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To: hroark2000 who wrote (30577)	8/25/2000 4:44:32 PM
From: Sully-	Read Replies (1) \| Respond to of 35685

....yet another reason to beware of today's frothy share prices. .... Interesting article FWIW.... Stock Options Healthy for Companies Too: David Pauly (Correct) 8/25/00 11:19:00 AM Source: Bloomberg News URL: cnetinvestor.com (Corrects references to Microsoft tax benefits in second, third and second-last paragraphs in story run on Bloomberg News Aug. 24. Also published in September issue of Bloomberg Markets Magazine. David Pauly is a columnist for Bloomberg News. His opinions are his own.) New York, Aug. 24 (Bloomberg) -- Stock options have been every bit as lucrative for the companies that granted them in recent years as they have been for the employees who exercised them. Because of options, Microsoft Corp., for instance, got a boost of $1.4 billion in its cash flow in the quarter ending March 31. That was enough to cover the computer software company's research spending of $990 million in the quarter and still have hundreds of millions left for other purposes. The $1.4 billion was an income tax benefit for Microsoft that stemmed from the taxes its employees paid when they exercised their options. Since these gains are considered compensation, they are deductible as an expense from the company's income taxes, Robert Willens, a tax and accounting analyst at Lehman Brothers Holdings, explains. ''It's noncontroversial,'' he says. No one sees this as a tax break for companies, because employees are paying taxes. The government presumably comes out ahead because the individuals' tax rates probably are higher than the companies', Willens says. The tax benefit doesn't increase a company's earnings. Accountants simply add the amount to shareholders' equity. This doesn't mean it isn't real money -- as companies like Cisco Systems Inc. are well aware. Cash for Research Cisco increased research spending on its computer-network- equipment business by $710 million in the quarter ending April 29. That additional spending was easily covered by the $930 million in stock-option tax benefits the company received in the period. Intel Corp., another company riding a burbling economy and an ever-rising stock market, reported a tax benefit of $645 million from the exercise of employee stock options in the six months ended July 1. That was, in effect, a nice 11 percent add-on to the company's profit in the period. And it might have been considered as a nice down payment on Intel's $2.3 billion in capital spending in the first half to keep its microprocessor technology up-to- date. Big Slice Proportionately, Yahoo! Inc. has benefited even more from that tax benefit. In the first six months of this year, the company, which runs an Internet search engine, increased cash flow by $87 million because of taxes paid by its option-exercising employees. That was 61 percent of the company's profit in the six months. JDS Uniphase Corp., a rapidly expanding maker of parts for fiber-optic communications, reported $36 million in stock-option tax benefits for the nine months ending in March. That covered half the company's $72 million in research spending in the period. Don't look for a discussion of these tax benefits in the text of company reports. The numbers are found only in cash flow tables. Lehman's Willens says companies may feel they don't have to talk about the benefits because these benefits don't affect earnings. My guess is they just don't want to spotlight a tax benefit, no matter how legitimate. While these tax reductions mean real cash, they are no sure thing. The benefits are dependent on rising stock prices and the time frame in which employees take their gains. In the year ending Jan. 28, for instance, Dell Computer Corp.'s tax benefit from stock options was $1 billion, up from $444 million the previous year and $164 million in 1998. The cash bonanza in the most recent fiscal year easily covered the computer maker's $771 million in research and capital spending. But in the first quarter of the current year, Dell's options tax benefit declined to $79 million from $379 million in the same quarter last year. The company needed cash from other places to pay for its $204 million in research and capital spending in the quarter. While Microsoft's option benefit in the March quarter was 40 percent more than in the same quarter of the previous year, what's to say one of these quarters it won't drop by 40 percent? Volatility is only a small problem. A bigger concern is what would happen to tax benefits if the stock market went into a lengthy decline, making many options worthless. That's yet another reason to beware of today's frothy share prices. {:-o)

To: hroark2000 who wrote (30577)	8/25/2000 5:51:22 PM
From: Wharf Rat	Read Replies (1) \| Respond to of 35685

Hroark, Re G* Are your figures for percentage of short shares current? The last info I can find is that 61.8 % were short on 7/10; don't have any more recent data. TK