Letter published in Financial Times

Sir, Mr Paul Favaro (Letters, July 9) incorrectly assumes that Microsoft has returned billions of dollars to shareholders through its stock repurchases, as if to say that this action represents an allocation of capital, akin to the payment of dividends.

Microsoft's 10K clearly states: "The company repurchases its common shares in the open market to provide shares for issuance to employees under stock option and stock purchase plans (2002 10K)." In other words, these stock repurchases do not qualify as a capital allocation decision but are, in fact, a reimbursement to shareholders for picking up part of the company's employee compensation tab. It is a subtle but vital distinction. Combating shareholder dilution and returning excess capital to shareholders are two entirely different activities.

Had Microsoft spent an additional $7bn on stock repurchases during the period chosen by Mr Favaro - 2000 through 2002 - it would have repurchased all the stock issued to employees during that period. Only repurchases over and above this amount would have qualified as an allocation of capital.

Albert J. Meyer