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To: hueyone who wrote (150285)	11/19/2002 11:02:23 AM
From: Oeconomicus	Respond to of 164684

the 55 million stock option buyback should also be included as an expense. It is. But the point is that all the fuss, and the "simple" solution of just arbitrarily valuing them at grant, expensing them all at once regardless of vesting, and then never adjusting to reality, does little to give investors a clear picture of anything. It just creates more confusion. The fact is that there is no simple answer (other than not granting options). Investors need to know how options impact cash flows and the number of fully diluted shares, but neither of those things can be known with any degree of certainty at grant - they can only be estimated. And like any other estimates used in accounting, if we must use them, there needs to be some mechanism for correcting to reflect reality. In SEBL's case, had some here had their way and SEBL had been forced to book the $650 million as an expense at grant, how do you now reflect the reality that you've wiped out a $650 million obligation with a $55 million payment? By taking a gain to reflect the $595 million of "savings"? Remember, you have to get it off the books somehow. Seems to me that only compounds the investor confusion and creates unreal and alarming swings in the apparent performance of the business. Anyway, I posted the article not to argue against any kind of expensing, but rather to point out the pitfalls and failures of the simplistic approach favored by some here. Bob PS: Re you comment "if a company had to buy back those options at a later date they would have had to pay a much higher price... It works both ways." - No, it doesn't. If the options are in the money, the company would have no reason to buy them back, and whether are are in or out of the money, the company is NEVER OBLIGATED to buy them back. SEBL bought them back to "remove the distraction," compensating employees and cleaning up their books, and it cost them $55 million. Not $650 million. Not $55 million less a non-cash gain of $595 million. $55 million.