Wednesday, April 30, 2003 | 11:01 a.m.
SUN STAFF AND WIRE REPORTS
WASHINGTON -- Sens. John Ensign and Barbara Boxer said they will offer a bill that would delay for three years a requirement that companies list stock options as an expense.
The proposal by Ensign, a Nevada Republican, and Boxer, a California Democrat, follows a vote last week by the Financial Accounting Standards Board that stock options "are payment for goods and services" and should be recognized as a cost. The board sets U.S. accounting rules.
Technology companies such as AOL Time Warner Inc., Intel Corp. and Cisco Systems Inc. have said that requiring public companies to deduct stock option costs from income would harm their ability to attract workers and spur the economy. Opponents of the rule also say that it is difficult to place an accurate value on the cost of options, making financial statements less meaningful.
The gaming industry also has been critical of categorizing stock options as an expense. While accounting principles in place recommend -- but don't require -- that stock options be treated as a compensation expense, most gaming companies don't do so.
When a gaming analyst's published report recommended treating options as an expense a year ago following the Enron scandal, Mandalay Resort Group President Glenn Schaeffer was critical, making the same argument that it would be difficult to place a value on the cost of options.
Accounting is about accuracy, Schaeffer told the Las Vegas Sun.
"How do you estimate them? What's their value? That's the question," Schaeffer said in response to a report issued by Jason Ader, formerly of Bear Stearns, New York.
Michael Ensign, chairman and chief executive officer of Mandalay Resort Group, is Sen. John Ensign's father.
Contacted this morning, the senator said the issue was brought to him as chairman of the Senate's high-tech task force and that "for a couple of hundred chief executive officers and leaders in the high-tech world, this was their No. 1 issue."
"It's about jobs," Ensign said. "I picked up on this legislation because, philosophically, I support it. I think it's absolutely ludicrous that we would risk destroying growth with it (the proposed accounting standard)."
Ensign said he was not contacted by the gaming industry on the proposed stock options standard. He noted he regularly votes on issues affecting the gaming industry and Mandalay, citing opposition to a sports book betting bill and support of a capital gains tax cut.
The accounting board's tentative decision last week "is bad for workers, bad for the economy, and bad for investors," Boxer said in a statement.
Current U.S. accounting rules require companies to include an estimate of option costs in footnotes to income statements in annual reports. Moving that expense to income statements may erase millions of dollars from corporate earnings.
Ensign and Boxer's bill would require the Securities and Exchange Commission to require improved disclosure of option grants, to monitor the effectiveness of better disclosure for three years and the report to Congress. During the three years, the SEC couldn't recognize any new rule on stock options as a generally accepted accounting principle.
The goal of the bill is "to prevent rank-and-file employees from being excluded from company ownership and to increase the availability of corporate financial information to shareholders and investors," Ensign said in the joint statement with Boxer.
California Reps. Anna Eshoo, a Democrat, and David Dreier, a Republican, introduced a similar bill in the House last month.
Also last month, 13 House and Senate members from both parties wrote SEC Chairman William Donaldson requesting more study before making it mandatory for companies to account for their options as a cost.
In early April, the International Employee Stock Options Coalition, whose members include the National Association of Manufacturers as well as AOL Time Warner, Intel, and Cisco, said mandatory option expensing would curtail technology companies from making options available to all employees.
Engineering talent, much of which comes to the United States from Asia, would be lost to rivals in Taiwan, China and elsewhere in the region, said group Chairman Rick White.
Recognizing options as an expense has influential supporters, including Federal Reserve Chairman Alan Greenspan and billionaire investor Warren Buffett.
The Council of Institutional Investors, a Washington group representing pension and mutual funds with $2 trillion in assets, also voted last month to support the idea of mandatory expensing after opposing previous FASB efforts.
FASB Chairman Robert Herz has said he expects the board to put out a draft rule on accounting for options as an expense for public comment by the end of this year and to have a final rule in place by March 2004.
Congressional opposition led FASB to scuttle an earlier draft on the issue in 1995. The board brought back the proposal amid a series of corporate governance overhaul efforts by Congress and regulators following accounting scandals at Enron Corp. and other companies where executives reaped millions of dollars from stock options.
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