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Tuesday, February 12, 2013, 08:47 am PT (11:47 am ET)

Apple investigating cash options, but Cook calls Prop 2 lawsuit a "silly sideshow" [u]

The first question Tim Cook faced at the Goldman Sachs Conference: Apple's massive pile of cash, what it planned to do with it and what Cook thinks of David Einhorn's Greenlight Capital lawsuit over Apple's upcoming proposal in now in front of shareholders.

Update: Apple has filed a transcript of CEO Tim Cook's comments regarding the Einhorn case with the U.S. Securities and Exchange Commission. See embedded document below.

Greenlight

Cook equated Einhorn's suit to a "Silly Sideshow" | Credits: Disney and D.K. Peterson


There's no "Depression Era" mentality at Apple



"You really want to get started!" Cook joked before starting his defense of Apple's investment strategy against accusations by Einhorn that the company maintains a "Depression Era" mentality that's causing it to irrationally hoard money rather than investing it sensibly.

"Apple doesn't have a Depression Era mentality," Cook countered. "Apple makes bold and ambitious bets on product and we're conservative financially.

"If you look at what we've done in terms of investment, last year we invested $10 billion in CapEx. We think we're gonna do a similar amount this year. We're investing in retail around the world, in product innovation, in new product, in supply chain. We're acquiring some companies.

"My definition of a Depression Era mentality wouldn't be of a company investing a pair of tens over two years. To add to that fact, we're returning $45 billion to shareholders through a combination of dividends and buybacks. I don't know how a mentality with a depression-era mindset would have done all those things."It's an incredible privilege where we can seriously consider returning additional cash to our shareholders. The management team and the board are in very active discussions. That's what our shareholders want."

"Now, we do have a lot of cash," Cook added. "Last quarter alone the cash flow from operations was over $23 billion. It's an incredible privilege where we can seriously consider returning additional cash to our shareholders. The management team and the board are in very active discussions. That's what our shareholders want."

Referring to the Einhorn proposal to issue preferred stock to accelerate disbursements of dividends to shareholders, Cook specifically said, ""I think it's creative. We are going to thoroughly evaluate their proposal."

However, Cook noted that "the disagreement centers around a proposal on Apple's proxy, which we filed back in December. It's about the rights of shareholders. It's not about whether Apple returns additional cash to shareholders, it's not about how much cash to return to shareholders, it's not about any of those things."

Fight over Prop 2 is "a silly sideshow"



Referred to as "Prop 2," the shareholder proposal would erase the ability of Apple's board members to issue preferred stock without getting the approval of shareholders.

"We thought we should eliminate a blank check preferred from Apple's charter," Cook said, part of an effort to improve governance within the company.

If Prop 2 passes at the shareholder meeting scheduled at the end of February, and if Apple subsequently decided to issue preferred stock as part of its cash distribution plan, it would simply need its shareholders to vote on the matter.

However, worried that Apple's Prop 2 vote would block all potential for the Einhorn proposal, its backers have filed suit, calling into question the legality of the proposal because it bundles a variety of governance-related issues into a single vote."This is a waste of shareholder money, it's a distraction, and it's not a seminal issue for Apple."

"I find it bizarre we find ourselves being sued for doing something that's good for shareholders," Cook said of the lawsuit. "It's a silly sideshow, honestly."

He added, "I think it would be a lot better use of funds to donate that time and money to a worthy cause. You're not gonna see us do [shareholder] campaign mailing, you're not gonna see a "yes on 2" in my front yard. This is a waste of shareholder money, it's a distraction, and it's not a seminal issue for Apple."

Despite seeing no need to campaign for the measure, Cook reaffirmed that "I supported Prop 2, I'm gonna support it. It's not something we're going to [idly] spin [processor] cycles on.

"The serious issue on hand is the return of cash: how to do it, how much to do, and we're very serious about that. But this Prop 2 thing is a silly sideshow. We feel so strongly for Apple that shareholders should approve any issuance of preferred stock."