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ACCOUNTING
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Posted by Stephen Taub | CFO.com | US
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January 3, 2006 11:29 AM ET
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AmSouth Bancorporation has accelerated the vesting of all outstanding stock options — but not, as some might think, to accelerate the reward to its employees and directors. Rather, the company is doing it for accounting reasons.
According to the Birmingham, Alabama-based holding company, the purpose of the acceleration was to eliminate a future non-cash compensation expense that the company would otherwise have been required to recognize on the income statement. AmSouth estimated that accelerating the vesting of the options will save the company about $21 million pretax, including about $16 million pretax in 2006. The company added that it has restricted executive management and directors from selling any stock obtained through exercise of an accelerated option prior to the date on which the option would have originally vested.
AmSouth is just the latest company to take advantage of this not uncommon practice. A report by Bear Stearns published in April (but not available online) explained that by vesting out-of-the-money options, the future expense from these options will vanish from the income statement. "That is, companies will record the unamortized fair value of those options only in the footnote disclosure to their financial statements in the period in which options' vesting is accelerated," elaborated Bear Stearns. |
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Comments (1)
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Have any external auditors signed off on this treatment yet?
They have accelerated the vesting period, but the employees cannot exercise the options until the original vesting date, therefore the expected term of the options remains the same. Their FAS 123 calculation should be based on the expected term (when they reasonably expect the employees to exercise), not the contractual term. |
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Posted by Lisa Vann | January 03, 2006 04:46pm |
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