29

    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    It spent $8.8 billion (*EDIT below) on share repurchases plus another $1.3 billion for net share settlement (which relates to the remittance of tax withholding). But yes, that's substantially less than it had been spending in recent quarters.

    As others have suggested, it may have thought it should refrain from buying back shares when it realized it was likely to miss its revenue guidance by a significant amount. I suspect it either started aggressively buying back shares after it issued its guidance revision or it will do so now that it's reported on the quarter.

    We'll know soon whether it bought back a lot of shares in the weeks following its guidance revision. But during the quarter, its outstanding share count dropped by 25 million. That and the amount it spent on share buybacks during the quarter likely mean that it bought back 40-45 million shares during the quarter as compared to nearly 350 million over the previous three quarters.


    EDIT: Regarding the amount spent on share repurchases...I just realized that what Mr. Maestri said in the conference call ($8.2 billion) doesn't match what's reported in the 8-K filed yesterday as part of the consolidated cash flows statement ($8.8 billion). Looking back over previous filings, I see that what's been reported as part of the consolidated cash flows statements doesn't always match what gets reported elsewhere in the filings. I'm not sure of the reason for that. I might speculate that it has something to do with Apple's accelerated share repurchase programs and the timing of payments associated with them, but Apple hasn't used such programs in the last few quarters.
    edited January 2019
  • Reply 23 of 29
    linkmanlinkman Posts: 1,004member
    carnegie said:
    asdasd said:
    joebloggs said:
    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    They were probably avoiding insider trading charges by avoiding buying when they had information not available to the general public.
    Does that make any sense? The information they had was such that stock prices would likely fall. So if any insider trading law applied to these buybacks then it would apply as they didn’t lose out in buying what they would have known (exclusively) before the announcement to be overvalued shares. 

    but of course insider trading can’t apply to buybacks as companies always have inside information about themselves and yet its legal. 
    Insider trading rules (i.e. 17 CFR §240.10b5-1) can apply to corporate share buybacks. The disclosure requirements for a company buying back its own shares are different from those of, e.g., Section 16 officers. But a company still isn't allowed to trade on the basis of material nonpublic information (in breach of a duty...).

    That said, in practice the bar has been set fairly high when it comes to what amounts to material information. Not all information which might affect stock price is regarded as material. But particularly important information - e.g., that a company is close to a merger agreement or, I would think, that it is about to miss revenue guidance by a substantial amount - is.
    A company that is about to announce a substantial revenue miss would be highly unlikely to do a buyback right before that announcement. Buy it after the stock price falls, not before -- at that point it's public information.
  • Reply 24 of 29
    linkman said:
    carnegie said:
    asdasd said:
    joebloggs said:
    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    They were probably avoiding insider trading charges by avoiding buying when they had information not available to the general public.
    Does that make any sense? The information they had was such that stock prices would likely fall. So if any insider trading law applied to these buybacks then it would apply as they didn’t lose out in buying what they would have known (exclusively) before the announcement to be overvalued shares. 

    but of course insider trading can’t apply to buybacks as companies always have inside information about themselves and yet its legal. 
    Insider trading rules (i.e. 17 CFR §240.10b5-1) can apply to corporate share buybacks. The disclosure requirements for a company buying back its own shares are different from those of, e.g., Section 16 officers. But a company still isn't allowed to trade on the basis of material nonpublic information (in breach of a duty...).

    That said, in practice the bar has been set fairly high when it comes to what amounts to material information. Not all information which might affect stock price is regarded as material. But particularly important information - e.g., that a company is close to a merger agreement or, I would think, that it is about to miss revenue guidance by a substantial amount - is.
    A company that is about to announce a substantial revenue miss would be highly unlikely to do a buyback right before that announcement. Buy it after the stock price falls, not before -- at that point it's public information.
    Sure.

    I was addressing some things that asdasd said about share buybacks in general.
  • Reply 25 of 29
    asdasdasdasd Posts: 5,648member
    carnegie said:
    asdasd said:
    joebloggs said:
    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    They were probably avoiding insider trading charges by avoiding buying when they had information not available to the general public.
    Does that make any sense? The information they had was such that stock prices would likely fall. So if any insider trading law applied to these buybacks then it would apply as they didn’t lose out in buying what they would have known (exclusively) before the announcement to be overvalued shares. 

    but of course insider trading can’t apply to buybacks as companies always have inside information about themselves and yet its legal. 
    Insider trading rules (i.e. 17 CFR §240.10b5-1) can apply to corporate share buybacks. The disclosure requirements for a company buying back its own shares are different from those of, e.g., Section 16 officers. But a company still isn't allowed to trade on the basis of material nonpublic information (in breach of a duty...).

    That said, in practice the bar has been set fairly high when it comes to what amounts to material information. Not all information which might affect stock price is regarded as material. But particularly important information - e.g., that a company is close to a merger agreement or, I would think, that it is about to miss revenue guidance by a substantial amount - is.
    Thanks for the links. It seems odd to me that people think Apple was complying with insider trading laws by not buying pre announcement when not buying was beneficial to the company. It bought shares cheaper later on. 

    But I’m probably still misunderstanding. 
  • Reply 26 of 29
    Apple just filed its 10-Q.

    Its outstanding share count was 4,715,280,000 as of January 18th. That's down 14.5 million shares from the end of the quarter, three weeks prior on December 29th. So Apple may have picked up the pace of share repurchases after it issued its guidance revision on January 2nd.
    edited January 2019
  • Reply 27 of 29
    asdasd said:
    carnegie said:
    asdasd said:
    joebloggs said:
    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    They were probably avoiding insider trading charges by avoiding buying when they had information not available to the general public.
    Does that make any sense? The information they had was such that stock prices would likely fall. So if any insider trading law applied to these buybacks then it would apply as they didn’t lose out in buying what they would have known (exclusively) before the announcement to be overvalued shares. 

    but of course insider trading can’t apply to buybacks as companies always have inside information about themselves and yet its legal. 
    Insider trading rules (i.e. 17 CFR §240.10b5-1) can apply to corporate share buybacks. The disclosure requirements for a company buying back its own shares are different from those of, e.g., Section 16 officers. But a company still isn't allowed to trade on the basis of material nonpublic information (in breach of a duty...).

    That said, in practice the bar has been set fairly high when it comes to what amounts to material information. Not all information which might affect stock price is regarded as material. But particularly important information - e.g., that a company is close to a merger agreement or, I would think, that it is about to miss revenue guidance by a substantial amount - is.
    Thanks for the links. It seems odd to me that people think Apple was complying with insider trading laws by not buying pre announcement when not buying was beneficial to the company. It bought shares cheaper later on. 

    But I’m probably still misunderstanding. 
    You're welcome.

    I understand what you're saying. And I wouldn't say that the proffered reason (i.e. one that relates to insider trading rules) is for certain why Apple didn't buy back as many shares during its fiscal first quarter. But that could have been a reason, and Apple's pace of share repurchases was down substantially as compared to what it had been for the previous 3 quarters.

    That said, I would make a couple of points. First, the rule in question doesn't require that the supposed insider trading benefited from the material nonpublic information not having been made public yet. Trading "on the basis of" such information basically just means that you had such information when you made the trades in question, and one of the affirmative defenses doesn't apply.

    Second, one of the concerns when it comes to companies buying back shares is the potential for it to be done for manipulative reasons to benefit, e.g., company insiders. There's nothing wrong with a company buying back shares because it thinks they are undervalued, and with the expectation that buying them back will cause the share price to increase. There's nothing wrong with concentrating the effects of future share price increases by buying shares at lower prices, which is one of the things that share buybacks can do. But share buybacks can't be used for manipulative reasons, e.g. to raise share prices for a brief period of time while insiders sell their own shares. In theory, Apple could - knowing that it was going to miss guidance and that the share price was going to fall - buy back shares in an effort to elevate the share price (or keep it from falling as much) in the meantime while certain people sold some of their own shares.
    edited January 2019 asdasd
  • Reply 28 of 29
    carnegie said:

    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    It spent $8.8 billion (*EDIT below) on share repurchases plus another $1.3 billion for net share settlement (which relates to the remittance of tax withholding). But yes, that's substantially less than it had been spending in recent quarters.

    As others have suggested, it may have thought it should refrain from buying back shares when it realized it was likely to miss its revenue guidance by a significant amount. I suspect it either started aggressively buying back shares after it issued its guidance revision or it will do so now that it's reported on the quarter.

    We'll know soon whether it bought back a lot of shares in the weeks following its guidance revision. But during the quarter, its outstanding share count dropped by 25 million. That and the amount it spent on share buybacks during the quarter likely mean that it bought back 40-45 million shares during the quarter as compared to nearly 350 million over the previous three quarters.


    EDIT: Regarding the amount spent on share repurchases...I just realized that what Mr. Maestri said in the conference call ($8.2 billion) doesn't match what's reported in the 8-K filed yesterday as part of the consolidated cash flows statement ($8.8 billion). Looking back over previous filings, I see that what's been reported as part of the consolidated cash flows statements doesn't always match what gets reported elsewhere in the filings. I'm not sure of the reason for that. I might speculate that it has something to do with Apple's accelerated share repurchase programs and the timing of payments associated with them, but Apple hasn't used such programs in the last few quarters.
    I just use this spreadsheet from investor relations that they update quarterly:

    https://s22.q4cdn.com/396847794/files/doc_downloads/Return_of_Capital_and_Net_Cash_Position.pdf
  • Reply 29 of 29
    carnegie said:

    Apple only spent $8.2 billion this quarter on buy backs after spending an average of $21 billion the last 3 quarters.  Could they be stockpiling money for a purchase?  If not it was a gross misuse of cash to not throw a huge amount at buy backs this quarter.  Something along the lines of $25+ billion.
    It spent $8.8 billion (*EDIT below) on share repurchases plus another $1.3 billion for net share settlement (which relates to the remittance of tax withholding). But yes, that's substantially less than it had been spending in recent quarters.

    As others have suggested, it may have thought it should refrain from buying back shares when it realized it was likely to miss its revenue guidance by a significant amount. I suspect it either started aggressively buying back shares after it issued its guidance revision or it will do so now that it's reported on the quarter.

    We'll know soon whether it bought back a lot of shares in the weeks following its guidance revision. But during the quarter, its outstanding share count dropped by 25 million. That and the amount it spent on share buybacks during the quarter likely mean that it bought back 40-45 million shares during the quarter as compared to nearly 350 million over the previous three quarters.


    EDIT: Regarding the amount spent on share repurchases...I just realized that what Mr. Maestri said in the conference call ($8.2 billion) doesn't match what's reported in the 8-K filed yesterday as part of the consolidated cash flows statement ($8.8 billion). Looking back over previous filings, I see that what's been reported as part of the consolidated cash flows statements doesn't always match what gets reported elsewhere in the filings. I'm not sure of the reason for that. I might speculate that it has something to do with Apple's accelerated share repurchase programs and the timing of payments associated with them, but Apple hasn't used such programs in the last few quarters.
    I just use this spreadsheet from investor relations that they update quarterly:

    https://s22.q4cdn.com/396847794/files/doc_downloads/Return_of_Capital_and_Net_Cash_Position.pdf
    I use that too, as well has maintain my own spreadsheets which I update with various Apple information when it is released.

    That isn't available right away though, so I was looking at the 8-K which is what is first released. It turns out they report a somewhat different number for cash used to repurchase shares in the consolidated cash flows table than they do under the share repurchases Item.
    applejakes
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