More On Microsoft

• In the March 27 issue, The SPOTLIGHT reported on how Microsoft illegally manipulates its stock to hide the fact that it is massively in debt. Bill Parish continues his report illustrating how the megacorporation is raiding the pension system, including your 401K, and destabilizing the stock market.

The Microsoft Corporation is full of brilliant, well meaning people, yet its management has clearly erected a financial pyramid scheme. This scheme is spending your pension check, making reasonable wage and benefit in creases all but impossible and putting your job at risk.

Many of its competitors are now merging and laying off large numbers of workers in order to cut costs in a futile attempt to compete.

Who could imagine that Microsoft would evolve into a dangerous financial predator after your pension in a desperate attempt to feed a pyramid scheme whose base has grown too wide.

You might ask: How could the Microsoft Corporation receive a tax deduction of $15 billion this year for stock option wages that are not charged against its reported earnings?

Wouldn't you love to be able to do that in your business?

This massive tax subsidy will allow them to effectively eliminate taxes paid on all product sales. It also means that Microsoft actually lost $10 billion last year, rather than earning a profit.

Closer to home, these stock option wages are not included in the government's statistics on wage inflation. That is why so many workers struggle to receive honest wage increases, knowing full well that inflation is occurring everywhere, including the grocery store and day care center. Employers simply say: "Look, the statistics say 2 percent. So I'll give you a 3 percent raise."

A second loophole is that Microsoft does not have to charge this expense to earnings, which correspondingly in flates their reported net income, fuels interest in the stock price and has resulted in Microsoft being the most widely held investment in public and private pension plans. At its recent peak, the company was valued at $700 billion or 40 percent of the entire federal budget.

Prior to 1995, most stock options issued were Incentive Stock Options (ISOs) and these provided a special lower tax rate if employees exercised the options and held the stock more than one year. Since these ISO options were not considered wages by the IRS, no tax deduction was provided to the employer.

Microsoft later led an effort to establish a new type of stock option program, Non-Qualified Stock Options (NQs), that would immediately tax the employees when they exercised the options as regular W-2 income, even if the stock was not sold.

This, they argued, should entitle the company to correspondingly take a tax deduction as wages. The IRS agreed. The goal was to switch from a program designed to reward employees to a scheme that generated cash in the form of lower taxes, leaving both its own employees and the pension system with inflated stock.

Although other technology companies also have stock option programs, most of them do not have adequate profits to fully utilize the tax deductions for stock option wages. This provides Microsoft a significant advantage and is only one strategy used in its pyramid scheme.

With this new found freedom to manufacture earnings by excluding the largest expense of doing business and with more cash on hand as a result of paying lower taxes, Microsoft then began to aggressively speculate on its own stock in the options market, betting it would not decline.

As a result, Microsoft has pocketed more than $1.5 billion in cash doing this over the last couple of years. If Microsoft guesses wrong, rather than pay up in cash, they will simply issue more shares on the equivalent of a photocopy ma chine in the back office.

With its inflated stock functioning as a competitive club, Microsoft is then able to enter industry after industry and undercut the competition on price, forcing unproductive mergers or "roll-ups" as these companies try to compete. This triggers mass layoffs, wage and benefit reductions and a basic destabilizing of our national economic fiber.

Closer to home, this also means the pyramid may consume your job, whether you are an attorney, real estate agent, teacher, plumber or nurse. Financial pyramid schemes are non-discriminatory in terms of where they derive financial resources and your job and benefits are fair game.

Many would criticize the government for this situation yet the blame should be instead directed squarely at the Micro soft Corporation which has become a form of unregulated de facto government with little respect for our democratic free market institutions.

Mike Brown, a previous chief financial officer at Microsoft, was also simultaneously chairman of the board of the NASDAQ stock exchange and took great pride in being influential in setting accounting standards. This included leading an effort so that the Financial Accounting Standards Board (FASB) would not require that stock option wages be charged as an expense against reported earnings, thereby greatly inflating reported earnings.

This is a hard situation to comprehend and even the traditional media is still struggling to understand how Mi cro soft's scheme works.

With Microsoft's stock declining from its recent peak of approximately $120 a share to $90 a share, management at Microsoft might also be wise to make sure it has adequate toner in the photocopy machine. They may have to print lots of stock certificates -- what some would call "watered stock" -- to cover their speculations on their own stock, betting it would not decline in the options market.

Copyright © 2000 Bill Parish

For more detailed information on this amazing story, log on to Bill Parish's web site at www.billparish.com.