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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: umbro who wrote (64889)	7/20/1999 8:02:00 AM
From: Exacctnt	Read Replies (3) \| Respond to of 132070

Umbro, Regarding MSFT employee stock options. <<What is the "tax benefit" mentioned above?>> The tax benefit is provided to MSFT whenever an employee exercises an option. The gain to the employee is taxable to the employee, but MSFT receives a credit(reduction) to its tax liability. This credit lowers MSFT's cash usage, hence, it contributes to the cost of buying Treasury stock through its repurchase program. <<Is there an actual expense, amounting to the current market price minus the strike price that has to be paid at some point in time?>> No, currently there is no expense to companies awarding stock options to employees, unless they manipulate the grant price to a price lower than the market price at the time of the grant. <<Also with 72B outstanding isn't it reasonable to assume that the one half or more of that amount would be the amount that the current price is above the strike? >> Yes, probably much more than half of the 72b outstanding, since the life span of the option is 10 years from the grant date. <<And, isn't it odd to be floating stock (admittedly at a higher basis), in convertible preferred, to fund the repurchase of stock?>> Using preferred stock to fund stock repurchases is odd indeed. However other companies such as Dell and IBM use debt to finance their repurchases. Stock options are widely used by corporate America. The benefits to the company are primarily used to keep a lid on compensation costs and to entice future employees. The danger, however, is that it creates a huge future liability. Regards,

To: umbro who wrote (64889)	7/20/1999 11:39:00 AM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Umbro, You have hit on several factors in the stock options scam MSFT and many other cos. have perfected to protect phony reported eps. Here are some of the factors: 1. The options are handed out in lieu of pay. With pay, you have to run it through the expense account. With options, it is make believe on the balance sheet nobody looks at and saves the co. on its expense column. 2. The cos. often borrow to buy back the shares. Since mgt. receives the lion's share of options, it is really the shareholders' assets being raped, with debt, to line the mgt's pockets. And the shareholders love it. As long as the stocks go up. 3. If there is a capital gain and the employees exercise their options, the co. takes a tax write off of the difference between strike price and exercise price. Without an offsetting expense. So, lower taxes also add steroids to reported net earnings. 4. Yes, it is odd that they are issuing debt and shares to buy stock on options they've issued. This is one reason cos. have striven so diligently to convince the ignorati that book value does not matter. Only reported eps matter. They cannot fake book value as easily. <g> 5. The companies buy high and sell low and shareholders tell mgt. they are brilliant and give them mroe stock options for this flim flam.