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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (174559)	5/14/2003 9:16:46 AM
From: hueyone	Respond to of 186894

do you believe a company shouldn't distribute ownership? Lizzie Tudor tries this scare tactic all the time--- constantly equating expensing stock option compensation with being in favor of doing away with stock options and employee ownership altogether. This simply isn't the case. Ron just printed data showing that Intel would have had about 4 billion in stock option compensation expense compared to 40 billion in GAAP profits over the last seven years. I don't see why if Intel recognized this expense, that that would make them feel like they needed to discourage employee ownership. Recognizing stock option compensation expense will just encourage some companies to manage this expense more wisely who aren't already doing so, in so much as companies ultimately want to report good earnings to shareholders. When companies can ignore an expense and falsely report it as zero, in some cases it encourages bad management of the expense in question. And just because the company is not reporting the expense, does not mean the company is not incurring the expense. But there is zero evidence that expensing stock options would encourage companies to disband employee ownership programs. Accounting for and recognizing all the expenses, including employee stock option compensation, is good for everyone in the long run imo---the economy, management, employees and shareholders. Regards, Huey

To: Amy J who wrote (174559)	5/14/2003 11:47:15 AM
From: Stock Farmer	Read Replies (2) \| Respond to of 186894

Hi John, do you believe a company shouldn't distribute ownership? No. What gives you this idea? A company which is creating wealth for its shareholders can be closely or widely held. A company which is reducing the wealth of its shareholders can also be closely or widely held. A company which is increasing the wealth of its shareholders can also be decreasing the wealth of shareholders. Simply by adding more shareholders at a faster rate than it is creating more wealth to share amongst those who are already there. This is the core issue around stock options. It's not an issue of use, but one of accounting. Sooner or later folk will figure out that these are two different things. I am certainly not against the use of stock options. Nor against equity financing in all of its many forms. Just the opposite. In fact I owe my entire standard of living and current occupation to these things. I'm just suggesting that owners keep an eye on the rate at which the sharing-of-the-wealth is growing versus the rate at which the wealth-to-be-shared is growing. This is the accounting issue around stock options. If your sister had sold off 99.9% of her company and in so doing it grew to 10x its size or even 100x its size, she would have been farther behind. If she had sold off 0.9% of her company and it grew to 1.1x its size, she would have been farther ahead. It's not the growing of ownership by itself that makes you wealthy, nor the growing of the business by itself. It's the cross product between the two. And a growing business with a faster growing ownership can be making you poorer if you don't watch out! Options are a hidden tax on shareholder's wealth. Turning to Intel, in the past 9 years, Intel created 45 Billion dollars in wealth for their shareholders. Intel insiders received 9 Billion dollars in proceeds from exercising stock options. Paid by shareholders. Subtract the 9 from the 45 and shareholders still have seen their wealth increase by 36 Billion dollars. Which is a large number. Intel has been good to its shareholders, and they are probably happy to have shared 20% of the wealth amongst the folk who made it happen. I know I am pleased with this kind of result. Cisco on the other hand is a different story. In the 7 years from FY 96 to FY 02 they generated 9.8 B$ worth of profits for shareholders. And insiders received 18.9 B$ proceeds from exercising stock options. Paid by shareholders. Subtract 18.9 from 9.8 and it should be clear that Cisco hasn't been as good to its shareholders as Intel. The paradox is that Cisco has reported positive earnings per share for every year but FY '01 when they declared a small loss. And yet shareholders are in the hole by more than a buck a share. As a consequence of stealth equity financing. And this is not counting acquisitions: just options. It is possible to increase the rate at which shareholders divide the wealth faster than the wealth being divided is growing. In which case, those who hold the wealth in the first place are being made poorer. That's the purpose of proper accounting. To keep things in perspective. John.