OUR TAKE

Coke's Correct Option

	Email this page Format for printing Become a Fool! Reuse/Reprint
	Related Links The Trouble With Options
	Discussion Boards The Motley Fool Take

By Rex Moore (TMF Orangeblood)
July 15, 2002

The Motley Fool is lifting a glass today to Coca-Cola (NYSE: KO) because the corporate giant announced it will start treating employee stock options as an expense. "Management has concluded that stock options are a form of employee compensation expense," says CEO Doug Daft, "and therefore it is appropriate that these costs be reflected in our financial results." We couldn't agree more.

Warren Buffett is Coke's largest shareholder, and a board member to boot. The Berkshire Hathaway (NYSE: BRK.A) chairman has long been critical of the way most companies account for options, and he no doubt heavily influenced the company's decision. In his 1998 annual report, he wrote: "If options are not a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where should they go?"

The Senate debated a bill that would require companies to do what Coke is now doing voluntarily. However, treating options as an expense will, in most cases, depress earnings (with its new plan in place for the fourth quarter, Coke expects earnings per share to be a penny lower this year). As such, corporate lobbying against the bill was intense, and it was defeated last Thursday.

We applaud Coke -- and the few other pioneers like Boeing (NYSE: BA) and Winn Dixie (NYSE: WIN) -- for taking this step and allowing investors to get a much clearer and more realistic picture of their finances. Late today, Washington Post Co. (NYSE: WPO) joined in with the same announcement.

Now, who's next?

The Motley Fool is investors writing for investors. To view a writer's current stock holdings, check out his or her online personal profile.