What part of these statements do you not understand?
"GST, in all seriousness, while I don't agree with the idea of booking an expense at grant for options that have not yet been earned, I do agree that, as they are earned, their value in terms of compensation should be recognized as an expense. The key, IMO, is that the treatment be a fair representation of the cost."
Message 17854586
"GST, it's not the expensing of options that I object to, but rather the methods proposed so far..."
Message 17825254
Now you suggest that I oppose booking an expense and "avoid the principle with abundant squirming and avoidance" because I care about "minor details"? What is minor about 1) valuing the options properly and 2) recognizing that a granted option is not yet earned compensation?
I suggest it is you who is squirming to avoid the flaws in your arguments by having another emotional outburst.
BTW, you still haven't shown that premiums received from put writing, or call writing as you now claim, do in fact hit the GAAP P&L. Claiming it to be true does not make it so. And I can tell you that, in the MSFT case that you seem to feel so strongly about, it DOES NOT. The proceeds received are, nevertheless, clearly reflected in the financial statements.
Oh, and it doesn't take an accountant, one of which I am not, to figure this stuff out. All it takes is a couple working brain cells and a willingness to inquire without presupposing the answer or clouding your thinking with emotional biases.
PS: Here's something interesting. Seems MSFT has been showing shareholders what applying FAS-123 would have done to its GAAP P&L since at least the 2000 annual report. Gee, I hope no one was mislead by their willingness to disclose such things into thinking there wasn't any fraud going on.
The Company follows Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, to account for stock option and employee stock purchase plans. An alternative method of accounting for stock options is SFAS 123, Accounting for Stock-Based Compensation. Under SFAS 123, employee stock options are valued at grant date using the Black-Scholes valuation model, and this compensation cost is recognized ratably over the vesting period. Had compensation cost for the Company's stock option and employee stock purchase plans been determined as prescribed by SFAS 123, pro forma income statements for 1998, 1999, and 2000 would have been as follows:
Year Ended June 30 1998 1999 2000
Reported ProForma Reported ProForma Reported ProForma
Revenue $ 15,262 $ 15,262 $ 19,747 $ 19,747 $ 22,956 $ 22,956
Operating expenses:
Cost of revenue 2,460 2,603 2,814 3,013 3,002 3,277
Research and development 2,601 2,963 2,970 3,479 3,775 4,817
Acquired in-process technology 296 296 — — — —
Sales and marketing 2,828 2,977 3,231 3,438 4,141 4,483
General and administrative 433 508 689 815 1,009 1,243
Other expenses 230 230 115 115 92 92
Total operating expenses 8,848 9,577 9,819 10,860 12,019 13,912
Operating income 6,414 5,685 9,928 8,887 10,937 9,044
Investment income 703 703 1,803 1,803 3,182 3,182
Gain on sales — — 160 160 156 156
Income before income taxes 7,117 6,388 11,891 10,850 14,275 12,382
Provision for income taxes 2,627 2,369 4,106 3,741 4,854 4,210
Net income $ 4,490 $ 4,019 $ 7,785 $ 7,109 $ 9,421 $ 8,172
Diluted earnings per share $ 0.84 $ 0.75 $ 1.42 $ 1.30 $ 1.70 $ 1.48
The weighted average Black-Scholes value of options granted under the stock option plans during 1998, 1999, and 2000 was $11.81, $20.90, and $36.67. Value was estimated using a weighted average expected life of 5.3 years in 1998, 5.0 years in 1999, and 6.2 years in 2000, no dividends, volatility of .32 in 1998 and 1999 and .33 in 2000, and risk-free interest rates of 5.7%, 4.9%, and 6.2% in 1998, 1999, and 2000. |
