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To: ild who wrote (30214)	4/7/2005 2:14:27 PM
From: ild	Respond to of 110194

NEW YORK (Dow Jones)--Technology companies will take the biggest hit when a new accounting rule kicks in requiring public companies to show how stock options they provide to employees affect net income. The practice, required to begin showing up in quarterly results filed after June 15, is expected to reduce by 20%, on average, 2005 net income for the 80 technology companies in the Standard & Poor's 500 Index, said S&P. The 20% reduction in net income for tech companies compares with a 4.5% impact anticipated for the overall makeup of the S&P 500, according to S&P. Tech titans such as Intel Corp. (INTC), Hewlett-Packard Co. (HPQ), Cisco Systems Inc. (CSCO) and Oracle Corp. (ORCL) are among those expected to be affected. Tech companies will be so affected because they dole out a lot - if not the majority - of their compensation to employees in the form of stock options. Options are a form of compensation that gives employees the right to buy their company's stock at a specific price over a certain period of time. One change the new rule may bring is that some companies, especially in the tech field, may rejigger the way they pay employees by giving them more of a regular paycheck. That would help mitigate part of the impact from the new rule, which requires companies to expense the costs of previous and upcoming stock options starting after June 15. Now, instead of being incorporated in the footnotes of quarterly filings, option expenses must appear in the report itself. Companies have the option of starting sooner, and that's just what International Business Machines Corp. (IBM) did. The computer giant announced earlier this week that it would begin expensing stock-based compensation in the first quarter. IBM said the decision and timing were based on the guidance provided last week in a staff-accounting bulletin issued by the Securities and Exchange Commission. The company also plans to restate prior financial results to include the impact of stock-based pay expenses. Big Blue said it would book 55 cents a share for stock-based compensation costs for 2004. In January, the company reported 2004 net income of $4.93 a share. Expensing options will be a noncash item that will reduce overall net income. But companies likely will exclude them from their measurements of pro forma earnings. And since investors often choose to follow pro forma earnings, and not net income figures, when making their buy or sell decisions, there may not be a great impact to share prices, analysts say. "Everyone knows this is going to happen and actual cash flow isn't changing, so I don't think this will be much of an event, and we won't see much selling of the stock, at all," said Jeffrey Applegate, chief investment officer at Fiduciary Trust International.