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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (41029)	4/4/2000 9:04:00 AM
From: Exacctnt	Respond to of 74651

<<<<I don't have to possess the ability to explain gravity to be able to understand its impact on my life. Nor do I have to understand all the mechanics of GAAP accounting rules to be able to how the exercising of employee options adds to the revenue of a company, especially when distributed liberally throughout the staff ranks.>>>> Just as I thought. You don't have a clue as to what you're talking about and need to throw in a link to Parrish's site to help explain your position. You stated that employee options and sales of put options (warrants) add to MSFT's income. Maybe they do in a round-about way, but YOU certainly don't know why. Any reason why you picked a day like yesterday to appear on this thread and recklessly make a veiled claim about income?

To: Hawkmoon who wrote (41029)	4/4/2000 10:03:00 AM
From: rudedog	Respond to of 74651

Ron - Parish has been pushing this nonsense for a long time - unfortunately, there ARE NO GAAP accounting rules which cover current use of ESOP - a major loophole IMO, but still, that's the rule today. The few regulations regarding use of retired treasury stock to fulfill ESOP, or the use of Black-Scholes models to predict the value of outstanding options, don't come close to covering the real situation. In any event, virtually every high tech company, from the lowliest internet startup all the way up to DELL, CPQ, Intel and MSFT, use the same techniques. Perhaps there has actually been no tech profit ever, and all of these companies built their market caps on accounting tricks. Or maybe Parish is full of Crap. I think actually that Parish knows full well that his stuff is nonsense, but it makes good reading for people who don't know much about accounting, and keeps the Parish name floating around. Every few months a weary pilgrim stumbles into the Parish oasis, and the half-baked positions get another round of attention.

To: Hawkmoon who wrote (41029)	4/4/2000 10:41:00 AM
From: Valley Girl	Read Replies (2) \| Respond to of 74651

Re. options: OK I'll take a stab at this while I wait to see which direction softee's going to head this a.m. When an employee excercises a stock option, there is no actual cash effect on the company. The company simply pulls a few more shares off the printing press and that's it (I'm neglecting the inconsequential processing costs). When an employee exercises and sells stock options, there is still no cash effect on the company; the "market" gives the employee money in exchange for the shares. From a revenue point of view there is no effect whatsoever. How could there be? Even when the company itself sold stock at the IPO it wasn't "revenue". From a cash point of view there is also no effect. From a shareholder point of view, there is an effect, and here's where we get to the truth of the matter - after the company issues the new shares from treasury, the ownership of all other shareholders has been diluted slightly. This has the main effect of lowering EPS going forward. There is no slight of hand here; MSFT's EPS today reflect the cumulative effects of all stock options exercised over the years since its IPO, and its EPS in coming years will reflect any further shares created by the process. There is a complication on the expense side, however, that may be a source of confusion to some. As things stand now there are actually two different types of stock options, Incentive Stock Options (ISOs) and Non-Qualifying Stock Options (NQs). In the old days, everyone got ISOs. These were great for the employee because if you exercised an ISO, you did not have to pay any tax until you actually sold the shares received. If you held them long enough, you could thus get long-term cap gains treatment on the difference between the exercise price and the sale price (albeit at the risk that the stock might drop in the interim, but that's the same risk any shareholder takes). The main complication was the infamous Alternative Minimum Tax (AMT), which attempted to tax you on the "gain" immediately, even if you lacked any actual cash proceeds, and even if, thanks to a decline in the stock price, you lost money later. Companies eventually started to issue NQs exclusively. NQs do not get the favourable tax treatment; employees are taxed immediately on the difference between the exercise price and the share price, and it's taxed as ordinary income to boot! Not such a great deal for the employee, but the company gets a bizarre tax break because now the amount of money the employee received (from the market) is deductable by the company just like the rest of the employee's salary! There is some logic to this; after all, the owners of the company in effect did pay out this money because, as shareholders, their claim on future income was diluted by an amount equal (in market value) to the amount the employee received by exercising. But from the company's perspective, it's another non-cash expense, like depreciation, that it can deduct from it's taxes. So, net net, there is an effect after all, not on revenue, but on income: the company's income for tax purposes goes down, lowering the effective tax rate, and so the company's stated income for EPS reporting purposes goes up by the amount of the tax saved (which is not a phoney savings at all, it's real money the company did not have to pay to the government). Everyone confused now? There's be a quiz later!