Good day, everyone, and welcome to this Apple Incorporated C onference to announce the outcome of the company's discussions concerning this cash balance. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Ms. Nancy Paxton, Senior Director of Investor Relations. Please go ahead, ma'am.
Thank you. Good morning, and thanks to everyone for joining us. Speaking this morning will be Apple CEO Tim Cook and CFO Peter Oppenheimer, and the purpose of today's call will be to announce the outcome of the company's discussions concerning its cash balance. We will not be providing a business update, nor will we be discussing any other topics today. Tim and Peter will provide some opening remarks, and we'll follow that with a short Q&A session with analysts. Please note that some of the comments you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding anticipated dividends and share repurchase activity and the expected performance of Apple's business. Actual execution of these activities and results of business operations could differ materially from our forecast.
For more information, please refer to the risk factors discussed in Apple's Form 10-K for 2011 and the Form 10-Q for the quarter ended November 30, 2011. Apple assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. With that, I'd like to turn the call over to Tim Cook.
Thank you, Nancy. Good morning to everyone, and thanks for joining us. I'd like to start by discussing how confident we feel about Apple 's future. We are participating in some very large and growing markets, and we see significant opportunities ahead of us. Starting with iPhone, in our most recently reported quarter, we sold 37 million iPhones. That's a very large number, but it represented less than 9% of handsets sold during the quarter. The handset market is expected to grow dramatically in the years ahead, from 1.6 billion in 2011 to over 2 billion by 2015. It is our belief that eventually all handsets will be smartphones, so the potential for iPhone is enormous. We're off to an amazing start with iPad, selling 55 million from the launch of the first iPad in the spring of 2010 through the end of our most recent quarter.
With the launch of the new iPad, it just keeps getting better. Gartner estimates that the tablet market will be 325 million units by 2015. As I've said many times before, we believe that the tablet market will eventually surpass the PC market in size. It's just a question of when. With the [Mac] as of last quarter, we had outperformed the PC market for 23 consecutive quarters, yet we have less than 6% market share of this 350 million unit per year market. We are innovating at an incredible pace, building a tremendous ecosystem with apps and content, providing great services such as iCloud, which has already eclipsed over 100 million users within just a few months of its launch. We're delivering incredible developments like Siri, a profound new way to interface with the iPhone. We are also investing in distribution around the world.
We continue to open our own stores, including 40 this fiscal year alone. We are expanding our footprint with new carrier partners and other third-party resellers, and we are investing in our direct enterprise sales force. Simply stated, we don't see ceilings to our opportunities. All of this innovation and success have led to this generation of substantial amounts of cash, both domestically and abroad. We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments, and capital expenditures in our supply chain, and building out of our infrastructure. You will see more of all of these in the future. Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. We are going to initiate a dividend and share repurchase program.
We have thought very deeply and very carefully about our cash balance. We will continue to invest in the business, and we will maintain our disciplined and focused approach in the future. Innovation is the most important objective at Apple , and we will not lose sight of that. These decisions will not close any doors for us. Subject to a board declaration, we plan to initiate a quarterly dividend at $2.65 per share beginning in the September quarter. A quarterly dividend will provide current income to our shareholders, and we also believe it will broaden Apple 's investor base by attracting new investors who don't currently own Apple stock. Additionally, in the December quarter, we plan to commence a share repurchase program.
The board has authorized the repurchase of $10 billion of stock over the next three fiscal years with the primary objective of neutralizing dilution from future grants through Apple 's employee equity programs. We will continually assess the opportunities to invest further in our business, and in consultation with our... We will review our dividend and share purchase plans periodically. We will continue to do what we believe is in the best interest of Apple and our long-term shareholders. I'd now like to turn over the call to Peter, who will provide more details on our programs.
Thank you, Tim. Apple’s cash has increased substantially for all the right reasons. Our business is performing extremely well, and we have been very disciplined with our stewardship of the cash, making great investments in the business. In fiscal year 2011, our cash increased by $31 billion, with $24 billion of that growth coming from abroad. During the first quarter of fiscal year 2012, we generated another $16 billion. That left us with about $98 billion of cash at the end of the December quarter, of which about $64 billion was outside the United States. As Tim said, that's plenty of cash to run the business. We are announcing today a dividend and share repurchase program. In thinking about our cash, we want to achieve several objectives. First, we want to maintain the flexibility to take advantage of investment opportunities that present themselves.
Second, we want to provide some current income for our long-term shareholders. Third, we want to increase the attractiveness of Apple to a wider investor base. Finally, we want to limit future dilution from our employee equity programs. The program that we are announcing today will have two elements: a dividend and a share repurchase. Subject to board declaration, we plan to initiate a quarterly dividend of $2.65 per share beginning in our September quarter. We plan to declare the dividend concurrent with our quarterly earnings release in July and to establish the record and payment dates at that time. Our board has concluded to amend existing RSU agreements so that unvested RSUs can participate in dividends declared. This would apply to both historical grants that are unvested as of the dividend record dates, as well as future grants.
Dividend equivalents on unvested RSUs will be deferred and paid when the underlying RSUs vest. At Tim's request, none of his unvested RSUs will participate in dividends. Based on anticipated shares and RSUs outstanding, we would expect the first year's annual dividend payments to be over $10 billion. With respect to share repurchase, our board has authorized a $10 billion program beginning in our fiscal year 2013 to be executed over three years with the primary purpose of neutralizing the impact of dilution from future employee equity grants and employee stock purchase programs. Commencing in fiscal year 2013, which begins on September 30th, 2012, we will begin to repurchase shares primarily to offset the amount of shares we expect will ultimately be issued from the current year employee equity grants. We intend to execute these repurchases over the course of each fiscal year.
We expect cash used to repurchase shares through the share repurchase program and to net share settled vesting RSUs to consume approximately $4 billion in the first fiscal year. Combining dividends, share repurchases, and cash used to net share settled vesting RSUs, we anticipate utilizing approximately $45 billion of domestic cash in the first three years of our program. In closing, we remain very confident in the future of our business, are extremely enthusiastic about the opportunities that lie ahead, and look forward to executing our plans to initiate a dividend and share repurchase program. With that, I'd like to open the call to questions.
Ladies and gentlemen, to ask a question, you may do so by pressing star one on your telephone keypad. If you are using your speakerphone, please release your mute function to allow your signal to reach our equipment. Once again, that is star one at this time. Our first question will come from Ben Reitzes. He's with Barclays.
Thank you very much. Tim and Peter, can you talk about your philosophy on dividend growth? Within the $45 billion, is there any growth of the dividend thought about in there, and how do you... How are you going to shepherd us through the process each year? Do you envision?
It is Peter. In consultation with the board, we will review our dividend payments periodically. We believe that our quarterly dividend of $2.65 per share will be attractive to both current and prospective shareholders. Based on our anticipated shares and RSUs outstanding, we expect our dividend payments to be over $2.5 billion per quarter for more than $10 billion a year, which would make us one of the highest dividend payers in the United States. We want to maintain sufficient U.S. cash to be able to quickly take advantage of strategic opportunities that might present themselves, and we do not want to incur the tax cost to repatriate the foreign cash at this time.
All right. Finally, sometimes when companies do a dividend and the shareholder base changes, you guys have been very clear to talk about your growth and what lies ahead. I know you guys don't like to announce new products, but last quarter you talked about we haven't seen anything yet, I think, or on their last product launch you said that there were many more things to come. Can you just reiterate a little bit more about your confidence in the product pipeline and your growth outlook, even though you did a pretty good job during the pre-sale?
It's Tim. We actually do love to announce new products. We just don't do it in conference calls. We had incredible growth last quarter. It was 73% despite the base that it's growing upon being very large. I think the growth speaks for itself. Let me tell you, I am extremely confident in our future. The pipeline is full of stuff, and I think our customers are going to be incredibly pleased with what they see coming out.
Hey, thanks a lot, guys.
Thanks, Ben. Can we have the next question, please?
From Morgan Stanley, we'll go to Katy Huberty.
Thanks. You both mentioned that Apple retains the flexibility to use the extra U.S. cash for other investments. I wonder about the international cash. At the end of this calendar year, you could be approaching $100 billion of cash that's stuck overseas. Did the board discuss how you might go about putting that to use? I know, Peter, you said that at this time you don't want to bring it back to the U.S., but what are you going to do with that $100 billion of international cash? Thanks.
Katy, it's Peter. Today we've got plenty of U.S. cash to invest in the business, to pay a dividend, and to initiate our share repurchase program. Repatriating the cash from offshore would result in significant tax consequences under current U.S. law. We have expressed our views with Congress and the administration. We think that the current tax laws provide a considerable economic disincentive to U.S. companies that might otherwise repatriate the substantial amount of foreign cash that they have. That's our view, and we've expressed it.
Thank you, Katie. Can we have the next question, please?
We'll go to Gene Munster with Piper Jaffray.
Good morning, everybody. Tim and Peter, you both mentioned periodically revisiting the dividend. Is that a yearly or a couple of times a year? Any color on that? A couple of follow-up questions.
Gene, we'll continually discuss it. There is not a certain period of time where we've decided that we would change it. We will continually discuss it, as you would expect us to.
Okay, just in terms of the stock split, can you talk a little bit about your methodology on stock splits?
This is something that we have looked at while we were looking at this cash question. The current information we have would suggest that there's very little support that it helps the stock. However, we are in a unique position and at a unique point in time. This is something that we continue to look at. If we reached a decision that we thought it was in the best interest of Apple Inc. and its shareholders, we would do it. At this point, that's not how we see it.
Okay. My last question, I know we're not talking about fundamentals on this call, but do you guys think you'll put a press release out in terms of how the new iPad did over the opening weekend?
We had a record weekend, and we're thrilled with it. This call isn't to discuss the current business, as you know.
Okay, great. Thank you.
Thank you, Gene. Can we have the next question, please?
I'll go to Bill Shoppe with Goldman Sachs.
Okay, great. Thanks. After doing this analysis, I guess as a follow-up to Ben's question, how do you think about growth in share repurchases versus growth in the dividend program? In other words, if your earnings or cash performance were to continue to exceed your expectations over time, do you think the potential excesses would go into a larger buyback or a larger dividend? How are you thinking about that?
Bill, it's Peter. We remain very, very confident in what we're doing, our business, and the products that we've got in the pipeline. We are squarely focused on achieving our potential in the business. We will continuously assess the opportunities to invest in the business in a deliberate and disciplined manner. In consultation with the board, we will review our plans periodically. We'll make changes to the program that we've announced today that we believe are in the best interest of Apple and our shareholders, but don't have anything further to say today.
Okay, thank you.
Thanks, Bill. Can we have the next question, please?
will go to Shannon Cross with Cross Research.
Thank you. I just had a couple of questions. The first one is, can you give us some idea about the methodology of how you thought about the percentage that should be paid out to shareholders, how you came up with the numbers that you did for today?
Sure. It's Peter, Shannon. The program that we're announcing today is very significant, and we're excited about it. As we've noted, we expect to use about $45 billion during the next three years from our domestic cash balances to pay dividends, repurchase shares, and pay the taxes to net share settled vesting RSUs. We opted to go with a hybrid approach after doing a lot of analysis and thinking, and, frankly, listening to the input that we were getting from the shareholders. We've put most of our emphasis to begin behind our dividend. That's where the majority of the cash that we will return will go. We expect to pay in our first year more than $10 billion out in dividends, and it will make us one of the largest dividend payers in the U.S.
We also wanted to commence a share repurchase program with the primary objective to neutralize dilution from our future employee equity grants and employee stock purchase programs. That's something else that we thought was important that we heard about. Most importantly, we want to maintain sufficient U.S. cash to be able to quickly take advantage of strategic opportunities that might present themselves. We did not want to incur the tax cost to repatriate the foreign cash at this time.
Okay, great. Tim, could you talk maybe philosophically a little bit about your thoughts on needing a cash cushion or having a cash cushion? I know some people talk about tech companies, given how product cycles change and how consumer behavior changes and the economy, need to have a pretty substantial one. I mean, how do you think about it? Is it more tax issues here or a real comfortable cash cushion going forward? Clearly, you'll have a substantial amount of cash even at the end of the three years.
Yeah, Shannon, the way that we looked at this was because of the tax consequences of repatriating the foreign cash, we focused on the domestic cash. Within the domestic cash, our first and foremost objective, as it will always be, will be to make the most innovative products in the world. We decided how much cash that we needed to do that. Of course, there's a wide range of investments that obviously I won't detail in here. In addition to that, we looked at other things that we might invest money in that would come out of domestic cash. After we had done all of that and allowed for a war chest to do things that today we can't predict, but opportunities that might come along in the future, we had extra cash left over. We concluded that we had plenty of cash to run the business.
Given that, we felt it would be the right action to initiate a dividend and expand Apple shareholder base in the process. It's great for current shareholders, and it's fantastic for attracting new investors. We felt the share buyback program was also in the best interest of Apple and its shareholders. That's how we looked at it.
Great, thank you very much.
Thanks, Shannon. Can we have the next question, please?
From Credit Suisse, we'll hear from Kulbinder Garcha.
Thanks. A couple of questions just to clarify. I guess just on the question of the cash balance on onshore, Tim, do you think you actually need like a $30 billion cash pile number domestically to offer all the strategic flexibility you want, or could it be the case that two or three years down the road, once you've maybe executed on whatever you're going to do in terms of growth, you could actually even run at a lower level? The other question I have is, how widely held is your stock by employees? I'm just thinking this should be a good income generator, good for motivation for employees. Any sense of work you've done around there would be helpful.
I think it's great for shareholders. It's great for employees, which are also shareholders. I think it's great all the way around. To your question about is there a magic number, there's not a magic number here that we're trying to keep in terms of cash balance. There's a judgment, and that judgment, as we've tried to articulate, will continually be looked at over time. We'll continue to evaluate how much money should go into dividend, how much money should go into buyback, how much money we need for investments, etc. You know that's what we're paid to do.
Kulbinder, it's Peter, relating to your employee question. At the end of the December quarter, there were about 17.7 million RSUs outstanding that had not vested, and employees also participate in Apple stock through our employee stock purchase programs as well.
Great, thank you very much.
Thank you, Kulbinder. A replay of today's call will be available for approximately two weeks as a webcast on apple.com/investor and via telephone. The numbers for the telephone replay are 888-203-1112 or 719-457-0820. Please enter confirmation code 6274937. These replays will be available beginning at approximately 9:00 A.M. Pacific time today. Members of the press with additional questions can contact Steve Dowling at 408-974-1896, and financial analysts can contact Joan Hoover or me with additional questions. Joan is at 408-974-4570, and I'm at 408-974-5420. Thanks again for joining us.
Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.