Backdating at Pixar broader than thought

Walt Disney Co. said Monday that the backdating of stock options at Pixar Animation Studios was broader than previous reports suggested.

News accounts had focused on a handful of top executives whose options were worth as much as a few million dollars when they were awarded. But in a securities filing, Disney said inflated and unexercised options held by the rank and file at Pixar were worth about $323 million under the Black-Scholes-Merton method for valuing options.

“That’s a big number,” said Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance.

Disney’s estimate came in an offer to replace the tainted options with those reflecting the price of Pixar’s shares when the options were issued. Disney will make up the difference with cash but will withhold taxes on that sum.

Pixar had falsely claimed that the options were issued on earlier dates when the company’s stock was trading at lower levels, Disney has said. That meant that they were already quite valuable and should have been counted as an expense for Pixar and as income for the employees.

The $323-million figure, which Disney said covers options on 15 million Disney shares, doesn’t include grants to executives and directors, who won’t be included in the exchange offer.

Disney didn’t reveal the actual dates of the option awards or disclose how far they were from the claimed dates.

The dollar value of the fraud might be less than $323 million because even options that are awarded properly have value under the Black-Scholes system. On the other hand, the figure doesn’t include options that have already been exercised.

Pixar employees’ options converted into the right to buy Disney shares when the Burbank-based company bought Pixar for $7.4 billion in stock last year.

The Securities and Exchange Commission filing notes that the number of unexercised Pixar options that were converted cover about 40 million Disney shares.

That means more than a third of the converted Pixar options were set at fake prices.

Emeryville, Calif.-based Pixar was controlled by Chief Executive Steve Jobs, who owned about half of the company. With Disney’s purchase, he became a Disney director and the company’s largest stockholder.

Jobs is also CEO of Apple Inc., which like Disney is the subject of a federal option investigation. But Apple has said it found only 114,000 options that were priced improperly, far fewer than the estimates given Monday by Disney.

A Disney spokesman didn’t return a telephone call seeking comment.