Apple 2006 Annual Report Download - page 89

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2—Restatement of Consolidated Financial Statements (Continued)
not finalized for accounting purposes until ratification by the Board or Compensation Committee. Accordingly, for 660 grants, the Company
has concluded that the originally assigned grant dates are not the proper measurement dates. As a result, the Company has recognized $48
million of stock-based compensation expense.
CEO Grants—During the relevant period, the Company made two grants to CEO Steve Jobs. The first grant, dated January 12, 2000, was for
10 million option shares. The second grant, dated October 19, 2001, was for 7.5 million option shares. Both grants were cancelled in
March 2003 prior to being exercised, when Mr. Jobs received 5 million shares of restricted stock.
With respect to the grant dated January 12, 2000, the Board on December 2, 1999, authorized a special “CEO Compensation Committee” to
grant Mr. Jobs up to 15 million shares. The evidence indicates that the CEO Compensation Committee finalized the terms of the grant on
January 12, 2000, although the Committee’s action was memorialized in a UWC transmitted on January 18, 2000. Because the measurement
date is the originally assigned grant date, the Company has not recognized any stock-based compensation expense from this grant. If the
Company had determined that the measurement date was the date when the UWC was executed or received, then additional stock-based
compensation would have been recognized.
The grant dated October 19, 2001 was originally approved at a Board meeting on August 29, 2001, with an exercise price of $17.83. The terms
of the grant, however, were not finalized until December 18, 2001. The grant was dated October 19, 2001, with an exercise price of $18.30.
The approval for the grant was improperly recorded as occurring at a special Board meeting on October 19, 2001. Such a special Board
meeting did not occur. There was no evidence, however, that any current member of management was aware of this irregularity. The Company
has recognized $20 million in stock-based compensation expense for this grant, reflecting the difference between the exercise price of $18.30
and the share price on December 18, 2001 of $21.01.
The incremental impact from recognizing stock-based compensation expense resulting from the investigation of past stock option grants is as
follows (dollars in millions):
Additionally, the Company has restated the pro forma expense under Statement of Financial Accounting Standards (SFAS) No. 123 in Note 1
to reflect the impact of these adjustments.
88
Fiscal Year
Pre
-
Tax
Expense
(Income)
After Tax
Expense
1998
$
(1
)
$
—
1999
8
6
2000
13
9
2001
19
13
2002
29
23
2003
16
12
Total 1998 – 2003 impact
84
63
2004
13
10
2005
7
7
2006
1
4
Total
$
105
$
84