Apple’s Share Repurchase Program - August 2015

At the end of the recent June quarter, Apple’s management announced roughly $90 billion of the current $140 billion share repurchase program had been completed. The $90 billion includes a $6 billion May 2015 ASR (Accelerated Share Repurchase program) to be completed in November 2015.

Apple’s fully diluted share count from the company’s Condensed Consolidated Statement Of Operations as June 27, 2015 reflected 5.733 billion shares in the fully diluted share count. This is a 1.06% decline in the fully diluted share count from the March quarter and a year-over-year decline in the count of 4.06%.

Since the share count high in FQ4 2012, the fully diluted share count has been reduced as of the end of the recent June quarter by 13.02%. In FY2014 Apple deployed $24 billion for share repurchases at an average share cost of about $84. In the first nine months of the current fiscal year Apple deployed $16 billion for repurchases at an average price of $120 per share.

The graph below illustrates the dramatic reduction in the fully diluted share count since the September quarter of 2012 (FQ4 2012). 

Apple used a combination of cash-on-hand and debt to complete the $90 billion in repurchases to-date. The June quarter Form 10-Q (FQ3 2015) indicates $50 billion in debt had been acquired for the repurchase of shares as of the end of the period on June 27, 2015. As of the same date Apple had cash and marketable securities on the balance sheet totaling about $203 billion. Of the roughly $203 billion in cash and marketable securities, $181 billion was held by foreign subsidiaries outside the United States. Apple’s decision to acquire debt for the repurchase of shares forestalls the need to repatriate foreign-sourced funds and remit declared but yet unpaid US taxes on those dollars. 

As of the end of the June quarter, the fully diluted share count is now below FY2005 split-adjusted levels. In other words, the company has already eliminated 10 years of “share creep” or increases in the fully diluted share count from a variety of sources including stock-based compensation and any shares used to facilitate the company’s many acquisitions. 

With $50 billion remaining in the current repurchase program extending through the March quarter of FY2017, Apple will continue to materially reduce the fully diluted share count over the next seven fiscal quarters. 

Apple's R&D Expenses

In the recent June quarter, Apple’s R&D expenses surpassed $2 billion in a quarterly period for the first time. R&D expenses rose nearly 27% year-over-year in the June quarter and were 72% higher than in the corresponding quarter two years ago. 

In the first nine months of the current fiscal year, Apple has spent $5.847 billion on research and development, nearly reaching the $6.041 billion spent in all of FY2014. The company is on track to spend in the range of $8 billion on R&D expenses in FY2015, exceeding the prior year’s investment by 30% or more. R&D expenses reached over 4% of reported revenue in the second half of FY2014 and may again reach that level of revenue consumption in the second half of FY2015. Over the first nine months of the current fiscal year, revenue has risen by 30% while R&D expenses have risen by 34% during the period.

Rising R&D expenses suggest increasing investment by management in the development of new products and services as well as ongoing development of the company’s existing product and service lines.