Qualcomm Inc (QCOM)

[stricklybiz]

US acccounting body set to issue stock option rule (Didn't Q drink this hemlock at the last reporting period?)

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh00204_2004-12-16_00-02-51_n15...

Wed Dec 15, 2004 07:02 PM ET
By Arindam Nag

NEW YORK, Dec 15 (Reuters) - U.S. accounting rule makers, after nearly a decade of dogfighting, are set to issue on Thursday a rule to force corporations to expense employee stock options starting in mid-2005.

The standard will put into effect a compulsory cost item for companies that compensate employees with stock options -- the rights to buy stock at a predetermined price.

A Financial Accounting Standards Board (FASB) spokesman declined to give details of the draft, saying they were likely to be discussed on Thursday.

Until now, companies could mention the value of options in footnotes of financial filings. Some big companies like Microsoft Corp. (MSFT.O: Quote, Profile, Research) and Coca-Cola Co. (KO.N: Quote, Profile, Research) started expensing stock options a while ago. But some large companies, mostly technology-oriented, have opposed proposals to require it.

These companies, which have awarded fistfuls of options to their employees since the early 1990s, have argued that expensing them will deter companies from issuing them, making it harder to attract talented executives.

While their strong opposition and lobbying with the U.S. Congress has helped to stall implementation, FASB now seems determined to move ahead.

"I think the feeling from the accounting world is that it is the right thing to do. It is measurable and auditable and the right thing for the investing public to really get its handle on," said Stamos Nicholas, principal and stock option valuation specialist with Deloitte & Touche LLP, one of the Big Four accounting firms.

Another obstacle FASB faced this year was opposition to the method to be used for valuing options.

Historically, the Black-Scholes method has been used. This method calculates the value of an option by considering volatility of a stock's return, interest rates, underlying stock price related to the strike price and expiration time.

But experts have pointed out that the Black-Scholes method was crafted to value options that constantly trade, while employee options are generally held for at least three years. The holding period has an effect on option price volatility, which Black-Scholes does not consider.

FASB has recommended that its preferred method would be a more sophisticated 'Lattice' model that takes all features associated with an employee stock option into consideration.

In the Fall, three technology companies, Cisco Systems Inc. (CSCO.O: Quote, Profile, Research) , Qualcomm Inc. (QCOM.O: Quote, Profile, Research) and Genentech Inc. (DNA.N: Quote, Profile, Research) came up with a hybrid proposal, but it was rejected by FASB.

"I think that a lot of the debate is really over. Now the companies will have to hunker down and get ready to fly with the standards," said Paula Todd, a professional standards officer for consultancy firm Towers Perrin.