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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (12152)	11/19/2004 11:32:13 AM
From: R2O	Respond to of 25522

employee sees $12,000 in income on which they immediately owe taxes, whether or not they actually sold the shares. I would guess that most will sell at least enough stock to pay the taxes so that they are not out of pocket. And the company sees a tax deduction for that 'increase'. And don't forget that when 'fully diluted shares' are calculated that they have little to do with counting shares. They are (roughly stated) calculate by summing up the options, converting that into dollars (using the same 'magic' formulae used for 'expensing' options) then translated back into 'shares' using current share prices. Now that sure is transparent, isn't it? I'm sure all of us understand that, don't we? And we all know which magic formula is used. Tell me, when options are 'expensed' will they still calc 'fully diluted' shares the same way? When the IRS starts allowing deductions for the 'options expense' I'll be all for it. Till then, it's just one more bit of accounting noise I'll have to learn to ignore. IMHO.

To: Kirk © who wrote (12152)	11/19/2004 4:54:50 PM
From: brushwud	Read Replies (1) \| Respond to of 25522

If they have options at $12 from the 2002 and 2003 lows and exercised 1,000 of them when AMAT was $24, then this is my understanding of what happened. #1 AMAT got 1,000 x ($24-$12) = $12,000 in cash for its treasury #2 The Employee has $24,000 in AMAT stock that she can sell immediately to anyone willing to buy. Most of us (me at HPQ) did just this as we were taxed on that gain on the day of exercise so selling provided cash to pay the taxes. Some only sell enough to pay the tax... But bottom line is the employee sees $12,000 in income. #3 Shareholders suffer dilution by 1,000 shares. They got some benefit from the extra cash which shows on "Stockholder equity" but the number of shares went up by 1,000 so the book value per share went down unless AMAT was selling at a P/B below 1.0 in which case it could go up. That's all correct until the last line, which has two errors. The book value per share went down _if_ AMAT was selling at a P/B below _2.0_ (since in your example, the price is twice the cash payment), otherwise it would go up.