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To: RetiredNow who wrote (62725)	1/17/2003 5:18:21 PM
From: rkral	Read Replies (1) \| Respond to of 77400

OT ... mindmeld, re "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." Your viewpoints do not agree with FASB SFAS 123. Per FAS 123: (1) The value of the expense is determined on the grant date, (2) The option grant must be expensed before the options become vested, and (2) There is no "truing-up" when the options are exercised, or when they expire worthless. What makes you believe you are smarter than the accountants of the FASB? Ron

To: RetiredNow who wrote (62725)	1/18/2003 11:16:34 AM
From: hueyone	Respond to of 77400

Re: Stock Options and Cash Flow It sounds like you are proposing something fairly similar to what John Shannon has proposed---which includes a truing up step when options are actually exercised. As I have said many times, I like many of these proposals, Black Scholes, truing up, etcetera, better than the clearly fraudulent lack of accounting for stock options that we have now. And I have to agree with Ron, that in spite of the popular mythology promoted by Silicon Valley that the FASB folks are a bunch of dumb, government bureaucrats, in fact, these people are a bunch of extremely bright, extremely well educated people that have extensive, sophisticated research behind most of their opinions. However, please let me back up to one of the steps you referred to in your post regarding handling of stock options and 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. I would agree that there are at least two components to the handling of stock options on the cash flow statements. I still recommend reducing free cash flow by the amount of the stock option expense, or at the very least, we should give FCF a big, fat asterisk when it used to evaluate companies who heavily employ stock options, and put a note next to the asterisk saying that employee stock options expense has not been deducted from this number. However, regarding the money coming into the company from exercise of stock options, this incoming cash flow belongs in the finance section of the cash flow statement, and should have nothing to do with free cash flow which more correctly pertains to operational cash flow. Best regards, Huey