Apple Hardware Chief Bob Mansfield Cashes in Nearly $12.5 Million in Stock Options

[shompa]

As an AAPL investor, this is what I hate most about Apple.

Apple have issued 50 million + shares to its management. This dilutes the share price, and we get drop in share price when they cash in. Double wammy.

The correct way is that Apple buys the shares they hand out + 50% more shares that they maculate. Then both investors and management gets a payday. BTW. Apple should hand out some shares to the employes.

----------

Smart move on his part. Sell it at its peak. It could go higher though it could go lower.

If he believes in the company and don't urgently needs the money, this is a wrong move. This is a vote of no confidence for the company.

 

[cvaldes]

The correct way is that Apple buys the shares they hand out + 50% more shares that they maculate. Then both investors and management gets a payday. BTW. Apple should hand out some shares to the employes.

Uh, Apple does issue stock option grants to employees. New hires (at least in corporate) often will get a stock option grant when signing, the quantity will depend on the employee's position, experience, etc. Stock option grants are periodically issued to employees for excellent performance.

Silicon Valley has a nickname for this: "golden handcuffs." Since the vesting schedule is typically five years, it encourages the employee to stick around.

As employees move up in the ranks, their option grants get larger as they have more responsibilities. A guy like Bob Mansfield started as a regular engineer a long time ago though. Remember that these larger grants for senior executives are incentive for lower-level employees to excel and move their way up the management chain.

 

[-hh]

It's a good time to cash out... Kudos to Bob.

Yes, one usually should look to exercising stock options before they expire. Especially not waiting until the very last minute .. particularly when there's a whole bunch of fellow employees also sitting on expiring options that can drive down the stock's short-term price.

Sadly he won't get to keep all 12.5 million. 30% of that will go to the Tax Man. So he really only gets around....8.75 million. What a shame....Lol.

Well, he could have held the stock for a year to convert it to a long term capital gain and only paid the Fed's 15% rate .. but to do so would have required that he come up with a bag of cash - roughly $1.26M in size. What's your definition of 'Pocket Change'? ;-)

Of course, holding this for a year isn't without risk exposure, which is a YMMV. Simplistically, the potential gain is "only" another 20% (ie, $8.75 today vs $8.75+$1.89 = $10.64 a year from now), but there's risks in assumptions that the stock's price isn't going to slip, that the tax code isn't going to change, etc. It is a classical "Bird in hand is worth two ... no wait, its only 1.20 ... in the Bush".

Plu,s, regardless of how good a company is, diversifying investments is always a good idea, and raising a quick $9M (post-tax) to do that ain't all that bad...

-hh

 

[macchiato2009]

I believe at one time, Mr. Mansfield was just such an employee, probably working elsewhere, making someone else rich.

We all start somewhere.

maybe a small amount of shares for each employee depending on the company's annual results would be a fair solution

instead of just a small price discount when purchasing a mac, which goes back in apple's pocket

but still, millions for 10 guys, and peanuts for thousands, i am not sure the company really cares about its employees

we live in a capitalist world..

 

[ombrenelcielo]

As an AAPL investor, this is what I hate most about Apple.

Apple have issued 50 million + shares to its management. This dilutes the share price, and we get drop in share price when they cash in. Double wammy.

The correct way is that Apple buys the shares they hand out + 50% more shares that they maculate. Then both investors and management gets a payday. BTW. Apple should hand out some shares to the employes.

You clearly do not understand the purpose why the shares are in first place awarded to the management.

 

[ownamac]

That June 2005 grant of the 30,000 shares which fully vested in June 2009 likely would have expired if not exercised at some point. With another 250,000 shares available to him in the next few years seems prudent to unload the 30,000 before they expire and also while AAPL at all time highs.

Regardless of when that grant expired, e.g. 2015 perhaps, there are forces outside Apple that could drive the stock down, i.e. another financial collapse, etc., potentially wiping out years of appreciation and underscoring the importance of managing risk to an acceptable level and not having too much of your wealth tied up in one place.

 

[Sjhonny]

One of his kids must be about to graduate high school. Time to pay for college!

For that kind a money, he can buy him trough in a week

 

[MagnusVonMagnum]

Did you even read the story before you posted? These options were set to expire in June. In other words, use them or lose them. And as stated in the story, he has been active in cashing out his options.

Where did I talk about his options guy?

An option means you can BUY the stock. It has nothing to do with selling it other than they normally make you wait a set period before you are allowed to turn around and sell them (his waiting period was up for this set before he even bought them). In other words, he had until June to BUY the stocks, but no one made him sell his stock right away and even the article says he waited on the option in general because the stocks were surging.

Now exactly WHY do you think he chose to SELL them at THIS point in time instead of continuing to wait for it to go up even further? To buy a car? No flipping way. He clearly is hedging his bets now that Steve has passed on and I don't blame him one bit. That was the entire point of my comment. I think the guy is pretty shrewd to cash out now while it's at an all time high instead of holding onto the stock until it goes back down to $300 or less.

I simply don't believe Apple's stock is going to go much above $500. You can disagree and do whatever you like. There's no need to go ballistic over an opinion, but based on the votes I saw it's obvious to me that most of you buy stock HIGH and sell LOW like over half the world.

"Apple is now run by the same types that destroyed it the first time around" Where do people get this stuff?

Apple proved the first time around they can't run the company well without Jobs. They didn't go down hill right away. It took some time, but it DID happen. Steve was the idea guy. What happens when the next batch of products runs out? Being a FAN of Apple doesn't make the world go around, after all.

You certainly seem like quite a sophisticated investor. Very shrewd. A pretty perceptive reader, too.

NOT!

Why thank you. I bought at $83 and cashed out a bit under $400.

Meanwhile, all the geniuses on here are suggesting that BUYING at nearly $450 is a good idea. It doesn't have to go down a whole lot to lose money. Or do you chaps really believe that it's going to go to maybe $600+ without Steve Jobs at the helm? Eh? Really? I mean REALLY?

Hey, maybe Apple will rule the Universe and their stock will go to $5,000 a share by the end of this decade...and maybe pigs will fly too?

Spoken like someone who knows absolutely nothing about SEC regulations.

Well, that's funny because you sound to me like you know exactly nothing about anything. Strange world, eh?

This is a troll, right?

Yes, speculating that Apple's stock may have nearly reached its peak in light of Steve's death and Apple past history of running the company into the ground without him is definitely trolling.

While I know you are trolling, I add my 10 cents.

And since you called me a troll for just giving my opinion, I'll ignore everything you say since you're obviously clueless. Anyone who has seen my posts over the years knows I'm no fan of corporate greed or companies like Apple moving jobs overseas, etc., but a troll? LOL. Yeah, I own all this Apple gear because I'm a Windows guy here to crash the Apple Kool-Aid Party....

Smart move on his part. Sell it at its peak. It could go higher though it could go lower.

What? They didn't crucify you for suggesting the stock could go lower? I mean you imply it has probably peaked and I agree 100%, but darn, you should be getting at LEAST a dozen negative votes for suggesting Apple will not rule the Universe by next year!

 

[firewood]

Now exactly WHY do you think he chose to SELL them at THIS point in time instead of continuing to wait for it to go up even further?

One word. Taxes.

Been there. Done that. Sold stock to pay the tax on an option exercise. Price later went up, and I'd wished I'd held for awhile. Some of it went to zero as the company went under during a market crash, and I was glad that the tax man got paid before I had nothing.

Another good word. Diversification. No investment advisor will tell you to put over 90%+ of all your eggs in any one basket, no matter how good that basket is.

 

[Cartaphilus]

Well, he could have held the stock for a year to convert it to a long term capital gain and only paid the Fed's 15% rate ..
-hh

Actually, the difference between his strike price and the fair market value of the acquired shares upon exercise, essentially the money he makes by exercising his options, is taxable as ordinary income, regardless of how long he holds on to the stock before selling it. That income is reportable in the year of exercise.

If he elects to defer selling the stock he acquired by exercising his options, and if the price of the stock has increased since he exercised then providing he meets the holding period requirements, that increase in value--and only the increase--will be taxed at capital gains rates in the tax year he sells the shares.

 

[Cartaphilus]

If he believes in the company and don't urgently needs the money, this is a wrong move. This is a vote of no confidence for the company.

I think this is a mistaken belief, particularly when the senior executive has a large number of as-yet unvested options and grants. An Apple employee displays confidence in the company by working there every day, since any of them could easily find a similar or better-paying job elsewhere. Accepting, however, firm-specific risk to both your career and your fortune is simply foolish to the point of irresponsibility. No company's stock is immune from market risk, and none is immune to some firm-specific catastrophe that could destroy much or even all of its value. It is simply prudent, as others have noted here, to diversify and to reallocate assets. Observe how any senior managers at Arthur Anderson, Enron, or Penn Central Railroad were rewarded for their "expression of confidence" in their respective employers.

With the amount of money these people have accumulated, they would be well-advised to convert their Apple stock to low-beta securities and tangible assets as soon as permissible, with the primary goal of preserving the buying power of their capital, even in the event of very high inflation.

Once you have accumulated enough wealth to permit you and your family to live quite well for all your lifetimes simply by virtually clipping coupons from a virtual stack of low-interest treasury bonds that only represents half your fortune, you are no longer interested in making more money from further increases in Apple stock. The marginal increase in the utility of what you might gain is not nearly as meaningful to you as preserving your capital wisely. The conclusion that selling expresses a lack of confidence in Apple assumes that the psychology of someone who needs more money is universal. It is nearly so, but not universally so, especially when applied to the current cadre of Apple executives.

This sale of stock proves only that Bob Mansfield is behaving rationally.

 

[mojohanna]

Uh, when did it ever go from $300 to $83? I see on the chart that once (during the height of the Lehman/Bank crisis), it went from $200 to $83.

Probably the last time it split. There have been two splits, IIRC, since Steve came back.

 

[ixodes]

A very well played move by a man who earned it.

If not for the average Americans complete obsession with money, this wouldn't be such a big deal.

It's just business to many of us.

 

[-hh]

Actually, the difference between his strike price and the fair market value of the acquired shares upon exercise, essentially the money he makes by exercising his options, is taxable as ordinary income, regardless of how long he holds on to the stock before selling it. That income is reportable in the year of exercise.

If he elects to defer selling the stock he acquired by exercising his options, and if the price of the stock has increased since he exercised then providing he meets the holding period requirements, that increase in value--and only the increase--will be taxed at capital gains rates in the tax year he sells the shares.

Ah, thanks for that correction & clarification ... it didn't apply to our personal Options exercise last year, but now I know the rules better for next time

And back to Mansfield's news, what you point out is a pretty good indicator that there wasn't really a particularly strong incentive to not sell right away.

Even if one wants to look at holding onto the stock for future appreciation in value, that's effectively already being done through his future stock options which will vest and then be able to be exercised in the next few years, which are presumably valued presently at well below the current market price of ~$430...oops, $458 this morning.


-hh

 

[gnasher729]

Nope. Those 2014, 2018 whatever options are themselves securities with a current mark to market value, even if somewhat illiquid. That sits in a brokerage account and can be leveraged to purchase other stock. Let's say the present value of the $114m in options is about $5m. The person can get a margin loan for about $15m and buy stuff, invest in other securities like Facebook or Microsoft stock, or even a cash equivalent like muni bonds and such, the income from which more than covers the margin loan interest.

The secondary advantage is further diversification and gradual earnings to liquidate the margin debt even if you don't transact the options when eligible.

So yes you can buy a car, put a kid through college and go to Togo's without touching the options themselves.

You can, but doing so would be a ridiculous and completely unnecessary risk. Ask yourself: What is the worst that can happen? The worst that can happen is getting a margin loan, the company goes bankrupt, you lost your job, the options are worth nothing, and you have to repay the loan. Millions in debt and no job. Total desaster.

What is the worst thing that can happen to Bob Mansfield? He now has $12.5 million minus taxes in the bank. Worst that can happen is the company goes bankrupt, he loses his job, his options are worth nothing, and he has to end his live in an awfully frugal life style with the $8 million or so that he has in the bank.

 

[cdmoore74]

Smart move. He knows something that we don't know. Wonder if he expects the stocks to drop?

 

[Cartaphilus]

Nope. Those 2014, 2018 whatever options are themselves securities with a current mark to market value, even if somewhat illiquid.

Mansfield's options were qualified employee stock options issued pursuant to a stock option plan. Neither those options, nor the restricted stock grants he was also awarded, have any market value, and may neither be sold nor "hypothecated", i.e., they cannot be pledged as collateral for a loan. Among other reasons, these plans require the grantee to be employed by the issuer as of a future date in order for the options to vest. Because the termination of employment by the company or by the employee destroys any potential value, few would lend against these inchoate rights even were it permitted.

Unlike market-traded options to put or call the stock of an issuer, the potential future value of unvested employee stock options may not be realized until the vesting period ends and the options are actually exercised.

In the absence of a Stock Restriction Agreement, though, the registered shares of companies like Apple that are acquired by the exercise of employee stock options may be pledged (subject to insider trading rules) in the manner suggested.

 

[rdowns]

Smart move. He knows something that we don't know. Wonder if he expects the stocks to drop?

Based on that criteria, any executive cashing out his/her options thinks their company's stock is about to fall.

 

[gnasher729]

Smart move. He knows something that we don't know. Wonder if he expects the stocks to drop?

Can I give you an award for completely uninformed accusations, totally pulled from your backside?

Bob Mansfield had three options: 1. Let his options expire and get nothing. 2. Get a loan for several million to exercise the options and pay the strike price, keeping the shares, just to make some random uninformed poster on MacRumors happy. 3. Get $12.5 million minus tax, and spend it on his wife, children, himself, his friends and family, and whatever else he wants, to enjoy his life.

He knows something that you don't know: That having shares is worth nothing if you don't convert them to money and spend it.

 

[marcusj0015]

No one can call him an idiot for making out with over 12 million, really.



His bro looks just as stoked:
Image

Yeah, but John Goodman looks much less retarded, and is more respectable.

 

[MagnusVonMagnum]

Can I give you an award for completely uninformed accusations, totally pulled from your backside?

Can I give you one for exaggerating to extremes just to behave like a fanboy?

Bob Mansfield had three options: 1. Let his options expire and get nothing.

Yeah, that makes sense. You get bonus points for offering a brilliant option.

2. Get a loan for several million to exercise the options and pay the strike price, keeping the shares, just to make some random uninformed poster on MacRumors happy.

You see, you paint this with all these ridiculous emotions just to try and insult someone on here as if they're being ridiculous. First of all, given his position, I highly doubt he would have needed a loan to buy them even if he planned to keep all the shares or he could have cashed out enough to pay for the shares and kept the rest. The point is that if he had extreme confidence that Apple was going to keep going up in share price like some of my friends at work believe (one thinks at least $600 in the next two years), he would have held onto much of that stock.

What some people here are saying is that by cashing 100% of those options out as soon as exercised the option to buy them, he's showing that he isn't going to take that chance. Some of us have called that a wise or shrewd decision, but that doesn't stop the fanboys on here from insulting us, insisting that Apple IS going to go to 2 Gazillion a share, but telling us tear-jerker stories that Bob MUST have needed that money for a college education. Yeah $12.5 million...how many kids is he putting through college?

3. Get $12.5 million minus tax, and spend it on his wife, children, himself, his friends and family, and whatever else he wants, to enjoy his life.

That's fine, but clearly he had a LOT more options than just cashing it all out all at once and people like you trying to pretend he was backed into a corner to do all or nothing are just trying to save face for acting like screaming fanatics earlier in the thread.

He knows something that you don't know: That having shares is worth nothing if you don't convert them to money and spend it.

That's possibly the most ridiculous thing I've ever read on here. All stocks are investments and worth their market price. You hold onto them for as long as you believe it will benefit you to do so. No one holds a gun to your head and tells you when to cash out nor do they become worthless overnight just because you held onto them for a day after buying them as you seem to suggest by comparing to them to having no value unless you cash it out immediately and then worse yet, SPEND IT ALL (at which point you have nothing, apparently since nothing in this world has value according to you unless you are converting it to money and then spending it).

My honest suggestion to you is don't quit your day job any time soon.

 

[gnasher729]

Magnus, you seem to be very emotionaly involved here. Somehow I feel that some Apple executive cashing in on $12.5 million is something that has hurt your feelings. Why the "fanboy" accusations for a post that didn't even say one thing about the Apple company? There is not the slightest excuse for that.

As far as your criticism of my post is concerned, nobody will convince you that I'm right, but Bob Mansfield apparently thinks that I am - and he now has millions in cash that he can spend right now, and more millions than he can ever spend in options. Suggesting that he should save and scrimp today in order to have 100 millions more than he can spend in ten years time, instead of being able to afford whatever he wants and having only 80 millions more than he can spend in ten years time, that is just stupid.

The thing that you either didn't understand or refused to understand is that maximizing your investments is not a goal in itself but a means to an end, and the end is to have money to spend.

 

[ApplesAndOrangs]

That's possibly the most ridiculous thing I've ever read on here. All stocks are investments and worth their market price. You hold onto them for as long as you believe it will benefit you to do so. No one holds a gun to your head and tells you when to cash out nor do they become worthless overnight just because you held onto them for a day after buying them as you seem to suggest by comparing to them to having no value unless you cash it out immediately and then worse yet, SPEND IT ALL :

I wouldn't be too alarmed as an investor. It could mean anything.

Also, he cashed his options regularly, even when Steve was around.

 

[Tigger11]

Can I give you one for exaggerating to extremes just to behave like a fanboy?

Yeah, that makes sense. You get bonus points for offering a brilliant option.

The options expired in June of 2012, so it was an option that was coming up and most on here don't realize, he either exercised the options in the next 4.5 months or lost them.

You see, you paint this with all these ridiculous emotions just to try and insult someone on here as if they're being ridiculous. First of all, given his position, I highly doubt he would have needed a loan to buy them even if he planned to keep all the shares or he could have cashed out enough to pay for the shares and kept the rest. The point is that if he had extreme confidence that Apple was going to keep going up in share price like some of my friends at work believe (one thinks at least $600 in the next two years), he would have held onto much of that stock.

I think your friends at work are much better at this then you, I willing to wager that $600 you keep mentioning that we will see Apple stock hit that price ($600) before it sees $300 again (unless we see a split). As for the rest, why exactly do you like Bob has several million dollars sitting around in cash to buy his options. Its much easier when dealing with options to just click sell options and the brokerage buys the options, sells the stock, pays the taxes and deposits the results in my brokerage account or any other account I want. Thats why the majority of exercised options are done that way, because it much easier to do.

That's fine, but clearly he had a LOT more options than just cashing it all out all at once and people like you trying to pretend he was backed into a corner to do all or nothing are just trying to save face for acting like screaming fanatics earlier in the thread.

It is the easiest option, thats why I do it that way, I dont have to come up with the money to exercise the options, I dont have to cash a CD, sell another stock, etc for it to happen. One click, money put in bank, IRS payed etc, real easy. Thats the other thing you keep skipping over, tax liability for buy without a sale, after you are borrowing or cashing out something else to get the money for the buy, then at the end of the year, you are selling something else to pay the taxes on the $12.5M buy.

That's possibly the most ridiculous thing I've ever read on here. All stocks are investments and worth their market price. You hold onto them for as long as you believe it will benefit you to do so.

You are worried about silly posts, then post this. Having 30,000 shares of Apple stock, doesnt feed your kids, pay your mortgage or put a new Porsche in your dad's driveway. I sell stock all the time that I believe is going to go up (including my companies stock), I do it because I would rather spend the money and take the family to see Ngorogoro Crater or the Valley of the Kings then go around being excited about how many zeros my retirement account has in it. My company gives me options to keep me here, I treat it just like part of my pay and spend it accordingly, given Bob's past use of his options, he and I appear to have similar thoughts on the matter.

 

[Cartaphilus]

Some posters to this thread may be interested in the well-recognized concept of risk aversion and the associated principle of diminishing marginal utility. Economists have long recognized that someone in the financial position of Bob Mansfield looks at risk/reward propositions differently from someone with less wealth. As people possess increasing amounts of money or a good, the value of an additional unit to them becomes smaller, i.e., if you are isolated in the desert and have no water, the value of a pint of water to you is high; if you have ten thousand gallons of water in your cistern, the value to you of an additional pint of water is small. To a person with ten thousand gallons of water it makes no sense to wager it in a double-or-nothing bet that he has a 50% likelihood of winning. The loss of all of his water is a much greater loss to him than is the benefit of having an additional ten thousand gallons of water.

The same principle applies to wealth and the wealthy. Even if Mansfield believes there is a high probability that Apple stock will increase, the undeniable risk that it may decrease in value is more alarming, dollar-for-dollar, than the potential benefit is enticing. Accordingly, someone like Mansfield is said to be "risk averse", not as a matter of personality, but of rationality. Were he to retain indefinitely all of the shares of Apple stock he acquires, he would be risking potentially disastrous consequences should Apple stock fall, while any rise in Apple stock would not, relatively, make very much real difference to him.

Accordingly, it is not reasonable to assume that Mansfield's decision to liquidate his vested options reflects any concern about the economic prospects of Apple, Inc.

Anyone interested in learning more about these concepts may wish to start with Wikipedia's entry: http://en.wikipedia.org/wiki/Marginal_utility