Ticker: MSFT
Sector: Technology
Industry: Software
Microsoft Corporation
Recommendation: HOLD
Recommendation: HOLD
Pricing
Closing Price $25.55 (10/09/09)
52-wk High $26.25 (09/23/09) We currently have 1700 shares of MSFT. It is around 3.92% of
52-wk Low $14.87 (03/06/09) our total share. My recommendation is holding them. Although
financial performance in 2009 was not good because of world
economic depression, Microsoft Corporation (MS) still have
dominant position in computer OS and it has good pipelines for
Market Data future technology. It invests much money (around 15%) for
Market Cap $227.67B R&D and innovation and is continuously preparing for the
Total assets $78B future market opportunities trying to reduce cost.
Trading vol 50.86M (3mon avg)
In its all business area, MS has good signals for future growth. It
Valuation reorganized the Windows Live operations and had a 10 year
EPS (ttm) $-13.36 agreement with Yahoo for online advertisement business in
P/E (ttm) 15.77 2009. MS prepares new efficient search engine „bing.com‟ and
PEG 2.23 new efficient OS, window 7 is ready to go. New high tech
Div Yield 2.00% motion and voice recognition technology for XBOX360 is ready
to compete with other game console and especially MS office
products are doing well. I think, when economy is getting better,
Profitability & Effectiveness (ttm) these kinds of MS‟s opportunities will be used to get
ROA 17.40% competitive advantage and driving force.
ROE 38.42%
Profit Margin 24.93%
Oper Margin 35.90%
Based on my analysis with conservative view, it seems like
Gross Margin 79.20% Microsoft is a bit over valued now. However, this result depends
on how we are looking at MS. Although its financial result is
not good in 2009 owing to economic affluence, it has much
potency to grow in its business area and also its dominating
market power as a technology leader is not too small to cut off
its value easily. According to annual report, As of June 30, 2009,
long-term unsecured debt rating was AAA from Standard &
Poor‟s. Its profit ratio is quite high as seen left chart. Fiscal
Eun Sang (Ian) Yoo strength and prudent approach to investment, a strong pipeline
ey6v4@mail.missouri.edu
of products, and a renewed focus on efficiency are vehicle of
MS for responding the changing economic environment with
speed and success.
1
COMPANY PROFILE
Microsoft Corporation is overwhelming informational technology big brother. Although
it started as a small outsourcing software company of IBM in 1970s, it has grown up
amazingly as dominating Operating System Software Company in so called world
“Wintel” computer exploration.
MS is engaged in developing, manufacturing, licensing, and supporting a range of
software products and services for different types of computing devices.
Its five business segments are Client, Server and Tools, Online Services Business,
Microsoft Business Division, and Entertainment and Devices Division.
The software products and services include operating systems for servers, personal
computers, and intelligent devices; server applications for distributed computing
environments; information worker productivity applications; business solutions
applications; computing applications; software development tools, and video games. The
Company provide consulting and product and solution support services, and trains and
certifies computer system integrators and developers. It also designs and sells hardware,
including Xbox 360 video game console, the Zune digital music and entertainment device,
and peripherals.
BUSINESS SEGMENT AND PERFORMANCES
In short, financial performance in 2009 was bad in most of its business area because of
economic depression and competition is high. However, MS is working hard and doing good job
for preparing future growth. It also has high possibility to lead future competition.
Client $ 14,712
Server and Tools 14,126
Online Services Business 3,088
Microsoft Business Division 18,894
Entertainment and Devices Division 7,753
Unallocated and other -136
2
As you see in the chart, MS‟s business is based on, easily speaking, Window OS (Client), Office
Suits type products (Business Division), server business (Server and tools), and XBOX type
entertainment (EDD) in major. It also has online service such as mail and web searching.
For more detail figure to understand its business area, please see Appendix 1. In overall, 2009
performance was decreased and especially, MS is losing money on online service business in
operation. They spent money on rebuilding its window live system and acquisition for new web
search engine “Bing”.
You can see more detail descriptions and explanation below:
I. Client
Selling Window Family Products
Detail Info
Explanation The Client segment has the overall responsibility for technical architecture,
engineering and delivery of the Windows product family and is responsible for
the relationships with personal computer manufacturers, including
multinational and regional original equipment manufacturers (OEMs). The
Client offerings consist of premium and standard edition Windows operating
systems.
Products Windows Vista, including Home Basic, Home Premium, Ultimate, Business,
Enterprise, and Starter Edition; Windows XP, including Professional, Home,
Media Center, and Tablet PC Edition, and other Windows operating systems.
Competitor Apple, Canonical, Red Hat, Google, Mozilla, Opera Software Company,
Hewlett-Packard and Intel in this segment.
Good News: Window 7 is ready to go
Windows 7, the latest version of Windows, was released to manufacturing in July 2009
and is expected to be generally available on October 22, 2009. MS will enjoy much
revenue from Window 7 as it has been enjoying money whenever launching OS.
Competition is high. Window is fighting for Linux, UNIX, and other platforms.
II. Server and Tools
MS is doing server and tool business and also giving consulting service for customers.
Competition is intensive. Recently MS presented Window Server 2008 R2 new version. Here is
more detail information about this business below.
Business The Server and Tools segment is engaged in developing and marketing software server
Overview products, software developer tools, services, and solutions. Windows Server-based
products are integrated server infrastructure and middleware software designed to
support software applications built on the Windows Server operating system. Windows
Server-based products include the server platform, including targeted segment solutions,
3
database, storage, management and operations, service-oriented architecture platform,
and security and identity software. The segment also builds standalone and software
development lifecycle tools for software architects, developers, testers, and project
managers. Server products can be run on-site, in a partner-hosted environment, or in a
Microsoft-hosted environment.
The Company offers a range of consulting services and provide product support services
that assist customers in developing, deploying, and managing Microsoft server and
desktop solutions. It also provides training and certification to developers and
information technology professionals about the Server and Tools, Microsoft Business
Division, and Client platform products.
Products and Windows Server operating system; Microsoft SQL Server; Visual Studio; Silverlight;
Services System Center products; Forefront security products; Biz Talk Server; Microsoft
Consulting Services; Premier product support services, and other products and services.
Competitors Hewlett-Packard; IBM; Sun Microsystems; Novell; Red Hat; Oracle; CA, Inc.; Apache;
Linux; MySQL; PHP; Geronimo; JBoss; Spring Framework; VMWare; McAfee;
Symantec; Trend Micro; Adobe and Borland.
Others Windows Server 2008 R2, the latest version of the Windows Server operating system
was released to manufacturing in July 2009 and is available in September 2009. Its
server operating system products face intense competition from a wide variety of server
operating systems and server applications, offered by companies with a variety of
market approaches. Vertically integrated computer manufacturers such as Hewlett-
Packard, IBM, and Sun Microsystems offer their own versions of the Unix operating
system preinstalled on server hardware and many other companies are competing with
MS.
III. Online Services Business
MS had much better search engine “Bing” in 2009 and also had a 10 year long term
agreement with Yahoo Inc to compete with Google advertising. Moreover, it rebuilt
Window Live System in early 2009 to get better service.
Detail Info:
The Online Services Business (OSB) consists of an online advertising platform with
offerings for both publishers and advertisers, online information offerings, such as Bing,
MSN Portals and channels, and personal communications services, such as e-mail and
instant messaging. During the fiscal year ended June 30, 2009 (fiscal 2009), the Company
launched new releases of its advertising platforms, including adCenter and adExpert, and
launched a new release of its search engine named Bing. The Company have also updated
behavioral targeting tools, launched new releases of MSN properties globally, and added
applications and services to the existing Windows Live suite. The products offered by the
Company in this segment includes Bing; Microsoft adCenter/adExpert; Microsoft Media
Network (MMN); MSN portals, channels, and mobile services; Windows Live suite of
applications and mobile services; Atlas online tools for advertisers and publishers; MSN
4
Premium Web Services (consisting of MSN Internet Software Subscription, MSN
Hotmail Plus, and MSN Software Services), and Razorfish media agency services.
Competitors: AOL, Google and Yahoo! in this segment.
IV. Microsoft Business Division
It is the biggest revenue in MS. MS Office system brings lots of cash. Its business is good
and also service for Apple. But, competition is also high.
More detail info:
Microsoft Business Division (MBD) consists of the Microsoft Office system and
Microsoft Dynamics business solutions. Microsoft Office system products are designed
to improve personal, team, and organization productivity through a range of programs,
services and software solutions. Microsoft Dynamics products provide business solutions
for financial management, customer relationship management, supply chain management,
and analytics applications for small and mid-size businesses, large organizations, and
divisions of global enterprises.
The products of the Company in this segment include Microsoft Office; Microsoft Office
Project; Microsoft Office Visio; Microsoft Office SharePoint Server; FAST ESP;
Microsoft Exchange Server; Microsoft Exchange Hosted Services; Microsoft Office Live
Meeting; Microsoft Office Communications Server; Microsoft Office Communicator;
Microsoft Tellme Service; Microsoft Dynamics ERP products, including AX, NAV, GP,
SL, Retail Management System, and Point of Sale; Microsoft Dynamics CRM, and
Microsoft Dynamics CRM Online.
The Company competes with Adobe, Apple, Corel, Google, IBM, Novell, Oracle, Red
Hat, Zoho, IBM, Sun Microsystems, 37Signals, Adobe, AjaxWrite, gOffice, ShareOffice,
SocialText, ThinkFree, Zoho, Intuit, Sage, SAP, Salesforce.com, Autonomy, Cisco and
Endeca in this segment.
Entertainment and Devices Division
XBOX strategy is providing discount whenever it is necessary and it made revenue
decreased but its cost also has been decreased. Recently, MS developed fantastic motion
and voice recognition device for XBOX game console and it would be great comparative
weapon to compete with other competitors. It also playing major effort to raise digital
biological system for music business Zune.
Detail Info:
The Entertainment and Devices Division (EDD) is responsible for developing, producing,
and marketing the Xbox video game system, including consoles and accessories, third-
party games, games published under the Microsoft brand, and Xbox Live operations, as
5
well as research, sales, and support of those products. In addition to Xbox, EDD offers
the Zune digital music and entertainment device and accessories; personal computer (PC)
software games; online games; Mediaroom, the Internet protocol television software; the
Microsoft Surface computing platform and mobile and embedded device platforms.
EDD is also engaged in the development of consumer software and hardware products,
including application software for Macintosh computers and Microsoft PC hardware
products, and is responsible for all retail sales and marketing for Microsoft Office and the
Windows operating systems. The products of the Company in this segment includes
Xbox 360 console and games; Xbox Live; Zune; Mediaroom; numerous consumer
software and hardware products (such as mice and keyboards); Windows Mobile
software and services platform; Windows Embedded device operating system; Windows
Automotive, and the Microsoft Surface computing platform.
The Company competes with Nintendo, Sony, Apple, Google, Nokia, Openwave Systems,
Pal, QUALCOMM, Research In Motion, Symbian, IBM, Intel, Metrowerks and
MontaVista Software.
SWOT
Strength
- Powerful business products such as Window and office
- Spending much money for R&D ( around 15%)
- Continuously develop new technology
- Good financial statement
Weakness
- Online market such as search engine and advertisement was weak. However it
launched Bing and work with Yahoo through 10 year agreements
Opportunity
- Getting more IT world. Small devices and digital work places
Threatens
- High competition in all business areas
- Economy is still slow to recover
ECONOMIY AND INDUSTRY OVERVIEW
Technology was driving force of the recent stock price mount in the market and portfolio
community decided to rise its share from 5 to 7 % according to this. However, high-tech MS‟s
bad finance result made the market to feel doubt on the rising mood.
6
In October report, IFM Economy community announced that economy will recover slowly and
MS business is quite much correlated with economy – especially PC sales and consumer
spending according to MS Annual Report 2009.
Based on MS business overview, it has many pipeline to gain competition power and I think that
MS will have growth this year around 5% and later it will grow around 9% for around 5 more
years.
FINANCIAL ANALYSIS
Overall, MS‟s financial statement is healthy. It doesn‟t have heavy debt and margin is good.
2009 recession was hard struggle for MS.
This chart shows annual Income Statement graphs. Is revenue and net income has been relatively
continuously increased but in 2009 because of the depression, it had been decreased.
Its 4QT net income has been increased from $2,977 to $3,045 in Millions. ( See Appendix 2)
RATIO ANALYSIS
Most of ratios look fine. Company met hard barrier of world economic crisis but other financial
health, margin and efficiency shows this crisis is temporary and MS is still healthy company.
7
Beta is quite high and P/E High and Low for last 5 years are better than market.
It is paying good dividend to shareholders.
Company has been influenced badly because of the recession.
LT debt and total debt ratio is relatively low compared to market and it shows MS has good
financial structure.
8
Its margin is very good.
Also, its efficiencies are relatively high.
STOCK PRICE PERFORMANCE
9
MS has over performed S&P 500 for a year.
However, compared its competitors, MS has underperformed.
DCF Valuation
I used the Owner Earnings model to find the intrinsic value of Microsoft Corporation.
I calculated the discount rate taking the risk free rate, beta, and the market risk premium. I used
an average beta of .93, a risk-free rate of 0.04% corresponding to the 3-month Treasury bill yeild
and a market return of 11%. Using these numbers, the discount rate works out to be:
K= 0.04+0.93*(11-0.04)= 10.2328 %
After analyzing company, I thought that company would grow as this chart below
FIRST STAGE Year:
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Prior Year Free Cash Flow $ 6,050.0 $ 6,352.5 $ 6,797.2 $ 7,408.9 $ 8,075.7 $ 8,802.5 $ 9,858.8 $ 11,140.5 $ 12,811.6 $ 14,733.3
First Stage Growth Rate (add) 5% 7% 9% 9% 9% 12% 13% 15% 15% 15%
The reason I assume is that in early year its growth rate would not be high. However as I was
able to check its growth rate for last several years, I though later on it would growth more than
12% a year. It is because MS shows that much growth rate at past as a pattern and also it has
much possibility to lead that much growth. I assumed 2nd stage growth rate as 3%.
However, intrinsic value based on this model was only $17.31 compared to market price as
$25.79. It was way more over valued based on my model.
10
The reasonable guessing would be that 1) current result was from temporary bad financial crisis,
2) MS has many pipe line to lead future growth and 3) its credit score is way high as triple A and
its competitive power is strong enough. So, we can apply bit lower discount rate on its business.
Based on my guessing, when I try again assuming 8% as discount rate, intrinsic value became
$25.95 and it was quite much as current market price.
Sensitivity analysis is as below:
First Stage Growth
Discount
Rate 3% 5% 7% 9% 11%
9% $12.11 $14.08 $16.38 $19.06 $22.17
10% $10.47 $12.11 $14.01 $16.22 $18.79
11% $9.25 $10.64 $12.25 $14.12 $16.28
Final Recommendation: HOLD
As seen so far, MS is a good company but had been influenced because of financial crisis much
in recent year. It was not by their ability but by much reduced customer spending. It has good
financial structure and has many opportunities in its business area to lead future growth which
became good revenue source in past. Although market recovery speed is not fast and MS seems
over valued because of recent financial performance, considering all its condition and possibility,
to keep its shares would be wise decision.
Sources
www.morningstar.com
www.reuters.com
finance.google.com
finance.yahoo.com
http://www.microsoft.com/msft/default.mspx
Microsoft Annual Report 09
11
Appendix
1. Business Historical Finance Chart
Microsoft Corporation
Recasted Segment Information tables for the quarter ended June 30, 2008 and June 30, 2009
(In millions)
For the three months ended For the three months ended
September December March June Fiscal September December March June Fiscal
Revenue 30, 2007 31, 2007 31, 2008 30, 2008 Year 2008 30, 2008 31, 2008 31, 2009 30, 2009 Year 2009
Client $ 4,139 $ 4,334 $ 4,033 $ 4,359 $ 16,865 $ 4,218 $ 3,982 $ 3,404 $ 3,108 $ 14,712
Server and Tools 2,882 3,261 3,238 3,721 13,102 3,406 3,743 3,467 3,510 14,126
Online Services Business 671 863 843 837 3,214 770 866 721 731 3,088
Microsoft Business Division 4,117 4,815 4,731 5,266 18,929 4,949 4,876 4,505 4,564 18,894
Entertainment and Devices Division 1,948 3,076 1,592 1,590 8,206 1,814 3,183 1,567 1,189 7,753
Unallocated and other 5 18 17 64 104 -96 -21 (16) (3) -136
Consolidated $ 13,762 $ 16,367 $ 14,454 $ 15,837 $ 60,420 $ 15,061 $ 16,629 $ 13,648 $ 13,099 $ 58,437
For the three months ended For the three months ended
September December March June Fiscal September December March June Fiscal
Operating Income (Loss) 30, 2007 31, 2007 31, 2008 30, 2008 Year 2008 30, 2008 31, 2008 31, 2009 30, 2009 Year 2009
Client $ 3,375 $ 3,365 $ 3,115 $ 3,250 $ 13,105 $ 3,252 $ 2,923 $ 2,514 $ 2,167 $ 10,856
Server and Tools 937 1,153 1,080 1,369 4,539 1,148 1,486 1,344 1,349 5,327
Online Services Business (265) (246) (226) (485) (1,222) (477) (469) (575) (732) (2,253)
Microsoft Business Division 2,697 3,186 3,127 3,359 12,369 3,304 3,144 2,877 2,816 12,141
Entertainment and Devices Division 186 376 106 (171) 497 179 151 (31) (130) 169
Corporate-level activity (1,081) (1,381) (2,912) (1,643) (7,017) (1,407) (1,296) (1,691) (1,483) (5,877)
Consolidated $ 5,849 $ 6,453 $ 4,290 $ 5,679 $ 22,271 $ 5,999 $ 5,939 $ 4,438 $ 3,987 $ 20,363
12
2. QT I/S
Microsoft Corporation
Quarterly Income Statements
in millions, except earnings per share
Q4-05*** Q1-06*** Q2-06*** Q3-06*** Q4-06*** Q1-07** Q2-07** Q1-09 Q2-09 Q3-09 Q4-09
Revenue $10,161 $9,741 $11,837 $10,900 $11,804 $10,811 $12,542 $15,061 $16,629 $13,648 $13,099
Operating expenses:
Cost of revenue 1,388 1,253 2,239 2,028 2,130 1,696 3,620 2,848 3,907 2,814 2,586
Research and development 1,664 1,515 1,591 1,617 1,861 1,786 1,637 2,283 2,290 2,212 2,225
Acquired in-process technology
Sales and marketing 2,707 1,945 2,689 2,362 2,822 2,234 3,038 3,044 3,662 2,981 3,192
General and administrative 1,413 982 661 1,005 1,110 664 814 887 831 913 1,069
Employee severance 290 40
Other expenses
Total operating expenses 7,172 5,695 7,180 7,012 7,923 6,380 9,109 9,062 10,690 9,210 9,112
Operating income 2,989 4,046 4,657 3,888 3,881 4,431 3,433 5,999 5,939 4,438 3,987
Other income (expense) 872 506 480 427 377 610 372 (8) (301) (388) 155
Noncontinuing items
Income before income taxes 3,861 4,552 5,137 4,315 4,258 5,041 3,805 5,991 5,638 4,050 4,142
Provision for income taxes 161 1,411 1,484 1,338 1,430 1,563 1,179 1,618 1,464 1,073 1,097
Income before accounting change 3,700 3,141 3,653 2,977 2,828 3,478 2,626 4,373 4,174 2,977 3,045
Cumulative effect of accounting change
Net income $ 3,700 $ 3,141 $ 3,653 $ 2,977 $ 2,828 $ 3,478 $ 2,626 $ 4,373 $ 4,174 $ 2,977 $ 3,045
Preferred stock dividends
Net income available for common shareholders $ 3,700 $ 3,141 $ 3,653 $ 2,977 $ 2,828 $ 3,478 $ 2,626 $ 4,373 $ 4,174 $ 2,977 $ 3,045
Basic EPS before accounting change $0.34 $0.29 $0.35 $0.29 $0.28 $0.35 $0.27 $0.48 $0.47 $0.33 $0.34
Diluted EPS before accounting change $0.34 $0.29 $0.34 $0.29 $0.28 $0.35 $0.26 $0.48 $0.47 $0.33 $0.34
Basic earnings per share $0.34 $0.29 $0.35 $0.29 $0.28 $0.35 $0.27 $0.48 $0.47 $0.33 $0.34
Diluted earnings per share $0.34 $0.29 $0.34 $0.29 $0.28 $0.35 $0.26 $0.48 $0.47 $0.33 $0.34
13
INCOME STATEMENTS
(In millions, except per share amounts)
Year Ended June 30, 2009 2008 2007
Revenue $ 58,437 $ 60,420 $ 51,122
Operating expenses:
Cost of revenue 12,155 11,598 10,693
Research and development 9,010 8,164 7,121
Sales and marketing 12,879 13,260 11,541
General and administrative 3,700 5,127 3,329
Employee severance 330 – –
Total operating expenses 38,074 38,149 32,684
Operating income 20,363 22,271 18,438
Other income (expense) (542 ) 1,543 1,663
Income before income taxes 19,821 23,814 20,101
Provision for income taxes 5,252 6,133 6,036
Net income $ 14,569 $ 17,681 $ 14,065
Earnings per share:
Basic $ 1.63 $ 1.90 $ 1.44
Diluted $ 1.62 $ 1.87 $ 1.42
Weighted average shares outstanding:
Basic 8,945 9,328 9,742
Diluted 8,996 9,470 9,886
Cash dividends declared per common share $ 0.52 $ 0.44 $ 0.40
See accompanying notes.
14
BALANCE SHEETS
(In millions)
June 30, 2009 2008
Assets
Current assets:
Cash and cash equivalents $ 6,076 $ 10,339
Short-term investments (including securities pledged as collateral of $1,540 and
$2,491) 25,371 13,323
Total cash, cash equivalents, and short-term investments 31,447 23,662
Accounts receivable, net of allowance for doubtful accounts of $451 and $153 11,192 13,589
Inventories 717 985
Deferred income taxes 2,213 2,017
Other 3,711 2,989
Total current assets 49,280 43,242
Property and equipment, net of accumulated depreciation of $7,547 and $6,302 7,535 6,242
Equity and other investments 4,933 6,588
Goodwill 12,503 12,108
Intangible assets, net 1,759 1,973
Deferred income taxes 279 949
Other long-term assets 1,599 1,691
Total assets $ 77,888 $ 72,793
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 3,324 $ 4,034
Short-term debt 2,000 –
Accrued compensation 3,156 2,934
Income taxes 725 3,248
Short-term unearned revenue 13,003 13,397
Securities lending payable 1,684 2,614
Other 3,142 3,659
Total current liabilities 27,034 29,886
Long-term debt 3,746 –
Long-term unearned revenue 1,281 1,900
Other long-term liabilities 6,269 4,721
Commitments and contingencies
Stockholders’ equity:
Common stock and paid-in capital – shares authorized 24,000; outstanding 8,908
and 9,151 62,382 62,849
Retained deficit, including accumulated other comprehensive income of $969 and
$1,140 (22,824 ) (26,563 )
Total stockholders’ equity 39,558 36,286
Total liabilities and stockholders’ equity $ 77,888 $ 72,793
See accompanying notes.
15
CASH FLOWS STATEMENTS
(In millions)
Year Ended June 30, 2009 2008 2007
Operations
Net income $ 14,569 $ 17,681 $ 14,065
Adjustments to reconcile net income to net cash from operations:
Depreciation, amortization, and other noncash items 2,562 2,056 1,440
Stock-based compensation 1,708 1,479 1,550
Net recognized losses (gains) on investments and derivatives 683 (572 ) (292 )
Excess tax benefits from stock-based compensation (52 ) (120 ) (77 )
Deferred income taxes 762 935 421
Deferral of unearned revenue 24,409 24,532 21,032
Recognition of unearned revenue (25,426 ) (21,944 ) (19,382 )
Changes in operating assets and liabilities:
Accounts receivable 2,215 (1,569 ) (1,764 )
Other current assets (422 ) 153 232
Other long-term assets (273 ) (98 ) (435 )
Other current liabilities (3,371 ) (748 ) (552 )
Other long-term liabilities 1,673 (173 ) 1,558
Net cash from operations 19,037 21,612 17,796
Financing
Short-term borrowings, maturities of 90 days or less, net 1,178 – –
Proceeds from issuance of debt, maturities longer than 90 days 4,796 – –
Repayments of debt, maturities longer than 90 days (228 ) – –
Common stock issued 579 3,494 6,782
Common stock repurchased (9,353 ) (12,533 ) (27,575 )
Common stock cash dividends (4,468 ) (4,015 ) (3,805 )
Excess tax benefits from stock-based compensation 52 120 77
Other (19 ) – (23 )
Net cash used in financing (7,463 ) (12,934 ) (24,544 )
Investing
Additions to property and equipment (3,119 ) (3,182 ) (2,264 )
Acquisition of companies, net of cash acquired (868 ) (8,053 ) (1,150 )
Purchases of investments (36,850 ) (20,954 ) (36,308 )
Maturities of investments 6,191 2,597 4,736
Sales of investments 19,806 25,132 41,451
Securities lending payable (930 ) (127 ) (376 )
Net cash from (used in) investing (15,770 ) (4,587 ) 6,089
Effect of exchange rates on cash and cash equivalents (67 ) 137 56
Net change in cash and cash equivalents (4,263 ) 4,228 (603 )
Cash and cash equivalents, beginning of period 10,339 6,111 6,714
Cash and cash equivalents, end of period $ 6,076 $ 10,339 $ 6,111
See accompanying notes.
16
STOCKHOLDERS’ EQUITY STATEMENTS
(In millions)
Year Ended June 30, 2009 2008 2007
Common stock and paid-in capital
Balance, beginning of period $ 62,849 $ 60,557 $ 59,005
Common stock issued 567 3,504 6,783
Common stock repurchased (2,611 ) (3,022 ) (6,162 )
Stock-based compensation expense 1,708 1,479 1,550
Stock-based compensation income tax benefits (deficiencies) (128 ) 253 (661 )
Other, net (3 ) 78 42
Balance, end of period 62,382 62,849 60,557
Retained deficit
Balance, beginning of period (26,563 ) (29,460 ) (18,901 )
Cumulative effect of a change in accounting principle – adoption of
FIN 48 – (395 ) –
Cumulative effect of a change in accounting principle – adoption of
EITF 06-2 – (17 ) –
Net income 14,569 17,681 14,065
Other comprehensive income:
Net unrealized gains on derivatives 302 18 14
Net unrealized gains (losses) on investments (233 ) (653 ) 326
Translation adjustments and other (240 ) 121 85
Comprehensive income 14,398 17,167 14,490
Common stock cash dividends (4,620 ) (4,084 ) (3,837 )
Common stock repurchased (6,039 ) (9,774 ) (21,212 )
Balance, end of period (22,824 ) (26,563 ) (29,460 )
Total stockholders’ equity $ 39,558 $ 36,286 $ 31,097
17