I don't understand Black Scholes well enough to convincingly defend the calculation. However, I think we can work backwards from the line item "Tax Benefit from Exercise of Stock Options" in the cash flow statement to estimate what the market price less strike price was for options actually exercised during those years. This method, unlike Black Scholes, does not estimate the value of employee stock options at time of grant, but instead calculates the compensation value when the options are exercised.
Aggregate net income for the three years, 99, 00, and 01, is 587 million dollars. Aggregate tax benefit from exercise of stock options during the same three years is 331 million. Assuming SEBL is in the 39% tax bracket (I really don't know what their tax rate is), we can calculate the aggregate employee stock option expense for those years as 849 million, or 331 mill/39%, which far exceeds the net income for those same years. Hence, we appear to have this other way to determine that SEBL did not make the shareholders any money over that three year period, but it is possible I could be wrong.
I hope you are right that all this employee stock option compensation is a bubble aberration and that it will not be such a huge factor going forward. However, I fear many execs will continue to feed at the golden trough as long as the loophole allowing non reporting of stock option compensation on the income statements to shareholders remains.
Best, Huey |
