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Will Microsoft go on a buying binge? | |
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| Time: 13:51 EST/18:51 GMT | News Source: CNET | Posted By: Byron Hinson | ||
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Microsoft could go on a shopping spree to acquire key technologies and services as soon as its legal problems are out of the way, according to a report from research firm Gartner. Other analysts aren't so sure, however. As Microsoft's antitrust imbroglio drags on, the company is sitting on a cash reserve of $38 billion, something that makes large acquisitions almost inevitable, Stamford, Conn.-based Gartner said in a report released Wednesday. Microsoft's cash hoard has recently been a topic of debate among parties including Wall Street analysts and consumer advocate Ralph Nader, who in January argued that the software giant should pay dividends to its shareholders. | ||
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| #1 By 3339 (65.198.47.10) at 4/10/2002 5:00:16 PM |
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"US Tax law provides that when a corporation accumulates earnings "beyond the reasonable needs of the business," it is subject to an accumulated earnings tax of 39.6%. According to the IRS, "the fact that a corporation has an unreasonable accumulation of earnings is sufficient to establish liability for the accumulated earnings tax unless the corporation can show the earnings were not accumulated to allow its individual shareholders to avoid income tax." (IRS Publication 542, Accumulated Earnings Tax,
http://www.irs.gov/prod/forms_pubs/pubs/p54208.htm). Microsoft recently reported cash and short term securities of more than $36 billion, nearly 50 percent more than last year's entire revenues, and twice the cash held by GM, a corporation that reported sales about seven times larger than Microsoft's. Moreover, the cash holdings by Microsoft are growing at an astonishing rate -- about $1.5 billion per month over the last quarter. It is difficult to imagine how Microsoft, which has never paid a dividend, is not subject to the accumulated earnings tax." Seems pretty straightforward to me--they sit on more 2x more cash than what comes in as revenue; they have 2x more cash than GM with 7x more sales and being in a more capital intensive sector... This cash hord gives them incredible power, but that's not Nader's issue--his issue is that this is essentially an illegal tax haven being used by MS exec's and wealthy, long term investors... (Consider it a great big penny bank w/ lesser or different tax laws) In other words, there are investors that are receiving greater benefits from MS stock as a tax haven than they are as an investment vehicle, the primary reason for stock. |
| #2 By 3339 (65.198.47.10) at 4/10/2002 6:19:04 PM |
| Where's the bit about not knowing what I'm talking about? Show me. Until you do, it looks like I have a few anon's now who troll just to respond to me. I'm a daily poster, submit stories frequently, and use windows daily. If you think I'm uninformed or trolling, back it up with some info. |
| #3 By 135 (209.46.107.141) at 4/10/2002 6:47:19 PM |
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Out of curiousity sodajerk, how many stock options does Microsoft have outstanding? Some other psuedo-accountant was claiming that they were reporting as income money which was really intended to back stock option grants for employees.
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| #4 By 3339 (65.198.47.10) at 4/10/2002 6:58:45 PM |
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I'm not sure what they have outstanding... I could check and get back to you. Although I'm not sure if there is a way to fully determine outstanding OPTIONS--not the same thing as finding out outstanding stock. But on this matter, everyone is doing this, it's a flaw in accounting practices--this is something that Voekler was pushing for back in the day and reform almost got past at the end of Clinton's reign... And now there is renewed interest, led by Greenspan to pass some form of stock option reform, because of Enron--and of course, and it's an amazing coincidence you asked, Bushy is fighting against it. Just read the story about an hour ago. Basically, I heard Greenspan recently say that of all public companies in America about 2% of their revenue is actually vapor, created by the realization of stock options. Unfortunately, it's perfectly legal for options to appear as revenue, but there is no way to track them as an expense--obviously if you are granting a piece of your company to someone, it's costing the company something, right? I think this is what you may be referring to, but everyone is doing this--I would bet it's pretty substantial at MS. Bush, by the way, wants it to be the case that the companies are not charged "expenses" for granting options, only that when options are realized, they are factored into the dilution of outstanding stock--which creates a market effect to company valuations but this does nothing about the fact that companies get to giveaway nonexistent cash to execs. This post was edited by sodajerk on Wednesday, April 10, 2002 at 18:59. |
| #5 By 3339 (65.198.47.10) at 4/10/2002 7:15:21 PM |
| Does that work for you, soda? I think it makes sense--so far no luck on the research... I guess you could cobble together the different announcements of issuing of options, but there's no way to tell when some of these options are able to be vested... which means the number is completely irrelevent, because you wouldn't be able to approach the actual dollar value of the options, and of course, there is no guarantee (in fact, with most plans, this a guarantee you WON'T vest) that you will sell the stock at a certain value. For those that don't know, options say that you are granted the stock when it reaches a certain point, a which point is generally sold--so for all intent and purposes, that stock was never actually held by the person granted the options, but it does register as a stock transaction (a nice block sale, generally worth hudnreds of thousands or millions). |
| #6 By 135 (209.180.28.6) at 4/10/2002 8:08:00 PM |
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Yep, since the options cost the company nothing until they are realized... Not sure how you could possibly try to calculate this out on the balance sheets. But that was part of the point, that maybe MS is holding back a lot of their income as a buffer in case this does happen. Would make sense for a responsible company to do that.
I've also heard that Microsoft's philosophy is that they never want to have a layoff, and the best solution to this is to have enough cash in the bank to operate for an entire year with zero revenue. BTW, once the Hughes Electronics deal goes thru GM will have another $30 billion in cash and securities on hand. |
| #7 By 3339 (65.198.47.10) at 4/10/2002 8:34:18 PM |
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Yeah, I don't think corporate America is really fearing and planning for the possiblity of reform so I go with the story that MS themselves put out--Gates is paranoid that they would have to entirely recreate a new industry so he wants to be prepared for the possibility of a year without revenue.
Well, there are clear ways to account these "transactions" but they would be more or less arbitrarily determined by what reform gets passed--I think if a reform where they counted as expenses were passed, you would set a value for options that wouldn't be equal to the value of the vested value (because of the possibility that they do not get exercised) and then there would be depreciation like other assets. The Bush proposal wouldn't track them as expenses but you would see their numbers and cash value in the accounting statements--so I guess that would solve our little mystery now. Add a bit more transparency to this wonderful little shell game. I think companies would be a little more prudent about issuing options then, but I can't agree with such a half-hearted reform. It hasn't gone through yet? Hasn't it been like 2 years already? I thought it was already wrapped up, just--you know--the actual swallowing could still be happening? I guess you would know though, right? ;-) |
| #8 By 135 (208.50.201.48) at 4/11/2002 1:03:12 AM |
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I don't think it's been quite a year yet, but it's all tied up in antitrust hearings...
http://www.hughes.com/home/transition/transition.xml BTW, I agree that accounting practices need to be transparent. I'm not a particularly big fan of large executive bonuses, etc. But the thing about Microsoft is, like the company I work for, they treat all of their employees to a piece of the wealth. That is what makes a good company to work for. |
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