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 NEW YORK, Nov. 29 /PRNewswire/ -- Emerging companies -- especially high technology companies -- which depend heavily on employee stock option plans in their employee compensation packages, would have their income statements slashed by a new accounting rule being proposed by the Financial Accounting Standards Board (FASB).
 Companies which have been public for less than 10 years could have their anu?al income reduced by an average of 26.5 percent, with some companies seeing reductions in net income of nearly 50 percent, according to an in-depth study just completed by Coopers & Lybrand.
 The study, "Stock Options - Accounting, Valuation and Management Issues," indicates that even mature companies, those whose stock has been traded for more than 10 years, would suffer significant reductions in net income, averaging 3.4 percent but possibly as high as 22.3 percent, as the rules were phased in.
 "The proposed rules could spell the end for broad-based stock option plans or employee stock purchase plans," according to Harold Dankner, a partner and National Technical Director of Coopers & Lybrand's Human Resource Advisory Group. "These plans have enabled small, emerging companies to compete for talent with larger, established corporations. Eliminating them could place these innovative, high-growth companies at a distinct competitive disadvantage.
 "The additional charge to earnings would be unacceptable to many companies, despite their enthusiasm for these programs," Dankner added.
 The study also found that companies whose options have gone "underwater" (i.e., stock price is lower than option exercise price), and whose options consequently expire unexercised, would have an additional earnings charge. "This result is counterintuitive, and could unfairly penalize companies whose stock price has decreased," according to Murray S. Akresh, also of the Human Resource Advisory Group, who is a director of the study.
 The valuation of stock options that would be required by the FASB is complex, and the selection of assumptions is subject to considerable judgment, the study concludes. For example, Janet Fuersich, a compensation consulting partner in the Human Resource Advisory Group and study director explains that "assumptions -- particularly stock price volatility and expected term -- drive the option values, rather than any alternative option pricing models we analyzed. For example, changes in assumptions could change option values by 10-25 percent."
 The study also reports that current stock option tracking systems may need to be modified to provide information needed to value stock options and estimate compensation expenses. "If the FASB proposal is adopted, most companies with stock options will need comprehensive systems to track their programs and provide required information. This is another 'hidden cost' of the proposal," states Fuersich.
 "Companies have until Dec. 31 to submit written comments on the proposal to the FASB, and we are encouraging our clients to make their views known. This study should help those that wish to comment to the FASB," said Akresh.
 For information on obtaining the study, "Stock Options - Accounting, Valuation and Management Issues," contact Natalie Liebert, Coopers & Lybrand, 1301 Avenue of the Americas, New York, N.Y. 10020-1157; 212-259-2447.
 One of the world's leading professional services firms, Coopers & Lybrand provides services for enterprises in a wide range of industries. Its employee benefits/compensation practice ranks among the top 10 in the world. The firm offers its clients the expertise of more than 16,000 professionals and staff in offices located in some 100 U.S. cities and more than 66,000 people in more than 120 countries worldwide.
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 /NOTE TO EDITORS: For information or comments please contact Janet Fuersich, 212-259-3095, or Murray Akresh, 212-259-2362, in New York; or Harold Dankner, 202-822-4087 in Washington./
 /CONTACT: Doris L. Brown, 212-536-2013, or David L. Nestor, 212-536-2965, both of Coopers & Lybrand/

CO: Coopers & Lybrand ST: New York IN: FIN SU:

MP-TW -- NY004 -- 8125 11/29/93 08:31 EST
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Publication:PR Newswire
Date:Nov 29, 1993

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