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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Night Trader who wrote (30635)	2/17/2002 6:07:07 PM
From: At_The_Ask	Read Replies (4) \| Respond to of 99280

The push for honest accounting is the silver bullet for the tech mania. The last glimmers of rainfall profits to be had by buying into these companies are beginning to fade. Bubble stocks are last weeks lotto tickets now. The balance sheet skeletons are just beginning to come out of the closet here, and there are still closets we don't know about. The only ones who have gotten rich on tech are the recipients of cheap options and those who have already sold. It is obvious that the management of tech firms as whole and even many non tech firms have little interest in producing a return on invested capital to the shareholders. Until tech can show some non proforma real earnings growth and increase real shareholder value the price of these shares will continue to decline. There will be more Enron's and Kmarts prompting more scrutiny, this process will feed on itself. There are plenty of CEO's out there praying they don't end up where Ken Lay is, they may not even have to go bankrupt. If they have been fudging the numbers, as most of them do, and getting fat options, as all of them do, they just might end up taking the fifth themselves one day. My bearish 2 cents all for what it's worth.

To: Night Trader who wrote (30635)	2/17/2002 7:13:56 PM
From: Boca_PETE	Read Replies (6) \| Respond to of 99280

98% of companies chose not to book expense for employee stock options under SFAS 123, yet 98% of companies are not tech companies with large disclosed pro forma impacts from stock options in their footnotes. This should tweak your curiosity as to why companies fought the proposal to book stock option expense. If companies sought congressional help to stop that train, why? The answer is clear when you follow the cash flows related to employee stock options. - When options are granted, the exercise price equals the market price at date of grant and no cash moves. - When the company stock price rises and falls, no cash moves. - When the employee exercises the option, cash or assets come into the company in exchange for newly issued shares of company stock or shares issued from treasury shares from a precious capital contraction. Conceptually the repurchase of shares is a capital contraction because treasury shares are required to be classified as part of stockholder's equity, not as an asset. NO ASSETS LEAVE THE COMPANY WHEN A STOCK OPTION IS EXERCISED. - When the employee resells the shares obtain from exercising his/her stock option, the employee receives the proceeds of that share sale from a new or existing shareholder, not from the company. Therefore, the employee profit on the sale of those shares is entirely funded in a shareholder-to-shareholder transaction independent from the company. Therefore NO ASSETS LEAVE THE COMPANY WHEN THE EMPLOYEE RESELLS SHARES OBTAINED FROM EXERCISING HIS/HER STOCK OPTION. Under double entry accounting, when no assets leave the company associated with the granting and exercise of a company stock option and the resale of those shares, that's a challenge for the great minds that came up with the proposal to book stock option expense. Their solution is and was to require offset of the theoretical stock option expense charge with a credit to Paid-in Surplus, another category of Stockholder's Equity. Since the charge to stock option expense is a reduction of earnings and since earnings ultimately become part of the Retained Earnings category of Stockholder's Equity, you basically have a reclassification from Retained Earnings to Paid-in Surplus for the amount of the Stock Option Expense charge (one category of stockholder equity to another category of stockholder equity) - no impact on net assets of the company since no assets left the company. This is mumbo jumbo accounting. It accomplishes nothing. The fact is that the income statements of companies do reflect stock option expense in the form of dilution of earnings per share resulting from the greater number of shares outstanding from stock options divided into the company's net income. So why do all of these high profile names you drop in your post no see things as described above ? I submit to you that none of them are accountants and none of them have researched the issue in depth enough to understand the cash flows and their implications. JMHO, P