KAI » Topics » Stock-Based Compensation

This excerpt taken from the KAI 10-K filed Mar 10, 2009.

Stock-Based Compensation

The Company recognizes compensation cost for all share-based payments to employees based on the grant date estimate of fair value for those awards. The Company uses the Black-Scholes option-pricing model to determine fair value for option grants and the grant date trading price of the Company’s common stock to determine the fair value for restricted stock awards. Compensation expense is recognized ratably over the vesting period of the award.

These excerpts taken from the KAI 10-K filed Mar 11, 2008.

Stock-Based Compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB Opinion No. 25), and amends SFAS No. 95 “Statement of Cash Flows.” SFAS 123R requires all share-based payments to employees that are ultimately expected to vest and do actually vest, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to recognition of compensation expense in the income statement under SFAS 123R.

Effective January 1, 2006, the Company adopted SFAS 123R, using the modified prospective method. Under this method, beginning on January 1, 2006, the Company recognized compensation cost for all share-based payments to employees based on the grant date estimate of fair value for those awards. The Company uses the Black-Scholes option-pricing model to determine fair value for option grants and the grant date trading price of the Company’s common stock to determine the fair value for restricted stock awards. Compensation expense is recognized over the vesting period of the award. Prior-period financial information has not been restated for the adoption of SFAS 123R.

 

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Table of Contents

Kadant Inc.

2007 Financial Statements

Notes to Consolidated Financial Statements

 

1.    Nature of Operations and Summary of Significant Accounting Policies  (continued)

 

 

As a result of the adoption of SFAS 123R on January 1, 2006, the Company’s results of operations for 2007 and 2006 included incremental share-based pre-tax compensation expense related to stock options of $90,000 and $296,000, respectively. This incremental expense, net of related tax benefits, decreased basic and diluted earnings per share by less than $.01 in 2007 and $.01 in 2006. As of December 29, 2007, the Company had approximately $21,000 of unrecognized compensation cost related to stock option awards that will be recognized as expense in 2008. The total share-based compensation cost, including compensation expense associated with restricted stock and the employee stock purchase plan, was $1,796,000, $926,000, and $278,000 in 2007, 2006, and 2005, respectively, and is included in selling, general, and administrative expenses in the accompanying consolidated statement of income. The adoption of SFAS 123R in 2006 resulted in the inclusion in cash flows from financing activities of $2,946,000 and $2,529,000 of total tax benefits realized from stock options exercised during 2007 and 2006, respectively, that would have been reflected in cash flows from operating activities prior to the adoption of SFAS 123R.

For periods prior to the adoption of SFAS 123R, the Company elected to follow APB Opinion No. 25 and related interpretations to account for its stock-based compensation plans. For these prior periods, no stock-based employee compensation cost related to stock option awards is reflected in net income, as all options granted under the plans had an exercise price equal to the market price of the underlying common stock on the date of grant.

The following table illustrates the impact on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to the Company’s stock-based employee compensation for 2005.

 

(In thousands, except per share amounts)    2005  

Income from Continuing Operations

   $ 9,865  

Loss from Discontinued Operation

     (2,988 )
        

Net Income As Reported

     6,877  

Deduct: Total stock-based employee compensation expense determined under the fair-value-based method for all awards, net of tax

     (561 )
        

Pro Forma Net Income

   $ 6,316  
        

Basic Earnings per Share:

  

As reported:

  

Income from continuing operations

   $ .71  

Net income

   $ .50  

Pro forma:

  

Income from continuing operations

   $ .67  

Net income

   $ .46  

Diluted Earnings per Share:

  

As reported:

  

Income from continuing operations

   $ .70  

Net income

   $ .49  

Pro forma:

  

Income from continuing operations

   $ .66  

Net income

   $ .45  

 

F-12


Table of Contents

Kadant Inc.

2007 Financial Statements

Notes to Consolidated Financial Statements

 

1.    Nature of Operations and Summary of Significant Accounting Policies  (continued)

 

 

Stock-Based Compensation

On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation”
(SFAS 123), supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB Opinion No. 25), and amends SFAS No. 95 “Statement of Cash Flows.” SFAS 123R requires all
share-based payments to employees that are ultimately expected to vest and do actually vest, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously
permitted under SFAS 123 are no longer an alternative to recognition of compensation expense in the income statement under SFAS 123R.

SIZE="2">Effective January 1, 2006, the Company adopted SFAS 123R, using the modified prospective method. Under this method, beginning on January 1, 2006, the Company recognized compensation cost for all share-based payments to employees
based on the grant date estimate of fair value for those awards. The Company uses the Black-Scholes option-pricing model to determine fair value for option grants and the grant date trading price of the Company’s common stock to determine the
fair value for restricted stock awards. Compensation expense is recognized over the vesting period of the award. Prior-period financial information has not been restated for the adoption of SFAS 123R.

STYLE="margin-top:0px;margin-bottom:0px"> 


F-11







Table of Contents







Kadant Inc.

2007 Financial Statements

FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements

 



1.    Nature of Operations and Summary of Significant Accounting
Policies  (continued)

 

 


As a result of the adoption of SFAS 123R on January 1, 2006, the Company’s results of
operations for 2007 and 2006 included incremental share-based pre-tax compensation expense related to stock options of $90,000 and $296,000, respectively. This incremental expense, net of related tax benefits, decreased basic and diluted earnings
per share by less than $.01 in 2007 and $.01 in 2006. As of December 29, 2007, the Company had approximately $21,000 of unrecognized compensation cost related to stock option awards that will be recognized as expense in 2008. The total
share-based compensation cost, including compensation expense associated with restricted stock and the employee stock purchase plan, was $1,796,000, $926,000, and $278,000 in 2007, 2006, and 2005, respectively, and is included in selling, general,
and administrative expenses in the accompanying consolidated statement of income. The adoption of SFAS 123R in 2006 resulted in the inclusion in cash flows from financing activities of $2,946,000 and $2,529,000 of total tax benefits realized from
stock options exercised during 2007 and 2006, respectively, that would have been reflected in cash flows from operating activities prior to the adoption of SFAS 123R.

FACE="Times New Roman" SIZE="2">For periods prior to the adoption of SFAS 123R, the Company elected to follow APB Opinion No. 25 and related interpretations to account for its stock-based compensation plans. For these prior periods, no
stock-based employee compensation cost related to stock option awards is reflected in net income, as all options granted under the plans had an exercise price equal to the market price of the underlying common stock on the date of grant.


The following table illustrates the impact on net income and earnings per share as if the Company had applied the fair value recognition provisions of
SFAS 123 to the Company’s stock-based employee compensation for 2005.

 



















































































































































(In thousands, except per share amounts)  2005 

Income from Continuing Operations

  $9,865 

Loss from Discontinued Operation

   (2,988)
     

Net Income As Reported

   6,877 

Deduct: Total stock-based employee compensation expense determined under the fair-value-based method for all awards, net of
tax

   (561)
     

Pro Forma Net Income

  $6,316 
     

Basic Earnings per Share:

  

As reported:

  

Income from continuing operations

  $.71 

Net income

  $.50 

Pro forma:

  

Income from continuing operations

  $.67 

Net income

  $.46 

Diluted Earnings per Share:

  

As reported:

  

Income from continuing operations

  $.70 

Net income

  $.49 

Pro forma:

  

Income from continuing operations

  $.66 

Net income

  $.45 

 


F-12







Table of Contents







Kadant Inc.

2007 Financial Statements

FACE="Times New Roman" SIZE="2">Notes to Consolidated Financial Statements

 



1.    Nature of Operations and Summary of Significant Accounting
Policies  (continued)

 

 


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