Microsoft 2002 Annual Report Download - page 44

MSFT 46 / 2002 FORM 10-K
Part II
Item 8
In 2000, the effective tax rate was 34.0%, and included the effect of a 2.5% reduction from the U.S. statutory rate for tax credits and a 1.5% increase for
other items. In 2001, the effective tax rate was 33.0%, and included the effect of a 3.1% reduction from the U.S. statutory rate for tax credits and a 1.1%
increase for other items. The effective tax rate in 2002 was 32.0%, and included the effect of a 2.4% reduction from the U.S. statutory rate for the
extraterritorial income exclusion tax benefit and a 0.6% reduction for other items.
Deferred income taxes were:
In millions
June 30 2001 2002
Deferred income tax assets:
Revenue items $1,469 $2,261
Expense items 691 945
Impaired investments 1,070 2,016
Deferred income tax assets $3,230 $5,222
Deferred income tax liabilities:
Unrealized gain on investments $(395) $(887)
International earnings (1,667) (1,818)
Other (55) (803)
Deferred income tax liabilities $(2,117) $(3,508)
Microsoft has not provided for U.S. deferred income taxes or foreign withholding taxes on $780 million of its undistributed earnings for certain non-U.S.
subsidiaries, all of which relate to fiscal 2002 earnings, since these earnings are intended to be reinvested indefinitely.
On September 15, 2000, the U.S. Tax Court issued an adverse ruling with respect to Microsoft’s claim that the Internal Revenue Service (IRS) incorrectly
assessed taxes for 1990 and 1991. The Company has filed an appeal with the Ninth Circuit Court of Appeals on this matter. Income taxes, except for items
related to the 1990 and 1991 assessments, have been settled with the IRS for all years through 1996. The IRS is examining the Company’s 1997 through
1999 U.S. income tax returns. Management believes any adjustments which may be required will not be material to the financial statements. Income taxes
paid were $800 million in 2000, $1.3 billion in 2001, and $1.9 billion in 2002.
NOTE 13 STOCKHOLDERS’ EQUITY
Shares of common stock outstanding were as follows:
In millions
Y
ear Ended June 30 2000 2001 2002
Balance, beginning of year 5,109 5,283 5,383
Issued 229 189 104
Repurchased (55) (89) (128)
Balance, end of year 5,283 5,383 5,359
The Company repurchases its common shares in the open market to provide shares for issuance to employees under stock option and stock purchase
plans. In 2002, the Company acquired 5.1 million of its shares as a result of a structured stock repurchase transaction entered into in 2001, which gave it the
right to acquire such shares in exchange for an up-front net payment of $264 million. To enhance its stock repurchase program, Microsoft has sold put
warrants to independent third parties. These put warrants entitled the holders to sell shares of Microsoft common stock to the Company on certain dates at
specified prices. In the third quarter of fiscal 2001, the Company issued 2.8 million shares to settle a portion of the outstanding put warrants. At June 30, 2001
and 2002, there were no outstanding put warrants.
During 1996, Microsoft issued 12.5 million shares of 2.75% convertible exchangeable principal-protected preferred stock. The Company’s convertible
preferred stock matured on December 15, 1999. Each preferred share was converted into 1.1273 common shares.