Apple's 2011 Annual Report: More Hiring, More Sales, No Dividends Coming

Apple today filed its 2011 annual report with the U.S. Securities and Exchange Commission, and the document reveals a few interesting tidbits of information:

- Apple now has 60,400 full time equivalent employees, up from 46,600 last year. The company also went from employing 2,800 full-time equivalent temporary employees and contractors to 2,900. 36,000 employees are in the retail division, up from 26,500 last year.

- Apple went from 317 stores at the end of fiscal 2010 to 357 stores at the end of fiscal 2011, an addition of 40 stores. The average number of employees per store also grew from 83.6 to 100.8.

- Ad spending grew from $691 million to $933 million, while dropping as a percentage of revenues to 0.8% from 1.0%. Research and development expenses were up 36% to $2.4 billion -- however, as a percentage of revenues R&D fell from 3% to 2.2%.

- As this document is designed mainly for prospective and current investors in the company, Apple also lists a number of risk factors that could affect investments in the company. These include "if [Apple] is found to have infringed on intellectual property rights", "support from third-party software developers", "the Company’s ability to obtain components in sufficient quantities", and numerous more.

- "As of September 24, 2011, the Company owned or leased approximately 13.2 million square feet of building space, primarily in the U.S., and to a lesser extent, in Europe, Japan, Canada, and the Asia-Pacific regions. Of that amount approximately 7.0 million square feet was leased building space, which includes approximately 3.0 million square feet related to retail store space. Of the Company’s owned building space, approximately 2.6 million square feet that is located in Cupertino, California will be demolished to build a second corporate campus. Additionally, the Company owns a total of 584 acres of land in various locations."

- Finally, "the Company anticipates that for the foreseeable future it will retain any earnings for use in the operation of its business" rather than paying any dividends or stock buybacks.

Top Rated Comments

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117 months ago

Paying dividends = less cash.
Not paying dividends = more cash.

For every dollar of dividend per share that Apple pays out, the share price will drop by one dollar.


This is just laughably incorrect, and written with such confidence too. wow.
Score: 4 Votes (Like | Disagree)
Avatar
117 months ago
dividends?

Wall Street to Apple, "I thought you would pay dividends!"

Apple to Wall Street, "Think differently."
Score: 4 Votes (Like | Disagree)
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117 months ago
Come on Apple, do something cool with all that capital. OS XI with content-awareness and an AI assistant an stuff. Build cylons. Just... do something...
Score: 4 Votes (Like | Disagree)
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117 months ago
Genius Bar tech for Apple; the dream job for a computer-nerd Apple fan like myself. It's too bad that the journey to Mordor would be an easier one than the journey to my nearest Apple Store.
Score: 4 Votes (Like | Disagree)
Avatar
117 months ago

Paying dividend reduces the capital value of the company.

Shares are now so divorced from the idea of owning part of the company now that it does not really make much sense to pay dividend to the "current" owner of the shares as they are bought and sold on a daily basis. They have become commodities in of themselves.

The only companies that pay dividends are those with a dropping or stagnant share price. MSFT is one such company.

I tend to look at this another way, based on Warren Buffett's view of dividends.

Assume that Company A and Company B are both good at generating operating cash flow from quarter to quarter.

However, Company A has a transient management and doesn't necessarily do better than the S&P in terms of growing the book value of the business.

Company B has fairly solid management and consistently outperforms the S&P in terms of the real growth of the business in terms of book and/or enterprise value.

In Company A's case, I want the dividends, because I can turn around and generate a better return from the cash from those dividends than the company is generating for the value of my shares... and ultimately the market price. It may seem like value and price are divorced from one another, but institutional buyers use the same methods I do to triangulate the actual carrying value of the company, and so they tend to set a baseline of fair market value that influences the overall market capitalization because no M&A guy in his right mind is going to recommend paying more than their estimate of intrinsic value to buy such a company outright.

In Company B's case, I want them to manage that money for me because they're long term thinkers who know how and where to invest that money in the growth of their business which in turn influences the company's ability to generate continued operating cash flow. And this IS important to the prospect of getting a return at a later date in terms of market price growth because few people are going to keep bidding up a total dog of a company that doesn't keep generating operating cash. Think of the working capital (inventory) and book value (assets minus liabilities and intangibles) as the cash generating engine, and operating cash flows as the cash generated by that engine (as opposed to financing or investing activities).

But all this also requires coming to a realistic triangulation of the intrinsic value of the company. Given all the above factors, and that I know Tim Cook has incentives to stay for ten years, taking into account the expected shrinkage of the growth rate of Apple's operating cash flows, and that Apple has about four more years of Jobs'-influenced products in the pipeline, after which they'll reach some kind of terminal growth rate in the single digits, a moderate estimate puts them at about $386 per share... or less than their current trading price.

For this reason, I'm not buying Apple stock at this time... even more liberal estimates, which put intrinsic value around $450 per share, don't give me the margin of safety I look for in long term investments. I'd much rather find something grossly underpriced by the market relative to its actual strength as a business.

With Apple already one of the two most expensive companies in terms of market capitalization, they've got a lot more downside than upside.... and I don't count on the market to tell me what price I *should* pay for a piece of a company.
Score: 3 Votes (Like | Disagree)
Avatar
117 months ago

No it won't. Those same idiots have been calling for a dividend for years. Growth companies don't pay dividends.


Define growth company. Because Walmart has always paid dividends. Perhaps they don't fit your growth company "now" - but they've paid dividends since pretty much day 1.
Score: 3 Votes (Like | Disagree)

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