This excerpt taken from the RHT 10-Q filed Jul 11, 2005.
The Company accounts for stock-based compensation based on the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), which states that no compensation expense is recorded for stock options or other stock-based awards to employees that are granted with an exercise price equal to or above the market value per share of the Companys common stock on the grant date. When the exercise price is less than market value, deferred compensation is recorded for the difference and is amortized to compensation expense over the vesting period of the stock option.
SFAS No. 123, Accounting for Stock-Based Compensation(SFAS 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure an Amendment of FASB Statement No. 123 (SFAS 148), requires the Company to disclose pro forma information regarding stock option grants issued to its employees. SFAS 123 specifies certain valuation techniques that produce estimated compensation charges that are included in the pro forma results below. These amounts have not been reflected in the Companys Consolidated Statement of Operations because APB 25 specifies that no compensation charge arises when the exercise price of employees stock options equals the market value of the underlying stock at the grant date, as in the case of options granted to the Companys employees during the fiscal periods reflected below. The fair value of options was estimated using the following assumptions for the three months ended May 31, 2005 and 2004:
The following table illustrates the effect on net loss and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock based employee compensation (in thousands, except per share amounts):
The weighted average estimated fair value of employee stock options granted was $ 5.56 and $15.87 per share during the three months ended May 31, 2005 and 2004, respectively.