SON » Topics » F-14

These excerpts taken from the SON 10-K filed Feb 28, 2008.

F-14


Table of Contents

 

sation expense is included in selling, general and administrative expense on the Condensed Consolidated Statements of Income.

Effective January 1, 2006, the Company adopted the fair value method of accounting for share-based compensation arrangements in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), ‘Share-based Payment’ (FAS 123(R)), using the modified prospective method of transition. Under the modified prospective method, compensation expense is recognized beginning at the effective date of adoption of FAS 123(R) for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of adoption. The Company recognizes share-based compensation cost ratably over the expected vesting period.

Prior to January 1, 2006, the Company accounted for share-based employee compensation plans using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, ‘Accounting for Stock Issued to Employees’ (APB 25), and its related interpretations. Under the provisions of APB 25, no compensation expense was recognized when stock options were granted with exercise prices equal to or greater than market value on the date of grant.

Under the modified prospective method of transition, the Company is not required to restate its prior period financial statements. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to stock-based employee compensation for the year ended December 31, 2005:

 

      Year Ended
December 31,
2005
 

Net income, as reported

   $ 161,877  

Add: Stock-based employee compensation cost, net of related tax effects, included in net income, as reported

     3,078  

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

     (7,534 )

Pro forma net income

   $ 157,421  

Earnings per share:

  

Basic – as reported

   $ 1.63  

Basic – pro forma

     1.58  

Diluted – as reported

     1.61  

Diluted – pro forma

     1.57  

When the tax deduction for an exercised stock option, exercised stock appreciation right or converted stock unit exceeds the compensation cost that has been recognized in income, an “excess” tax benefit is created. The excess benefit is not recognized on the income statement, but rather on the balance sheet as additional paid-in capital. The additional net excess tax benefit realized was $9,312 and $10,580 for 2007 and 2006, respectively. Prior to the adoption of FAS 123(R), the Company presented all tax benefits resulting from share-based compensation as cash flows from operating activities in the condensed consolidated statements of cash flows. FAS 123(R) requires cash flows resulting from tax deductions in excess of the grant-date fair value of share-based awards to be included in cash flows from financing activities. Excess tax benefits of $9,317 and $10,580, recognized during 2007 and 2006 have been included in cash flows from financing activities. In accordance with the adoption of FAS 123(R), the Company chose to adopt the short-cut method to determine the pool of windfall tax benefits related to stock-based compensation.

For purposes of calculating share-based compensation expense under FAS 123(R) for retiree-eligible employees, the service completion date is assumed to be the grant date; therefore, expense associated with share-based compensation to these employees is recognized at that time. The annual impact of recognizing this expense immediately versus over the nominal vesting period is not material because the Company’s employee stock options and stock appreciation rights have one-year vesting periods.

F-14







Table of Contents


 


sation expense is included in selling, general and administrative expense on the Condensed Consolidated Statements of Income.

STYLE="margin-top:0px;margin-bottom:0px; text-indent:2%">Effective January 1, 2006, the Company adopted the fair value method of accounting for share-based compensation arrangements in accordance with
Statement of Financial Accounting Standards No. 123 (revised 2004), ‘Share-based Payment’ (FAS 123(R)), using the modified prospective method of transition. Under the modified prospective method, compensation expense is recognized
beginning at the effective date of adoption of FAS 123(R) for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of
adoption. The Company recognizes share-based compensation cost ratably over the expected vesting period.

Prior to January 1, 2006, the
Company accounted for share-based employee compensation plans using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, ‘Accounting for Stock Issued to Employees’ (APB 25), and its
related interpretations. Under the provisions of APB 25, no compensation expense was recognized when stock options were granted with exercise prices equal to or greater than market value on the date of grant.

STYLE="margin-top:0px;margin-bottom:0px; text-indent:2%">Under the modified prospective method of transition, the Company is not required to restate its prior period financial statements. The following table
illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to stock-based employee compensation for the year ended December 31, 2005:

STYLE="font-size:4px;margin-top:0px;margin-bottom:0px"> 





































































    Year Ended
December 31,
2005
 

Net income, as reported

  $161,877 

Add: Stock-based employee compensation cost, net of related tax effects, included in net income, as reported

   3,078 

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

   (7,534)

Pro forma net income

  $157,421 

Earnings per share:

  

Basic – as reported

  $1.63 

Basic – pro forma

   1.58 

Diluted – as reported

   1.61 

Diluted – pro forma

   1.57 

When the tax deduction for an exercised stock option, exercised stock appreciation right or
converted stock unit exceeds the compensation cost that has been recognized in income, an “excess” tax benefit is created. The excess benefit is not recognized on the income statement, but rather on the balance sheet as additional paid-in
capital. The additional net excess tax benefit realized was $9,312 and $10,580 for 2007 and 2006, respectively. Prior to the
adoption of FAS 123(R), the Company presented all tax benefits resulting from
share-based compensation as cash flows from operating activities in the condensed consolidated statements of cash flows. FAS 123(R) requires cash flows resulting from tax deductions in excess of the grant-date fair value of share-based awards to be
included in cash flows from financing activities. Excess tax benefits of $9,317 and $10,580, recognized during 2007 and 2006 have been included in cash flows from financing activities. In accordance with the adoption of FAS 123(R), the Company chose
to adopt the short-cut method to determine the pool of windfall tax benefits related to stock-based compensation.

For purposes of
calculating share-based compensation expense under FAS 123(R) for retiree-eligible employees, the service completion date is assumed to be the grant date; therefore, expense associated with share-based compensation to these employees is recognized
at that time. The annual impact of recognizing this expense immediately versus over the nominal vesting period is not material because the Company’s employee stock options and stock appreciation rights have one-year vesting periods.


EXCERPTS ON THIS PAGE:

10-K (2 sections)
Feb 28, 2008

RELATED TOPICS for SON:

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