Employee Stock Options - NQSOs & ISOs Message Board

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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs

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To: Clarksterh who wrote (15)	6/13/2002 10:30:04 AM
From: hueyone	Read Replies (1) of 786

Hi Clark: Regarding the assertion that you have made several times--- that expensing stock options would result in a perversion of the cash flow statement, I just don't see it. I am not an accountant, but If I were preparing the books, here is the way I would do it: Under employee compensation we would include the difference between the market price and strike price at exercise. Voila, we just improved the accuracy of the employee compensation number as well as the accuracy of the net income number. Next, under the line item titled “Adjustments to reconcile net income to net cash provided by operating activities” in the cash flow statement, we would include a new line item titled “Provision for non cash income from issue of shares”. This amount will be a positive number and will exactly equal the employee stock option compensation expense reported in employee compensation. All the other numbers would remain the same, except the line item “tax benefit from exercise of stock options” would disappear, because this tax benefit will already be reflected in lower taxes (cash outlay) in the line item called “Income taxes” in the net income statement. Working through the rest of the numbers, you end up with a figure in the line item titled “net cash provided by operating activities” that is exactly as it should be. No perversion; no problem!!! I believe we already have at least one real life example of handling stock option expenses on the income and cash flow statements. Boeing company is said to expense employee stock options in their income statements to shareholders. Looking at Boeing's 10K, under "Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities" on the cash flow statement, I see a line item simply titled "Share Based Plans". I expect the line item corresponds exactly to my suggested line item titled "Provision for non-cash income for issuance of Shares". Best, Huey

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