It's no news that expensing employee stock options, or ESOs, will be a bottom-line pain for most companies. But an updated analysis by Goldman Sachs analyst Rick Sherlund shows that many software companies have already cut back the use of options, an action that improves long-term profitability.

"The market wants to look forward," Sherlund said in an interview. "By calculating what we call the run-rate of options expensing, we get a truer picture of profitability."

Consider

Siebel Systems

(SEBL)

, the poster-child for wide -- some might say profligate -- use of ESOs in the past. In 2006, Sherlund estimates that ESO's will cost the company 22 cents a share, effectively wiping out its profit.

(It's important to note, however, that much of the expense of options is historical, i.e., the cost remains on the books from the time they were issued to the time they are fully vested. So, Siebel will be paying for past sins, as it were, for some time.)

But the company no longer issues options at the fast and furious pace of the past. By using numbers in Siebel's most recent reports, Sherlund calculates that ESOs would have taken 5 cents off the estimated bottom line in 2006 if the company had awarded options in the past at the lower current rate. The current rate, which in Siebel's case works to 5 cents, or minus 21%, is what Sherlund means by "run rate."

Similarly,

Symantec

(SYMC) - Get Report

will lose 25 cents from its estimated bottom line in 2006, but according to Sherlund, the hit on a run-rate basis is just 13 cents.

Still, the numbers are what they are -- the run-rate is a guide to the future -- and on average, enterprise software companies will take a bottom-line hit of about 22% in fiscal 2006 as they begin complying with FAS 123, the controversial rule requiring them to expense options by, in most cases,

the first quarter of 2006.

As if the issue weren't complicated enough, Sherlund notes that investors will face a confusing transition period of perhaps three or four years while companies and analysts come to terms with the new regulation.

Many companies, he says, are likely to move away from options and instead reward employees with grants of restricted stocks as the favorable accounting treatment for ESOs becomes a thing of the past. Microsoft (MSFT) - Get Report made that switch in 2003.

It's also unclear how Thomson First Call will present estimates in the future. First Call's policy is to go with what a majority of analysts provide on a company-by-company basis. First Call is currently evaluating whether to continue that policy after the options-expensing rule takes effect or to simply mandate that all estimates include the expense, as First Call has done on at least one previous occasion, says research director Mike Thompson.

If that's the case, investors may be forced to look at two, three or even four sets of figures to get a good picture of a company's real growth rate. "It will be confusing," says Sherlund.

Siebel 1, Feds 0.

There's plenty of talk about how Siebel dodged the proverbial bullet when a federal judge deep-sixed a Regulation FD suit against the company this week. But it might be more apt to say the

Securities and Exchange Commission

shot itself squarely in the foot.

In case you missed it, the government sued Siebel in 2004, alleging that CFO Ken Goldman met privately over dinner with investors in 2003 and gave them information that was substantially different than the company had disclosed just a few weeks earlier in its quarterly earnings call.

Even a casual reading of the decision by District Judge George B. Daniels reveals his honor's annoyance at the SEC's overly aggressive interpretation of the rule forbidding selective disclosure of material information. "The SEC has scrutinized, at an extremely heightened level, every particular word used in the statement, including the tense of verbs and the general syntax of each sentence," the judge wrote in his 27-page decision.

"Such an approach places an unreasonable burden on a company's management and spokespersons to become linguistic experts, or otherwise live in fear of violating Regulation FD should the words they use later be interpreted as connoting even the slightest variance from the company's public statements."

The judge also rejected the SEC's argument that the actions of some investors who changed short positions to long ones or made other bullish trades after the meetings proved that Goldman had given them information other investors lacked. In effect, he said, the purpose of Reg FD is to forbid selective disclosure, not punish a company for the actions of a shrewd analyst or investor.

Does this mean, as some have suggested, that Siebel's win is a defeat for Reg FD? Not at all, says Michael McCoy, a former SEC attorney, now with the law firm of Bryan Cave LLP. "This will push the SEC into taking a more sensible review of their enforcement actions." A victory for the SEC, he said, could well have had a "chilling" effect on disclosure, as companies clam up in order to avoid prosecution.

However, it wasn't a total victory for Siebel. The judge declined to rule on the company's claim that the SEC did not have the constitutional authority to even adopt Reg FD, much less sue Siebel.

The story is over, unless the SEC decides to appeal the ruling. But more than one person on Wall Street is wondering if there wasn't more on that 2003 dinner menu than meets the eye. We may never know.