Jobs cleared over options
SAN JOSE, Calif. — Call it what you will — mishandling, improper accounting, or maybe even forgery — but Apple Computer Inc. has given an example of what the practice of stock-options backdating could reap.
When a stock option grant date in 2001 was pegged to one with a lower exercise price, Apple’s CEO Steve Jobs technically could have received an extra $22 million in profits, according to an annual report the company filed Friday with the Securities and Exchange Commission.
But Jobs never realized those gains because he later gave up that grant before exercising the shares. And though he even recommended the selection of some favorable grant dates, Apple cleared him and other current executives of any misconduct over the company’s stock options “irregularities.”
The SEC filing was the most detailed account yet of Apple’s stock-option practices. In it, the company acknowledged the backdating of thousands of option grants to employees and executives, including that one in 2001 to Jobs.
But it still isn’t clear who was responsible for these actions and how much Jobs was involved.
While Apple has concluded its own probe into the backdating scandal, Jobs and others aren’t necessarily cleared of any civil or criminal actions. The SEC and the U.S. Attorney’s Office have yet to publicly comment on whether they are investigating the matter.
Apple said it has given the results of its review to the federal agencies and responded to their “informal requests” for documents and additional information.
The Cupertino-based maker of iPod portable media players and Macintosh computers is among the most prominent of some 200 companies under scrutiny for backdating stock options. It’s a widespread practice, especially in Silicon Valley, that involves pegging stock options to favorable grant dates in the past to boost the recipients’ award.
The manipulation itself isn’t necessarily illegal, but securities laws require companies to properly disclose the practice in their accounting and settle any charges that may result.
In the SEC filing Friday, Apple said Jobs was aware of some favorable grant dates but he neither benefited financially from them nor “appreciated the accounting implications.”
The company exonerated the current executive team but said there are “serious concerns” with the stock-options accounting actions of two former officers, whom Apple did not name.
Two outside directors — former Vice President Al Gore, who chaired the special committee that conducted the probe, and Jerome York, chair of Apple’s Audit and Finance Committee — said in a joint statement they had “complete confidence” in Jobs and the senior management team.
At the same time, Apple restated past earnings — albeit with relatively minor adjustments — because of the probe.
Experts say the company’s own clearance of misconduct doesn’t provide the final word.
“The question is not merely one of whether Jobs benefited or not, but also one of whether Jobs was involved in the backdating of documents, or providing investors with misleading or incomplete disclosures,” Lynn Turner, a former chief accountant for the SEC, said in an e-mail Friday.
Apple’s investigation reviewed 42,077 stock-option grants made on 259 dates between October 1996 and January 2003. Of those, 6,428 grants on 42 dates were not dated properly, Apple said.
Of two option grants awarded to Jobs, one was improperly dated Oct. 19, 2001, with an exercise price of $18.03, instead of the correct date of Dec. 18, when Apple shares were trading at $21.01. That stock-option grant was for 7.5 million shares.
Had Jobs exercised the options, the lower price of Oct. 19 could have boosted Jobs’ award by about $22 million. Jobs later surrendered those options along with another earlier grant for 15 million shares that was correctly dated Jan. 12, 2000, the company said.