cash on the sidelines

interesting article. zfx and many other commodities companies will be in similar cashed up situations.


Cash on the Sidelines

The industrial companies that make up the S&P 500 - which exclude financial, transportation, and utility companies -- have about $643 billion in cash in their coffers right now.

That totals 62 weeks worth of net income, according to the New York Post.

The companies have been trying to give the cash back to shareholders. Over the past 18 months, companies have bought back an unprecedented $500 billion worth of stock. Alas, the pile just kept on growing.

For example, Microsoft Corp. paid out a record $32 billion special dividend to shareholders in 2004, says the AP. The Post reports Microsoft is now in the process of a $30 billion share buyback. But it still has a war chest of $34.8 billion.

In part, it's because companies have been relishing 16 straight quarters of double-digit earnings growth. In addition, they've made no significant acquisitions or capital expenditures, says S&P senior index analyst Howard Silverblatt to the Post.

What's more, rising interest rates have helped grow the cash. The Associated Press says, "The S&P [reports] that income earned on the interest rose 37.9 percent in 2005 and is expected to increase another 64 percent this year."

Here's the breakdown of the top 10 cash-rich companies:
Exxon Mobil $36.5 bill
Microsoft $34.8
Johnson & Johnson $17.2
Pfizer $15.5
Cisco $15.8
Motorola $14.6
Merck $12.4
IBM $12.3
Hewlett Packard $11.9
Chevron $11.8

So what are they going to do with all that cash?

Rich Thayler, head of industrials and vice chairman of Deutsche Bank Securities, tells the Post that companies "are flowing lots of cash which could help to finance leveraged buyouts. In fact, no industry is immune from buyouts."

Baird analyst Steven Bernard tells the AP, 75.4 percent of all deals under $1 billion were paid for with cash. There has been $122 billion worth of deals completed so far this year for companies under $1 billion. That's up from $101 billion in the same period last year.

Marc Zenner, global head of financial strategy at Citigroup, tells the Post that in addition to more acquisitions, companies "are going to start making new capital expenditure investments in emerging markets and overseas."


According to spokesman Mark Boudreaux, ExxonMobil spent $17.7 billion in capital expenditures, $7.2 billion in dividends to shareholders, and $18.2 billion in stock buybacks in 2005, says the AP. The company also projects it will average about $20 billion in capital expenditures through 2010, and has some 60 projects lined up during that time.

Companies will also sock away some cash for a rainy day, says Steven Bernard. "Just like a person has cash in the bank and puts it into a money market, they are now putting it in six-month CDs," says the analyst. "They're looking for ways to save it for a longer period of time."

Apple Computer, reports the AP, set up an asset management firm in Nevada to administer its cash and short-term investments. Apple's account size is a reported $6.34 billion.