Friday, January 17, 2003
Microsoft surprises, will issue first-ever dividend
Investors to get 8 cents per share; stock split also
announced
Microsoft Corp. yesterday acted to quiet shareholders clamoring for some of the company's $43.4 billion cash surplus, promising to issue its first-ever dividend this year.
The world's largest software maker also announced a 2-for-1 stock split and said its second fiscal quarter yielded record revenue and profits just shy of expectations. Still, shares declined in after-hours trading on the company's lowered sales forecast for the remainder of the year.
The stock had already closed at $55.35, down 92 cents for the day. After the announcement, it fell $1.71 more, or 3 percent, in after-hours sessions.
The dividend declaration comes on the heels of President Bush's Jan. 7 tax-reform plan, which would exempt shareholders from income tax on dividends from tax-paying corporations. But Microsoft said the two developments aren't connected. Indeed, Microsoft shareholders have been agitating for a dividend for months, long before Bush's proposal surfaced.
Microsoft's declaring a dividend "makes enough sense," said Michael Holland, manager of the Holland Balanced Fund, which invests $52 million and has Microsoft as its biggest holding.
Now Microsoft's cash "can be delivered to shareholders, including (Microsoft Chairman) Bill Gates," he said.
Shareholders will receive a dividend of 8 cents per share after the stock split, which takes effect Jan. 27. The dividend will be payable March 7 to shareholders of record Feb. 21. Gates, as the largest stockholder, will receive a dividend of $99.5 million.
Chief Executive Officer Steve Ballmer, the second-largest shareholder, will receive $37.7 million.
Microsoft is among the most heavily owned stocks in Washington state, principally because so many Microsoft workers live here and receive options as bonuses and incentives.
Chief Financial Officer John Connors said Microsoft was the only Dow 30 company that has not declared and paid a dividend.
Though the dividend means a total annual outlay of more than $850 million paid to the company's roughly 4.2 billion shareholders who own about 5.4 billion shares of stock, it's just over a quarter of 1 percent of the share price -- among the smallest dividends paid by tech companies.
Others, such as Intel Corp., IBM Corp. and Hewlett-Packard Corp., issue dividends that range from one-half of 1 percent to 1.5 percent of the share price.
McAdams Wright Ragen's chief analyst, Scott McAdams, called the payout "trivial."
But Microsoft Director of Investment Relations Curt Anderson responded, "It could change depending on changes in business conditions. This is our first dividend, and it's a start."
Connors said the company can part with the money now that its cost of settling the numerous lawsuits against it can be better assessed. It took a $210 million charge in the most recent quarter, adding that to the $660 million it set aside a year ago as a settlement fund.
Microsoft hopes to make the dividend every year, Connors said, but withholdings "might have to be increased as we get further guidance on other states'" resolutions of the lawsuits, he warned.
Settling all 27 of the private antitrust class actions brought in California could cost the company up to $1.1 billion, and similar actions are pending in 16 other states plus the District of Columbia.
The company may also have to pay judgments or settlements to three competitors that have sued on antitrust grounds and to the European Union, which is pursuing its own antitrust investigation.
Connors pledged that the company's buy-back program, which purchases large chunks of its shares to maintain the price, will continue.
He also said the Bush administration's proposal to repeal the federal dividend tax was "just coincidental in timing." The proposal, part of a $670 billion economic stimulus package unveiled Jan. 7 by President Bush, would make dividends tax-free to shareholders of corporations that pay income tax.
The stock split will be the ninth split of Microsoft's common shares since they were first sold to the public in 1986. Stock splits are intended to make shares more attractive to a broader range of investors by bringing them more in line with those of other companies in the Standard & Poor's 500, Anderson said.
The company reported record revenue of $8.54 billion for its second fiscal quarter ended Dec. 31, a 10 percent increase over $7.74 billion in the same quarter last year. Net income totaled $2.55 billion, or 47 cents per share. Analysts surveyed by Thomson First Call had a consensus estimate of 46 cents a share on revenue of $8.6 billion.
The quarter's net income was up from $2.28 billion, or 41 cents a share, in the year-ago period.
The company also predicted lower revenues and earnings than in previous forecasts. It had predicted annual revenue of between $32.2 billion and $32.6 billion but said it is now expecting $31.9 billion to $32.1 billion. It was expecting annual earnings per share of between $1.89 and $1.95 but now expects between $1.90 and $1.93.
"The guidance was somewhat downbeat," said Ned Riley, chief investment strategist at State Street Global Advisors, which manages $707 billion and is among Microsoft's top shareholders. "The guidance has put a damper on people's enthusiasm."
This report includes information from The Associated Press and Bloomberg News. P-I reporter Dan Richman can be reached at 206-448-8032 or danrichman@seattlepi.com