Microsoft's $40 Billion On Hand

eMilkshake writes "CNN/Money magazine report here that Microsoft has more liquid reserves than 'Ford, ExxonMobil and Wal-Mart have combined' and 'enough to buy the entire airline industry -- twice. Or all the gold in Fort Knox, four times over. It is enough to buy 23 space shuttles or every major professional baseball, basketball, football and hockey team in America.' This is thanks to (according to WinInfo Update) the fact that 'Microsoft handles its investments with an inhouse software application called--seriously--the Catastrophe Hedging Program 2.5.' I wonder what I would do with $40 billion?"

Comments

It's about tax evasion...

[anthony_dipierro]

If Microsoft declares a dividend, the shareholders have to pay taxes. If they hold the money in reserve, they only pay taxes when they sell.

Re:It's about tax evasion...

[Anonymous Coward]

Microsoft is also getting away with not paying any accumulated earnings tax. This tax is designed to tax companies that are accumulating excess earnings and do not pay dividends.

By not paying dividends, Microsoft is able to shift the tax expense to the shareholders at the lower capital gains rate when the shareholders sell stock. Bill Gates and his crew sell a large amount of Microsoft stock each year.

I believe Ralph Nader has already been looking into this.

Go Ralph!!

Re:It's about tax evasion...

[anthony_dipierro]

Well, it's more likely they've found a loophole. The way I read it (very briefly) Microsoft likely doesn't fall under the category of "Personal Holding Company", because 50% of the corporation's stock is not held by fewer than 5 individuals. Microsoft also can argue that they're actually going to use all that cash - someday. IAAPTP, but this is not legal or tax advice.

Re:It's about tax evasion...

[Anonymous Coward]

despite claims to the contrary, the slashdot janitors have deleted posts in the past (or moderated them down to -5, so you need to set the threshold in the URL to view it). That's the closest to unsubmitting you can get.

Here's how. Post something copyrighted by the Co$ (they'll delete it and make some bogus claim, "we believe we have the right to post it, but our lawyers advised us that it would be a long and costly lawsuit..."), or post a post that exposes a bug in SLASH (like javascript within <a > to dynamically insert forbidden html).

Also, if you want to lose moderator priveledge, repost the "moderation investigation" thread.

What to do with $40e9?

[tsa]

I would fund a project to get us to Mars with that much money.

Illegal to Have That Much On Hand

[loggia]

Did you know that it is illegal for a public company to have that much on hand and not pay dividends to shareholders?

Apparently there is some murkiness to get around this for Microsoft. The reason they don't want to pay dividends are the huge tax implications for those that are own massive amounts of stock (read: Bill Gates, Steve Balmer...)

Re:Illegal to Have That Much On Hand

[gargle]

Some companies never pay out dividends (Sun, Cisco, Microsoft, etc are all examples of this).

All companies have to pay out dividends eventually, otherwise the price of the share would be zero (since the price of the share is basically the net present value of the the stream of expected dividends).

Microsoft uses stock splits to basically pay out a stock dividend to their shareholders...

I believe you're thinking of stock buy backs, not stock splits.

No corporation pays taxes

[Loundry]

This needs to be repeated over and over again because many people do not understand it. Corporations do not pay taxes. Corporations collect taxes.

Here's how it works. A corproation is a legal entity designed to make money. It has a list of expenses and a list of revenues. One of those expenses is "taxes." When the government raises taxes on a corporation, the corporation has to make up for the higher costs. It does this by increasing the price of its products or services. I.e., the consumer has to bear the brunt of the higer cost of the corporation's tax. I.e., the corporation is merely a tax proxy for the government.

All wealth in the country is held by two groups: individuals and government. People talk about "Microsoft's $40 billion," but Microsoft is owned by individuals. It does not exist without the individuals who make it run.

Ralph Nader wrote about this a wile back

[warnerpr]

http://www.cptech.org/ms/rn2bg20020104dividend.htm l

Glad to see that CNN can only took a couple months to write about it!

Mr. Nader's letter on the topic was the first I read of this topic.

Makes you want to puke

[ScooterComputer]

This article makes me sick. I used to be rather anti-capitalist. Then I went on a personal crusade, reading Smith, Marx, Keynes, and, most recently, Schumpeter...I realized that much of what I THOUGHT I knew about Capitalism was incorrect. I also realized that most of what OTHERS THOUGHT about Capitalism was wrong. After my readings I came to appreciate Capitalism, but also to loathe it--primarily because one of the most basic tenets is that the consumer MUST make CONSISTENTLY INTELLIGENT purchasing decisions. And I feel that it is far too easy in today's mega-adverstising, high-incentive, low-intellect environment to expect that. In short, big companies (including the government) have found success far simpler to attain by buying off the intelligence of the consumer. And the result is companies like Microsoft.

Let's look at this company for a short second...it certainly didn't have any where NEAR $40B in the bank in 1995, just prior to Win95 being released. Win 3.1 pretty much ruled the roost; and IBM was desperately trying to released the stranglehold that MS had over them due to the (favorable) DOS licensing. Microsoft was very powerful, but at that time Office hadn't yet driven EVERY OTHER competitor out of the market, and the Internet wars hadn't even kicked up yet. But there is one indisputable fact: the trend had been well established in the American (nee World) consumer mind that Intel/Microsoft was a standard and compatibility with that system was absolutely mandatory.

So, 7 years later, Microsoft made Bill Gates the richest guy around, had TONS of cash sitting in banks, runs competitors into the dirt, and basically laughed off US Gov't legal action--several times! This has to be about as clear as it gets that Capitalism as we understand it is an incomplete model. Previously in history, mega-wealth like this was built on the backs of slaves--the railroads, for instance. But not Gates'. There were no slaves...merely consumers. One could argue that this is truly "Capitalism at its best!" for certainly it was Capitalism that provided Gates with such wealth. Only that is a short sighted thought, considering it is Capitalism that ALSO states that in such a market competitors should have been clamoring to compete! And I REFUSE to believe that DOS/Win3.1/Win32 was absolutely the best, most marketable product during that period...okay, it may have been the best, but was it "97% of the market" best? I just don't believe so--I mean look how quickly Linux has stormed the scene. Are we to assume that NO ONE else but Microsoft was so astute at making operating systems until some kid sat down at his PC? Something just DOESN'T make sense here.

So what dynamic about Capitalism are we missing? What overlooked problem could explain a seemingly complete breakdown of basic competition? Or, can it be explained with what we already know? Personally, I look at Microsoft's accounting tactics. But of course they really didn't start until AFTER a pretty good amount of money had been made. I then look at the role of the US Government in making Billy G. a gazillionaire...after all, think of all those government agencies sending YOUR tax dollars to Redmond. Of course the relationship doesn't end there--military contractors would conform their systems to the Gov'ts, and state and local gov'ts would do the same. It is nearly like a viral chain of Microsoft infection. And all the while, we were supporting government research that could have/should have been capable of creating an open source operating system.

So is it the infamous Keynesian "invisible hand" run amok that created this? Does any one have a GOOD idea as to how much money Microsoft has profited (taking into account the top-down, hierarchial spread of influence) off the US Government since 1990?

Given my newfound respect for the dynamism and aggressiveness of true Capitalism, I refuse to call Bill Gates a Capitalistic success story...to do so would be to forever sully the greatness of the fair-market system.

The "Survival" Stash

[Amadablam]

I first read about Microsoft hoarding cash several years ago. Back then, the figure was at $6 billion, and it was said that Microsoft was trying to keep enough cash on hand to run the company at its current level of production without any gross income for a period of one year. I'm not very business-minded, but it sounded like an ambitious insurance plan (thus the term "Catastrophe Hedging") and I didn't think much more about it. Thirty-four billion dollars later (and another billion every month), it sounds like Microsoft might be having more than simple "Catastrophe Hedging" in mind. All this talk about dividends and tax-evasion sounds suspicious, and I'm sure eventually somebody will have to answer for that pile of cash.

Re:bankrupt the world

[kalidasa]

1) liberal that believes in a finite amount of money

Don't be stupid, liberals do not believe in a "finite" amount of money. They believe that wealth is created through labor, unlike conservatives, who believe that wealth is created through interest, forgetting that wealth created through interest is destroyed through inflation.

For someone who made a crack about a /. reader not having taken any economics classes, you obviously don't know your macro economics very well either.

Re:MOVE TO THE FOOD!

[Bastian]

All communist countries lie about their accomplishments

Nicaragua wasn't communist in the sense of Cuba or the USSR. I'm not talking about governmental systems here, I'm talking about economic systems. Even then, capitalist countries aren't completely honest, too. Admittedly, democracy seems to help keep corruption levels down, but that's a function of democracy and totalitarianism, not capitalism and communism. I will also agree that communist countries tend to be totalitarian, but using that as a justification for blanket statements is just as irrational as blindly following every statistic a government publishes.

We won't know the truth of Cuba until communism falls, just as we didn't know the truth about the Soviets until they fell.

We can't know with 100% certanity, but our concept of life behind the iron curtain in the USSR didn't prove to be all that different from the fact. About the only difference I see is that we now know that the USSR's technology level wasn't as high as the Cold War hype held it to be.

Efficient countries create surplus capital (even Marx agreed) and in capitalist ones, they end up making more and more until all are satisfied. Communist ones are inefficient and try to satisfy everybody but year after year, they make less and less. This fact is what makes the leadership eventually flinch and change from communist to capitalist societies.

I think I mentioned that in my original post. But economic efficiency is not a good measure of public health, since it includes not just things like the amount of food, but also things such as the number of TV's a people owns, and it tends to measure only efficiency, not equity. No, places like Cuba didn't have the number of fatiron computers and such that we have, but a country's ability to produce enough food for its people is not so directly related into GDP. Again, look at Nicaragua. Since it went capitalist, its GDP has increased while its ability to take care of its citizens has decreased markedly.

Re:Capitalist countries lie too

[Reality Master 101]

And the truth about the USA is, it wasnt built by capitalism, it was built by slavery

Uh, no. In fact, Slavery held back the American economy. Look at any economic analysis of slavery: SLAVERY IS NOT ECONOMICAL. When you factor in all the costs of slavery, it's much cheaper to pay someone a wage and let them take care of themselves.

Maybe a different kind of depression

[ynotds]

Likely outcome of the bust left as an exercise for the reader.

Living in a lucky country where the economic measures didn't even shorten stride as they gallop into the unknown, I have noted a few other people starting to bemoan the degree to which money is starting to get in the way of even the simplest things which are essential to our very humanity ... from seeing friends to putting one person's junk to the service of some less demanding cause.

But every day it looks more likely that we do not have to wait till after the boom for depression, but that depression has already set in, both for those whose ever harder work continues to underpin the indicators and for those struggling to find their way into the loop.

There is something primitively natural in the cycle of long growth and rapid death which flies in the face of human aspirations to fairness, the kind of overgrowth which our granting veto to the bean counters has made has made an inescapable aspiration of every human institution ... and at which those best at spreading FUD continue to have the greatest success, be they involved in hyping upgrades or the war against drugs.

So you don't have to wait for the depression to follow Wired's long boom, you just have to look around and ask people how they feel.