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

To: Richard Nehrboss who wrote (67636)	9/13/1999 5:45:00 PM
From: Michael Bakunin	Read Replies (2) \| Respond to of 132070

..but you already have to account for "future salary". Pensions, deferred salary, and such are not ignored, they end up on your financial statements. Options grants are the magical exception. Parish goes overboard; I do not agree with his method. However, it seems likely that MSFT's reported earnings are dramatically overstated. You could, say, expense out the fake tax difference between exercise and market price. FY98 tax benefit was $1.6B, so the "expense" was $4.4B, nearly wiping out net income. However, it's inelegant only to expense exercised options. I likely would expense grants, and reverse out the current tax benefit: -$1.6B (grants) +$0.6B (tax shield) -$1.6B (current tax benefit) for a FY98 difference of -$2.6B, reducing net income by over 50% from $4.5B to $1.9B. To expense vested options, it would seem you'd need vest-date values. Microsquid's options vest over 4.5 years; the grant-date value of options vested in FY98 was $0.8B.. and the stock was up somewhere between 800-1100% through June 1998, depending on grant date. SFAS 123 lets you value at grant date and recognize cost over the vesting period -- but while that seems fair, if lax, it doesn't remove the fictitious tax benefit on exercised options, AFAIK. Do I misremember? -mb