01—Abstract
Summary
Summary of the 8-K filed September 23, 2005. Cited figures are marked; the original filing is the authoritative source.
This 8-K filing from Procter & Gamble (PG), filed on September 23, 2005, announces the company's adoption of SFAS 123(R), "Accounting for Stock-Based Compensation," effective July 1, 2005.
This new accounting standard requires companies to recognize the fair value of stock-based compensation, including employee stock options, as an expense. Procter & Gamble has elected to implement this standard using the modified retrospective method, which means prior fiscal years beginning on or after July 1, 1995, will be restated to reflect the value of stock options granted. The company is providing additional exhibits to its filing to offer investors a clearer picture of the impact of SFAS 123(R) on its financial results.
These exhibits detail consolidated earnings and business segment information for the fiscal years ended June 30, 2005, and 2004, presented both as originally reported and with the retrospective adjustment for stock-based compensation. This retrospective application ensures that future SEC filings will present consistent historical financial data. Investors should note that while this change impacts how stock-based compensation is reported, the recognized compensation expense will align with previously disclosed pro forma figures.
The expense will also be reflected in segment results, providing a more comprehensive view of segment performance. This adoption is a significant accounting change that will affect the comparability of historical financial statements and the presentation of future earnings.
02—Key points
Key Highlights
- Procter & Gamble adopted SFAS 123(R) effective July 1, 2005, mandating fair-value accounting for stock-based compensation.
- The company is using the modified retrospective method, restating prior fiscal years (since July 1, 1995) to reflect the impact of stock options.
- Additional exhibits are provided to show the impact of SFAS 123(R) on consolidated earnings and segment performance for FY2005 and FY2004.
- The recognized compensation expense under SFAS 123(R) is consistent with previously reported pro forma disclosures.
- Stock-based compensation expense will now be reflected in segment results, impacting segment performance reporting.
- Future SEC filings will present consistent historical financial statements reflecting these SFAS 123(R) modifications.
03—Questions
Frequently Asked Questions
What is SFAS 123(R) and why is Procter & Gamble adopting it?
SFAS 123(R) is a Statement of Financial Accounting Standards that requires companies to account for stock-based compensation, such as employee stock options, using a fair-value-based method. Procter & Gamble is adopting it because it is a mandatory accounting standard effective for fiscal years beginning on or after July 1, 2005.
What does 'modified retrospective method' mean in this context?
The modified retrospective method means that Procter & Gamble will revise its financial statements for prior fiscal years, starting from July 1, 1995, to reflect the expense of stock options granted during those periods, as if the new accounting standard had been in place. This ensures a more consistent historical view.
Will this adoption significantly change the reported earnings for past periods?
The filing states that the recognized compensation expense will be consistent with amounts previously reported in the company's pro forma footnote disclosures. While it's an accounting change, the financial impact on reported earnings should align with what investors were already seeing in the pro forma information. The primary change is the formal integration of this expense into the primary financial statements.
How will this affect the reporting of business segment performance?
Consistent with the company's approach to measuring segment performance, the additional expense related to stock-based compensation under SFAS 123(R) will now be reflected in the reported results for each business segment. This provides a more comprehensive view of the profitability and operational efficiency of each segment.
04—Continue