Who'll take the biggest hit if options are expensed? This is an excerpt from a CNN piece from last week -
According to a recent study, Merrill Lynch found that if options were treated as an expense, total earnings for S&P 500 companies would have been 21 percent lower in 2001 than what was reported. Earnings in 2000 would be 8 percent lower. Earnings this year would be 10 percent lower.
Top tech offenders
Company 2002 EPS* EPS with options expensed
Agilent Technologies -$0.67 -$1.77
Apple Computer $0.44 -$0.71
Autodesk $1.06 -$0.19
Broadcom -$0.17 -$2.80
CIENA -$0.74 -$1.78
Comverse Technology $0.86 -$0.14
Conexant Systems -$1.27 -$2.73
Mercury Interactive $0.67 -$0.71
Rational Software $0.29 -$0.84
Yahoo! $0.10 -$1.47
* Consensus expectations
Source: Merrill Lynch
Whether lawmakers ultimately decide that options grants should be treated as expenses is an open question. Some, like Senators John McCain and Carl Levin, think it should happen but lobbying from companies opposing the move has been intense, and so far they have carried the day. Small wonder companies are putting up a fight: Change the way options are accounted for and things start to look a whole lot different.
Notable non-techs
Company 2002 EPS* EPS with options expensed
American Power $0.62 $0.37
AOL Time Warner $0.91 $0.59
Applera $0.81 $0.37
Barrick Gold $0.47 -$0.23
Cendant $1.38 $1.13
Charles Schwab $0.35 $0.23
The Gap $0.16 $0.07
MedImmune $0.65 $0.28
Merrill Lynch $2.89 $1.94
TMP Worldwide $0.86 $0.25
* Consensus expectations
Source: Merrill Lynch
All of a sudden, stocks look a whole lot more expensive. The S&P trades at 18.2 times this year's expected earnings the way they're currently calculated, but start calling options expenses and its 2002 P/E is 20.2. Yipes.
Nowhere would the hit be harder than in the technology arena, where companies regularly use stock options to lure talent. According to the Merrill study, if options are treated as expenses S&P 500 tech earnings would have been 39 percent lower in 2001 than reported and would drop a whopping 71 percent in 2002.
The hardest hit on an absolute basis? Yahoo!, which would have lost $1.73 a share in 2001 against the 16 cent loss the company reported. Expense options this year and Yahoo! is expected to lose $1.47 versus an expectation of a 10 cent per share profit.
But all the tech faves would get hit. Cisco earnings would come in 67 percent lower this year if it expensed options, Merrill estimates. Intel's earnings would drop by 25 percent, and Microsoft's by 22 percent. JDS Uniphase would swing from a loss of 11 cents a share to a loss of 51 cents. Sun Microsystems would drop from a loss of 8 cents to a loss of 23 cents. |
