At JP Morgan's Annual Technology Conference, John Gifford stated:
We are the innovative leader in mixed-signal analog in the world. We intend to continue to be. We got here and we will go forward because we have been able to collect and will continue to collect the best engineers in the world. They are world class. If you're not world class, you cannot do these things I have been talking about.
Questions
1. Why are stock options important to the operating effectiveness of companies like Maxim? Are their stock option grants a form of compensation?
2. How might changes in the assumptions Maxim uses in its option pricing model influence the grant date valuations?
3. How would you handle stock option grants in (a) measuring Maxim's performance and (b) valuing its equity? Do you think Wall Street should ignore options?
4. Gifford suggests free cash flow (cash flow from operations less capital investments) as a better indicator of Maxim's performance than net income. Do you agree?
5. Do you believe the tone and substance of Gifford's statements communicating his view of net income (after expensing stock options) is appropriate for a
CEO?
6. Do you believe the requirement to expense stock options will change the way employees are compensated? For example, will restricted stock grants and cash bonuses become more popular? How should you account for these alternative forms of compensation?
7. Do you believe the Financial Accounting Standards Board has adopted the best measure of stock option expense?