An Apple Exec Unloads Shares: A Red Flag in Cupertino?

Yesterday, there were reports that high-level Apple (NAS: AAPL) exec Scott Forstall was unloading his shares. Is this insider sale a red flag for the Mac maker?

For example, Tech Trader Daily's report bore ominous language such as: "The sale represented a 95.5% stake of Forstall's direct holdings." Sounds much scarier than it actually is. Here's why.

There's plenty more where that came from
Forstall sold 64,151 shares for approximate prices between $601 and $604 last week. After everything was said and done, he had just 2,988 shares left directly in his name. At the same time, longtime Apple director Micky Drexler exercised options for 40,000 shares and also subsequently sold them around $604.

Forstall's trades brought him about $38.7 million, while Drexler netted about $23.7 million after accommodating for the enviable exercise prices of $9.16 and $14.21.

As scary as it may sound, these trades are nothing to fret over. Forstall recently had 120,000 restricted stock units, or RSUs, vest back in March. He promptly forked over 55,849 shares to Apple, which withheld them to help cover the associated tax liability. The most recent sale was just Forstall's cashing out the remainder of that 120,000 RSU grant from September 2008.

Apple's proxy filed in January lists the beneficial ownership of some of Apple's execs at the time, including their unvested RSUs. Here's just a taste.



Shares Beneficially Owned at the Time

Additional Unvested RSUs at the Time

Tim Cook




Scott Forstall




Eddie Cue

SVP, Internet Software & Services



Peter Oppenheimer




Source: Apple proxy statement filed Jan. 9, 2012.

In January, Forstall had 370,000 RSUs, and 120,000 of those have since vested and been sold. That leaves him with 250,000 RSUs still in addition to his roughly 3,000 directly held shares (which he adds to regularly through Apple's Employee Stock Purchase Plan).

At the $582.13 that Apple closed at yesterday, Forstall's remaining RSU position is still worth $145.5 million. He's not going anywhere.

Apple CEO 3.0?
In fact, we might even be talking about the executive who may one day become Apple's CEO after Cook's regime is over. At 42, Forstall is Apple's youngest senior executive and was always considered Steve Jobs' protege ever since Forstall started at NeXT as his first job out of grad school. Forstall even literally bought the exact same car as Jobs drove, a silver Mercedes-Benz SL55 AMG (although presumably, he probably leaves his license plates on, unlike Jobs).

There's no doubt that Forstall has his sights set on one day becoming Apple CEO, if the board will one day have him. Forstall has steadily risen through the ranks of Apple ever since Apple picked him up as part of the NeXT package in 1997 (along with Jobs).

As the executive in charge of iOS, his fate and influence at Apple have been directly linked to the meteoric rise of iOS devices, which now generate the vast majority of Apple's sales. The iPhone and iPad alone comprised 75% of revenue last quarter, and that's before including the iPod Touch and Apple TV (which Apple doesn't disclose). So, yeah, I'd say Forstall is pretty important.

When Cook took the role of CEO, Apple's board granted him 1 million RSUs that vest over 10 years. If Cook ends up staying that entire 10 years, Forstall will be 52 and likely the top candidate to take over when Cook decides to step down. Cook was 50 when he took the reins from Jobs. Regardless of when Cook steps down, I'm expecting Forstall to step up to the plate.

I'd diversify; wouldn't you?
In all likelihood, a disproportionate percentage of his wealth is tied up in Apple, so he's probably just looking to lighten the load a bit, although he's probably not as concentrated as (NAS: AMZN) CEO Jeff Bezos, who has the bulk of his $20 billion-plus net worth tied up in the company he founded, despite his relatively modest salary.

Didn't your mother always tell you to diversify?

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At the time thisarticle was published Fool contributorEvan Niuowns shares of and Apple, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of and Apple.Motley Fool newsletter serviceshave recommended buying shares of and Apple and creating a bull call spread position in Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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