Microsoft Announces Massive $75 Billion Shareholder Payout

On Tuesday, Microsoft finally answered the long-running questions about its $56 billion cash hoard, announcing a record-setting $75 billion, four-year plan to return money to its shareholders. The plan will see the software giant doubling its annual shareholder dividend, issuing a one-time $3 dividend to all shareholders, and buying back over $30 billion worth of stock. If approved by shareholders, Microsoft's plan will constitute  the largest return of capitol 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," said Microsoft CEO Steve Ballmer. "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 four years."

Microsoft general counsel Brad Smith noted that the company had made significant progress settling its many legal problems, freeing up 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," he said.

The plan, which is expected to rejuvenate the long dormant Microsoft stock, starts with a doubling of the company's annual dividend. Currently, Microsoft shareholders receive an annual dividend of $0.16 per share; that amount is changing to $0.08 paid quarterly, an amount worth about $3.5 billion. Next, the company plans to buy back over $30 billion of Microsoft stock over the next four years. Finally, Microsoft will pay shareholders a one-time special dividend of $3 per share, or $32 billion. These three steps combined total over $75 billion over four years, assuming Microsoft keeps up its quarterly dividends at the new level.

Investors interested in taking advantage of the new quarterly dividend have until August 25, 2004 to purchase Microsoft stock; the first dividend will be paid September 14, 2004. The special dividend payment will be made December 2, 2004 to all shareholders of record on November 17, 2004, the company says. The special dividend payment is contingent on shareholder approval, however. Microsoft is planning to present the proposal to shareholders on November 9, 2004 at its annual shareholders meeting.

Microsoft's financial resources are formidable. According to its most recent quarterly filing, in March 2004, the company had over $56 billion in cash and cash-like assets, and it generated $15.8 billion in cash flow from operations 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 total annual profits from the top 100 companies in Massachusetts. And Microsoft will still have over $20 billion in cash on hand by early 2005, if the entire plan is approved by stockholders. That amount will fluctuate over time, of course, but will provide the company with more than enough funds for research and development, corporate acquisitions, and its remaining legal bills.

In a conference call with analysts yesterday, Microsoft executives were quick to point out that the pay-out does not mean the company is entering a period of slower growth. Both Ballmer and chairman Bill Gates expressed their opinion that Microsoft's best years were ahead of it. "One way to look at that is, over the next year we'll file for over 3,000 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.

On Tuesday, Microsoft finally answered the long-running questions about its $56 billion cash hoard, announcing a record-setting $75 billion, four-year plan to return money to its shareholders. The plan will see the software giant doubling its annual shareholder dividend, issuing a one-time $3 dividend to all shareholders, and buying back over $30 billion worth of stock. If approved by shareholders, Microsoft's plan will constitute  the largest return of capitol 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," said Microsoft CEO Steve Ballmer. "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 four years."

Microsoft general counsel Brad Smith noted that the company had made significant progress settling its many legal problems, freeing up 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," he said.

The plan, which is expected to rejuvenate the long dormant Microsoft stock, starts with a doubling of the company's annual dividend. Currently, Microsoft shareholders receive an annual dividend of $0.16 per share; that amount is changing to $0.08 paid quarterly, an amount worth about $3.5 billion. Next, the company plans to buy back over $30 billion of Microsoft stock over the next four years. Finally, Microsoft will pay shareholders a one-time special dividend of $3 per share, or $32 billion. These three steps combined total over $75 billion over four years, assuming Microsoft keeps up its quarterly dividends at the new level.

Investors interested in taking advantage of the new quarterly dividend have until August 25, 2004 to purchase Microsoft stock; the first dividend will be paid September 14, 2004. The special dividend payment will be made December 2, 2004 to all shareholders of record on November 17, 2004, the company says. The special dividend payment is contingent on shareholder approval, however. Microsoft is planning to present the proposal to shareholders on November 9, 2004 at its annual shareholders meeting.

Microsoft's financial resources are formidable. According to its most recent quarterly filing, in March 2004, the company had over $56 billion in cash and cash-like assets, and it generated $15.8 billion in cash flow from operations 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 total annual profits from the top 100 companies in Massachusetts. And Microsoft will still have over $20 billion in cash on hand by early 2005, if the entire plan is approved by stockholders. That amount will fluctuate over time, of course, but will provide the company with more than enough funds for research and development, corporate acquisitions, and its remaining legal bills.

In a conference call with analysts yesterday, Microsoft executives were quick to point out that the pay-out does not mean the company is entering a period of slower growth. Both Ballmer and chairman Bill Gates expressed their opinion that Microsoft's best years were ahead of it. "One way to look at that is, over the next year we'll file for over 3,000 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.