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To: Ian@SI who wrote (4450)	4/12/1999 3:22:00 PM
From: Boca_PETE	Read Replies (1) of 15132

Ian: re:< Reporting Employee Stock Options as Compensation Expense > Starting with year 1996, The Financial Accounting Standards Board (FASB) has required PRO FORMA disclosure of what Net Income, Basic Earnings Per Share and Diluted Earnings per Share would have been had companies elected to report "option compensation expense" under the new FASB Standard No 123. Companies must also report assumptions used (ie. Expected life, Interest Rate, Volatility, and Dividend Yield) and describe the option pricing model used (ie. Black-Sholes) to calculate such assumed compensation expense. If the "General populace" is completely unaware of the impact of options on operating earnings for the companies that they hold, it's because they choose not to read the footnotes to the financial statements. Moreover, when employees buy their employer's shares at the agreed option grant price (which normally equals market value at option grant date), any sale proceeds employees get from reselling such shares in the secondary market (their profit) is paid to them by other shareholders, not the company. For the company to record any portion of such profit as "compensation expense" seems to me to be an absurd notion since no assets leave the company to fund such employee profits. The fact that earnings per share are diluted by the additional shares outstanding as a result of employee exercised options during a period (ie. employee purchases of shares from the company) seems to me to be the appropriate penalty to company earnings per share. SFAS 125 requires companies that elect to record option compensation expense to deduct such compensation amount from earnings and add that same amount back to "Paid-in-Capital" because NO ASSETS HAVE LEFT THE COMPANY TO PAY EMPLOYEES THAT COMPENSATION AMOUNT - Other shareholders pay that amount to the employee, not the company. It took an act of congress to stop the FASB from always requiring such absurd accounting described in SFAS 125. FASB still doesn't get it to this day ! FWIW P

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