Lawsuit fears dash Microsoft payout

SOFTWARE giant Microsoft has dashed hopes of a special dividend, saying it needs its ballooning cash pile to pay for potential litigation.

There had been speculation that the company, under pressure from shareholders, would pay out a special dividend of up to $10bn (£6.3bn). Its reserves have grown by that amount to $49bn in the past year.

But chief financial officer John Connors resisted the calls. He said Microsoft does 'hear the angst that many shareholders' have, but the company needed the reserves to pay for potential lawsuits.

The group unveiled a one-time charge from its $750m legal settlement with AOL Time Warner. But it faced other legal issues, including an inquiry by the European Union and a lawsuit from Sun Microsystems. AOL had accused Microsoft of abusing its monopoly power against Netscape, a web browser AOL bought in 1999.

'We really have to get through a couple of very significant legal issues both in terms of what the financial impact could be and the business model impact could be,' Connors said. 'We don't feel it would be prudent to commit to a long-term programme,' until the situation is clearer.

Microsoft, led by chief executive Steve Ballmer, paid its first-ever dividend of eight cents a share last year. In its latest statement, Microsoft posted a 26% increase in fourth-quarter net profit to $1.92bn on revenue of $8.07bn.

For the full year, it reported a profit of $10bn, compared with $7.8bn for the previous year. The company posted revenue of $32.2bn, up from $28.4bn in 2002. The fourth-quarter profits were just below forecasts but the shares rose after-hours in New York.

The company credited the result to strong sales of server software and the popularity of its Xbox games console. Microsoft has sold more than 5.5m units in the past year and has 500,000 people signed up for its Xbox Live online video game service.

Personal computer sales in China were strong, but demand for software in Japan and Germany remained weak.

Connors said Microsoft was not planning to use its cash for major acquisitions. 'We've largely been successful with smaller acquisitions,' he added.

Microsoft, which last week said it would stop offering stock options in favour of direct stock grants, said it would start including the equity compensation as an expense this year. Connors said that statements will include revisions to past results to provide accurate comparisons.