Apple shareholders await earnings restatements; Steve Jobs still not in the clear

“Now that an internal investigation over Apple Computer Inc.’s stock-option practices has helped abate investor worries over Steve Jobs’ role as CEO, a key lingering concern will be the effect of pending earnings restatements,” May Wong reports for The Associated Press.

Wong reports, “Apple said Wednesday its three-month investigation did not uncover any misconduct of any current employees but did raise “serious concerns” over the accounting actions of two unnamed former officers.”

“Apple said it will likely have to restate some earnings due to revised tax and stock option-related charges. Auditors are still reviewing the situation, and Apple said it has not yet determined the extent of the financial effect,” Wong reports.

“The looming restatements could dramatically reduce some of the windfall generated during the company’s recent run of record profit, analysts said,” Wong reports. “Apple has reported profit totaling $3.1 billion during the past four years. If the restatements are severe, it could dent Apple’s stock, IDC analyst Richard Shim said.”

Full article here.

MacDailyNews Note: And, if the restatements are minor, it probably won’t dent Apple’s stock.

Wong also reports for AP ina related article, “Ignorance can be bliss, but it’s not a tight defense, lawyers say. When Apple Computer Inc. disclosed Wednesday its internal investigation had uncovered some stock-option backdating, the company said CEO Steve Jobs was aware of the practice but unaware of its accounting implications. The probe also did not find any misconduct by Jobs or other current officers, the company said.”

“‘Ignorance is usually not a good defense,’ said Jeffrey Siegel, a veteran securities lawyer and partner at Blank Rome LLC in New York.’Executives are expected to understand the laws applicable to their companies and the rules of their required disclosures,'” Wong reports. “The practice of backdating occurs when a stock option’s exercise price is set at a point lower than the prevailing market price, which can inflate the recipient’s award. The manipulation itself isn’t necessarily illegal, but securities laws require companies to properly disclose the practice in its accounting and settle any charges that may result.”

Full article here.

MacDailyNews Note: Apple will announce Q4 earnings on October 18th.

Related articles:
Former CFO Anderson helped turn Apple Computer around – October 05, 2006
Wall Street unshaken by results of Apple stock options investigation – October 05, 2006
Is Apple rotten at the core? – October 05, 2006
Analyst: Anderson, Heinen may be former Apple executives responsible for irregular options grants – October 05, 2006
Analyst: Apple restatement due to options irregularities not expected to be significant – October 04, 2006
Apple’s special committee reports findings of stock option investigation – October 04, 2006
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
Fred D. Anderson joins Apple Board – June 08, 2004
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  1. If there is this much fuss over Steve Jobs then there must be few thousand other execs in the US who are really shitting themselves in anticipation for when it’s their turn.

    Funny that…MW was turn!

  2. Knowing Apple, they will release the revised statements on October 17th, the day before the September quarter results… This way, the stock will tank for a day and then re-bound the next because of a blow-out Mac quarter.

  3. What I don’t get is that the practice of backdating is not illegal. So if Jobs approved the backdating, that’s not an issue. He could have been aware of backdating, but not aware of the “irregularities.” Or am I understanding this wrong?

  4. Please. I am really getting tired of this.

    We let Enron and Worldcom get mostly by because and they lost people BILLIONS of dollars and it was criminal acts.
    Now we a going after these new companies with a vengance about something that “may possibly” be not quite legal or may just be immoral. Hey, lets get a fine set say (1 million) tell company to pay up and get on with it.

    I really feel that this is used more to blacken companies that analysists don’t like than anything else. Ever notice that there is not a list of companies invovled, just Apple.

    End of rant. Weekend coming. ” width=”19″ height=”19″ alt=”grin” style=”border:0;” />


  5. Flashback: my warning that all this was not nothing.

    Lesson to Apple: work on quality products, customer care, and abandon the standard of being better than awful Msoft and instead adopt the standard of excellence.

    Result: self serving things like stock manipulation won’t happen.

  6. Most of the stock run up and profit came in the past 4 years. The options problem’s came before that. And they said they found 15 options that were backdated. This can not be too much of a finicial dent because Apple has $8 billion in cash. The iPod came out in 2001 but it wasn’t on Windows also until later, so probably 2002, which means that most of the stock run-up came because of increased sales and therefore, I don’t see much change in their results. I might be misunderstanding how options work but, I think the cost goes on the finacial results of the quarter they are issued, correct? Because that is when the company sets the stock aside? Correct me if I’m worng please.

    But if that is the case, I don’t see much change in results.

  7. I will not join in any class action law suits or anything like that, because last time I looked at my portfolio, I had made money on Apple stock, and not have any damages because they are selling more iPods and Mac’s, with margins increaseing, which I think is the big reason for the stock going up. The increased revenue is just a result of the others.

  8. This is really much to do about nothing.
    There is nothing illegal about backdating stock options; not accounting for them in your financials is the issue.
    So Apple finds the options that are an issue and corrects their P/Ls from 4+ years ago. They may end up paying more taxes and have less of a profit years ago. But if everything else since that time is legitimate, then nothing will happen.
    The biggest fear would be if somehow SJ got implicated in stock fraud due to poor accounting practices.

  9. “the other Mark” is pretty much dead on target. This is much ado about nothing. And this particular article is just troll bait, looking for hits related to Apple. This quote in particular is just stupid:

    “The looming restatements could dramatically reduce some of the windfall generated during the company’s recent run of record profit, analysts said,” Wong reports. “Apple has reported profit totaling $3.1 billion during the past four years. If the restatements are severe, it could dent Apple’s stock, IDC analyst Richard Shim said.”

    The restatements are all going to involve non-cash items, and the likelihood of severity is just laughable. As a stockholder, for me this will be a non-issue. If the market takes a crap on APPL for a while, it will be a buying oportunity for anyone genuinely interested in the stock.

  10. “What I don’t get is that the practice of backdating is not illegal”

    work through to understand the fundamentals how to value options.

    Simply, part of the price of an option has to do with how long it has to run, an option which expires tomorrow is less valuable than one which expires in year’s time because more favorable things can happen to the stock’s price in a year than in a day.

    Also if an option has to do with where the current share price is relative to the “Strike” price of the option (which is the money that you’d have to pay to exercise the option).

    Clearly if you can exercise an option to buy stock for $10 and sell it tomorrow for $20, you’re going to make $10/share.

    So some examples from yesterday for Apple for 2009 call options:

    The first column is the price you’d pay to exercise the option, the second column is what the market says an option to do that is worth.

    Strike Price, Last price that option sold for.
    $35 $44
    $50 $34
    $70 $22
    $80 $17
    $90 $14
    $100 $10

    So if I said I granted you the option when the stock was at the $35 price, but on the day I granted the option the stock was at $70, then in reality I gave you an option which was worth twice as much.

    No problem if I write down in my accounts, “Gave Tyk $44 million of options” rather than writing down “Gave Tyk $22 million of options”

    The fraud involves pretending that I granted you the options on an earlier date when stock the price was lower so I can record the price that they would be worth on that date rather than what they would be worth on the day actually granted.

    If a company’s accounts showed an entry “Paid CEO Fred $22 million in salary” and in reality the company paid CEO Fred $44 million in salary then most people would have no problem immediately spotting that this was a fraud.

    Because most people don’t understand options or how to price them, they dont recognise these backdated option grants as being exactly the same thing.

    Now a lot of people’s arguments in this forum go something like “I don’t mind, $44 million would still be an OK salary for CEO Fred”. That’s not the point. The point is that the company must, by law, accurately disclose CEO Fred’s compensation so that investors can make up their own mind whether Fred’s worth what he’s being paid.

    Nor is it a good defense to go to a judge and say “Yes your honor, I was stealing, but I didn’t know that stealing was wrong”.

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