Microsoft 2003 Annual Report Download - page 47

Part II, Item 8
MSFT 2003 FORM 10-K
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The weighted average Black-Scholes value of options granted under the stock option plans during 2001, 2002, and 2003 was $14.66, $15.79, and $12.08.
Value was estimated using a weighted average expected life of 6.4 years in 2001 and 7.0 years in 2002 and 2003, no dividends in 2001 and 2002, a $0.08 per
share dividend in 2003, volatility of .39 in 2001, .39 in 2002, and .42 in 2003, and risk-free interest rates of 5.3%, 5.4%, and 3.9% in 2001, 2002, and 2003.
Note 17—Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the
basis of the weighted average number of common shares outstanding plus the effect of outstanding put warrants using the “reverse treasury stock” method and
outstanding stock options using the “treasury stock” method.
The components of basic and diluted earnings per share were as follows:
(In millions, except earnings per share)
Year Ended June 30 2001 2002 2003
Income before accounting change $ 7,721 $ 7,829 $ 9,993
Weighted average outstanding shares of common stock 10,683 10,811 10,723
Dilutive effect of:
Put warrants 42 –
–
Employee stock options 423 295 159
Common stock and common stock equivalents 11,148 11,106 10,882
Earnings per share before accounting change:
Basic $ 0.72 $ 0.72 $ 0.93
Diluted $ 0.69 $ 0.70 $ 0.92
For the years ended June 30, 2001, 2002 and 2003; 702 million, 746 million, and 1.09 billion shares attributable to outstanding stock options were excluded
from the calculation of diluted earnings per share because the effect was antidilutive.
Note 18—Acquisitions
In fiscal year ended June 30, 2003, we acquired all of the outstanding equity interests of Navision a/s, Rare Ltd., and Placeware, Inc. Navision, headquartered in
Vedbaek, Denmark, is a provider of integrated business solutions software for small and mid-sized businesses in the European market and will play a key role in
the future development of the Microsoft Business Solutions segment. We acquired Navision on July 12, 2002 for $1.465 billion consisting primarily of $662 million
in cash and the issuance of 29.1 million common shares of Microsoft stock valued at $773 million. The value of the common shares issued was determined based
on the average market price of our common shares over the 2-day period before and after terms of the acquisition were agreed to and approved. Rare is a video
game developer located outside Leicestershire, England, that is expected to broaden the portfolio of games available for the Xbox video game system. Rare was
acquired on September 24, 2002 for $377 million consisting primarily of $375 million in cash. Placeware, located in Mountain View, CA, facilitates secure, highly
reliable, cross-firewall web conferencing experiences allowing users to conduct business meetings online from a PC, and will become a part of Microsoft’s Real
Time Collaboration business unit within the Information Worker segment. Placeware was acquired on April 30, 2003 for $202 million, consisting primarily of $189
million in cash. Navision, Rare, and Placeware have been consolidated into our financial statements since their respective acquisition dates. None of the
acquisitions, individually or in the aggregate, are material to our consolidated results of operations. Accordingly, pro forma financial information is not included in
this note.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisitions (in millions):
Navision a/s
At
July 12, 2002
Rare, Ltd.
At
September 24, 2002
Placeware, Inc.
At
April 30, 2003
Current assets $ 240 $ 25 $ 30
Property, plant, and equipment 8 8 7
Intangible assets 169 75 30
Goodwill 1,197 281 180
Total assets acquired 1,614 389 247
Current Liabilities (148) (12) (32)
Long-term liabilities (1) – (13)
Total liabilities assumed (149) (12) (45)
Net Assets Acquired $ 1,465 $ 377 $ 202
Of the $169 million of acquired intangible assets in the Navision acquisition, $2 million was assigned to research and development assets that were written off
in accordance with FIN 4. Those write-offs are included in Research and Development expenses. The remaining $167 million of acquired intangible assets have a
weighted average useful life of approximately five years. The intangible assets that make up that amount include technology of $48 million (four-year weighted-
average useful life), contracts of $115 million (six-year weighted-average useful life), and marketing of $4 million (three-year weighted-average useful