An earlier version of this story that also appeared in the print edition ran an incorrect headline. This version has been corrected.
Apple Chief Benefited From Options, Records Indicate
Thursday, January 11, 2007
Apple Inc. chief executive Steve Jobs confirmed his place this week as the premier impresario of the Internet age, taking the stage in San Francisco to unveil a smart phone that won a raucous endorsement from thousands of fans in the audience and sent Apple stock rocketing to a record high.
But his signature performance at the annual Macworld Conference and Expo did not dispel the scandal swirling around Apple over its backdating of stock options. Despite the company's defense that Jobs never personally benefited from a pair of stock option grants he received -- he gave them up in 2003, long before allegations of wrongdoing surfaced -- filings with the Securities and Exchange Commission show that his options were exchanged for 5 million shares of restricted Apple stock.
That stock was worth $75 million at the time, nearly the same as the value of the options he relinquished, using a technique for calculating the value of investments popular with financial analysts and used by Apple.
Steve Dowling, Apple's director of corporate communications, said the 2003 transaction did not directly benefit Jobs because he could not sell the restricted shares until he had remained at Apple for another three years.
Some investor advocates call that explanation disingenuous. "You are torturing the English language to say he did not benefit from the options," said Patrick McGurn, executive vice president of Institutional Shareholder Services. "He certainly benefited from the grant because the grant was converted on a value-to-value basis."
McGurn and other analysts also said the amount of stock Jobs received appeared to be inflated because the value of his options was exaggerated, at least in the case of one grant, by the improper backdating.
The 5 million shares, which doubled in number when the stock split, continued to increase in value until last March, when Jobs was eligible to sell the shares. At that point, they were worth nearly $650 million. Jobs sold nearly half of them as soon as he could, in March, for $295.7 million.
Jobs is a unique figure in the technology industry. He is a rock star in the realm of geeks, the visionary behind such totems of the computer age as the Mac and the iPod and an evangelist of such charisma that his followers attribute to him the ability to make them rethink reality. His achievements have earned him a fortune estimated recently at $4.9 billion. After co-founding Apple, Jobs left the company after a power struggle, only to return in 1996 and revive its flagging fortunes. He was also chief executive of Pixar Animation Studios and, after it was bought by Walt Disney Corp., became Disney's largest shareholder.
While senior executives at other companies have recently been forced from their posts over allegations that they were involved in improper booking of stock options, Wall Street analysts have said Apple would be reluctant to oust Jobs even if he were clearly implicated in similar practices. His leadership is synonymous with the company's success.
Nearly 200 companies have acknowledged or are under investigation for the backdating of stock options, a practice that involves picking an effective date for an option when the stock price was low so that the recipient can make more money when he sells it. None of those companies is as prominent as Apple, and Apple has confirmed that federal authorities are looking into its practices.
Apple disclosed to the Securities and Exchange Commission late last month that it had falsified the approval of 7.5 million stock options given to Jobs in 2001 by recording a fictitious October meeting to ratify the options. The company acknowledged that the options were actually finalized on Dec. 18, 2001. That date's stock price, which Apple now concedes should have been the basis for the option price, was 15 percent higher than it was on the date of Jobs's grant.
The company told the SEC that it would take a $20 million charge to account for the improper pricing of the grant. The company said an internal investigation had discovered that 6,428 option grants to executives and other employees made on 42 occasions were improperly dated and agreed to take an $84 million after-tax expense as part of restating its finances.