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Microsoft Corp. executives on Tuesday lauded the announcement of a cash-management plan that could return almost $75 billion in capital to its shareholders over the next four years, saying the move would benefit all of its stockholders, employees and customers.
The Redmond, Wash., software company announced the plan Tuesday following its approval by the Microsoft board earlier in the day.
In a media teleconference Tuesday afternoon, Microsoft CEO Steve Ballmer said the company was delighted to have the opportunity to announce the plan to return capital to its shareholders.
“We are very happy to be able to return almost $75 billion in capital to our shareholders over the next four years. That comes after the last five-year period, in which we more than doubled our operating profit and returned over $30 billion to our shareholders through a combination of dividends and buybacks,” he said.
Microsoft executives also said they are confident that the company has put many of its legal issues behind it, affording it the opportunity to move forward with its cash-management plan.
But Ballmer also noted that Tuesdays action was the direct result of the innovation, hard work and passion of Microsofts employees. He said the company wants to ensure that their interests are also taken into account as part of the capital management plan.
“Our employee stock options did not envision a large, one-time special dividend, so we are proposing some adjustments to our stock plans to ensure that our employees will not be unfairly disadvantaged by the payments of the one-time special dividend,” he said.
Microsoft remains excited about the opportunity to continue to “make a difference through software,” Ballmer said. And while it remains realistic to the fact that there is great competition in the market, “We can grow and succeed as a company, and this plan for cash management is consistent with growing our business as we move forward.”
Addressing the same media conference, Brad Smith, Microsofts general counsel, said the past two years have been focused on solving legal issues, developing stronger relationships with the industry and focusing on the future.
“For example, we resolved the major antitrust case here in the U.S., and the recent Court of Appeals ruling sent a clear and emphatic message that our settlement is a fair and appropriate resolution of those issues.
“We have also resolved three quarters of the state class-action cases in the U.S., either through settlement or by winning in court, and have also resolved the largest private lawsuits pending against the company, such as AOL-Time Warner, Sun Microsystems Inc. and InterTrust Technologies Corp.,” he said.
But while Microsoft still faces several legal issues and takes those seriously, Ballmer said, the company has significantly reduced the legal risks facing it and now has a “much clearer understanding of the potential risks involved in the cases that remain. We have always said that reducing the legal and associated business risks was a prerequisite to addressing cash-management plans,” he said.
“With so many of our cases resolved and the legal uncertainties so much better defined and narrowed, we are now in a position where we can return significant resources to our shareholders,” Smith said.
Next Page: Microsofts CFO says “strategic investments and acquistions” are key.
Investments and Acquisitions
John Connors, Microsofts chief financial officer, addressed the philosophies and priorities that were the foundation for the latest actions. He said the company will continue to invest heavily—driving innovation, improving customer satisfaction and working to provide good returns to shareholders.
“We are going to continue to aggressively fund research and development and all the breakthroughs across all of our businesses. We will also look for strategic investments and acquisitions to complement our own innovation and to provide new growth opportunities,” he said.
As such, the first priority for its cash-management plan is to continue to grow its regular dividend. Microsoft, which just started its dividend program about 15 months ago, is now on course to be one of the largest dividend payers in any industry, amounting to about $3.5 billion a year at the new rate of a quarterly dividend of 8 cents per share.
Connors said Microsofts second priority is to repurchase its stock, with board-approved plans to repurchase as much as $30 billion of its stock over next four years. “We do believe we have great opportunities in front of us, and this buyback program affirms that belief. We believe it is a prudent level of buyback that will allow us to buy back a very significant amount over that four-year time span,” he said.
Wall Street analysts had called on Microsoft to use its substantial cash reserves to issue a dividend or to buy back stock.
Connors said Microsoft also believes that there is additional cash that can be returned to shareholders in the near term. As such, the company will offer a one-time, special dividend of $3 a share, subject to shareholder approval.
“These steps represent a combined total value to shareholders of up to $75 billion over the next four years if the regular, quarterly dividend remains at the current level,” Connors said.
Last up was Microsoft chairman and chief software architect Bill Gates, who said Microsoft has always been about long-term investment and having great people building great software products. As such, the cash-management plan is a “pretty exciting milestone” for the company, its staff, shareholders and customers, he said.
“You might ask whats next for us. The answer is record investment in innovation, and over the next year, Microsoft will file for more than 3,000 patents—up very dramatically—and make it one of the top companies in the world in terms of innovative activities,” Gates said.
The company will disclose more details on its product roadmap at its financial analyst get-together late next week, but in the near term is the release of Windows XP Service Pack 2 (SP2), the release next year of the new version of SQL Server, code-named Yukon, and the release of a new Visual Studio product, as well as the dramatic improvement of search properties, he said.
Looking further out, Gates said there will be breakthroughs in products such as Longhorn, the next version of Windows, and the storage paradigm it will deliver. He said such investments in software generate profits, and through a “high-volume, low-price model, have a broad and dramatic positive impact.”
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