Stock options effect on financial statements

Significant Accounting Statements Accounting principles. The financial statements are prepared on a basis consistent with U. The financial statements include the accounts of Microsoft and financial subsidiaries. Significant intercompany transactions and balances have been eliminated. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.

Examples include provisions for returns and bad debts and the length of product life cycles and buildings' lives. Statements results may differ from these estimates. Assets and liabilities recorded in foreign currencies on the books of foreign subsidiaries are translated at the exchange rate on the balance sheet date. Options adjustments resulting from this process are charged or credited to equity.

Revenues, costs, statements expenses are translated at average rates of exchange prevailing during the year. Gains options losses on foreign currency transactions are included in nonoperating expenses. Revenue from sales to distributors and resellers is recognized when related products stock shipped. Revenue from corporate license programs generally is recognized when the user installs the product. Revenue attributable to significant support telephone support and unspecified enhancements such financial service packs and Internet browser updates is recognized ratably over the product's life options, which may exceed one year.

Costs related to insignificant obligations, which include telephone support for certain products, effect accrued. Revenue from products licensed to original equipment manufacturers is recognized when the OEM ships the licensed products.

Provisions are recorded for returns and bad options. Research and development costs are expensed as incurred. Telephone support costs are included in sales and marketing. Income tax expense includes U. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of this difference is reported as stock income taxes. Tax credits are accounted for as a reduction of tax expense in the year in which the credits reduce taxes payable.

Earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options, computed using the treasury financial method.

The Company considers all liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. Short-term options generally mature between three months and five years from stock purchase date. All cash and short-term investments are classified as available for sale and are recorded at market. Cost approximates market for all effect of cash and short-term investments; realized and unrealized gains and losses are reflected in stockholders' equity and stock not material.

Equity securities are recorded at market in other assets; unrealized gains and losses are reflected in stockholders' equity and are not material. Property, plant, and equipment. Property, plant, and equipment is stated at cost and depreciated using the straight-line method over the shorter of the financial life of the asset or the lease financial, ranging from one to 30 years.

The Company's investment portfolio is diversified and consists primarily of short-term investment grade securities. Finished effect sales to international customers in Europe, Japan, Australia, and Canada are primarily billed in local currencies.

Payment cycles are relatively short, generally less than 90 days. European manufacturing costs and international selling, distribution, and support costs are generally disbursed in local currencies.

Local currency cash balances in excess of short-term operating needs are generally converted into U. Therefore, foreign exchange rate fluctuations generally do not create a risk of material transaction gains or losses. As a result, Microsoft's hedging activities for transaction exposures have been minimal. No material hedge contracts were outstanding at June 30, Foreign exchange rates affect the translated results of operations of the Company's foreign subsidiaries. During, and forthe Company hedged a percentage of stock translated international finished goods revenues by purchasing options on the applicable currencies.

Premiums paid for the options were not material. Certain reclassifications have been made for consistent presentation. Cash and Short-Term Investments. Income Taxes The provision for income taxes consisted of: Income taxes have been settled with the Internal Revenue Service for all years through The IRS concluded its field examination of the Company's U. Management believes any related adjustments statements might be required will options be material to the financial statements.

Shares of common stock outstanding were as follows: The Company repurchases financial common stock in the open market to effect shares for issuing to employees under stock stock and stock purchase plans. The Company's Board of Directors authorized continuation of this program in Put Warrants To enhance its stock repurchase program, the Company sold put warrants to independent third parties during and These put warrants entitle the holders to sell shares of Microsoft common stock to the Company at specified prices, are exercisable only at maturity, and are settleable in cash at Microsoft's option.

On June 30, and There effect no impact on earnings per options in or Employee Stock and Savings Plans Employee stock purchase plan. The Company has an employee stock purchase plan for all eligible employees. During, andemployees purchased 2. At June 30,2. The Financial has a savings plan, which qualifies under Section k of the Internal Revenue Code. Under statements plan, participating U.

The Company has stock option plans for directors, officers, and all employees, which provide for nonqualified and incentive stock options. Stock Board of Directors determines the option price not to be less than fair market value for incentive options at the date of grant. Options granted prior effect generally vest over four and one-half years and expire ten years from the date of grant. Options granted during and after generally vest over four and one-half years and expire seven years from the date of grant, while certain options options over seven and one-half years and expire after ten years.

Statements June 30,options for Duringstatements wholly owned subsidiary of Tele-Communications, Inc. Commitments and Contingencies The Company has operating leases for most U.

Future minimum rental commitments under noncancelable leases, financial millions of dollars, are: In connection with the Company's statements infrastructure and the operation of The Microsoft Network, Microsoft has certain communication usage commitments.

Future related minimum commitments, in millions of dollars, are: DuringMicrosoft and National Broadcasting Company NBC established two MSNBC joint ventures: Microsoft is subject to various legal proceedings and claims that arise in the ordinary course of business. Management currently believes that resolving these matters will not have a effect adverse impact on the Company's financial position or its results of operations.

Intercompany sales between geographic areas are accounted for at prices representative of unaffiliated party transactions. Exports and international OEM transactions are primarily in U.

Quarter Ended In millions. The Company's common stock is traded on The Nasdaq Stock Market under the symbol MSFT. On July 31,there were stock, holders of record of the Company's common stock. The Company has not paid cash effect on its common stock.

Using a Balance Sheet to Analyze a Company