Crash Course in Accounting and Financial Statement Analysis, Second Edition

. . . and Now

Beginning after January 1, 2006, the Financial Accounting Standards Board (FASB) has required companies to expense stock options using the fair value method. Under this approach, compensation expense is measured by the fair value of stock options on their grant date and is recognized over their vesting period (see Advanced Discussion box).

The fair value of stock options is estimated using an option-pricing model, and its underlying assumptions are disclosed in footnotes of the companies’ 10-K (Exhibit A.2).

Exhibit A.2. Underlying Assumptions Used to Derive the Fair Value of Stock Options are Disclosed in the Footnotes of the Companies’ 10-K

On February 1,2003, the Company adopted the expense recognition provisions of Statement of Financial Accounting Standards No. 123 (“SFAS 123”), restating results for prior periods. In December 2004, the Financial Accounting Standards Board issued a revision of SFAS 123 (“SFAS 123(R)”). The Company adopted the provisions of SFAS 123(R) upon its release. The adoption of SFAS 123(R) did not have a material impact on our results of operations, financial position or cash flows. All share-based compensation is accounted for hi accordance with the fair-value based method of SFAS 123(R). The Company’s Stock Incentive Plan of 2005 (the “Plan”), which is shareholder-approved, permits the grant of stock options, restricted (non-vested) stock and performance share compensation awards to its associates for up to 210 million shares of common ...