million of Qwest Communications International Inc. common stock.

Microsoft and National Broadcasting Company (NBC) operate two MSNBC joint ventures: a 24-hour cable news and information channel, and an online news service.  Microsoft is paying $220 million over a five-year period that ends in 2001 for its interest in the cable venture and one-half of the operational funding of both joint ventures.  Microsoft guarantees a portion of MSNBC debt.

Microsoft has no material long-term debt and has $164 million of standby multicurrency lines of credit to support foreign currency hedging and cash management.  Stockholders’ equity at June 30, 2000 was $41.37 billion.

Microsoft will continue to invest in sales, marketing, and product support infrastructure.  Additionally, research and development activities will include investments in existing and advanced areas of technology, including using cash to acquire technology.  Additions to property and equipment will continue, including new facilities and computer systems for R&D, sales and marketing, support, and administrative staff.  Commitments for constructing new buildings were $299 million on June 30, 2000.  Cash will also be used to fund ventures and other strategic opportunities.

Since fiscal 1990, Microsoft has repurchased 765 million common shares while 1.99 billion shares were issued under the Company’s employee stock option and purchase plans.  Microsoft enhanced its repurchase program by selling put warrants.  In January 2000, the Company terminated its stock buyback program.  Subsequent to fiscal year-end 2000, the Company announced a share repurchase program which will provide shares for issuance to employees under the Company’s stock option and stock purchase programs.  The market value of all outstanding stock options was $67 billion as of June 30, 2000.  During December 1996, Microsoft issued 12.5 million shares of 2.75% convertible exchangeable preferred stock.  Net proceeds of $980 million were used to repurchase common shares.  The Company’s convertible preferred stock matured on December 15, 1999.  Each preferred share was converted into 1.1273 common shares.  

Management believes existing cash and short-term investments together with funds generated from operations will be sufficient to meet operating requirements.  The Company’s cash and short-term investments are available for strategic investments, mergers and acquisitions, and other potential large-scale cash needs that may arise.  Microsoft has not paid cash dividends on its common stock.



Recently Issued Accounting Standards



Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 137, Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, is effective for the Company as of July 1, 2000.  SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities measured at fair value.  The accounting for changes in the fair value of a derivative depends on the use of