No immediate bearing but peripherally related story from last week.
Wednesday March 31, 7:33 pm Eastern Time
U.S. accounting rulemakers move to close loophole
By Elizabeth Smith
NEW YORK,March 31 (Reuters) - U.S. accounting rule makers moved Wednesday to
close a loophole that allows companies to re-price employee stock options without eroding
earnings.
The move is likely to rankle hi-tech companies that rely heavily on the tool to prevent an
exodus of valuable employees if their share prices happen to head south.
The U.S. Financial Accounting Standards Board tentatively decided Wednesday if a company re-prices employee stock
options, it must record the difference between the new re-priced stock option price and the price at which the stock is trading
as compensation expense.
The board's proposal is an interpretation of a rule on options that dates back to 1973 and is known as A.P.B. 25. The
interpretation, if made effective, would apply to companies who re-priced options after Dec. 15, 1998.
The board in 1995 implemented a rule that forced companies to disclose in footnotes of financial statements the impact of stock
options on their per share earnings.
Companies don't want to recognize any compensation expense because it cuts into their net income, something they seek to
avoid because of intense pressure to meet Wall Street's earnings projections.
The move is likely to stir up controversy in Silicon Valley, whose ecosystem is known to rely heavily on the ability to entice
employees through stock options.
But if a company's stock falls sharply, it will often re-price stock options so they remain a carrot for employees. If the stock
price has fallen below the price set in an option plan, then it is worthless to employees.
Last fall, after the stock market began to slide, scores of hi-tech firms re-priced their options. They include Advanced Micro
Devices Inc. (NYSE:AMD - news), Cambridge Technology Partners (NYSE:CATP - news), Ascend Communications Inc.
(Nasdaq:ASND - news), Cadence Design Systems (NYSE:CDN - news) and Idexx Laboratories Corp. (Nasdaq:IDXX -
news).
''We are very happy that FASB has taken the next step and if we have the chance, we will offer our support in writing,'' said a
spokesman for the State of Wisconsin Investment Board, a $65 billion pension fund that is opposed to re-pricing.
Nell Minow, a principal in LENS, a $100 million investment fund based in Washington D.C., lauded the move as well. ''I think
in the past, some companies have been in denial about re-pricing options,'' Minow said, ''and this will cause them to confront
the harsh reality that what they are doing is costly.''
Advanced Micro Devices spokesman Scott Allen said he was unsure as to whether AMD would still re-price its options if it
had to take a hit to earnings. He acknowledged it upset shareholders when the company re-priced options on Sept. 10 of last
year.
''Hi-tech, especially the semi-conductor industry, is very dependent on whether you can hang onto quality people,'' he said.
''We indeed made a difficult decision.''
Allen said AMD only re-priced options for employees below the level of vice president and at a premium to what the stock
was trading.
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