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To: Skeeter Bug who wrote (5185)	5/26/1998 7:33:00 AM
From: Gersh Avery	Read Replies (1) \| Respond to of 42834

Good morning Skeeter With the current rules in place, the only place that you see the effects of stock option actions is in assets and stock price. For instance, when Intel converted INTCW to INTC there was a loss of several billion dollars yet the company reported profits. During the last month before the conversion the price of the stock went through the roof. I believe that this was the result of Intel purchasing stock off of the market for the purpose of the conversion. Then when the warrants were being converted the stock started to fall. Supply/demmand rules state that when you increase supply the price of something will fall .. there was suddenly an extra 78 million shares of this stock on the marketplace .. the price fell .. then Intel warned, and the stock fell further. So .. while current accounting rules say these deals do not have any impact on EPS, they do have an effect on stock price and liquid assets. Now .. do I purchase a EPS or a share? In the current market people buy shares. Valuation has gone out the window. In the current overinflated market, the rules of supply/demmand have become much more important than valuation. Because of this, questions regarding stock option programs have become much more important. cheers Gersh

To: Skeeter Bug who wrote (5185)	5/26/1998 9:33:00 PM
From: Boca_PETE	Read Replies (2) \| Respond to of 42834

Skeeter: RE: <so are you saying that the current shareholders didn't lose anything?> At the date options are granted (when market price = option price), current shareholders have lost nothing. As recipient employees add value to a company (their job), all current shareholders (including holders of employee stock options) participate in the unrealized appreciation in the share price from date of option grant; partly offset by the dilutive effect from the options on EPS. When option holders exercise their option and buy shares from the company, they realize not profit - in fact they pay the company the agreed cost of the shares under option. When such shares are resold to future shareholders, such employees realize their proft which is paid to them by the future shareholder, not the company. It really is as simple as that. However, current shareholders do also benefit from the future profits generated by investing cash in the business that would have been paid out to executives as compensation. RE: < the method of compensation can drastically change the reported eps - FOR THE EXACT SAME BUSINESSES.> The method of compensating employees is an example of many business structuring choices managements make daily. A business that compensates employees by cash salaries incurs a reduction of its' net worth in the amount of cash paid out. A business that issues stock options to employees has no reduction to net worth because no assets are paid out and no liabilities are increased. These two structuring choices are NOT the exact same business as you assert. Absent a reduction of assets for cash paid out, those who would charge earnings (and ultimately Retained Earnings) with stock option expense have proposed increasing the "Paid in Capital" account by the same amount - a net ZERO EFFECT on STOCKHOLDERS' EQUITY. This proves the point that such compensation is paid to the Bill Gates' of the world by those purchasing company shares from current shareholders in a shareholder-to-shareholder transaction that has nothing to do with the company. Follow the money, Skeeter. Ultimately, the accounting has to reflect cumulative cash inflows and outflows, otherwise it's bogus ! If Mr. Warren Buffett transforms option granting companies he acquires into cash compensation companies because of a belief that such companies seek to hide their "true compensation costs", I'd have to agree to disagree with him on that choice. Sorry, Skeeter. While your response to my explanation of the stock option issue was an outstanding effort, I'm unmoved by your comments. I believe your comments exemplify the confusion caused by the recent requirement for companies to disclose a theoretical options expense in their footnotes and its effect on EPS. Imho, such disclosures are totally bogus and misleading for the reasons stated above and in my original post. P