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To: Mike Fredericks who wrote (8235)	12/6/1999 11:03:00 AM
From: gpphantom	Read Replies (1) \| Respond to of 13157

Well, that should put an end to that. Nice analysis Mike.

To: Mike Fredericks who wrote (8235)	12/6/1999 12:01:00 PM
From: StaggerLee	Respond to of 13157

Mike, companies don't trade at a fixed multiple of GAAP earnings. Your example makes SARS look worse because, under current accounting guidelines, they are required to be expensed on the P&L, whereas the cost of options are only footnoted. In reality, the market adjusts GAAP reported earnings to their true economic numbers. Several years ago when the FASB issued FAS 123 (the new guidance on options accounting), there were many who wanted options to be expensed on the P&L at their fair value (based on a black scholes formula or whatever). (The offsetting credit would go to equity since no cash would ever be paid out; accordingly, book value would remain unchanged). In your example, under the options plan the company would have had to record an expense on the date of grant regardless of whether the stock ever goes up. With SARS, no expense would have been recorded until the stock went up. There were strong arguments for expensing options, just as there are strong for not expensing them, and the FASB could have defended either method. The FASB changes accounting rules like this all the time, sometimes with drastic P&L results (e.g., income tax accounting). My point is, I sincerely doubt any company's stock value would have been impacted at all by which method the FASB chose. Why? Because the economics of the transactions don't change, and the market values companies based on their economic value, not their GAAP value. You didn't see companies stocks go to zero when the new tax GAAP was implemented, did you? Economically, an options plan costs shareholders as much as a SARS plan. You can't create additional economic wealth simply by printing options. You just can't. The cost of options is born by existing shareholders in the form of share price dilution which is identical to the value of the awards granted to management.