Knight Ridder Shareholders Turn Back Options Expensing Proposal

The San Jose, California company said 34.1 million shares were voted against the stock option expensing measure while another 33.4 million shares were voted in favor, according to an Associated Press report. This vote was so close that Knight Ridder management initially projected the proposal would win, but a surge of last-minute ballots swung the outcome.

It may be a short-lived victory since the seven-member FASB unanimously agreed on Tuesday   that companies should be required to treat stock option grants as expenses (See  FASB Says Yes to Option Expensing).   The Norwalk, Connecticut-based accounting rulemaker will now move on to determining how to value options. The board said it expects to have a new rule in place sometime next year.

The issue has become a hot-button topic among many US companies. Options expensing backers say corporate accounting will become more transparent and that shareholders will get a more accurate picture of a company’s finances by recognizing the options’ cost. Opponents insist it wouldn’t be fair to expense stock options until there is a better way to calculate their true cost and that one valuation method unfairly overstates the shares’ value.

The fiercest opposition to expensing stock options is centered in the Silicon Valley, where high-tech companies have made the awards a standard part of employee compensation. Current accounting rules allow companies to limit their disclosures about stock option expenses to a footnote that estimates their impact on reported profits. Some high-tech companies have handed out so many stock options that treating them as an expense would trigger a major financial swing.   For example, Yahoo! Inc. would have lost $440 million last year, instead of registering a $42.8 million profit, had it been forced to expense stock options, according to the company’s annual report.

However, Knight Ridder wouldn’t see a dramatic turn in any event. Had it expensed stock options last year, Knight Ridder estimated its profit would have been $242.4 million instead of the reported net income of $257.4 million. The company had 10.4 million outstanding stock options at the end of 2002.