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The company prepares its financial statements in compliance with U.S. GAAP.
The company discloses in Note 12 “Restricted Stock, Stock Options and Other
Stock Plans” of the annual report for year 2001 that Coca-Cola accounts for the
employee stock-based compensation according to Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees” and related
Interpretations in accounting for employee stock-based compensation plans
under which the company does not record any expense related to employee
stock options in the income statement as options are always granted at a price
equal to the market price on the grant date (www2.coca- cola.com/investors/
annualreport/2001/ pdf/ko_ar_2001_financials_ section.pdf).
76 Coca-Cola provides pro forma effects that employee stock options would have
on the income statement if the company had adopted the fair value based
method for measuring stock-based compensation costs. The difference between
reported net income and after the impact of applying SFAS 123 is significant
and amounted to 0,202 million USD as of December 31, 2001. Under APB 25
net income amounted to 3,969 million USD, while if the company recorded
stock-based compensation expense using the fair value based method net
income would be 3,767 million USD.
In July 2002, Coca Cola announced that it would expense the cost of all stock
options the company grants, beginning with options to be granted in the fourth
quarter 2002. Doug Daft, chairman and chief executive officer, described some
reasons for such decision: "Our management's determination to change to the
preferred method of accounting for employee stock options ensures that our
earnings will more clearly reflect economic reality when all compensation costs
are r ecorded i n t he f inancial s tatements".(http://www2.cocacola.com/presscenter/nr_20020714_atlanta_ stock_ options.html).
The company decided to adopt the fair value based method of recording stock
options contained in SFAS 123, which is considered the preferable accounting
method for stock-based employee compensation. All future employee stock
option grants will be expensed over the stock option vesting period based on
the fair value at the date the options are granted. The company expects minimal
financial impact in the current year from the adoption of this accounting
methodology. If the Board of Directors grants options in 2002 at a similar level
to 2001, the expected impact would be approximately $0.01 per share for 2002.
Coca-Cola underlines that an important advantage of the expensing policy that
the company is adopting is that it puts the various forms of options on an equal
accounting footing, eliminating any bias that may have existed to issue the kind
that do not need to be expensed. With this new policy, the company will be
able to design whatever kind of options it believes will both best motivate
employees and more align their interests with those of share owners, without
regard for the options' accounting effects. The policy also puts options on an
equal footing with other kinds of compensation and should allow the company
to design compensation packages that make optimum sense (http://www2.cocacola.com/presscenter/nr_20020714_atlanta_stock_options.html). 4.5.7 Merrill Lynch & Co., Inc. 77 Merrill Lynch & Co., Inc. (Merrill Lynch) is among the majority of companies
which o pposed t he E xposure D raft “ Accounting f or S tock-Based
Compensation” in 1993 and still does not agree with accounting for employee
stock-based compensation plans using the fair value based method. The
company states that there is no objective method to estimate the fair value of
employee stock options.
Merrill Lynch accounts for employee stock-based compensation in accordance
with the intrinsic value-based method in APB 25, rather than the fair valuebased method in SFAS 123. Compensation expense for stock options is not
recognized since Merrill Lynch grants stock options with no intrinsic value.
Compensation expense related to other stock-based compensation plans is
recognized over the vesting period. The unamortized portion of the grant value
for s uch p lans i s r eflected a s a r eduction o f S tockholders' E quity i n
Unamortized employee stock grants on the Consolidated Balance Sheets.
Pro forma compensation expense associated with option grants is recognized
over the vesting period. Merrill Lynch discloses the difference between the
reported net earnings (loss) and net earnings (loss) after applying SFAS 123,
which amounts to 854 million U.S. dollars. Under APB 25, net earnings
amounted to 573 million USD, while if the company recorded stock-based
compensation expense using fair value based method net earnings (loss) would
be (281) million USD.
4.5.8 Intel Corporation
In 1993 Intel Corporation opposed the Exposure Draft “Accounting for StockBased Compensation”. The company still disagrees with the suggestion to
expense the employee stock-based compensation plans and follows APB 25 in
accounting for its employee stock options because the alternative fair value
accounting provided for under SFAS 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the company's employee stoc...
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This document was uploaded on 10/31/2013.
- Fall '13