Microsoft 2007 Annual Report Download - page 27

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table outlines the expected recognition of unearned revenue as of June 30, 2007:
(In millions) Recognition o
f
Unearned Revenue
Three months ended:
September 30, 2007 $4,021
December 31, 2007 3,245
March 31, 2008 2,264
June 30, 2008 1,249
Thereafter 1,867
Unearned revenue $12,646
Cash Flows
Fiscal year 2007 compared to fiscal year 2006
Cash flow from operations increased $3.39 billion due to an increase in cash received from customers driven by
15% revenue growth, along with a $1.64 billion decrease in cash outflow for other current assets primarily
reflecting changes in inventory. Cash used for financing increased $3.98 billion. Several events occurred during
fiscal year 2007 that affected cash used for financing. We issued $6.78 billion of common stock, including $3.25
billion related to 113 million call options exercised by JPMorgan in December 2006. We also completed our
tender offer on August 17, 2006, which was included in the $27.58 billion of common stock repurchases. Cash
from investing decreased $1.91 billion due to a $3.49 billion decline in securities lending activity where cash
collateral is received from the counterparty along with $1.19 billion spent on acquisitions of companies and
additions to property and equipment. These impacts were partially offset by a $2.77 billion increase in net cash
from combined investment purchases, sales, and maturities.
Fiscal year 2006 compared to fiscal year 2005
Cash flow from operations decreased $2.20 billion primarily due to increased payments to fund a $987 million
increase in Xbox 360 inventory and product costs and increased payments to employees resulting from a 16%
growth in headcount. These factors were partially offset by increased cash receipts from customers driven by our
11% revenue growth and a $1.74 billion increase in unearned revenue. Cash used in financing decreased $20.52
billion driven by a $32.57 billion reduction in cash dividend payments. This impact was partially offset by an
$11.15 billion increase in common stock repurchases. Net cash from investing decreased $7.02 billion driven
primarily by an $8.93 billion decrease in cash from combined purchase, sales, and maturities of investments and
a $766 million increase in additions to property and equipment. These factors were partially offset by $3.12 billion
of net cash proceeds from our securities lending program.
We have no material long-term debt. Stockholders’ equity at June 30, 2007, was $31.10 billion. 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. Commitments for
constructing new buildings were $821 million on June 30, 2007. We have operating leases for most U.S. and
international sales and support offices and certain equipment under which we incurred rental expense totaling
$326 million, $276 million, and $299 million in fiscal year 2007, 2006, and 2005, respectively. 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 requirements for capital resources. In May 2007,
we announced that we had entered into an agreement to purchase aQuantive, Inc. for approximately $6 billion in
cash. We expect to complete this transaction in August 2007.