I used to think expensing options would leave stockholders' equity unchanged. How can it increase stockholders' equity?
Case in point: Microsoft restated results for FY2002 and FY2003 as if expensing became effective with the effective date of FASB SFAS 123 (circa 1995). Note that restated Stockholders' Equity for FY2003 was then $64.9 billion as opposed to the original $61.0 billion. How is this possible?
Thanks in advance, Ron
Details below:
MICROSOFT'S STOCKHOLDERS’ EQUITY STATEMENTS
(In millions)
Year Ended June 30 2002 2003 2002 2003
Common stock and paid-in capital ----Original--- ---Restated----
Balance, beginning of period $28,390 $31,647 $28,390 $41,845
Cumulative SFAS 123 retroactive adj. 0 0 6,560 0
Common stock issued 1,801 3,012 1,655 2,966
Common stock repurchased (676) (691) (676) (691)
Repurchases of put warrants 0 0 0 0
Stock-based compensation expense 0 0 3,784 3,749
Stock option income tax benefits 1,596 1,376 1,596 1,365
Other, net 536 0 536 0
Balance, end of period 31,647 35,344 41,845 49,234
Retained earnings
Balance, beginning of period 18,899 20,533 18,899 12,997
Cumulative SFAS 123 retroactive adj. 0 0 (5,062) 0
Net income 7,829 9,993 5,355 7,531
Other comprehensive income:
Cumulative effect of acc'ting change 0 0 0 0
Net gains/(losses) on derivatives (91) (102) (91) (102)
Net unrealized investment gains 5 1,243 5 1,243
Translation adjustments and other 82 116 82 116
Comprehensive income 7,825 11,250 5,351 8,788
Common stock repurchased (6,191) (5,250) (6,191) (5,250)
Common stock dividends 0 (857) 0 (857)
Balance, end of period 20,533 25,676 12,997 15,678
Total stockholders’ equity $52,180 $61,020 $54,842 64,912
June 30, 2002 and 2003 stockholders’ equity statements have been restated for retroactive adoption of the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, as discussed in Note 13.
The only two mentions of "restatement" in the 2003 annual report -- of which one is part of Note 13 -- are ...
"In addition, effective July 1, 2003, we adopted the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, using the retroactive restatement method described in SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure. Under the fair value recognition provisions of SFAS 123, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. The June 30, 2003 balance sheet has been restated for the retroactive adoption of the fair value recognition provisions of SFAS 123, which resulted in a $13.89 billion increase in common stock and paid-in capital, a $10.00 billion decrease in retained earnings, and a $3.89 billion increase in deferred income taxes."
... AND ...
"Effective July 1, 2003, we adopted the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, using the retroactive restatement method described in SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure. Under the fair value recognition provisions of SFAS 123, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. In connection with the use of the retroactive restatement method, income statement amounts have been restated for fiscal 2002 and 2003 to reflect results as if the fair-value method of SFAS 123 had been applied from its original effective date. Total compensation cost recognized in income for stock-based employee compensation awards was $3.78 billion in fiscal 2002, $3.75 billion in fiscal 2003, and $5.73 billion in fiscal 2004. The amounts for fiscal 2004 include $2.21 billion ($1.48 billion after-tax or $0.14 per diluted share) due to the completion of the employee stock option transfer program."
Respectively, the links to the 2004 and 2003 10-Ks are ...
sec.gov
sec.gov |
