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To: Pirah Naman who wrote (43792)	6/22/2001 1:24:25 AM
From: EnricoPalazzo	Respond to of 54805

If we accept this line of thought, then we could consider the employee options and stock programs to be yet another "line of business." While that might seem to be separating things out too much, these "operations" do get their own lines on the statement of cash flows. So we could estimate the value of these net cash flows. The problem, however, is that the magnitudes of these cash flows are dependent upon the pricing of the stock. In other words, the value becomes dependent upon the price . If nothing else, this illustrates the circular nature of the entire employee options game. The real problem is that we all know this business has a negative NPV. Every single time--every single time--that an employee exercises an option, the company loses money. The fact that the company can write off the loss doesn't eliminate it; it just mitigates it. I'm not necessarily opposed to stock option programs, but I am vehemently opposed to booking the benefits as cash flow, without booking the costs. Suppose I were to offer you the following business: every year, I will pay you $20 million for $30 million worth of stock. Now, you currently have tons of stock ($1 billion--congrats, btw), so you never have to purchase more. As a result, you will get a net cash inflow of $10 million. That's a cash-flow positive business, but a money-losing one. If you disagree, please take me up on my offer :) Cash is great, but it's not everything.

To: Pirah Naman who wrote (43792)	6/22/2001 1:29:53 AM
From: kumar	Respond to of 54805

If nothing else, this illustrates the circular nature of the entire employee options game. To be honest, I dont care if its a circular game or a rectangular game. I made more money on my employee stock options than Mr Market gave me over the last year. I aint complaining. cheers, kumar

To: Pirah Naman who wrote (43792)	6/22/2001 1:33:56 AM
From: hueyone	Respond to of 54805

The problem, however, is that the magnitudes of these cash flows are dependent upon the pricing of the stock. In other words, the value becomes dependent upon the price . If nothing else, this illustrates the circular nature of the entire employee options game. Exactly. Assigning a net present value to the cash flows involved with different parts of the business makes a great deal of sense.....but how in the world are we going to predict the cash flows from stock options? We will have to predict how many options the board will grant, the strike price, the price movement of the stock and the market price when all those options are exercised. So now we are in a situation, as you said, where we have to predict the price movement of the stock to determine the economic value of the stock. But if we can predict the price movement of the stock we no longer care about the economic value of the stock.<ggg> Edit: Just saw Ardethan's response and agree. Best, Huey