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To: Boca_PETE who wrote (14743)	7/13/2001 2:34:22 PM
From: sea_biscuit	Read Replies (1) \| Respond to of 42834

Obviously, some guy called Warren Buffett disagrees with you on this issue. And I will go by Buffett's word any day of the week and twice on a Sunday.

To: Boca_PETE who wrote (14743)	7/13/2001 2:53:38 PM
From: Skeeter Bug	Read Replies (2) \| Respond to of 42834

pete, if msft paid their electric bill in stock, should it run down the income statement? what if a company paid for everything with stock options. revenues would then equal profit, right? would you agree this is appropriate accounting b/c it appears this is the logical extension of your argument. this sounds absurd to me. don't skip this over unless you can't rationally address it. if you can't rationally address this then ask yourself why your view breaks down so easily. >>So it's all there for people who are so inclined to make the deduction from net income whether or not it makes any sense.<< pete, why not just post digicopies of all business transaction receipts instead of reporting income statements? hey, all the information is there, right? this is entirely consistent with your argument, although it is an extreme example. the income statement is meant to aggregate and simplify. when simplification doesn't suit one's self interest, the tendency to do all one can to add back in complexity is there. yes, and it is ALWAYS justified one way or the other. i KNOW companies have to show the data. but they make it HARD to get to. there is no headline that says the company traded $x BILLIONS in exercised options to retain employees. money the company could have used for something else. >>Ask yourself, Skeeter. Who funds the employee's $20 profit - the company ?<< pete, is an opportunity cost a real cost? i argue yes and i think this is in line with accepted economic principles. msft gave up the opportunity to pocket the $20 profit. did the portland trail blazers suffer a cost by not picking michael jordan #1 in the draft? you argue no cost was incurred. i argue the opportunity cost is a real cost and it was HUGE. those 5 championships banners that hang in chicago sure would look nice in portland, huh? you bring up a good point about buy backs. lots of companies issue shares to employees and buy shares back. while i'm focused on the big poicture, ie, the HUGE employment costs hidden by this game, you focus on the minutiae "justifying" the hiding of this cost. it is like a money launderer saying he didn't do anything wrong b/c he never touched the money. wrt to complexity, i agree. however, lots of things are complex. should we just give in to the status quo? few care about the accounting gimmicks now like few cared about the absurdities of henry blodgett two years ago. now he is being sued BIG. people will begin to care about these gimmicks when this bubble market unwinds. they will look for a scapegoat and they will find one.

To: Boca_PETE who wrote (14743)	7/13/2001 11:31:25 PM
From: geode00	Respond to of 42834

Who funds the employee's $20 profit - the company ? I don't think so! No assets leave the company to fund that $20 per share profit on the stock option that the employee makes and therefore no expense can be recorded that makes sense - it's not an expense of the company. In fact, the company is expanding it's capital by issuing stock to the employee at the agreed $10 option price and cash is actually coming into the company (not going out of the company for an expense) Huh? OK, call me dense but of course the company is funding the employee's $20 profit. Where are the shares coming from? If the company bought them in the open market and paid $10 for them then it could have realized the $20 profit by selling them in the open market. By this logic then, every company should print and give out options as fast as possible to everyone since each option is "expanding its capital". Huh? The even stranger side are those people who exercised their options, realized the gain as income (as income!) and owed taxes for the capital gain. The next year the shares become worthless but the employee still has taxes to pay on now worthless shares. Here's an interesting argument for restating earnings based on options: thestreet.com I don't pretend to understand this subject but it would be nice if accounting principles made such things clearer.