Microsoft 2006 Annual Report Download - page 59

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Employee Stock Purchase Plan. We have an employee stock purchase plan for all eligible employees. Compensation expense
for the employee stock purchase plan is recognized in accordance with SFAS No. 123(R). The administrative committee under
the plan approved a change to the common stock purchase discount and approved the elimination of the related look back
period and a change to quarterly purchase periods that became effective July 1, 2004. As a result, beginning in fiscal year
2005, shares of our common stock may presently be purchased by employees at three-month intervals at 90% of the fair
market value on the last day of each three-month period. Employees may purchase shares having a value not exceeding 15% of
their gross compensation during an offering period. During fiscal year 2006 employees purchased 17.2 million shares at an
average price of $23.02 per share. At June 30, 2006, 141.9 million shares were reserved for future issuance. During fiscal year
2005 employees purchased 16.4 million shares at average prices of $23.33 per share.
Under the plan in effect previous to fiscal year 2005, shares of our common stock could be purchased at six month intervals
at 85% of the lower of the fair market value on the first or the last day of each six-month period. Employees could purchase
shares having a value not exceeding 15% of their gross compensation during an offering period. During fiscal year 2004
employees purchased 16.7 million shares at average prices of $22.74 per share.
Savings Plan. We have a savings plan in the United States that qualifies under Section 401(k) of the Internal Revenue Code,
and a number of savings plans in international locations. Participating U.S. employees may contribute up to 50% of their pretax
salary, but not more than statutory limits. We contribute fifty cents for each dollar a participant contributes in this plan, with a
maximum contribution of 3% of a participant’s earnings. Matching contributions for all plans were $178 million, $154 million,
and $141 million in fiscal years 2006, 2005, and 2004, respectively. Matching contributions are invested proportionate to each
participant’s voluntary contributions in the investment options provided under the plan. Investment options in the U.S. plan
include Microsoft common stock, but neither participant nor our matching contributions are required to be invested in Microsoft
common stock.
Stock Plans. We have stock plans for directors and for officers, employees, consultants, and advisors. At June 30, 2006, an
aggregate of 812 million shares were authorized for future grant under our stock plans, which cover stock options, stock
awards, and shared performance stock awards. Awards that expire or are canceled without delivery of shares generally become
available for issuance under the plans. The options transferred to JPMorgan Chase Bank (“JPMorgan”) (see below) in fiscal year
2004 have been removed from our plans; any options transferred to JPMorgan that expire without being exercised will not
become available for grant under any of our plans.
On November 9, 2004, our shareholders approved amendments to the stock plans that allowed our Board of Directors to
adjust eligible options, unvested stock awards, and shared performance stock awards to maintain their pre-dividend value after
the $3.00 special dividend. Additional awards were granted for options, stock awards, and shared performance stock awards by
the ratio of post- and pre-special dividend stock price as of the ex-dividend date. Strike prices for options were decreased by the
same ratio. Stock-based compensation was not affected by this adjustment. As a result of this approval and payment of the
$3.00 special dividend on December 2, 2004, an adjustment to the prices and number of shares of existing awards was made
resulting in a total of 96 million options and 6.7 million stock awards being issued to adjust the outstanding awards. In addition,
the target shared performance stock awards were increased by 3.5 million shares.
We issue new shares to satisfy stock option exercises. On July 20, 2006, we announced the completion of the repurchase
program initially approved by our Board of Directors on July 20, 2004 to buy back up to $30 billion in Microsoft common stock.
Stock Awards and Shared Performance Stock Awards. Stock awards are grants that entitle the holder to shares of common
stock as the award vests. Our stock awards generally vest over a five-year period.
Shared Performance Stock Awards (“SPSAs”) are a form of stock award in which the number of shares ultimately received
depends on our business performance against specified performance targets. The performance period for SPSAs issued in fiscal
years 2004, 2005, and 2006 was July 1, 2003 through June 30, 2006 (January 1, 2004 through June 30, 2006 for certain
executive officers). Following the end of the performance period, the Board of Directors determined that the number of shares
of stock awards to be issued was 37.0 million, based on the actual performance against metrics established for the
performance period. One-third of the awards will vest in the first quarter of fiscal year 2007. An additional one-third of the
awards will vest over each of the following two years. Because the SPSAs covered a three-year period, SPSAs issued in fiscal
year 2005 and 2006 were given only to newly hired and promoted employees eligible to receive SPSAs.
The Company will grant SPSAs for fiscal year 2007 with a performance period of July 1, 2006 through June 30, 2007. At the
end of the performance period, the number of shares of stock subject to the award will be determined by multiplying the target
award by a percentage ranging from 0% to 150%. The percentage will be determined based on performance against metrics for
the performance period, as determined by the Compensation Committee of the Board of Directors in its sole discretion.