Microsoft Plan Could Give Shareholders $75 Billion

By Peter Galli  |  Posted 2004-07-20

Microsoft Plan Could Give Shareholders $75 Billion

Microsoft Corp. on Tuesday announced a plan to give shareholders as much as $75 billion in value over the next four years.

The Redmond, Wash., software company announced a quarterly dividend of 8 cents per share, along with plans to buy back as much as $30 billion of the companys stock over the next four years, and a special one-time dividend of $3 per share.

Under the plan, which was approved Tuesday by the Microsoft board, the company will move from its current annual dividend of 16 cents per share to a quarterly dividend of 8 cents per share, which would essentially double the annual dividend to about $3.5 billion, if continued at that level.

The board also approved plans to buy back as much as $30 billion in Microsoft stock over the next four years. The company also will pay a one-time special dividend of $3 per share, or $32 billion, subject to shareholder approval of stock plan amendments that would allow certain adjustments to employee equity compensation awards to offset the impact of this large, one-time payout.

These steps would represent a combined total value to shareholders of as much as $75 billion over the next four years, if quarterly dividends continue at the new level.

"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 in a statement issued Tuesday afternoon. "We have been successful in addressing a significant portion of our ongoing legal exposure, and all seven of our businesses are growing."

Microsoft will continue to make major investments across all of its businesses and maintain its position as a "leading innovator" in the industry, but now also can "provide up to $75 billion in total value to shareholders over the next four years," Ballmer said.

"As we looked at our cash-management choices, our priorities were to increase our regular payments to shareholders, increase our stock-buyback efforts given our confidence in the companys growth prospects, and distribute additional resources in the form of a special, one-time dividend," he said.

Next Page: Gates says R&D wont suffer.


&D Wont Suffer"> But Bill Gates, Microsofts chairman and chief software architect, also stressed that the payout would not affect Microsofts commitment to research and development to fuel growth in the years ahead.

"We see incredible potential for our innovation to help businesses, individuals and governments around the world accomplish their goals, and we will continue to be one of the top innovators in our industry—as evidenced by the fact that we will file for more than 3,000 patents this fiscal year," Gates said.

Click here to read more about Microsofts push to build up a powerful patent portfolio.

Brad Smith, Microsofts general counsel, said the company has resolved the large majority of its legal issues, which Microsoft had said was a prerequisite to addressing its cash-management plans.

"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."

The U.S. Court of Appeals for the District of Columbia last month denied the Commonwealth of Massachusetts appeal for more stringent antitrust sanctions against Microsoft. The ruling brought to a close a longstanding case brought by the Department of Justice against the company.

That victory in its U.S. antitrust case gave the company more leeway in its financial plans. Smith said in a recent news conference that the decision would give the company more financial flexibility.

"We were very focused on waiting for this decision from the Court of Appeals, and todays decision does remove the last area of legal doubt that we were considering as a factor before we felt that we could move ahead with decision-making with respect to the companys financial reserves," Smith said.

Wall Street analysts have also called on Microsoft to use its substantial cash reserves to issue a dividend or to buy back stock, an issue the company was expected to address during its July analysts meeting.

The quarterly dividend announced Tuesday will be payable Sept. 14, and to shareholders of record on Aug. 25. The special dividend will be payable Dec. 2, and to shareholders of record on Nov. 17, conditioned upon shareholder approval of amendments to the employee stock plans at the annual shareholders meeting planned for Nov. 9.

According to the companys most recent quarterly report on Form 10-Q, Microsoft had $56 billion in cash and short-term investments as of March 31. The company generated $15.8 billion in cash flow from operations on revenues of $32.19 billion in fiscal year 2003, the most recent year for which financial results have been reported.

Microsoft also said at Tuesdays media conference that it would not be discussing its quarterly results for the fourth quarter of fiscal year 2004 or guidance for fiscal year 2005. The company will announce those quarterly earnings after the financial markets close Thursday. "All discussion of those topics will be deferred until that time," the company said.

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