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Notes to Financial Statements continued (in millions)

 

Income Taxes                  
                    
                    
The provision for income taxes consisted of:                  
                    
                    
Year Ended June 30 1998    1999    2000   
                    
                    
                    
Current taxes:                  
                    
   U.S. and state $ 2,518    $    4,027    $    4,744   
                    
   International 526    281    535   
  
  
  
  
      Current taxes 3,044    4,308    5,279   
                    
Deferred taxes (417 ) (202 ) (425 )
  
  
  
  
         Provision for income taxes $ 2,627    $    4,106    $    4,854   
  
  
  
  
                    
                    
U.S. and international components of income before income taxes were:                  
                    
                    
                    
Year Ended June 30 1998    1999    2000   
                    
                    
                    
U.S. $ 5,072    $   10,649    $   11,860   
                    
International 2,045    1,242    2,415   
  
  
  
  
   Income before income taxes $ 7,117    $  11,891    $  14,275   
  
  
  
  
                    
                    

     The effective income tax rate increased to 36.9% in 1998 due to the nondeductible write-off of WebTV in-process technologies. In 1999, the effective tax rate was 35.0%, excluding the impact of the gain on the sale of Softimage, Inc. In 2000, the effective tax rate was 34.0%, and included the effect of a 2.5% reduction from the U.S. statutory rate for tax credits and a 1.5% increase for other items. The components of the differences between the U.S. statutory tax rate and the Company's effective tax rate in 1998 and 1999 were not significant.

Deferred income taxes as of June 30 were:            
              
              
   1999    2000   
              
              
              
Deferred income tax assets:            
              
   Revenue items $   1,145    $   1,320   
              
   Expense items 648    2,122   
  
  
  
      Deferred income tax assets 1,793    3,442   
  
  
  
Deferred income tax liabilities:            
              
   Unrealized gain on investments (1,046 ) (874 )
              
   International earnings (647 ) (1,766 )
              
   Other (16 ) (121 )
  
  
  
      Deferred income tax liabilities $ (1,709 ) $ (2,761 )
  
  
  

     The Internal Revenue Service (IRS) has assessed taxes for 1990 and 1991, which the Company is contesting in U.S. Tax Court. Income taxes, except for taxes related to the 1990 and 1991 assessments, have been settled with the IRS for all years through 1994. The IRS is examining the Company's U.S. income tax returns for 1995 and 1996. Management believes any related adjustments that might be required will not be material to the financial statements. Income taxes paid were $1.1 billion in 1998, $874 million in 1999, and $800 million in 2000.

 

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Last updated May 27, 2010

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