WinInfo Daily UPDATE, July 21, 2004

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In the News

- Microsoft Announces Massive $75 Billion Shareholder Payout

==== In the News ====

by Paul Thurrott, [email protected]

Microsoft Announces Massive $75 Billion Shareholder Payout

Microsoft finally answered the long-asked questions about its $56 billion cash hoard yesterday when the company announced a record-setting 4-year plan to return $75 billion to its shareholders. Microsoft will double its annual shareholder dividend, issue a one-time dividend to all shareholders, and buy back more than $30 billion worth of stock. If approved by shareholders, the company's plan will constitute the largest return of capital to shareholders in US history.
"We are confident in our long-term ability to grow revenue, profits, and shareholder value through our innovation and execution," Microsoft CEO Steve Ballmer said. "We have been successful in addressing a significant portion of our ongoing legal exposure, and all seven of our businesses are growing. We will continue to make major investments across all our businesses and maintain our position as a leading innovator in the industry, but we can now also provide up to $75 billion in total value to shareholders over the next 4 years."
Microsoft Senior Vice President, General Counsel, and Corporate Secretary Brad Smith noted that the company has made significant progress settling its many legal problems, which has freed the company to distribute its cash assets. "While we still have a number of legal issues and we take them seriously, we have reduced the legal uncertainties facing the company, and we have a much clearer understanding of the potential risks involved in the cases that remain, such as the ongoing European Commission case," Smith said. The plan, which is expected to rejuvenate the long-dormant Microsoft stock, will begin with a doubled annual dividend. Microsoft shareholders currently receive an annual dividend of $0.16 per share, which will become a quarterly dividend of $0.08 per share--a total of about $3.5 billion. Next, the company will buy back more than $30 billion of Microsoft stock over the next 4 years. Finally, Microsoft will pay shareholders a one-time dividend of $3 per share--a total of $32 billion. These three steps combined equal more than $75 billion over 4 years, assuming Microsoft continues its quarterly dividends at the new level.
Investors who are interested in taking advantage of the new quarterly dividend have until August 25 to purchase Microsoft stock; the first dividend will be paid September 14. Microsoft said it will make the special dividend payment on December 2 to anyone who is a shareholder of record by November 17. The special dividend payment is contingent on shareholder approval, however. Microsoft plans to present the proposal on November 9 at the company's annual shareholders meeting.
Microsoft's financial resources are formidable. According to its most recent quarterly filing in March 2004, the company has more than $56 billion in cash and cash-like assets and generated $15.8 billion in cash flow in fiscal 2003. To put these figures in perspective, "The Boston Globe" today reported an interesting related statistic. Microsoft's cash assets are five times higher than the top 100 Massachusetts companies' total annual profits combined. And, if stockholders approve the entire plan, Microsoft will still have more than $20 billion in cash on hand by early 2005. That amount will fluctuate over time, of course, but will give the company more than enough money to pay for R&D, corporate acquisitions, and remaining legal bills.
In a conference call with analysts yesterday, Microsoft executives were quick to point out that the payout doesn't mean that the company is entering a period of slower growth. Both Ballmer and Chairman and Chief Software Architect Bill Gates expressed the opinion that Microsoft's best years are ahead. "One way to look at that is that over the next year we'll file for over 3000 patents, and that's up very dramatically and would put us certainly in one of the top companies in the world in terms of innovative activities," Gates said.

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