Microsoft 2011 Annual Report Download - page 34

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(c) These amounts represent undiscounted future minimum rental commitments under noncancellable facilities
leases.
(d) These amounts represent purchase commitments, including all open purchase orders and all contracts that
are take-or-pay contracts that are not presented as construction commitments above.
(e) We have excluded long-term tax contingencies, other tax liabilities, and deferred income taxes of $8.8 billion
and other long-term contingent liabilities of $276 million (related to the antitrust and unfair competition class
action lawsuits) from the amounts presented, as the amounts that will be settled in cash are not known and
the timing of any payments is uncertain. We have also excluded unearned revenue of $1.4 billion and non-
cash items of $279 million.
Other Planned Uses of Capital
We will continue to invest in sales, marketing, product support infrastructure, and existing and advanced areas of
technology. Additions to property and equipment will continue, including new facilities, data centers, and computer
systems for research and development, sales and marketing, support, and administrative staff. We have
operating leases for most U.S. and international sales and support offices and certain equipment. We have not
engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are
reasonably likely to materially affect liquidity or the availability of capital resources.
Definitive Agreement with Skype
On May 10, 2011, we announced that we had entered into a definitive agreement with Skype Global S.à.r.l.
(“Skype”) under which we would acquire Skype, a leading internet communications company, for $8.5 billion in
cash. We anticipate the acquisition will extend Skype’s brand and reach of its network platform, while enhancing
our existing portfolio of real-time communications products and services. The acquisition is subject to regulatory
approvals and other customary closing conditions. We obtained regulatory approval in the U.S. and expect to
obtain all remaining required regulatory approvals during calendar year 2011.
Liquidity
We earn a significant amount of our operating income outside the U.S., which is deemed to be permanently
reinvested in foreign jurisdictions. As a result, as discussed above under Cash, Cash Equivalents, and
Investments, the majority of our cash, cash equivalents, and short-term investments are held by foreign
subsidiaries. We currently do not intend nor foresee a need to repatriate these funds. We expect existing
domestic cash, cash equivalents, short-term investments, and cash flows from operations to continue to be
sufficient to fund our domestic operating activities and cash commitments for investing and financing activities,
such as regular quarterly dividends, debt repayment schedules, and material capital expenditures, for at least the
next 12 months and thereafter for the foreseeable future. In addition, we expect existing foreign cash, cash
equivalents, short-term investments, and cash flows from operations to continue to be sufficient to fund our
foreign operating activities and cash commitments for investing activities, such as material capital expenditures,
for at least the next 12 months and thereafter for the foreseeable future.
Should we require more capital in the U.S. than is generated by our operations domestically, for example to fund
significant discretionary activities, such as acquisitions of businesses and share repurchases, we could elect to
repatriate future earnings from foreign jurisdictions or raise capital in the U.S. through debt or equity issuances.
These alternatives could result in higher effective tax rates, increased interest expense, or other dilution of our
earnings. We have borrowed funds domestically and continue to have the ability to borrow funds domestically at
reasonable interest rates.
As a result of the special dividend paid in the second quarter of fiscal year 2005 and shares repurchased, our
retained deficit, including accumulated other comprehensive income, was $6.3 billion at June 30, 2011. Our
retained deficit is not expected to affect our future ability to operate, pay dividends, or repay our debt given our
continuing profitability and strong financial position.