<--Ot-->Paul,I think I found you an ally for your 'option' thing.
Source:PRNewswire/via bloomberg
GREENSPAN & FEDERAL RESERVE IMPACT: EMPLOYEE STOCK OPTIONS, LONG
Term Capital,
Microsoft, Cisco Systems, Dell, Levitt and SEC
PORTLAND, Ore., Nov. 17 /PRNewswire/ -- Parish & Company today announces a new service designed to help investors evaluate the impact of interest rate and accounting policy changes. A simple yet content rich excel worksheet based upon SEC 10K filings and related summary information are now available free of charge at www.billparish.com.
When the Federal Reserve meets today they most likely examine a variety of pure accounting issues, including the implications surrounding certain derivative based accounting practices used at leading technology companies. These include the use of the Black Scholes option pricing model to value stock option commitments made to employees. A primary architect of this model is the Nobel Prize winning economist Myron Scholes who is also a partner in the Long-Term Capital Hedge fund.
Both the Long Term Capital Hedge fund and this stock option accounting model rely on general economic assumptions, including specifying expected interest rates and their related volatility. They do not, however, recognize the difference between the current market price of the stock and the average exercise price nor the percent of shares that are currently exercisable.
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Most unusual about stock options is that employees pay the tax when the option is exercised. This tax is the difference between the market price and exercise price of the stock. The company is able to take a deduction for this amount on its tax return, calling it compensation expense, yet this expense is not reflected on the income statement. The remaining liability is similarly not disclosed in the liability section of the balance sheet since the Black Scholes model is currently a footnote only disclosure.
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