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

To: rkral who wrote (191)	8/15/2002 10:47:31 PM
From: Exacctnt	Read Replies (3) \| Respond to of 786

<<<So before-tax option expenses were nearly 60% of sales. That's the worst I've seen yet.>>> Upon looking over ELON's Form 10-K, I find it interesting if you check the numbers that they use to arrive at option expense, you'll find that the year 2000's grant of 1.8M shares was issued at an average weighted price at $33.63. The fair value price for that year was $27.20. The expected life was 4.2 years. Compiling the option expense for that grant gives you a cost of $48.9Million. (1.8M shares times $27.20 fair value). Divide that by 4.2 years gives you an annual expense of $11.7Million just for that grant. The problem with that calculation and the problem with SFAS 123 and Black Scholes is that the year 2000 grant assumes that within 4.2 years, from the time of issuance, the market price of ELON shares will reach $60.83. ($33.63 grant price plus $27.20 fair value price). The price of ELON's shares has tanked since the year 2000 grant, however, SFAS 123 does not allow any adjustments to the original calculation to reflect market price swings. Unless some adjustments to SFAS 123 are made, in the interest of accuracy, it doesn't make sense to expense options on the income statement if it continues to distort the earnings of the company.