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Technology Stocks : Qualcomm Incorporated (QCOM)
QCOM 163.32+2.3%Nov 21 3:59 PM EST
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To: hueyone who wrote (118980)5/19/2002 7:45:16 PM
From: Clarksterh  Read Replies (4) of 152472
 
Huey - Not trying to be difficult, but no one seems to want to address my two points:

1) To count options in the earnings and in the diluted shares in EPS is double booking. How is this good or accurate?

2) How will you reconcile the earnings with the cash flow if the ficticious options price is included in the earnings but never shows up in the cash flow? (Ancillary problem - using John Shannon's method of accounting for options will result in some really really bizzarre earnings - e.g. the stock price goes up dramatically and so the employees exercise and for the next quarter the earnings are zip or negative even though nothing is materially different than just before the price of the stock went up. So the stock price plummets and the employees stop exercising and the earnings go through the roof the next quarter and the stock price goes up and ... . Hence, if options price has to be in the earnings statement it should be market valuation at time of issue since the whole point of earnings (vs Cash Flow) is to smooth things out, not exacerbate them.)

BTW - There are lots of options related areas where I think there needs to be a change in regulation. For instance, I think all executive compensation, including options, should be voted on yearly by the shareholders with the ballot showing a wide range of possibilities, not just yes/no. (It is the only way I can think of to break the nepotism between boards and execs.) And I think re-issuing stock options at a lower strike price should be very very difficult, perhaps via the same mechanism. But I just don't like the options accounting mechanism proposed by many folks - it makes for less transparency, not more.

Clark
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