Apple 2006 Annual Report Download - page 88

Download and view the complete annual report

Please find page 88 of the 2006 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 143

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2—Restatement of Consolidated Financial Statements (Continued)
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.
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 later date. One of the 46 grants was approved and
dated at another meeting, but the recipient, who was becoming employed by the Company as part of a corporate acquisition, did not start until a
later date. Two other grants were approved before the employees’ start dates. Another grant was mistakenly cancelled and subsequently
reinstated, requiring an accounting adjustment. Thus, for these 46 grants the Company has concluded that the originally assigned grant dates
are not the proper measurement dates. As a result, the Company has recognized $2 million of stock-based compensation expense.
Other UWC Grants—During the relevant period, 1,082 grants were approved by UWCs for a variety of purposes, including executive
recruitment, retention, promotion and new hires outside the Monday/Tuesday process. These grants were not made pursuant to pre-established
guidelines adopted by the Board or Compensation Committee. Therefore, the Company has concluded that these grants were
87