Apple 2006 Annual Report Download - page 87

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2—Restatement of Consolidated Financial Statements (Continued)
type and process by which the grant was finalized. The Company analyzed the evidence related to each category of grants including, but not
limited to, electronic and physical documents, document metadata, and witness interviews. Based on the relevant facts and circumstances, the
Company applied the controlling accounting standards to determine, for every grant within each category, the proper measurement date. If the
measurement date is not the originally assigned grant date, accounting adjustments were made as required, resulting in stock-based
compensation expense and related tax effects.
The 42,077 grants were classified as follows: (1) 17 grants to persons elected or appointed to the Board of Directors (“director grants”);
(2) 3,892 grants to employees under the Monday/Tuesday Plan described below (“Monday/Tuesday grants”); (3) 27,096 grants made in broad-
based awards to large numbers of employees, usually on an annual basis (“focal grants”); (4) 9,988 other grants ratified at meetings of the
Board or Compensation Committee (“meeting grants”); (5) 1,082 other grants ratified by unanimous written consent (“UWC”) of the Board or
Compensation Committee (“other UWC grants”); and (6) two grants to the CEO (“CEO grants”).
All references to the number of option shares,
option exercise prices, and share prices in this Note 2 have not been adjusted for any subsequent stock splits.
With the exception of director grants, all stock option grants were subject to ratification by the Board or Compensation Committee at a meeting
or by UWC. Following approval of the grants at a meeting or by UWC, the Company’s legal staff would prepare a Secretary’s Certificate
certifying the ratification of the grants. Based on the facts and circumstances described below, the Company has concluded that the recipients
and terms of certain grants were fixed for accounting purposes before ratification pursuant to parameters previously approved by the Board or
Compensation Committee through the Monday/Tuesday Plan and the focal process. As further discussed below, within these parameters,
management had the authority to determine the recipients and terms for each grant. Thus, the Company has concluded that the measurement
dates for these grants occurred when management’s process for allocating these grants was completed and the grants were ready for
ratification, which was considered perfunctory. With regard to all other grants, the Company has concluded that the grants were finalized and
the measurement dates occurred when the grants were ratified. For many grants, however, the dates of ratification cannot be established
because the dates the UWCs were executed by the Board or Compensation Committee members or received by the Company are not available.
For such grants, the Company has concluded that the date of the preparation of the Secretary’
s Certificate is the best alternative for determining
the actual date of ratification.
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.
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