The one you showed in your example is by far the less commonly used - most companies just use a modified straight line approach.
I thought my example was the straight line approach. Am I correct?
Two other vesting schedule examples are: (1) 50% after the first year, and then an additional 25% per year for the next two years, or (2) 25% per year for the first two years, and then the remaining 50% after the third year. Wouldn't the "modified straight line" approach be applied to both of these? Would (1) use a straight line over 2 years (to get 50% coverage after the 1st year)? Would (2) use a straight line over 3 years (to get 100% coverage after 3 years)?
... because options expire shortly after an optionee leaves the company ...
I think employees, vested in many option shares which are underwater, will be staying with their company longer than they did when their options were profitable.
BTW, I exercised my last option on the very last day of the 10th year .. partly because they were underwater a large part of the time.
FAS 123 allows for true-up for forfeitures prior to vest ...
Other than something like SEBL's "Forfeiture of stock options issued below fair value", I have not seen "forfeitures" in a company's 10-K. Is forfeitures the same as "canceled" options, or is it more complicated than that?
If you use an exercise-date approach (presumably estimated and trued-up each quarter as is done with variable accounting), then the numbers will be "correct" but ...
Are you assuming "trued-up" here to mean re forfeitures, AND stock price, AND volatility?
I don't understand this need to "true-up" in corporate accounting.
For example, as a naked call writer, the option value becomes cash inflow to me when I write the call. Should the option be exercised, I must buy the stock in the market place. My net cash outflow upon exercise is the intrinsic value (stock price minus strike price) value of the option.
Simple. Do we complicate things by going back and modifying the accounting for the call-write, based on the results of the exercise? Not AFAIK.
The employee stock option scenario differs in only two, although important, respects. First, the employee does not "buy" the option at grant. Secondly, the company does not "buy" the stock .. it merely prints stock certificates. So why complicate things by "truing-up"?
Thanks for your reply.
Ron
P.S. For example (1) vesting schedule the amortization would be $72 = $24*(1 + 1 + 1/2 + 1/2) for the 1st year, and $24 = $24*(1/2 + 1/2) for the 2nd.
For example (2) the amortization would be $58.67 = $24*(1 + 1/2 + 1/3)*4/3 for the 1st year, and $26.67 = $24(1/2 + 1/3)*4/3 for the 2nd, and $10.67 = $24*(1/3)*4/3 for the 3rd.
Do these numbers make sense to you? |
