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To: hueyone who wrote (174612)	5/15/2003 3:17:57 PM
From: Saturn V	Read Replies (1) \| Respond to of 186894

I do not have a WSJ subscription. Can you paste the relevant paragraphs ? So far the only option expense I see is the eventual dilution of the shareholders . Recognizing that expense preemptively is being extra-conservative even-though the option may not be exercised ! So what am I missing ? Some people seem to have a mystical faith in the Black-Scholes Formula as if it was a fundamental law of nature, like Newton's Laws of Motion. It is merely uses Probability Theory to guess at a price of the option. My personal experience with it is that is a good estimate of short term fluctuation, but a very poor estimator of longer term changes in stock valuation.

To: hueyone who wrote (174612)	5/15/2003 3:40:24 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 186894

hueyone, nearly everyone is agreeable to recognizing an expense on the income statement and dilution except Don Lloyd Please justify the need for the qualifier 'nearly'. -g- AFAIK, I've only convinced one person that stock grants should not be expensed and it took that person 6 months before he sent me an email confirming it. Regards, Don

To: hueyone who wrote (174612)	5/15/2003 4:52:16 PM
From: Saturn V	Read Replies (2) \| Respond to of 186894

Ref < < 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 .... In both cases shareholders suffer dilution and an expense on the income statement > I think what you meant was that if the company sells an option on the open-market. Then it buys an option on the market and then gives it to the employee. Now you claim that now it is a expense which should be charged to the earnings. However the company would have an extra income item due to the sale of the option, which would exactly balance out the expense of purchase of the option. So the company total income would be unchanged. The only problem is that the employee will be taxed for the "value of the option" immediately, since this will be considered immediate income. This destroys the option as an incentive.