Microsoft 2011 Annual Report Download - page 50

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On July 1, 2010, we adopted new guidance issued by the FASB on the consolidation of variable interest entities.
The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing
assessments of control over such entities, and additional disclosures for variable interests. Adoption of the new
guidance did not have a material impact on our financial statements.
Recent accounting pronouncements not yet adopted
In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance
eliminates the current option to report other comprehensive income and its components in the statement of
changes in equity. Instead, an entity will be required to present either a continuous statement of net income and
other comprehensive income or in two separate but consecutive statements. The new guidance will be effective
for us beginning July 1, 2012 and will have presentation changes only.
In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value
measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits
certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be
measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the
new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable
inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to
changes in unobservable inputs. The new guidance will be effective for us beginning January 1, 2012. Other than
requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.
In January 2010, the FASB issued guidance to amend the disclosure requirements related to fair value
measurements. The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and
settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance will become effective for us with the reporting period beginning July 1, 2011. Other
than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our
financial statements.
NOTE 2 — EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common
stock outstanding during the period. Diluted EPS is computed based on 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 EPS are as follows:
(In millions, except earnings per share)
Y
ear Ended June 30, 2011 2010 2009
Net income available for common shareholders (A) $ 23,150 $ 18,760 $ 14,569
Weighted average outstanding shares of common stock (B) 8,490 8,813 8,945
Dilutive effect of stock-based awards 103 114 51
Common stock and common stock equivalents (C) 8,593 8,927 8,996
Earnings Per Share
Basic (A/B) $ 2.73 $ 2.13 $ 1.63
Diluted (A/C) $ 2.69 $ 2.10 $ 1.62
We excluded the following shares underlying stock-based awards from the calculations of diluted EPS because
their inclusion would have been anti-dilutive:
(In millions)
Y
ear Ended June 30, 2011 2010 2009
Shares excluded from calculations of diluted EPS 21 28 342
The decrease in anti-dilutive shares from fiscal year 2009 to 2010 was due mainly to the decrease in employee
stock options outstanding.