Microsoft to buy back US$40 B of its stock over 5 years

July 21, 2006

Microsoft Corporation (NASDAQ:MSFT, HKSE:4338) has announced plans to buy back US$40 billion of its stock between now and 2011.

(All further figures in this article are in U.S. Dollars.)

Microsoft, the world's largest maker of computer software, will make a tender offer to repurchase $20 billion of its own stock by August 17, and will purchase another $20 billion by 2011. This is in addition to a previous $30 billion stock buyback offer it completed two years ago.

The company plans to accept offers in the form of a modified Dutch or “reverse auction”, and based on those offers for stock, come up with a price no less than $22.50 and no more than $24.75, that allows it to buy up to about 8.1% of the common shares outstanding, up to either 808,080,808 shares, or $20 billion. The company stated that it will not purchase shares below a price stipulated by a shareholder, and in some cases, may actually purchase shares at prices above a shareholder’s indication under the terms of the modified Dutch auction. Prior to the announcement, Microsoft shares were trading at $22.75, with the announcement causing share prices to rise $1.32, or 5.8%, to $24.17.

Microsoft has been criticized in the past for "sitting on" huge reserves of cash without making additional purchases of companies or technology.

The company expects to sell more units of its Xbox 360 game console, which currently is unprofitable, helping to shore up weaker earnings from its Office flagship software package, of which a new version is not expected until sometime next year.

On July 20 the company said profit for the year will be $1.43 to $1.47 a share, an increase from an April forecast of $1.36 to $1.41. For the quarter ending September, expected profit will be 30-32c/share on revenue of between $10.6-$10.8 billion. For fiscal 2006, earnings were 11% higher than the previous year, at $12.6 billion on revenues of $44.28 billion, or $1.20 per share. In the year-ago quarter, Microsoft reported net income of $3.70 billion, with legal expenses of 5 cents per share plus tax benefits of 9 cents per share. This produced a net income of 34 cents per share for the quarter, opposed to the 31 cents which would have occurred without the tax benefits. For the previous fiscal year, income was $12.25 billion on revenue of $39.79 billion, or $1.13 per share.

Microsoft held an audio web-cast at 2:30 p.m. PDT (5:30 p.m. EDT) July 20 with Chris Liddell, senior vice president and chief financial officer, Frank Brod, corporate vice president and chief accounting officer, and Colleen Healy, general manager of Investor Relations. The session may be accessed at the Microsoft website. The web-cast will be available for replay through the close of business on July 20, 2007.