Thursday, August 01, 2002

GE to expense stock options

Immelt: Investors 'clearly want' this

By John Christoffersen
The Associated Press

        FAIRFIELD, Conn. - General Electric Co. will start counting employee stock options as expenses in its earnings reports.

        As one of the world's most valuable companies, GE's move adds momentum to an issue that has gained urgency as a result of a wave of a corporate accounting scandals that were to some degree spurred by bids to pump up stock prices and increase executive rewards.

        Only a handful of companies currently expense options, though several, including and Coca-Cola, have announced plans recently to start doing so.

        “Options are held by more than 35,000 of our employees and will remain an important part of our incentive compensation going forward,” said Jeffrey Immelt, GE's chairman and chief executive officer. “We've been disclosing the effect of options in our annual reports, but investors clearly want these expenses incorporated into results, and we will do so.”

        GE said it will expense the fair value of employee stock options starting this quarter. The move will reduce this year's net income by less than $30 million, or less than 1 cent a share. The expense will increase to about $300 million, or 3 cents a share, annually in future years, GE said.

        The move adds pressure to expense stocks, said Ed Ketz, an associate professor of accounting at Pennsylvania State University.

        “My guess is it will start picking up momentum,” Mr. Ketz said. “It raises questions in people's mind why you would not be expensing this. People might think they're hiding something.”

        Lawrence Horan, research director for Parker/Hunter in Pittsburgh said expensing stocks may prove problematic for companies because of different methods.

        “Unless a hard and fast rule comes out on how to do this, it could be an area of future abuse.”


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