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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: John F. Dowd who wrote (25346)	6/30/1999 9:38:00 PM
From: Ian Davidson	Read Replies (1) \| Respond to of 74651

Wednesday June 30, 8:53 pm Eastern Time Microsoft says SEC probing accounting practices (Updates throughout with details, analyst comments) By Martin Wolk SEATTLE, June 30 (Reuters) - Federal authorities are investigating Microsoft Corp.'s, (Nasdaq:MSFT - news) practice of setting aside some of its software revenues and recognizing them later, chief financial officer Greg Maffei said on Wednesday. Maffei said in a conference call with reporters and analysts that the U.S. Securities and Exchange Commission apparently launched the probe after a newspaper report drew attention to a dispute over whether the company dips into its ''cookie jar'' of reserves to smooth financial results. ''We don't know the entire scope other than it relates to reserves and reserve policies,'' Maffei said, adding that the company is ''cooperating fully'' with the SEC. The brief Wall Street Journal article, published in January, referred to a lawsuit brought a former company auditor who charged he was wrongfully terminated after raising questions about so-called ''cookie jar'' accounting. Microsoft, well known for its conservative financial reporting practices, has consistently said it follows industry guidelines in deferring recognition of revenue from products such as Windows and Office to account for later delivery of upgrades and support. Microsoft began the practice with the launch of Windows 95, saying such software was becoming more like magazine subscriptions that are paid for up front and delivered over months or years. Since then such ''unearned revenue'' on the company's balance sheet has grown to more than $4 billion. The SEC declined even to confirm the investigation, although Chairman Arthur Levitt has waged a campaign against improper use of reserves to pad corporate results in later quarters. Analysts said they were not concerned by the SEC probe. ''I think it's much ado about nothing because you can still see the revenue and track it,'' said analyst Chris Galvin of Hambrecht and Quist. ''It's not like they're holding back.'' Bill Epifanio, an analyst with J.P. Morgan, said Microsoft's accounting practices had been consistent and conservative. ''Given the size of their revenues it's turned into quite a valuable asset for them in terms of helping them smooth out their results,'' he said. He and others said Microsoft stock could go higher Thursday on separate remarks by Maffei indicating that business in the quarter just ending was at least as strong as expected. The remarks came as Maffei disclosed that Microsoft was adjusting its reserve policies to comply with new accounting guidelines and recognize more Windows and Office revenue up front. Maffei said the change was unrelated to the SEC probe and had been discussed with the agency. The change will add about one cent a share to Microsoft earnings in the fiscal fourth quarter that ended Wednesday and another one cent a share in fiscal 2000, he said. Maffei also said the company had reclassified revenue and expenses from four relatively small businesses including product support and Internet access. The change had the effect of adding about $2 billion in revenues over the past 11 quarters, boosting the total by about 5 percent, although because of related expenses the company's reported net earnings were not affected.

To: John F. Dowd who wrote (25346)	7/1/1999 8:02:00 AM
From: John F. Dowd	Read Replies (1) \| Respond to of 74651

To All: SEC is supposed to be concerned with fairness to shareowners. MSFT is bending over backwards not to overstate financials and so they are being taken to task. This is very much like the logic of the anti-trust trial where MSFT enemies are claiming harm whereas consumers have been very well served in terms of value. If you don't believe this all about campaign funding guess again. GWB has raised 2X what Gore has raised in just 4 mos. and the DNC (the incumbent administration) is in a panic. GWEB has raised 36 million and therefore has no need for gov't. funding. This is really sick. JFD P.S. We started to see some real volume yesterday(avg) as institutions moved in for end of the qrtr. window dressing.