To hueyone in reply to Message 17580004
If the pro forma number given in the 10K says it has been adjusted to give effect to SFAS 123, then I think we should take it for what it says and leave it at minus 467.224 million without making further adjustments.
Huey, the $467M only takes option grant expense into account. The additional adjustment is an option exercise consideration. I was only showing what the additional impact on net income WOULD LIKELY BE .. that is, the tax benefit would likely be lost imho .. if the Levin/McCain bill passed.
It will be interesting to see the details of Standard & Poor's new accounting method re options. They planned to start in June, so we should know something soon.
I also suspect the tax benefit from exercise of stock option is a tax credit that may not be included in 255 M GAAP after tax net income figure. ** The tax credit definitely is included.
The corporate logic here may be not to include it in GAAP for the purpose of avoiding having to explain to shareholders how they produced a tax benefit from stock options in the GAAP earnings number without having a corresponding expense. ** I believe the tax credit is already causing companies to do some explaining .. but not a great deal. Of the general taxpayers, shareholders are the most likely to know about the tax credit. But the catch is, the tax credit benefits shareholders, so they aren't likely to complain.
I was intentionally working backward ... ** Work backward to what? To the option exercise tax benefit? There is no valid mathematical relationship between the two. To the details of option grant expense? That can't be done.
But I made a mistake. I should have divided the 722M by 1 minus the tax rate, or 63%, instead of 37%. ** Unless I've gone totally crackers, I believe you were correct the first time, when dividing 722M by the 0.37 to get $1950M. When in doubt, just ask yourself how you would get from a pre-tax number to an after-tax number. Most everyone gets that direction correct .. we just multiply the pre-tax by the tax rate. Going the other way? Divide the after-tax by the tax rate.
I still am not clear what these Black Scholes numbers are telling us. ** I'd be comfortable showing you on a spreadsheet. Putting it into words .. I don't know. I'll give it a try. Caveat: I have no working familiarity with this. I am only telling you how this mathematician (me) would do my first pass.
Assume the options granted are 100% vested in 5 years. For each grant over the last 6 years, and for each different grant combination of variables (exercise price, vesting schedule, expiration, etc.), calculate the option value per option share using a Black-Scholes based equation, multiply by the number of shares with this combination of variables, then amortize this total over the next 5 or 6 years. (The reason I'm ambiguous about the 5 or 6 years: I don't know whether amortization begins in the year of the grant, or the following year.) Add all the amortized expenses for each time period .. and there you have the "Black Scholes" option grant expenses .. presumably pre-tax. (Personally, I would just as soon drop the Black Scholes name, and just say "option grant expense", or even just "grant expense". I've no idea what the accountants terminology is.)
something doesn’t look right about the $12.31 market price ** It seemed low at the time to me too .. but the math looked right. I'll hunt for error(s).
Huey, thanks for really reading my posts and double checking me.
Ron |
