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To: rkral who wrote (119862)	6/4/2002 2:04:55 PM
From: Art Bechhoefer	Read Replies (2) \| Respond to of 152472

At the risk of repeating myself, I would simply point out that options are incentives partly because, if exercised, they may be taxed at the lower rate for capital gains. And for the corporation issuing options, it's a form of payment that doesn't immediately have to show up on the books. Eliminating or drastically cutting the corporate income tax would reduce the corporate abuse not only of options but of irresponsible mergers and acquisitions, the cost of which is partly shouldered by taxpayers. Taxing capital gains as ordinary income, adjusted for inflation, would also help reduce the use of options in place of just plain old bonuses for doing a good job. If Congress wants meaningful tax reform . . . Art Art

To: rkral who wrote (119862)	6/4/2002 2:35:52 PM
From: hueyone	Read Replies (3) \| Respond to of 152472

The issue in the 1994 vote, and Mr. Buffett's article, is the option expense related to the option grant event. It has nothing to do with any possible expense upon option exercise, e.g., the Shannon proposal. Hi Ron or any accountants: Thanks for clarifying that. I would also like to hear your explanation of how most companies are handling stock options on their tax returns. I wish the discussion provided by Levin's website had run through an example from beginning to end, but it did not. I am under the impression that the "Tax Benefit from Exercise of Stock Options", that we often see in companies' operating cash flow statements on the 10Qs, is a different item from the compensation expense related to the option grant event. I believe companies currently are not only getting the Tax Benefit from Exercise of Stock Options, but are also writing off the compensation expense related to stock option grants (but not reporting this same expense on the income statement to shareholders). If this is correct, are companies already using some fair value method (Black Scholes?) to calculate this option grant expense on their tax returns to the IRS? Of course the reason I want to make sure I understand the accounting for options to the IRS correctly is because the Levin/McCain bill would require consistency between what companies are reporting to the IRS and what companies are reporting to shareholders. Your comments on this matter would be appreciated. Best, Huey

To: rkral who wrote (119862)	6/4/2002 5:13:22 PM
From: Stock Farmer	Respond to of 152472

The issue in the 1994 vote, and Mr. Buffett's article, is the option expense related to the option grant event. It has nothing to do with any possible expense upon option exercise, e.g., the Shannon proposal. Seems there's been another mutation. Possibly due to lack of understanding. Here let's try to make Shannon's proposal very simple for you. Firstly, we KNOW there is a cost to stock options, borne by shareholders. We KNOW it occurs due to dilution. We can calculate the cost precisely at exercise: A/N - nS/(N+n) per share if the stock is "fairly" priced, and [P-F] per option if it's not fairly priced. Which is the ACTUAL cost at time of exercise. Secondly, when these things are handed out there is no dilution, so there is no real cost. But there is an expected dilution planned to occur in the future, and thus an expected cost at that time. It's just not known for certain what it is. But just like you expect to die and do not know when, you can estimate life expectancy and live accordingly. Rather than live as though you will never die on the one hand, or crawl into a casket and wait for the inevitable on the other. Back to stock options, it's entirely reasonable to expect management handing them out to estimate an expected cost. And reduce this expected cost to present value. Thus we have a value equal to the ESTIMATED cost at time of grant. Third, as this same management is crowing "hey, this period we just earned you shareholders $0.48" , they might also say, if forced, "Oh, er, and by the way, we just handed out what we expect to add up to $0.24 per share in stock option compensation too". Fourth, we have the rather obvious conclusion that we really aren't $0.48 richer this period after all. All other things being equal, we are expecting the same deal buying slices of this company as buying slices of a company with EPS of $0.24 Now all we are suggesting is that this set of fairly obvious statements belongs in the open. Instead of steps two through four being done only by the folks who know what's going on. Which lands the "Shannon proposal" in the very same camp as Buffet, Congress and a host of others. It's not rocket science. As far as some of the other points I have been making, in summary there's a difference between Forecast costs (e.g. Black Scholes et. al.) and Actual costs (the Shannon Computation). And both have there place. Also there is equivalence between these and value in the hands of employees (both forecast and actual). Next time you find yourself inappropriately dressed for the weather, maybe you'll be able to appreciate that both views have merit. There's not a lot of point dismissing the rain that's coming down 'cause the forecast called for sun. And no point staying home 'cause you don't know for sure what the weather will be like in a few hours. This part was humorous: The employee .. pays income tax on cash compensation .. should pay tax on option grant compensation .. didn't get cash as part of the grant with which to pay tax. I believe* companies will be virtually forced to "grant cash", along with options, so the employee can pay income tax on the stock options. I don't wish to speculate how that would be accomplished. You are willing to speculate to the point of belief on a not discussed tax legislation but aren't willing to speculate how the effects will be accomplished? Seems you are speculating yourself into a corner. LOL... But if you do decide to go down this path, it's not that difficult. Take your thinking to its logical extreme. If the value of the grant is what it is at time of issue... and taxable... might as well pay employees that amount... which will attract tax to the employee and a tax credit to the company... everybody nets out the same 'cept it's all done in cash... Gee, this would be the same as if the grant cost was paid in cash and would effect EPS how? It's surely a slippery slope that leads to Buffett's conclusion. John