Medtronic earned $1.04 billion, or 85 cents per diluted share last year — unless you throw in the cost of stock options doled out to management and rank-and-file employees. Then Medtronic made $926.4 million, or 76 cents per share.

The situation is much the same at 14 other top Minnesota companies. Treat options as an expense and the likes of U.S. Bancorp and General Mills made less money — often significantly less — last year.

None of those companies did anything wrong. They all followed the complex rules that govern U.S. accounting. But there is growing pressure to change those rules and force companies to treat stock options as compensation expenses.

Coca Cola decided to do just that over the weekend. On Monday, the Washington Post Co. followed suit.

Those decisions elated people who believe companies should be required to treat stock options as compensation expenses just like salaries and other benefits. They argue that doing so will give shareholders a clearer picture of just how much money public companies are making and help restore the confidence of investors who've come to distrust corporate America because of accounting scandals at Enron and other once highly regarded companies.

"It's just wonderful that Coke is doing this," said Brian Shapiro, an accounting professor at the University of Minnesota's Carlson school of management. "It's called moral leadership. This is an example of where a company might be willing to take a costly action to distinguish itself from the pack."

Coke would have earned $202 million less last year if it had treated options as an expense.

Likewise, the Washington Post's 2001 earnings would have been $3.6 million, or 38 cents per diluted share, lower. The Post reported earnings of $229.6 million, or $24.06 per diluted share, for 2001.

That pair joined an exclusive club of companies that expense options. Just a handful of others, notably aircraft-maker Boeing and grocery chain Winn-Dixie, have expensed options in the past.

"There are very few companies that do that," said Terry Ward, a partner with accounting firm PricewaterhouseCoopers in Minneapolis, who recently researched the question. "Historically, companies have never run the cost through, and I think most companies don't plan to — except for again, there's much momentum now with Coca Cola jumping aboard."

U.S. accounting rules let public companies choose how they will treat stock options. One method requires options to be treated as an expense only if they have intrinsic value because the price of the underlying stock has increased.

The effect of expensing options must be reported in the footnotes of the annual report a company files with the Securities and Exchange Commission. The vast majority of U.S. companies play by that rule. It allows them to report higher profits because their compensation expenses do not include options that are not yet worth anything.

That's the route taken by U.S. Bancorp, Target, General Mills, Best Buy and others. If they had followed the route taken by Coke, their earnings would have suffered. U.S. Bancorp would have earned $1.47 billion, or 76 cents per share, instead of $1.7 billion or 88 cents per share, in 2001.

Likewise, expensing options would have chopped a nickel per share from General Mills' profit last year, lopped 3 cents off Target's earnings, and dropped Best Buy's performance from a profit of $570 million, or $1.77 per share, to $512 million, or $1.61.

But, like Coke and the Washington Post, companies can choose an alternative rule that requires them to record options as an expense based on the value they might gain over time.

Just a handful of companies opt to follow that rule because it generally cuts into profit and — because investors calculate stock prices based on a multiple of earnings per share — it lowers the value of their stock.

"There are unusual cases where it would actually increase earnings per share, but in substantially all cases it would decrease earnings per share," Ward said.

There is good reason, however, to bite the bullet and change the way options are treated, said Jay Taparia, a principal with Chicago firm Sanskar Investments.

"What's our dilution potential if we're a shareholder? If it's not recorded someplace, how are we ever going to know?" Taparia said. "It's conservative accounting."

Shapiro argues that it's also the right thing to do. Options are a compensation expense and should be treated the same as other expenses.

The price of a new building, for instance, is listed as an expense and depreciated over time with annual charges against earnings. That happens regardless of whether the company paid for the building with cash or stock.

"We can do a lot better if we can report something rather than nothing. Zero is grossly inaccurate," Shapiro said. "People who oppose expensing stock options are probably trying to protect their own interests in some fashion."

The counter argument to that is that the accounting method followed by Winn-Dixie and the Washington Post involves highly subjective judgment calls about the value of stock options.

Accounting experts say the result can be a number that may or may not be accurate.

The biggest judgment call involves the volatility of the stock underlying the options, according to Ward.

Another is the length of time that the options have until they expire. Some stocks are highly volatile, but have a long time to go before they expire. Others are less volatile, but the options expire in a far shorter period.

"You combine those two, and you can get a pretty significant impact," Ward said. "That is the big argument against putting them through the income statement."

The result is lower earnings, but Shapiro believes that's appropriate.

"It could drive the price per share down to the extent that the price itself is based on an earnings multiple,'' he said. "But to argue that we should not expense these options because it will have this effect is putting the cart before the horse.

"Because if the market has nothing else to go by, if that information is distorted, then whatever value we see is probably itself very distorted.''