News

Microsoft Shareholder Meeting Goes Smoothly

• By Kurt Mackie
• 11/15/2011

Shareholders confirmed Microsoft's board members and the company's auditor (Deloitte & Touche) at the annual meeting. All nine board nominees on the proxy statement were elected. Voters set a one-year consideration period on whether Microsoft executives are worthy of their pay hikes (Microsoft had argued that this "say on pay" assessment period should come up every three years). They also defeated a shareholder initiative that proposed making environmental considerations part of the board's business agenda.

A couple of shareholder comments sharply addressed dividend issues. One person asked why Microsoft did not treat its shareholders as owners. In response, Peter Klein, Microsoft's chief financial officer, said that Microsoft had distributed more than $170 billion over the last 10 years to its shareholders, and that dividends were increased 25 percent this past year. Another shareholder noted that Microsoft has more than $50 billion in cash reserves. Chairman Bill Gates replied that the important thing was not specific dividend payments but that the company has a profit stream. He added that the company needs its cash reserves to take on big risks during uncertain economic times.

Another shareholder asked about Microsoft abiding by government censorship policies in China with regard to the Internet search market. Microsoft pointed to its membership in the Global Network Initiative, an industry group coalition with few fixed principles for its member companies. Microsoft has to obey the laws in the countries within which it operates, but it also conducts dialogs with governments where free expression is limited, a Microsoft rep stated at the shareholder meeting.

Microsoft was asked about its views on a "tax holiday." That's the euphemistic phrase for a tax break bestowed on U.S.-based multinational companies. In the past, Congress has given such breaks to U.S. companies when they bring revenues earned abroad into the United States. Klein was in favor of Microsoft getting such a tax holiday. Ballmer concurred, and offered to take Microsoft's money elsewhere.

"Corporate taxes in the U.S….they don't look competitive to corporate taxes elsewhere and today tax policy actually gives incentives to companies -- essentially U.S. companies -- to invest outside the U.S.," Ballmer said. "That's why there's a need for a broader set of reforms. And certainly a tax repatriation, as Peter [Klein] said, would be a good thing."

Microsoft's recent Form 10-K filing with the U.S. Securities and Exchange Commission indicates just how much money Microsoft has abroad: about $44.8 billion.

"We have not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences of approximately $44.8 billion resulting from earnings for certain non-U.S. subsidiaries because they are permanently reinvested outside the U.S.," Form 10-Q states on page 32. "The unrecognized deferred tax liability associated with these temporary differences was approximately $14.2 billion as of June 30, 2011."

Microsoft's Form 10-Q also states that Microsoft faces financial uncertainties should U.S. tax laws be changed on foreign earnings. If such legislation were to pass, it would affect the company's cash flow, Microsoft states.

Microsoft's financials can be found at its investor relations page here.