Sunday July 14, 11:19 am Eastern Time
Reuters Business Report
Coke to Expense Stock Option Costs
By Paul Simao
ATLANTA (Reuters) - In the wake of a series of accounting scandals that have prompted demands for greater financial transparency in corporate America, Coca-Cola Co. (NYSE:KO - News) announced on Sunday that it would begin expensing the cost of all stock options later this year.
The change, which will go into effect in the fourth quarter of 2002, would put the world's No. 1 soft drink maker in the forefront of U.S. companies that have decided to count the options granted to executives as a normal business expense.
Atlanta-based Coca-Cola noted that the change would have a minimal impact on its results this year, costing the company only about 1 cent per share if options are granted at the same levels as last year.
Prior to the policy shift, analysts had expected Coca-Cola to earn $1.79 per share in 2002, according to research firm Thomson First Call. Coca-Cola is scheduled to report its second-quarter results next week.
"Management has concluded that stock options are a form of employee compensation expense and, therefore, it is appropriate that these costs be reflected in our financial results," Coca-Cola Chief Executive Doug Daft said in a statement.
The expensing of options, a lucrative corporate perk, has become a flash point in the United States in the wake of the recent accounting scandals at now-collapsed energy trader Enron Corp. and telecommunications firm WorldCom Inc. (NasdaqNM:WCOME - News)
Many prominent business leaders, politicians and economists, including U.S. Federal Reserve Board Chairman Alan Greenspan, share the view that options should be expensed to better reflect the financial health of corporations.
Until Coca-Cola's announcement, most of corporate America had resisted changing the status quo, which allows companies to hand out millions of dollars worth of stock options with no impact on the most common measure of profitability.
In a speech last week, President Bush rejected forcing companies to begin expensing options, seeking instead measures that would ensure shareholders are allowed to vote on all option plans.
Bush also omitted a call for a federal board to oversee the accounting industry.
In embracing the shift, Coca-Cola's Daft said expensing options would ensure that the company's future earnings more clearly reflected economic reality.
Coca-Cola said it would expense all future stock option grants based on the fair value at the date options are granted. That value will be determined from stock prices received from financial institutions that trade Coke shares under terms identical to the options.
The company said the policy change would effectively place all its options on an equal accounting footing and allow management to better design future compensation packages.
Shares of Coca-Cola fell $2.06, or 3.9 percent, to close at $51.05 on Friday on the New York Stock Exchange. |
