TheCorporateCounsel.net

Starting this Thursday, Google will begin providing pro forma numbers in their quarterly earnings releases. See their blog for the rather dumbed-down announcement (you might ask, how many companies have corporate blogs yet? answer is “not many”).

Google’s Chief Accountant indicates that the company will be providing a “non-GAAP, diluted earnings per share number” that excludes the effects of stock option expensing. (Google laid the groundwork for complying with Regulation G by mentioning that management reviews non-GAAP results when analyzing performance – but it will be interesting to see management explain how it uses the non-GAAP diluted EPS number in managing the business!)

Interestingly, Google notes that its non-GAAP numbers may nonetheless differ from the numbers that analysts present when they exclude the effects of expensing options – because Google will be presenting their non-GAAP calculation on an after-tax basis.

Another interesting aspect of Google’s “plain English” explanation of its non-GAAP adjustments is that the company did not address the fact that once a company is applying FAS 123(R), the number of shares outstanding on a fully diluted basis also will be different than the calculation pre-123(R). Thus, it will be interesting to see if Google’s disclosures do not fully back-out all of the effects of 123(R) – or whether they will be providing additional disclosure about how 123(R) affects the diluted share calculation.

The issue arises because under the treasury stock method of calculating fully diluted shares, the amount that is deemed to be applied to repurchase shares when all in-the-money options are exercised will have a different calculation for the assumed tax benefit from those deemed exercises – and will include an additional element not currently taken into account (ie. unamortized deferred stock compensation). This just further highlights Google’s point that any non-GAAP numbers given by companies will likely differ from what the analysts would give – not only would the analysts not have the tax effect numbers, but they may not have the fully diluted share effect numbers.

It just goes to show how this stuff is quite complex – and it reinforces why lawyers need to fully understand this dramatic new accounting change to be sure that disclosures are accurate. As I blogged last week, the upcoming NASPP conference will have 8 panels that will be addressing 123(R), including an address by FASB Chair Bob Herz on the topic. If you can’t make it to the Conference, you can now order a CD-Rom of the Stock Option Expensing Toolkit that includes an archive of all those panels and much more.

Binding Majority Vote Proposal Fails at Paychex

Last week, Paychex shareholders overwhelming – about 80% – voted against the first binding bylaw amendment proposal seeking a majority voting standard for director elections (see this background info). This AFSCME proposal received less shareholder support than the non-binding majority election proposals that appeared on ballots this year – at nearly the 60 meetings where this issue was considered so far this year, the average level of shareholder support averaged 44% of the votes cast. I don’t think this low level of support will deter more binding bylaw amendment proposals, but it likely won’t prompt a mad dash to submit more.