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To: William Hunt who wrote (165570)	5/30/2002 5:29:19 PM
From: BelowTheCrowd	Respond to of 186894

With all due respect, Microsoft has been under investigation by the SEC for excessive manipulation of their earnings. This is NOT positive, nor should it be. The rules permit companies to create reasonable reserves and exclude those from their earnings. The allegation (which appears to be well-supported) is that Microsoft often set aside larger reserves than permitted when they were doing well, with the intention of then "cutting in" to the reserves during bad periods. The alleged intent was to "smooth" their earnings in the long term and thus to present a less-than-true picture to investors. This is the same issue that Xerox paid a $10m fine for earlier this year. In that case, the bad times had already hit and XRX dug into their "cookie jar" to artifically inflate earnings using old reserves, so there was a better "paper trail" than in this case. I think the Microsoft suit is indicitive of a willingness to go after questionable practices BEFORE companies get into trouble. I can't see how anybody could consider this situation to be a positive. Investors should expect companies to provide financial statements that reasonably reflect their true situation. If the truth is that the earnings picture is volatile and cyclical, then it should not be excessively smoothed, EITHER UP OR DOWN. Doing so is a disservice to investors. FWIW, the investigation doesn't seem to focus on deferred revenue issues, which generally do speak to conservative accounting. From the WSJ: online.wsj.com It wasn't clear which or exactly how much of Microsoft's reserves the SEC's investigation focused on. In general, companies are allowed under accounting rules to set aside funds to cover potential expenses such as returned products, excessive inventory or bad debts. By changing estimates of such expenses, companies are able to increase or decrease the amount of earnings they report to shareholders. Such estimates are adjusted behind the scenes, out of view of investors. Some reserves are more visible, such as the chunks of "unearned," or deferred, revenue Microsoft accumulates each quarter from sales of some of its core products. In accordance with SEC rules, Microsoft defers some core-product sales to future quarters, recognizing only a portion of sales upfront and the rest over the products' life cycle. The SEC's investigation doesn't appear to focus on this specific reserve practice, a person familiar with the matter said. FWIW, CNBC just stated point blank that "Microsoft and the SEC declined comment." The WSJ story that broke this morning pretty much said the same thing. That is typical in this type of investigation. I didn't see the longer report that was on earlier. I don't think CNBC is all that great, but I haven't seen anything truly distorted in the (admittedly limited) reporting I've seen on this topic. The world is coming down hard on any company that manipulates earnings even in relatively innocent ways. mg

To: William Hunt who wrote (165570)	5/30/2002 7:58:22 PM
From: semiconeng	Read Replies (1) \| Respond to of 186894

Bush seems to be living in a different world than the rest of us in regards to the economy . Republicans and Big Government by James Ostrowski [Posted February 25, 2002] George W. Bush's State of the Union address must have baffled anyone who voted for him based on his pledge to cut the size of government. That speech has been properly and efficiently pilloried by Joseph Stromberg, Alan Bock, and others. The speech was both Wilsonian and Clintonian, which is to say that it proposed a political solution for all human problems and backed this idea with a promise of massive increases in federal spending on just about everything. But should we really be so surprised? Contrary to popular myth, every Republican president since and including Herbert Hoover has increased the federal government's size, scope, or power--and usually all three. Over the last one hundred years, of the five presidents who presided over the largest domestic spending increases, four were Republicans. Include regulations and foreign policy, as well as budgets approved by a Republican Congress, and a picture begins to emerge of the Republican Party as a reliable engine of government growth. mises.org Semi