Microsoft 2008 Annual Report Download - page 45

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB 51, which changes the accounting and reporting for minority interests.
Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity
separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in
control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income statement and, upon a loss of
control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning July 1, 2009 and will apply prospectively,
except for the presentation and disclosure requirements, which will apply retrospectively. We are currently
assessing the potential impact that adoption of SFAS No. 160 may have on our financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 gives us the irrevocable option to carry many financial assets and liabilities at fair value,
with changes in fair value recognized in earnings. SFAS No. 159 is effective for us beginning July 1, 2008. We do
not believe SFAS No. 159 will have a material impact on our financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement does not require any new fair value measurements,
but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source
of the information. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, Effective Date of FASB
Statement No. 157, which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). SFAS No. 157 is effective for us beginning July 1, 2008; FSP 157-2 delays the effective
date for certain items to July 1, 2009. We do not believe SFAS No. 157 will have a material impact on our
financial statements.
NOTE 2 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,
stock awards, and shared performance stock awards. The components of basic and diluted earnings per share
are as follows:
(In millions, except earnings per share)
Y
ear Ended June 30, 2008
2007 2006
Net income available for common shareholders (A) $17,681 $14,065 $12,599
Weighted average outstanding shares of common stock (B) 9,328 9,742 10,438
Dilutive effect of employee stock options and awards 142 144 93
Common stock and common stock equivalents (C) 9,470 9,886 10,531
Earnings per share:
Basic (A/B) $1.90
$1.44 $1.21
Diluted (A/C) $1.87
$1.42 $1.20
For the years ended June 30, 2008, 2007 and 2006, 91 million, 199 million, and 649 million shares, respectively,
were attributable to outstanding stock options and were excluded from the calculation of diluted earnings per
share because the exercise prices of the stock options were greater than or equal to the average price of the
common shares, and therefore their inclusion would have been anti-dilutive.
For the year ended June 30, 2007, four million shared performance stock awards, out of the 14 million targeted
amount outstanding, were excluded from the calculation of the diluted earnings per share because the number of
shares ultimately issued was contingent on our performance against metrics established for the performance
period, as discussed in Note 18 – Employee Stock and Savings Plans.