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Hi,

I just got my proxy from MSFT that just has one proposal; the one to split the shares two for one - BUT- the proposal reads:

"1- proposal to approve an ammendment to the company's articles of incorporation to increase the number of shares of authorizedd common stock from 4,000,000,000 to 12,000,000,000 and to halve the par value of each share from $.000025 to $.0000125."

Please correct me if I'm wrong, but last time I checked, 2 times 4,000,000,000 equaled 8,000,000,000.

Is Microsoft getting ready to dilute the shares to pay for:

A) The antitrust trial

B) The delay of Win 2000

C) Lots o' Stock options

D) All of the above?

Any thoughts anyone?

Thanks,

Lisa
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Please correct me if I'm wrong, but last time I checked, 2 times 4,000,000,000 equaled
8,000,000,000.

Is Microsoft getting ready to dilute the shares to pay for:

A) The antitrust trial

B) The delay of Win 2000

C) Lots o' Stock options

D) All of the above?

Any thoughts anyone?


Authorized shares are mostly a formality, but companies like to take care of that formality so that it doesn't interfere with their business. MSFT currently has about 2.5 billion shares outstanding, so the number authorized is way above what they need. But you can tell that there is not enough room for a 2:1 split, so while they're at it they'll triple the number authorized and not have to worry about it for a year or two.

Of the reasons you noted, A and B can have nothing to do with it, and C does have something to do with it. Well, A) can theoretically have something to do with it if the company gets broken up, but I'm sure that's not what this proxy is about.

Elan
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Hi Elann,

I found your post after I posted my second message. Thanks for filling me that this is somewhat common in share splits.

Still, I think the issues that I mentioned in my second post are really interesting, and would love to hear some other thoughts on the subject. The person who passed on this scuttlebut to me is a programmer. So, since they all seem to hate Microsoft, maybe this is biased info (but perhaps intelligent, well informed, biased info).

Best,

Lisa
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Still, I think the issues that I mentioned in my second post are really interesting, and would love to
hear some other thoughts on the subject. The person who passed on this scuttlebut to me is a
programmer. So, since they all seem to hate Microsoft, maybe this is biased info (but perhaps
intelligent, well informed, biased info).


Many articles have been written about the use of stock options as employee incentives. Companies take advantage of the favorable accounting rules in a way that some see as distorting the companies' true income and costs. Microsoft is a prime example of these practices. It's not scuttlebut as much as common knowledge. Recent articles appeared in Business Week and in Warren Bauffett's letter to shareholders, among others. And there's a web site dedicated to exposing the "abuse" of options in financial reporting. I forget the URL at the moment.

Elan
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The person who passed on this scuttlebut to me is a programmer. So, since they all seem to hate Microsoft,
maybe this is biased info <<<

Lisa, You may be right there. I personally have no answers to your question but have found over time following MSFT that there are a lot of softy-haters out there that will do anything to "dis" the company. That said I'm sure the ability to recieve options on a stock that seems to be rising endlessly does help keep some good employees around. Tom Gardner wrote about this in last nights RM port report (the company in question was Cisco, however). IMHO MSFT has the cash and margins to make employees happy the old fashioned way: pay them more. Their excellent financial position allows them flexibility to deal with "brain drain" as well as many other bumps in the road. -MarkV
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IMHO MSFT has the cash
and margins to make employees happy the old fashioned way: pay them more.


A couple of years ago I read that there are 1000 millionaires working at Microsoft. You don't make that kind of money from a paycheck.

Elan
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Here's the URL for the site dedicated to "exposing" the employee stock option accounting practices in high tech companies.

http://www.billparish.com/pyramidlist.html

I posted this on the MSFT and Employee Stock Option boards asking about the validity of this guy's concerns. He's a CPA, so I'm giving him the benefit of some professional credibility. Although no one responded to my posts with a direct answer, it seems that the increasing amount of mentions of this issue in the news, that there must be something to it.

Sara
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A couple of years ago I read that there are 1000 millionaires working at Microsoft. You don't make that kind of money from a paycheck.

Sure you do, Elan. At least, you do if you save some of that paycheck and invest it Foolishly. (Although I'll grant you it goes a lot faster with stock options.) If there were 1000 a couple of years ago, there are probably more now, or those are richer. The thing I find fascinating is that these people are still working. I'd assume that either they don't yet have enough money to live the lifestyle they want, or they love working there. Kind of another view of the brain-drain hypothesis - maybe money isn't the motivating factor.
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I read that there are 1000 millionaires working at Microsoft. You don't make that kind of money from a
paycheck.<<<

Good point. I guess it would be easy for some of them to retire. Maybe I'm overestimating the power of cash on this one.....-MarkV
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The thing I find fascinating is that these
people are still working. I'd assume that either they don't yet have enough money to live the lifestyle
they want, or they love working there. Kind of another view of the brain-drain hypothesis - maybe
money isn't the motivating factor.


Assume you already have a million in stock from exercised options, and you have another 3 million on paper from options that are not yet vested. Would you want to stick around until they vest? And each year you get options on another 5000 shares which vest during the next 4 years. See the pyramid scheme? Or should we call it golden handcuffs?

Elan
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A couple of years ago I read that there are 1000 millionaires working at Microsoft. You don't make that kind of money from a paycheck.


There are other high tech companies where this is the case as well.

In Austin, TX, these people are called DELL-ionaires because of the pennies-on-the-dollar stock options they received as employees.

the LanceMan



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Hi Everyone,

Thanks for all the comments on this issue. I feel I've gotten a lot of info about stock splits that I didn't know before.

I found the link supplied by GeoGoddess (post #2136) very interesting-

" Here's the URL for the site dedicated to "exposing" the employee stock option accounting practices in high tech companies.

http://www.billparish.com/pyramidlist.html
"

This link, if true, shows Microsoft currently operating at a loss of -2.5 billion.

Even though the authorization of additional shares appears to be customary, I have decided to vote against the share split proposal because:

1) the stock option issue seems like a complicated issue that I don't understand well enough yet, but that has serious ramifications. ( I will probably try to incorporate this into my spreadsheets in future to get a clearer idea of the true net margin.)

2) according to this link, the current stock option liability is 15% of the total market cap of the company (the highest percentage of any of the companies mentioned). That seems like quite enough to be going on with, while this issue unfolds.

3) a stock split does not add any value to the company by itself.

It seems that there is possibly something to be lost by voting for this, and nothing to be lost by voting against it.

I would like to see a forthright addressing of the issue of stock options accounting by management. I ruefully suggest, as the antitrust trial demonstrates, that forthrightness is not one of Microsoft's long suits.

Best,

Lisa

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It seems that there is possibly something to be lost by voting for this, and nothing to be lost by
voting against it.


There's of course nothing to be gained or lost by voting altogether because the result is foregone. However, if by some unnatural fluke the proposal were to be rejected, the stock would drop like a rock on the news. One, because it would be a resounding vote of no confidence in the company's management. Two, because the market has developed an irrational expectation that splits are good for the stock price.

It's no surprise that management proposals to shareholders (almost) always get approved, because the rational course of action for someone voting against is to sell the stock.

Elan
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