Under pressure from shareholders to start expensing employee stock options,

PeopleSoft

(PSFT)

said Monday that the accounting change would have turned a 7-cents-a-share profit in the March quarter into a 2-cents-a-share loss.

The swing would have been even larger in the year-ago quarter: The company's pro forma profit of 12 cents a share would have been a loss of a penny a share, the company said in a filing to the

Securities and Exchange Commission

.

The net cost of the options to the company was approximately $30 million in the March 2004 quarter, down from $42 million a year earlier.

In March, PeopleSoft's shareholders disregarded management's advice and voted for a nonbinding resolution introduced by the AFSCME Employee Pension Plan and the Connecticut Retirement Plan to expense options. The company's board said at the time it would study the motion but has yet to comment on the matter.

The measure was similar to those passed by shareholders of other technology companies, including

Hewlett-Packard

(HPQ) - Get Report

, where stockholders acted about two weeks earlier. The debate is to some extent symbolic because the Financial Accounting Standards Board is expected to begin requiring companies to expense options on their income statements beginning in 2005.

Critics contend that the granting of options drains corporate cash flows by forcing companies to buy back their own stock to offset the dilution caused by issuing options.

In the first quarter of 2004, PeopleSoft generated $115.5 million in cash from operations and another $60.9 million from options transactions. A year ago, the company, which had not yet purchased rival software maker J.D. Edwards, generated $74.7 million in cash from operations and another $30 million from options.

JMP Securities analyst Patrick Walravens, who has had a somewhat skeptical view of PeopleSoft, said he was not concerned by the large contribution to cash made by employee stock options. "The year-over-year growth in cash is moving in the right direction," he said. (JMP does not have a banking relationship with PeopleSoft.)