Updated: July 11, 2020 (October 6, 2008)

  Analyst Report

Repurchase, Dividend Increase Approved

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A new share repurchase program authorizes Microsoft to buy up to US$40 billion of its own stock on the open market through the end of Sept. 2013. Microsoft’s board of directors has also increased the company’s quarterly dividend to US$0.13 per share.

Company May Assume Debt

Microsoft repurchases stock to reduce dilution from both employee stock options, which it used as compensation until 2003, and stock grants, which it currently offers. More subtly, repurchases can indicate to investors that the company believes its stock is undervalued.

The latest repurchase authorization comes immediately after the conclusion of a previous program, authorized in fall 2006, under which Microsoft was authorized to repurchase more than US$35 billion of stock. That program could have run through July 2011, but Microsoft completed it nearly three years early.

Microsoft has also authorized debt of up to US$6 billion in order to fund share repurchases and help manage working capital, and it plans to issue commercial paper (similar to a bond but with a shorter term) for up to US$2 billion—two firsts in the company’s history. The debt will be necessary if Microsoft spends more than its cash on hand, which stood at US$23.7 billion as of June 30, 2008.

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