Apple today announced that the special committee of its board of directors has reported its findings after a three month investigation into Apple’s stock option practices. The special committee of outside directors, together with independent counsel and accountants, examined more than 650,000 emails and documents, and conducted interviews with more than 40 current and former employees, directors and advisors. Apple initiated this voluntary independent investigation after a management review discovered irregularities in past stock option grants.
The independent investigation’s key findings are:
• The investigation found no misconduct by any member of Apple’s current management team.
• The most recent evidence of irregularities relates to a January 2002 grant.
• Stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants.
• In a few instances, Apple CEO Steve Jobs was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.
• The investigation raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants. The company will provide all details regarding their actions to the SEC.
“I apologize to Apple’s shareholders and employees for these problems, which happened on my watch. They are completely out of character for Apple,” said Steve Jobs, Apple’s CEO, in the press release. “We will now work to resolve the remaining issues as quickly as possible and to put the proper remedial measures in place to ensure that this never happens again.”
The company also announced that Fred Anderson, Apple’s former CFO, has resigned from its board of directors. Mr. Anderson, who served as CFO from 1996 until 2004, informed the company that he believes it is in Apple’s best interests that he resign from the board at this time.
The company and its independent auditors are reviewing the findings of the independent investigation. Management continues to believe, and the audit committee agrees, that Apple will likely need to restate its historical financial statements to record non-cash charges for compensation expense relating to past stock option grants. The company and its independent auditors are reviewing recent accounting guidance published by the SEC, and have not yet determined the amount of such charges, the resulting tax and accounting impact, or which periods may require restatement. The company continues to proactively inform the SEC of its findings.
Apple stock dipped 57 cents after hours to $74.81.
Related articles:
Shareholders allege Apple execs reaped ‘millions’ in unlawful profits – August 23, 2006
How options-backdating irregularities can affect your Apple Computer stock – August 23, 2006
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
Great news! Now, on to making great products greater still…
It’s a shame that this comes back to Fred Anderson, since he was a big part of turning the company around. He definitely should have known better.
It is a bit worrisome though that they didn’t release numbers. If this did only apply to grants made on 15 dates, it shouldn’t be too hard to figure out what the added options expenses should be.
They should fire Jobs ASAP – he’s bringing the company down.
Imagine that, all the “major issues” falling on a few folks that are no longer with Apple – how convenient. That could truly be the case, but…
Did I mention I had a bad experience once?
Yes Peterson, I’m sure you did.
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“They should fire Jobs ASAP – he’s bringing the company down.”
Uh, “Bill,” as in “Bill G”?
If so, your posting is completely understandable!
Dave, this is not great news. Fred Anderson, it seems, has been caught up in this matter. Also, a restatement of earnings is necessary-to what extent nobody knows!
I have one every night..
No, wait. My experience was so bad, I need to bring it up again. So, please, validate me. I HAD A BAD EXPERIENCE! It’s about me right now!
Interesting. I wonder what Fred Anderson did that requires he resign from the board? I’m sorry to hear that he apparently was doing something he shouldn’t have been. I always thought he was really on the ball.
I knew it was Anderson all along.
Didn’t Fred Anderson invent the click wheel?
Anderson leaving does not equate any sort of guilt. If anything, it’s symbolic– a sacrificial lamb. It suggests that someone paid for what has happened, ushering in a new time of rectitude.
Wasn’t there a past CFO that left a few years ago?
To-day Hortense received her Life Membership in the Ontario Institute of Chartered Accountants. Speaking purely as an accountant, Hortense thinks that stock options are a pile of manure, and should be abolished. If employees need more incentives, they should buy the stock if they think they like the company and its prospects.
As for ostensible incentives, if they make a killing, this is a good reason to quit, and often do, to the detriment of the company and other shareholders’ interests.
Accounting for stock options is itself open to abuse, uncertainty and could lead to lawsuits against the external accountant if they get it wrong. Or get it right, which is close to impossible. So, if the accountants don’t understand the process how can the herd out there understand it? They don’t and they can’t. So get rid of stock options.
When the options were issued back in 2002, Hortense sold her little pile of AAPLes because of the apparent self-dealing, which Hortense thought was blatant fraud. Stock options should be outlawed. If employees want more compensation, they should ask for a raise and be taxed thereon, or go to greener pastures and give their milk elsewhere.
Wow, Fred Anderson resigned. I don’t really know much about the guy; but he always seemed to be well informed and the face of Apple “financial”.
“Anderson leaving does not equate any sort of guilt. If anything, it’s symbolic– a sacrificial lamb”
Or it add honesty to the statement that the people responsible (Except Steve) no longer work for Apple.
“Great news! Now, on to making great products greater still…”
Great News! We were defrauding investors! But don’t worry, we just fired the people who were doing it.
Sorry, but the company’s still responsible for the actions of those employees.
“Steve Jobs was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.”
That poor rube Steve, who makes his entire compensation from stock options etc, yet apparently doesn’t understand them and was bamboozled by those financial guys.
He didn’t benefit because he swapped the options in question for preferred stock. In what universe is that “Not benefiting”.
When a real independent probe is done, Steve will have to go.
Personal –
Here are some facts for you:
– Option back-dating is not alway sillegal
– Option back-dating is a very grey area
– The public has no proof OR suspicion that Jobs benefited directly or indirectly from the back dating.
– All this back-dating is from the late 90’s when companies were trying to incent their key personel to stay. Many companies have the same issues. It does the SEC no good to oust CEOs 5 years after the fact and cause catestrophic turmoil in so many companies at once.
This stuff was common during those days…it may have been wrong but it was still done.
No big deal, Apple will fix and restate. Doesn’t reallt affect thier bottom line too much.
Personal –
Here are some facts for you:
“- Option back-dating is not alway sillegal”
Not if you account for it properly, they didn’t, so it is illegal in this case. They knew that at the time.
“- Option back-dating is a very grey area”
Only for the stupid. Most everyone else with any financial smarts knows how to compute the fair value of options. most such people understand that in the money options are worth more than they would have been worth on the supposed grant date. Otherwise they wouldn’t be changing the dates to hide the true value of what they were granting.
“- The public has no proof OR suspicion that Jobs benefited directly or indirectly from the back dating.”
So the public needs the proof, or is enough that he did it? In fact he benefited from one grant, and traded them for preferred stock. So in the way Bill Clinton didn’t have sexual relations, Steve Didn’t benefit. Play with the words all you like, thievery is still thievery.
“- All this back-dating is from the late 90’s when companies were trying to incent their key personel to stay. Many companies have the same issues. It does the SEC no good to oust CEOs 5 years after the fact and cause catestrophic turmoil in so many companies at once.”
Sure it does. It sends the right message. Defraud investors to line your own pockets, we will get you.
Next to feel the heat will be former General Counsel Nancy Heinen.
http://www.law.com/jsp/article.jsp?id=1147338329872
As this has been regarded as a “threat” hanging over Apple, now it is lifted it gives it yet more shine…