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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: IceShark who wrote (46759)	2/12/1999 1:45:00 PM
From: Exacctnt	Respond to of 132070

IceShark, For the sake of argument let's use two cases in which a company handles options. Case A: A company issues stock options at a grant price of $10 and has no Treasury stock balance. An employee exersises an option for 1,000 shares. He pays the company $10,000 to cover the grant value. The company, having no Treasury stock, buys in the open market 1,000 shares at the current market price of $15 per share which totals $15,000. The company incurs a $5,000 negative cash flow. This transaction can be measured and arguably called an expense to the company. Case B: A company issues stock options at a grant price of $10 and simultaneously buys an equal number of shares in the open market for its Treasury stock. An employee exercises an option for 1,000 shares. He pays the company $10,000 to cover the grant value. The company issues to the employee 1,000 shares out of its Treasury stock balance. There is no expense to the company since it has been paid $10,000 from the employee and issued stock from the Treasury stock account that cost the company $10,000. No cash impact other than carrying cost depending upon the timing difference between the grant date and the exercise date. That timing difference carrying cost could be offset by tax credits based upon the tax paid by the employee on his gain. In reality, neither case is practiced. If you want to determine an amount to expense that would ensure that companies don't bankrupt their future, it would be to develop a model that factors in the timing of Treasury stock purchases. Regards, Bob