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To: Math Junkie who wrote (16470)	8/11/2002 5:06:05 PM
From: Skeeter Bug	Respond to of 42834

It sounds like you want to expense stock buy-backs. absolutely not. You wrote, "options REQUIRE a company to buy back shares to keep dilution at bay. " I just want to point out that keeping dilution at bay is not required, it's optional. i thought this was made clear on several occasions. i brought it up to counter the folks that said options HAD NO CASH COST TO A COMPANY, EVER! clearly, that position is WRONG. Secondly, when you talk about the opportunity costs from not having the buy-back funds available to build the company, you're assuming that using the cash for that purpose would have been effective in building the business. yes, i ado assume that having billions of cash available is bertter than not having billions of cash available (ibm, for example). this is so obvious... But companies have a tendency to time the buy-backs when stock prices and business are weak, so that assumption may not be valid. what? the billions that would be in the coffers still return interest. they still can be used to invest for future returns. the assumption is entirely valid. to prove it, you will not send me all your earthly wealth b/c you ASSUME it is better for you to KEEP IT, right? well, that assumption might not be valid, so let me know when you are ready to wire me ALL your money, ok? -lol- You could also use the opportunity cost argument against dividends. no way. there is absolutely no correlation between dividends and EMPLOYEE COMPENSATION. that is the argument. options are CLEARLY employee compensation that aren't expensed correctly - at least in many cases. (the company that NEVER bought back shares in its history MAY have an argument for proper accounting. A stock buy-back has a similar effect to paying a dividend, because if for example a company buys back 1% of its stock, the remaining stock is 1% more valuable than it would have been. For a shareholder, a buy-back is even better than a dividend, because it gives the shareholder the opportunity to defer the tax impact until later (by continuing to hold all his shares), and the opportunity to have it taxed at capital gains rates instead of as ordinary income. apples and oranges. dividends aren't related to employee sompensation. now, IF there was a rule that said companies could pay employees company dividends w/o running that EMPLOYEE EXPENSE down the income statement... yes, i would have an issue there. The whole point of this discussion is to benefit the shareholders, is it not?** no. current shareholders may get hurt as proper accounting for EMPLOYEE EXPENSES reduces reported earnings. future shareholders would benefit as they would actually know what the BUSINESS is doing, rather than what CREATIVE ACCOUNTING misleads them to believe.