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only one-half of their Black-Scholes value, here, we are not
dealing with companies in general. We are examining a group of
companies that are comparable to Menards, and Dr. Hakala should
have focused his valuation on those companies. After rejecting
the 50-percent discount for the foregoing reasons, the record
leaves us with no alternative but to move on to our review of the
3-year moving average.
Though intended to justify the 3-year moving average, Dr.
Hakala’s report and trial testimony establish only that the
options’ values should be prorated over the options’ vesting
periods. At trial, Dr. Hakala explained that he based the 3-year
moving average on the recommendation in SFAS No. 123 to prorate
over the vesting period, and, in his report, he stated that the
3-year moving average was “in line with the vesting schedules
underlying the options.” Ignoring the obvious chronological
inconsistency in the latter justification, a 3-year moving
average of options awarded in TYE 1996, TYE 1997, and TYE 1998 is
still quite different from prorating the stock options’ values
over the vesting period. As noted by petitioners, a 3-year
moving average combines potentially less successful previous
years with the TYE 1998 options’ values. Furthermore, the 3-year
moving average does not treat the options as only partially
vested in the first year. In the absence of evidence to
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