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To: jeffbas who wrote (14049)	2/28/2002 5:36:24 PM
From: Jurgis Bekepuris	Respond to of 78673

Jeff, >Let's say a CEO chooses to take all options instead >of cash salary - he sure isn't being paid nothing. This is non sequitur. Let's consider another situation: "Let's say a CEO chooses to work for free instead of cash salary - he sure isn't being paid nothing." How would you account for this situation? Jurgis - Maybe you could calculate Black-Scholes value on probability that CEO will work for free next X years... :-)))))

To: jeffbas who wrote (14049)	2/28/2002 5:50:37 PM
From: sjemmeri	Read Replies (1) \| Respond to of 78673

I am neither an accountant nor 1/10th the stock analyst that guys like Bob and Don are but I won't let that stop me from chiming in on this issue. To me, there is a huge practical issue with accounting for options in the earnings calculation. Why would you want to include a charge based on any theoretical model - much less one that is krap regardless of how many prizes have been awarded? I don't say that based on personal analysis but rather I'm merely listening to the market. Today, one can get Jan 2004 INTC $55 leaps for 1.35 despite the BS model saying they are worth 1.96. Would you charge Intel 1.96 on earnings for something they can purchase in the open market for 1.35? OTOH, one must pay 0.90 for Jan 2004 MSFT $120 leaps although BS says they are only worth 0.37. So Microsoft gets away with subtracting only 0.37 when their true market cost would be more than twice that. So I'm with Don on this one, require better disclosure of option compensation because it is important to know about it. But don't include (even more) bad, made-up numbers in the earnings calculations.

To: jeffbas who wrote (14049)	2/28/2002 8:43:18 PM
From: Don Earl	Respond to of 78673

<<<The accounting is simple.>>> I've been reading SEC filings for 6 years and I still get lost in places. Math is simple, accounting isn't. At least with math there is only one right solution to a problem. If I buy a $10 stock and sell calls for $2 with a $10 strike, I've made $2 which I get to keep no matter what happens. If I get called on the stock, I get my $10 back and the $2 is profit. If I were able to print up shares for free and sell calls with a $10 strike for $2, my profit would be $12 cash if the options were exercised. If I were able to print up shares for free and trade $2 worth of options for $2 worth of labor, and the options are exercised, I make $10 cash profit, plus $2 worth of labor for a $12 profit. It doesn't matter how much or how little the person receiving the options in exchange for labor is able to make on the options, as that is a transaction with third parties not related to either of us. I could almost make sense out of an argument that my $12 gain on the sale of stock and options should be recorded as other income and treated as capital gains, but it's a mystery to me how taking profits on something that didn't cost me a dime is an expense. Even if the $2 were to be considered compensation, the flip side of the exchange is I've received $2 worth of labor as compensation for the options which still didn't cost me anything. Maybe it's a barter transaction, but I don't see how it could be an expense. At least that's the way it would look if it were a math problem. As an accounting problem, I'd treat the $2 as income and capitalize the options as an asset to be depreciated over the life of the contract. Then I'd issue a bunch of press releases about how great the cash flow is from all the stock sales, although I probably wouldn't mention that was where the cash was coming from.