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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: Stock Farmer who wrote (58)	6/16/2002 5:06:53 PM
From: rkral	Read Replies (1) \| Respond to of 786

my knowledge of the intrinsic value method is nil Sorry about that misleading statement. I just didn't want to go there. Of course I know what the intrinsic value method is. I also know that most companies choose it because the intrinsic value of an option on the grant date is usually zero. If not zero, then a lot smaller than the number obtained from the fair value method. My 'nil' was actually a reference to the fact that it is impossible to determine the probable amortization schedule used for the stock-based option expenses .. when the amount being amortized is $0. Whereas this is not the case for the fair value method, it is possible to determine, e.g., for QCOM and SEBL, that the amortization schedules probably match the vesting schedules (6 years and 5 years, respectively) of their option plans. As such, the first fractional amortization amount occurs in the year following the grant. (An annual linear vesting schedule was assumed.) Furthermore, the amount so calculated, presumed to be a before-tax amount, is a "best match" when compared to each company's FASB SFAS 123 reported after-tax compensation expense .. WITHOUT making a correction using the effective tax rate. This implies that the SFAS 123 compensation expenses are not reported to the IRS imho. Example results for QCOM: Year---------Reported Cost--------Calculated Cost 1999---------$52M-----------------$75M 2000---------$100M----------------$98M 2001---------$167M----------------$175M Ron P.S. That the amortization schedules for the intrinsic value and fair value methods would be the same is a logical guess, but I have no evidence to support that.