Apple 2005 Annual Report Download - page 85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7—Shareholders’ Equity (Continued)
Restricted Stock Units
During 2005 and 2004, the Company’s Board of Directors approved the grant of 230,000 and 5.03 million restricted stock units, respectively,
to members of the Company’s senior management team, excluding its CEO. These restricted stock units generally vest over four years either in
two equal installments on the second and fourth anniversaries of the date of grant or in equal installments on each of the first through fourth
anniversaries of the grant date. Upon vesting, the restricted stock units will convert into an equivalent number of shares of common stock. The
Company has recorded $10.3 million and $64.4 million in 2005 and 2004, respectively, in value for these restricted stock units as a component
of shareholders’ equity and is amortizing the amounts on a straight-line basis over the four-year requisite service period. The value of the
restricted stock units was based on the closing market price of the Company’s common stock on the date of grant. The restricted stock units
have been included in the calculation of diluted earnings per share utilizing the treasury stock method.
CEO Restricted Stock Award
On March 19, 2003, the Company entered into an Option Cancellation and Restricted Stock Award Agreement (the Agreement) with
Mr. Steven P. Jobs, its CEO. The Agreement cancelled stock option awards for the purchase of 55 million shares of the Company’s common
stock previously granted to Mr. Jobs in 2000 and 2001. Mr. Jobs retained options to purchase 120,000 shares of the Company’s common stock
granted in August of 1997 in his capacity as a member of the Company’s Board of Directors, prior to becoming the Company’s CEO. The
Agreement replaced the cancelled options with a restricted stock award of 10 million shares of the Company’s common stock. The restricted
stock award generally vests three years from the date of grant. Vesting of some or all of the restricted shares will be accelerated in the event
Mr. Jobs is terminated without cause, dies, or has his management role reduced following a change in control of the Company.
The Company determined the value of the restricted stock award in accordance with APB Opinion No. 25 and has recorded the value as
deferred stock compensation as a component of shareholders’ equity and is amortizing that amount on a straight-line basis over the 3 year
service period. The value of the restricted stock award was based on the closing market price of the Company’s common stock on the date of
the award. The 10 million restricted shares have been included in the calculation of diluted earnings per share utilizing the treasury stock
method.
Stock Repurchase Plan
In July 1999, the Company’
s Board of Directors authorized a plan for the Company to repurchase up to $500 million of its common stock. This
repurchase plan does not obligate the Company to acquire any specific number of shares or acquire shares over any specified period of time.
During the fourth quarter of 2001, the Company entered into a forward purchase agreement to acquire 3.1 million shares of its common stock
in September of 2003 at an average price of $8.32 per share for a total cost of $25.5 million. In August 2003, the Company settled this
agreement prior to its maturity, at which time the Company’s common stock had a fair value of $11.41. Other than this forward purchase
transaction, the Company has not engaged in any transactions to repurchase its common stock since 2000. Since inception of the stock
repurchase plan, the Company had repurchased a total of 13.1 million shares at a cost of $217 million. The Company was authorized to
repurchase up to an additional $283 million of its common stock as of September 24, 2005.
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