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NOTES TO FINANCIAL STATEMENTS
NOTE 15 EMPLOYEE STOCK AND SAVINGS PLANS
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan for all eligible employees. Under the plan, shares of the Company’s common stock may 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 may purchase shares having a value not exceeding 15% of their gross compensation during an offering period. During 2000, 2001, and 2002, employees purchased 2.5 million, 5.7 million, and 5.4 million shares at average prices of $72.38, $36.87, and $50.52 per share. At June 30, 2002, 56.8 million shares were reserved for future issuance.
SAVINGS PLAN
The Company has a savings plan, which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 25% of their pretax salary, but not more than statutory limits. The Company contributes fifty cents for each dollar a participant contributes, with a maximum contribution of 3% of a participant’s earnings. Matching contributions were $47 million, $63 million, and $77 million in 2000, 2001, and 2002.
STOCK OPTION PLANS
The Company has stock option plans for directors, officers, and employees, which provide for nonqualified and incentive stock options. Options granted prior to 1995 generally vest over four and one-half years and expire 10 years from the date of grant. Options granted between 1995 and 2001 generally vest over four and one-half years and expire seven years from the date of grant, while certain options vest either over four and one-half years or over seven and one-half years and expire after 10 years. Options granted during 2002 vest over four and one-half years and expire 10 years from the date of grant. At June 30, 2002, options for 371 million shares were vested and 543 million shares were available for future grants under the plans.
Stock options outstanding were as follows:
| In millions, except per share amounts |
|
| |
|
|
|
Price per Share |
| |
|
|
|
|
| |
Shares |
|
|
Range |
|
|
Weighted
Average |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 1999 |
766 |
|
|
$ |
0.56 |
– |
$ |
83.28 |
|
|
$ 23.87 |
| |
Granted |
304 |
|
|
|
65.56 |
– |
|
119.13 |
|
|
79.87 |
| |
Exercised |
(198 |
) |
|
|
0.56 |
– |
|
82.94 |
|
|
9.54 |
| |
Canceled |
(40 |
) |
|
|
4.63 |
– |
|
116.56 |
|
|
36.50 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2000 |
832 |
|
|
|
0.56 |
– |
|
119.13 |
|
|
41.23 |
| |
Granted |
224 |
|
|
|
41.50 |
– |
|
80.00 |
|
|
60.84 |
| |
Exercised |
(123 |
) |
|
|
0.59 |
– |
|
85.81 |
|
|
11.13 |
| |
Canceled |
(35 |
) |
|
|
13.83 |
– |
|
119.13 |
|
|
63.57 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2001 |
898 |
|
|
|
0.56 |
– |
|
119.13 |
|
|
49.54 |
| |
Granted |
41 |
|
|
|
48.62 |
– |
|
72.57 |
|
|
62.50 |
| |
Exercised |
(99 |
) |
|
|
1.02 |
– |
|
69.81 |
|
|
12.82 |
| |
Canceled |
(38 |
) |
|
|
1.15 |
– |
|
116.56 |
|
|
68.67 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2002 |
802 |
|
|
|
0.79 |
– |
|
119.13 |
|
|
53.75 |
| |
|
For various price ranges, weighted average characteristics of outstanding stock options at June 30, 2002 were as follows:
|
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|
| In millions, except per share amounts |
|
| |
|
Outstanding Options |
|
Exercisable Options |
| |
|
|
|
|
| Range of Exercise Prices |
|
Shares |
|
Remaining
Life (Years |
) |
Weighted
Average Price |
|
Shares |
|
Weighted
Average Price |
| |
|
|
|
|
|
|
|
|
|
|
|
| $ 0.79 – |
$ 5.97 |
|
36 |
|
1.6 |
|
$ 4.83 |
|
35 |
|
$ 4.82 |
| 5.98 – |
13.62 |
|
44 |
|
0.5 |
|
11.19 |
|
42 |
|
11.18 |
| 13.63 – |
29.80 |
|
90 |
|
2.0 |
|
15.02 |
|
84 |
|
14.97 |
| 29.81 – |
43.62 |
|
73 |
|
2.7 |
|
32.19 |
|
66 |
|
32.09 |
| 43.63 – |
60.00 |
|
191 |
|
6.9 |
|
55.81 |
|
41 |
|
54.03 |
| 60.01 – |
69.50 |
|
146 |
|
6.4 |
|
66.24 |
|
35 |
|
66.53 |
| 69.51 – |
83.28 |
|
80 |
|
5.1 |
|
71.17 |
|
21 |
|
71.84 |
| 83.29 – |
119.13 |
|
142 |
|
4.2 |
|
89.87 |
|
47 |
|
89.29 |
|
| |
|
The Company follows Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, to account for stock option and employee stock purchase plans. An alternative method of accounting for stock options is SFAS 123, Accounting for Stock-Based Compensation. Employee stock options are valued at grant date using the Black-Scholes valuation model, and this compensation cost is recognized ratably over the vesting period.
Had compensation cost for the Company’s stock option and employee stock purchase plans been determined as prescribed by SFAS 123, pro forma income statements for 2000, 2001, and 2002 would have been as follows:
|
| |
| In millions, except per share amounts |
|
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|
| Year Ended June 30 |
2000 |
|
|
2001 |
|
|
2002 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Reported |
|
|
|
Pro Forma |
|
|
|
Reported |
|
|
|
Pro Forma |
|
|
|
Reported |
|
|
|
Pro Forma |
|
| |
|
|
|
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|
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|
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| Revenue |
$ |
22,956 |
|
|
$ |
22,956 |
|
|
$ |
25,296 |
|
|
$ |
25,296 |
|
|
$ |
28,365 |
|
|
$ |
28,365 |
|
| Operating expenses: |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of revenue |
|
3,002 |
|
|
|
3,277 |
|
|
|
3,455 |
|
|
|
3,775 |
|
|
|
5,191 |
|
|
|
5,699 |
|
| |
Research and development |
|
3,772 |
|
|
|
4,814 |
|
|
|
4,379 |
|
|
|
6,106 |
|
|
|
4,307 |
|
|
|
6,299 |
|
| |
Sales and marketing |
|
4,126 |
|
|
|
4,468 |
|
|
|
4,885 |
|
|
|
5,888 |
|
|
|
5,407 |
|
|
|
6,252 |
|
| |
General and administrative |
|
1,050 |
|
|
|
1,284 |
|
|
|
857 |
|
|
|
1,184 |
|
|
|
1,550 |
|
|
|
1,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses |
|
11,950 |
|
|
|
13,843 |
|
|
|
13,576 |
|
|
|
16,953 |
|
|
|
16,455 |
|
|
|
20,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
11,006 |
|
|
|
9,113 |
|
|
|
11,720 |
|
|
|
8,343 |
|
|
|
11,910 |
|
|
|
8,272 |
|
| Losses on equity investees and other |
|
(57 |
) |
|
|
(57 |
) |
|
|
(159 |
) |
|
|
(159 |
) |
|
|
(92 |
) |
|
|
(92 |
) |
| Investment income/(loss) |
|
3,326 |
|
|
|
3,326 |
|
|
|
(36 |
) |
|
|
(36 |
) |
|
|
(305 |
) |
|
|
(305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
|
14,275 |
|
|
|
12,382 |
|
|
|
11,525 |
|
|
|
8,148 |
|
|
|
11,513 |
|
|
|
7,875 |
|
| Provision for income taxes |
|
4,854 |
|
|
|
4,210 |
|
|
|
3,804 |
|
|
|
2,689 |
|
|
|
3,684 |
|
|
|
2,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before accounting change |
|
9,421 |
|
|
|
8,172 |
|
|
|
7,721 |
|
|
|
5,459 |
|
|
|
7,829 |
|
|
|
5,355 |
|
| Cumulative effect of accounting change |
|
– |
|
|
|
– |
|
|
|
(375 |
) |
|
|
(375 |
) |
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
$ |
9,421 |
|
|
$ |
8,172 |
|
|
$ |
7,346 |
|
|
$ |
5,084 |
|
|
$ |
7,829 |
|
|
$ |
5,355 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share |
$ |
1.81 |
|
|
$ |
1.57 |
|
|
$ |
1.38 |
|
|
$ |
0.95 |
|
|
$ |
1.45 |
|
|
$ |
0.99 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share |
$ |
1.70 |
|
|
$ |
1.48 |
|
|
$ |
1.32 |
|
|
$ |
0.91 |
|
|
$ |
1.41 |
|
|
$ |
0.98 |
|
| |
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The weighted average Black-Scholes value of options granted under the stock option plans during 2000, 2001, and 2002 was $36.67, $29.31, and $31.57. Value was estimated using a weighted average expected life of 6.2 years in 2000, 6.4 years in 2001, and 7.0 years in 2002, no dividends, volatility of .33 in 2000, .39 in 2001, and .39 in 2002, and risk-free interest rates of 6.2%, 5.3%, and 5.4% in 2000, 2001, and 2002.
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