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Microsoft Amends Earnings Statement | |
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| Time: 12:05 EST/17:05 GMT | News Source: MSNBC | Posted By: Julien Jay | ||
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Microsoft Corp. has amended its financial reports for the past two quarters to fix what it said was a clerical error in reporting revenue for products with multiyear life cycles or license agreements. In a Securities and Exchange Commission filing Monday afternoon, the software giant said it had inaccurately reported “unearned revenue” in the three months ended Sept. 30, but said the error did not change the company’s net cash from operations. Because the error, was not discovered until recently, the mistake was again recorded in its quarterly report for the six months ended Dec. 31, which the company also corrected Monday. For the three months ended Sept. 30, 2001, the company said Monday it recognized $1.879 billion in unearned revenue, and recorded $2.069 billion in new unearned revenue. | ||
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| #1 By 3339 (65.198.47.10) at 3/26/2002 1:24:53 PM |
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No, MS is selling service plans and multiyear licenses, but this cash isn't received upfront--in some cases, it can't even be guaranteed to be future revenue. In some cases it is received upfront, but MS hasn't delivered the goods/services yet so that rev could potentially go away as well. What they had been doing was playing this revenue either way that suited them--in some cases overstating revenue which was dependent on future payments, and in other cases, spreading revenue out over multiple quarters (which decreases revenues in the immediate quarter, but props up the following quarters if they are expected to be weak).
This is something Nader was pointing out recently and is very significant; I've been shocked that the mainstream press refuses to really pick this up... Sure, it's no where near as bad as Enron--at least MS was hiding/reshuffling profits, not losses, but this shows the problems with our accounting practices in America. The wealth generated by investing in Microsoft has the advantage of a company which can and has been spreading revenue around over several quarters, possibly years to make weak quarters and really good quarters look like solid and steady quarterly growth. PT has this: "Regarding the clerical error, Microsoft said that it understated its unearned revenue for the quarter ending September 30, 2001 by over $900 million, and overstated its unearned revenue for the quarter ending December 31, 2001 by roughly the same amount. The two events "cancel each other out," a company spokesperson said. "Net cash from operations did not change."" This was no clerical error; Nader caught them a couple of months ago, and if a few intelligent reporters and/or politicians took this up, they could make this ugly for MS. Does it change the final balance for a few quarters? No, but it figured heavily in investor and analyst expectations and hence trading. By the way, what do you all think: was it a clerical error that their accountants made one mistake (overstating unearned rev) one quarter, and in the next they made the same but opposite mistake (understating unearned rev) in the next quarter, and coincidentally, they were "roughly" the same amount? Hmm, sure. This post was edited by sodajerk on Tuesday, March 26, 2002 at 13:31. |
| #2 By 135 (209.180.28.6) at 3/26/2002 1:42:28 PM |
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All companies spread revenue around. I work in the financial world, and if our companies goal this year is to make $200 mil, and we actually pull in $250 mil, we'll reinvest maybe $40 mil into short term securities so as to realize the profits in the next fiscal year. Thus we report that we had above planned earnings this year, and then next year we have a head start on our profits so if it turns out to be a soft market, we're not hit so bad.
All of this is common place in the industry, and is not a bad thing because it helps moderate the flow of the roller coaster. |
| #3 By 3339 (65.198.47.10) at 3/26/2002 2:13:50 PM |
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soda, two things I'd point out--you don't go back 2 quarters and restate earnings unless those statements are hinky with the SEC and are going to create legal problems, or if going forward, these "practices" are going to create problems with the investment community.
Second, we are talking about a mis-estimate of nearly 1/3 of 2-3 billion dollars... (not exactly 1/5 of a quarter of a bill; and clearly something that would have affected MS's performance over those quarters if investors knew about it) and we haven't heard that this was reinvested or shifted in any way normally appropriate--it was simply the revenue figures that were shifted; after all, these are "unearned" rev's that you can basically "make up" until the cash flows in to the point where you can resolve your estimates. I agree that most of this is probably legal; I'm pointing out that what is necessary is quite a bit of reform. Moderating your quarterly results through legal accounting procedures can be a benefit to the community if it prevents shock, but no one benefits from an innaccurate perception of how a public company is performing. We all should know that MS is susceptible to cycles (a good quarter or two or three every two or three years with some slow quarters), but miraculously, this is never reflected in their statements or the market. I find that dangerous. MS is too large not too have too many tactics for creating an illusion of constant growth. This post was edited by sodajerk on Tuesday, March 26, 2002 at 15:48. |
| #4 By 135 (209.180.28.6) at 3/26/2002 4:34:31 PM |
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jerk - Microsoft is a much larger company than ours. (Well ok, not if you include our parent company and all of it's divisions, but whatever) so it's not surprising for them to have larger values.
I've seen similar statements coming out of General Electric, and a few other companies. Your trying to make a mountain out of a mole hill, and trying to claim a company coming out and being honest about an internal clerical error is somehow an attempt to defraud investors. |
| #5 By 3339 (65.198.47.10) at 3/26/2002 5:05:26 PM |
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Larger values, yes, it's still a much larger percentage of a much larger number, it shows just how much more impact their would be. I don't follow MS's stock too closely but say their September Qtr. they slightly outpaced expectations... What would have happened in the market if it was 1/3 below estimates? People would realize that MS isn't always finding new sources of revenue and aren't always increasing productivity, but they are padding lean quarters with the revenue from Quarters with big upgrades. And as I said, this was just reshifted revenue; they never stated that some depreciation or investment had been miscalcualted or misplaced--they simply shifted the cash.
You do see similar restatements, but you don't see an adjustment quickly follow a complaint raised by a very public spokesperson at just the time the SEC starts looking into your own accounting. I'm not trying to make a mountain out of a mole hill; this will go no where and it's probably legal. I am just pointing out that there are huge problems with our investment community and people who actually think making the most favorable picture for an analyst is the way to succeed long term. (I actually saw Our Tresury Sec. yesterday saying that investors and public companies DON't DO what you said above--they don't set a goal and adjust the books to hit it; they do what's right for the company--BULLSH1T!!!) And I'm not suggesting they are defrauding investors; I'm suggesting the investors are in on it... Far worse because people will never see the problem with doing stuff like this, and ultimately, I think it will come back to bite somone or the other on the ass--either the investors, MS, the SEC, etc... As I said, I don't think this is big, because it's early and it's always difficult to get evidence in cases like this and because it's designed to beenfit everyone involved, not hurt some--but if MS has routinely been smoothing out its revenues over the years--ultimately, this should be looked at thoroughly. At the very least, this shouldn't be accepted as a "clerical error." I've seen many, many restatements--I don't think I've ever seen that one passed off. This post was edited by sodajerk on Tuesday, March 26, 2002 at 18:19. |
| #6 By 3339 (65.198.47.10) at 3/26/2002 8:12:04 PM |
| You are far from having the slightest clue about me, anon. Not even a whiff! I guess you don't know too many people who's greatest motivating factor ISN'T the Dollar? That's sad! Personally, I live a very High Quality of Life with little concern for cash because I'm not fixated on it or driven by it. And I still make a decent penny while fighting with idiots on discussion boards all day at work. Think about. |
| #7 By 1845 (12.254.230.230) at 3/28/2002 12:02:07 AM |
| This is much more fun to read if you skip jerk's comments and just read the responses. |
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