I write this blog on a two-year-old Dell Latitude D600 laptop, a laptop which, I am now informed “may”:http://www.engadget.com/2006/07/28/another-dell-laptop-ignites/ “vent”:http://community.tomshardware.com/dellpost.html?name=Forums&file=viewtopic&t=192887&ex=Dude-Dell-freaking-blew “with”:http://kd7lrj.blogspot.com/2006/07/dell-laptop-battery-trouble-at-novell.html “flames”:http://www.theinquirer.net/default.aspx?article=32550 — or, if you’re not a technology marketer, the battery can explode and catch on fire. Given my “previous level of satisfaction with Dell products”:http://juniorbird.com/archive/000646.php, you can believe that I’m super-excited and happy about this development.
Now, in all fairness, this is apparently not Dell’s fault — Sony made the faulty batteries (just like they made similar flaming batteries for “Apple’s PowerBook 5300″:http://www.tidbits.com/tb-issues/tidbits-295.html#lnk2). And Dell has put up “a Web site that helps you check if you need a new battery and ships you one”:https://www.dellbatteryprogram.com/Default.aspx. Much to my surprise, my two-year-old laptop — which has thus far been flames-free — qualified for a replacement. Since the D600 has been available for 30-some months, I wonder how unlikely a fire is, or, alternatively, how many battery fires there have been so far. I hope the answer is “not many”, because it’ll be 20 days before I get my new battery.
It could be worse, other models take up to 75 days to have batteries ship, and Dell recommends that you remove your battery until you get the new one. Not having a battery in the computer at all won’t make much of a difference in my battery life, anyway, since Windows usually fails to go to sleep, or wakes up for no reason, thus keeping me down to about 5 minutes of useful battery life for the last 9 months or so. However, I have become accustomed to the freedom of moving my laptop from my office to the living room, when I just want to hang out and relax in front of the TV, or to Starbuck’s or the juice place, when I want to do work away from my little office. But then I wrote half of a draft of this entry, decided to move from my living room to my office, unplugged my laptop, and there went 350 words. This will be a strange new lifestyle to get used to; or I may just brave the fire and leave the battery in. The world, after all, is a dangerous place anyway.
I’ve had a couple of friends IM me asking “what’s going on with the whole “Apple stock option SEC trouble thing”:http://www.law.com/jsp/article.jsp?id=1155027932371?” Now, I know nothing more about this than the average business school student with a few classes on options and on financial reporting, but I guess that’s a few more than average so I’ll expound a bit on what appears to be going on, and if it’s serious or not. Everything below should be taken with a small grain of salt, at least, since there have been no public, comprehensive statements on what’s going on by either Apple or the SEC, but the stories in the press appear to be quite consistent and clear in what they’re describing.
h3. What’s an Option?
Let’s start by getting our basic terms down. An option is the right to buy a share of stock at a certain price after a certain date. Imagine that I have a company, Juniorbird Inc., and the stock is trading in the market at $10/share. If I gave you an option to buy one share of stock at $5, you could then immediately re-sell the stock at the $10 it’s trading for in the market and make a quick $5. This may not sound like much, but then assume I give you 10,000 options — that’s a good chunk of dough! Typically, options can’t be exercised (an option is exercised when you pay the company the value of the option and they give you a share of stock) *now* — they “vest”, or become usable, at some point in time in the future; that can provide an incentive for the option-holder to look to the long-term success of the company, sticking around until their options vest and working to get the stock price as high at possible at the time at which they can exercise options, in order to make as much of a profit as possible.
It’s possibly worth noting that options don’t entitle the holder to buy a share of stock that’s already in the market; instead, the option-holder gets to buy a share of stock that is owned by the company. Technically, this means two important things:
* That the company should own enough of its own stock to be able to cover all of the options it has outstanding. Technically, many companies don’t; if all of their options are exercised, then the shareholders of the company will have to vote to issue new stock, which is a bad deal for the shareholders — by issuing new stock, they make their total holding a smaller percentage of the company than it used to be.
* That, if a company uses a lot of options as part of its incentive program, people who have bought shares in the market can find that they own very little of the compan, because the number of shares owned by the company and given away as options is high compared to the number of shares that had been in the market.
Both of these are interesting points but aren’t really relevant to our discussion here; I only include them for their nerdly value.
h3. How Are Options Priced?
An option is more or less priced at whatever the company pleases to price it at. Typically, to keep accounting single, options will be given out to employees in large blocks, all with the same price; for instance, all options granted in a six-month period may be granted at the same price. Of course, because the value of a $10 option is different if the stock is at $12 or at $50, companies will, from time to time, change the price at which they grant new options to keep compensation relatively equal across time (if you want to give an employee 1,000 options worth $10,000 dollars, you’d better price those options at $2 when the stock is at $10, but at $40 when the stock is at $50; if you don’t increase the option price, then you end up giving the employee $48,000 worth of stock options).
The important thing is that, once an option has been granted, the price shouldn’t change. Re-pricing options is an accounting nightmare for companies and can have tax consequences for companies as well. Re-pricing options is an act that, itself, brings up ethical concerns; typically it’s done when the stock price is not high enough to allow the option holder to make a profit on the options, but, since the point of options is typically to incentivize the holder to work to bring up the stock price, re-pricing options gives the holder a gain even though they didn’t accomplish the stated goal. Re-pricing is a good way to piss off stockholders, because the re-pricing company is basically saying “‘sorry, we didn’t manage to increase the value of your investment in our company but we’re going to give this person a windfall profit anyway.”
h3. So What Did Apple Do?
As you can see, it’s really important to get an option at the right price, but you generally can’t change the value of an option once it’s granted. As I described above, options are often granted with an exercise price that changes at a few points in time — so therefore it’s desirable to get your options granted before a decision is made to increase the exercise price of the option. Sometimes, a grant of options will be _backdated_ to come before some change in exercise price. This is perfectly legal.
What “Apple apparently did”:http://www.law.com/jsp/article.jsp?id=1155027932371 is _change the date of options granted after granting the options_, which ,when you think about it, is pretty much the same thing as re-pricing options, as discussed above. They didn’t file the proper declarations that they re-priced their options, didn’t go through the proper accounting procedures, and therefore hid from shareholders — and even other option-holders, since Apple apparently only did this for senior executives — what exactly they were doing.
Apple’s said that they will re-state their earnings for past years, which means that we’re not just talking about a few dollars — there are real differences in Apple’s financial results caused by this stealth option repricing. Reasonable investors might have made different investment decisions, had they but known about the option repricing, and Apple’s officers had a legal obligation to make this information known to the investors.
h3. What are the Consequences for This?
Well, I’m no lawyer, but this sounds like securities fraud. Laws passed after Enron require the CEO and CFO of publicly-traded corporations to personally certify the annual reports given to shareholders, annual reports which must now be restated. Thus, we can be sure that Steve Jobs has at least *some* responsibility here. Since Enron, the SEC has been disinclined to seek out slap-on-the-wrist punishments, which might mean that someone senior would go to prison; fines, at least, seem likely, and anybody found guilty of securities fraud would be ineligible to serve as a director or officer of a publicly-traded corporation. (The SEC has recently filed criminal charges against officers of other companies involved in this kind of a backdating scheme, a scheme which has apparently been pretty common in Silicon Valley.)
So could Steve Jobs go to prison? I can’t guess, but I also wouldn’t want to think of Apple without Steve. If he were convicted, they could keep him on with some sort of a VP or “Chief Innovation Officer” – type title, but he couldn’t run the place. I do tend to think that Apple is concerned that Jobs will suffer some type of consequences here, because, at their latest developer’s conference, the keynote, which is typically given by Jobs alone, was given by Jobs and three other people, all of whom would usually speak but none so much. I tend to see this as an audition to find out who might be a good face for Apple, and, if you “watch the WWDC”:http://events.apple.com.edgesuite.net/aug_2006/event/index.html, you can see that VP of Platform Experience Scott Forstall was young, artsy, engaging, and natural on stage — a good successor, at least for a public leader. Of course, given Jobs’s recent brush with prostate cancer, this might just be good succession planning in general — but I do wonder a bit.
The SEC clearly wants companies to be squeaky-clean these days, and, as both an investor and an entrepreneur, I think this is a good idea. The free flow of investment funds to help companies grow depends on investors being able to trust the companies in whom they invest, and that includes not hiding stock option repricing when it’s material to the companies’ results, as it cleary is in the case of Apple. So that is what I think is going on and what I fear might happen. (I realize this entry might have fit better at Wadearmstrong.com, but I’ve already written it here and I’m too lazy to move it, so you’re stuck reading it.)
While hearing about the latest round of foiled terrorists and new flight security restrictions, all I’ve been able to think is “thank goodness I didn’t have to fly across the Pacific without my iPod, water, and hand lotion!” I realize this makes me a complete boor.
I guess I should qualify that statement — I would have gone insane flying American Airlines to Hawaii without my book and water and hand cream and iPod. Heck, they even charged for the in-flight meals on that trip. But on my long trip to and from Bangkok, taking “China Airlines”:http://www.china-airlines.com/en/index.htm, I was actually pretty well taken care of. I had two meals on each flight, both pretty tasty (admittedly, I’m a bad judge of how good an Asian meal really is, but I would not have hated them in an inexpensive restaurant in America). There was moisturizer in the bathroom, so I didn’t have to sit there and dessicate in the dry cabin air. There was even a personal entertainment system in the back of the seat in front of me, so I coud listen to the latest Asian hit music, watch any of two dozen movies, or play a variety of games on a PlayStation-style controller (I should note that the interface for this system was hardly good — I had to show the kid next to me how to use it, and another seatmate had to guess that a button labeled “Language” would switch him from English, which he clearly could not read, to a Chinese-language interface). China Airlines even had tea and Cup o’ Noodles available at all times — and, when I got upgraded to business class on my Bangkok-Taipei leg heading home, free wireless internet.
How can American, or any other cost-cutting US airline, survive in a world of no carry-on baggage, especially against international competition like this? I might accept a few hours of boredom for a Southwest-style fare, but you’d better believe that, if I’m paying $hundreds for my flight, even even-tempered ol’ me is going to go ballistic if I have to pay for every drink. But can airlines suddenly charge more to cover food costs? Hardly, in these air-travel-as-a-commodity times — and that doesn’t even consider how much airlines would need to take in to cover the cost of offering an in-seat entertainment system.
I don’t think people will fly and be bored. People will save money and go for Southwest, or spend just a little more and enjoy their JetBlue DirecTV, or fly a European or Asian carrier that can offer a full-service experience, either because they don’t need to make a profit or because they have the low cost structure that comes from being based in a developing nation. Where’s the room in between for an expensive, boring travel experience?
I’d love to see how our domestic carriers get out of this one. It’s a doozy, but it’s just been one kick in the jewels after another for them since 9/11. I don’t think the terrorists can ever beat us, but it may be that they can beat our air travel industry. Until then, I guess I’m taking Amtrak.
College football season’s on its way, which means, naturally, that the sports pages are full of stories of NCAA violations. Some, such as Oklahoma quarterback “Rhett Bomar’s accepting money for a job he didn’t do”:http://www.tulsaworld.com/NewsStory.asp?ID=060803_Ne_A1_TwoSo69334 are relatively serious. Others, such as USC reciever “Dwayne Jarrett’s roommate’s father paying for a luxury apartment”:http://www.latimes.com/sports/la-sp-usc10aug10,0,3529500.story?coll=la-home-sports are simply a sign that the existing system, which effectively prohibits most “Division I”:http://en.wikipedia.org/wiki/Division_I scholar-athletes from holding any useful job, is badly broken and needs to be fixed. Specifically, it needs to be possible for Division I schools to pay their athletes for playing sports.
Now, this sounds to a lot of people like a crazy solution — turning kids who should be students into pro athletes. But, in fact, a measured application of this principle can help kids who play sports focus on being in college. And a measured applicaton is just what I’m talking about — pay levels on the order of $15,000 a year ought to be more or less sufficient for many purposes, with specific extra allowances for special cases.
To understand why, let’s look at the context in which most college students work and earn money. Your average college student is, by definition, unqualified for most any job. They’ve got little to no work experience, they haven’t yet learned knowledge that would otherwise be required for most white-collar positions, they lack the skills that are desirable for any blue-collar job, they’re unavailable on any 9-to-5 schedule — it just goes on and on. Anyone who’s hired someone straight out of college knows how hard it is to get good work out of them, especially during the first few months. But, at the same time, college students get hired. They get hired because:
* Their parents know someone who know someone
* Their friends’ parents have a company
* They’re on the newspaper or in the bioethics club or Amnesty International
* One retail drone is easily replaced by any other retail drone, if there’s a problem with first retail drone.
But most of these prospects don’t exist for a scholar-athlete playing Divison I sports. Bullets one through three above are all NCAA violations, under most circumstances. Bullet four actually might be a violation — the NCAA prohibits giving any exceptional discounts to athletes, and most retail workers get discounts — but the point of the example is to show that a retail or similar job is really the only one open to scholar-athletes, and even that is limited because, during the season and pre-season training, the athlete probably can’t find the time for work, practice, and school — two out of three, maybe, but not all three. It’s hard to get a college job if you’ll disappear not only during the summer but also during another, specific time of year. Not impossible, but definitely difficult.
The result is that it’s, obviously, difficult for Division I scholar-athletes to earn a useful rate of income. Every college student needs some income — there may be tons of football groupies, but I guarantee you that even the studliest player wants to take his girl out on a date. From whatever background, scholar-athletes need a little income of their own. Worse, however, some scholar-athletes are among the most economically-disadvantaged students in their schools. A full ride to an out-of-state Divison I school can be a kid’s big shot at college, and even a partial scholarship can attract people from disadvantaged backgrounds who would otherwise go to a junior college and live with their parents. These students, among many others, can’t expect any spending money from the parents, and yet they’re often living in a city that’s more expensive than where they grew up, with more attractions, and surrounded by people with more stuff. How do they get money? Well, they get involved in some NCAA violation, or they hang out with the wrong crowd, or they go pro too early, just for a shot at some income.
So, college kids have a hard enough time getting a real job, and it’s virtually impossible for a Division I athlete to get a job, given NCAA regulations. But things get worse. Looking again at the “Dwayne Jarrett violation”:http://www.latimes.com/sports/la-sp-usc10aug10,0,3529500.story?coll=la-home-sports, we see that even normal arrangements are suspect. Jarrett roomed with former USC (now Arizona Cardinals) quarterback Matt Leinart, in an apartment rented by Leinart’s father. Jarrett payed a reasonable (for LA) rent to Leinart’s father — but, the trick is, they lived in an expensive luxury apartment, one that cost many times what Jarrett paid.
Now, it’s not unreasonable for two students to have lived there — I used to work at a company that owned several complexes like the one Jarrett and Leinart lived in, and we were filled with local college students, people from prosperous families who wanted to live in a nice place. Notably, we were also filled with celebrities, people who appreciated the secure property, staffed by people who couldn’t too easily be bribed to let a reporter or stalker inside. Leinart, as a major local celeb, needed such a place if he was to have any privacy at all. Now, it’s normal, perhaps even typical, for a star wide receiver to room with the quarterback, because the whole winning the game thing goes better if these two can be on the same page. Not only that, but it’s pretty normal for more affluent students to pay a disproportionate share of their rent in order to live with their friends. Yet, although many other USC students live in the Medici, and many other college students nationwide pay too little rent for their apartments, for Dwayne Jarrett, it’s a violation.
Meanwhile, USC — like the vast majority of Division I football schools — makes bank off of their program. How is this fair? How does this help anybody?
The goal of NCAA regulations are to prevent cheating, prevent boosters from offering fake jobs that are, in effect, extra scholarships for the school they support, prevent boosters from taking advantage of college kids, and ensure that scholar-athletes have normal experiences that help them to learn all of the life lessons that other college students learn. We can all be for all that, but the ultimate effect here is to prevent students from earning an income with which to support themselves reasonably in school. That’s why colleges just need to pay their scholar-athletes. What could they make a year? $15,000 at a retail drone job? OK, so pay them that and most scholar-athletes will be happy. For celebs like Leinart — and many athletes at top programs can be bothered by their celebrity, especially in small college towns — let the school pay extra to ensure that they have a secure, private place to live. For people living in more expensive towns, offer a cost-of-living adjustment, and maybe a travel allowance for people far from home, like Floridians playing football in Oregon. Make it all above-board, obvious, and base it all on an system that delivers fairness and equality in its results. Then fans won’t have to worry about these rinky-dink violations every year, and, even better, scholar-athletes can concentrate on playing sports and studying, which is the whole point anyway.
If you’re like the friends I instant message with — and who isn’t, these days — then you took one look at my “Southeast Asia vacation photos”:http://juniorbird.smugmug.com/Travel/200720 and said “hey, there are more than 400 photos here! Aren’t any of them good?” The answer, of course, is “sorry, no!” But, despite that unfortunate fact, I’ve collected this “best of” list so that you can pretend to have looked at my photos, and compliment me on them, while not actually having to wade (heh) through them! And away we go!
h3. Bangkok
“!http://juniorbird.smugmug.com/photos/84678311-M.jpg!”:http://juniorbird.smugmug.com/gallery/1716941/1/84678311
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h3. Hanoi
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h3. Hué
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h3. Ho Chi Minh City/Saigon
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h3. The Mekong River
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h3. Phnom Penh
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h3. Angkor Wat
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h3. Chiang Mai
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