“Apple Inc. Friday said it offered to amend certain options granted under its employee plan, giving participants the choice to raise the exercise price and get a cash payment,” Dow Jones reports.
“The offer relates to options that had an original exercise price per share less than the fair market value per share of the common stock underlying the option on the grant finalization date, the company said in a Securities and Exchange Commission filing,” Dow Jones reports.
Dow Jones reports, “Participants in the Cupertino, Calif., computer and digital music company’s program may elect to increase the exercise price per share to the fair market value, the filing said.”
“For each amended option, participants will receive a cash payment equal to the difference between the new exercise price and the original exercise price per share, the filing said. ‘Cash payments will be paid on or promptly following Jan. 25, 2008, and all such payments will be subject to applicable tax withholdings,’ the filing said,” Dow Jones reports.
Full article here.
Apple’s SEC filing in full here.
sooooooooo what does that mean?
Damn bill gates getting his hands into everything!
Nice cash in my pocket though…
trever – if you have to ask “what does that mean”, or you are first hearing about this on MDN, it means that you don’t have any of these options so you don’t need to worry about it!
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maybe trever is not worried about it … he merely asked what does this mean ….
Talk about having your cake and eating it too!
What the hell good is a cake if you can’t eat it anyhow?
(excluding yellow cake)
Not yellow cake? It’s chocolate cake you don’t want to eat. Yellow cake with cream cheese frosting or yellow cake with jell-o mixed in would be great. But chocolate? Don’t make me regurgitate.
MDN Magic Word: talk as in “Let’s talk about iPhone and see if Steve will let us (and by us I mean me) be a beta tester beginning tomorrow.”
I don’t think “me” was being unkind to “trever”, however it is correct that if you don’t have an option to buy Apple stock (employee, ect). It will mean very little to you.
Still… trever don’t be left out completely, go buy some AAPL today
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What if I theoretically am an emp and do own stock and have the option to buy, what would this mean to me?
TT: It’s white cake you have to watch out for. People (mostly mothers) will call you racist for eating white cake.
may be all that’s left…
http://www.geekculture.com/joyoftech/index.html
Hey Trever, I’m with you – can someone please explain what all that jargon means in plain English? I’m not a stockbroker, and I don’t pretend to know anything about options, exercise prices, and the like.
(And for you smart alecs who say “you don’t have any stock options, so why should you care?” I know I don’t have any, but still I’d like to know a little more about this.)
MDN “love” (how ironic)
What does this mean…..
Apple is giving their employees the option to cash in the earned part of their vested option grants.
I guess if I worked at Apple, and thought that their stock was going to double again
(pushing me into a much higher tax bracket when I cash in options), I would jump at this.
TowerTone,
Have you been able to get Quicken working yet since the new OS update. Mine doesn’t work either. I’ve thought about reinstalling, but I don’t have a disk image because Quicken came preloaded.
I had an option once.
From what I can tell, it means that Apple is making an attempt to cauterize any of the perceived damage caused by the so-called share options “scandal”.
Effectively, what they seem to be saying is that anyone who may have been either a knowing or unwitting beneficiary of the “scandal” can absolve themselves and Apple of any guilt by electing to retrospectively alter the price of the options to what was the fair market price at the date when the option was granted.
In effect, this would mitigate the effects of the management “anomalies” that caused the “scandal” so that – in effect – it would be a case of “no harm, no foul”.
In return, those electing to exercise this retrospective pricing adjustment, will get a one-off payment (in effect, an “honesty” bonus) that can be simply accounted for through the company’s profit and loss statement for the current financial year and which has no long-term effect on the balance sheet, share performance, dilution or any of those other things on which a potential shareholders class-action suit would focus.
They teach you guys well at Starbucks.
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This means….
At 1 point, Apple gave employees options (Chance to buy AAPL) at a later date. In this case, Apple gave options for (as an example) “x”$ per share. When they issued the options, AAPL was at a low share price and the option was a great deal. Excellent compensation/reward.
Now, fast forward, and the share price is $90ish. Problem is, it would cost the employee more than it was worth to excercise the option.
Apple, being Apple, said we are going to give you a hunk of cash (one time payment) to make up the difference. We’d like to reward/compensate you and in order to mkae it worth your while, we’ll make the difference up w/ cash.
It has ZERO to do w/ the backdating thing and everything to do with making employees happy and part of the team w/ AAPL stock. W/O costing the employee.
That’s how you recruit, and retain good people. Pay them, and reward the well. They’re happy, and turn out insanely great great stuff.
Then I go and buy the stuff…
…I was given an option, once. I was told to grow up or else.
“Or else, what?”, I heckled.
Or else I’ll have my asked kicked not once but we’ll go back in time and kick your ass over and over at every low point in your worthless life.
“No cash option?” …after I had my ass kicked I said I’d like option one …I’d like to try growing up.
After several years no maturity had materialized. My mature plan one I called Trusted Worthy Adult ……didn’t materialize. My mature plan two through thirty weren’t even plans …I don’t know what they were.
I promised to run maturity scripts in a red box only because I was cornered ….I wanted to get to maturity real fast but I had to cross a little river of flowing insanity.
Once over, I had my first epiphany …fk maturity. The heavens opened and cash flowed down into my pockets ……maybe I’m all grown up, now.
It is legal backdating.
Understand now?
No, you’ve all got it wrong. This is a tax issue for employees subject to US taxation.
If an option is granted at less than fair market value, then (in the US, anyway) the employee would incur a personal tax liability on the difference between the strike price and the fair market value.
By increasing the strike price to the fair market value on the date of grant, that individual tax liability is eliminated.
Of course, by increasing the strike price, the option will have less value. To compensate the employeee for the reduced value (if the employee agrees to increase the strike price), Apple will make a cash payment, subject to tax withholding, based on the difference between the original and new strike prices.
Example: Say an employee is granted 1000 stock options in 2001 on a certain date. Say the AAPL stock closed that day at $30 a share, i.e. fair market value was $30/share.
Now say the strike price on the option is $25, i.e. less than the fair market value on the option grant date.
The spread, i.e. the difference between strike price ($25) and the fair market value price ($30), is $5 per share.
For 1000 stock options, the spread is worth (to the employee) 1000 shares x $5 per share = $5000.
The problem is this: The tax authorities will then treat that $5000 as if it were income to the employee and will want to tax it. That creates a tax liability, which comes as a rude surprise to the employee, who was innocent of any wrongdoing.
Apple is therefore proposing to the employee to modify the option retroactively, so that the strike price is increased from the original strike price ($25 in the above example) to be equal to the fair market value on the date of grant ($30 in the above example).
That increase in strike price will eliminate the spread, and therefore eliminate the tax liability that would arise had the strike price remained at the original level.
There’s another problem. If the strike price remains unchanged, i.e. remains below fair market value, then the tax liabilty is incurrred for the tax year in which the option was granted. This creates a reporting burden, since the option may have been granted in one year (say, 2001), but the formal notice to you, the employee, of the tax liability due to the spread wasn’t made until several years later, say 2006. Whoops! Do you really want to go back and file amended tax returns for 2001, and pay taxes on that income several years later? Probably not, because it’s a real hassle to do that, and plus you might end up owing interest and penalties to the tax authorities for not paying the income tax in 2001.
The above description applies primarily as US tax issue. I don’t know what, say, Australian or French law would say about such the above situation – the tax treatment of stock options varies enormously from country to country. Even within the US, different states might treat the above situation differently.
Nonetheless, it it clear that Apple’s primary motivation for offering this strike price increase in order to help its employees deal with these potential tax liability and reporting issues, which has fallen on employees’ shoulders due to no fault of their own.
Hope that was clear.
“Now, fast forward, and the share price is $90ish. Problem is, it would cost the employee more than it was worth to excercise the option.”
This makes no sense at all. There’s no reason why “it would cost the employee more than it was worth” — the higher the stock price, the greater the financial reward from exercising the option.
Also, stock brokers routinely offer cashless “same-day exercise and sale” of stock options, which allows the employee to exercise stock options and immediately sell them, without having to pay any cash out of pocket.
In the US, it is true that exercising stock may increase your income to the point that you have to pay the Alternative Minimum Tax (AMT). But this can be avoided by staggering your exercise over more than one tax year, and even if you do get hit with the AMT one year, you can deduct portions of that from your tax liability next year. Tax advice from a professional tax preparer or financial planner would be required, since the AMT is highly complex.
But other than that, I can’t see any reason why a share price much higher than the option’s strike price would “cost the employee more than it was worth”.