Replies to post #74465 on Biotech Values

[medchal]

"...it will be decided in the same corrupt, crony-capitalist way by bought congressmen...." Please be at least a little serious. The problem has nothing to do with corruption, Congressmen, nor corrupt Congressmen. Most member of Congress can't even learn how to file their taxes on time, let alone learn the intricacies of accounting (which don't interest them anyway).

FASB is "reviewing" its standards and guidance. FASB is not about to do anything to demystify accounting (which should be one of the simplest occupations in the world--bookkeeping, really). It will not come up with better ways to value an unrated bond which hasn't traded in four years, was issued by a small municipality, has six year to run to maturity, and is backed by an unusual sinking fund. It will come up with more baloney "standards" and "guidance" which will require the employment of at least as many accountants as before (and preferably more).

Warren Buffett is a good man, but in political matters follows the Democratic line every time, so consulting him on matters like this is pretty silly.

Pretending that mark-to-market accounting has something to do with "safety", or the evaluation thereof, is a laugh. No illiquid asset can be properly evaluated as to "market value". What one ends up with is "mark-to-salvage-value" accounting.

[DewDiligence]

This looks like the 21st century way to reprice stock options without
actually repricing them. I hope this trend does not become a tsunami
because it’s a great way for companies to screw non-employee shareholders.

http://online.wsj.com/article/SB123782352383715267.html

›Intel to Let Workers Exchange Options

MARCH 24, 2009
By DON CLARK and JERRY A. DICOLO

Intel Corp. plans to allow employees to trade in underwater stock options, emulating moves by many other technology companies in the wake of the stock market's sharp decline.

The semiconductor giant, in a proxy statement filed Monday, disclosed that 99% of options held by its employees are currently under water -- meaning they have no value because the company's share price has fallen below the exercise price of the options.

Intel is seeking shareholder approval to let employees exchange those options for new ones, with a lower exercise price based on Intel's stock price when the plan is implemented in the fourth quarter.

Intel's shares, which fell 45% in 2008, closed up 5.9% Monday at $15.52 on the Nasdaq Stock Market amid a broad market rally.

Dozens of companies have recently announced option exchanges or repricing plans, including Google Inc., eBay Inc. and Intel rival Advanced Micro Devices Inc. Companies argue they need incentives besides salaries to retain and motivate key employees, and options have lost their appeal because of the stock-market meltdown.

Earlier this month, more than 15,000 Google employees swapped 7.6 million underwater options for the same number of new ones with a lower exercise price. The Internet giant conducted the exchange without shareholders' approval and allowed some executives in on the plan.

"Because motivating and retaining employees is a good thing -- both for those employees and our shareholders -- we believe this exchange works for everyone," a Google spokeswoman said.

But such moves remain controversial, because regular stockholders aren't compensated for any losses. Some companies therefore have crafted their plans to reduce shareholder opposition.

Intel, for example, said officers and directors won't be able to exchange their options. It added that the plan wouldn't create additional share-based-compensation expenses beyond what the company has already recorded.

Such "value for value" plans, as they are called, require a company's employees to give up more options than they receive when prices are adjusted. For example, Intel estimated that an employee who surrendered 1,000 stock options granted in 2001 with a $30 exercise price would likely receive about 54 new options. [GOOG’s repricing plan described above does not reduce the number of options—it merely reprices them, shareholders be damned.]

Patrick McGurn, special counsel to RiskMetrics Group's ISS Governance Services unit, declined comment on Intel's plan until the proxy-advisory firm had a chance to review it. But he noted it includes elements that investors tend to prefer, as did an exchange plan announced by Starbucks Corp.

"You are never happy" when a company decides to exchange options, Mr. McGurn said. "But when you see them do it, you at least want to see them do it in a shareholder-friendly fashion."

Intel, of Santa Clara, Calif., has issued options for more than 25 years and estimates that 87% of its 83,900 employees hold them.

The company was a vocal opponent of accounting-rule changes that compelled companies to book option expenses. [This was a shameful lobbying effort on their part, IMO.] Since those changes were imposed in 2006, the company has mainly shifted to issuing restricted stock as an employee incentive.

The company's proxy statement also disclosed that Intel plans to freeze executive base salaries in 2009 and will reduce contributions to an employee retirement-savings plan.

Intel said the base salary of Paul Otellini, its chief executive officer, rose 30% to $1 million in 2008, though his annual cash-incentive pay declined 2% to $3.87 million. His total compensation, including the value of equity awards, stayed about flat at $12.1 million.

Besides the option exchange, Intel said it would offer a one-time stock grant to employees that would effectively double the number of restricted shares they would ordinarily have been awarded this year, a move that will cause the company to record an expense of $440 million over four years.

The company also said it is increasing the amount of shares each hourly, or "nonexempt," employee can receive under an existing incentive program, from 20 to 50 shares.

"For Intel to win and emerge from this economic crisis in a stronger position, we must not only continue our investments in technology and products, but also invest in our people," Mr. Otellini said in a letter to employees.‹