Posted on 01/04/2007 8:06:51 PM PST by Swordmaker
An internal inquiry gives him a pass in Apple's backdating scandal—but raises questions about whether he's getting special treatment
In Silicon Valley, Steve Jobs is admired for many things: his storybook resuscitation of Apple Computer (AAPL), his billion-dollar-plus fortune, his rock star status as the driving force behind iconic products such as the iPod. Near the top of the list is Jobs’s famed ability to spin what admiring techies refer to as a "reality distortion field" to win consumers over to the Apple view of the world.
But will it work with government regulators? As Jobs prepares to wow the masses once again with his keynote at the annual Macworld trade show on Jan. 9, skepticism abounds among options experts, as well as techies, that the Apple chief executive is totally in the clear over his role in resetting start dates for company stock options. A report issued on Dec. 29 by a two-member special committee, composed of no less than former Vice-President Al Gore and tough-minded finance veteran Jerome B. York, "found no misconduct" by Jobs or other managers. Yet it acknowledged that he knew about some of the 6,428 option grants handed out between late 1996 and early 2003—roughly 15% of the total in that time—that were improperly dated to give employees an artificially low price. On some occasions, Jobs even recommended the dates.
(Excerpt) Read more at yahoo.businessweek.com ...
Why would you bother to take seriously anything that Business Week says. It has talked down the economy throught the Bush presidency, and the last tiome I visited the site, it had ridiculous features like "Could Spider Man Be a CEO".
This is more of the same.
Duuuugh.. the democrats are in charge.. nevermind..
You almost make it sound like you think he was touchable before.
Some guys, have reasons to believe they are above the law, regardless of who is in power.
Jobs, is no more, no less safe today then he was before.
I don't think it's unreasonable to prosecute a company like Enron. They blatantly lied on their financial statements and deceived their own employees and shareholders about the true condition of the company.
When the restatement is $80-odd million out of profits in the billions, and the financial condition of the companhy is indisputedly superb, I really don't see where the fire is.
Jobs' management has increased the value of the company tenfold since 2001, and he has taken far less in compensation than CEOs who have done equivalent jobs - I don't see how shareholders have any realistic basis for complaint.
And if they don't, really, who does?
D
It was internal in the sense that Apple originated the review but they had two of their non-employee board members supervise it and hired an outside firm of independent forensic accountants to actually do the review.
Our local paper the Oregonian (whOregonian) actually had the headline "Jobs Cleared of Stock Oops"
The Oregonian has been bowing down at the feet of Apple for years. Their reporters write articles that sound like they were written by Apple marketing specialists. They will even feature Apple products in just about any article they can shoe-horn them into.
Their headline says it all, though. For Steve Jobs, it's an "oops" rather than fraud.
In what way is allowing employees to buy already authorized (by the stockholders) but unissued common stock from the company "stealing"?
The vast majority of the stock purchase options at Apple were issued to mid and low level employees as incentive and bonus payments that DID NOT COME FROM THE CASH ON HAND. In fact, for the employees to benefit, they had to BUY the stock from Apple. Essentially, until that sale takes place, the stock is valueless pieces of paper stacked in the CFO's company vault.
It is no more "stealing" than if the Board of Directors (elected by the stockholders to represent them) vote to take out a $100,000,000 mortgage to build a new factory, encumbering the company (i.e. the stockholders) to pay back $200,000,000... which WILL come out of the stockholders potential earnings.
In this instance, and every instance where stock purchase options are granted in lieu of cash bonuses, actual gifts of stock, or other form of compensation for employees deemed by the Compensation Committee of the Board of Directors to be valuable enough to reward and/or give incentives to, it is entirely possible that the return on that investment will be at a greater percentage than the brick and mortar of the factory.
The by-laws of the corporation SPECIFICALLY grant the Board of Directors the authority to do exactly that, to use the assets of the company to maximize the profits to the stockholders.
"The grant [to Steve Jobs] dated October 19, 2001 was originally approved at a Board meeting on August 29, 2001, with an exercise price of $17.83. The terms of the grant, however, were not finalized until December 18, 2001. The grant was dated October 19, 2001, with an exercise price of $18.30. The approval for the grant was improperly recorded as occurring at a special Board meeting on October 19, 2001. Such a special Board meeting did not occur. There was no evidence, however, that any current member of management was aware of this irregularity. The Company has recognized $20 million in stock-based compensation expense for this grant, reflecting the difference between the exercise price of $18.30 and the share price on December 18, 2001 of $21.01."The accounting adjustment involved NO CASH and no stockholder was deprived of any money.
If a invester had bought Apple Stock on October 19, 2001 and kept it until last Friday, December 29, 2006 when Apple announced its adjustments, that person's stock would have appreciated 890% (from $18.30 per share to $163 per share not adjusted for splits)... and the dilution cost per share of Steve Jobs 7.5 million shares (for which he would have paid $137,250,000 in cash into Apple's coffers) would be a mere 16¢ per share on one year's profits... which don't get distributed anyway.
Let's see... as an owner of Apple, I invest 16¢ per share in an incentive to the CEO to do a good job growing the company and get a return of $144.70 per share. That's about a 102,000% return on my 16¢ investment. I think that is a damn good investment and use of the company assets... especially since the total asset cost to the company about 25¢ to print the share... and the company exchanged that 25¢ piece of paper for $137,250,000 in cash!
I'm not... it is FUD.
Oops... I made a little booboo in my math. The dilution is not 16¢ per share per year... it is a little over 2.4¢ per share per year. Total dilution cost for the five years would be about 12¢ per share. The percentage of return on my dilution investment in Steve Jobs' incentive grant would be around 120,000%!
Sorry for the error...
As a stockholder, I would be really pissed to have to receive that kind of return on my investment. /sarcasm
Not going to happen.
John Sculley became CEO of Apple Computer on April 8, 1983, a position he held until leaving in 1993.
Amelio became Apple CEO on February 2, 1996, succeeding Michael Spindler.
He is untouchable now that the Democrats are in power. Anyone who thinks anything else is an idiot.You almost make it sound like you think he was touchable before.
Some guys, have reasons to believe they are above the law, regardless of who is in power.
Jobs, is no more, no less safe today then he was before.
I think the comparison must be with Marth Stewart. Both Jobs and Stewart are celebrity bosses. Stewart's business is not entirely different from Jobs' business, either. Both involve fashion and image.But that is pretty much the sum of Stewart's business, whereas Jobs also - and heavily - involves technological vision.
Finally, there is the salient point of political affiliation and clout. I don't think that Stewart was/is Republican, but she can't touch Jobs when it comes to advertising clout. For example, Apple could make a noticable improvement in its profit by the simple expedient of advertising on the Rush Limbaugh Show. Rush gives Apple free plugs anyway, but as a paid endorser he would over time make a serious dent in the image of Windows. And yet Apple does not do so, because Apple has as much of a "liberal" political culture as your typical university does. And partly, at least, that came from Jobs as a founder of Apple.
And Jobs is also on the board of Disney.
So let's review: Republicans don't really want to hurt the economy by hurting a tech company like Apple over small stuff like the accusations against Jobs. Liberals don't want to hurt a fellow liberal. And journalists have the same politics as liberals, they just call it "objectivity" when they (more or less discretely) project it. So the threat to Jobs is exactly what?
>>>The vast majority of the stock purchase options at Apple were issued to mid and low level employees
How much in US dollars did one individual, Steve Jobs, receive by this backdating? As I recall it was in the tens of millions.
How objective is a board of directors that asks the CEO what back date to use on his millions of dollars in options?
Options are supposed to be used for FUTURE performance, not an element of pay for previous work.
The stockholders lose when Jobs gets more coming to him than was promised. His chosing a date and the absence of a stockholders meeting shows there are financial irregularities going on at Apple. Enron was cut from the same play-it-fast-and-loose cut of cloth. Don't drink the cool-aid.
It gives me lots of schadenfruedelike pleasure to see this happening to Apple. Personally, I hope that Steve Jobs is given the Martha Stewart treatment.
Are you named after a sharp-cutoff pentode?
Duh, I just clicked on your name.
How much in US dollars did one individual, Steve Jobs, receive by this backdating? As I recall it was in the tens of millions.
ZERO. The options that Steve Jobs received were never exercised.
Apple took a $20 million dollar NON-CASH adjustment to account for the purely accounting requirements of issuing the Stock Purchase Options for Steve Jobs. I suspect that they would recover that $20 million or a large portion of it in the quarter in which Steve Jobs voluntarily cancelled his options and surrendered them.
Certainly the quasi-liability created that encumbered the non-issued stock(requiring the shares to be held until the option were either exercised or cancelled) when the grant was given would be vacated. The unissued stock is unencumbered and therefore debited from the Outstanding Stock Options Liability Account. That would require a balancing quasi-expense to be credited to the Stock Option Expense Account which would reduce overall expenses for that accounting period. These are all merely paper entries that did not affect the cash holdings but were charged against paper profits.
The funny thing is that as a result of all these adjustments for the NEW ex post facto rules generated by Sorbanes-Oxley, Apple probably is going to get a TAX REFUND or at least a credit on this year's corporate taxes. The expenses they charged themselves internally, applying rules that didn't exist until 2004, for the back dated options going back to 1997, totaled $115 million dollars... but the AFTER TAX expense (again, no money changed hands, this is all internal) was only $84 million. Looks to me as if Apple received a $31 million aggregate tax reduction for the years in question. Since they have already paid those year's taxes, they get either a refund or a credit.
How objective is a board of directors that asks the CEO what back date to use on his millions of dollars in options?
From what I have read, Steve Jobs did not suggest the date for the only backdated options that he received. His suggestions had to do with dates for options granted to some mid-level managers who had performed well in development of new products. The dates suggested were never more than a couple of weeks and in the vast majority of cases a few days from the approval dates.
Options are supposed to be used for FUTURE performance, not an element of pay for previous work.
That is only one purpose. Stock Purchase Options are often ways of providing non-cash compensation for extraordinary contributions by employees that have impacted or will impact the profitability of the company. It is a way of allowing the employee to buy an ownership position in the company and reap the rewards of his work.
Usually options that are used for incentive carry restrictions and are seldom "in the money" but have strike prices set above the current market. They also may require that the grantee still be an employee of the company on the exercise date.
The stockholders lose when Jobs gets more coming to him than was promised. His chosing a date and the absence of a stockholders meeting shows there are financial irregularities going on at Apple.?
So you hold that whenever the Board of Directors votes to compensate Steve Jobs more than his promised $1 a year salary, the stockholders lose? Poppycock.
Incidentally, all evidence shows that Jobs did not "choose" a date for the back dated options he received. If he had, he could have easily (and perfectly legally and ethically) chosen August 29, 2001, when the Board of Directors actually first voted to authorize the 7.5 million stock purchase options for him, when the stock was 47¢ a share lower than it was on October 19, 2001.
The probable reason they did not backdate to the legitimate date of August 29th was simply because August was in the company's 4th quarter... and someone didn't complete the paperwork until 2 weeks into the 1st Quarter of the company's new fiscal year.
Under the Generally Accepted Accounting Principals (GAAP) in place before the 2002 passage of the Sorbanes-Oxley bill, legal backdated options were required to be within the current accounting period. I suspect that the October 19th option date was selected because $18.30 was the closest they could get to the August 29th price of $17.83, when the board actually approved the bonus for Steve Jobs in the form of stock purchase options.
I think that someone (probably the chief legal officer) noticed that, since it was a new accounting period, a new board vote would be required and assumed that the same board members who had already approved the options on August 29th would not change their minds, noted on the options that they were approved at a "special" board meeting on that date which actually didn't take place. I further think that when it came to the attention of the Board at their next regular Board meeting for that quarter on December 18th, that they re-voted to approve the grant in the current quarter... otherwise, if they had known about the supposed "special" meeting, why vote again?
In addition, it would be a very unusual event for the stockholders to vote for any compensation packages for anyone working for a company. The stockholders usually meet only once a year for reports and the election of Directors. Most stockholders do not go but send their proxies to someone to vote for them. The by-laws of the corporation vest all such decisions with the Board of Directors.
I am not sure the conversion of your stock was arbitrary.
Did you become an employee of Apple? If so, the stock option probably had to be converted to a non-qualifying (non-statutory) option because the stock it referred to was no longer available or traded and your employment with the issuing company was terminated in favor of your new employment at Apple.
The ISO (Incentive Stock Options) statutory law (I just looked it up) seems to state that ISOs MUST be exercised at termination or within 3 months of termination which would not be possible if the stock ceases to exist. There are other complex rules having to do with the transfer of the stock and the tax consequences of transfers.
Did your company announce the acquisition in time for you to exercise your options before the acquisition? If not, your complaint might be with the management there.
Frankly, reading the law and the option types, I can't see how Apple could have done much else with the constraints the law places on ISOs. They could not have replaced yours with Apple ISO options because of the legal requirements. You said it was a significant amount of money... one of the constraints on the issuing company is that the ISOs given to a single employee cannot exceed a set dollar amount ($100,000) per year or they must be non-statutory options.
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