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Unformatted text preview: ust of existing stock pricing models. 4.5.2 Anheuser-Busch 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. 4.5.4 Nokia 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.

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