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To: hueyone who wrote (62713)	1/17/2003 1:41:57 PM
From: bofp	Read Replies (2) \| Respond to of 77400

Absolutely NOT! Cash flow is CASH - the minute we make this measure subjective by deciding which non-cash expenses (or for that measure non-cash revenues) we are going to count as cash, we destroy its meaning. While I agree that stock options should be expensed to demonstrate the exchange of value that is not being fully accounted for by the diluted share count (remember, only in the money, vested options are included as diluted shares), you cannot arbitrarily reduce the cash flow.

To: hueyone who wrote (62713)	1/17/2003 4:37:55 PM
From: RetiredNow	Read Replies (2) \| Respond to of 77400

Well, there are several components to this. First, there is the expense, which if placed on the income statement would reduce free cash flows. Then there is the cash inflow when options are exercised. That is a valid cash inflow that should be added back to free cash flow. Then at the end of the day, there should be a true up, which would reflect the know quantity value of the stock options on the date they were expensed. So if you ended up overestimating the expense on the income statement, then I think their should be a contra-expense that gets recorded to retained earnings to reflect the true costs as found out when options are exercised. That contra-expense might not hit the income statement, but it might very well increase free cash flows and rightly so.

To: hueyone who wrote (62713)	1/19/2003 12:16:44 AM
From: rkral	Read Replies (1) \| Respond to of 77400

OT ... hueyone, re "some who argue that since stock option expense is a non cash expense, they would add it back in to free cash flow, much in the same manner as we add depreciation and amortization expense back in to free cash flow." Exactly. Well .. that is exactly what Boeing does when calculating "net cash provided by operating activities". Take a look at Boeing's 10K for 2001 at sec.gov. Then search for "378". You will see that $378 million is "share-based plans expense" on the income statement. Then a $378 million "share-based plans" adjustment is made in the cash flow statement to reconcile net earnings to net cash. Why? Could it be because the company actually increased cash .. by more than the "net earnings" .. because of the non-cash stock-based compensation expense on the income statement? I'm not an accountant .. but that sure sounds like a legitimate FREE cash-flow item to me. You will also see a $378 million increase in "shareholders' equity" in the form of "additional paid-in capital" on the balance sheet. Now in Boeing's case, the entire stock-based compensation amount is not due to options .. but let's pretend it is. If the options are expensed, the amount is added to additional paid-in capital. If the options are not expensed, the amount becomes part of retained earnings. The shareholders' equity is increased by the same amount ... in either case. Ron