Apple 2006 Annual Report Download - page 5

As discussed below, the Company’s analysis determined that the originally assigned grant dates for 6,428 grants on 42 dates are not the proper
measurement dates. Accordingly, after accounting for forfeitures, the Company has recognized stock-based compensation expense of $105
million on a pre-tax basis over the respective awards’ vesting terms. No adjustments were required for the remaining 35,649 grants. The
adjustments were determined by category as follows:
Director Grants—Seventeen director grants were made during the relevant period. Two director grants were made pursuant to a 1997 plan that
dated the grants on the enactment of the plan. The remaining fifteen grants were automatically made under the Director Stock Option Plan for
non-employee directors, which was approved by shareholders in 1998, on the date of a director’s election or appointment to the Board and on
subsequent anniversaries, beginning on the fourth anniversary. Accordingly, the analysis determined that the originally assigned grant date for
each director grant is the measurement date, and no accounting adjustments are required.
Monday/Tuesday Grants—Beginning in December 1998, 3,892 new hire grants and grants for promotion and retention purposes
(“promotion/retention grants”) were made during the relevant period under the “Monday/Tuesday Plan.”
Under the Monday/Tuesday Plan, new
hire grants made within pre-established guidelines approved by the Board or Compensation Committee were dated on the Monday that the
recipient started work (or the following Monday, if the recipient started on another day). The Company’s analysis showed this process to be
reliable with very low error rates. Promotion/retention grants, also based on pre-established guidelines, were made generally on the first
Tuesday of each month. The Company has concluded that the new hire and promotion/retention grants made pursuant to the Monday/Tuesday
Plan within pre-established guidelines do not require adjustment, with the exception of six grants that were erroneously dated before the
employees’ start dates. For 120 new hire and promotion/retention grants made outside the guidelines, however, the Company has concluded
that the measurement dates are the dates of ratification by the Board or Compensation Committee rather than the dates used for grants within
guidelines. Accordingly, based on the methodology described above, the Company has recognized stock-based compensation expense of $6
million from 126 grants. If other dates in the period between the preparation of the UWC and the preparation of the Secretary’s Certificate had
been used as measurement dates for grants whose actual ratification dates are unknown, the total stock-based compensation expense would
have ranged from approximately $3 million to $7 million.
Focal Grants—During the relevant period, 27,096 focal grants were made to employees typically on an annual basis as part of an extensive
process that required several months to complete. Pursuant to limits, guidelines and practices previously approved by the Board or
Compensation Committee, managers throughout the Company would make recommendations for grants to employees in their areas of
responsibility. After senior management had determined that the grants were made in accordance with these established limits, guidelines and
practices, management treated the grants as final when they were submitted to the Board or Compensation Committee for ratification. The
Company has concluded that for 5,595 grants on five dates, the originally assigned grant dates are not the proper measurement dates. For these
grants, management’s process for finalizing the grants was completed after the originally assigned grant dates. As a result, the Company has
recognized $29 million of stock-based compensation expense. For two of the five grant dates comprising 3,744 grants, the evidence shows that
the grants were finalized and the measurement date occurred one day after the originally assigned grant dates. The grants on these two dates
represent more than $16 million of the total $29 million of stock-based compensation expense resulting from focal grants.
Other Meeting Grants—
During the relevant period, meetings of the Board or Compensation Committee were held to ratify 9,988 grants that are
not Monday/Tuesday, focal or CEO grants. The grant dates and measurement dates for these grants are the meeting dates when the grants were
ratified, with the exception of 46 grants. Forty-two of these 46 grants are dated concurrent with a meeting that considered and approved certain
grants, but the evidence indicates that all of the grants may not have been finalized until a
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