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2004 Q3 ESPP Shares Sold @ $28.26

Contributed by mm | October 6, 2004 4:28 AM PST

Yesterday morning I sold my ESPP (Employee Stock Purchase Program) shares from the third quarter to the market at $28.26 apiece. This move is pre-announced in the recent September monthly review and is in accordance with my previous practice of selling ESPP shares immediately after they become available for sale.

With the recent change, Microsoft ESPP Program now only gives out 10% discount for ESPP shares. Employee can still deduct a maximum of 15% pre-tax job income on an after-tax basis and the enrollment is now quarterly (changed from semi-anually). So, do expect me to report ESPP sales more frequently.

With the above changes, I am also announcing the retirement of the ESPP accounting rule, in which implied after-tax ESPP earnings are accrued on a monthly basis to provide an accurate view on a net worth basis. For the most lifetime of this accounting rule, it worked -- the amount of the accrual was as high as $1,400 several times, and without such accural, I would be missing more than 1% of my net worth (my net worth was much lower in the past), not to mention it would create significant volatility in the months I sold my ESPP shares (i.e. net worth shot up $1,400 in one month just for ESPP).

In the new ESPP system, due to the reduced discount and reduced enrollment period, the maximum implied earnings accrual would be less than $600, or less than 0.4% of my net worth. In addition, now that my monthly net worth changes are in the $3,000-$4,000 range most of the time, this $600 on certain months will not meaningfully distort the month-to-month comparison.

Looking back, my ESPP "immediate-sale" track record is not bad at all -- 2003 H2 shares were sold at $27.89 and 2004 H1 shares were sold at $28.59. Net net, the average price I fetched is the same as the current market price, and I got the use of the proceeds months earlier.

(By the way, in case you missed my discussion with Jason from WanderingHuman on whether the Microsoft special dividend should derive different ESPP strategies, take a look at the comments section (at bottom) of my recent monthly review.)

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