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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (44578)	1/26/1999 10:34:00 AM
From: Mike M2	Respond to of 132070

CB, see Message 7481320 I think this covers the question se also the Forbes article 5/18/98 I posted the url yesterday. Looking at the income statement there is no cost to esop yet the companies take a tax benefit on the I/Stmt. The cost of the esop is accounted for by a reduction in shareholders equity. The entire practice misleads investors because it overstates the true earnings power of a company. Many newbies simply hear the reported earnings w/out questioning how those earnings were computed. Accrual accounting allows companies to shift revenues and expenses to alter the results. I highly recommend Financial Shenanigans by Howard Shilit. Mike

To: Ilaine who wrote (44578)	1/26/1999 11:59:00 AM
From: Earlie	Read Replies (2) \| Respond to of 132070

CB: I agree that compensation is an expense to the company. What is offensive is that this "expense" never shows up on the earnings statement, hence the profits are effectively over-stated. Your comment that "it will always reduce corporate earnings" is inaccurate in this case. A typical shareholder wandering through the earnings statement never knows that this rancid game is being employed. I also think that very few investors realize just how much money MSFT takes in via this semi-scam. Bill Parish estimates that: - since 1995, Microsoft has claimed $10.0 billion (not a typo) in compensation expenses, yet this expense does not show up on the company's earnings reports, which greatly inflates the profits. Subtracting this number from reported earnings leaves a big crater. - MSFT has a future liability of $55.0 billion in stock option commitments (as of year end), half of which are now exercisable. This liability does not show up on either the balance sheet or earnings statements. - The gains that will accrue to employees on that $55.0 billion exceeds $40.0 billion. MSFT will pick up about $14.0 billion in tax benefit when they are exercised. - MSFT picks up an additional $0.35 for every dollar that the stock rises in price. When one compares these numbers with the company's gross sales or earnings, they are massive fractions of same. Purchasers of MSFT's stock are simply unaware of this or of their other money -spinning game which is the "sell put options" routine. While the figures are available in the company's reports, few shareholders have any concept as to just how big the stock option issuance is. I would suspect that less than a handful understand just how powerful an impact these options have on MSFT's "reported earnings" There's no disagreement at this end that there is a "cost" to these options. My unhappiness rests with the fact that the company's reporting masks these costs. Did you have any idea that MSFT's "earnings" were so assisted before this commentary? This last statement is in no way intended as a put-down,....unless one pours over the earnings reports in "forensic accounting mode", it is difficult to understand and even more difficult to come to grips with the enormity of it. Best, Earlie