1.69 billion is the estimated after tax cost, as opposed to pre tax expense, for stock options using Black Scholes.
Not a nitpick imho. When I said "the option expense is $1.69 billion", I chose my words poorly. Correct concept .. but poorly written. I should have said something like "the impact of option expenses on net income was a negative $1.69 billion".
As for "pre-tax option expense", we don't (well I don't) know if the "fair market value" per SFAS 123 is treated as an expense on the corporate 'tax books' or not. Do you? John S., do you?
Without that info, we should be able to make a correct guess after some calculations. The shares granted, the weighted average strike price, the effective tax rate, and option vesting schedule are reported. Since the effective tax rate for FY01 was 37%, the "is or isn't it reported to the IRS as a pre-tax expense" difference is a 2.7 to 1 ratio. The amortization of each year's expense according to the vesting schedule is a complication. This sounds like more work than I've got time for right now. I'll wait to hear from someone who knows .. or can't resist doing the calc for us. My WAG is that a pre-tax option expense is reported to the IRS.
As to the $2.6B "option expense" reported by the Bear, Stearns person, with a starting point of $1.69 billion and a 37% tax rate, the number would have been $4.5B, not $2.6B.
Ron |
