<BREAKFAST WITH THE FOOL>
Thursday, July 1, 1999
"The rich man and his daughter are soon parted." -- Frank McKinney Hubbard
Microsoft Faces SEC Probe
Software giant Microsoft (Nasdaq: MSFT) said it was being investigated by the SEC for the way it accounts for software revenue. At the same time, CFO Greg Maffei said the company's fiscal fourth-quarter earnings will be about a penny a share higher than analysts' estimates as it starts recognizing more revenue from new products sooner. The change will also add a penny to earnings for the next fiscal year. According to Maffei, the accounting change and the SEC investigation are not related.
Microsoft will now recognize 75% to 90% of revenue from new products up front, instead of 65% to 80%, and spread the rest over the life cycle of the product. The company will extend the life cycle of Windows operating systems to three years from two. As a result of the accounting change, Microsoft restated its earnings for the first three quarters of fiscal 1999 as well as for fiscal 1998 and 1997. Net income for the previous three quarters remained unchanged.
Microsoft said it is cooperating with the SEC investigation, which resulted from reports alleging that the company uses "cookie jar" accounting -- setting aside revenue and dipping into the jar to pad the top line as needed. A former Microsoft internal auditor, Charles Pancerzewski, reportedly alleged that he was wrongfully discharged for pointing out that the accounting practice violates Generally Accepted Accounting Principles (GAAP) and SEC regulations. He sued the company but ended up settling the case under undisclosed terms.
News To Go
Gourmet coffee roaster and retailer Starbucks (Nasdaq: SBUX) warned that it expects fiscal 1999 earnings of $0.54 a share, down from analysts' mean estimate of $0.60, with the difference split between the last two quarters of the fiscal year. The company said that its non-core, non-retail businesses "have not grown as previously anticipated" and that it has incurred "significant additional costs" related to its Internet strategy. Starbucks also reported that comparable-store sales in June gained 7% year-over-year.
In more news out of the Pacific Northwest, athletic footwear giant Nike (NYSE: NKE) posted fiscal Q4 EPS of $0.38 before charges, beating analysts' expectations of $0.37. But revenues for the quarter fell 5% from last year to $2.18 billion, though worldwide futures orders for merchandise to be delivered between June and November are 4% higher. Orders are up 22% in Europe and 19% in Asia.
Women's websites operator iVillage Inc. (Nasdaq: IVIL) announced it has acquired Online Psychological Services Inc. for $25 million -- $1.5 million in cash and the rest in stock. Online Psychological Services runs Online Psych at http://www.onlinepsych.com and AOL keyword: onlinepsych.
Wireless phones distributor Brightpoint Inc. (Nasdaq: CELL) said it has adopted a broad restructuring plan that will involve disposing of its operations in the U.K., Poland, Argentina, and Hong Kong, and exiting its two joint operations in China. The company also plans to cut 350 jobs and to reduce costs. The restructuring plan will result in a one-time Q2 charge of about $75 million to $90 million ($1.40 to $1.65 per share).
Hearst Corp. will invest $100 million in Hearst-Argyle Television (NYSE: HTV), which owns and operates network-affiliated TV stations. The investment raises Hearst's stake in the company to about 52.3 million shares, or 56.3% of total shares outstanding. Hearst is buying around 3.69 million new shares of Series "A" common stock at a price of $27.125 per share.
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