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

To: Saturn V who wrote (174610)	5/15/2003 2:50:59 PM
From: hueyone	Read Replies (3) \| Respond to of 186894

re: Dilution Method? I don't believe there is such a thing as a "dilution method" that is being seriously considered by any accounting or financial analysts' organizations. If the company sells shares on the open market and then turns around and uses the cash proceeds to pay the employees, everyone is agreeable to recognizing an expense on the income statements for employees as well as dilution. If the same company takes those same shares and grants them directly to the employees instead of first selling them on the open market, nearly everyone is agreeable to recognizing an expense on the income statement and dilution except Don Lloyd. In both cases shareholders suffer dilution and an expense on the income statement. Well, the logic is no different when employees are paid with stock options---shareholders suffer both dilution and should suffer an expense on the income statement. Stock options only escaped the same accounting treatment as other forms of equity compensation given to employees because of more controversy over how best to value the stock options, but the accounting and financial analyst community is largely in agreement that dilution by itself fails to properly capture the full impact of the stock option grants to employees. There are some issues on which accounting and finance professors disagree, but the expensing of employee stock options is not one of them. Despite the pronouncements of a few renegades in our disciplines, we believe there is near unanimity of opinion among scholars in the fields of accounting and finance that the value of employee stock options should be expensed on a firm's income statement at the time they are granted. Mr. Bodie is a professor of finance at the Boston University School of Management. Messrs. Kaplan and Merton are professors of accounting and finance, respectively, at Harvard Business School. Mr. Merton won the Nobel Prize in 1997 for his work on option pricing. online.wsj.com Most commentators that were users of financial statements, including individual investors, pension funds, mutual funds, creditors, and financial analysts, were generally supportive of mandatory expense recognition of all stock-based compensation. FASB Chairman Herz, May 8, 2003 fasb.org JMO, Huey

To: Saturn V who wrote (174610)	5/15/2003 3:10:27 PM
From: Don Lloyd	Respond to of 186894

Saturn V, 2. The so called expense is not an expense, but a lost opportunity cost. So it makes for improper accounting. It's not even an opportunity cost. If Intel wanted to grant MSFT shares, it would have to buy them on the market. If it then gave them away, there WOULD have been an opportunity cost in not getting back a market price. This is not true for new INTC shares, which it can create in unlimited quantity out of thin air subject only to shareholder authorization. An economic opportunity cost must satisfy both of the following requirements : 1. The item given up must have economic scarcity value, as above. This is not true for a company holding its own shares since those shares are actually owned by all of the other shareholders and have no economic consequence and can be replaced at will. A company cannot own itself. 2. There must be some second best precluded activity of net benefit which cannot happen, a lost opportunity. The selling of indistinguishable stock on the market is not precluded because of 1. above and even if it were, the selling of stock on the market is of no net benefit despite people claiming a full market value opportunity cost. The selling of new stock on the market is a value for value exchange of no benefit to shareholders, and possibly a net detriment as a company filled with cash cannot be valued at the premium to cash that can be assigned to future business free cash flow, especially when the cash is actually unsecured cash at risk. Regards, Don

To: Saturn V who wrote (174610)	5/15/2003 3:15:29 PM
From: Road Walker	Respond to of 186894

Saturn, re: 1. Cannot be performed for non-pubic companies. So how do you compare public companies vs non-public companies ? 2. The so called expense is not an expense, but a lost opportunity cost. So it makes for improper accounting. This started out with my probably dumb idea of buying leap call options and awarding them to executives, expensing them at their cost, and having done with it. (Except employees have to hold them to expiration). That seems to meet the same motivational goals as the current options, no? And the market determines the value, no? 1. I don't see why non-public companies couldn't do this. 2. In this case it would certainly be a compensation expense. The company pays for something, and gives it to the employee. Case closed, compensation --- expense. Just reading all these posts, it seems to me the the current plans is a contrived compensation solution that just creates problems. Both side of the expense/option argument, to me at least, seem to be right. There must be a better compensation scheme that doesn't create more problems than it solves. Any compensation scheme that creates this much controversy must be flawed. John