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To: Kelvin Taylor who wrote (41655)	7/16/2002 9:15:44 AM
From: Kelvin Taylor	Respond to of 53068

Caterpillar provides cautious outlook (CAT) 45.19: Reports Q2 net of $0.58 a share (which includes a $40 mln pre-tax charge). The figure falls below the $0.73 consensus. Revs declined 3.6% to $5.29 bln (consensus $5.055 bln). CAT revises revenue outlook to "down slightly" from last yr; sees full pr profit about 15% lower than last yr. "While overall economic indicators have been positive, the anticipated recovery in capital spending has yet to materialize."

To: Kelvin Taylor who wrote (41655)	7/16/2002 9:38:12 AM
From: BWAC	Read Replies (1) \| Respond to of 53068

Thats fine. But once you start expensing them you have to make assumptions and judgments regarding their value. Otherwise known as "accounting" for them. And it will need to be a conservative and well reasoned estimate. 1.)Not the Black Scholes model estimate. Which would turn a 10 year option to buy at $20 (being a 10% discount to current market) into a future value of $250 or something ridiculous. 2.)How are you going to account (using judgment and assumptions) for expired options that were previously expensed? Especially if you use the Black Scholes model for valuation? 3.)Is expensing the 10% original discount to market the best estimate to use? 4.)What assumptions and judgments would you make in expensing these options? What problems/misstatements would result from deviances in future reality and current assumptions and judgements? 5.)If you expense the options, do the shares they create still result in a drag on EPS? Or do companies get to exclude them, since they have already served to reduce EPS once when they were expensed? 6.)Would allowing the stockholders greater voting control over Option Plans be a better track to take? 7.) Again what happens when options expire, or become so far out of the money that they are worthless? Sans repricing tactics by the company of course. Should that be considered a "Gain" and accounted for using the same reverse set of judgments and assumptions?