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Intel Corporation Message Board

  • ls0905 ls0905 Jul 13, 2002 7:37 PM Flag

    Expensing Options.

    Some people want to expense options according to Black Scholes formula at the time they are granted.... If this were to happen would companies be taking gains on their income statements when their stock went down. Thats the only way it would make sense.... In addition to that you would have to depreciate the time value quarter by quarter as well.

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    • Just curious.

      My simple-minded understanding of the proposed options expensing is different.

      The expense would be incurred at the time of exercise, not granting. The amount of the expense would be the spread, as the company receives cash for the exercise cost. [Spread is the market value less exercise cost at the close of trading that day.] Yes, the company and the shareholders have a net cash inflow, when stock options are exercised, at least up to the exercise price.

      So, I do not think that there is any need for ongoing options valuation. That would be psycho.

      One nice possibility would be removing the spread from individual AMT on that year's personal income taxes. This would save the employee's from paying humungous taxes on a negative cash flow transaction. Taxation should wait until the shares are sold, not just acquired.

      That's my current thinking.



      • 1 Reply to the_nervous_resistor
      • I may be wrong, but I dont see how Accounting principals would allow for expensing options in that manner. The way they are shown in companies 10K at this point are as a value of black scholes. Expensing them at the time of excercise, rather than the time of grant would be like not paying an inheritance tax on stocks until you sell rather than at the time of death. The price of excercise I believe is the way S&P is figuring now, but not what regulators are proposing... either way, Im not sure the government has the power to set accounting principles... I like the NYSE plan of voting on officer compensation. I also dont think it would be a bad idea if officers were regulated in the % of their holdings they were permitted to sell in a given year... Maybe if they were only allowed to sell 1 or 2% of their holdings while employed at the company per year they wouldnt mortgage the long term prospects of the company for short term gains.

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