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Politics : Ask Michael Burke

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To: Skeeter Bug who wrote (46776)	2/12/1999 4:07:00 PM
From: Exacctnt	Read Replies (1) of 132070

Skeeter, I would say that if a company has to buy in the open market stock at $110 a share in order to issue stock to an employee that exercised an option with a strike price of $10 a share is squandering the wealth of the company. Sometime in the future there will be a day of reckoning. But that's the extreme case. Companies buy back stock continuously to provide stock in anticipation of option exercises. In the example above, a company may have in its Treasury stock account balance stock that it bought at $5, $10, $40, $70 etc. It's average Treasury stock price will be lower than the current $110 balance. Let's say, in our example, that the Treasury stock price average balance is $40 per share. Then when the employee exercises his $10 option the company issues him Treasury shares that cost them an average of $40 per share. The company issues stock to the employee that cost it $40, but it receives $10 from the employee with a net cost of $30. If you favor expensing options, do you expense the $30 or $100 (the current market value minus the cash received from the employee). I agree that option accounting is out-of-control. I don't agree that expensing the entire gain is the alternative. Regards, Bob

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