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

To: Valley Girl who wrote (41064)	4/4/2000 11:04:00 AM
From: Exacctnt	Read Replies (1) \| Respond to of 74651

<<<When an employee exercises a stock option, there is no actual cash effect on the company.>>> Actually, there is a cash effect from exercised options. The employee pays the company the the amount equal to the grant price times the number of shares issued. Also, the company doesn't usually ramp the printing press to issue new shares. In most cases, the shares are issued out of Treasury Stock. The Treasury Stock Account is stock that has been issued at one time and contains shares the company purchases from buyback programs. You are correct as far as the general effect on the income statement. That being a reduced effective income tax, generating more earnings. Somewhat offset by a dilution in earnings caused by issuing more shares.

To: Valley Girl who wrote (41064)	4/4/2000 2:06:00 PM
From: Hawkmoon	Read Replies (2) \| Respond to of 74651

When an employee excercises a stock option, there is no actual cash effect on the company. The only case in which this would be true is if that option's exercise price was zero (or par value of .01/share). In that case MSFT would receive no cash from the option exercisment. But the case truely is that many MSFT options have been given out over the years, unexcercised, subject to the same splits that the common stock has enjoyed (two for one split also splits the options and halves their excercise price). As these options are excercised, the exercisor pays MSFT the price at which the option was originally set. Since MSFT has to "print" the stock, they receive the money from the exercisement and apply it to their cash balance just as if they had sold stock in a private placement at a discount. While not necessarily booked as revenues, this money received from excercised options is not being charged as a wage expense against earnings, thus inflating MSFT's profitability picture. The question is whether options are indeed a wage subsidization and should be treated as such. Indeed, why not just pay employees strictly in stock and not have ANY wage expenses at all (I've seen a few BB stock essentially do just this in the past). But for me, the question is not necessarily options, but the degree to which options become a percentage of an employee's compensation. I certainly do not believe that they should overshadow the cash wage they receive from their employer. I do agree with you that NQ options are the true problem, not the ISO. I believe that Bill Parish is expressing logical concern about companies who abuse the use of NQ as wage supplementation, rather than rewarding employees with discounted ISO that augment their eventual retirement. Folks can either like or dislike Bill Parish, but I think he is on the right track here. What MSFT is doing is not illegal under GAAP guidelines. However, it is certainly dangerous for the health of the entire market when such a large company makes use of massive issuances of NQs, and sells tremendous quanitities to support their own stock. It is at times like the recent DOJ anti-trust suit that folks see the potential for a MSFT meltdown. When uncertainty becomes rampant, those who failed to excercise their NQ's will quickly find the incentive to do so before the price of their stock falls below the exercise price on the option. I imagine they are following the traditional view of "a Bird in hand is worth two in the bush". Btw, the only reason I posted on this thread is that I thought that the termination of the settlement talks seemed suspiciously timed for the end of the current quarter. And the only reason I can see for that, since we all know that BG has really had no plans on settling with DOJ (he could have done this a year ago), is that he needed some potentially good news to boost the stock and encourage the exercising of options so that they could maintain their tax deduction against earnings. And since no one else was commenting on this suspicious action, I figured I'd poke my head in here and state it. Again, just my opinion. Regards, Ron