|  | | 2005 News and Press Releases | | |
HEADLINE NEWS:
Pushing Fast-Forward On Options Speeded-Up Vesting Is A Way Around New Accounting Rule, But Some Cry Foul
Ben White
WashingtonPost.com. December 19, 2005
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EXCERPT: At least 22 Washington area companies are among hundreds nationwide that have transformed millions of stock options, many of which would not have been available for executives to use until 2009, into fully vested shares. According to Wall Street estimates, the fast-forwarding could wipe away more than $4 billion in expenses that would otherwise have shown up on income statements starting in 2006 under a new accounting rule that goes into effect Jan. 1. None of this is illegal. But some financial analysts and corporate-governance experts say it is a dubious exercise nonetheless because it undermines the intent of the much-debated new rule. The critics also say that speeding up options hands an extra treat to already-well-fed executives, hurts a company's shareholders and misleads prospective investors. Many of the companies that have pushed forward options vesting dates to beat the Dec. 31 deadline come from the high-technology and health care sectors, industries that have been heavy users of stock options in recent years. Linthicum, Md.-based network specialist Ciena Corp., for example, announced in late October that it would accelerate the vesting dates for 14.1 million shares awarded to employees, officers and directors. Ciena said the accelerated vesting would help the firm erase $21.5 million in expenses. While that is just a small fraction of the $436 million the company lost in the past year, executives nevertheless said they thought it made little sense for the company to record a cost based on options that are "out of the money," meaning the current market price of the stock had fallen below the fixed price at which the options were awarded. In such cases, employees typically delay exercising the options until the stock price rises. At that point, they are "in the money" and can be resold at a profit. "Ciena's board of directors considered the expense savings that will occur under new accounting regulation and the lack of employee retention value associated with out-of-the-money options and firmly believes that accelerating these options is in the best interest of the Company and its shareholders," Ciena Executive Chairman Patrick H. Nettles said in a news release. Nonsense, say the critics. "This is simply a tactic by companies to lower their expenses and artificially inflate their earnings," said Bear Stearns analyst Chris Senyek. "It's smoke and mirrors." |
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