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0000320193 | 20061229 | 10-Q | 150 | The Company recognized incremental stock-based compensation expense of $28 million and $86 million during the third quarter and first nine months of 2006, respectively, as a result of the adoption of SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 151 | 123R. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 152 | In accordance with SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 153 | 123R, beginning in the first quarter of 2006 the Company has presented excess tax benefits from the exercise of stock-based compensation awards as a financing activity in the condensed consolidated statement of cash flows. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 154 | No stock-based compensation costs have been capitalized as of July 1, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 155 | The income tax benefit related to stock-based compensation expense was $10 million and $36 million for the three and nine months ended July 1, 2006, respectively. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 156 | As of July 1, 2006, $384.5 million of total unrecognized compensation cost related to stock options and restricted stock units is expected to be recognized over a weighted-average period of 3.08 years. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 157 | SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 158 | 123R prohibits recognition of a deferred tax asset for an excess tax benefit that has not been realized. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 159 | The Company will recognize a benefit from stock-based compensation in equity if an incremental tax benefit is realized by following the ordering provisions of the tax law. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 160 | In addition, the Company accounts for the indirect effects of stock-based compensation on the research tax credit, the foreign tax credit, and the domestic manufacturing deduction through the income statement. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 161 | Prior to the adoption of SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 162 | 123R, the Company measured compensation expense for its employee stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 163 | 25. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 164 | The Company applied the disclosure provisions of SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 165 | 123 as amended by SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 166 | 148, Accounting for Stock-Based Compensation - Transition and Disclosure, as if the fair-value-based method had been applied in measuring compensation expense. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 167 | Under APB Opinion No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 168 | 25, when the exercise price of the Company’s employee stock options was equal to the market price of the underlying stock on the date of the grant, no compensation expense was recognized. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 169 | The following table illustrates the effect on net income after taxes and net income per common share as if the Company had applied the fair value recognition provisions of SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 170 | 123 to stock-based compensation during the three and nine months ended June 25, 2005 (in millions, except per share amounts):
(1) See Note 2, “Restatement of Condensed Consolidated Financial Statements.”
Further information regarding stock-based compensation can be found in Note 8. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 171 | Earnings Per Common Share
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 172 | Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 173 | The dilutive effect of outstanding options, restricted stock, and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 174 | Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from outstanding options, restricted stock, and restricted stock units. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 175 | Additionally, the exercise of employee stock options and the vesting of restricted stock and restricted stock units can result in a greater dilutive effect on earnings per share. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 176 | The following table sets forth the computation of basic and diluted earnings per share (in thousands, except net income and per share amounts):
Potentially dilutive securities representing approximately 3.0 million and 1.4 million shares (as restated(1)) of common stock for the quarters ended July 1, 2006 and June 25, ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 177 | Potentially dilutive securities include stock options, unvested restricted stock and restricted stock units. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 178 | (1) See Note 2, “Restatement of Condensed Consolidated Financial Statements.”
Note 2 - Restatement of Condensed Consolidated Financial Statements
In this Form 10-Q, the Company is restating its condensed consolidated balance sheet as of September 24, 2005, the related consolidated statements of operations for the three... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 179 | In the Company’s Form 10-K for the year ended September 30, 2006 to be filed with the Securities and Exchange Commission (the “2006 Form 10-K”), the Company is restating its consolidated balance sheet as of September 24, 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows f... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 180 | Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q affected by the restatements have not been amended and should not be relied on. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 181 | On June 29, 2006, the Company announced that an internal review had discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001, including a grant to its Chief Executive Officer (“CEO”) Steve Jobs. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 182 | The Company also announced that a Special Committee of outside directors (“Special Committee”) had been formed and had hired independent counsel to conduct a full investigation of the Company’s past stock option granting practices. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 183 | As a result of the internal review and the independent investigation, management has concluded, and the Audit and Finance Committee of the Board of Directors agrees, that incorrect measurement dates were used for financial
accounting purposes for certain stock option grants made in prior periods. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 184 | Therefore, the Company has recorded additional non-cash stock-based compensation expense and related tax effects with regard to past stock option grants, and the Company is restating previously filed financial statements in this Form 10-Q and the 2006 Form 10-K. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 185 | These adjustments, after tax, amounted to $4 million, $7 million, and $10 million in fiscal years 2006, 2005 and 2004, respectively. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 186 | The adjustment to 2006 was recorded in the fourth quarter of fiscal year 2006 due to its insignificance. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 187 | The independent counsel and its forensic accountants (“Investigative Team”) reviewed the facts and circumstances surrounding stock option grants made on 259 dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 188 | Based on a review of the totality of evidence and the applicable law, the Special Committee found no misconduct by current management. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 189 | The Special Committee’s investigation identified a number of grants for which grant dates were intentionally selected in order to obtain favorable exercise prices. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 190 | The terms of these and certain other grants, as discussed below, were finalized after the originally assigned grant dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 191 | The Special Committee concluded that the procedures for granting, accounting for, and reporting stock option grants did not include sufficient safeguards to prevent manipulation. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 192 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 193 | The Special Committee also found that the investigation had raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 194 | Based on the evidence and findings from the Company’s internal review and the Special Committee’s independent investigation, an analysis was performed of the measurement dates for the 42,077 stock option grants made on 259 dates between October 1996 and January 2003 (the “relevant period”). | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 195 | The Company believes that the analysis was properly limited to the relevant period. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 196 | In addition to analyzing all grants made during the relevant period, the Company sampled certain grants between 1994 and 1997 and found none that required accounting adjustments. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 197 | The first grants for which stock-based compensation expense is required are dated December 29, 1997. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 198 | The Company also examined grants made after the relevant period and found none that required accounting adjustments. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 199 | Moreover, in the years after 2002, Apple made significant changes in its stock option granting practices in response to evolving legal, regulatory and accounting requirements. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 200 | Consistent with the accounting literature and recent guidance from the Securities and Exchange Commission (“SEC”), the grants during the relevant period were organized into categories based on grant type and process by which the grant was finalized. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 201 | The Company analyzed the evidence related to each category of grants including, but not limited to, electronic and physical documents, document metadata, and witness interviews. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 202 | Based on the relevant facts and circumstances, the Company applied the controlling accounting standards to determine, for every grant within each category, the proper measurement date. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 203 | If the measurement date is not the originally assigned grant date, accounting adjustments were made as required, resulting in stock-based compensation expense and related tax effects. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 204 | The 42,077 grants were classified as follows: (1) 17 grants to persons elected or appointed to the Board of Directors (“director grants”); (2) 3,892 grants to employees under the Monday/Tuesday Plan described below (“Monday/Tuesday grants”); (3) 27,096 grants made in broad-based awards to large numbers of employees, us... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 205 | All references to the number of option shares, option exercise prices and share prices in this Note 2 have not been adjusted for any subsequent stock splits. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 206 | With the exception of director grants, all stock option grants were subject to ratification by the Board or Compensation Committee at a meeting or by UWC. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 207 | Following approval of the grants at a meeting or by UWC, the Company’s legal staff would prepare a Secretary’s Certificate certifying the ratification of the grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 208 | Based on the facts and circumstances described below, the Company has concluded that the recipients and terms of certain grants were fixed for accounting purposes before ratification pursuant to parameters previously approved by the Board or Compensation Committee through the Monday/Tuesday Plan and the focal process. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 209 | As further discussed below, within these parameters, management had the authority to determine the recipients and terms for each grant. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 210 | Thus, the Company has concluded that the measurement dates for these grants occurred when management’s process for
allocating these grants was completed and the grants were ready for ratification, which was considered perfunctory. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 211 | With regard to all other grants, the Company has concluded that the grants were finalized and the measurement dates occurred when the grants were ratified. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 212 | For many grants, however, the dates of ratification cannot be established because the dates the UWCs were executed by the Board or Compensation Committee members or received by the Company are not available. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 213 | For such grants, the Company has concluded that the date of the preparation of the Secretary’s Certificate is the best alternative for determining the actual date of ratification. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 214 | As discussed below, the Company’s analysis determined that the originally assigned grant dates for 6,428 grants on 42 dates are not the proper measurement dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 215 | Accordingly, after accounting for forfeitures, the Company has recognized stock-based compensation expense of $105 million on a pre-tax basis over the respective awards’ vesting terms. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 216 | No adjustments were required for the remaining 35,649 grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 217 | The adjustments were determined by category as follows:
Director Grants - Seventeen director grants were made during the relevant period. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 218 | Two director grants were made pursuant to a 1997 plan that dated the grants on the enactment of the plan. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 219 | The remaining fifteen grants were automatically made under the Director Stock Option Plan for non-employee directors, which was approved by shareholders in 1998, on the date of a director’s election or appointment to the Board and on subsequent anniversaries, beginning on the fourth anniversary. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 220 | Accordingly, the analysis determined that the originally assigned grant date for each director grant is the measurement date, and no accounting adjustments are required. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 221 | Monday/Tuesday Grants - Beginning in December 1998, 3,892 new hire grants and grants for promotion and retention purposes (“promotion/retention grants”) were made during the relevant period under the “Monday/Tuesday Plan.” Under the Monday/Tuesday Plan, new hire grants made within pre-established guidelines approved by... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 222 | The Company’s analysis showed this process to be reliable with very low error rates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 223 | Promotion/retention grants, also based on pre-established guidelines, were made generally on the first Tuesday of each month. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 224 | The Company has concluded that the new hire and promotion/retention grants made pursuant to the Monday/Tuesday Plan within pre-established guidelines do not require adjustment, with the exception of six grants that were erroneously dated before the employees’ start dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 225 | For 120 new hire and promotion/retention grants made outside the guidelines, however, the Company has concluded that the measurement dates are the dates of ratification by the Board or Compensation Committee rather than the dates used for grants within guidelines. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 226 | Accordingly, based on the methodology described above, the Company has recognized stock-based compensation expense of $6 million from 126 grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 227 | Focal Grants - During the relevant period, 27,096 focal grants were made to employees typically on an annual basis as part of an extensive process that required several months to complete. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 228 | Pursuant to limits, guidelines and practices previously approved by the Board or Compensation Committee, managers throughout the Company would make recommendations for grants to employees in their areas of responsibility. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 229 | After senior management had determined that the grants were made in accordance with these established limits, guidelines and practices, management treated the grants as final when they were submitted to the Board or Compensation Committee for ratification. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 230 | The Company has concluded that for 5,595 grants on five dates, the originally assigned grant dates are not the proper measurement dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 231 | For these grants, management’s process for finalizing the grants was completed after the originally assigned grant dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 232 | As a result, the Company has recognized $29 million of stock-based compensation expense. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 233 | For two of the five grant dates comprising 3,744 grants, the evidence shows that the grants were finalized and the measurement date occurred one day after the originally assigned grant dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 234 | The grants on these two dates represent more than $16 million of the total $29 million of stock-based compensation expense resulting from focal grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 235 | Other Meeting Grants - During the relevant period, meetings of the Board or Compensation Committee were held to ratify 9,988 grants that are not Monday/Tuesday, focal or CEO grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 236 | The grant dates and measurement dates for these grants are the meeting dates when the grants were ratified, with the exception of 46 grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 237 | Forty-two of these 46 grants are dated concurrent with a meeting that considered and approved certain grants, but the evidence indicates that all of the grants may not have been finalized until a later date. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 238 | One of the 46 grants was approved and dated at another meeting, but the recipient, who was becoming employed by the Company as part of a corporate acquisition, did not start until a later date. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 239 | Two other grants were approved before the employees’ start dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 240 | Another grant was mistakenly cancelled and subsequently reinstated, requiring an accounting adjustment. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 241 | Thus, for these 46 grants the Company has concluded that the originally assigned grant dates are not the proper measurement dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 242 | As a result, the Company has recognized $2 million of stock-based compensation expense. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 243 | Other UWC Grants - During the relevant period, 1,082 grants were approved by UWCs for a variety of purposes, including executive recruitment, retention, promotion and new hires outside the Monday/Tuesday process. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 244 | These grants were not made pursuant to pre-established guidelines adopted by the Board or Compensation Committee. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 245 | Therefore, the Company has concluded that these grants were not finalized for accounting purposes until ratification by the Board or Compensation Committee. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 246 | Accordingly, for 660 grants, the Company has concluded that the originally assigned grant dates are not the proper measurement dates. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 247 | As a result, the Company has recognized $48 million of stock-based compensation expense. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 248 | CEO Grants - During the relevant period, the Company made two grants to CEO Steve Jobs. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 249 | The first grant, dated January 12, 2000, was for 10 million option shares. | 0001104659-06-084286/full-submission.txt |
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