Microsoft 2003 Annual Report Download - page 44

Part II, Item 8
MSFT 2003 FORM 10-K
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Deferred income taxes were:
(In millions)
June 30 2002 2003
Deferred income tax assets:
Revenue items $ 2,261 $ 2,556
Expense items 945 1,048
Impaired investments 2,016 1,525
Deferred income tax assets $ 5,222 $ 5,129
Deferred income tax liabilities:
Unrealized gain on investments $ (887) $ (1,584)
International earnings (1,818) (1,809)
Other (803) (961)
Deferred income tax liabilities $ (3,508) $ (4,354)
We have not provided for U.S. deferred income taxes or foreign withholding taxes on $1.64 billion of our undistributed earnings for certain non-U.S. subsidiaries,
all of which relate to fiscal 2002 and 2003 earnings, because these earnings are intended to be reinvested indefinitely.
On September 15, 2000, the U.S. Tax Court issued an adverse ruling with respect to our claim that the Internal Revenue Service (IRS) incorrectly assessed
taxes for 1990 and 1991. On December 3, 2002, the Ninth Circuit Court of Appeals substantially reversed the U.S. Tax Court decision. Income taxes, except for
one issue remanded to the U.S. Tax Court by the Ninth Circuit Court of Appeals for additional consideration, have been settled with the IRS for all years through
1996. The IRS is examining our 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 $1.3 billion in 2001, $1.9 billion in 2002, and $2.8 billion in 2003.
Note 14—Stockholders’ Equity
Shares of common stock outstanding were as follows:
(In millions)
Year Ended June 30 2001 2002 2003
Balance, beginning of year 10,566 10,766 10,718
Issued 378 208 291
Repurchased (178) (256) (238)
Balance, end of year 10,766 10,718 10,771
We repurchase our common shares primarily to manage the dilutive effects of our stock option and stock purchase plans, and other issuances of common
shares. In 2002, we acquired 10.2 million of our shares as a result of a structured stock repurchase transaction entered into in 2001, which gave us the right to
acquire such shares in exchange for an up-front net payment of $264 million. To enhance our stock repurchase program, we have sold put warrants to
independent third parties. These put warrants entitled the holders to sell shares of our common stock to us on certain dates at specified prices. In the third quarter
of fiscal 2001, we issued 5.6 million shares to settle a portion of the outstanding put warrants. At June 30, 2001, 2002, and 2003 no put warrants were outstanding.
In any period, cash used in financing activities related to common stock repurchased may differ from the comparable change in Stockholders’ Equity, reflecting
timing differences between the recognition of share repurchase transactions and their settlement for cash.
On January 16, 2003, our Board of Directors declared an annual dividend on our common stock of $0.08 per share, payable March 7, 2003 to shareholders of
record at the close of business on February 21, 2003.