Skip to comments.Microsoft sorts out its cash plans
Posted on 07/20/2004 4:29:41 PM PDT by mikegi
LOS ANGELES (CBS.MW) -- Microsoft on Tuesday revealed what it will do with its massive stockpile of cash, outlining plans to issue a special dividend worth $32 billion and a stock buyback of up to $30 billion over the next four years.
In an announcement that many on Wall Street awaited for several months, Microsoft (MSFT: news, chart, profile) said it would pay the one-time dividend of $3 per share and move to a quarterly dividend of 8 cents per share. In annual terms, the new policy essentially doubles the company's current shareholder payout of 16 cents a share to around $3.5 billion in total.
(Excerpt) Read more at cbs.marketwatch.com ...
The company will take a trip to Europe and buy that Harley it's always wanted.
What? Not going to DisneyWorld?
I don't like the sound of this . I would much prefer that they invest the cash the next time something big opens up in the tech sector . I think i might sell.
Why would you be excited about the special dividend? They pay it out, the stock price goes down at the same time. May mean you have to pay tax before you anticipated. At any rate, it is a clear admission that MSFT is a mature company and can't find productive uses for the cash in R&D. This is the end of the growth curve for Microsoft (actually ended some time ago).
There is an Accumulated Earnings Tax of almost 37% that the IRS can impose on a corporation which accumulates earnings "in excess of the reasonable needs of the business." Who decides? The IRS does. Then they go to court. If the IRS wins, they give the corporation a 37% haircut.
It may be that Microsoft's tax accountants are warning them that they are getting into the territory where the IRS might win one of these judgements. The way to avoid it is to pay some of the cash out as dividends, which exposes it to taxation, which is what the IRS is after.
There is a double tax-whammy here from the IRS. IIRC, a "special dividend" gets subtracted from your basis in the stock when calculating a capital gain or loss. This might be a nit to the average investor, but to the IRS is looks like billions more.
Thats just incredible. So we actually have laws that PENALIZE savings ? Man and I thought consumer credit debt was a big problem.
Guess you missed the part about higher quarterly dividend and $30B stock buyback. I expect that to more than offset the $3/share special payout.
It's amazing how the Msft bashers are so blinded by their hatred that they lose common sense. Msft is a mature company, as any co with 25K+ would be. There is no "clear admission". Anyone with a brain knows that already. Each time msft records a small percentage increase in sales that increase is equivalent to entire other companies.
Why so defensive? I would have made the same comment about any other company in similar circumstances.
But you have to admit, the special dividend is a cheap gimmick to prop the stock price, on the backs of naive investors. Look for insiders and major holders to dump shares on the temporary pop.
I know people working on new products who would be surprised to hear that.
Even the MSFT bull on the thread concedes that the major growth is behind. You are confusing new products with a growth industry. So does GM offer new products, but they aren't a growth industry! (except maybe for their credit branch!).
Since then went on to financial analysis, which I why I comment on the business. What your buddies are coding has absolutely nothing to do with Microsoft's position in the maturation curve. Old, tired companies can still innovate. Just like IBM does.
Ping! I know you love this stuff.
I think the massive growth IS done, but that doesn't mean that some smaller growth won't take place on occasion in the future - I guess we'll have to see how this plays out. In the meanwtime, I believe that a major reason for this is, as someone posted above, the frigging IRS...
I went through the same thing this year. Yeesh, what a headache!
Legal disclaimer: said "cash" referred to by Shryke in the above post should not be confused the U.S. currency. In this instance, cash refers to currency used in the popular boardgame, Monopoly.
Well that's the last time I'll ever try to generate excitement about YOUR top-secret, PC-world-changing product! HRMPH. ; )_
ROTFL... Being a developer, developing programs for developers to develop with IS exciting ;0)
You have to watch those little guys. They are like bugs. I went to bed one night, leaving the computer on, and when I came back in the morning their little city had outgrown the monitor and spilled out into my den. I probably stepped on, and killed, thousands of them trying to get to the power switch to shut them off.
I hear that in the next rev, there's going to be a new kind of disaster called "The Giant Foot."
Bill had better save some $s to settle with the burst.com shareholders.
The one time dividend Microsoft will be making will be a taxable dividend. It will be taxed as ordinary income, and it will have no effect on the shareholders' adjusted bases in their shares.
It is possible for a corporation to distribute cash to its shareholders in the form of a non-taxable return of capital. In such case the receipt of cash is not taxed, but the shareholders must reduce their bases in their shares by the amount of non-taxable cash received.
We'll probably be sorry we talked about this. Somebody in Congress might see it. As soon as they figure out that the IRS can get you coming or going, but not both, they'll probably change the law so they do get you coming and going.
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