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Biotech / Medical : Sepracor-Looks very promising -- Ignore unavailable to you. Want to Upgrade?

To: Biomaven who wrote (6040)	6/18/2002 9:51:49 AM
From: Rocky9	Respond to of 10280

"Is that really a number you want folded into reported earnings?" I want something folded into reported earnings. Is depreciation really much better? It's an estimate that is adjusted later upon sale or other disposition. Why not do the same with options? The alternative is wait until exercise and treat as treated for taxes (with seems to be more disruptive to the actual current results). In the case of the repricing for SEPR, as long as officers are not included, it does not bother me much. It also is unknown whether much value will be given (since it depends on next January's price). I know that it is wishful thinking, but the price may be higher than the 18 minimum conversion price.

To: Biomaven who wrote (6040)	6/18/2002 9:15:28 PM
From: Londo	Respond to of 10280

<OT> (relating to option accounting) My quote: once they implement proper* expense accounting of options* I agree that using black-scholes to determine the value of options priced 10 years out is complete garbage. However, if a company can pay less tax upon the exercise of in the money options, why can't this be reflected on the income statement? It's more or less a fair statement of how much money has been extracted from the shareholders. Just book it directly to stockholder's equity. Anybody that can't sort the cash and non-cash charges on an income statement will be baffled anyway. (soapbox mode)Going on an even longer rant, here's how I think options should be valued.. yes, I know I said using black-scholes to value long-term options is garbage.. 1) Upon initial grant, deduct black-scholes value of options from the income statement as they vest. On the balance sheet, debit it from stockholder's equity. 2) If said options expire, add black-scholes value of vested option grant to the income statement, and on the balance sheet, credit stockholder's equity. 3) If said options are exercised, add the difference of the black-scholes value of option grant minus the difference between the market value upon exercise minus strike price of option to the income statement. Debit/credit corresponding change to the balance sheet. e.g. SEPR hires a guy, and gives him 1000 options to buy SEPR common at 10 bucks, expiring in 10 years, 25% vests per year. Black scholes value on 1000 options = (roughly) $8000. For the first 4 years, deduct $2000 off the income statement. Let's pretend after two years, the guy quits, and SEPR is trading at $30/share. The guy exercises his 500 vested options. SEPR will record a $6000 loss. (+$4000 for the black scholes value of the vested options, and -$10000 for the difference between the market value of SEPR vs. the exercise price). Note that the unvested options are not expensed yet. If SEPR was trading at $15/share, SEPR would book a $1500 gain once the guy quit and exercised his options. Note that (as you observe) that using this system will enable net credits if options are terminated or exercised at a market price that is less than the black scholes value. But this is probably the only way to expense options on the income statement that keeps it aligned with the effective taxable income the company has to pay to the IRS. An investor would have the responsibility to make the appropriate allocations in his/her valuation calculations, just like when we all had to back in the days when goodwill was deducted on a quarterly basis. Anyway, I'm a physics guy and not an accountant, so feel free to blast away.

To: Biomaven who wrote (6040)	6/20/2002 4:57:09 PM
From: rkral	Read Replies (2) \| Respond to of 10280

Repricing of employee stock options I've been following your discussion of repricing. I have no experience with it, so can't really add to that topic. However, as to your objections to the "fair value method" of SFAS 123: What is so difficult about estimating volatility and option life? As to volatility, why can't you just use the historical volatility for the stock prices for the last 5 years? No estimating required. Do accountants really think they can guess better for the next 5 years .. than what history has showed them to be true for the last 5 years? Or is this an opportunity to understate the grant expense by low-balling the volatility estimate? As to option life, why estimate that? Why not just use the contract interval? (That would be time interval between the grant date and the expiration date, I think.) Or is this yet another opportunity to understate the grant expense? A 9-month option on the open market isn't priced as if it were a 3-month option. There is additional time value for those last 6-months. That additional value should be included in the option premium, should it not? Using an estimated option life of 3 years (for example) when the grant-to-expiration term is 9 years seems like the same thing to me. Ron P.S. Biomaven, David Howe, John Metcalf, Londo, Michael Young, rkrw, Rocky 9, and any and all interested posters ... I've started a new "Employee Stock Options - NQSOs & ISOs" thread at Subject 53027. Please stop by and at least post a "hello".