Apple warns of profit restatement dating back to 2002

“Apple Computer Inc. warned Thursday that it may have to revise its profits dating back to 2002 in a worsening stock option scandal that has cast a harsh light on Silicon Valley’s compensation practices,” Michael Liedtke reports for The Associated Press. “Without providing specifics, the Cupertino, Calif.-based maker of Macintosh computer and iPod music players said it had uncovered enough evidence of mishandled stock options to raise doubts about the accuracy of financial statements dating back to Sept. 29, 2002.”

“Apple first raised a red flag about the way it accounted for stock options in late June when it announced an internal investigation into a series of ‘irregularities,'” Liedtke reports. “After digging deeper, Apple uncovered enough new problems to prompt the company to hire an outside lawyer to take over the investigation and notify the Securities and Exchange Commission about its findings. Apple hopes to complete its accounting review as quickly as possible, said company spokesman Steve Dowling. In the meantime, Apple may miss a deadline for filing its latest quarterly report with the SEC.”

“The developments, announced several hours after the stock market closed, threaten to rattle investors, based on how Wall Street has punished other companies that have recently disclosed potential accounting problems caused by stock option improprieties,'” Liedtke reports. “More than 60 other companies across the country are grappling with similar stock option headaches, but Apple is by far the most prominent of the lot to acknowledge trouble so far.”

Liedtke reports, “While Apple hasn’t explained exactly how it mishandled stock options, most of the problems at other companies so far have revolved around ‘backdating.'”

Liedtke reports, “Under this practice, insiders try to make the rewards more lucrative by retroactively pinning the option’s exercise price to a low point in the stock’s value. Usually, a stock option’s exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.:

“If companies backdate options without accounting for the move, it can cause profits to be overstated and taxes to be underpaid,” Liedtke reports. “The financial manipulation also exposes companies to possible fraud charges that could trigger civil fines and even criminal cases… More than 20 of the companies entangled in the stock option imbroglio are in Silicon Valley, where the incentives first became a staple of compensation packages for rank-and-file employees as well as top executives.”

Full article here.

Related articles:
Apple loses 3.5% to $67.15 in premarket trading – August 04, 2006
Apple announces update regarding stock option grants – August 03, 2006
Shareholder’s options suit against Apple alleges ‘striking pattern that could not have been chance’ – July 11, 2006
Apple announces update regarding stock option grants – July 05, 2006
UBS: stock options probe unlikely to hurt Apple – June 30, 2006
Apple joins growing list of companies entangled in stock option ‘irregularities’ – June 29, 2006
Apple to investigate stock option grant ‘irregularities’ made between 1997 and 2001 – June 29, 2006

12 Comments

  1. This will be a buying opportunity, but not very soon, I’m afraid. This sucks because Apple really is doing well now, but this casts a shadow over it all. More than annoying.

  2. I doubt that anyone important is going to jail and especially not Steve, since it appears that it was Apple’s own investigation that revealed the problem. Steve doesn’t need the money and is obsessesed only with Apple’s success. I imagine he will personally roundhouse kick the greedy underlings involved right out one of the windows at infinite loop.

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