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

To: Don Lloyd who wrote (76436)	2/23/2000 4:35:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 132070

Don, When you give cards to someone instead of cash in order to keep them employed you are giving something up. The incremental expenses associated with producing those extra cards and the potential sales lost are that cost. In this case the cost of producing the cards "IS" accounted for and would produce lower GAAP earnings. The lost sales cannot be accounted for. We are just assuming they are there and fully accounted for in the GAAP earnings through lower sales and earnings. However, there is no cost recorded "at all" for options and/or the ongoing dilution that is required to keep you employees that way. I would be totally opposed to not counting the expenses associated with the cards too. They are slightly different models. I have no problem with the idea of viewing stock options from a dilution perspective as opposed to trying to calculate their theoretical value. I agree with your view about the difficulties because of taxes and other variables. That's why I do it both ways. You helped me see the light about some of the advantages of viewing it from the dilution perspective. But we are not going to get anywhere if you are trying to convince me that a company earning GAAP $1.00 per share with a cash compensation plan is equal to another with GAAP $1.00 earnings per share that is giving away 2% of its total number of shares outstanding annually to keep its employees. There's no way in the world that all else being equal these two are the same. All else being equal, if they both grow net income 10%, one will be earning $1.10 next year and one will be earnings $1.08. (assuming exercise of 2%) That would be an ongoing process year after year. You can estimate that difference via Black Scholes or you can estimate that difference by saying that a company growing EPS at 10% is worth more than one growing at 8%. Either way they are not equal. I do it both ways because of the complications associated with the tax benefits, stock repurchases, and variable stock prices etc.. The very fact that I would be willing to take no cash compensation at all for twice my salary in stock options should mean something. I suspect you would too. Yet that would immediately translate into higher earnings for the company employing us. That's crazy. Wayne