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existing stock pricing models.
Anheuser-Busch prepares its accounts in compliance with U.S. GAAP. In its
Comment Letter, the company opposes the proposal to include employee stockbased compensation expense in the income statement since all necessary
information is provided in the notes to financial statements. Following this
statement, in the “Summary of the Significant Accounting Principles and
Policies” of the annual report for year 2001, the company states that it accounts
for employee stock option expense in accordance with APB 25, 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.
74 Following the requirements of SFAS 123, in Note 5 to the financial statements
of the annual report in 2001, the company provides pro forma effects the stock
options would have on the income statement had the employee stock-based
compensation expense been recognized using the fair value based method. The
difference between reported net incomes is quite considerable. Under APB 25,
net income amounted to 1,704 million USD, while if the company recorded
stock-based compensation expense using the fair value based method net
income would be 1,635 million USD. In order to estimate the fair value of
options granted, Anheuser-Busch uses the modified Black-Scholes option
pricing model. The company emphasizes that it calculated the weighted
average fair value of stock options granted applying the Black-Scholes model
for SFAS 123 disclosure purposes. However, in reality, as company’s
employee stock options are not traded on an exchange, employees cannot
derive any value from holding these plans unless there is an increase in market
price of Anheuser-Busch stock.
4.5.3 SunTrust Banks, Inc.
SunTrust B anks', I nc. ( SunTrust) f inancial s tatements a re p repared i n
accordance with U.S. GAAP. With regard to accounting for employee stockbased compensation expense, it follows the provisions of APB 25, i.e., the
company does not recognize compensation cost in accounting for its stock
option plans. In the notes to the financial statements SunTrust provides
disclosure of the pro forma effects of using fair value based method to account
for stock-based compensation expense as required by SFAS 123. In the year
2000 the reported income of SunTrust amounted to 1,294 million USD. The
pro forma net income would be 1,281 million USD. The weighted average
value of options granted was calculated using the Black-Scholes option pricing
model with modified assumptions.
Nokia Group’s accounts are prepared in accordance with Finnish Accounting
Standards. In its Comment Letter, Nokia strongly opposed the proposal of
including e m ployee s tock-based c om pensation e xpense i n t he i ncom e
statement. Hence, in its Annual Report 2001 in the notes to financial statements
Nokia provides extensive disclosure with regard to the issued stock option
plans. It states the number of issued stock options, the categories the stock
options are divided within the company, the subscription price of stock options,
the number of stock options granted, exercised and forfeited. The company
does not, however, provide any pro forma effects the stock option plans would 75 have on company’s financial statements if they were measured at their fair
value and shown as an expense in the income statement.
4.5.5 UBS Warburg Group
UBS Warburg Group financial statements are prepared in accordance with
International Accounting Standards (IAS). Since UBS Warburg is also listed in
the United States it provides a description in notes to financial statements of all
the significant differences, which would arise if the annual accounts were
presented in accordance withU.S.GAAP.
Even though, in the Comment Letter UBS Warburg agreed with the proposal to
measure employee stock-based compensation expense at the fair value, under
IAS the company records the stock-based compensation expense using the
intrinsic value based method. In the 2001 annual report in the notes to financial
statements, the company provides a wide disclosure of the share-based
compensation plans offered to employees. The information provided includes
the number of stock option plans granted and weighted average purchase price.
As mentioned earlier, the company presents the major differences which would
arise if the financial statements were prepared underU.S.GAAP. Further, in its
notes, UBS Warburg gives the pro forma net income and earnings per share as
if the company had adopted fair value based method of accounting for stockbased compensation expense.
4.5.6 The Coca-Cola Company
The Coca-Cola Company (Coca-Cola) strongly opposed the Exposure Draft
“Accounting for Stock-Based Compensation” in 1993 underlining the main
reason for such position – a lack of reliable and objective method for
recognition of compensation costs. However, ten years later Coca-Cola is
among the first companies which started to expense employee stock-based
compensation plans, using a fair v...
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This document was uploaded on 10/31/2013.
- Fall '13