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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: milan0 who wrote (34744)	7/18/1998 5:40:00 PM
From: Dale J.	Respond to of 1571561

Mike, But, if the share price goes down (or goes nowhere), shareholders feel ripped by employees that can exercice at lower prices. Remember when Jerry S. had his options repriced? True, it's worse when the stock price falls, but even if it doesn't, it is still a ripoff. Jerry and others getting their options repriced only proves it is compensation and it is not viewed as a bonus. I should add that options don't have to be an expense to hurt the stock price. First, when shares are issued/exercised, there is dilution. Then earning per share decreases by the simple fact that the number of shares increases. Secondly, if the company repurchases issued shares to prevent dilution, both cash and shareholders' equity decrease. That was my point when I wrote that Intel's cash balance had been reduced by almost 3B$ since the beginning of 98. You have a keen eye, you noticed it was reduced and you knew where it went. You're my kind of investor. But unfortunately, most investors are not aware of this. In fact, it is kept off the P & L for the express purpose of keeping them unaware of the outflow of Billions. Usually, shareholders don't mind stock repurchases to prevent dilution. However, there is a limit to the amount of cash transferred from shareholders to employees with stock options. Even Intel will soon find that limit if earnings don't improve and the shares have to be repurchased at a much higher price than they were issued. But as you stated it still reduces shareholder equity even if the stock is repurchased to prevent dilution. The former chairman of FASB had it right, it is a cost and it should be recorded on the P & L. From the Forbes article you cited, check out his explaination: "FASB felt it was a cost." The board tried to come up with a standard that would require companies to run option costs through their P&L. But the effort became political roadkill after the BigSix accounting firms and much of corporate America lobbied heavily against it. "The argument was: reduced earnings would translate to reduced stock prices," recalls Beresford of the brutal battle that finally buried the idea in 1995. "People said to me, 'If we have to record a reduction in income by 40%, our stock will go down by 40%, our options will be worthless, we won't be able to keep employees. It would destroy all American business and Western civilization,' " he says. The bull market was more important than accurate financial reporting. I think the folks at FASB need to get a spine, and fight this with more vigor. It is a potential time bomb. Thanks for the info. Dale