Microsoft says no plan to start expensing options

By : |July 27, 2002 0

REDMOND: Microsoft Corporation said on Thursday it would stick with the high-tech industry’s practice of not listing employee stock options as expenses, bucking pressure from politicians and investors.

Steve Ballmer, chief executive at the world’s largest software maker, told reporters and analysts that Microsoft had no plans to change its current accounting rules, but also noted that “it makes economic sense to expense options.”

“If the statutes change, then of course we’ll comply,” he said at the company’s annual briefing for financial analysts at its Redmond, Washington headquarters.

Scrutiny over corporate treatment of stock options has intensified after accounting scandals at Enron Corp and WorldCom Inc brought to light generous compensation for executives in the form of lucrative stock options.

Asked whether Microsoft would take “a leadership role” and change its accounting methods, Ballmer said the practice of not expensing options was “within the context of the industry.”

Just this week, top online retailer and Seattle-based neighbor Inc. announced that it would begin expensing all of its employee stock options by the beginning of 2003, following the lead of old-economy firms such as Coca-Cola Co. and Bank One Corp.

“There is much discussion about stock option accounting,” said John Connors, Microsoft’s Chief Financial Officer.

Connors emphasized that his company’s accounting practices were transparent and the potential impact of expensing options was properly noted in its financial filings.

In its latest earnings statement, Microsoft said fourth quarter net income would have been $903 million instead of $1.53 billion if it had to expense stock options. Its yearly net profit would have been $5.36 billion instead of $7.83 billion for the fiscal period ended June 30 if the options were shown as expenses.

Microsoft’s employee stock options represent an overhang about 15 percent of shares outstanding.

Ballmer, who owns 4.4 percent of Microsoft, said that he and co-founder Bill Gates, who owns about 12 percent, would never accept stock options in the future.

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