Administration September 7, 2006

Analysts Leaving Out Cost Of Stock Options In Investor Reports

July 21, 2005 (PLANSPONSOR.com) - AccountingWEB.com reports that, although companies are now required to include costs for stock options in their company earnings data, some Wall Street analysts are not including them in their earnings-per-share figures.
Reported by

Companies with a year end of June 30 are required with the quarter starting July 1, 2005 to comply with the new Federal Accounting Standards Board stock option expensing rule FAS123 (See  SEC Makes it Official: FASB 123 Implementation Date Moved Back Again ).   Stock option expensing will reduce a company’s bottom line.   The Web report from AccountingWeb.com gave an example of the difference expensing makes in the earnings-per-share figure for Microsoft Corp. – $1.42 without expensing and $1.30 with expensing.

Analysts told the Wall Street Journal that managers of mutual funds, pension plans, and other institutional investors who oppose stock option expensing say they want the higher numbers.   They worry that lower earnings forecasts will reduce the value of stocks they own.

Bear Stearns Cos. and UBS Securities are trying to limit confusion by requiring analysts to consider the cost of options, the report said.   Thomson Financial, PLC’s Reuters Estimates and Zacks Investment Research are producing consensus earnings estimates determined by how a majority of analysts calculate corporate earnings, meaning the cost of options expensing is not included in their calculations.

Stock option grants are decreasing, though.   According to a survey by Deloitte, 75% of respondents are reducing or have already reduced the number of options granted (See  Stock Options Cut in Response to FAS123 ).

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