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Apple incurs $84m options expense, maintains 'confidence' in Jobs


Apple Computer in a long-awaited filing with the Securities and Exchange Commission on Friday provided a detail review of its investigation into historic stock option practices in which it maintained that no evidence of misconduct by current company officials had been found.

Based on an analysis of the findings of the independent investigation, the Cupertino-based company said it will incur total additional non-cash stock-based compensation expense of $84 million after tax, including $4 million and $7 million in fiscal years 2006 and 2005, respectively.

Apple said the restatement arose solely from certain stock option grants made between 1997 and 2002 and that it found no grants after December 31, 2002 that required accounting adjustments.

"The special committee, its independent counsel and forensic accountants have performed an exhaustive investigation of Apple’s stock option granting practices," said Al Gore, chair of the special committee, and Jerome York, chair of Apple’s Audit and Finance Committee, in a joint statement.

The company's board of directors said they remain confident that management has corrected the problems that led to the restatement, and they have "complete confidence" in chief executive Steve Jobs and the senior management team.

Apple said its investigative team reviewed the facts and circumstances surrounding stock option grants made on 259 dates, in which team members "spent over 26,500 person-hours searching more than one million physical and electronic documents and interviewing more than 40 current and former directors, officers, employees, and advisors."

Following the review, a special committee of outside directors "found no misconduct by current management" but did "identified a number of grants for which grant dates were intentionally selected in order to obtain favorable exercise prices."

"Although the investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates, he did not receive or financially benefit from these grants or appreciate the accounting implications," the company said.

In total, Apple's investigation turned up irregularly assigned grant dates for 6,428 grants on 42 dates. As a result, the company has recognized stock-based compensation expense of $105 million on a pre-tax basis over the respective awards’ vesting terms — which boils down to $84 million after tax.

Apple said a controversial grant to Jobs dated October 19, 2001 was originally approved at a Board meeting on August 29, 2001, with an exercise price of $17.83. However, it noted that the terms of the grant were not finalized until December 18, 2001 and that the grant was later 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," the company said. "Such a special Board meeting did not occur. There was no evidence, however, that any current member of management was aware of this irregularity."

Apple recognized $20 million in stock-based compensation expense for the grant, reflecting the difference between the exercise price of $18.30 and the share price on December 18, 2001 of $21.01.

The results of the company's independent investigation have been turned over to the SEC and the U.S. Attorney’s Office, Apple said.

Shares of the company rose $3.10 or 3.83 percent to $83.97 in early morning trading on the Nasdaq.