Intel bucks options trend

The chipmaker says it won't treat stock option grants as an expense in its financial reports because there's "no good" way to value them.

Margaret Kane
Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
2 min read
Intel bucked a trend in the finance world, saying Thursday that it would not treat options as an expense because there is "no good" way to value them.

Intel's chief financial officer, Andy Bryant, said in a release that the company would include the pro forma effect of options use in footnotes to its financial statements.

Also Thursday, the chipmaker said that Bryant and its chief executive officer, Craig Barrett, have certified the accuracy of its 2001 annual report, as required by new SEC regulations.

Stock options are wildly popular in the tech world as a means of compensation. But while salaries show up as an expense on company income statements, stock option grants do not. Under current accounting rules, companies are not required to include the expenses of granting options in their income statements. In some cases companies may even get a tax break for granting options.

But lawmakers and accounting groups, spurred by recent accounting scandals, have proposed changing the rules. Some companies haven't waited for regulatory changes: Amazon.com, General Electric, Coca-Cola and Computer Associates International, among others, have already stated that they will begin treating options as an expense. The impact to the bottom line can be significant in some cases: Amazon said the change would have bumped up its 2001 net loss by $396 million.

Critics charge that requiring companies to expense options would be extremely complicated and not necessarily accurate.

"There is not a good valuation model to determine the fair value of unexercised employee stock options. Including an unreliable estimate of the fair value of options in the income statement would distort earnings," Bryant said.

"We believe (that) the current debate over the use of stock options is misdirected. Rather than focusing on the accounting for broad-based employee stock options, the debate should center on excessive executive compensation,? the CFO said. ?Many good ways to attack that problem exist, ranging from stockholder approval of option plans to assuring outside directors have more power and independence."

Intel is providing information about the options in its reports to the Securities and Exchange Commission. The company's annual report includes a table that lists the total options granted over the past five years, and the percentage of those grants going to its top five officers.

Intel said that as of June 2002, its five highest-paid executives held around 2 percent of outstanding options. The company's goal is to limit option grants so that they don't dilute the value of existing shares, and to hold that dilution rate to 2 percent.