Disney admits option timing at Pixar

Walt Disney Co. acknowledged Friday that stock options granted at Pixar Animation Studios were backdated before Disney bought the company but added that it had found no deliberate misconduct by anyone currently associated with Disney.

Although the announcement by Disney Chairman John Pepper Jr. didn’t name names, such a sweeping statement would include Steve Jobs, who ran Pixar as its chief executive and majority shareholder. Jobs is now a director of the Burbank entertainment company as well as its largest shareholder.

The statement also would cover two top executives now overseeing Disney’s feature animation unit: former Pixar Chief Technology Officer Ed Catmull and creative guru John Lasseter.

Disney’s board and its audit committee looked into the Pixar grants, which filings show occurred starting in 1997 and ended well before Disney acquired the Emeryville, Calif.-based studio last year for $7.4 billion.

“No one currently associated with the company engaged in any intentional or deliberate acts of misconduct,” Pepper said. Disney said that it planned to assist in paying taxes owed by Pixar option recipients, and that the amount it would spend wouldn’t be material to financial statements.

Despite Disney’s conclusions, the timing of options at Pixar and nearly 200 other companies remains under investigation by federal regulators.

Disney directors “found that there was backdating, which is a problem, and frankly they don’t have the last word on it,” said Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance. The Securities and Exchange Commission and the Justice Department will come to their own decisions about whether the practice was intentional, Elson said.

Options are rights to buy stock at a set price within a certain time period. The cost of buying that stock is generally the stock’s market price on the day the option is granted by the company’s board.

Regulators want to know whether option grant dates were changed after the fact to make them coincide with a stock’s lowest price in a particular period. Doing so could give executives instant paper gains on their options. It also could inflate a company’s earnings by understating employee compensation costs.

Options that are already worth something when they are issued, as opposed to those issued at the current market price for shares, must be recorded as an expense on company books.

Disney’s statement didn’t say which Pixar option grants were at issue or who received them, and a spokeswoman didn’t respond to questions.

Jobs himself received no Pixar options. But regulatory filings show Lasseter was granted options on 2 million split-adjusted shares, and Catmull received options on 1 million shares, both priced at a low of $13.25 that Pixar’s stock had hit Dec. 6, 2000.

In its proxy statement, Pixar said the options Lasseter received were granted in connection with his employment contract, even though it wasn’t signed until March 21, 2001. From Dec. 6 to March 21, Pixar’s stock rose 17%, increasing the value of his options $4.6 million.

Apple Inc., where Jobs is CEO, has similarly come under scrutiny for its option practices. In December, Apple said that although Jobs was aware of the improper dates for option grants, he didn’t “appreciate the accounting implications.”

In an SEC filing Friday, Apple said it would assist employees with tax payments and penalties on as many as 114,000 options that it had found to have been improperly backdated.

Disney’s announcement came after the close of regular trading, during which Disney shares fell 18 cents to $33.61.

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joseph.menn@latimes.com