The value of
The number of RSU awarded has been flat over three years
Fiscal 2009 was the year that RSUs essentially made up all the stock compensation with 97% of stock awards for employees. There were 7.8 million RSUs awarded in fiscal 2009, 6.2 million in fiscal 2010, 6.7 million in fiscal 2011 and 7.8 million in fiscal 2012.
When the average stock price for the RSUs is taken into account the value of the awards increased from $870 million in fiscal 2009 to $3.4 billion in fiscal 2012. Even if you remove the total 1 million RSU awards to senior executives in fiscal 2012 the total for everyone else would still be $2.9 billion.
It should be noted that the number of options has been almost zero from fiscal 2009 to 2011 and there were no options awarded in fiscal 2012.
The amount of cash needed to offset the RSUs has increased 270% over three years
While not all RSUs will vest since between 7% to 12% of them are cancelled each year (employees leave before the typical three or four year vesting period) it does mean that almost $3 billion will need to be spent to offset the dilutive effect from the fiscal 2012 RSU awards vs. the $800 million original value in fiscal 2009.
When an employee exercises the RSU award the company withholds enough shares to pay the minimum taxes the employee should owe and sends that amount in cash to the IRS and state governments. This keeps the share count lower when calculating the company’s EPS but it is still cash needed to offset the award.
A significant portion of the increased cash needed to offset the dilution is due to an increase in headcount. Total headcount has increased by 112% over the past three fiscal years and non-store headcount has gone up 71% but are lower than the RSU awards which means…
The average award to a non-store non-executive has increased 97% over three years to $97,472
I have made an assumption that no store employee receives stock awards and have taken out the RSU awards to Tim Cook and other senior management. I suspect that the store managers do receive RSUs and maybe even assistant managers but since the percentage of these employees has stayed relatively constant, and actually trended down from 2.9% in fiscal 2009 to 2.4% in 2012, of non-store employees it would not materially effect the percentage increase in the average RSU award.
Overall in fiscal 2009 the average non-store employee received an RSU award of $48,903 which increased 97% to $96,472 in fiscal 2012.
Only U.S. cash can buy back stock or pay dividends
The average award does not take into account the 7% to 12% of RSUs that are cancelled each year but I do take them into account when I’ve calculated the amount of cash that is needed in each year to offset the RSUs impact to the share count.
The net amount of RSUs that were awarded in fiscal 2009 was $800 million which increased to $2.96 billion in fiscal 2012. For the first three quarters Apple has awarded about $2.9 billion in net RSUs.
It is important to keep in mind that only U.S. based cash can be used to buyback stock or pay dividends. Apple is currently paying $12.20 per year per share in dividends or about $11 billion per year. However, it only generated about $11.4 billion in U.S. cash in fiscal 2012. Therefore any share buybacks have to come from the $40 billion in U.S. cash it already has or take on debt unless it wants to bring back international cash and pay up to 35% in U.S. taxes.
While the company will still be able to significantly decrease its share count over the next two years with its $60 billion share buyback program it will need to spend about $15 billion of it through calendar 2015 just to keep its share count from increasing for its RSU awards from fiscal 2008 to 2015.
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