On January 1, 2007, Devon adopted Interpretation No. 48 and recorded an $11 million reduction to the January 1, 2007 balance of retained earnings related to unrecognized tax benefits. The $11 million included $8 million for related interest and penalties. An additional $3 million of liabilities were recorded with a corresponding increase to goodwill.

As a result of the adoption of Interpretation No. 48, certain liabilities included in income taxes payable and deferred income taxes were reclassified to other current and long-term liabilities in the accompanying balance sheet. The total $14 million increase in liabilities included a $17 million increase to long-term liabilities, partially offset by a $3 million reduction to current liabilities.

Additional information regarding Devon's unrecognized tax benefits, including changes in such amounts during 2007, is provided in Note 12.

General and Administrative Expenses

General and administrative expenses are reported net of amounts reimbursed by working interest owners of the oil and gas properties operated by Devon and net of amounts capitalized pursuant to the full cost method of accounting.

Net Earnings Per Common Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share, as calculated using the treasury stock method, reflects the potential dilution that could occur if Devon's dilutive outstanding stock options were exercised. For 2005, the calculation of diluted shares also assumed that Devon's previously outstanding zero coupon convertible senior debentures were converted to common stock.

The following table reconciles earnings from continuing operations and common shares outstanding used in the calculations of basic and diluted earnings per share for 2007, 2006 and 2005.

	Net Earnings Applicable to Common Stockholders			Weighted Average Common Shares Outstanding			Net Earnings per Share
	(In millions, except per share amounts)
Year Ended December 31, 2007:    Earnings from continuing operations	$	3,146
Less preferred stock dividends		(10	)
Basic earnings per share		3,136			445		$	7.05
Dilutive effect of potential common shares issuable       upon the exercise of outstanding stock options		—			5
Diluted earnings per share	$	3,136			450		$	6.97
Year Ended December 31, 2006:    Earnings from continuing operations	$	2,634
Less preferred stock dividends		(10	)
Basic earnings per share		2,624			442		$	5.94
Dilutive effect of potential common shares issuable       upon the exercise of outstanding stock options		—			6
Diluted earnings per share	$	2,624			448		$	5.87
Year Ended December 31, 2005:    Earnings from continuing operations	$	2,897
Less preferred stock dividends		(10	)
Basic earnings per share		2,887			458		$	6.31
Dilutive effect of potential common shares issuable       upon the exercise of outstanding stock options		—			8
Dilutive effect of potential common shares issuable upon       conversion of senior convertible debentures (increase in       net earnings is net of income tax expense of $14 million)(1)		24			4
Diluted earnings per share	$	2,911			470		$	6.19

(1) The senior convertible debentures were retired in June 2005 prior to their stated maturity.

Certain options to purchase shares of Devon's common stock were excluded from the dilution calculations because the options were antidilutive. These excluded options totaled 2 million, 3 million and 0.2 million in 2007, 2006 and 2005, respectively.

Foreign Currency Translation Adjustments

The U.S. dollar is the functional currency for Devon's consolidated operations except its Canadian subsidiaries, which use the Canadian dollar as the functional currency. Therefore, the assets and liabilities of Devon's Canadian subsidiaries are translated into U.S. dollars based on the current exchange rate in effect at the balance sheet dates. Canadian income and expenses are translated at average rates for the periods presented. Translation adjustments have no effect on net income and are included in accumulated other comprehensive income in stockholders' equity. The following table presents the balances of Devon's cumulative translation adjustments included in accumulated other comprehensive income (in millions).

December 31, 2004	$ 1,054
December 31, 2005	$ 1,216
December 31, 2006	$ 1,219
December 31, 2007	$ 2,566

Statements of Cash Flows

For purposes of the consolidated statements of cash flows, Devon considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Liabilities for environmental remediation or restoration claims are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Expenditures related to such environmental matters are expensed or capitalized in accordance with Devon's accounting policy for property and equipment. Reference is made to Note 8 for a discussion of amounts recorded for these liabilities.

Recently Issued Accounting Standards Not Yet Adopted

In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141(R), Business Combinations, which replaces Statement No. 141. Statement No. 141(R) retains the fundamental requirements of Statement No. 141 that an acquirer be identified and the acquisition method of accounting (previously called the purchase method) be used for all business combinations. Statement No. 141(R)'s scope is broader than that of Statement No. 141, which applied only to business combinations in which control was obtained by transferring consideration. By applying the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, Statement No. 141(R) improves the comparability of the information about business combinations provided in financial reports. Statement No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree, as well as any resulting goodwill. Statement No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Devon will evaluate how the new requirements of Statement No. 141(R) would impact any business combinations completed in 2009 or thereafter.

In December 2007, the FASB also issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51. A noncontrolling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Statement No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Under Statement No. 160, noncontrolling interests in a subsidiary must be reported as a component of consolidated equity separate from the parent's equity. Additionally, the amounts of consolidated net income attributable to both the parent and the noncontrolling interest must be reported separately on the face of the income statement. Statement No. 160 is effective for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. Devon does not expect the adoption of Statement No. 160 to have a material impact on its financial statements and related disclosures.