Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (16359)	8/1/2002 7:34:39 PM
From: geode00	Read Replies (1) \| Respond to of 42834

Question here, when the employee exercises his options, he is considered to have income and owes taxes to the government. Who paid him that income? Another question here, the company could have in theory sold those shares at the market price. The company isn't getting as much as it could realize so it's on the losing end of this proposition. It's, in theory, buying a happier employee (yeah, right) but it's still paying. What if a company were to buy back all its shares (ok, it has a lot of money in the bank) and then distributes all those shares at a lower price than it bought them for to its employees. What happens to shareholders then? All the money in the bank that went out to buy those shares and then those shares are distributed to employees at a lower cost? It's nonsensical as far as I can see it. There's a real cost here whether it's actual cash that's not realized or dilution. What am I missing in this argument?

To: Kirk © who wrote (16359)	8/1/2002 7:58:26 PM
From: Skeeter Bug	Respond to of 42834

My problem with the way they want to expense options with the BS model is it is like saying the extra bedroom in your house is an asset that you COULD rent out so if you let your brother-in-law live there for free, then you should call it income even if he pays you nothing for it (i.e. no cash flow). actually, it is like having someone stay in the room for "free," but he spends $500/month month taking the owner out to dinner every month. the govt would rightly think this is income... if companies buy back optioned stock, they can expense that cost.

To: Kirk © who wrote (16359)	8/1/2002 8:40:57 PM
From: Boca_PETE	Respond to of 42834

Kirk: re:(" What I'd like to see is a more clear way to show the cash flow of the options ") In the annual reports of all companies, financial statement footnotes always provide a table (shares and weighted average price) reconciling outstanding stock options outstanding for three years as follows: Outstanding - Beginning of Year Granted Exercised Restored Forfeited Outstanding - End of Year For each year's total cash received from Exercised Options, multiply applicable shares by the average exercise price. Cash benefit from stock option related tax effects is buried in Current Income Tax Expense - net (since it is not required to be separately disclosed). The dilutive impact of potentially exercisable outstanding options is sometimes separately disclosed in the required financial statement footnote that analyzes the computation of Diluted Earnings Per Share and reconciles that to Basic Earnings Per Share. Problem is that Basic Earning Per Share includes the dilutive impact of options previously exercised that have increase the outstanding shares. RE: ("exercising options is actually a POSITIVE cash flow event for the companies ") Reporting a "Stock Option Grant Expense", which implies NEGATIVE CASH FLOW, is absurd because the stock option process ONLY results in POSITIVE cash flows to the company(cash received upon employee exercise of the option - sale of share to the employee, and, cash income tax benefits received related to stock options). I can see you are amongst the few who fully understand this undeniable fact. P :-)

To: Kirk © who wrote (16359)	8/2/2002 3:52:28 PM
From: sat2000	Read Replies (1) \| Respond to of 42834

I don't pretend to know beans about options or accounting. That being said I got a question. Why can't a standard method be adopted for all companies to treat employee stock options? Until this is done how can the average Joe six-pack investor evaluate various companies treatment of options? If one company agrees to expense them when exercised and another when granted and another not at all (as long as they can get away with it) how can a apples to apples comparison be made? Would it work to require that when options are granted the company buys warrants or what ever is appropriate for the time frame, they at that time pay the premium and count that as an expense for that Quarter? Steve Thompson