| |
The Company follows Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees, to account for stock option and employee stock purchase plans.
No compensation cost is recognized because the option exercise price is equal to the
market price of the underlying stock on the date of grant.
An alternative method of accounting for
stock options is SFAS 123, Accounting for Stock-Based Compensation. Under SFAS
123, employee stock options are valued at grant date using the Black-Scholes valuation
model and 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 based on the Black-Scholes value at the grant dates for awards as
prescribed by SFAS 123, pro forma income statements for 1996, 1997, and 1998 would have
been as follows:
In millions, except per share amounts
| Year Ended June 30 |
1996 |
|
1997 |
|
1998 |
|
|
|
|
|
|
|
|
|
Reported |
|
Pro forma |
|
Reported |
|
Pro forma |
|
Reported |
|
Pro forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
$8,671 |
|
$8,671 |
|
$11,358 |
|
$11,358 |
|
$14,484 |
|
$14,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
1,188 |
|
1,204 |
|
1,085 |
|
1,107 |
|
1,197 |
|
1,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
1,432 |
|
1,655 |
|
1,925 |
|
2,230 |
|
2,502 |
|
2,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
in-process technology |
– |
|
– |
|
– |
|
– |
|
296 |
|
296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
2,657 |
|
2,823 |
|
2,856 |
|
3,082 |
|
3,412 |
|
3,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
316 |
|
362 |
|
362 |
|
424 |
|
433 |
|
520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
19 |
|
19 |
|
259 |
|
259 |
|
230 |
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
operating expenses |
5,612 |
|
6,063 |
|
6,487 |
|
7,102 |
|
8,070 |
|
8,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
3,059 |
|
2,608 |
|
4,871 |
|
4,256 |
|
6,414 |
|
5,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income |
320 |
|
320 |
|
443 |
|
443 |
|
703 |
|
703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
3,379 |
|
2,928 |
|
5,314 |
|
4,699 |
|
7,117 |
|
6,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Provision for income taxes |
1,184 |
|
1,026 |
|
1,860 |
|
1,646 |
|
2,627 |
|
2,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
2,195 |
|
1,902 |
|
3,454 |
|
3,053 |
|
4,490 |
|
3,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred stock dividends |
– |
|
– |
|
15 |
|
15 |
|
28 |
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income available for common shareholders |
$2,195 |
|
$1,902 |
|
$ 3,439 |
|
$ 3,038 |
|
$ 4,462 |
|
$ 3,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share |
$ 0.86 |
|
$ 0.74 |
|
$ 1.32 |
|
$ 1.16 |
|
$ 1.67 |
|
$ 1.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The pro forma disclosures in the previous
table include the amortization of the fair value of all options vested during
1996, 1997, and 1998, regardless of the grant date. If only options granted after 1996
were valued, as prescribed by SFAS 123, pro forma net income would have been $2,073
million, $3,179 million, and $4,019 million, and earnings per share would have been $0.81,
$1.21, and $1.50 for 1996, 1997, and 1998.
The weighted average Black-Scholes value
of options granted under the stock option plans during 1996, 1997, and 1998 was $8.86,
$11.72, and $23.62. Value was estimated using an expected life of five years, no
dividends, volatility of .32 in 1998 and .30 in prior years, and risk-free interest rates
of 6.0%, 6.5%, and 5.7% in 1996, 1997, and 1998.
Earnings Per Share
Basic earnings per share is computed on
the basis of the weighted average number of common shares outstanding. Diluted earnings
per share is computed on the basis of the weighted average number of common shares
outstanding plus the effect of outstanding preferred shares using the
"if-converted" method, assumed net-share settlement of common stock structured
repurchases, and outstanding stock options using the "treasury stock" method.
The components of basic and diluted
earnings per share were as follows:
In millions, except per share amounts
| Year Ended June 30 |
1996 |
|
1997 |
|
1998 |
|
| |
| Net income |
$2,195 |
|
$3,454 |
|
$4,490 |
|
|
|
|
|
|
|
|
| Preferred stock dividends |
– |
|
15 |
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income available for common shareholders |
$2,195 |
|
$3,439 |
|
$4,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average outstanding shares of common stock |
2,368 |
|
2,391 |
|
2,432 |
|
|
|
|
|
|
|
|
| Dilutive effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock under structured repurchases |
– |
|
– |
|
3 |
|
|
|
|
|
|
|
|
|
| |
Preferred stock |
– |
|
13 |
|
17 |
|
|
|
|
|
|
|
|
|
| |
Employee stock options |
193 |
|
218 |
|
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock and common stock equivalents |
2,561 |
|
2,622 |
|
2,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ 0.93 |
|
$ 1.44 |
|
$ 1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted |
$ 0.86 |
|
$ 1.32 |
|
$ 1.67 |
|
|
|
|
|
|
|
|
