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Steve Jobs implicated in Pixar stock option dust-up

post #1 of 58
Thread Starter 
The smoldering controversy over the Apple chief's involvement in stock options reignited once again on Friday after curious timing in a Pixar stock option was discovered by the Wall Street Journal.

Quoting an anonymous source, the financial paper placed Apple chief executive Steve Jobs in even deeper hot water than before by suggesting that he had signed a job contract for Pixar's chief creative officer John Lasseter which gave the premier film director a questionable stock option bonus.

The ten-year contract, finalized in March 2001, saw Lasseter granted one million shares whose initial value was dishonestly backdated to a date three months before the deal had been completed -- coincidentally, the same day Pixar shares had been at their nadir in December of 2000. The terms effectively guaranteed that Lasseter would turn an immediate $6.4 million profit the day his new employment took effect, even before he received his first paycheck.

Then the CEO of Pixar, Jobs was known to have helped work out the details of the contract and had to put his signature to the deal for it to take effect, the Journal's informant said. However, doubt exists as to how much conscious involvement the company head truly had in the agreement. While his name on the paper implies tacit endorsement of the dubious grant, Jobs himself may not have actually chosen the date.

Still, an intense level of legal scrutiny is bound to follow the often controversial chief. Both the federal government and Pixar's parent company Disney (on whose board Jobs sits) are said to be actively investigating the studio's handling of stock options. And as always seems to be the case these days, Jobs is under the close watch of the government for irregularities in stocks at his very first company, Apple.

It comes as little surprise that none of the involved parties were prepared to comment to the Journal on the day's news. Disney forwarded requests to speak to Jobs to Apple, which in turn said he was unavailable; a similar response followed in attempts to contact Lasseter. Disney itself chose not to comment on the matter.

Shareholders were suitably unimpressed and thrashed Apple's stock value, which tumbled $2.91 to close at $83.27 by the end of trading on Friday evening.
post #2 of 58
when will it stop?
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Originally Posted by addabox

Being an Apple basher means you never, ever have to acknowledge success.
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Originally Posted by addabox

Being an Apple basher means you never, ever have to acknowledge success.
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post #3 of 58
I don't know.....

Now, someone correct me if I'm wrong, but isn't backdating legal? As long as everyone (the board) agrees to the deal?
post #4 of 58
Quote:
Originally Posted by AppleInsider View Post

Quoting an anonymous source....

"For secrecy sake, we will call him.... 'S. Balmer'..... no no no, that's too obvious...... let's call him..... 'Steve B.' "

post #5 of 58
Quote:
Originally Posted by Wally View Post

"For secrecy sake, we will call him.... 'S. Balmer'..... no no no, that's too obvious...... let's call him..... 'Steve B.' "


post #6 of 58
"whose initial value was dishonestly backdated"

Sorry for yelling, but BACKDATING STOCK OPTIONS IS NOT ILLEGAL!

Now, hiding it, misrepresenting it, mis-reporting it, etc, can make for irregular (illegal?) accounting. but the backing of the options themselves is not illegal.

I don't subscribe to the WSJ, so I have not read the whole article; but even if Steve Jobs himself picked the date and signed the contract, that does not automatically mean the he was involved in making the accounting entries (and in all likelihood he was not). And while yes, he's was the man in charge, at some point you need to draw the line between CEO and CFO. I know with Enron and the resulting Sarbaines-Oxley laws that line has shifted to place more responsibility on the CEO to know details about financial transactions, but it is still a very poorly defined line that is drawn.
post #7 of 58
This stock option dating issue is a case of the press gone amok. Backdating is legal!!! The only issue arises when a company doesn't account for it correctly and needs to pay the right amount of tax. So the ones that should be in hot water are the accountants and lawyers. And the real irony is that it's better for shareholders if the company does backdate. Think about it. If I want to pay the CEO $20 million (for argument's sake, but hardly out of the realm of possibility these days), I can either give him options at a backdated strike price, which already have value built in due to the fact they are "in the money", and therefore I don't have to issue as many options as I would if I issued them at current market price which aren't as valuable (assuming the stock price is higher today). Therefore, if I backdate the options, I dilute current shareholders less than if I date them as of today, when the price is higher! So why are shareholders filing lawsuits against the company, which only serves to depress the stock even more? It's really counter-intuitive, and makes no sense. The real issue is a compensation question for execs--it's a matter of how much they are getting paid, not how many options they are getting. And the last time I checked, how much you pay someone isn't a legal question either.

The financial press, and the press in general, just absolutely is missing the boat on this one. There was a great editorial in the WSJ a few weeks ago that addressed this issue, but the press just loves a great story and whipping people into a frenzy--and grabbing headlines in the meantime. Now tell me who is corrupt? This just has to end. Steve Jobs is not guilty of anything other than maybe getting paid a ton of money. But I would argue he, of all people, would deserve it for the value he has created at Apple. And getting paid a lot is not against the law!
post #8 of 58
Glad to know it is legal. As an Apple shareholder I think this practice should stop.
post #9 of 58
I'm guessing that's why the author put "dishonestly" in front of "backdated," innit?

The implication isn't that backdating by itself was wrong, but that the way it was done was wrong.

Quote:
Originally Posted by Wiggin View Post

"whose initial value was dishonestly backdated"

Sorry for yelling, but BACKDATING STOCK OPTIONS IS NOT ILLEGAL!

Now, hiding it, misrepresenting it, mis-reporting it, etc, can make for irregular (illegal?) accounting. but the backing of the options themselves is not illegal.
post #10 of 58
But as an Apple shareholder, you should think twice about not backdating stock options. Stock options have a certain amount of value based on the "strike" price (the price at which you are given the right to buy the stock) and the current market price. If the options get issued at a backdated price, you don't have to receive as many options to get the same value as you would if they were issued at a current, higher price. If the board of directors decides to pay Steve Jobs $20 million in stock based comp, it is better they do that with fewer options than more so other shareholders experience less dilution. The more you get diluted, the less of Apple's earnings you have a claim on, hence, Apple will have a lower earnings per share.

In reality, with a company as big as Apple, the dilution you experience from an executive option grant is probably not material. Which is another reason why all this is much ado about nothing. I mean, from 1997-2002, Apple recognized $84 million in extra expense? When Apple is making profits in the billions every year, $84 million is small peanuts.
post #11 of 58
Quote:
Originally Posted by Commodus View Post

I'm guessing that's why the author put "dishonestly" in front of "backdated," innit?

The implication isn't that backdating by itself was wrong, but that the way it was done was wrong.

Except that the "dishonestly" is likely the author's interpretation of the issue. I'm not sure how the author came to that conclusion. Most of these guys writing this stuff are wrong so that wouldn't surprise me.
post #12 of 58
These people don't know what to say to keep AAPL down in Nasdaq.
post #13 of 58
I'm afraid the term "dishonesty" came from the writers of Appleinsider, not the Wall Street Journal. The same for "curious timing", "questionable stock option", "often controversial chief" [sic]. I don't know what this sensationalist style is supposed to be good for, but the facts certainly are wrong. And the backdating was diclosed by Pixar in April 2001, so shareholders cannot act surprised now. The only problem is that Pixar should have disclosed it in February 2001, before they entered the contract. At least that's how I read it. Correct me if I'm wrong.

Oh yeah, and this is a good time to buy AAPL shares. They will hit 100$ in autumn.
post #14 of 58
I read the WSJ article. The only reason they mention Jobs name is because he _might_ have known what was going on and...well, Jobs' name sells. The real person who appears to be in a bit of warm water is John Lasseter, who was 84 days late in reporting the stock options in his renewed contract, as reported in the last three paragraphs of the WSJ's article.

And backdating is _NOT_ illegal, it's what you do to cover it up, whether from not reporting the backdating in the company's SEC filings or from making it look like something else to the market, that gets people in trouble.
Jim Hillhouse
jdhouse4@jdhouse4.com
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Jim Hillhouse
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post #15 of 58
Sweeeeeeet! A new Apple product will be released on Tuesday.
Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"
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Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"
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post #16 of 58
Why are people so greedy? Aren't their normal salaries enough without all of this?
post #17 of 58
heh, Steve Jobs salary is 1$
post #18 of 58
Steve Jobs is to stock options as Barry Bonds is to steroids. Both men at the top of their respective fields: loved by some, hated by quite a few others, and both absolutely loathed by the press and the pundits for not playing the game by their rules or conforming to their expectations of how things should be done (e.g. the Microsoft way in Jobs' case, or the Cal Ripkin way in Bonds' case). In retaliation, the press dredges up heap upon heap of circumstantial evidence and hearsay to tar their reputations.

In the case of Bonds, the media's pile-on eventually worked on me. I used to be a staunch Bonds defender, now I care very little if he breaks the home run record next year or not, even if he hasn't been charged with any tangible offense as of yet. I pray it doesn't turn out that way for Jobs, but I do anecdotally see the tide of public opinion turning against him.
post #19 of 58
Quote:
Originally Posted by Cy_ View Post

heh, Steve Jobs salary is 1$

Salary $1 per annum, but income $1 per milli-second
Zune zucks...Flop show...then it may be too zoon to say that
I don't know how to zunecast!
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Zune zucks...Flop show...then it may be too zoon to say that
I don't know how to zunecast!
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post #20 of 58
Quote:
Originally Posted by Cy_ View Post

These people don't know what to say to keep AAPL down in Nasdaq.

As a shareholder I admit that all this news about Steve Jobs and potentially "illegal" dealings makes me uneasy. But as for the price of the stock ($83 something as of this weekend) if it makes any sense to you, please explain it to me.

Apple announces record earnings, but predicts a conservative upcoming quarter, announces the iPhone to general applause and good expectations, Mac sales show strong growth in the face of a PC sales slowdown, the iPod continues to reign supreme among portable music players and the stock price is down from before New Year's???????



More recently Cisco announced 41 percent profit increases year over year and made an acquisition of a software company that almost all analysts agree was a good move and the stock price is down????



Stop me when this starts making sense to you.....
"Too much of a good thing is great." Mae West
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"Too much of a good thing is great." Mae West
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post #21 of 58
The issue at hand is the fact that someone was granting these without fully accounting for the grants, that is stealing from the shareholders. Maybe he is guilty of this, maybe not, he is CEO and like all others he is getting the 'guilty until innocent' an awful lot.
post #22 of 58
Quote:
Originally Posted by donebylee View Post

As a shareholder I admit that all this news about Steve Jobs and potentially "illegal" dealings makes me uneasy. But as for the price of the stock ($83 something as of this weekend) if it makes any sense to you, please explain it to me.

Apple announces record earnings, but predicts a conservative upcoming quarter, announces the iPhone to general applause and good expectations, Mac sales show strong growth in the face of a PC sales slowdown, the iPod continues to reign supreme among portable music players and the stock price is down from before New Year's???????



More recently Cisco announced 41 percent profit increases year over year and made an acquisition of a software company that almost all analysts agree was a good move and the stock price is down????



Stop me when this starts making sense to you.....

They are just burning up more cash than before, more than 41% more... :P Profit and Income are two different things. This sort of thing happens all the time.
post #23 of 58
What happens with stock values is probably fairly complex, but It seems as if investors will find a small problem and use that as a reason to jump ship when everything else is going well.
post #24 of 58
Quote:
Originally Posted by Free2B View Post

But as an Apple shareholder, you should think twice about not backdating stock options. Stock options have a certain amount of value based on the "strike" price (the price at which you are given the right to buy the stock) and the current market price. If the options get issued at a backdated price, you don't have to receive as many options to get the same value as you would if they were issued at a current, higher price. If the board of directors decides to pay Steve Jobs $20 million in stock based comp, it is better they do that with fewer options than more so other shareholders experience less dilution. The more you get diluted, the less of Apple's earnings you have a claim on, hence, Apple will have a lower earnings per share.

But if they want to just pay him a bonus, they can also do that. The intent of options is to encourage better future performance that helps stock value, not to be a bonus on previous performance. I suppose there may be differences in taxes that would make a backdated option more worthwhile than a bonus, I don't know.

I really don't know if exercising the options will eventually create more shares, that's outside of my knowledge. The amount in question is relatively small, so even with dilution, I don't think it would be noticed.
post #25 of 58
you guys have a frickin win-doze veestah ad on your site! wtf, man?

<b/>UPDATE: </b> just went back to the page, and there's also a Win-doze Live Search ad.
post #26 of 58
I am so glad to here that it is legal. Before I read this post I was going to ask the question so thanks people. As for the morality of it, I am not hung up on what is right or wrong on stock options but I don't imagine that people are doing it with the thought that they are ripping people off or being dishonest. Cheers for the heads up.
post #27 of 58
Quote:
Originally Posted by jsimondsmalamud View Post

you guys have a frickin win-doze veestah ad on your site! wtf, man?

<b/>UPDATE: </b> just went back to the page, and there's also a Win-doze Live Search ad.

post #28 of 58
Quote:
Originally Posted by kozchris View Post

Glad to know it is legal. As an Apple shareholder I think this practice should stop.

It HAS stopped! None of this continued after 2002, when Sarbanes/Oxley took effect. Before that, when all the backdating was going on, the CEO (of any company) was not responsible for the accounting practices. That changed with Sarbanes/Oxley - now CEOs are required to sign the accounting statements, and can be criminally liable if the statements are wrong. But that was not the case before 2002, when this happened.

As many have said, backdating was not illegal. It's very bad of the writer of this story to say Lasseter's shares were "dishonestly" backdated. It might be dishonest if it was hidden from shareholders and not accounted for properly (which is what the investigation will find out).

Again, everybody - the backdating is not happening now, and hasn't happened for 5 years.
post #29 of 58
Quote:
Originally Posted by Wally View Post

I don't know.....

Now, someone correct me if I'm wrong, but isn't backdating legal? As long as everyone (the board) agrees to the deal?

Oh boy, not that question again...... at this point, that is not the issue!
post #30 of 58
Quote:
Originally Posted by donebylee View Post

As a shareholder I admit that all this news about Steve Jobs and potentially "illegal" dealings makes me uneasy. But as for the price of the stock ($83 something as of this weekend) if it makes any sense to you, please explain it to me.

Apple announces record earnings, but predicts a conservative upcoming quarter, announces the iPhone to general applause and good expectations, Mac sales show strong growth in the face of a PC sales slowdown, the iPod continues to reign supreme among portable music players and the stock price is down from before New Year's???????



More recently Cisco announced 41 percent profit increases year over year and made an acquisition of a software company that almost all analysts agree was a good move and the stock price is down????



Stop me when this starts making sense to you.....

The problem is, none of us really knows the quantity and quality of information and expectations that are factored into the stock price. We can only make broad inferences, and your guess is as good as mine or Cramer's or Jobs' or an analyst's. Thus, for example, $83 could have factored in positive earnings surprises and the iPhone, and $96 was hype; alternatively, it is $96 that justifies the earnings surpirses and iPhone, and $83 is a "buy."

Only the future will tell!

In the meantime, the options stuff is a drag. But look, Jobs can put it to rest by coming out and addressing it squarely. (But at this point, his lawyers have probably told him to shut up, and that fits his basic predeliction anyway).
post #31 of 58
Quote:
saw Lasseter granted one million shares whose initial value was dishonestly backdated to

You are getting pretty close to libel over here.

The practice of backdating is legal, even if we poor schmucks think it isn't. Just like the Apple case, it is how these options were reported that is the issue. (It's not even like Apple or Pixar failed to report them, they are accused of just doing so "improperly.")
post #32 of 58
Quote:
Originally Posted by JeffDM View Post

I really don't know if exercising the options will eventually create more shares, that's outside of my knowledge.

Sometimes it does, and sometimes it does not. However, whether options exercise creates more shares is less important.

One way or another, there is no escaping the fact that employee options transfer ownership -- contingent ownership, until exercised -- from the current shareholder to the employee. In that sense it is always "ownership dilution."

Companies usually repurchase shares and hold on to them as "treasury stock" to give to employees when they exercise their options, so as not to increase the # shares outstanding (and pretend that his dilution is not happening). But that uses corporate cash (to buy back the shares), when it could have been used to invest in more value-creating activities.
post #33 of 58
Quote:
Originally Posted by macFanDave View Post

You are getting pretty close to libel over here.

The practice of backdating is legal, even if we poor schmucks think it isn't. Just like the Apple case, it is how these options were reported that is the issue. (It's not even like Apple or Pixar failed to report them, they are accused of just doing so "improperly.")

It could be a big problem if the improper reporting was done to get a more beneficial tax rate, then it could very well be called fraud.
post #34 of 58
(I apologize for the multiple posts, but had to make this point.)

This report really puts Jobs in a bit of a pickle, because it raises serious questions about some earlier claims that he didn't know much about options, backdating, accounting rules, and such.

I had always suspected that such claims were not credible, given his roles in a number of publicly traded companies as CEO, or Chairman, or board member, or blockholder.

I'll bet that is why he ended up with an "informal request" from the SEC (vide an earlier news story from a few days prior).
post #35 of 58
Quote:
Originally Posted by JeffDM View Post

It could be a big problem if the improper reporting was done to get a more beneficial tax rate, then it could very well be called fraud.

Yes, but that is not the issue I raised. The original story characterized the backdating itself as "dishonest." Exactly how and why the options were improperly reported will be determined by the investigation and possibly in a trial.
post #36 of 58
*sigh* I blame the DotCom Boom/Bust and Enron for this schizimadoooby. (Yes, I made up that word myself). The only thing I am sad to see is the AAPL stock price get hammered for no bloody good reason. But anyways Apple has it's mammoth "3rd growth engine" task that will see it through strongly in 2nd half 2007, 2008 and beyond. Da iPhone. In the mean time maybe I can actually do or read other stuff on the Internet *not* related to Apple.
post #37 of 58
The AAPL price is based on future speculation. If Apple just stayed where it is now and became a normal company (no splash into phones, no growing video sales, no continuing Mac and iPod expansion, no endless string of surprising new products), AAPL would be much lower, possibly at $50, $40 or $30.
post #38 of 58
Backdating (as long as all agree openly) is not illegal and is an alternative to paying cash! It's also likely that the legal department at Plixar approved the deal. It's also possible that Jobs signed but did not question the deal. These are the things that need answers!
post #39 of 58
Quote:
Originally Posted by anantksundaram View Post

Companies usually repurchase shares and hold on to them as "treasury stock" to give to employees when they exercise their options, so as not to increase the # shares outstanding (and pretend that his dilution is not happening). But that uses corporate cash (to buy back the shares), when it could have been used to invest in more value-creating activities.

If the shares offered to someone in a stock option were purchased back by a Company at an earlier time, when the price was lower (by way of preparation for known forthcoming stock options or as part of a routine share buy-back policy) it could/would seem normal and natural to offer them to the individual at that earlier and lower price and thereby match the amount of the Company's cash that went into their re-purchase; it would have cost the Company less cash than buying them at today's higher price. Clearly, there would still be tax/reporting complexities but I wonder if this might be another part of the logic as to why a Company (before 2002) would have backdated stock options?
post #40 of 58
http://www.dealbreaker.com/2007/02/s...f_bac.php#more

Personally, I think the Feds are wasting resources in a witch-hunt. They are trying to find the next Enron, Andersen, etc. There is a lot of fishy information leaked to the press as well as press/writers trying to hit their next biggest story. If you put the two together, it spells trouble for anyone or any company in the public eyes.

First, I would question the information leaked to the press on a "federal" investigation. Informants my ass, if you are going to put someone in a hot seat, then put you sources on the same level. Why is it that Apple can keep such a tight information on the release of iPhone, yet we are expected to read WSJ articles as if they are the ultimate truth?

I'm not defending S. Jobs, but I am getting really tire of the press/media putting out incomplete information because they think they have a "smoking gun". We are living in an information age, where the truth isn't too far from lies, but I would be very careful listening to WHOEVER is telling the truth. There is always something to gain for an informant and I like to know what this "truth" they are selling is worth.

In short, a man's lost is another's gain. I'm sure S. Jobs is aware of what he'll be losing if this stuff falls through. Ultimately, if they found S. Jobs guilty in "whatever" it is they are trying to nail him for, it'll be lost for Apple Inc. and Apple users. This man alone puts the company and it's innovative products back on the map with his leadership.
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