World of Apple

Tomorrow Apple will hold its annual shareholder meeting on its Cupertino campus in California. The expectations for this meeting are greater than normal, they’re practically sky high and honestly largely improbable.

Apple’s ASM is actually a relatively under-reported event despite its importance. Last year’s meeting held during the same February was hosted by Steve Jobs and focused primarily on environmental issues and Apple’s financial situation. This year’s meeting is unlikely to be any different with a growing pressure from investors for Apple to pay a dividend and executives fielding questions on Chinese labour conditions and Apple’s green credentials.

Seeking Alpha has run what looks like a serious article on five potential outcomes of tomorrow’s shareholder meeting. The contributing writer Bill Maurer writes that it is possible that Apple could do more than one of the outcomes he has listed. For the record Maurer listed the following potential outcomes:

• Apple to start paying a monthly dividend
• Begin a share repurchase program
• Announce a stock split
• Pay a one-time dividend
• Do nothing

Of all these potential outcomes I’d say that the last one was the most probable. Despite sitting on almost $100 billion of cash Apple’s CEO Tim Cook has shown little interest in paying out a dividend, whilst never saying it I suspect that Apple believes that its investors have contributed little to its success—certainly a very Jobsian view.

Here’s what Cook has said about the cash hoard at the Goldman Sachs conference earlier this month (from Macworld’s transcript):

Now, in terms of our approach on cash, I’ve said since becoming CEO, I’m not religious about this. I’m not religious about holding it or not holding it. And we’re in very active discussions at the board level on what we should do. But I think everyone would want us to be deliberate and really think through, and that’s what we’re doing. We’re not going to go have a toga party or do something outlandish, and so people don’t have to worry it’s going to burn a hole in our pocket.

[Our cash position] was always discussed. It’s not new that we’re discussing it. It is being discussed more, now, and in greater detail, and that’s because the balance has risen to the point that you’ve already made. And I think it’s clear to everyone, and I’d be the first to admit, we have more cash than we need to run the business on a daily basis. I’m sure everyone would agree with that in here. And so we’re actively discussing it. I only ask for a bit of patience, so that we can do this in a very deliberate way and make the best decision for the shareholders.

Whilst analysts are usually the last people to look to for guidance on anything Apple is about to do here is what Barclays Capital analyst Ben Reitzes wrote last week about Apple’s cash situation:

“Apple is running out of realistic excuses for hoarding so much cash and we believe some of the recent moves in the stock is related to investors beginning to price in the expectation of a dividend as early as the upcoming shareholders meeting,”

[…]

“We continue to believe Apple has the ability to easily pay a dividend with a significant yield (2% to 3% range) along with the ability to grow it over time.”

The general argument is that a one-time dividend of around $3 would be beneficial to Apple’s stock. As individual shareholder King Lear said at last year’s meeting, “I think that Apple’s stock is and should be like Apple’s sales and products, insanely great”.

Other things to expect from tomorrow’s meeting are questions on Apple’s future product plans which will go unanswered and as well as those questions about Chinese labour conditions which has been dominating the media agenda recently.

Apple’s Annual Shareholder meeting will kick off at 10 AM Pacific Time (1PM Eastern, 6PM London) on Thursday. February 23rd at 1 Infinite Loop, Building 4, in Cupertino.

From Apple’s 2012 proxy statement [PDF], here are the official proposals:

1. Election of Directors. Apple asks shareholders to vote FOR the nomination of William Campbell, Tim Cook, Millard Drexler, Al Gore, Robert Iger, Andrea Jung, Arthur Levinson, and Ronald Sugar to the company’s Board of Directors. Mr. Levinson is currently Chairman of the Board as he was appointed after Steve Jobs’ death in October 2011.

2. Ratification of Appointment of Independent Registered Public Accounting Firm. Apple asks shareholders to vote FOR for the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm and as auditors of the Company’s consolidated financial statements for 2012.

3. Advisory Vote on Executive Compensation. Apple asks shareholders to vote FOR on this non-binding proposal that gives shareholders input on the design and effectiveness of the Company’s executive compensation program.

4. Conflict of Interest Report. Apple asks shareholders to vote AGAINST this proposal put forth by The National Center for Public Policy Research, which wants Apple to assemble a report that discloses potential financial conflicts of interest among Board members. Apple opposes this on the basis that it is neither a necessary or a useful undertaking to foster transparency or accountability at the Board level.

5. Shareholder Say on Director Pay. Apple asks shareholders to vote AGAINST this proposal, which would see the adoption of a policy that provides shareholders the opportunity, at each annual meeting, to vote on an advisory proposal, prepared by the Board of Directors, to ratify the pay given members of our Board of Directors as disclosed in the proxy statement.

6. Report on Political Contributions and Expenditures. Apple asks shareholders to vote AGAINST this proposal that asks the company to provide a report, updated semiannually disclosing the company’s “policies and procedures for political contributions and expenditures (both direct and indirect) made with corporate funds.”

7. Adopt a Majority Voting Standard for Director Elections. Apple asks shareholders to vote AGAINST this proposal, which asks that director nominees to the Board be elected by a majority vote.