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Intel Holders Oppose Expensing of Options

A recommendation that the expense be reflected on the chip maker's bottom line fails to garner enough support.

May 22, 2003|From Reuters and Associated Press

SAN JOSE — Accepting the arguments of management, Intel Corp. shareholders on Wednesday narrowly rejected a recommendation calling on the chip maker to formally count employee stock options as a business expense.

The measure, submitted by the United Brotherhood of Carpenters and Joiners of America Pension Fund, received 47.6% of the vote.

Leading up to the meeting, Intel executives sent messages to shareholders opposing the proposal, even though it would have been only a recommendation to management, not a binding resolution.

"This is a serious issue that should not be made trivial," Intel Chairman Andy Grove wrote in a May 7 letter to shareholders.

The vote marked the latest skirmish in a contentious battle over the stock options that technology firms have relied on to compensate workers.

Treating options as a standard business expense would have cut Intel's first-quarter net income by one-third, the company has said.

Under current accounting rules, companies can avoid formally expensing options. Instead, they can estimate in a footnote to their financial tables how options expensing would have affected profit.

However, the Financial Accounting Standards Board, which sets U.S. accounting rules, is considering whether all companies should include options as a regular cost of doing business. Pressure on the board has grown in the aftermath of corporate scandals that have focused investors on the accuracy of financial statements.

In the technology field, options have been widely granted to employees as an incentive to help drive sales and profit. Intel has a particularly broad program, issuing options to nearly all of its 78,700 workers.

Intel executives contended that it's impossible to determine the value of options before they're exercised and that when handed out they have no actual effect on operating results. Expensing them thus would unfairly cut reported earnings, they said.

Proponents of options expensing counter that excluding those costs understates executive compensation in particular, inflating companies' profit and thus their share prices.

More than 200 firms have voluntarily begun to expense options. But the tech sector has mostly remained opposed.

The issue has been submitted for shareholder votes at dozens of companies this spring, with mixed results. In the tech sector, shareholders of Apple Computer Inc., Citrix Systems Inc., NCR Corp. and Veritas Software Corp. have voted in favor of expensing options, but shareholders of IBM Corp. and Analog Devices Inc. have rejected the idea.

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