Microsoft 2007 Annual Report Download - page 56

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one-half years and expire seven years from the date of grant, while certain options vest either over four and one-
half years or over seven and one-half years and expire ten years from the date of grant. Options granted after
2001 vest over four and one-half years and expire ten years from the date of grant. Approximately 3 million stock
options were granted in conjunction with business acquisitions during fiscal years 2007 and 2006, respectively.
No stock options were granted during the year ended June 30, 2005.
During fiscal year 2004, we completed an employee stock option transfer program whereby employees could
elect to transfer all of their vested and unvested options with a strike price of $33.00 or higher to JPMorgan. The
options transferred to JPMorgan were amended and restated upon transfer to contain terms and conditions
typical of equity option transactions entered into between sophisticated financial counterparties at arm’s length
using standard terms and definitions for equity derivatives. As a result of this program, we recorded additional
stock-based compensation expense of $2.21 billion ($1.48 billion after-tax or $0.14 per diluted share) which was
recorded in the second quarter of fiscal year 2004. In December 2006, JP Morgan Chase Bank (“JPMorgan”)
exercised approximately 113 million call options for $3.25 billion at an average price per share of $28.80. The call
options were among 345 million options acquired by JPMorgan in fiscal year 2004 through our employee stock
option transfer program. The other approximately 232 million options expired unexercised.
Employee stock options outstanding were as follows:
Shares
(in millions)
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(in millions)
Balance, June 30, 2006 750 $27.92
Granted 3 27.28
Exercised (134) 23.66
Canceled (92) 34.46
Forfeited (3) 21.51
Balance, June 30, 2007 524 $27.86 3.60 $1,877
Exercisable, June 30, 2007 511 $27.98 3.55 $1,773
Included in the options outstanding balance are approximately 5 million options that were granted in conjunction
with business acquisitions. While these options are included in the options outstanding balance, they are
excluded from the weighted average exercise prices presented. These options have an exercise price range of $0
to $150.93 and a weighted average exercise price of $10.35.
During fiscal years 2007, 2006, and 2005 the following activity occurred under our plans:
(In millions) 2007 2006 2005
Total intrinsic value of stock options exercised $818 $491 $940
Total fair value of stock awards vested 618 377 198
Total fair value of shared performance stock awards vested 316 ––
Cash received and income tax benefits from stock option exercises were $6.35 billion and $286 million,
respectively, for fiscal year 2007.
NOTE 15 EARNINGS PER SHARE
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average
number of shares of common stock plus the effect of dilutive potential common shares outstanding during the
period using the treasury stock method. Dilutive potential common shares include outstanding stock options,