NAME: ROLL NO: CLASS:

RAJESH DAWAT 88 TYBBI

PROJECT:

MICROSOFT CORPORATION

MICROSOFT CORPORATION 2011 AUDITORS REPORT

INCOME STATEMENTS

(In millions, except per share amounts)

Year Ended June 30,

2011

2010

2009

Revenue

69,943

62,484

58,437

Operating expenses:

Cost of revenue

15,577

12,395

12,155

Research and development

9,043

8,714

9,010

Sales and marketing

13,940

13,214

12,879

General and administrative

4,222

4,063

4,030

Total operating expenses

42,782

38,386

38,074

Operating income

27,161

24,098

20,363

Other income (expense)

910

915

(542 )

Income before income taxes

28,071

25,013

19,821

Provision for income taxes

4,921

6,253

5,252

Net income

23,150

18,760

14,569

Earnings per share:

Basic

2.73

2.13

1.63

Diluted

2.69

2.10

1.62

Weighted average shares outstanding:

Basic

8,490

8,813

8,945

Diluted

8,593

8,927

8,996

Cash dividends declared per common share

0.64

0.52

0.52

BALANCE SHEETS
(In millions)

June 30,

2011

2010

Assets

Current assets:

Cash and cash equivalents

9,610

5,505

Short-term investments (including securities loaned of $1,181 and $62)

43,162

31,283

Total cash, cash equivalents, and short-term investments

52,772

36,788

Accounts receivable, net of allowance for doubtful accounts of $333 and $375

14,987

13,014

Inventories

1,372

740

Deferred income taxes

2,467

2,184

Other

3,320

2,950

Total current assets

74,918

55,676

Property and equipment, net of accumulated depreciation of $9,829 and

8,162

7,630

$8,629

Equity and other investments

10,865

7,754

Goodwill

12,581

12,394

Intangible assets, net

744

1,158

Other long-term assets

1,434

1,501

Total assets

$ 108,704

86,113

Liabilities and stockholders equity

Current liabilities:

Accounts payable

4,197

4,025

Short-term debt

1,000

Accrued compensation

3,575

3,283

Income taxes

580

1,074

Short-term unearned revenue

15,722

13,652

Securities lending payable

1,208

182

Other

3,492

2,931

Total current liabilities

28,774

26,147

Long-term debt

11,921

4,939

Long-term unearned revenue

1,398

1,178

Deferred income taxes

1,456

229

Other long-term liabilities

8,072

7,445

Total liabilities

51,621

39,938

Commitments and contingencies

Stockholders equity:

Common stock and paid-in capital shares authorized 24,000; outstanding 8,376 and 8,668

63,415

62,856

Retained deficit, including accumulated other comprehensive income of $1,863 and $1,055

(6,332 )

(16,681 )

Total stockholders equity

57,083

46,175

Total liabilities and stockholders equity

$ 108,704

86,113

CASH FLOWS

(In millions)

Year Ended June 30,

2011

2010

2009

Operations

Net income

23,150

18,760

14,569

Adjustments to reconcile net income to net cash from operations:

Depreciation, amortization, and other

2,766

2,673

2,562

Stock-based compensation expense

2,166

1,891

1,708

Net recognized losses (gains) on investments and derivatives

(362 )

(208 )

683

Excess tax benefits from stock-based compensation

(17

(45

(52

Deferred income taxes

(220 )

762

Deferral of unearned revenue

31,227

29,374

24,409

Recognition of unearned revenue

(28,935 )

(28,813 )

(25,426 )

Changes in operating assets and liabilities:

Accounts receivable

(1,451 )

(2,238 )

2,215

Inventories

(561 )

(44 )

255

Other current assets

(1,259 )

464

(677 )

Other long-term assets

62

(223 )

(273 )

Accounts payable

58

844

(671 )

Other current liabilities

(1,146 )

451

(2,700 )

Other long-term liabilities

1,294

1,407

1,673

Net cash from operations

26,994

24,073

19,037

Financing

Short-term debt borrowings (repayments), maturities of 90 days or less, net

(186 )

(991 )

1,178

Proceeds from issuance of debt, maturities longer than 90 days

6,960

4,167

4,796

Repayments of debt, maturities longer than 90 days

(814 )

(2,986 )

(228 )

Common stock repurchased

(11,555 )

(11,269 )

(9,353 )

Common stock cash dividends paid

(5,180 )

(4,578 )

(4,468 )

Excess tax benefits from stock-based compensation

17

45

52

Other

(40 )

10

(19 )

Net cash used in financing

(8,376 )

(13,291 )

(7,463 )

Investing

Additions to property and equipment

(2,355 )

(1,977 )

(3,119 )

Acquisition of companies, net of cash acquired

(71 )

(245 )

(868 )

Purchases of investments

(35,993 )

(30,168 )

(36,850 )

Maturities of investments

6,897

7,453

6,191

Sales of investments

15,880

15,125

19,806

Securities lending payable

1,026

(1,502 )

(930 )

Net cash used in investing

(14,616 )

(11,314 )

(15,770 )

Effect of exchange rates on cash and cash equivalents

103

(39 )

(67 )

Net change in cash and cash equivalents

4,105

(571 )

(4,263 )

Cash and cash equivalents, beginning of period

5,505

6,076

10,339

Cash and cash equivalents, end of period

9,610

5,505

6,076

AUDITORS REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Microsoft Corporation: We have audited the accompanying consolidated balance sheets of Microsoft Corporation and subsidiaries (the "Company") as of June 30, 2011 and 2010, and the related consolidated statements of income, cash flows, and stockholders' equity for each of the three years in the period ended June 30, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Microsoft Corporation and subsidiaries as of June 30, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2011, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 30, 2011, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 28, 2011, expressed an unqualified opinion on the Company's internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Seattle, Washington July 28, 2011

DIRECTORS REPORT REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company's internal control over financial reporting was effective as of June 30, 2011. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Deloitte & Touche LLP has audited our internal control over financial reporting as of June 30, 2011; their report follows.