Microsoft's Reboot: Its Decision To Restate Earnings Is Unusual
The final word on Microsoft Corp.'s announcement on stock-based employee compensation: Microsoft's bottom line will look considerably worse -- not just in the future, but also in the past.
The Redmond, Wash., software maker will do more than just replace stock options with stock grants as its favored method of equity-based employee pay. Perhaps even more surprising is Microsoft's decision to voluntarily restate prior years' financial results to reflect its decision to begin treating stock-options compensation as an expense on its income statement. The decision makes Microsoft the first technology company to announce a financial restatement in connection with a change in stock-based compensation. As of mid-June, according to Bear Stearns Cos., only nine of the 288 U.S.-listed companies electing to expense stock-options compensation had decided to restate past results, including Wal-Mart Stores Inc. and SBC Communications Inc.
Volunteering to restate previously audited financial statements is unusual. Normally, companies undertake restatements only to correct prior accounting errors, and it is something they are usually loath to do. Companies typically will agree to restate their results only if pressured by their auditors or securities regulators. The normal transition method for a company changing a key accounting practice is to record a one-time charge or gain on its income statement to account for the cumulative effect of the accounting change. That way, the hit or boost to earnings comes all at once in a single quarter.
So why would any company volunteer to depress past years' results?
Microsoft says it is doing so in order to ensure that its year-over-year earnings are presented to investors on an apples-to-apples basis. "We thought that it was important for the users of the financial statements to see the impact on a year-over-year comparable way," says Curt Anderson, Microsoft's investor-relations director.
But there could be another benefit. Lowering past years' earnings probably will make it a lot easier for Microsoft to show year-over-year earnings growth in future periods, a key objective for any company trying to justify a high stock valuation to investors. Even using Microsoft's unrestated net-income figures, Microsoft shares still trade for 31 times the company's earnings for the past four quarters, a lofty multiple for a company in a maturing business. Mr. Anderson says Microsoft's growth prospects weren't a factor in the company's decision to restate. The shares were down 23 cents to $27.47 at 4 p.m. Wednesday in Nasdaq Stock Market trading.
Under Microsoft's new program, employees will be granted the right to receive shares of company stock in future years, should they stay employed at the company long enough for the shares to vest. That way, even if the stock goes down, employees at least get something of value. By contrast, when options expire "underwater," with a strike price above the stock's market price, they are worthless.
Microsoft doesn't have to restate if it doesn't want to. In December, the private-sector Financial Accounting Standards Board passed new rules that for one year gave companies a choice of three methods for making the voluntary transition toward treating stock options as an expense. (Eventually, the FASB is expected to require all companies to treat options-based compensation as an expense.) Under the first, and most widely used, method, companies take a "prospective" approach, treating the current year's options as an expense but ignoring options granted in prior years. Under the second method, companies record expenses in the current year for both newly granted and previously granted options, resulting in a bigger hit to this year's earnings but no effect on past years' results.
The third method, restatement, calls for companies to restate prior years' results to include previously granted options as an expense in the years they were granted. This is the path being taken by Microsoft, which says it will restate its results for the past three years.
Like other companies, Microsoft historically has provided annual footnote disclosures of what its earnings would have looked like including options as an expense. For the year ended June 30, 2002, Microsoft reported net income of $7.83 billion, or $1.41 a share. Including options-based compensation as an expense, its net income would have been $5.36 billion, or 98 cents a share. For fiscal 2001, Microsoft reported net income of $7.35 billion, or $1.32 a share. Including options expenses, its 2001 net income would have been $5.08 billion, or 91 cents a share. For fiscal 2000, net income was $9.42 billion, or $1.70 a share. Including options expenses, net would have been $8.17 billion, or $1.48 a share. In line with their typically rosy outlook, most Wall Street stock analysts who cover Microsoft are expected to exclude stock-compensation expenses from their research reports' "pro forma" calculations of Microsoft's past and future earnings.
But there is no guarantee Microsoft's restated results will look like the numbers in the previously published footnotes. Mr. Anderson says the company expects the new numbers will be fairly close to the old ones and that it likely will continue to use traditional "Black-Scholes" mathematical models to calculate the value of its previously granted options. However, the company isn't bound to use the same techniques. A restatement will give the company an opportunity to change the assumptions and estimates that it plugs into its valuation models, for such things as stock-price volatility. Those inputs greatly influence an option's stated worth, a longtime point of contention for critics who say the "fair value" figures produced by such models are too subjective to be relied upon.
"I don't think it's clear yet that they're just going to plug in the footnote number, particularly in light of all the criticism of Black-Scholes lately," says Robert Willens , an accounting and tax specialist at Lehman Brothers in New York.
Looking ahead, other line items will change, too. For instance, Microsoft historically has reported billions of dollars in cash inflows from the payments that employees make to the company to exercise their stock options. As Microsoft moves away from options toward stock grants for its employees, those particular cash inflows will taper off.
That doesn't necessarily mean Microsoft's cash flows will drop overall. Historically, it has repurchased large volumes of shares on the open market as a way to counter the shareholder dilution that results from large exercises of stock options by employees. Depending on how Microsoft chooses to deploy its stash of $46.18 billion in cash and short-term investments, the declining cash inflows could be offset by a reduction in the need for share repurchases.
Stock buybacks still will be necessary to counter dilution. But in the future, Microsoft might not have to spend as much cash on company stock to accomplish its objectives. Under a stock-grant program, it will be far easier for company officials to accurately project how many shares the company will need to buy to counter future dilution. Also, under a stock-grant equity-compensation program, Microsoft probably wouldn't have to issue as many shares to compensate employees in a rising stock market as it would in an options-based program. That likely means there will be fewer shares outstanding in future periods than otherwise would be the case and, less dilution.
微软将重报以往收益
微软公司(Microsoft Corp.)在发表了有关以股票为基础的员工薪酬计划变更之后，又抛出新的惊人之语：微软公司的利润将大幅缩水--不仅对于未来，对过去也是一样。
这家位于华盛顿州雷特蒙德的软件开发商不仅仅是要改变其以股权为基础的员工薪酬制度，决定以发放股票的方式来取代股票期权，更重要的可能是将决定重新公布过去几年的业绩，旨在反映将股票期权计入费用的决定。这使微软成为第一家因股票薪酬规定改变而宣布重新公布业绩科技公司。据贝尔斯登(Bear Stearns Cos.)公布的数据显示，截至6月中旬，选择将股票期权计入费用的288家美国上市公司中，仅有9家宣布重新公布过去会计期间的业绩，其中包括沃尔玛连锁公司(Wal-Mart Stores Inc.)和西南贝尔公司(SBC Communications Inc.)。
自愿选择重新公布过去业绩的做法极其少见。通常，只有在不得不纠正以前发生的会计处理错误时，公司才会很不情愿地重新公布业绩。
公司一般都是在审计师或证券监管机构的强大压力下才会重新公布收益。而如果是应采用一项新的会计准则而调整业绩时，公司通常会通过计入一次性支出或所得，对会计变更的累计影响作出反映。这样的话，对业绩的正负面影响都只是在某一个季度中出现一次而已。
那么为何还有公司会自愿压低过去年度的业绩呢？
微软称，这样做是为了能够让投资者对公司业绩详尽地进行逐年比较。微软投资者关系主管库尔特?安德森(Curt Anderson)表示，公司认为让财务报表的使用者从可比的数据中发现不同会计处理方式的影响，这一点非常重要。
但可能还会有另一项好处。对微软来说，降低过去年度的收益很可能将使得未来实现年度收益增长变得更加容易，而为留住投资者，许多股票估价较高的公司正是将收益的增长定为一项重要目标。
即便根据微软未经重新公布的净利润数据，其股价也是过去4个季度每股收益的31倍，这对于微软这样业务已经步入成熟期的公司而言，本益比显然过高。安德森称，微软并未将未来收益增长作为决定重新公布业绩时的考量因素之一。昨日下午4时，该公司股票在那斯达克市场下跌23美分，至27.47美元。
根据微软新的薪酬计划，以后只要员工为公司服务足够长的时间，微软就将向他们授予获得公司股票的权利。在这种情形下，即便股价下跌，员工也至少是得到了一些有价值的东西。相比之下，若期权到期时市场价低于执行价，则期权将毫无价值。
如果自己不想重新公布业绩的话，微软完全可以不这么做。财务会计标准委员会(Financial Accounting Standards Board)在去年12月份通过新的规定，让公司在一年内自愿决定是否选择将股票期权计入费用的三种方法中的一种（预计财务会计标准委员会最终将会要求所有公司都将期权列入费用。）
根据第一种、也是使用最广泛的一种方法，公司将当前年度的期权计作费用，但对以往年度的期权不作调整。
第二种选择是，公司将新授予的期权及以前授予的期权一并计入当前年度，这样本年度业绩将受到更大的冲击，但以往年度不受影响。
公司还可以选择第三种方法，将以往授予员工的期权作为费用计入相应年度的业绩中，以往各年的业绩将据此进行重新公布。微软所采取的就是这种方法，该公司表示将对过去3年的业绩予以重新公布。
与其他公司一样，微软此前会在年度报表中，都以附注的形式公布将期权列为费用时的业绩。对于华尔街跟踪微软的大多数分析师而言，鉴于他们一贯的乐观预期，预计他们在就微软过去和未来的预估收益进行计算时，不会将股票期权费用包括在内。
但不能保证微软重新公布后的业绩会与以前公布的数据一致。安德森称，新老数据将会非常接近，微软可能将继续通过传统的布莱克－斯科尔斯(Black-Scholes)定价模型来计算以前授予的期权的价值。但在具体方法上，该公司不一定会采用同样的做法。微软可以通过重新公布业绩之际，改变对这些估值模型中对股价波动幅度等参数的假设和估计。长期以来，许多持批评态度的人士认为，模型中的这些输入变量大大影响到所公布的期权的价值量，因此根据这类模型计算得出的"合理价值"过于主观，无法让人信赖。
雷曼兄弟(Lehman Brothers)驻纽约的会计和税务专家罗伯特?威伦斯(Robert Willens)认为，还看不出微软一定会运用原来附注中的有关数字的证据，尤其是在布莱克－斯科尔斯模型最近遭受这么多批评的情况下。
未来年度其他项目也将发生变化。比如，微软以往公布，员工执行股票期权为公司带来数十亿美元的现金。而随著微软开始取消股权期权，这部分现金流将逐渐消失。 这并不一定意味著微软的总体现金流会出现下降。为抵消员工大规模执行股票期权所带来的股权稀释效应，微软此前曾在公开市场上多次大量回购股票。现金流的下降趋势可能会被股票回购需求量的下降所抵消，这具体要看微软如何运用其高达461.8亿美元的现金及短期投资。
为抵消稀释效应，微软仍将需要进行股票回购。但以后微软可能不必需要花费这样多的现金就能够达到目标。采取发放股票的方式之后，公司在准确计算需回购多少股票来反稀释时将容易得多。同时采取直接发放股票的方式之后，在股市上涨时期，微软可能无需发行像授予股票期权时期发行的那么多股票来作为员工的薪酬。这可能意味著，与股票期权计划时期相比，以后的流通股将会减少，稀释效应将相应地减小。
