How options-backdating irregularities can affect your Apple Computer stock

“Bellwethers such as Apple Computer Inc. have gotten delisting warnings from the Nasdaq Stock Market,” John Shinal reports for MarketWatch.

Shinal reports, “But while it’s easy to get skittish about the so-called headline risk to tech firms tainted by options backdating, not all companies being investigated will suffer the same fate.”

“How bad the options backdating scandal can get for a company will depend mostly on two things: the accounting practices that companies had in place during the go-go days of the late 1990s, and how top executives react once they’re told their company is the target of an investigation,” Shinal reports. “The management of a large number of companies, including Apple, Juniper Networks Inc., Cnet Networks Inc. and Altera Corp., have taken a cautious approach that, while prudent for their executives, is adding to the confusion for investors.”

Shinal reports, “Companies in this camp have delayed filing their latest quarterly financial reports with federal securities regulators because internal probes into past options accounting practices have turned up problems. Those problems in most cases will force companies to restate results for prior periods, because backdated options will raise compensation costs and thus reduce net income for those periods.”

“Executives don’t want to sign financial reports they may have to restate, because federal laws passed in the wake of scandals a few years ago mean they can go to jail for it.
While that’s prudent for officials like Apple’s Steve Jobs, who would likely have a tough time managing the rollout of the next iPod from a cell, it results in less disclosure about a company’s operations,” Shinal reports.

“Moreover, companies that fail to file timely financial reports risk having their shares delisted by the Nasdaq. Apple has received such a delisting notice,” Shinal reports. “But while the risk of delisting is serious, it’s also remote, because markets like Nasdaq have a built-in appeals process that buys companies months to finish their internal options inquiries and file their reports.”

“The generous timetable offered to [Comverse] to file its reports suggests that Apple and others who received their first delisting notices this month will have at least several more months to file their second-quarter reports,” Shinal reports. “If they finish their accounting probe and executives are confident enough to sign and file financial reports, the stock drops caused by options revelations may turn out to be short term.”

Full article here.

Related articles:
Apple’s options imbroglio: Mac-maker granted options at or near key events in company’s history – August 18, 2006
Apple added to Nasdaq’s list of ‘delinquent companies’ – August 18, 2006
Apple unlikely to be delisted by NASDAQ – August 16, 2006
Apple CEO Steve Jobs drawn into stock options scandal – August 15, 2006
Apple announces update regarding stock option grants – August 11, 2006
As expected, Apple delays quarterly results due to stock-options grants review – August 11, 2006
Some stock options grant decisions were made by Apple board, and potentially, CEO Steve Jobs – August 10, 2006
Disney: no material impact from Pixar options – August 09, 2006
Pixar options draw scrutiny – August 08, 2006
Apple stock options scandal? What scandal? – August 07, 2006
Class action lawsuit over stock options filed against Apple Computer, Inc. – August 04, 2006
Wall Street forgiving of Apple’s stock option irregularities; CEO Jobs unlikely to be terminated – August 04, 2006
Apple’s stock option irregularities escalate into a scandal as world awaits Steve Jobs’ WWDC keynote – August 04, 2006
Apple warns of profit restatement dating back to 2002 – August 04, 2006
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

15 Comments

  1. Is it just me, or do many others just want this to go away and dissappear like the Iraq Terrorist insurgent issue, terrorists on planes, and overall middle-east conflicts?

    Sadly, none of this is going away, but we are all more aware of these issues – and unfortunately burrying our heads in the sand won’t fix a thing.

    This could be really, really bad for Steve-O and company.

    I am hopeful this hits guys no longer with the company, like Fred Anderson, heck, make him the financial scapegoat – he’s retired ; )

  2. I think Fred Anderson is on the board, but I could be wrong…

    “[Steve Jobs] would likely have a tough time managing the rollout of the next iPod from a cell.”

    But it might be a great way to show off the new iPhone with video calling!

    “Hi, everybody. This is Steve calling from Allenwood Prison. I’d like to demonstrate this new iPhone and our new GarageBand software with the Allenwood Prison Band…”

  3. Thor’s Day

    I’m glad it’s maved out of the 50’s since I bought a bunch more in that range and really pushed my per share average way down

    Being in the mid to high 60’s is above my average so I’m good with where it’s at

  4. “For we [sic] fools who bought AAPL in the $70’s and $80’s earlier this year, it’s doing a bit less than that.”

    For US farsighted investors who bought when NOBODY was buying AAPL a dozen years ago (@$10.50, split-adjusted), however, it’s doing just fine, Saturn Day.

    Being a relative “Johnny-Come-Lately” to this equity–and then buying near its all-time high–does not give you the right to moan and groan and show us your scars now.

    If you’re not happy with the OVERALL position of the market today, Saturn, get out. But keep in mind that almost all tech-centered stocks have had a tough time this year–much worse than AAPL.

    Dell is down almost 30% from its high point in 2006; AAPL is down % FROM ITS RECORD HIGH EVER. If it is your practice to enhance your portfolio by purchasing stocks only at their historical apexes, good luck as an investor, sir or madam.

    THE GOLDEN RULE: BUY LOW, SELL HIGH . . . not BUY VERY VERY VERY HIGH AND HOPE TO SELL HIGHER.

  5. Having bought at $7.49 in 2003 I’m wasn’t too worried even at $50. The only reason to buy AAPL at $70 would have been to hold it for a few years. If that’s your strategy then quit complaining. Don’t even look at the price for a few years.

  6. Anytime Apple stock is talked about on this forum the comments seem to always be on the order of ‘time to buy.’ News item: so and so reduced their rating of AAPL from buy to hold. MDN comments: Doesn’t know what he’s talking about, never been a better time to buy. No offense to MDN readers, but I wonder how many people get all their stock advice from here?

  7. Apple wants its stock price to rise gradually. All they’ve been doing indicates this. They’ve lost many high-level execs recently, and they’ll have trouble recruiting new talent if their stock is over-valued.

  8. Some thoughts from Warren Buffet:

    “Never count on making a good (stock) sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”

    – 1974 Berkshire Hathaway Letter to Shareholders

    “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

    “Be fearful when others are greedy. Be greedy when others are fearful.”

    “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”

    “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

    “If a business does well, the stock usually follows.”

    “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”

    “There are only three kinds of people in the world: those who can count and those who can’t.” ; – )

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