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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs

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To: rkral who started this subject	6/15/2002 8:47:55 AM
From: rkral	Read Replies (3) of 786

Huey, maybe [edit: this will] help you out ... [edit: This is a duplicate of a post I originally made on the SEBL thread in reply to Message 17578700] SEBL FY01 (parentheses indicate a negative number): 255M GAAP net income as reported + ( 54)M tax benefit from exercise of options = 201M net income excluding tax benefit (Calculated - C) + (722)M after-tax impact of SFAS 123 (using Black-Sholes) = (521)M net income incl. SFAS 123 & excl. tax benefit (C) So including the after-tax effect of option grant (SFAS 123), and excluding the after-tax effect of option exercise (tax benefit), the reported GAAP net income is reduced by $766 million. Wow! That is a 300% decrease. No need to mess with the effective tax rate. We are given the after-tax numbers. Employee stock exercise compensation: $53.8M tax benefit from option exercise / 37% effective tax rate = $145M employee stock exercise compensation (C) / 20.6M shares exercised = $ 7.06 intrinsic value per average share (C) + $ 5.25 exercise price per ave. weighted share = $ 12.31 market price ave. on exercise date (C) [edit: Huey subsequently and rightfully pointed out that $12.31 cannot be correct. ($12.24 was the lowest stock price during 2001.) The error in the above has not been found.] Numbers followed by (C) are calculated, others are from SEBL FY01 10-K. Numbers read from Excel spreadsheet, so there may be some rounding errors. Intrinsic value per option share = market price - exercise price Huey, your after-tax, and pre-tax (if it exists), option grant expense using SFAS 123 look OK imho. So the only place you ran into trouble is in your stock exercise expense calculations starting with the tax benefit. Ron

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