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Monday, 15 July, 2002, 17:38 GMT 18:38 UK
USA Inc starts to come clean on options
Coke vending machine
Coke restocks with new accounting rules
The world's leading soft drink maker, Coca-Cola, plans to begin declaring the cost of all stock options as expenses later this year.

The move - announced on Sunday and copied by US newspaper the Washington Post on Monday - marks a break with standard US accounting rules.

Till now, companies have been allowed to hand out millions of dollars' worth of stock options without any impact on the most common measure of their profitability.

Some investors, notably billionaire Warren Buffett, have complained that this gives company bosses every incentive to cook the books, so as to keep the shares pumped up as high as possible.

Friends in high places

Mr Buffett is on the board of both Coca-Cola and the Washington Post, and his influence was recognised by The Washington Post's chairman and chief executive, Donald Graham.

Mr Graham said he had "listened to everything Warren has to say on the issue over the years and it makes total sense".

The move, he said, was "influenced by (Mr. Buffett) absolutely".

The new regime at the two companies thus comes in the wake of a series of US accounting scandals that have prompted demands for greater financial transparency in corporate America.

Coke chairman and chief executive Douglas Daft
Daft holds millions of Coke options
"Our management's determination to change to the preferred method of accounting for employee stock options ensures that our earnings will more clearly reflect economic reality," Coke chairman and chief executive Douglas Daft said in a statement.

The US Senate last Thursday defeated a proposal to make companies treat options as expenses, despite investor concerns over the reliability of corporate accounts.

Expenses option

Stock options are a performance-based incentive which allows their owner to buy company shares at a price that is fixed when they are issued.

But Enron's collapse has led to accusations that options induced executives to doctor financial reports in order to boost share prices.

Enron executives earned tens of millions of dollars by cashing in their options before the energy trader's stock plunged late last year.

Only Boeing and grocery chain Winn-Dixie Stores have made the change so far, Coke said.

Little financial impact

All future Coke stock options would be expensed at their value on the day they are issued, but the change would have a minimal impact on Coca-Cola's financial results this year, the company said.

In 2002, Coke can grant up to 120 million options, or 4.8%, of the company's outstanding shares.

Last year, 8,200 of the company's 38,000 employees received options, including the top five executives and Mr Daft, who was granted 1 million shares.

Coca-Cola is scheduled to report its second-quarter results on Wednesday.

 WATCH/LISTEN
 ON THIS STORY
David Blitzer, managing director, Standard & Poor's
"There's the belief that share options have lead some executives to look for huge short term run-ups in stock prices."
See also:

15 Jul 02 | Business
15 Jul 02 | Business
19 Jun 02 | Business
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