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

To: Richard Nehrboss who wrote (67599)	9/13/1999 10:14:00 AM
From: Mike M2	Respond to of 132070

Richard, I won't have time to look into it for a while but off the top of my head I would look at the length of time for which MSFT is hedged - the longer the period the greater the cost. If the pro-forma uses a hedge for a short period of time 3-6 months . I can say relax we're hedged but the hedges must be renewed. considering the fact that companies were dragged kicking and screaming to address the option accounting issue I would suspect even the current pro forma disclosure tends to understate the true cost. Mike

To: Richard Nehrboss who wrote (67599)	9/13/1999 12:34:00 PM
From: Michael Bakunin	Read Replies (1) \| Respond to of 132070

That's not how they calculate the pro-forma expense. If you check their so-entertaining 1998 10K, one method is: "Had the Company paid employees in cash the grant date Black-Scholes value of options vested in 1996, 1997, and 1998, the pretax expense would have been approximately $450 million, $620 million, and $850 million." sec.gov That number expenses only options that vest, and ignores all new, unvested grants. Then, when the options vest, it expenses the grant-date BS value, not the vastly higher vest-date value after appreciation of the underlying. You can back out the actual grant-date total by multiplying the weighted average option value ($23.62) by the number granted (69 million), which approximately doubles the '98 expense to $1.6 billion (and assumes all old grants were expensed in previous FYs). To inoculate in the market does cost you more (can you get MSFT LEAPs at a vol of 32%? I can't), but not 10x more. Haven't checked Parrish's version; what does he do? -mb