Corporations From GE to Apple Putting $2 Trillion to Work: An article from

Bloomberg News

Corporate America is putting its record $2 trillion cash pile to work.

Apple Inc.s quarterly results this week showed the iPhone maker reduced its cash holdings for
the first time since 2006, cranked up a share buyback program by $30 billion and raised its
dividend. General Electric Co. is considering tapping its $57 billion in overseas cash to acquire
Frances Alstom SA, according to a person familiar with the situation.
The steps are encouraging investors who have pushed companies to reward them with higher
payouts, as well as economists who consider the piles of cash a missed opportunity to start longawaited spending on tools, facilities or new businesses to help accelerate growth and create jobs.
Signs that the U.S. is rebounding from a winter slowdown and Europe is recovering from its
recession are also beginning to encourage companies to pursue acquisitions.
Corporations are flush with cash and are beginning to pick up M&A activity as well as share
buybacks and dividend increases, said Eric Teal, who helps oversee $3.5 billion as chief
investment officer of First Citizens BancShares Inc. in Raleigh, North Carolina. These activities
will continue.
The cash pile reached $2.02 trillion in the latest quarterly filings of 2,300 non-financial
companies in the Russell 3000 Index, according to the data compiled by Bloomberg as of April
21. The total rose about 13 percent from a year earlier in each of the two latest quarters, the
fastest six-month gain since mid-2011. For comparison, Russias annual gross domestic product
was about $2.01 trillion last year.

Capital Spending
Some investors including Frederic Dickson of D.A. Davidson & Co. blame the practice of
squirreling away money for sluggish economic growth and an unemployment rate stuck above 6
percent since 2008. Capital spending on structures, equipment and intellectual property by all
U.S. companies in 2013 increased 3.9 percent, the slowest pace in three years, to $2.05 trillion,
according to U.S. Commerce Department data.
The failure to invest in capital growth is one reason why jobs growth has been below par during
the current cycle, Dickson said. The recent activity is encouraging but may not be enough, he
said.
Companies at this point are probably a little more inclined to give more money back to
shareholders than they have in the past, said Dickson, who as chief investment strategist helps
manage $44.5 billion at Lake Oswego, Oregon-based Davidson. Yet they still remain reluctant to
put the accelerator to the floor in terms of capital spending, Dickson said.

Modest Growth
The U.S. economy may grow 2.7 percent this year, according to a Bloomberg survey of
economists. While ahead of last years 1.9 percent expansion, it still trails the average 2.9
percent in the five years before the most recent recession. The U.S. jobless rate held steady at
6.7 percent in March.

Signs of a recovery have emerged after a harsh winter. The U.S. index of leading economic
indicators, a gauge of the next three to six months, rose this week on improving job market data
and a jump in March factory production.
Economists also have been flagging signs that companies may be loosening their purse strings.
Investment in non-residential projects and equipment will rise by about 7 percent this year after
a 3.1 percent advance in 2013, according to forecasters at Goldman Sachs Group Inc. UBS
Investment Bank sees equipment spending increasing 7.5 percent, followed by a 10 percent gain
in 2015.

Apple Cash
With $150.6 billion in cash and marketable securities, Apple has a bigger hoard than any nonfinancial company in the U.S. The Cupertino, California-based maker of iPhones and iPads has
drawn criticism from activist investors Carl Icahn and David Einhorn, who want a bigger return to
shareholders.
Apple said this week that it will increase its share repurchase authorization by $30 billion, to $90
billion, boost its quarterly dividend by 8 percent and split its stock 7-for-1.
We think very deliberately about how much and in which way to return cash to our
shareholders, Chief Executive Officer Tim Cook told analysts on April 23.
The companys latest cash total, contained in its quarterly earnings report two days ago, is down
from about $159 billion at the end of calender 2013 and marks the first decline since the first
quarter of 2006. The company entered 2014 with plans to spend a record $10.5 billion on
assembly robots, milling machines and other tools and also just opened a new parts plant in
Arizona to employ about 700 workers.
Offshore profits have contributed to the increase in corporate cash balances. A March 31 Moodys
Investors Service report estimated that as much as 58 percent of corporate cash is held
overseas, where multinational companies can take advantage of favorable tax conditions.

Overseas Income
Under U.S. law, companies owe as much as 35 percent tax on income they earn around the
world. They get tax credits for payments to foreign governments and dont have to pay the
residual U.S. tax until they repatriate the money, creating an incentive to book profits overseas
and leave them there.
Fairfield, Connecticut-based GE may tap its overseas holdings to finance a $13 billion purchase of
Frances Alstom, according to a person familiar with the matter. Similarly, New York-based
drugmaker Pfizer Inc. held informal talks in recent months to acquire London-based AstraZeneca
Plc, according to people familiar with the matter.
Dealmaking activity is accelerating in Europe amid signs that the economy is improving. Euroarea services and manufacturing this month grew faster than economists had forecast and are at
the highest level in almost three years, according to a Markit Economics survey released this
week.

Dividend Payouts

Even if companies start to spend more, theres still plenty of cash to entice investors seeking a
bigger share.
Dividends should be higher, said Jack Ablin, who helps manage $66 billion in assets as chief
investment officer of BMO Private Bank in Chicago. Companies are being stingy, given the level
of cash theyre generating.
Dividends as a percentage of total cash have averaged about 4 percent over the past 16
quarters, including about $81 billion in the most recent period, according to the data compiled by
Bloomberg on the 2,300 non-financial companies. The biggest payout, about 5.6 percent of total
cash, was at the dawn of 2013 and driven more by a pending jump in tax rates than by any
sudden surge of largess.
As the uncertainty settles down, were likely to see a pickup in payout ratios, said Teal, the First
Citizens executive.

Lower Dividends
The trailing 12-month dividend yield on the Russell 3000 Index has fallen to about 1.9 percent
from about 2.3 percent at the end of 2012, when many companies gave shareholders special
dividends ahead of the jump in tax rates. The yield is projected to be about 2 percent over the
next year, based on data compiled by Bloomberg. The index surged 31 percent last year, more
than the Standard & Poors 500 Index or the Dow Jones Industrial Average.
Johnson & Johnson, the worlds biggest maker of health-care products, said yesterday its raising
its quarterly dividend to 70 cents a share from 66 cents. The New Brunswick, New Jersey-based
company, which generates most of its sales outside the U.S., had cash and marketable securities
reserves increased to about $29.2 billion at year-end, up from $21.1 billion at the end of 2012.
Dividends are the companys first priority when considering ways to use cash, Chief Financial
Officer Dominic Caruso told analysts on an April 15 call to discuss first-quarter earnings. The next
priority is on investments to add value to the company and, finally, buybacks.
We think its a very good approach, Caruso said. We consistently follow it.

Dow Chemical
Dow Chemical, which had about $5.9 billion in cash and marketable securities as of Dec. 31, had
come under pressure to increase shareholder value from activist investor Third Point LLC, led by
billionaire Daniel Loeb. The Midland, Michigan-based company said it had a plan in motion to
maximize investor returns and resisted calls to break itself apart.
Dow returned $1.7 billion to shareholders through dividends and share repurchases in this years
first three months, executives told analysts this week on a conference call to discuss its firstquarter earnings. The company ended the period with about $4.4 billion in cash.
These actions clearly reinforce our commitment to accelerating returns now and as our earnings
increase going forward, Chief Executive Office Andrew Liveris said.
Howard Silverblatt, a senior index analyst at Standard & Poors Corp. in New York, said even if
some companies are starting to lift spending or dividends, theres room for more.

The dividends, which set a record last year and will easily set a record this year, are still on the
stingy side, Silverblatt said. That cash permits them to do buybacks, dividends, M&A, cap
expenditures, hiring, new plants, whatever they want. Theres plenty of room to do what they
want to do.