Microsoft 2009 Annual Report Download - page 49

PAGE 49
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which replaces SFAS No. 141.
The statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting
(previously referred to as the purchase method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are recognized as a result of business
combinations. It also requires the capitalization of in-process research and development at fair value and requires
the expensing of acquisition-related costs as incurred. In April 2009, the FASB issued FSP FAS 141(R)-1 which
amends SFAS No. 141(R) by establishing a model to account for certain pre-acquisition contingencies. Under the
FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business
combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be
determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer
should follow the recognition criteria in SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14,
Reasonable Estimation of the Amount of a Loss – an interpretation of FASB Statement No. 5. SFAS No. 141(R) and
FSP FAS 141(R)-1 are effective for us beginning July 1, 2009, and will apply prospectively to business combinations
completed on or after that date. The impact of the adoption of SFAS No. 141(R) and FSP FAS 141(R)-1 will depend
on the nature of acquisitions completed after the date of adoption.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements – an amendment of ARB No. 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 net income 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 net income. 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 believe the adoption of SFAS No. 160 will not 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, 2009
2008 2007
Net income available for common shareholders (A) $
1
4,569
$
1
7,681 $
1
4,065
Weighted average outstanding shares of common stock (B) 8,945
9,328 9,742
Dilutive effect of stock-based awards 51
142 144
Common stock and common stock equivalents (C) 8,996
9,470 9,886
Earnings per share:
Basic (A/B) $1.63
$ 1.90 $1.44
Diluted (A/C) $1.62
$ 1.87 $1.42
For the years ended June 30, 2009, 2008, and 2007, 342 million, 91 million, and 199 million shares, respectively,
were attributable to outstanding stock-based awards and were excluded from the calculation of diluted earnings per
share because their inclusion would have been anti-dilutive.