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To: Art Bechhoefer who wrote (130103)	7/10/2003 11:49:24 AM
From: rkral	Read Replies (1) \| Respond to of 152472

OT ... Art, re "if MSFT restates its earnings to allow expensing of options and providing stock in lieu of options, it only shows what size can do. For a company as large as MSFT the effect on earnings is minimal." For FY02 MSFT's reported earnings were $7.8B. It would have been $5.4B had it expensed options .. a decrease of 32%. A decrease of 32% is not minimal IMHO. Ron

To: Art Bechhoefer who wrote (130103)	7/10/2003 6:53:03 PM
From: hueyone	Read Replies (1) \| Respond to of 152472

if MSFT restates its earnings to allow expensing of options and providing stock in lieu of options, it only shows what size can do. What? Companies smaller than MSFT shouldn't be expected to be able to report all the expenses, including stock option expense, and still make a significant profit? That is a preposterous conclusion imo. A better method, at least for small companies, would be to expense options only to the extent to which the option can be exercised. Ok Art, I am going to hold you to that statement.<ggg> Although Black Scholes is much maligned, especially in the current era of underwater stock options, I do not think it would be entirely uncommon for the actual expense of stock options as measured by the difference between market price and strike price at time of exercise in aggregate over the last six or seven years, to be close, or even higher, than the cumulative Black Scholes expense value for a given company over the last six or seven years. For example, JS did this calculation for Cisco and found the expense value as measured at actual exercise time to be higher than what would have been written off using Black Scholes over the same period. Rkal did this same exercise for Intel, and also found that expenses measured at exercise were higher than the reported Black Scholes expense numbers. I suspect over long periods of years, that the cumulative Black Scholes expense values are reasonably close to the cumulative expense measure at time of exercise, and at the very least much closer than the current "Zero" value that management wants to report stock options expense at now. Intel #reply-18946485 Regards, Huey