Apple Shareholders Vote Yes for Option Expensing

April 25, 2003 ( - Despite urging from the company's directors to vote down the measure, shareholders at Apple Computer have approved a resolution calling for the company to treat stock options as an expense.

Even though the resolution was passed by a majority of Apple’s ownership, it is technically a recommendation to the board of directors and is not binding. A company representative declined to comment on whether the computer maker will implement the change, according to a CNET News report.

Company directors made no secret of their opposition to option expensing, saying in Apple’s proxy statement, that expensing options before there was a standard method of doing so would put the company at a disadvantage: “We believe the Company and its shareholders are best served by retaining the current accounting policy with respect to employee stock options until there is consensus and clarity on whether, and if so how, to expense stock options.”

The vote comes as Apple is trying to strengthen its corporate governance policies after previous criticisms of its board. In March, the company added former Vice President Al Gore to its board of directors and has pledged to add another independent director.

Option Expensing

Stock option expensing has been in the limelight often in recent months.     Earlier, the Financial Accounting Standards Board (FASB) decided to require stock option expensing (See  FASB Says Yes to Option Expensing ).   The Norwalk, Connecticut-based accounting rulemaker will now move on to determining how to value options and said it expects to have a new rule in place sometime next year.

Standing in opposition to the idea have been the technology companies.      NASDAQ, the primary stock exchange for technology companies, has said expensing stock options could hurt small companies that do not have earnings but need to attract qualified employees as the companies in particular rely on stock options as a form of compensation.  Currently, these companies utilize the intrinsic value method to account for the value of the options.  Under this method, options are accounted for by taking the difference between the market price of the stock and the exercise price at which the employee may buy that stock.

Expensing options can make a big difference in a company’s financial results. For example, in the first fiscal 2003 quarter ended December 28, 2002, Apple would have reported a loss of $61 million had it been required to account for options as an expense, compared with the $8 million loss it did report.  Two of Apples techno-peers have reported similar results: Adobe (See  Adobe Takes Snapshot of Life With Option Expensing ) and Analog Devices (See Analog Shareholders Defeat Option Expensing Proposal ).