Q&A: Microsoft to Retroactively Restate Financial Information to Reflect Reshaped Compensation Plan

REDMOND, Wash., July 10, 2003 — In connection with significant changes announced this week to Microsoft’s employee compensation, Microsoft CEO Steve Ballmer said in a news conference that the company would retroactively restate its financial information for prior fiscal years in order to provide investors with the best comparability to results for the current and coming years.

The following Q & A from Microsoft Investor Relations expands on that announcement:

Q: Are you restating earnings?

A: To preserve comparability, we have chosen to retroactively restate our financials. You will see this change reflected with our first quarter 10-Q filing for fiscal year 2004. Our 10-K filing for fiscal year 2003 will not reflect the retroactive restatement, but, consistent with previous 10-Ks, we will provide pro-forma information on this basis.

Q: How far back are you doing this?

A: In accordance with the applicable accounting guidance, we will provide retroactively restated income statements for prior periods included in future filings. For example, our fiscal year 2004 10-K will include retroactively restated income statements for fiscal years 2002 and 2003.

Q: Where and when will the adjusted past year’s expenses be shown?

A : You will see this change reflected with our first-quarter 10-Q filing for fiscal year 2004.

Q: Will employees be able to take the 83b option on their stock awards?

A: With the Microsoft stock award plan, since there is no transfer of property until the shares vest, Section 83(b) does not apply.

Q: What is the difference between restricted stock and stock awards?

A: Restricted stock is awarded in total at one time and the restrictions on the stock are lifted at the vesting periods. Stock Awards, also known as restricted stock units, give employees the right to receive stock at vesting.

Q: One advantage of the method Microsoft is choosing is that it makes future year-over-year comparisons look better. How big a factor was this in your decision?

A: This was not a factor. The accounting provides a more transparent and comparable view for our investors to look at past years’ performance in relation to our go-forward accounting.

Q: Do you expect the restated figures to closely match the figures reported in the footnotes of the financial filings for the past two fiscal years?

A: Yes.

Q: Is it really an apples-to-apples comparison? In the past you were granting options, and now you will be expensing a far lower number of options (i.e., only previously granted ones).

A: It is as accurate a comparison as can be drawn.

Related Posts