HOG » Topics » Stock Option Accounting

This excerpt taken from the HOG 8-K filed Jan 19, 2006.

Stock Option Accounting

On January 1, 2005, the Company began recognizing expense related to its employee stock option awards before the required implementation date of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 as revised in 2004. The Company accounted for these stock options as equity instruments. However, SFAS No. 123 (revised 2004) requires that stock options that may be settled for cash instead of stock at the election of the holder upon the occurrence of a change in control event be accounted for as a liability regardless of the probability of the change in control event occurring.

The Company recently became aware of the applicability of the contingent cash settlement feature of SFAS No. 123 (revised 2004) to its employee stock compensation plans. Had the Company used the liability method to account for stock option awards during 2005, operating income would have increased by $37.8 million. Accordingly, income before accounting changes net of tax would have been $983.0 million for the year, an increase of $23.4 million compared to the Company’s reported amount of $959.6 million. In addition, on the January 1, 2005 adoption date of this accounting method, the Company would have recorded a cumulative charge to income of $120.9 million or $74.8 million net of tax for its adoption of the liability method.

On January 11, 2006, FASB voted to seek public comment on a proposed FASB Staff Position (FSP) to require companies to classify employee stock options with contingent cash settlement features as equity awards provided the contingent event, such as a change in control event, is not considered probable of occurring. This classification would be consistent with the amounts reported with respect to outstanding stock options in connection with the Company’s original adoption of SFAS No. 123 (revised 2004) on January 1, 2005, and in subsequent interim periods.

The Company believes that the proposed FSP is a strong indication that classification of its stock option awards as equity instruments will be appropriate upon finalization of the FSP. As a result, all financial data reported in this press release is presented on a U.S. GAAP basis adjusted for the anticipated ratification of the proposed FSP. In the event the FSP is not finalized as expected, the Company will reflect such effects on the year and the quarters in its annual report and 10-K filing for the year ended December 31, 2005.

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This excerpt taken from the HOG 8-K filed Apr 13, 2005.

Stock Option Accounting

        On January 1, 2005 the Company adopted new accounting rules requiring it to recognize expense related to the fair value of its employee stock option awards. Total stock compensation expense recognized by the Company during the first quarter of 2005 was $7.0 million.

This excerpt taken from the HOG 8-K filed Jan 24, 2005.

Stock Option Accounting

        In December 2004, the Financial Accounting Standards Board issued new rules requiring companies to recognize the expense of stock option grants in their income statements. Although the new rules are not effective until the Company’s third quarter of 2005, the Company will implement this change in accounting as of January 1, 2005. If the Company had elected to expense stock options in 2004 under the new standard, the effect would have been a $22.5 million pretax charge. The Company expects a similar charge in 2005.

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