
Apple Announces 7 For 1 Stock Split - Kopion
http://techcrunch.com/2014/04/23/apple-announces-7-for-1-stock-split-boosts-its-dividend-8-adds-30b-to-its-buyback-program/
======
ghshephard
I've read this entire thread once, then scanned it a second time for the word,
"splits" \- as of 124 comments, nobody has suggested a rational reason as to
why Apple would split their stock. There were two implications of splitting
the stock, one was that options plays (which normally trade in groups of 100,
though some more expensive "minis" are also available) become more
inexpensive, and some hand waving about "more people can afford the stock,
therefore more demand, therefore greater impact on the price" \- which I've
heard for 20 years, and I believe has been fully debunked (the counter
argument is that if the underlying stock has an actual value, and greater
availability pushes stock above that value, then rational people can profit by
shorting the stock/selling it until it reflects the actual value)

I'm always confused when an otherwise sane company starts playing with this
type of financial engineering, the only people who really seem to profit will
be the team who manages the split - and I often wonder whether a split is just
some way of rewarding them with business, in return for some type of off books
advantage.

Is there any other _rational_ reason why a company might want to split? Does
it give them some way of controlling their shares more effectively by
splitting them -I.E. When the stock splits, do they get an enumeration of
their shareholders that they might not otherwise have?

Anybody been involved in a stock split that can explain what the behind the
scenes reasons totally not related to the "stock is cheaper so more people can
buy it" excuse is?"

~~~
simpleton22
I can't speak for Mr. Cook, but I wished to myself "please split AAPL" just
the other day.

I hold AAPL and I would like to let my dividends roll over via a DRIP managed
by my broker. But at current prices, yield, and dividend frequency ($525,
2.3%, quarterly) I would need to hold $90k of AAPL for a dividend payment to
buy a single share -- a bit rich for me. But after the split, that number goes
down to $13k.

~~~
PhantomGremlin
Hopefully your AAPL is in a non-taxable account. Otherwise you are setting
yourself up for this [1]:

    
    
       If all this seems complicated -- it is. A lifetime
       of DRIP investing may create a morass of tax
       obligations when the time comes to sell the DRIP
       shares, with at least four new cost bases of DRIP
       shares established each year (when dividends are
       reinvested) as well as when any OCPs are made. 
    

The first time I saw my accountant he literally shook my hand when I told him
I didn't do DRIP.

[1]
[http://finance.yahoo.com/education/drip/dspp_plans/article/1...](http://finance.yahoo.com/education/drip/dspp_plans/article/101139/Tax_Considerations_of_DRIP_Investing)

------
jrochkind1
> _Apple will hit up the debt markets for more dollars, it being cheaper to
> use other’s domestic cash than its foreign reserves_

Can anyone explain why this is so? Because they are somehow getting a higher
interest rate return on their reserves then they'd have to pay to borrow?
(That would seem pretty impossible). Because they'd have to pay taxes if they
use the foreign reserves? Something else?

~~~
mikeyouse
> Because they'd have to pay taxes if they use the foreign reserves?

Yep.

Apple can borrow at somewhere near 2.3%[1] on the public debt markets. They
have billions overseas, but if they bring it back to the US, they'd have to
pay corporate income tax on it (35%).

They're just biding their time until the Chamber of Commerce lobbyists gain
enough influence to get congress to pass an overseas tax holiday to repatriate
the money at 15% or 20%. To this end, expect a huge PR onslaught near election
time about how much economic stimulus would be provided if we changed the
rules about taxes _just this once_ (note: happens every ~10 years).

[1] -
[http://quicktake.morningstar.com/StockNet/Bondsquote.aspx?ci...](http://quicktake.morningstar.com/StockNet/Bondsquote.aspx?cid=0C00000ADA&bid=d85cbb7dc2dfa4f872c5cfea9d1ba185&bname=Apple+2.4%25+%7c+Maturity%3a2023&ticker=AAPL&country=USA&clientid=dotcom)

~~~
OnyeaboAduba
The arguement for the holiday the last time was "job creation" which didnt
really bear fruit. Dont think it will happen again unless it is part of a
larger tax reform bill.

~~~
adventured
The best argument for the holiday, is the fact that we're one of the only
major nations doing something so foolish as double taxing foreign profits.

The idea of eg paying China's corporate income tax, and then paying America's
on the way home, is absurd to say the least. A lot of companies will be stuck
with 45% to 60% income tax bills on foreign profit. I can think of few things
to make America less competitive overseas.

~~~
sbov
My spider sense is tingling - from an ignorant observer on the subject of
corporate taxes, this seems wrong.

As someone who isn't 100% ignorant about taxes in general, I've noticed that
there's a shitload of completely wrong information about taxes out there. It's
amazing how many smart people are incredibly ignorant, and then spread that
ignorance, about how taxes actually work. So I have to ask:

Is this how it really works? At least for personal investments, IIRC you get
some sort of foreign tax credit. From my initial searching, it seems like
there's something similar for corporations.

~~~
mikeyouse
The whole idea of 'double-taxation' is a canard. That's another topic though.

> Is this how it really works? At least for personal investments, IIRC you get
> some sort of foreign tax credit.

Any money Apple pays to foreign governments as income tax on profits is
included in the calculation of their domestic tax liability. So if Apple had
$1B in overseas profits, paid 5% in Ireland as income tax, then wanted to
repatriate the remainder to the US, the government would seek $300M in tax --
not the $350M that would be indicated by our 35% corporate income tax rate.

People trotting out the 'double-taxation' nonsense are promoting the idea that
Apple should be able to venue-shop for an ultra-low-tax locale to claim their
profits, then be free-and-clear of their US obligations.

Two more things worth mentioning:

1\. The 'overseas' money typically isn't physically overseas. The money is in
US banks, circulating as loans in the US economy, but is only overseas on an
accounting ledger for tax purposes. This greatly blunts the potential impact
of tax holidays.

2\. If Apple takes out debt to fund operations purely to avoid repatriating
money, the US taxpayer would then be subsidizing Apple even further. Interest
on debt is a deductible expense, so that 2.5% per year Apple is paying, would
be deducted from their income in the next tax year.

~~~
AnthonyMouse
> So if Apple had $1B in overseas profits, paid 5% in Ireland as income tax,
> then wanted to repatriate the remainder to the US, the government would seek
> $30B in tax -- not the $35B that would be indicated by our 35% corporate
> income tax rate.

That's not what double taxation is. Double taxation is that both corporate
income and corporate dividends are taxed. Suppose a corporation makes
$10/share in profit and wants to issue it as a dividend. First they would pay
corporate 35% income tax on the profit and be left with $6.50/share, then if
they issued a $6.50/share dividend, the shareholders would have to pay income
tax on it _again_ and be left with only $4.225 of the original $10.

If a foreign government also extracted a cut then the money would be taxed
thrice.

~~~
mikeyouse
This is an even sillier definition of double taxation than I was giving you
credit for.

Dollars don't pay taxes, taxable entities do.

A corporation is a separate legal entity that serves as the tax base. If it
makes an income, it will pay a tax on that income.

An individual is also a separate legal entity that serves as a tax base. If a
corporation pays an individual dividends, then the individual will pay tax on
the capital gains from their investment.

How is this any different than when a company pays you an income. First, the
Federal government taxes you, then the State government does, then come
Payroll taxes, then any local taxes, then you have to pay property tax, then
you have to pay sales tax. Each dollar is quintuple-taxed! Or more!

 _edit: GWU PhD Law Professor spells it out better than I
could:[http://writ.lp.findlaw.com/buchanan/20030220.html](http://writ.lp.findlaw.com/buchanan/20030220.html)
_

~~~
AnthonyMouse
> edit: GWU PhD Law Professor spells it out better than I could:
> [http://writ.lp.findlaw.com/buchanan/20030220.html](http://writ.lp.findlaw.com/buchanan/20030220.html)

The crux of his argument is this:

> "Would you rather pay 10% income tax twice a year, or 50% income tax once a
> year?"

But that obviously misses the point. The problem with double taxation is that
it makes the rate misleading. If you've lost 35% to corporate income tax and
then 15% to qualified dividends or capital gains tax, you're paying ~45% in
total, but people point to the 15% rate and trot out the "pays lower tax rate
than secretary" trope.

> How is this any different than when a company pays you an income. First, the
> Federal government taxes you, then the State government does, then come
> Payroll taxes, then any local taxes, then you have to pay property tax, then
> you have to pay sales tax. Each dollar is quintuple-taxed! Or more!

Those are all different taxes. Income tax is the same tax paid on the same
money, twice. It's recursive. Compare how corporate income tax works to how
sales tax works. If you're a business you don't pay sales tax on your raw
materials, you only collect it once on the finished product. The total amount
of sales tax paid on a car doesn't increase just because you increase the
number of intermediary entities between the iron mine and the car dealership.
With corporate income tax, it does.

~~~
mikeyouse
> The crux of his argument is this:

That's not the crux of his argument whatsoever, it's just a random statement
being held up as a straw man.

> Income tax is the same tax paid on the same money, twice.

Except it's capital gains, intentionally taxed at a lower rate than income.
The first tax is levied on corporate income, the second tax is capital gains
which is taxed on the individual level. Different tax bases necessitate
different tax treatment.

> Compare how corporate income tax works to how sales tax works. If you're a
> business you don't pay sales tax on your raw materials, you only collect it
> once on the finished product.

That's only true in the US. The majority of G20 countries that don't have
capital gains + corporate income tax use a VAT to achieve the same ends.

Look at effective tax rates for individuals and corporations based in the US.
We're one if the lowest taxed countries in the 1st world.

~~~
AnthonyMouse
> That's not the crux of his argument whatsoever, it's just a random statement
> being held up as a straw man.

Let me rephrase: The quoted statement is the closest thing he comes to as an
argument on point. The rest of it is falsities and random talking points with
no relation to the question.

> Except it's capital gains, intentionally taxed at a lower rate than income.

It's taxed at a lower rate _because_ it's double taxation. It's the political
middle ground between not having double taxation and having it at the full
ordinary income rate.

> The first tax is levied on corporate income, the second tax is capital gains
> which is taxed on the individual level.

They're the same tax. It's all income tax.

Consider what happens when both entities are corporations. When Ford makes
income, they pay income tax on it. If the income was from selling cars they
would have paid the ordinary income rate. If it was because Ford owns shares
of Exxon and Exxon issued a dividend, it would be the dividend rate. In either
case, when Ford issues what's left over after paying its income taxes as a
dividend, its shareholders have to pay income taxes on it _again_. And it's
the same tax (again) whether the shares in Ford are owned by Henry Ford or
Apple, Inc.

> That's only true in the US. The majority of G20 countries that don't have
> capital gains + corporate income tax use a VAT to achieve the same ends.

VAT and sales tax are economically equivalent, VAT is just collected at
different points in the supply chain (which makes tax evasion more difficult).
VAT is only collected on the increase in value over the cost of the raw
materials (the "value added"), i.e. the portion of the sale price that _hasn
't_ already been taxed.

> Look at effective tax rates for individuals and corporations based in the
> US. We're one if the lowest taxed countries in the 1st world.

What does that have anything to do with double taxation?

Note also that the reason effective tax rates in the US are so low is the
massive amount of tax avoidance that occurs. The nominal rates that US
corporations would pay if they didn't all hold their profits in foreign
subsidiaries are some of the highest in the world -- which is highly
discriminatory against smaller non-international US corporations that can't
play the same tricks.

------
dpcheng2003
I wonder if there's a lagging indicator of tech bellwether decline in
innovation/disruption when they introduce a dividend.

For example, Apple had a dividend in 1995. Then in 1996, Jobs came back and
nixed it. Microsoft issued its first dividend in 2003. Cisco in 2011. Oracle
in 2009.

As a former ibanker, I should be all for financial engineering. But when
companies can do "actual" engineering, I'd prefer to spend money on growth if
possible. If not... then, I guess the dividend makes sense, hence my earlier
assumption.

~~~
dangoor
When Jobs came back to Apple, Apple was not in solid financial health. That's
not a good time to have a dividend.

If they needed to deploy all of their cash for growth, I'm sure they would.
The trouble is that they have so much cash that it's likely not clear how to
deploy it in a way that is true to Apple (ie they could buy some big companies
or add 100 products to their portfolio, but that's not the way they roll)

------
Osmium
I'm curious, but how would a company arrive at the number '7'? Is it somewhat
arbitrary? Any reason you'd want it to be e.g. prime?

~~~
ninkendo
I'm sure they had a target price in mind (something that would be low enough
to attract investment but high enough to not seem cheap) and just split the
appropriate amount to get that number.

~~~
MichaelGG
That's just so... wrong. I know some investors are going off things like that
but doesn't it bother anyone that such an important part of finance depends on
people looking at numbers in a totally irrational way? Like, simply not even
doing the math. Even on investment sites, I've seen people say "it's crazy
that foo is at $20 but bar is at $50". It's as dumb as someone saying they
prefer Zimbabwe Dollars cause it's easier to become a trillionaire.

------
grecy
Can someone please explain this like I'm 5.

If I currently have 10 Apple shares, what will happen after the split?

Is the value of each share expected to go up or down as a result of this?

Would now be a good time to buy? ( or, at least, better than last week before
this was announced?)

~~~
calcsam
You now have 70 shares.

Price is expected to decrease to 1/7 of previous level.

~~~
grecy
Will the dividend paid per share also decrease by 1/7?

~~~
mikeyouse
Yep.

For the sake of the math, I'll use a 5:1 split.

Day 0: Company trading for $1/share with 100 outstanding shares -- Market cap
= $100. They are offering $0.05/share dividends -- Total dividend = $5

Day 1: Stock split at 5:1

Day 2: Company trading for $0.20/share with 500 outstanding shares -- Market
cap = $100. They are offering $0.01/share dividends -- Total dividend = $5

------
fuzzythinker
The only reason I can think of is to be listed in the Dow. Being too expensive
is the reason it isn't in it yet. $75 is slightly below the current average
Dow stock prices of $77, but should it double in price in the future, it still
won't be too expensive for the Dow.

~~~
philmcc
As stated elsewhere, it allows small investors to buy in -- and the stock
advance of their AppleTV release it could mean that they are expecting a ton
of attention from the lay investor.

The dates are significant: The split happens the evening of WWDC launch.

------
philmcc
Question:

The split for existing shareholders is June 2nd. The stock starts trading with
split values June 9th.

What happens to trading from June 2nd-June 9th, during WWDC+ and after they
announce their TV?

------
gnicholas
Without weighing in on why AAPL decided to split or whether it was a good
idea, I'll say that I'm happy they did it. I make charitable gifts by donating
appreciated stock (more tax-efficient than cash), and this split will allow me
to make more granular donations than before. I don't always want to make
donations in increments of $500.

------
camillomiller
What do you think: one should buy now or after the split?

~~~
kens
Buying after will make your taxes/accounting easier since you won't need to
remember what to divide by 7.

Source: SUNW + stock purchase plan + multiple splits = headache at tax time

~~~
cynwoody
What's really fun is, you bought a stock a long time ago, it spun off some
other companies which got acquired by yet other companies, such that you now
own several stocks, all attributable to the purchase of that one stock a long
time ago. Now you sell some of the resulting stocks, and you need to compute
your basis in order to figure the taxable capital gain or loss. This entails
looking up the ratios from the various spin-off / acquisition events to
determine how much of the original cost to allocate to the sold shares.

------
melling
Rather than pay a dividend, wouldn't it be better to take less margin on a
low-end iPhone, iPad, or Mac to increase market share? The iPhone, for
example, will always have a small global market share because they only sell
high-end phones.

A phone that's $50 cheaper would translate in tens of millions of phones sold.

~~~
camillomiller
iPhone 5s actually proved the exact contrary seems to be true...

~~~
melling
Do you mean the 5c?

I'm pretty sure that the margins are high on that phone. It's still expensive
for what you get.

~~~
camillomiller
No, I mean that Apple sold shiploads of iPhone 5s without lowering the price
at all. It was even more expensive than the iPhone 5 in many countries

------
sscalia
This is the last chance to get in before they release two more disruptive
products.

Wearable + Television product.

Get in now. It's quite literally the surest bet in the market.

~~~
pitnips
All that has been priced in for some time.

~~~
encoderer
As the stock has languished at $540? Hardly.

~~~
sscalia
Gotta love the fucking down vote brigade on anything remotely pro-Apple.

~~~
pitnips
I think it's more lack of understanding of the stock market than it is "pro-
Apple."

------
dudus
Do they save money on dividends if they have more shares because of rounding?

eg: let's say they have 100M shares and will pay US$ 2.15 per share. That's
US$ 215M dollars paid.

Now they do a split and those 100M shares become 700M, dividend prices also
are divided by 7 and become US$ 0.3071428571 per share, then they decide to
round down to 30 cents per share.

It means they paid the same dividend as before but the total spent was US$
210M

In other words they paid the same amount as before but rounding it down they
saved 5M dollars or 2.3% of the money they could have spent otherwise.

If so this could also explain why 7. Since it's a prime number there are more
chances that the division won't be round.

~~~
cecilpl
No.

------
Oculus
Isn't the goal of Apple's huge piles of cash to finance & consolidate their
manufacturing as well as distribution? Could we interpret this as a signal
that there aren't any new products coming down the line that would require
such expenditures?

By new products I mean the release of a totally new line (e.g. iPhone 1)
rather then an iteration upon a current line (e.g. iPad mini).

~~~
IBM
You can interpret this as a signal that Apple has a lot of cash, and they make
a lot of cash. CapEx and R&D have been steadily rising these past few years
and Tim Cook has explicitly said new products would be released in 2014.

~~~
Oculus
You're absolutely right, with the margins Apple enjoys, they could just have
more money then they know what to do with.

------
cmpqu
The stock is up 36 points or 7% in after-hours. I would be short. These moves
from management reek of desperation and don't give me much confidence. They
missed big on ipad sales

~~~
pitnips
Some companies certainly split their stocks to encourage demand, but I don't
think any do it for "desperation." As for Apple, they've proven time after
time they don't really care about short-term expectations.

------
pbreit
I'm close to piling on the anti-Tim Cook bandwagon. Everything he does seems
to have no relation to product (buybacks, splits, dividends, environment,
supply chain cleansing, repatriation taxes, etc.).

~~~
IBM
Apple isn't working on your schedule.

~~~
seizethecheese
What about you, IBM?

