CA decides to expense stock options

Computer Associates International Inc. (CA) said Monday it will become one of the handful of major U.S. companies to expense the cost of all new stock option grants, an accounting change backed by several influential investors and politicians but opposed by many companies and industry lobbyists.

CA's accounting change will take effect with all options granted in its upcoming 2004 fiscal year, which begins April 1, 2003, the company said. The decision is part of CA's "ongoing commitment to adhere to best practices in everything we do," CA Chief Executive Officer Sanjay Kumar said in a prepared statement.

Investors say forcing companies to count stock options as expenses will clarify accounting. Opponents argue that the move, which will lower reported income, will reduce the number of options companies grant and crimp employee pay packages.

Several major firms, including Cola-Cola Co., Washington Post Co. and Bank One Corp., have voluntarily made the change, but opposition has been particularly fierce in the tech industry, where options have traditionally been a core part of compensation. Inc. said earlier this month that it would begin expensing options next year, making it one of the few tech companies to do so. Microsoft Corp., however, drew headlines last week by reaffirming its commitment to not expensing options. Doing so would have shaved billions off the company's reported profit in its most recent fiscal year.

Expensing stock options in its 2002 fiscal year would have increased CA's net loss for the year from US$1.1 billion to $1.19 billion, and expanded CA's per-share loss from $1.91 to $2.05, the company said in its annual report.

Executives at CA have been revamping its accounting practices, and, more recently, its corporate governance policies. The company is currently under investigation by the U.S. Securities and Exchange Commission and the U.S. Department of Justice, and suffered an expensive proxy fight last year with a shareholder unhappy with the governance of CA's board of directors.

Following that fight, CA overhauled its board and adopted several new governance policies, including a term limit on outside directors. Last week, it ended a second round of battling with that same shareholder by paying him $10 million, in part for a five-year standstill agreement precluding future proxy fights.

Shares of CA (CA) slumped last week to their lowest levels in a decade. In early trading Tuesday on the New York Stock Exchange, CA shares were up 6.7 percent over Monday's close, at $9.28.

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