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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: jt101 who wrote (188)	8/15/2002 1:20:43 AM
From: hueyone	Read Replies (1) \| Respond to of 786

Thanks jt: It is definitely unfortunate that the disclosures will be in the footnotes of the 10Q rather than disclosed simultaneously with the quarterly earnings numbers. At the time companies release earnings, all the discussion about quality of the reported earnings number occurs, and when someone brings it up later it generally merits a big yawn. I also hate scanning through footnotes in SEC filings looking for this information. Nevertheless, I doubt Harvey Pitt, the SEC chairman, will do anything about this problem. By the way, Arthur Levitt, the SEC chairman in 1994, has mentioned that backing down on expensing stock options was the single thing that he regrets the most about his tenure as SEC chairman. The head of the FASB is on record as saying he favors expensing stock options on the income statement, so hopefully there is still a good chance that we will end up with that solution sometime in the future. Best, Huey

To: jt101 who wrote (188)	8/16/2002 7:48:43 AM
From: jt101	Respond to of 786

hueyone, I agree totally with your views on FASB/Pitt. In the mean time, all companies are using any opportunity available to reprice stock options. Last night I accidentally came across this post by Smart_Money. I have neither the knowledge nor time to verify the details. Just thought i post it here. Message 17884146 Dell..."For the year, the loss from the options game exceeded the profit from operations!!! Unbelievable" Effect of Options Stockholders of DELL, take note. From John Mauldin's weekly email John@2000wave.com Copyright 2002 John Mauldin. All Rights Reserved ".... people are just now waking up to the fact that they've been duped for years by the option game. I use Dell as an example only because it is so clear with Dell in that they not only issue massive amounts of stock options but they also repurchase similar amounts of stock in the market to avoid dilution. This gives me the opportunity to quantify the cost of the game. Companies that only issue options but don't repurchase stocks are still, in my opinion, stealing wealth from non-shareholders but it is harder to calculate exactly what this figure is. For the fiscal year ended February 1, 2002, Dell reported total net income of $1.246 billion. They definitely know how to make and sell computers profitably. Unfortunately, they don't know how to husband those profits so that the poor [investors] who own the stock can reap any benefits. We can see this by looking at the statement of cash flows and the statement of stockholders equity to see how the option buy back program worked. For the year, Dell issued to employees 69 million shares and received total benefits of $853 million (this includes the tax benefit U.S. companies receive upon option exercise). "In the same year, they bought back 68 million shares for a total cost of $3.0 billion. On average, they paid $44 per share and received $12 per share for a realized, book and pain in cash loss... of $2.169 billion. For the year, the loss from the options game exceeded the profit from operations!!! Unbelievable... and as far as I can see, unmentioned on Wall Street. "Investors let Dell get away with this, preferring to believe that the company is making money and working on their behalf rather than acknowledging the horrific truth--- they were mere pawns in a management enrichment program. These are strong statements to be sure; however, has Dell ever paid a dividend to its shareholders? No. Has Dell stock appreciated since July of 1998? No. Has Dell at least grown its book value for shareholders, independent of how the market treats its stock? Again, no. "Though it has reported enormous profits over the last four years, Dell has been unable to grow its book value per share. Why? Because options accounting is a difficult and currently quite imperfect matter and companies have taken advantage of that situation to portray themselves in a far more flattering manner than the underlying truth. Most worrisome is that I can make all these statements about Dell, one of the best run companies around. Imagine how much worse it gets at some other companies."

To: jt101 who wrote (188)	8/17/2002 2:07:16 AM
From: hueyone	Read Replies (2) \| Respond to of 786

Hi jt: I believe those articles from WSJ and NYT that you and I posted regarding the recent FASB meetings are somewhat misleading. Some investors are concluding from these articles that FASB has held their meeting regarding whether or not to expense stock options on reported earnings and that they have made a decision not to. This is not the case. Those meetings, as even opponents of expensing stock options such as Biomaven have noted, were limited in scope and were conducted for the purpose of laying out groundrules for those companies transitioning to expensing stock options on the income statements. The issue of whether to expense stock options on the income statement is still alive. In fact, the IASB, International Accounting Standards Board, will be releasing their proposal in the fourth quarter of this year which will require companies to use the fair value approach in expensing stock options to arrive at reported earnings. It is clear to me that FASB is also in favor of requiring the fair value approach to expensing stock options to arrive at reported earnings, but are likely waiting for the politicial climate to be favorable enough that they can make that recommendation without fear of threats from Congress similar to what FASB suffered in 1994. However, with money pouring in to Congress from Larry Ellison and other beneficiaries of the great wealth transfer enabled by stock options, the political climate that FASB needs to make an honest, independent decision may never arrive. On the other hand, the IASB decision to be released this fall, just may give FASB the impetus they need to make the darn recommendation again. Here are two links on the subject at FASB that are well worth reading: fasb.org fasb.org Best, Huey