Backdated Pixar Options Could Cost Disney Millions
The Walt Disney Co. could have to pay as much as $33.5 million to rectify improper backdating of stock options valued at $323 million that were granted to employees of Pixar Animation Studios before Disney bought the company, a regulatory filing states.
The unexercised options were given to rank-and-file Pixar employees, not top executives, Disney said Monday in its filing with the Securities and Exchange Commission.
The disclosure came as federal prosecutors and the SEC are looking into backdated grants made to Pixar workers and executives several times since 1997 but before Disney bought the company in 2006.
Disney did not say how many Pixar employees received the backdated options that converted to the right to buy Disney stock after Disney bought Pixar for $7.4 billion in stock.
Backdating occurs when a stock option's exercise price is set at a point lower than the prevailing market price on the date of the grant, a practice that can inflate the recipient's award.
The practice is not illegal. But companies who do it must disclose the practice in their regulatory filings and count the cost as an expense for the company and income for the employees, something Pixar failed to do.
In its latest SEC filing, Disney said it would exchange the backdated options for new options that use the price of the stock on the date of the original grant instead of the earlier, more advantageous price.
Disney said it would pay the difference between the improper date and the new date in cash to employees next January. The payment would be intended to offset the additional taxes employees would incur.
If all the Pixar employees accept the new options, Disney's total cost would be about $33.5 million, the company said.
Last month, Disney said Pixar CEO Steve Jobs and other Pixar executives did not deliberately do anything wrong when they either authorized or received options with improper pricing dates.
Jobs held more than 50% of Pixar's stock and after the acquisition became Disney's single largest shareholder and a board member.
Jobs also is embroiled in a probe of stock options at Apple , where he is chief executive.
At least 203 companies have disclosed SEC, Department of Justice, or internal probes into their stock-options practices, according to an Associated Press review.