The requirement for public companies to include stock options in reported costs is two years old. The art of pretending stock-option expense doesn't matter is still reaching new heights.
Martine Rothblatt, chief executive of United Therapeutics, will certainly rank as one of Maryland's top-paid executives for 2007 when all the numbers come out. She got $24 million in stock options alone - $20 million of it in the fourth quarter.
But the Silver Spring biotech company twists itself into curlicues, acting as if its 96 percent, fourth-quarter profit erosion - caused largely by the options - is just an accounting technicality. It makes much of what profits would have been without option costs and other pesky items.
Companies with lousy bottom lines and big noncash expenses have been doing this for decades, of course. United Therapeutics, however, has upped the spin just as its already well-paid boss scores another huge payday. (She was the highest-paid Maryland CEO in 2005, making $47 million, according to The Sun's annual executive pay report.)
The company's fourth-quarter profit report, released Tuesday, down plays true earnings and replaces them with a mellifluous-sounding, happy kind of profit called EBITDASO.
That's earnings before interest, taxes, depreciation, amortization and stock options, but who's keeping track? The important thing is that real profit, as defined by regulators, was $2 million while EBITDASO was $25 million.
There's nothing illegal about spinning results as long as companies also publish plain earnings figures. As stock-option plans go, Rothblatt's has some things to recommend it.
She gets options only if her company's shares rise in a calendar year, and in 2007 United Therapeutics stock nearly doubled. New options are set at the year-end price, so she can't cash them unless the stock rises even more. The plan has existed since the 1990s, so it's not as if the board set it up just before the company recently began flourishing.
"She had a good year, and the company's shareholders had a good year," said Andrew Fisher, United Therapeutics' head of investor relations. "We feel there's probably no better way to give her incentive compensation that's better aligned with shareholder interests."
Rothblatt got options for 582,607 shares Dec. 31. But she was already doubly invested in the company. She held options for more than 1 million shares before that. And her main motive - to market a drug that treats the pulmonary hypertension suffered by her daughter and many other people - is stronger than a trillion stock options. That's essentially why she started the company.
Size of the package aside, can't companies at least treat everybody like grown-ups? Stock options have value. Subtract them from profit and get over it. Don't give the wind-chill factor or AccuWeather's "Real Feel" index. Tell us how cold it is.
Many corporations report earnings before stock options, some with more emphasis than others. What's rarer is lumping options with so many other expenses and applying a dulcet label to the plumped-up profit. United Therapeutics doesn't just flaunt EBITDASO in its shareholder reports; it awards employee bonuses based on the calculation.
The traditional name for operating cash flow is EBITDA, which I believe was something Maj. Heinrich Strasser said to Rick Blaine in Casablanca. EBITDASO, on the other hand, is worthy of Pavarotti or Petrarch. As a public service, and keeping a promise I made on my Sun blog, I have rewritten United Therapeutics' earnings announcement to convey information more clearly and advance the art of financial verse:
Our profits took a hit, it's true,
But we wouldn't like to say so.
So we'll publish what you can't construe:
Our latest EBITDASO.
Sales rose by leaps and bounds, but sadly,
Our costs leapt even more.
But lest you curse our name too badly,
EBITDASO blurs the score.
Bounteous options with few strictures
The boardroom does bestow.
But you'll always lack the full, fat picture
In the land of EBITDASO.
Although our boss took home a heap,
Don't sweat the small details.
If you'd rather think we bought her cheap,
EBITDASO tells no tales.
jay.hancock@baltsun.com