Deals Timing!

Another day, another deal.

Thanks to online coupons, price-comparison search engines and reward memberships, savvy shoppers can pay less than full price on any day that ends in "y." But depending on what you're planning to buy, some days of the week may yield better bargains than others.

We talked to the experts, and narrowed down the best days of the week to buy certain items.

Airplane Tickets
When to Buy: Wednesday morning.
Why: "Most airfare sales are thrown out there on the weekend," says travel expert Peter Greenberg, a.k.a. The Travel Detective. Other airlines then jump into the game, discounting their own fares and prompting further changes by the first airline. The fares reach their lowest prices late Tuesday or early Wednesday.

More from SmartMoney.com: • Deals Abound for New AC Systems • The Best Credit Cards for Summer Travel • When to Reserve What

Books
When to Buy: Thursday.
Why: Price compare between major chains Borders and Barnes & Noble. The former releases its weekly sales and coupons on every Thursday; the latter, every Tuesday.

Cars
When to Buy: Monday.
Why: "Car dealers live for the weekend, which is when they make most of their sales," says Phil Reed, consumer advice editor for Edmunds.com. "On Mondays, the low foot traffic makes it seem like the weekend will never come." That dealer desperation, paired with fewer consumers on the lot, give you more negotiating power.

Clothing
When to Buy: Thursday evening.
Why: That's the day when stores stock their shelves for the weekend, and when many retailers — including Ann Taylor, Banana Republic and Express — start their weekend promotions, says Kathryn Finney, author of "How to Be a Budget Fashionista." You'll find great prices and the best selection. "It's an effort to get people to shop in the middle of the week," she says.

Department-Store Wares
When to Buy: Saturday evening.
Why: Department stores have a lot to mark down for their Sunday circulars, so they frequently start the process on Saturday evenings before store closing, says Finney. "They're preparing for the big rush," she says. Bonus: Even if the markdowns haven't been made, many employees will honor the sale price if you ask. Print out the circular preview from the store's web site, and bring it with you when you head to the mall.

Dinner Out
When to Buy: Tuesday.
Why: Most restaurants do not receive food deliveries over the weekend. "Sunday is the garbage-can day of the week," says Kate Krader, senior editor at Food & Wine magazine. "No doubt, they're cleaning out their fridges. Tuesdays, they're starting fresh." Dining out on that day offers the best odds you'll get a meal worth paying for, no matter your price point, she says.

Entertainment
When to Buy: Wednesday.
Why: Plenty of movie theaters, amusement parks and museums offer extra discounts to consumers who visit midweek. Six Flags theme parks offer a $12 discount to AAA members — three times its usual discount of $4. AMC Theatres offers members in its free AMC Movie Watcher reward program a free small popcorn on Wednesdays. (This summer, it's also the day select theaters offer free Summer Movie Camp screenings.)

Gas
When to Buy: Thursday, before 10 a.m.
Why: The price of oil isn't the only factor influencing costs at your local pump. Consumer usage plays a role, too — and weekend demand is high, says Jason Toews, co-founder of GasBuddy.com, a price-monitoring site. Prices usually swing upward on Thursdays as travelers fuel up to head out the following day. By hitting the pump before 10 a.m. (when many station owners change their prices), you'll beat the rush and the price jump.

Groceries
When to Buy: Sunday — or Tuesday.
Why: Maximize savings by combining store sales, which run from Wednesday to Tuesday, with the latest round of coupons from your Sunday paper, says Mary Hunt, publisher of Debt-Proof Living, a money-saving newsletter. "It's a smart idea to wait until you have those in hand to match up with the week's sale items," she says.

To snag savings on items you don't need just yet, shop on Tuesday, advises Hunt. Chances are, the store will have run out of the sale items. "That means you can pick up rain checks, which allow you to buy those items later when you need them, and at the sale price," she says.

Hotel Rooms
When to Buy: Sunday.
Why: There are two kinds of hotel managers, and the kind that won't give you a discount on your room rate has Sundays off, says Greenberg. Call the hotel directly, and ask to speak with the manager on duty or the director of sales. These employees are open to negotiation, he says. They'd rather have a booked room at a discounted rate than an empty room. (The rest of the week, your call would get you a so-called revenue manager, who monitors profits — and is rarely willing to lower rates.)

Apple backdating option

January 24, 2007

The Steve Jobs Effect...on the Backdating Scandal

Peter Burrows

Call it a hunch, but I think there’s going to be a lot of Silicon Valley CEOs and other executives that owe Steve Jobs a big debt of gratitude in coming weeks and months—and not because they received an iPhone before the rest of us. Rather, it’s because of Jobs’ involvement in the options backdating scandal.

Here's why. For whatever reasons—and they could range from a principled belief in his innocence, to a pragmatic understanding of his importance to Apple’s financial well-being--Apple’s board has backed Jobs despite pressure that would have led many companies to have asked him long ago to resign for the good of the team. Certainly, plenty of lesser known CEOs have been forced out, based on far less evidence (publicly-disclosed evidence, anyway) of involvement in backdating than Apple has admitted about Jobs. Now that Apple’s board has decided to stand by its man, other boards will feel more free to stand by theirs, as well.

Take the news from networking supplier Foundry Networks. The company announced on Jan. 22 that Bobby Johnson would give up the title of chairman, but remain as CEO and president. While CFO Timothy Heffner resigned, why didn't the board push out Johnson entirely, as has occurred at companies from Brocade to McAfee to United Health?

Foundry didn't return my phone calls, but the company's explanation certainly seemed similar to Apple’s. Both Johnson and Jobs were clearly involved in a hands-on way in handing out options at artificially-sweetened prices (the lower the grant price, the more the recipient makes should the company’s stock rise). Foundry says Johnson assigned dates on backdated options “in a substantial number of cases.” According to Apple, Jobs knew about and even recommended dates on some of 6,000-plus backdated grants. But like Jobs--at least according to Apple’s board--Johnson did not personally benefit from any backdated grants. And Foundry said that Johnson, also like Jobs, did not understand the accounting rules that should have led Foundry to properly expense and pay taxes on these backdated options. (Remember that backdating is not illegal, so long as the backdated grants are accounted for properly and disclosed to shareholders).

I don't know if Foundry's board was consciously trying to draft in Apple's wake, but you couldn't blame them if they were. Could there possibly be any better excuse for keeping Johnson employed than the "we didn't do anything Apple didn't do" defense? If Jobs can remain on the job—even amid press reports that he was interviewed last week by federal investigators—why not Johnson? He may not play on the grand stage that Jobs plays on (nor does he have Al Gore on his board, which could also tend to keep the Feds at bay. Even the boldest prosecutor would have to think hard before bringing charges against one of America’s most famous business icons, while also challenging the findings of an investigation co-run by a former and possibly future Presidential candidate). But Johnson is of similar relative importance in Foundry’s world. He co-founded the company in 1996, and is considered its architect and spiritual leader.

Of course, not every company that has admitted to backdating has thrown out its CEO. That could be because all CEOs are not created equal. "Boards that have successful CEOs tend to be more forgiving," says Xilinx CEO Wim Roelandts. "When you don't much care for the CEO, [the fact that backdating occurred on his or her watch] can be an excuse to get rid of him." By this yardstick, Apple's decision to circle the wagons around Jobs makes sense. He's unique, by most experts' calculation, in terms of his ability to get the most out of Apple.

Still, I predict Apple's handling of its backdating problem will impact decision-making in many other boardrooms. Before Jobs became embroiled in the scandal, the default response was to play it safe: announce a big restatement and oust the highest-ranking executives with any involvement, to show proper contrition and intention to reform to the Feds. Now, so long as evidence shows their CEO was less involved in backdating than Jobs was at Apple, there will be less pressure to automatically take the "throw-the-bums-out" route.

So is this a good thing? I think yes. A rush to judgment is never a good thing. Until government investigators turn over all the rocks to get all the facts, it's good for shareholders that neither Jobs or Johnson has gotten the boot--especially in the case of Apple, where analysts think the shares would plummet by 25% or more on such an announcement.

By the way, my sources continue to insist that Jobs is not a target of the government’s scrutiny.

Windows Vista Switch Essentials

A new version of Microsoft Windows, the world's most popular and important computer operating system, will finally arrive for consumers on Jan. 30. It has taken the giant software maker more than five years to replace Windows XP with this new version, called Windows Vista -- an eternity by computer-industry reckoning. Many of the boldest plans for Vista were discarded in that lengthy process, and what's left is a worthy, but largely unexciting, product.

WSJ.COM VIDEO

Walt Mossberg says Microsoft's new Windows Vista operating system is worthy, but the features aren't very exciting. See a video review¹.

• Plus, see an archive² of Mossberg videos.

Vista is much prettier than previous versions of Windows. Its icons look better, windows have translucent borders, and items in the taskbar and in folders can display little previews of what they contain. Security is supposedly vastly better; there are some new free, included programs; and fast, universal search is now built in. There are hundreds of other, smaller, improvements and additions throughout the system, including parental controls and even a slicker version of Solitaire.

After months of testing Vista on multiple computers, new and old, I believe it is the best version of Windows that Microsoft has produced. However, while navigation has been improved, Vista isn't a breakthrough in ease of use. Overall, it works pretty much the same way as Windows XP. Windows hasn't been given nearly as radical an overhaul as Microsoft just applied to its other big product, Office.

Nearly all of the major, visible new features in Vista are already available in Apple's operating system, called Mac OS X, which came out in 2001 and received its last major upgrade in 2005. And Apple is about to leap ahead again with a new version of OS X, called Leopard, due this spring.

There are some big downsides to this new version of Windows. To get the full benefits of Vista, especially the new look and user interface, which is called Aero, you will need a hefty new computer, or a hefty one that you purchased fairly recently. The vast majority of existing Windows PCs won't be able to use all of Vista's features without major hardware upgrades. They will be able to run only a stripped-down version, and even then may run very slowly.

Vista's Flip 3D feature lets you scroll through images of currently running programs. The sidebar (right) contains miniapplications. The Windows Photo Gallery (left) is for organizing and editing photos.

In fact, in my tests, some elements of Vista could be maddeningly slow even on new, well-configured computers.

Also, despite Vista's claimed security improvements, you will still have to run, and keep updating, security programs, which can be annoying and burdensome. Microsoft has thrown in one such program free, but you will have to buy at least one more. That means that, while Vista has eased some of the burden on users imposed by the Windows security crisis, it will still force you to spend more time managing the computer than I believe people should have to devote.

Here's a quick guide to the highlights of the new operating system.

Versions and Upgrading

Vista comes in six versions, two of which are primarily aimed at consumers. One, called Home Premium, is the one most consumers will want. It contains the full Aero interface, and it includes the functionality of Windows Media Center and Windows Tablet edition, which have been discontinued as separate products. Home Premium costs $239, or $159 if you are upgrading from an earlier version of Windows. It will come preloaded on most midrange and some high-end consumer PCs.

QUESTION OF THE DAY

³

How do you expect Microsoft's new Vista operating system to go over with consumers?⁴

The other main consumer edition of Vista is the stripped-down version, called Home Basic. It includes the improved security and search but leaves out the new Aero interface and the Media Center and Tablet functions. It will be preloaded on low-price PCs. Home Basic will cost $199, or $100 for upgraders.

A third version, called Ultimate, will wrap up everything in Home Premium with some additional features from the business versions of Vista. This is for power users, and it is likely to be preloaded on high-end PCs. But some regular users may need Vista Ultimate if their companies have particular network configurations that make it impossible to connect to the company network from home with Home Basic or Home Premium. Vista Ultimate will cost $399, or $259 as an upgrade.

Even if you buy the Home Premium or Ultimate editions, Vista will revert to the Basic features if it detects that your machine is too wimpy to run the new user interface.

For most users who want Vista, I strongly recommend buying a new PC with the new operating system preloaded. I wouldn't even consider trying to upgrade a computer older than 18 months, and even some of them may be unsuitable candidates. Microsoft offers a free, downloadable Upgrade Advisor program that can tell you how ready your XP machine is. It's available at: microsoft.com/windowsvista/getready/upgradeadvisor⁵.

If you bought a PC in the past few months, and it had a "Vista Capable" sticker on it, it should be able to run at least Home Basic. If it was labeled "Premium Ready," it should be able to handle Premium and probably Ultimate.

Microsoft says that Home Basic can run on a PC with half a gigabyte of memory and that Premium and Ultimate will work on a PC with one gigabyte of memory. I strongly advise doubling those numbers. To get all the features of Vista, you should have two gigabytes of memory, far more than most people own.

Even more important is your graphics card, a component most people know little about. Home Basic can run on almost any graphics system. But Premium and Ultimate will need a powerful, modern graphics system to run well.

Performance

I tested Vista on three computers. On a new, top-of-the-line Hewlett-Packard laptop, with Vista preinstalled, it worked smoothly and quickly. It was a pleasure.

On a three-year-old H-P desktop, a Vista upgrade installed itself fine. But even though this computer had a full gigabyte of memory and what was once a high-end graphics card, Vista Ultimate reverted to the Basic user interface. And even then, it ran so slowly and unsteadily as to make the PC essentially unusable.

The third machine was a new, small Dell XPS M1210 laptop. In general, Vista ran smoothly and well on this Dell, but some operations were annoyingly slow, including creating a new message in the built-in Windows Mail program. This surprised me, because the Dell had two gigabytes of memory and a fast processor.

Security

Microsoft says Vista is much more secure than any other operating system. But this is hard to prove, especially at the beginning of its life, when few hackers and malefactors have access to it. One visible security feature asks for your permission before you do potentially dangerous tasks, like installing new software. This is a good thing, and it's been on the Macintosh for years. But unlike the Mac version, the Vista version of this permission feature doesn't necessarily require you to type in a password, so a stranger or a child using your PC could grant permission for something you yourself might not allow.

Vista also has built-in parental controls so you can restrict what a child can do on the computer. This is also already on the Macintosh, though the Vista controls are more elaborate.

Microsoft includes a free antispyware program in Vista, called Windows Defender. But PC Magazine regards it as inferior to paid programs like Spy Sweeper and Spy Doctor. So you may want to buy one of these. You should also buy an antivirus program, which isn't included.

User Interface

The new Aero interface is lovely, and it makes using a PC more pleasant and efficient. It apes some elements on the Macintosh but retains a distinct look and feel. Icons of folders look three dimensional, and they pop. Most file icons are thumbnails that show a tiny preview of the underlying document.

Like the rest of Vista, the Start Menu has a prettier, more refined look.

The old hourglass icon that appeared during delays has been replaced by a gleaming, spinning blue circle. The cutesy names for standard folders, like "My Pictures," have been changed to simpler ones, like "Pictures."

As on the Mac, you can now drag favorite folders into a list at the left of open windows, so it's easy to get to them.

A new feature called Flip 3D shows a 3D view of all the programs you're running and lets you scroll through them. It's like the Mac's excellent Exposé feature, though not quite as handy.

Another new feature, called the Sidebar, is a vertical strip at the side of the screen that can contain tiny programs, called Gadgets, displaying things like favorite photos, news headlines, stock prices and the weather. Once again, this is awfully similar to a Macintosh feature called Dashboard, which displays tiny programs called Widgets.

Some familiar Windows features have new names. The old Display control panel, where you chose screen savers and desktop pictures, is now called Personalization. The Add or Remove Programs control panel is now called Programs and Features.

Search

Like the Mac, Windows now has rapid, universal, built-in search, a very welcome thing. The main search box is contained at the bottom of the Start menu, and it works well. Other search boxes appear in every open window.

You can also save searches as virtual folders, which will keep collecting files that meet your search criteria. This is another feature introduced earlier by Apple.

Built-In Programs

The Outlook Express email program has been given a face-lift and renamed Windows Mail. But it's pretty much the same, except for a new junk-mail filter. The Windows Address Book has been renamed Windows Contacts and, oddly, turned into a sort of file folder.

The latest version of the Internet Explorer Web browser, with tabbed browsing, is included, though it's also available for Windows XP.

As on the Mac, Windows now has a nice, centralized Calendar program. And there's a new photo-organizing program, Windows Photo Gallery, but it's inferior to Apple's iPhoto because it doesn't allow you to create photo books, or add music to slide shows. There's also a pretty rudimentary DVD-burning program.

The familiar WordPad program can no longer open Microsoft Word files (ironically, Apple's free built-in word processor does).

Gradually, all Windows computers will be Vista computers, and that's a good thing, if only for security reasons. But you may want to keep your older Windows XP box around awhile longer, until you can afford new hardware that can handle Vista.

Cutting Your Capital-Gains Tax Bill to Zero

A tax break that could benefit many investors is scheduled to arrive next January, and it's not too soon to start planning ahead.

At first glance, the provision appears relevant only to lower-income taxpayers: Beginning in 2008, the tax rate on long-term capital gains from sales of stocks, mutual funds and other securities is scheduled to drop to zero -- yes, zero -- for people in the two lowest ordinary income brackets. (For higher-income taxpayers, the top long-term capital-gains rate is scheduled to remain at 15%.)

But financial planners say many people with higher income also may be able to take advantage of the zero tax rate if they can reduce their taxable income through deductions, such as mortgage interest and charitable donations, or by socking away money in tax-advantaged accounts, such as 401(k) plans.

"A lot of middle-income people will qualify for this," says Tony DeChellis, senior manager of product development at Thomson Corp.'s PPC/Quickfinder, a Fort Worth, Texas, publisher of tax information.

Families in an upper tax bracket may benefit, too, by making gifts of stock, mutual-fund shares and other securities that have increased in value over the years to low-income family members, such as their young-adult kids, grandchildren or parents, who may then be able to turn around and sell the securities tax free next year.

But use caution: Such gifts may cause problems for students applying for college financial aid, or to seniors seeking Medicaid eligibility, including for nursing-home care. They could make a senior's Social Security benefits subject to tax, or increase the tax on those benefits. Also, because of the recently expanded reach of the so-called kiddie tax, investment income above $1,700 for a child younger than 18 typically is charged at the parents' higher tax rates. It's always smart to check with a financial adviser before making a large transfer of shares.

Nadine Gordon Lee, president of Prosper Advisors LLC, an Armonk, N.Y., wealth-management firm, says she is already planning to take advantage of the upcoming 0% rate. She and her husband have begun transferring shares of equity-based mutual funds, purchased at a lower cost, to one of their sons, now 16. The plan is that he will begin selling them in 2008, when he turns 18, Ms. Lee says. The Lees also are giving highly appreciated stock to their other son, who is 19, and those shares are being sold this year at the current capital-gains-tax rate of 5% for lower-income brackets.

Giving appreciated stock "works nicely for funding the lifestyle of your college and graduate students who are not eligible for financial aid," Ms. Lee says.

Before making any such gifts, be sure to check with a tax adviser on any possible gift-tax or estate-tax consequences, or other possible hitches, Ms. Lee says. However, a gift of this type may be an efficient way to use the annual gift-tax exclusion, she says. That means you can give away as much as $12,000 this year to anyone else -- and to as many other people as you wish -- without any federal gift-tax consequences. (Gifts that exceed that amount typically must be reported to the Internal Revenue Service. Generally, there's a lifetime gift-tax exclusion of $1 million per donor. Gifts above that limit typically are subject to gift tax, and the top rate now is 45%. Gifts don't count as taxable income to the recipient. They also aren't deductible on the giver's income tax returns.)

Investors should never sell securities solely because of tax considerations. But if you're thinking of selling anyway, understanding the tax considerations can help you and your family keep more of the gains.

The 0% rate for lower-income taxpayers was part of the 2003 tax act passed by Congress that, among other things, set the maximum long-term capital-gains rate at 15%. But these rates are set to expire after 2010 unless Congress extends them. Many members of Congress are concerned that an extension could exacerbate the budget deficit.

How low must someone's income be to qualify for the 0% capital-gains-tax rate? Nobody knows for sure because income brackets are adjusted annually for inflation, and the IRS won't release the numbers for 2008 until late this year. But for 2007, a single person falls into the 15% bracket with taxable income of not more than $31,850. For joint filers, this figure is $63,700.

A few pointers: Favorable capital-gains rates apply only to "long-term" gains, or gains on shares held for more than a year. Short-term gains (on shares held a year or less) typically are taxed at regular federal income-tax rates, which can be as high as 35%. What's more, the low capital-gains-tax rates apply only to shares in taxable accounts. They also don't apply to sales of appreciated art and other collectibles; there, the top capital-gains rate typically is 28%.

If you do decide to sell, make sure to unload the shares that will result in the best tax result. This can get tricky. For example, suppose you own 300 shares of a stock purchased many years ago. You bought 100 shares at $5 a share, another 100 shares at $10, and another 100 shares at $50. Now you decide to sell 100 shares. Unless you specify otherwise, the shares of a stock that you bought first are considered to be the ones sold first. If you prefer to sell more-recent shares, make sure to notify your broker at the time of sale and get a confirmation. With mutual funds, you can use the average cost of the shares purchased. There are two averaging methods. See IRS Publication 564 for details.

If you still have confidence in your investment, but you want to take advantage of the zero rate next year, here's a strategy to consider: Sell some of the investment at a gain in 2008, and then immediately buy back shares of the same investment. That means you can still enjoy that zero rate, maintain your position in the security but have a higher basis when you eventually sell the new shares. (The strategy doesn't run afoul of so-called wash-sale rules, because these only apply when selling an investment at a loss, not for gains.)

* * *

THE IRS OPENS its doors to electronic filing this year -- for most people.

Opening day for e-filing your federal income-tax return for 2006 generally was this past Friday, the IRS said. But you can't e-file until Feb. 3 if you're claiming key tax provisions enacted last month. Both e-filed returns and paper returns claiming these provisions -- deductions for state and local sales taxes, higher education tuition and fees, and educator expenses for classroom supplies -- won't be processed if submitted before Feb. 3.

Tax returns filed on paper will be accepted but won't be processed until after IRS systems are updated Feb. 3, the IRS said.

IRS officials strongly urge taxpayers to file electronically. E-filing is "the fastest, safest and most accurate way" to file, said IRS Commissioner Mark W. Everson. He said people will get their refunds more quickly that way than filing the old-fashioned paper way. E-filing also "greatly reduces the chances for making an error."

Last year the IRS received more than 73 million returns electronically, up 7% from the prior year. A spokesman said almost 54% of all returns were filed electronically.

Average Tax Rate

O YOU'RE ANGRY that those juicy stock options you exercised knocked you into the 36% tax bracket? Well, if it's any consolation, you don't have to pay the 36% tax rate on all your income. That's because you're only taxed at the 36% rate on income beyond a certain threshold — $128,100 for a single filer in 1998. Those who are married, filing jointly don't reach the mark until $155,950. Income up to that point is taxed at 15%, 28% and 31%. So, your average tax rate is actually much lower than the highest rate you pay. Here's how it works.

RELATED ARTICLES • What's your marginal tax rate? • Capital gains worksheet and guide • MORE TOOLS

Say, you're single and had taxable income of $140,000 in 2000. And let's say your gross income was $155,000. Well, your income up to $26,250 is taxed at 15%. From $26,251 up to $63,550, it's taxed at 28%. From $63,551 to $128,100, the rate is 31%. And you'll pay 36% on the remaining $7,400. (The top rate, 39.6%, kicks in at $288,350 for singles.) In this case, your average tax rate (the proportion of gross income you'll pay in taxes) is about 25%.

Plug your own numbers into our calculator to find your own effective tax rate and see how it changes at different income levels.

U.S. Scrutinizes Grant to Jobs

Federal authorities are actively investigating a backdated stock-option grant awarded to Steve Jobs, Apple Inc.'s chief executive, that carried a false October 2001 date, people familiar with the matter say.

Apple recently disclosed that records were "improperly" created to claim that the grant was approved at a special board meeting that month. But no board meeting took place then.

Investigators are now focusing on the grant to Mr. Jobs for 7.5 million options that were finalized in December 2001, when Apple's share price was higher. The false dating increased the value of the grant to Mr. Jobs, and resulted in a retroactive $20 million charge to Apple's earnings when it was discovered by a special internal investigation.

People familiar with the matter say the false documentation was created by an Apple attorney named Wendy Howell, whom the company quietly dismissed last month. Ms. Howell contends that Apple's general counsel at the time, Nancy Heinen, instructed her to create the false documentation, these people say. Thomas Carlucci, Ms. Howell's attorney, said that while at Apple "Ms. Howell acted as instructed by Apple management and with the company's best interest being paramount."

WALL STREET JOURNAL VIDEO

¹

WSJ's Gary Putka discusses new developments² in the federal probe into the stock options dispute involving Steve Jobs and other Apple Inc. executives.

Ms. Heinen left Apple in May for reasons that were unrelated to backdated options, a person familiar with the matter says. Her attorney, Cristina C. Arguedas, says Ms. Heinen didn't knowingly engage in any wrongdoing and denies she instructed Ms. Howell to falsify documentation. Ms. Arguedas said in a statement that "each of the option grants involving Ms. Heinen was authorized and approved by her superiors."

MORE ON APPLE

• See Apple's March 2002 proxy statement³

• Apple Probe Spotlights Two⁴
1/2/07

• Jobs Helped Pick 'Favorable' Dates⁵
12/30/06

• Law Blog: Roundup of iLawsuits⁶

• Options Scorecard: Companies under scrutiny⁷

• Perfect Payday: Complete coverage⁸

Investigators with the Securities and Exchange Commission, working with federal prosecutors, are seeking to question Ms. Howell and Ms. Heinen, but neither has agreed to questioning so far, say people familiar with the matter.

Authorities want to speak to Fred Anderson, Apple's former chief financial officer. It also remains unclear whether Mr. Anderson, who resigned from Apple's board in October, will agree to talk. An attorney for Mr. Anderson has said, "As CFO, Fred did not play any day-to-day role in the granting, reporting and accounting of stock options and he was not involved in any knowing manipulation of the process."

Apple's backdated stock options are the subject of criminal and civil probes by the U.S. attorney's office in San Francisco and the SEC. A decision on whether to bring criminal charges in the Apple case isn't expected for months.

Apple spokesman Steve Dowling declined to comment, except to repeat that the company has provided results of an internal options investigation to the SEC and U.S. attorney and that the investigation cleared Mr. Jobs of misconduct.

An option gives its holder the right to buy a stock at a fixed, or exercise price, usually for up to 10 years after the date of the grant. By backdating the grant -- or pretending it was made earlier than it really was -- the employee gets an instant boost to the potential profits from the award. The practice can violate securities laws and accounting rules.

In a March 2002 proxy statement, Apple told its shareholders -- wrongly -- that the 2001 grant to Mr. Jobs was made at fair market value on the date of grant. On Aug. 8, 2002, Mr. Jobs personally signed a routine disclosure statement to the SEC bearing the false price, and false date of Oct. 19, 2001, for the grant. Apple has said the grant wasn't finalized until December of that year, when Apple's share price was higher. An Apple spokesman declined to comment on the matter.

• The News: Federal authorities are actively investigating a backdated stock-option grant awarded to Apple's chief executive, Steve Jobs.

• The Issue: Whether Mr. Jobs or or present or former Apple officials violated federal criminal or civil securities laws.

• What's Next: Investigators are seeking to question Apple's former general counsel and another former company lawyer, as well as its former chief financial officer.

Apple has said it found no evidence that Mr. Jobs or any other current executives were aware of the false records surrounding the October 2001 grant. It also says Mr. Jobs didn't understand the accounting implications of backdated grants, and didn't financially benefit from them because he never exercised his options. He did later exchange all of the options for restricted stock eventually worth hundreds of millions of dollars.

Apple has disclosed that Mr. Jobs recommended "favorable" dates for some options awards, although people familiar with the matter say he didn't pick any dates for grants that he received. Apple also has said that 6,428 grants of options on 42 dates between 1997 and 2002 were improperly dated. Last month, it restated its financial results between 1998 and 2006, taking $84 million in charges for the improperly dated options, including $20 million connected to the 2001 grant to Mr. Jobs.

Under accounting rules, no grant is actually made until final terms, including price, are settled and final approval is given by a company. Apple has said that its board "originally approved" the grant dated in October 2001 on Aug. 29 of that year when the stock was trading at $17.83. But according to a person familiar with the situation, Mr. Jobs wasn't satisfied with the terms of the grant in August and negotiations continued for months. Apple has said the grant was finally authorized by the board on Dec. 18, 2001.

On that date, the stock was trading for $21.01. The grant, however, was backdated to Oct. 19, when the share price was $18.30. Apple hasn't disclosed any details surrounding the decision to backdate the grant. Two people familiar with the matter say the October date coincided with a meeting of the board's compensation committee. The committee, however, didn't ISSUE the grant at the meeting, they say. According to Apple's practice, the full board was required to approve stock-option grants to the chief executive.

Apple's compensation committee had been formed in August 2001. Since April 2000, the entire Apple board handled compensation-related chores, including stock-option grants. The new committee was composed of Intuit Inc. Chairman William Campbell, former International Business Machines Corp. Chief Financial Officer Jerome York and Genentech Inc. CEO Arthur Levinson.

Ms. Howell, who joined Apple fresh out of law school around 1997, was in charge of stock-options administration. Ms. Heinen, as general counsel, oversaw Apple's legal department and also served as the board's secretary.

Ms. Howell's role in the October 2001 grant was reported by the Recorder, a San Francisco-based legal publication.

Deals Tips

Speed Through the Airport

"Tell me if this sounds familiar: You pack everything the night before, give yourself plenty of time to get to the airport and arrive with more than an hour to spare before it's time to board your flight.

Then you see the security line: hundreds of people corralled into a double-back snake that makes your local DMV look like a model of efficiency. The last thing you want to do is join that line.

So don't. That's probably not the only way to your gate. Hundreds of people can't be wrong. Yes, they can. Many large airports have additional screening points that, while a little out of the way, more than make up for the inconvenience by being rarely used.

So how do you know whether the airport you fly out of has a "secret" security line? The battle's won before it's even fought: Log on to the Transportation Security Administration's Web site, which lists security checkpoints at every U.S. airport and publishes average wait times by the hour at wait-time. (tsa.dhs.gov)

There you can find out that, for example, the wait time at Newark Airport's Terminal C, Checkpoint 2 is an average of 11 minutes at 10 a.m. on a Sunday. At Checkpoint 1? Two minutes.

It helps to know your airport's layout too. In general, airports shaped like a horseshoe (such as Dallas/Fort Worth International) have multiple screening points. If the terminals are connected beyond security, you can enter through the least busy line and make your way back to your gate.

At airports with one central security checkpoint (such as Denver), the shorter lines are usually the ones at the outer edges, away from where most of the traffic is funneled.

And airports with hotels attached, such as Detroit Metro (the Westin) or Dallas/Fort Worth (the Hyatt), often have a separate security entrance for hotel guests, but anyone can use it.

Scoring a Room in a Sold-Out Hotel

You know those convenient 800 numbers that every hotel chain has to connect you to their centralized reservation centers? Ditch 'em. The people in a call center in Omaha don't have the power to manipulate a particular hotel's inventory the way managers who are on-site do.

Instead, figure out which hotel you want to stay at and call it directly. If you're still out of luck, consider a reseller's Web site. Hotels, like airlines, overbook reservations because they know that not everyone is going to show up. But some of their inventory goes to third-party travel sites like Expedia, Hotels.com and Travelocity, which contract with hotels ahead of time to sell a preset block of rooms.

Last August, I was looking for a room in Chicago in October (I was running in a marathon). I searched several sites, and at Quikbook.com I found a room at Kimpton's Hotel Allegro -- it turned out to be 1 1/2 miles from the starting line. Even better, the Quikbook rate ($184 a night) was $20 cheaper than the hotel's group rate, which was no longer being offered.

Upgrade Your Room Without Paying More

Scoring a hotel room upgrade is all about timing. It's going to be easier during slower times, surely, but it also makes a difference when you ask for the upgrade.

A few seconds at check-in can make all the difference. If you wait for the front-desk person to hand you a key, you're likely to get the least fancy accommodations. But if you make nice, telling them it's a special occasion or that you have a lot of work to do, and you do this before they've locked you into a particular room, it's much easier for the agent to hook you up.

Even if that moment has passed, all is not lost. Two years ago, when my husband and I went to St. Thomas for his birthday, our original room was a dark cave directly above a noisy outdoor bar. A quick trip back downstairs, a little explaining that it was a special occasion (while kicking myself that I hadn't mentioned this when I checked in), and we were reassigned a room with an ocean view and a private balcony.

Get the Most for Your Miles

Randy Petersen is the master of frequent-flier miles. As the editor of InsideFlyer and WebFlyer.com, he'd better be.

I asked Randy about reward travel, and he said he has one cardinal rule: If you don't find what you want online, talk to a live person. You may have to pay a fee to talk to an airline reservation agent, but it's worth it: Your odds of getting what you want greatly increase.

That's because airline reservation agents can access inventory from partner airlines. This is something that you can't do online. They can also easily try different routings, using connecting flights or alternative airports.

Booking in advance is helpful too, but even if you don't need to have your travel plans figured out a year ahead, you can still take advantage of the way the system works.

Most airlines make seats available 330 days in advance, but frequent-flier inventory isn't always loaded into reservation systems that early. According to Petersen, the sweet spot for finding open seats to go with those miles is three to six months ahead of your trip, which is a lot more realistic than planning a year ahead anyway.

A First-Class Seat for a Coach Price

The airlines have a secret. Actually, they have several, but this one's the most useful: In many cases, you can buy a first-class ticket for little more than the walk-up coach fare. The trick is searching for a fare code designation that's called a "Y-up" or a "Q-up."

How do you find these magical fares? Check out FareCompare.com, which has an online tool that searches specifically for them. Recently I was able to nab a first-class seat from New York to Atlanta for $649 -- only $100 more than the available coach fare.

Y- and Q-ups won't be cheap when compared with advance-purchase fares, but they're not much more than a last-minute coach ticket. Search for the fare yourself, then suggest it to your corporate travel office -- they may not even notice.

Upgrade Your Rental Car for Free

Whenever I need a rental car, I pay no attention to the different vehicles offered on a rental web site and book the cheapest car available. It's not that I love econo-boxes but that I know I'm likely to get upgraded to a better car for little or no extra cost.

Rental-car companies overbook, just like airlines, and the economy cars are usually the first to go. By booking the most popular model, you're likely to get a better car without even asking for it.

What day you're walking onto the lot can also make a difference: In big cities, companies that rent cars to business travelers during the week will often hand you the keys to a nicer car at no charge if you show up in the middle of the day or early in the week -- when most business travelers have cars out.

And the reverse is true at resort destinations, which do the bulk of their business on weekends. The best time to score a free upgrade there is on Saturday afternoon, when most of the lower-end cars have been rented out.

Play the Bumping Game

Overbooked flights are becoming more common. The number of people bumped from a flight jumped 24 percent from January through September last year (the latest statistics available from the Department of Transportation) -- but if you have some flexibility in your schedule, you can score free tickets and some nice perks in exchange for giving up your seat.

When you get to your gate, ask if the flight is overbooked. If it is, ask what the airline's initial offer is and get on the volunteer list. Being on this list doesn't obligate you to take what the airline is offering; it just gives you the right of first refusal.

If you don't like the compensation package, decline it and either stay on your scheduled flight or see if the package increases when the airline makes an offer to your fellow travelers. This is your chance to hold out for big money, since gate agents can sweeten the pot until they get enough volunteers.

Also, keep in mind other flights that are headed to your destination, including connecting flights and flights to neighboring airports (they may be more convenient than what the airline suggests).

If you're offered a free ticket, ask if it has any restrictions, like expiration or blackout dates, and make sure you get a confirmed seat on your next flight -- you don't want to give up one seat just to get involuntarily bumped from another.

If Your Flight is Canceled...

Call the airline's reservation number immediately (program it into your cell's speed dial before you leave). You'll get rebooked faster than if you wait in line at the gate.

Booking a Flight in Three Easy Steps

There are tons of Web sites out there looking for your dollars. Instead of searching all of them, I simply take these three steps in sequence. When I've gone through all of them, I know I've got the best deal, and I didn't spend hours to find it.

1. Surf smart. Your Web browser has a cache, a short-term memory of recently visited sites. If you don't empty it before you search, you may be looking at an out-of-date Web page and won't find the best deals available. Look under your File or Preferences menu and select "Empty cache" before you browse.

2. Use a fare search engine. Instead of constantly flipping between the Big Three travel sites (Expedia, Orbitz and Travelocity), go to Kayak.com, which searches 120 travel and airline sites and doesn't charge any booking fees.

3. Confirm your price. Once you've found your flight, go to that airline's Web site and search for the same dates and times, just to make sure you're not missing out on an exclusive deal that's available only through its site.

If You Get Stuck in a Middle Seat...

Check in online as early as possible (usually one day before departure) to see if new seats are available. If not, ask at the gate; airlines release more seats before takeoff.

If the Airline Has Lost Your Luggage...

File a report at the airport and get the local number of the lost-baggage office to check in. Forget the national 800 number; that office could be thousands of miles away.

A Typical Miscreant-II

The markets have finally had their say about the wonderfully overblown backdating scandal. When Apple filed its latest mea culpa on Friday along with a board expression of confidence in Steve Jobs's leadership, the company's shares jumped four bucks. Message: The market doesn't give a hoot about backdating. It gives a hoot whether Mr. Jobs might be run out of his job.

This ought to cast a light on whether the drop in market prices of companies in the backdating scandal reflects the shock and horror of investors at the details of backdating -- or shock and horror at the meal that trial lawyers, prosecutors and the media are making of companies caught up in this episode.

Whether Mr. Jobs is safely out of woods remains to be seen. It didn't help that just a week earlier, the Associated Press reported that SEC Chairman Chris Cox has been averring that, in sorting through dozens of backdating cases, his agency would save its legal firepower for "cases of serious fraud, with elements such as deliberately lying or forging documents."

Uh oh. In granting Mr. Jobs options on 7.5 million shares, somebody at Apple pencil-whipped a technical requirement of a board meeting to approve the grant. Of course, Mr. Jobs was already a billionaire. Does anybody think he engaged in theft to pad his net worth by a faction of a percent?

We won't remarket our column of last October, though it anticipated much of Apple's latest admissions. The company now says it "identified a number of grants for which grant dates were intentionally selected in order to obtain favorable exercise prices." It also acknowledges that Mr. Jobs had a role in "recommending" the favorable dates.

Having vouchsafed these eye-openers, Apple's filing proceeds to blur the matter amid a general discussion of how it chose to account for hundreds of option grants that were apparently misdated mostly through simple bureaucratic snafu. We never learn which grants were deliberately engineered by the CEO to award the recipient a "favorable" exercise price, or why Mr. Jobs found it useful to do so.

Apple's goal, obviously, is self-defense. Alas, this rules out trying to engage the media in a conversation about whether backdating is really the crime the media imagines it to be.

Backdating, let's recall, was simply an artifice to allow companies to issue "in the money" options (the terms of which were accurately reported to shareholders) without taking an accounting expense. That's all backdating is. Does it matter in the teensiest whether options are expensed? No, expensing has no probative value whatsoever for evaluating a company's shares or its compensation policies. Expensing creates a junk number, of zero analytical value.

Don't expect to hear any of this from companies actually involved in the backdating scandal. Apple proves you can never overestimate the shallowness of the media. That much is shown by the meretricious non sequitur, incorporated verbatim in many media accounts, that notwithstanding Mr. Jobs' role in backdating, "he did not receive or financially benefit from these grants."

Apple here shrewdly judges that what exercises the media are the large numbers involved in CEO compensation. Notice that Apple chooses to record an accounting charge for Steve Jobs options that were canceled and never exercised, but doesn't take a charge for other options that were canceled and never exercised. Does anyone doubt that this was a P.R. call because Apple judged it useful to be seen engaging in penitential accounting for Mr. Jobs's options?

We won't bore you with the findings of organizational psychology on "fairness" perceptions. Suffice it to say, "fairness" is an indeterminate thing, so people tend to look at process as a proxy for the fairness of outcomes.

This is called "procedural fairness" or "procedural justice." People naturally resent outcomes that leave some much better off than others. Procedural flyspecking is how we decide whether to put our resentment over such outcomes into abeyance or surrender to it.

Popular coverage of CEO pay is a perfect expression of this "fairness heuristic." It strives to meet a public demand for reasons to resent high CEO pay by constantly highlighting claims of cronyism, self-dealing, fraud, etc. to explain why CEO compensation is so high. By now this has become almost an unconscious conspiracy of obfuscation about the true source of ever-rising executive compensation. Try a thought experiment. If CEO pay were a real "problem," wouldn't it be a sublimely easy problem to solve? Just hire somebody who will do the job for less.

This society is full of capable, responsible people who take jobs for five- or six-figure salaries. Why don't boards wave off the demands of their first-choice CEOs and go for one of these less demanding folks? The question answers itself: Because boards believe their first-choice CEOs are worth it. Rationally, boards are prepared to bid away a sizeable sliver of a company's net worth to get the CEO they want. Take the gyrations in Apple's share price last Friday: At stake as investors worried about Mr. Jobs's fate was $3.4 billion in shareholder wealth -- many, many times Mr. Jobs's total compensation since returning to Apple a decade ago.

Now, not all CEOs are as pivotal to a company's performance as Mr. Jobs is perceived to be, but this has nothing to do with the CEO pay calculus. All CEOs sit at the switch: They make the calls by which shareholder wealth is preserved or squandered. Should a company sacrifice short-term profits in order to invest more in customer service? Should it embark on a bold product redesign or milk an aging product line a bit longer?

The market wants a CEO in whom it has confidence, and who is responsive to the share price. The media's relentless appetite is for evidence that CEO pay fails the "fairness heuristic." This basic disjunction is why one of the signal phenomena of the age, the towering increase in executive compensation, remains unexplained to the American people despite the massive amount of journalism spent on subjects like backdating.