This quarter we’ve seen a rash of income statements which include a separate additional charge for stock option plans. It’s a new SEC regulation. Previously companies did not have to break them out on the balance sheet although some companies, including Microsoft chose to do so. Now companies are required to take a hit against earnings and report as a separate charge the shortfall between what price an option scheme offers shares and the SEC’s estimation of what the fair valuation of the stock is. The difference in value is recorded as a hit when the plan goes into place. For companies going to IPO it can often make a big difference as the SEC rules can be applied a year or more retroactively. Often a company’s option scheme will be set in place and market conditions will change dramatically. The SEC has a fair price curve for each traded stock which it determines partly on the basis of regular meetings held with traded companies.
