Microsoft 2004 Annual Report Download - page 49

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PAGE 49
Deferred income taxes were:
(In millions)
June 30 2003 2004
Deferred income tax assets:
Revenue items $ 2,556
$ 2,032
Expense items 1,048 1,308
Impaired investments 1,525 1,246
Stock-based compensation expense 3,892 3,749
Deferred income tax assets 9,021 8,335
Deferred income tax liabilities:
Unrealized gain on investments (1,584) (1,087)
International earnings (1,809) (2,227)
Other (961) (1,095)
Deferred income tax liabilities (4,354) (4,409)
Net deferred income taxes $ 4,667 $ 3,926
Reported as:
Current deferred tax assets $ 2,506 $ 2,097
Long-term deferred tax assets 2,161 1,829
Net deferred income taxes $ 4,667 $ 3,926
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or
recovered.
We have not provided for U.S. deferred income taxes or foreign withholding taxes on $2.30 billion of our undistributed
earnings for certain non-U.S. subsidiaries, all of which relate to fiscal 2002, 2003, and 2004 earnings, because these
earnings are intended to be permanently reinvested in operations outside the United States.
On December 3, 2002, the Ninth Circuit Court of Appeals reversed, in part, an earlier U.S. Tax Court decision. In 2004,
the remaining issue remanded by the Ninth Circuit Court of Appeals was resolved closing all tax years with the IRS
through 1996. The IRS is currently auditing 1997 through 2003. Management believes any adjustments that may
ultimately be required will not be material to the financial statements. Income taxes paid were $1.9 billion in fiscal 2002,
$2.8 billion in fiscal 2003, and $2.5 billion in fiscal 2004.
NOTE 11 STOCKHOLDERS’ EQUITY
Shares of common stock outstanding are as follows:
(In millions)
Y
ear Ended June 30 2002 2003 2004
Beginning balance 10,766 10,718 10,771
Issued 208 291 215
Repurchased (256) (238) (124)
Balance, end of year 10,718 10,771 10,862
As discussed in Note 13 – Employee Stock and Savings Plans, 344.6 million options were transferred to JPMorgan Chase
Bank (JPMorgan) under the stock option transfer program. The options transferred to JPMorgan were amended and
restated upon transfer to contain terms and conditions typical of equity option transactions entered into between
sophisticated financial counterparties at arm’s length using standard terms and definitions for equity derivatives. As of
June 30, 2004, the options have strike prices ranging from $33.03 to $101.25 per share and have expiration dates
between December 2005 and December 2006.
Our board of directors has approved a program to repurchase shares of our common stock to reduce the dilutive effect
of our stock option and stock purchase plans. A total of 618 million shares have been repurchased on open market
transactions over the last three fiscal years for approximately $16.2 billion. We repurchased 256 million shares for $6.9
billion, 238 million shares for $5.9 billion, and 124 million shares for $3.4 billion in fiscal 2002, 2003, and 2004,