Apple on Monday morning answered the question on many analysts' and investors' minds—namely, what the company planned to do with its almost $100 billion in cash. Later this year, Apple will begin paying out a dividend and will start buying back shares.
The dividend program, which will begin in the fourth quarter of its 2012 fiscal year, will see payments of $2.65 per share to shareholders—pending official declaration by the company’s board of directors.
In addition, the company will begin repurchasing shares ultimately worth $10 billion, beginning in its 2013 fiscal year, which starts September 30. Apple expects the process to take around three years, and says that the intention behind the program is “neutralizing the impact of dilution from future employee equity grants and employee stock purchase programs.”
According to Apple CEO Tim Cook, the buyback and dividend programs won’t harm the company’s bottom line. “Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business,” he said in a statement published on Apple’s website. “We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You’ll see more of all of these in the future.”
In the same statement, Apple CFO Peter Oppenheimer said that “Combining dividends, share repurchases, and cash used to net-share-settle vesting RSUs, we anticipate utilizing approximately $45 billion of domestic cash in the first three years of our programs.”
Later on Monday morning, Apple CEO Tim Cook and CFO Peter Oppenheimer held a conference call to discuss Apple’s initiatives and field questions from financial analysts.
Cook opened by saying that Apple remained exceptionally confident about its future, reiterating the opportunities for growth that the company has in the smartphone, tablet, and PC markets. As in some of his prior appearances, Cook pointed out that while Apple sells many iPhones and Macs, the company’s share of the worldwide markets for handsets and PCs remains in the single digits.
In addition to investing in its products, which Cook stressed several times will always remain Apple’s priority, the company has also spent a lot of money in distribution. Apple continues to invest in new retail stores, including 40 that it will open in this fiscal year, as well as making deals with more carrier partners, third-party resellers, and direct-to-enterprise sales.
“Simply stated,” said Cook, “we don’t see a ceiling for opportunity.”
In the decision to enact the dividend and share repurchase plans, Apple considered the amount of cash spent on investing in products, R&D, strategic pre-payments for the supply chain, infrastructure, and maintaining a war chest “for strategic opportunities,” and ultimately concluded that there was still money left over.
CFO Peter Oppenheimer said that the company has been “very disciplined” with its stewardship of the cash. As of the most recent figures, the company holds about $98 billion, which Oppenheimer described as “plenty of cash to run the business.”
As such, Oppenheimer laid out four priorities for the company’s cash holdings. First, to maintain flexibility to take advantage of investment opportunities that present themselves; second, to provide income for current shareholders; third, to increase Apple’s attractiveness to new investors; and fourth, to limit dilutions for future employee grants and employee stock purchases.
In terms of the dividend program, the company will announce during its quarterly results in July how the payouts will proceed. Oppenheimer said that the board had already amended agreements for restricted stock units (RSUs), the kind often granted to employees, so that unvested RSUs can still participate in the program—dividend equivalents on those units will be deferred until the stock vests. Oppenheimer said that there were about 17.7 million RSUs outstanding that had not vested. In an interesting note, Cook’s own RSUs will not participate in the program, at his own request.
“We remain very confident in the future of our business,” said Oppenheimer, “and are extremely enthusiastic about the opportunities that lie ahead.”
The company will periodically review its dividend payments, Cook and Oppenheimer said, though the current $2.65-per-share payout will make Apple one of the largest dividend payers in the U.S, and will total about $10 billion in annual payouts over the first year. In addition, the funds for the dividend and stock repurchase programs will come out of the company’s domestic cash holdings, rather than the $64 billion held overseas, since repatriating that cash would incur extensive tax penalties.
“We think the the current cash laws provide an economic disincentive,” said Oppenheimer, adding that they had voiced that opinion to Congress and the Obama administration. “That’s our view and we expressed it.”
Cook quashed any idea of a stock split any time soon, saying “The current information that we have would suggest there’s very little support that it helps the stock.” But, he added, the company will continue to look at the option and would do whatever best served Apple and its shareholders.
[Updated at 6:44 a.m. PT with details from Apple's conference call.]