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Technology Stocks : Intel Corporation (INTC)
INTC 36.20+0.1%Dec 26 9:30 AM EST
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To: Elmer Phud who wrote (178332)6/17/2004 1:03:14 PM
From: Saturn V  Read Replies (3) of 186894
 
Option Expense Debate - Ad infintium

The option expensing proposals have two problems.

A. It is not an actual expense for the company. So it is only a "lost opportunity cost",ie the cost of selling the option on the open market.

B. However the employee options are not exactly the same as the options traded on the exchange floor, since the company may not be public, and the employee vesting restrictions do not make the option a tradable commodity. The option value is going to be a theoretical value based upon the Black Sholls( sp? ) Formula.

C. Judging the company cash flow calculation will get to be slightly more difficult, since the "mythical option expense" will have to be adjusted.

D. Another adjustment may have to be made for unvested options when the employee terminates.

In any case "expensing options" is not OK, if Intel is one of the first companies to begin expensing options, since the complications will make it confusing to compare Intel with other investments.

However since a large number of companies have begun to expense options, and as uniform accounting standards for expensing options are being defined, the time has come to join the crowd. Otherwise an adamant stance by Intel gives the appearence of improper behavior by the Intel management. Otherwise Intel is known for its exemplary ethical behavior. So the endless option debate will hurt the Intel stock price, which is the most important issue for the shareholders and the management.
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