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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (1852)	7/11/2002 5:42:50 PM
From: Boca_PETE	Read Replies (1) \| Respond to of 10065

Wally M - Thanks for the article. Having heard that the Senate might vote today on a bill requiring companies to book "Stock Option Grant Expense, I e-mailed my CT senators this morning with the following message: (QUOTE) Please VOTE AGAINST any bill that requires companies to book and report STOCK OPTION GRANT EXPENSE. Instead, I URGE YOU TO PROPOSE a NEW COMPROMISE BILL or AMENDMENT that requires all companies to disclose TOTAL DILUTION (including PAST DILUTION) from EMPLOYEE STOCK OPTION PLANS. The politically correct solution to book and report the BLACK SCHOLES MODEL “STOCK OPTION GRANT EXPENSE” DOES NOT correspond to company cash flows related to stock options, and, it is not applicable to valuation of non-transferable non-tradable employee stock options - IT IS WRONG, WILL MISLEAD INVESTORS, and it DOUBLE COUNTS DILUTIVE IMPACTS to the extent average shares include potential future dilution from exercisable options. Issuance of shares upon exercise of employee stock options has the following dilution impacts: · The new shares dilute earnings per share, not absolute earnings itself. They do this by spreading absolute period net income over the greater number of average outstanding shares. · Also, the new shares dilute dividends per share. They do this by spreading the absolute period dividend amount over the greater number of average outstanding shares. · Finally, the new shares dilute book value per share. They do this by spreading the absolute net book value amount over the greater number of period ending outstanding shares. Currently, FASB Standard 128 “Computing Earnings Per Share” only requires disclosure of potential FUTURE DILUTION from “in-the-money” outstanding employee stock options. BOTH Standard 128 and APB Opinion No 25 ARE SILENT ABOUT measuring the PAST DILUTION IMPACT FROM SHARES ISSUED for PAST EXERCISED employee STOCK OPTIONS, despite the obvious fact that such share issuances have been caused dilution of earnings, dividends, and book value per share to company shareholders. I URGE YOU TO PROPOSE NEW DISCLOSURE RULES THAT WOULD ENABLE analysts and company shareholders TO MEASURE TOTAL DILUTION (Past and Potential Future) from employee stock option plans. The additional information needed to measure such total dilution would be a REQUIRED DISCLOSURE in the footnotes to financial statements. The disclosure would at minimum include the following: · Average Outstanding Shares and Period Ending Outstanding Shares, EXCLUDING and INCLUDING to date share issuances related to exercised employee stock options. · Also, there should be required a discussion disclosing the above dilution impacts (item-by-item for each period financial statements are presented) and how dilution calculations for each item were made. Frankly, I believe the FASB and possibly the SEC should be enacting the above requirements, but I’m concerned that Congress might enact wrong legislation in reaction to recent company frauds in the news. (UNQUOTE) Saw Senator Lieberman being interviewed around midday on CNBS by Michelle Robinson-Caruso-Cabrara. She kept egging him on to agree with booking stock option expense as a remedy for the recent accounting frauds, but he said it was a very complex issue and that none of the recent scandals had anything directly to do with stock options. He said there were other ways to curtail stock options. He mentioned requiring shareholders to vote approval of such plans and requiring a longer holding period before executives could exercise the options. He told Michelle that booking stock option grant expense would slow or stop grants of stock options to the middle class workers who have benefited previously from such grants. You may remember that Senator Lieberman led the successful effort to stop the FASB from requiring booking of stock option expense originally proposed as part of the proposed rule that was finalized as FASB Standard 123. As for our other senator, I expect he will follow instructions from his party's leadership on the issue. I hope he surprises me. BTW: If they ever required disclosing a correct total dilution impact of stock option plans, I suspect in many cases that the dilutive impact per share will be higher than the per share impact of reporting a Black Scholes Model "Stock Option Grant Expense". P