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

To: Exacctnt who wrote (217)	8/18/2002 11:23:54 PM
From: LLCF	Read Replies (1) \| Respond to of 786

<Black Scholes is the method used to determine the fair value price or expense of the option. It is not the only method out there. Coke, for instance, said it will use independent parties to come up with a fair value of its granted options. Once fair value is determined, SFAS 123 is FASB's statement on how it is to be accounted.> B/S, binomial... it doesn't really matter... they're ALL based on BS work and as long as it's consistant they are very close. Some methods are preferred for longer term, european, or in the money puts, etc... those independant parties all use the same stuff. <When market prices fluctuate wildly or when a company's business outlook changes dramatically, the amounts expensed at the grant date can be wildly off the mark.> Yes, as can sales expectations, inventory valuations, debt convenants, pension assumptions, Accts recievable values & expected non payments, equity holdings in various parially held entities, on and on and on... what's the point? <<Another example of overkill on option expense. Looking over NTAP's Form 10-k shows the fair value price of options granted in 2000, 2001, and 2002 at $13.98, $26.84, and $10.03. The options expected life are 3.2, 3.21, and 3.33 years. NTAP's current market price is $9.17. It's leap call options at $10 strike price for 2003, 2004 and 2005 are currently trading at $1.88, $3.40, and $4.20. Under FASB's SFAS 123, NTAP will be recording the original fair value price over the expected life of the options regardless of the current market price of the stock. > This is all water under the bridge... like saying that jeez, our pension lost 1/2 it's value... shit all those years of earnings are wiped out by our pension obligation... so what??? You do the best you can... NOT EXPENSING OPTIONS IS NOT THE BEST YOU CAN... it's the worst you can. As I said... SFAS 123 is probably shit, I haven't read it... NTAP should be able to now deduct the value of the decay in the options back reducing it's salary expense [or better yet, have two accounts here... employee cash expenses, and options expenses] for the next year. What else can you do??? Listen... these huge options grants tell analysts ALOT about the company... how valuable employees are, etc. One thing I LOVED about the CFA program is how they looked at accounting from the analysts perspective to make it easier to analyse what's happening instead of easier for the accountants... IMO it's tough luck, but it's easier for an analyst to see this spelled out... An analyst can look and say... OH, they gave Steve Jobs $30 million in restricted options to get him on board... that's 10% of salary expense, OK, I'm OK with that. I don't understand why accountants are worried that the companies are going to 'look bad'... dAK

To: Exacctnt who wrote (217)	8/19/2002 12:01:58 AM
From: jt101	Read Replies (1) \| Respond to of 786

<<<Another example of overkill on option expense. Looking over NTAP's Form 10-k shows the fair value price of options granted in 2000, 2001, and 2002 at $13.98, $26.84, and $10.03. The options expected life are 3.2, 3.21, and 3.33 years. NTAP's current market price is $9.17. It's leap call options at $10 strike price for 2003, 2004 and 2005 are currently trading at $1.88, $3.40, and $4.20. Under FASB's SFAS 123, NTAP will be recording the original fair value price over the expected life of the options regardless of the current market price of the stock.>>> This is just an illustrattion, not particularly directed at you. Suppose I bought leap calls at strike price $10 for 2004, on Friday 08/16/2002 for $3.40. Say on Friday 08/15/2003, NTAP stock is at $8/- and the call premium at strike $10 for 2004 is $2.0 ;; If on 08/15/2003 I call the person who sold me the calls and tell him, the real cost of the calls I bought is only $2.0 and he should return me the difference $1.40, believe me he won't return me a single penny... It is as simple as that, IMHO... Even as of 08/15/2003, the cost/expenses incurred by me in this scenario is $3.4 not $2/-