Apple Admits Wrongdoing But Rallies Around Leader

As a result, the company improperly inflated the potential value of Jobs's stock options by $20 million by incorrectly reporting their exercise price -- the price at which he would be entitled to buy the underlying stocks. The reported price of the options, reflecting the market value in October 2001, was $18.30; their price when they were finalized two months later was $21.01. By misreporting the exercise price, the company gave Jobs the opportunity to make more money if he sold the stock.

"There was no evidence, however, that any current member of management was aware of this irregularity," Apple said in its filing to the SEC.

Apple is among the largest of nearly 200 companies that have acknowledged or are being investigated in connection with the practice. Backdating stock options is not illegal, but not disclosing the practice to investors or falsifying documents to cover it up may be a crime.

The discovery of irregular practices at Apple came during a three-month internal investigation the company conducted earlier this year, which found that grants made on 15 occasions between 1997 and 2002 bore dates prior to the dates the grants were approved. In outlining its findings two months ago, the company said it had uncovered "serious concerns" about the conduct of two unidentified former officers in connection with their accounting, recording and reporting of the grants. These findings were turned over to the SEC and the Justice Department.

Apple said at the time that Jobs was aware that favorable grant dates had been selected in a few instances. In its filing the company went further, saying that Jobs may have recommended the favorable dates, but added that he did not "appreciate the accounting implications."

The company also said yesterday that the board had given initial approval to an options grant for Jobs in August 2001, and that action had been sufficient under its guidelines to lock in the exercise price.

The company reported, as it had previously, that Jobs never exercised his options. Along with an earlier set of 10 million options, the 7.5 million options from 2001 were canceled in March 2003, when Jobs was instead given 5 million shares of restricted stock, the company said.

Acknowledging that the grant approval for Jobs had been improperly recorded, the company said it would take a $20 million charge. Overall, Apple said, it would restate its financial data back to 2002 and take a charge of $84 million to reflect the actual expenses of backdated options given to Jobs and others.

Regulators also have contacted Pixar Animation Studios, which Jobs once headed before selling it to the Walt Disney Co., regarding possible stock-option problems.

After the SEC filings, Gore, who chaired the special committee that conducted the internal inquiry, said it was an "exhaustive investigation" into Apple's practices for granting stock options.

Some analysts agreed that Jobs could remain atop the company he co-founded. "It seems the whole issue should just be put to bed," said Charles Wolf, a principal and securities analyst at Needham & Co. He said the amount of money involved in the misreporting was trivial for Apple and Jobs. "It would be foolish to think Steve Jobs is involved, given the difference between October and December came to $20 million. At the time, Steve was a multibillionaire."

But Prudential Equity Group was measured in an update issued yesterday: "For Apple investors, the question remains whether or not Steve Jobs will be held liable for Apple's options irregularities. While we do not believe this is a likely scenario, we don't think this is out of the realm of possibility."

Longtime UnitedHealth Group Inc. chief executive William W. McGuire earlier this year agreed to leave the company and to re-price his stock options after an internal probe linked his skyrocketing pay to questionable options practices.

Gregory L. Reyes, the former chief of Brocade Communications Systems Inc., faces criminal securities fraud charges over options backdating even though he contends he did not benefit financially from the maneuvers. Prosecutors accuse Reyes and others of doctoring company records and misleading auditors.

Staff researcher Richard Drezen contributed to this report.