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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: hueyone who wrote (119894)	6/5/2002 12:31:53 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 152472

Hueyone (& Stu & Ron) yes careless of me in choice of language. What did I mean? Start with example. Let's say a company issued 10 M stock options some time in the past at $0.01 and these were all exercised today at $10.01 market price. That would end up as a hundred million dollars of ACTUAL compensation in the pockets of employees. Which the IRS would tax. The company would declare that full 100 M$ ACTUAL amount as a non-cash cost as a cost of providing an Employee Stock Option Benefit, and if their tax rate was 32% they would be entitled to pay 32 M$ less in taxes than they otherwise would have to pay. This shows up as a credit to cash flow (they reserve the uncredited amount of taxes in their income statement) under a variety of headings. Some companies put all this under cash flow from financing. Some put the tax credit under cash flow from operations. Some declare it explicitly, some bury it in an obscure "tax effects" line. And that's pretty much the whole picture. Maybe I've used the wrong labels for things but hopefully someone can follow along. So when I wrote "Stock Option Compensation Tax Benefit equal to the ACTUAL stock option cost...", I meant that the amount they declare as cost to the IRS is this ACTUAL cost, versus any number of other hypothetical costs or cost estimates. Versus estimated costs on grant. To be specific, it is the difference between market price and exercise price. Hence, Ron, my assertion that the IRS agrees with the use of ACTUAL cost versus Black Scholes or FASB 123 reported pro-forma amounts... And which ACTUAL cost is the cost to shareholders and the root of the Shannon Computation. Hopefully this clears up my unfortunately careless use of the language. John.