Intel Says ‘No’ to Expensing Options
Intel Corp. said Thursday that it planned to buck a Wall Street trend by not counting stock options as an expense, as the world’s largest semiconductor maker said there was no accurate way to account for them.
Intel, following in the footsteps of Cisco Systems Inc. and Microsoft Corp., insisted the current debate is “misdirected.”
“There is no good valuation model to determine the fair value of unexercised employee stock options,” Intel Chief Financial Officer Andy Bryant said.
Technology companies, unlike those in other industries, issue stock options as a major source of compensation for their employees, from executives to rank-and-file workers.
How to account for the options has divided Wall Street, with companies such as Intel in one camp, and corporate giants such as Coca-Cola Co., General Electric Co. and General Motors Corp., which will count options as an expense, in the other.
Even advocates of the practice said accounting for them accurately would be difficult because the value of stock options varies so much.
“How do you value options and how do you then determine what the economic impact is?” asked Mark Edelstone, an analyst at Morgan Stanley. “This is an incredibly complicated issue.”
Intel in the mid-1990s made options available to all full-time employees.
As of June 2, Intel’s five most highly paid executives held 2% of outstanding options, officials said.
“The cost of stock options is already reflected in earnings per share” on a fully diluted basis, Bryant said in an interview.
Several years ago, companies began reporting earnings per share on a fully diluted basis, which assumes that all stock options granted have been exercised.
Bryant also said Intel wants to separate the issue of granting options from executive compensation, and encourage investors and companies to focus on the latter.
In Intel’s case, the total outstanding options held by the five highest-paid executives amounted to 2.3% of the outstanding 750 million options, according to Intel’s quarterly filing with the Securities and Exchange Commission.
Intel said Chief Executive Craig Barrett and Bryant would certify Intel’s financial results, in keeping with an SEC directive.
In a surprise move this week, U.S. accounting officials agreed to explore the effect of requiring companies to disclose stock option expenses on their income statements, in a bid to pull that data and place it before investors.
The Financial Accounting Standards Board’s move came as it agreed to amend rules so companies that opt to expense options can choose among a few alternative accounting treatments, which could further muddy the water for investors.
Intel shares rose 66 cents Thursday, closing at $18.38 on Nasdaq.
