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To: Investor2 who wrote (5201)	5/27/1998 6:54:00 PM
From: Boca_PETE	Respond to of 42834

I2: re: Thanks for the interesting link which describes the method companies are required to compute the "Theoretical Stock Option Expense" - The Black Scholes Method option pricing model. The Black Scholes Model is a fine tool for valuing options that are freely traded in the open market. Unfortunately, the requirement to use it to price employee stock options is a not appropriate because employee stock options are NOT TRANSFERRABLE and are FORFEITED back to the issuing company if the employee leaves the company. At the date of grant, employee stock options have a ZERO VALUE since the option price must equal or exceed the market price of the company stock on that date. As explained in my previous posts, all appreciation over the cost to buy the shares under option is funded by future shareholders, not the company. Thus to reflect a stock option expense on the books of the issuing company of any amount, no matter how computed, is totally bogus in my opinion because no assets or cash get paid out of the company to the employee. Companies issuing stock options incur some EPS dilution from considering additional shares outstanding relatied ot stock options. However, because employee who have been granted options have interests aligned with all existing shareholders, they are motivated to work hard and add shareholder value to the company so that they can profit along with other shareholders as company value rises. Imho, the link illustrates another mislead analyst or prospective Dell shareholder who thinks it's proper to adjust Dell earnings downward to reflect stock option expense just because companies have been required to disclose such "as if" effects in their footnotes to financial statements. This disclosure requiement was a face saving jab at those who protested the proposed requirement to book stock option expense. It was a VERY unpopular proposal which was stopped by an act of congress. Very few companies have elected to reflect stock option expense on their books, an alternative under the recent accounting rule (Statement of Financial Accounting Standard No. 123. P

To: Investor2 who wrote (5201)	5/28/1998 12:52:00 AM
From: Skeeter Bug	Read Replies (1) \| Respond to of 42834

i2, this is clearly a difficult issue to resolve with no easy fixes. i'm not sure i have a good fix as the numbers that forbes used to "prove" msft was losing money seemed bogus. i'd bet nothing is done about it. sgi was recently put up as an example where this options "leverage" blew up in everyone's face. the stock went down, the employees demanded cash or left and the formerly higher eps that didn't reflect ALL employee compensation now does. the eps are said to be under whelming. i don't know how accurate a portrayal of sgi that is, but that is how the theory goes anyway. ibm is often touted as a MAJOR player in this game. so much so that they borrow large amounts to buy back their stock and issue lots of options. if their stock ever goes down consistently and employees demand cash while paying interest on that debt, look out below... buyer beware, as always.