Britt,
Here is some of the information you asked for about (1)Stock option compensation expense and (2)Treatment of options as outstanding shares.
First, under existing rules, companies are required to report as compensation expense only the intrinsic value of options. Thus, if options are granted at fair market value, no expense is recognized. Under SFAS No. 123, which becomes effective for fiscal years ending December 31, 1996, and after, companies are required to *disclose* net income and earnings per share using Black-Scholes or binomial valuation methods. They are still permitted to report earnings using the old rules. When Microsoft's 10-K comes out this year (due by September 28 (or the next Monday if 9/28 is a weekend day), they will be required to disclose this information for all to see for both the June 30, 1996, and June 30, 1995, fiscal years. You can already see this disclosure in the notes to the financial statements for calendar year-end companies.
With respect to the inclusion or exclusion of options from shares outstanding, all in-the-money options are treated as part of both primary and fully diluted EPS (the calculation differs slightly, but I won't get into it.) The actual dilution for each option is 1 share, less any portion of shares repurchasable by the option proceeds. Thus, if the strike price is half the period-end price, the dilution is 0.5 shares and is added to the denominator of the EPS calculation. Effective for calendar 1997 fiscal years, the EPS presentation is changed to "basic" and "diluted" EPS. The new basic EPS number will, if I recall correctly, exclude all common share equivalents. This number is already supposed to be disclosed on a pro forma basis in the 10-Q's that have been filed for this year.
Regards,
Winston |
