Expensing Stock Options Threatens Tech Firms

The cost of expensing stock options is taking a place alongside slowing earnings growth, a weakening economy, the threat of terrorism and the prospect of war in Iraq as a reason for U.S. stocks to fall.

Counting options as an expense reduces profits and is a particular threat to computer-related companies’ results. Cisco Systems Inc. of San Jose had $2.8 billion in option expenses that might have counted against net income last year, according to an analysis by Lehman Bros. Inc. Redwood City, Calif.-based Oracle Corp., which reports results this week, had $700 million in option costs.

Although criticism by money managers and policymakers of companies’ financial reports makes this accounting change “inevitable,” investors are only beginning to figure it into the forecasts they use to assess how much stocks are worth, Thomas Angers of Glenmede Trust Co. said.

“That’s going to be weighing on technology stocks for a while,” said Angers, who helps oversee $15 billion as head of research for the firm.