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Strategies & Market Trends : Maximum Investing
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To: Howard Bennett who wrote (40)11/12/2002 6:24:07 AM
From: Robert Scott  Read Replies (2) of 81
 
I'm not sure where you're getting the number 50 from anything I've said. I am currently using $48.573 as the operating earnings estimate adjusted by the long term difference between operating earnings and as reported earnings. The current as reported earnings estimates are $37.79. These numbers are the estimates for Q4 2002 through Q3 2003.

I understand that S&P core earnings has been soundly criticized and even S&P isn't publicly reporting it to my knowledge.

I agree that it is disconcerting to not know what earnings to use or believe. Personally, I am still using pro forma mostly because it makes the most sense to me. I do agree with some pundits that continually having certain pro forma adjustments means they probably should be factored into earnings as non pro forma but I still wouldn't do it at this point.

I also do not understand this debate about expensing stock options. While I understand they are compensation to a certain extent, the previous method of accounting makes sense to me. When they are issued, there is no expense because they cannot be exercised for some period of time. When they are exercisable and the stock price is above the exercise price, they are included in diluted shares outstanding. When they are exercised, the company makes an entry to the capital account and the cash account. When they are sold by the employee, he/she records the gain. If the idea is to record as compensation the difference between the exercise price and the current stock price when granted, then it would make some sense to have the company record that difference as compensation. However, that would cause a reversal of the entry if the option is not exercised for whatever reason.

What I do believe is that the idea of giving stock options to certain employees is a very good idea and is a major incentive to employees. I hope any accounting policies that are adopted do not discourage this practice.

Sorry for being so long winded.
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