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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: mepci who wrote (169625)	5/19/2002 4:46:05 AM
From: Mick Mørmøny	Read Replies (4) \| Respond to of 176387

At Dell Computer, the income tax benefit from employee stock plans was $487 million in its most recent fiscal year, down from $929 million a year earlier. As Pressure Grows, Option Costs Come Out of Hiding By GRETCHEN MORGENSON NYT, 5/19/02 It has taken an awfully long time — not to mention a crucial assist from the debacle known as Enron — but finally the investment world is inching toward truth in financial reporting where stock options are concerned. Even as Silicon Valley companies amass war chests to persuade members of Congress to keep stock options from being counted as the employee expense that they are, investors are more intent than ever on exposing the titanic transfers of shareholder wealth to executives and employees that options represent at many companies. These wealth transfers are now relegated to the footnotes of companies' financial statements. But last week, Standard & Poor's announced that it would begin deducting the expense of stock options from its calculations of companies' core earnings. Such a move by S.& P., one of the nation's largest purveyors of financial information, means that investors will be able to grasp option costs even if companies keep burying them in the footnotes. Explaining its shift, S.& P. said recent news events had "moved concerns about costs related to employee stock options from the footnotes to the headlines." S.& P. officials also called for companies to detail information on stock option grants each quarter rather than once a year, as is the current practice. Patricia McConnell, accounting analyst at Bear, Stearns, is in the midst of assessing, as she does each year, how much corporate earnings would decline if stock-option grants were accounted for as an employee cost. She and her colleagues have examined figures from 287 of the 500 companies in the S.& P. index and found some interesting points. For starters, the dilutive effect of options on earnings will wind up being far greater in 2001 than in 2000, when she found that earnings would have declined 9 percent over all if options were deducted as an expense. Option compensation expense at the companies studied grew 36 percent last year, to $47 billion from $35 billion. According to Ms. McConnell, the expense at the same companies in 1999 was just $21 billion. The transfer of shareholder wealth has more than doubled in two years. At Microsoft, option expense came in at $3.3 billion last year, almost one-third of the company's reported net income. Option expense was $2.6 billion at Cisco Systems and $2.5 billion at Nortel Networks. Cisco and Nortel reported losses for the year, without deducting the cost of their options from their results. "Companies are compensating their employees more and more through options and they're not recording a good chunk," said David Zion, accounting analyst at Bear, Stearns. Tax benefits also fell considerably at the companies scrutinized by Ms. McConnell. When employees exercise options, the taxes they pay on the difference between the option's exercise price and the option's price at the time of the grant represents a tax deduction to the company. Because most companies' share prices were depressed in 2001, fewer employees exercised options, thereby cutting the tax breaks. Microsoft's income tax benefit in its fiscal year 2001 was around $2.1 billion, down from $5.5 billion in 2000. At Dell Computer, the income tax benefit from employee stock plans was $487 million in its most recent fiscal year, down from $929 million a year earlier. Wal-Mart's tax benefits were $106 million in 2001, versus $118 million the previous year. Ms. McConnell said she was somewhat surprised that more companies had not chosen to run their option expenses through their income statements last year. But she thinks that they will be forced to, sooner or later. In the meantime, thanks to S.& P. and the analysts at Bear, Stearns, investors are no longer in the dark about the extent to which their pockets have been picked. nytimes.com Check your pockets, mepci. I'm out the I planned it, but I'll play the peaks and throughs. Mick (_$_)